RAILWORKS CORP, S-1, 1998-05-22

RAILWORKS CORP
S-1, 1998-05-22

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 22, 1998

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
---------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------

RAILWORKS CORPORATION
(Exact Name of Registrant as Specified in Charter)

<TABLE>
<S> <C> <C>
DELAWARE 4789 58-2382378
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification Number)
Organization)
</TABLE>

RAILWORKS CORPORATION
C/O COMSTOCK HOLDINGS INC.
ONE NORTH LEXINGTON AVENUE
WHITE PLAINS, NEW YORK 10601
ATTN: JOHN G. LARKIN
(410) 467-9504
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
JOHN G. LARKIN
CHIEF EXECUTIVE OFFICER
RAILWORKS CORPORATION
C/O COMSTOCK HOLDINGS INC.
ONE NORTH LEXINGTON AVENUE
WHITE PLAINS, NEW YORK 10601
(410) 467-9504
(Name, address, including zip code, and telephone number,
including area code of agent for service)
Copies to:

<TABLE>
<S> <C>
JEFFREY M. STEIN JOEL S. KLAPERMAN
KING & SPALDING SHEARMAN & STERLING
191 PEACHTREE STREET 599 LEXINGTON AVENUE
ATLANTA, GEORGIA 30303 NEW YORK, NEW YORK 10022
(404) 572-4600 (212) 848-4000
</TABLE>

---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of the Registration Statement.
---------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

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

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

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

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
=============================================================================================================
PROPOSED
MAXIMUM
AGGREGATE AMOUNT OF
TITLE OF CLASS OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $.01 per share................... $120,000,000 $35,400
=============================================================================================================
</TABLE>

(1) Includes shares which the Underwriters have the option to
purchase from the Selling Stockholders solely to cover over-allotments, if
any.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o).

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2

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

PROSPECTUS (SUBJECT TO COMPLETION)

ISSUED , 1998
Shares

[LOGO]

RAILWORKS CORPORATION
COMMON STOCK
------------------

All of the shares of Common Stock being offered hereby are being sold by
the Company. Prior to the Offering, there has been no public market for the
Common Stock of the Company. Simultaneously with, and as a condition to, the
consummation of the Offering, the Company will acquire all of the outstanding
stock of the Founding Companies (as defined herein). See "Formation of the
Company." It is currently estimated that the initial public offering price per
share will be between and per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. Application has been made to list the shares of Common Stock on
The Nasdaq National Market under the symbol "RWKS."

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

SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR INFORMATION THAT SHOULD BE CONSIDERED
BY PROSPECTIVE INVESTORS.
------------------

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

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

<TABLE>
<CAPTION>
=======================================================================================================
UNDERWRITING
DISCOUNT AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................... $ $ $
- -------------------------------------------------------------------------------------------------------
Total(3)................................ $ $ $
=======================================================================================================
</TABLE>

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(2) Before deducting expenses payable by the Company estimated at $2.0 million.
(3) Certain stockholders of the Company (the "Selling Stockholders") have
granted to the Underwriters an option, exercisable within 30 days of the
date hereof, to purchase up to an aggregate of additional shares
of Common Stock solely to cover over-allotments, if any. To the extent that
the option is exercised, the Underwriters will offer the additional shares
of Common Stock at the Price to Public shown above. If the Underwriters
exercise such option in full, the total Price to Public, Underwriting
Discounts and Commissions and proceeds to Selling Stockholders will be
$ , $ and $ , respectively. See "Underwriting."

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

The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the office
of BT Alex. Brown Incorporated, Baltimore, Maryland, against payment therefor in
immediately available funds on or about , 1998.

BT Alex. Brown Schroder & Co. Inc.

, 1998
<PAGE> 3

[INSERT U.S. MAP WITH FOUNDING COMPANY LOGOS]

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 4

PROSPECTUS SUMMARY

Simultaneously with the closing of the offering made by this Prospectus
(the "Offering"), RailWorks Corporation will acquire, in separate transactions
(the "Combination"), a number of companies (collectively, the "Founding
Companies") that will become subsidiaries of RailWorks Corporation. See
"Formation of the Company." Unless otherwise indicated, (i) all references to
the "Company" and "RailWorks" include RailWorks Corporation and the Founding
Companies after the effectiveness of the Combination, unless the context
otherwise requires, (ii) "rail systems" means transit systems, regional and
shortline railroads, Class I railroads and commercial and industrial companies
with on-site rail infrastructure and (iii) "Common Stock" means the common
stock, par value $0.01 per share, of the Company. The following summary is
qualified in its entirety by, and should be read in conjunction with, the more
detailed information and the financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Unless otherwise indicated, all share,
per share and financial information set forth herein (i) gives effect to the
Combination and (ii) assumes no exercise of the Underwriters' over-allotment
option. Unless otherwise indicated "pro forma combined" information gives effect
to the Combination and certain pro forma adjustments to the historical financial
statements as described in the Unaudited Pro Forma As Adjusted Financial
Statements, and "pro forma as adjusted" information gives effect to the
Combination and the sale of the shares of Common Stock offered hereby and the
application of the net proceeds therefrom as set forth herein under "Use of
Proceeds."

THE COMPANY

RailWorks was formed in March 1998 to become a leading nationwide provider
of rail system services, including construction and rehabilitation, repair and
maintenance, and related products. Management selected the Founding Companies,
which will be acquired by RailWorks concurrently with the closing of the
Offering, based on their regional or local market leadership, diverse and
long-standing customer relationships, profitability and geographic diversity.
The Combination establishes a significant operating enterprise that will serve
as the foundation for a consolidation of the highly-fragmented rail system
services and products industry. The Company believes that the Combination and
future acquisitions will enable it to capitalize on the trend among rail system
operators toward increased outsourcing of services and the use of fewer vendors.
The Company's strategy is based on providing a full range of rail-related
services and products on a national basis, offering integrated rail system
solutions under one brand. In 1997, on a pro forma as adjusted basis, the
Company had revenue of $253.1 million, operating income of $9.6 million and net
income of $5.9 million. For the three months ended March 31, 1998, on a pro
forma as adjusted basis, the Company had revenue of $60.6 million, operating
income of $1.3 million and net income of $0.8 million

The rail passenger and freight industries have undergone significant
changes in recent years. As a result, management believes that the rail system
services and products industry presents a significant growth opportunity for the
Company due to (i) increased governmental and private investment on new
construction projects and rehabilitation of rail systems, (ii) ongoing
reconfiguration and rationalization of rail infrastructure primarily due to
industry consolidation, (iii) increased outsourcing of services and the use of
fewer vendors by rail system operators and (iv) the fragmented nature of the
rail system services and products industry. Expenditures by rail system
operators for new construction, rehabilitation, repair and maintenance were
approximately $12 billion in 1997. The use of outsourced service providers has
increased significantly as rail system operators have sought to reduce costs by
focusing on their core competencies. Shortline railroads and industrial
companies generally outsource because they lack the know-how, specialized
equipment and resources to cost-effectively install signal systems or build and
maintain their own tracks. Finally, the rail system services and products
industry is highly fragmented, presenting a consolidation opportunity for the
Company that gives the Company a competitive advantage over smaller competitors.
Many of these competitors lack the bonding capacity required to undertake large
1
<PAGE> 5

projects and cannot provide the integration of design, construction,
rehabilitation, repair and maintenance services increasingly sought by rail
system operators.

COMPETITIVE STRENGTHS

Management believes that the Company has the following competitive
strengths:

Breadth of Services and Products. Management believes that rail system
operators are increasingly seeking to purchase services and supplies on an
integrated basis from fewer vendors. The Company will offer a broader range of
services and products than most industry participants. The Company's service and
product offerings include (i) construction and rehabilitation of track,
signaling, communications, electrical and other track-related systems, (ii)
repair and maintenance of these systems, (iii) a broad range of products,
including rail, ties, spikes, frogs (rail intersections), tie plates and ballast
and (iv) electrical installation services and concrete products for non-rail
customers. For the year ended December 31, 1997, rail-related construction and
rehabilitation, repair and maintenance, and other track materials ("OTM") and
product sales accounted for 46.7%, 14.6% and 6.7%, respectively, of the
Company's 1997 pro forma as adjusted revenue and non-rail services and products
accounted for 32.0% of this revenue.

Diverse Customer Base. The Founding Companies' have long-standing
relationships with a wide variety of customers, including: (i) commercial and
industrial companies such as Commonwealth Edison, USS, a division of USX, and
Terminal One at JFK International Airport, which have contracted with the
Company for track construction and maintenance and non-rail electrical
contracting work; (ii) transit authorities such as the New York Metropolitan
Transit Authority, the Los Angeles Metropolitan Transit Authority and the
Baltimore Metropolitan Transit Authority, which have contracted with the Company
for electrical installations, signaling, communications and station projects;
(iii) shortline railroads such as Indiana Southern Railroad Company, Branford
Steam/ Amtrak and I&M Rail Link, which have contracted with the Company for
track construction and maintenance work and product supply; and (iv) Class I
railroads such as Illinois Central Railroad, Union Pacific Railroad and CSX
Transportation which have utilized the Company for repair, maintenance,
construction and engineering.

Expansive Geographic Coverage. The Company has offices in 17 states and
has provided services and products to customers throughout the United States.
The Company's 33 facilities provide it with a geographically diverse mix of
established operating bases which enable it to undertake projects in a more cost
effective manner than would be possible absent a local facility. The Company
also has the ability to mobilize equipment and technical specialists throughout
the United States to maximize asset utilization and to complete projects in
remote locations.

STRATEGY

The Company's goal is to become a leading provider of integrated rail
system solutions, offering a full range of rail-related services and products to
a diverse base of customers throughout the United States. Key elements of the
Company's strategy include the following:

- Provide Integrated Solutions for Rail Systems. Management believes that
rail system operators are increasingly seeking to outsource their
construction, rehabilitation, repair and maintenance requirements and to
utilize fewer vendors to provide a full range of these services and
related products. The Company believes that as a result of the
Combination, it will be well positioned to provide its customers with
integrated rail system solutions that can be efficiently designed,
constructed, maintained, operated and supplied, resulting in lower costs
over the life cycle of their rail assets.

- Capitalize on Scale and Geographic Coverage. The Company believes that
the increased scale that will be achieved through the Combination will
position it to undertake larger projects that were beyond the scope of
those previously undertaken by the individual

2
<PAGE> 6

Founding Companies. Each of the Founding Companies was previously
constrained by applicable bonding limits and the limited size of its
workforce. The Company also intends to utilize its geographic scope to
develop a national accounts program to serve customers with multiple
sites and "cross-sell" its broad range of services and products. Over
time, the Company may increase its activity in international markets,
where privatizations of railroads and large transit projects are creating
increased demand for sophisticated design and construction management
services.

- Reduce Operating Costs. The Company believes that the scale of its
operations and administrative integration of the Founding Companies
following the Combination will provide it with a better cost structure
than regional and smaller competitors. Key areas in which the Company
expects to achieve cost savings include (i) purchasing of equipment and
supplies, (ii) insurance expense, (iii) financing costs and (iv) improved
utilization of equipment and the Company's workforce. The Company also
expects to reduce administrative expenses through the integration of
certain accounting, financing, human resources and other functions.

- Expand Through Acquisitions. The rail system services and products
industry is highly fragmented, and the Company believes that it is
well-positioned to pursue the consolidation of these segments on a
nationwide basis. Following the Offering, the Company expects to pursue
an acquisition program that will include (i) strategic acquisitions
intended to expand the Company's geographic coverage throughout the
United States and broaden its lines of services and products, (ii)
acquisitions intended to position the Company to offer its customers
complementary services and products and (iii) smaller "tuck-in"
acquisitions intended to add density and operating leverage within the
Company's current markets. The Company believes that the experience and
industry reputations of the senior managers of the Founding Companies and
senior corporate management of the Company will provide it with a
competitive advantage in identifying, completing and integrating these
acquisitions.

- Leverage Management Expertise. The senior managers of each of the
Founding Companies have an average of 14 years of experience in the rail
system services and products industry. The Company will utilize a
management structure which will enable these individuals to focus on
operations rather than administrative tasks. In addition, the Company's
Chief Executive Officer, Chief Financial Officer and Chief Operating
Officer each have in excess of 15 years experience in the transportation
industry. Senior management of the Company will coordinate the operations
of the Founding Companies, provide strategic guidance for the Company,
drive the Company's acquisition program and promote the development of
national accounts. As part of this strategy, the Company intends to
foster a culture of cooperation and teamwork among the Founding Companies
that emphasizes dissemination of "best practices" among its regional and
local management teams and joint bidding on larger projects.

THE OFFERING

Common Stock offered by the
Company.................. Shares

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

Use of proceeds............ To pay the cash portion of the purchase price for
the Founding Companies, to repay outstanding
indebtedness of certain of the Founding Companies
and for general corporate purposes, including
working capital and possible acquisitions. See "Use
of Proceeds."

Proposed Nasdaq National
Market Symbol............ RWKS
- ---------------

(1) Does not include: (i) shares of Common Stock that are reserved for
issuance under the Company's 1998 Stock Incentive Plan (the "Incentive
Plan"), of which an aggregate of

3
<PAGE> 7

restricted shares and options to purchase shares will be granted to
the Company's executive officers upon consummation of the Offering and (ii)
shares of Common Stock reserved for issuance under the Company's 1998
Non-Employee Directors' Stock Plan (the "Directors' Stock Plan"). See
"Formation of the Company -- The Combination," "Management -- 1998 Stock
Incentive Plan," "-- 1998 Non-Employee Directors' Stock Plan" and
"-- Employment Agreements" and "Principal Stockholders."

RISK FACTORS

See "Risk Factors" beginning on page 7 for a discussion of certain risks
that should be considered in connection with an investment in the Common Stock
offered hereby, including, without limitation, risks related to: (i) the absence
of a combined operating history; (ii) the valuation of the Founding Companies;
(iii) the Company's acquisition strategy and the financing of acquisitions; (iv)
internal growth and operating strategies; (v) the cyclicality of demand for rail
system services and products; (vi) exposure to downturns in commercial
construction; (vii) fluctuations in quarterly operating results; (viii) the
amortization of intangible assets; (ix) competition; (x) public sector contracts
and funding; (xi) competitive bidding and fixed price contracts; (xii) reliance
on subcontractors and suppliers; (xiii) bid and performance bonds; (xiv) the
availability of raw materials; (xv) labor relations; (xvi) environmental
compliance and government regulation; (xvii) dependence on key personnel;
(xviii) the difference in compensation paid to executive officers of Founding
Companies after the Combination; (xix) the substantial proceeds of the Offering
benefitting affiliates; (xx) potential conflicts of interest; (xxi) potential
influence of existing stockholders; (xxii) shares eligible for future sale;
(xxiii) the lack of a prior market for the Common Stock and the possible
volatility of stock price; (xxiv) dilution to new investors; and (xxv) certain
antitakeover provision in the Company's governing instruments and Delaware law.

THE COMBINATION

Simultaneously with, and as a condition to, the closing of the Offering,
the Company will consummate the Combination pursuant to agreements that the
Company has entered into with the Founding Companies and their stockholders
(each an "Acquisition Agreement" and together the "Acquisition Agreements"). The
aggregate consideration to be paid by the Company in the Combination will be
$188.0 million (subject to adjustment), which consists of: (i) $69.8 million in
cash, which will be paid from the proceeds of the Offering and (ii) the $118.2
million estimated fair value of shares of Common Stock to be issued to
the stockholders of the Founding Companies. In addition, in connection with the
Combination, the Company will assume $23.4 million of long-term indebtedness of
the Founding Companies, which will be repaid with the proceeds of the Offering.
For additional information regarding the consideration to be paid to the owners
of each Founding Company, see "Formation of the Company -- The Combination" and
"Use of Proceeds." The consummation of each acquisition that is a part of the
Combination (each an "Acquisition" and together the "Acquisition Agreements") is
contingent upon the consummation of the Offering and customary closing
conditions. The Acquisition Agreements require certain of the executive officers
of each of the Founding Companies to enter into employment agreements with their
respective Founding Companies effective upon consummation of the Combination. In
addition, executive officers of certain of the Founding Companies will be
elected to the Board of Directors of the Company following the consummation of
the Offering. See "Formation of the Company," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Management -- Employment Agreements," "Certain Relationships and Related Party
Transactions," "Shares Eligible for Future Sale," and the Unaudited Pro Forma As
Adjusted Financial Statements and the notes thereto appearing elsewhere in this
Prospectus.

The address of the Company is c/o Comstock Holdings, Inc., One North
Lexington Avenue, White Plains, New York 10601 and its telephone number is (410)
467-9504.

4
<PAGE> 8

SUMMARY PRO FORMA AS ADJUSTED FINANCIAL DATA

The Company was established in March 1998 to acquire the Founding Companies
simultaneously with and as a condition to the consummation of the Offering. For
accounting and financial statement purposes, Comstock Holdings, Inc.
("Comstock") has been identified as the "accounting acquiror" consistent with
the accounting requirements of Staff Accounting Bulletin ("SAB") No. 97 of the
Securities and Exchange Commission (the "Commission"). The acquisition of the
remaining Founding Companies were accounted for as purchases in accordance with
APB No. 16. The summary pro forma as adjusted data are not necessarily
indicative of the operating results or financial position that would have been
achieved had the Combination and Offering been consummated and should not be
construed as representative of future operating results or financial position.
The summary pro forma as adjusted financial data should be read in conjunction
with the Unaudited Pro Forma As Adjusted Financial Statements and the notes
thereto and the historical financial statements of the Founding Companies and
the notes thereto included elsewhere in this Prospectus. The Company anticipates
that following the Combination it will realize savings from the following: more
efficient utilization of equipment and the Company's workforce; the combination
of administrative functions such as accounting, finance, employee benefits at
the corporate level; better pricing on purchases of equipment and supplies; and,
to a lesser extent, joint bidding on larger rail projects. However, these
savings cannot be quantified or reasonably estimated and have not been reflected
in the Unaudited Pro Forma As Adjusted Financial Statements.

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
TWELVE MONTHS MARCH 31,
ENDED -----------------
DECEMBER 31, 1997 1997 1998
----------------- ------- -------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
INCOME STATEMENT DATA(1):
Revenue................................................. $253,093 $51,395 $60,612
Gross profit............................................ 34,094 6,782 6,737
General and administrative expenses(2).................. 21,625 5,262 4,729
Intangibles amortization(3)............................. 2,848 712 712
Income from operations.................................. 9,621 808 1,296
Interest and other income (expense), net................ 1,562 748 443
Income before income taxes.............................. 11,183 1,556 1,739
Net income(4)........................................... 5,906 720 832
Net income per share.................................... .31 .04 .04
Shares used in computing net income per share(5)........ 18,860 18,860 18,860
</TABLE>

<TABLE>
<CAPTION>
AS OF
MARCH 31, 1998
--------------------------
PRO FORMA PRO FORMA
COMBINED AS ADJUSTED(8)
--------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA(6):
Working capital(7).......................................... $ 36,192 $ 41,596
Total assets................................................ 215,592 213,592
Long-term debt and capital leases, net...................... 16,026 --
Stockholders' equity........................................ 64,579 158,316
</TABLE>

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

(1) The pro forma as adjusted income statement data assume that the Combination
and the Offering were consummated on January 1, 1997 for the twelve months
ended December 31, 1997 and the three months ended March 31, 1997, and on
January 1, 1998 for the three months ended March 31, 1998.
(2) The pro forma as adjusted income statement data reflect an aggregate of (i)
$5.2 million, $1.2 million and $1.2 million for the twelve months ended
December 31, 1997 and the three months

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<PAGE> 9

ended March 31, 1997 and 1998, respectively, in pro forma reductions in
salaries, bonuses and benefits to the stockholders of the Founding Companies
(the "Compensation Differential"), (ii) a net reduction in lease-related
expenses of $1.2 million, $366,000 and $239,000 for the twelve months ended
December 31, 1997 and the three months ended March 31, 1997 and 1998,
respectively, in connection with the amendments of lease agreements in
connection with the Combination and (iii) a reduction of compensation
expense of $400,000 in the three months ended March 31, 1998, in connection
with expense incurred due to a stock transfer between stockholders, (iv) an
increase of $1.9 million, $481,000 and $481,000 for the twelve months ended
December 31, 1997 and the three months ended March 31, 1997 and 1998,
respectively, of expenses associated with corporate management, as well as
costs associated with being a public company.
(3) Consists of $105.5 million of goodwill and $5.0 million of other intangible
assets to be recorded as a result of the Combination and amortized over a
40-year period and 10-year period, respectively.
(4) Assumes that all income is subject to a corporate income tax rate of 39% and
that all goodwill amortization is non-deductible for income tax purposes.
(5) Includes (i) 10.3 million shares to be issued to stockholders of the
Founding Companies and (ii) 8.6 million shares to be sold in the Offering.
(6) The pro forma combined and pro forma as adjusted balance sheet data assume
that the Combination and Offering were consummated on March 31, 1998.
(7) Excludes $69.8 million payable to the Founding Companies and $2.5 million
payable to others on behalf of the Founding Companies for services provided
in connection with in the Combination which will be paid immediately upon
consummation of the Offering.
(8) Adjusted to reflect the sale of the 8.6 million shares of Common Stock
offered hereby and the application of the estimated net proceeds therefrom.
See "Use of Proceeds."

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<PAGE> 10

RISK FACTORS

An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should consider carefully the following
risk factors, in addition to the other information contained in this Prospectus,
in evaluating an investment in the shares of Common Stock offered hereby.

ABSENCE OF COMBINED OPERATING HISTORY

The Company was founded in March 1998 and has conducted no operations to
date. RailWorks Corporation has entered into agreements to acquire the Founding
Companies simultaneously with the closing of the Offering. The Founding
Companies have been operating independently and the Company may not be able to
integrate these businesses successfully on an economic basis. The Company's
management group has been assembled only recently and the management control
structure is still in its formative stages. The pro forma combined results of
operations of RailWorks and the Founding Companies cover periods when RailWorks
and the Founding Companies were not under common control or management and may
not be indicative of the Company's future results of operations. Most of the
senior managers of the individual Founding Companies will remain at the Founding
Company level, in accordance with the Company's decentralized management
philosophy. Currently, the officers of RailWorks consist of John G. Larkin, its
Chairman of the Board and Chief Executive Officer, Michael R. Azarela, its
Executive Vice President and Chief Financial Officer, John Kennedy, its Vice
President and Chief Operating Officer, and Harold C. Kropp, Jr., its Vice
President and Chief Accounting Officer. Upon consummation of the Combination,
these employees will be responsible for the Company's day-to-day management as a
combined entity. Management may not be able to oversee the combined entity
effectively or to implement effectively the Company's operating strategies. Any
failure by the Company to implement its strategies, integrate the Founding
Companies without substantial costs, delays or other operational or financial
difficulties, or oversee effectively the combined entity could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Formation of the Company," "Business -- The Founding Companies"
and "Management."

VALUATIONS OF THE FOUNDING COMPANIES UNRELATED TO APPRAISALS OR ASSET VALUES

Valuations of the Founding Companies have not been established by
independent appraisals, but have been determined through negotiations between
RailWorks and representatives of each of the Founding Companies. The
consideration being paid for each of the Founding Companies, including Founding
Companies whose stockholders will become affiliates of the Company upon
consummation of the Offering, is based exclusively on these private negotiations
between RailWorks and the representatives of each Founding Company. A variety of
factors, including, but not limited to, the financial performance of each
Founding Company, were considered in determining the consideration to be paid to
each Founding Company, and such factors were applied consistently to each
Founding Company. The consideration to be paid does not necessarily bear any
relationship to the net book value of the acquired assets or to any other
recognized indicia of value. For example, valuations of the Founding Companies
determined solely by appraisals of the acquired assets would be less than the
consideration being paid by RailWorks for the Founding Companies. In particular,
the aggregate purchase price to be paid in the Combination is $162.7 million
greater than the estimated fair value of the net assets acquired. Since Comstock
is deemed the "accounting acquiror," no goodwill is being recorded with respect
to the Acquisition of Comstock. As a result, only $110.5 million of this excess
is reflected as goodwill and other intangibles in the Unaudited Pro Forma As
Adjusted Financial Statements as a result of the Combination. The future
performance of the Founding Companies may not be commensurate with the
consideration being paid to acquire the Founding Companies or the price of the
Common Stock offered hereby. See "-- Amortization of Intangible Assets" and
"Formation of the Company -- The Combination."

7
<PAGE> 11

RISKS ASSOCIATED WITH ACQUISITION STRATEGY AND FINANCING

The Company intends to grow significantly through the acquisition of
additional businesses in the rail system services and products industry. See
"Business -- Strategy." This strategy will entail reviewing and potentially
reorganizing acquired business operations, corporate infrastructure and systems
and financial controls. Unforeseen expenses, difficulties, complications and
delays frequently encountered in connection with the rapid expansion of
operations could inhibit the Company's growth.

There can be no assurance that the Company will maintain or accelerate its
growth or anticipate all of the changing demands that expanding operations will
impose on its management personnel, operational and management information
systems and financial systems. The Company may not be able to identify, acquire
or manage profitably additional businesses or to integrate successfully any
acquired businesses into the Company without substantial costs, delays or other
operational or financial difficulties. Any failure by the Company to do so could
have a material adverse effect on its business, financial condition and results
of operations.

The timing, size and success of the Company's acquisition efforts and any
associated capital commitments cannot be readily predicted. The Company
currently intends to finance future acquisitions by using shares of its Common
Stock, cash or a combination of Common Stock and cash. If the Common Stock does
not maintain a sufficient market value, or if potential acquisition candidates
are otherwise unwilling to accept Common Stock as part of the consideration for
the sale of their businesses, the Company may be required to utilize more of its
cash resources, if available, in order to initiate and maintain its acquisition
program. If the Company does not have sufficient cash resources, its growth
could be limited unless it is able to obtain additional capital through debt or
equity financings. There can be no assurance that the Company will be able to
obtain additional financing for its acquisition program on terms that the
Company deems acceptable. To the extent the Company uses Common Stock for future
acquisitions, dilution may be experienced by existing stockholders, including
the purchasers of Common Stock in the Offering. See "Dilution," "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Pro Forma As Adjusted Liquidity and Capital Resources."

RISKS RELATED TO INTERNAL GROWTH AND OPERATING STRATEGIES

Key elements of the Company's strategy are to increase the revenue of the
Founding Companies and any subsequently acquired businesses and to reduce their
operating expenses. The Company's ability to increase revenue will be affected
by various factors, including demand for rail system services and products, the
success of cross-selling and the Company's ability to develop a national account
program. The growth of the Company may also be dependent on increased
outsourcing by rail system operators. Many of these factors are beyond the
control of the Company, and the Company's strategies may not be successful or
the Company may be unable to generate cash flow adequate for its operations and
to support internal growth. A key component of the Company's strategy is to
operate on a decentralized basis, with management of the Founding Companies
retaining responsibility for day-to-day operations. If proper overall business
controls are not implemented, this decentralized operating strategy could result
in inconsistent operating and financial practices at the Founding Companies and
subsequently acquired businesses, which could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business -- Strategy."

RAIL SYSTEM CYCLICALITY

Demand for rail system services and products could fluctuate in conjunction
with overall economic conditions. In economic downturns, rail system operators
may defer certain construction, rehabilitation, repair and maintenance projects
and purchases of related products to conserve cash in the short term. Also,
reductions in freight traffic due to economic downturns or other factors may

8
<PAGE> 12

reduce demand for the Company's construction, rehabilitation, repair and
maintenance services and related products. In economic upturns, railroads,
particularly Class I railroads, experience heavier traffic demands that can
cause problems associated with congestion. The operational problems related to
congestion have an unpredictable impact on railroad expenditures for
construction, rehabilitation, repair and maintenance services and related
products, including those provided by the Company. During periods of peak usage,
rail system owners may defer certain expenditures due to their need to address
the operational challenges caused by these conditions. Such uncertainties may be
exacerbated by certain other issues, such as the possibility of heightened
government regulation during periods of congestion and the internal challenges
of managing railroad operations as the Class I railroads continue to
consolidate.

EXPOSURE TO DOWNTURNS IN COMMERCIAL CONSTRUCTION

A substantial portion of the Company's non-rail based business (26.2% of
1997 pro forma as adjusted revenue) involves installation of electrical systems
in newly constructed or renovated commercial buildings and power and industrial
plants. The demand for electrical installation services is affected by
fluctuations in the level of new construction and renovation of commercial
buildings, which reflect the cyclical nature of the construction industry and
depend upon general economic conditions, changes in interest rates and other
related factors. Downturns in levels of commercial construction and renovation
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Results of Operations of the
Founding Companies -- Comstock Holdings Inc."

FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

The Founding Companies have in the past experienced quarterly variations in
revenue, operating income (including operating losses), net income (including
net losses) and cash flows as a result of projects commenced and completed
during a quarter, the number of business days in a quarter and the size and
scope of projects. A variation in the number of projects, progress on projects
or the timing of the initiation or completion of projects can cause periods in
which certain operating resources are not generating revenue and can cause
significant variations in operating results between reporting periods. Negative
fluctuations have been particularly pronounced, and net losses have been
incurred, in the first and fourth calendar quarters, generally due to adverse
weather conditions. The Company expects to continue to experience such quarterly
fluctuations in operating results (including possible net losses) and may also
experience quarterly fluctuations as a result of other factors, including the
loss of a major customer and additional general and administrative expenses to
acquire and support new business. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Pro Forma As Adjusted Results
of Operations."

AMORTIZATION OF INTANGIBLE ASSETS

Approximately $111 million, or 52%, of the Company's pro forma as adjusted
total assets as of March 31, 1998, consists of goodwill and other intangibles
arising from the Combination. Goodwill is an intangible asset that represents
the difference between the aggregate purchase price for the assets acquired and
the amount of such purchase price allocated to such assets for purposes of the
Company's pro forma as adjusted balance sheet. The Company is required to
amortize the goodwill and other intangibles from the Combination over a period
of time, with the amount amortized in a particular period constituting an
expense that reduces the Company's net income for that period. The amount of
goodwill amortization, however, will not give rise to a deduction for tax
purposes. In addition, the Company will be required to amortize the goodwill and
other intangibles, if any, from any future acquisitions. A reduction in net
income resulting from the amortization of goodwill and other intangibles may
have an adverse impact upon the market price of the Company's Common

9
<PAGE> 13

Stock. The Company plans to amortize goodwill associated with the Combination
over a period of 40 years and amortize other intangibles associated with the
Combination over a period of 10 years, and will evaluate continually whether
events or circumstances have occurred that indicate that the remaining useful
life of goodwill and other intangibles may warrant revision. Additionally, in
accordance with the provisions of Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," the Company will evaluate any potential
goodwill for impairments by reviewing the future cash flows of the operations of
the acquired entities and comparing these amounts with the carrying value of the
associated goodwill and other intangibles.

COMPETITION

The rail system services and products industry is highly competitive. The
Company competes with other companies that provide rail system construction and
rehabilitation, repair and maintenance, electrical signaling, communication and
installation services and related products, some of which have significantly
greater resources than the Company. An inability of the Company to compete
successfully against its existing and future competitors would have a material
adverse effect on its business, financial condition and results of operations.
While the Company believes that it competes effectively within its industry,
there are no substantial barriers to entry and additional competitors with
greater resources than the Company may enter the industry and compete
effectively against the Company. The Company also provides electrical
contracting services to non-rail industrial and commercial customers. This
industry is highly competitive and is served by small, owner-operated private
companies, public companies and several large regional companies. Additionally,
the Company could face competition in the future from other competitors entering
this market. See "Business -- Competition."

PUBLIC SECTOR CONTRACTS AND FUNDING

The rail system services and products business involves contracts that are
supported by funding from federal, state and local governmental agencies, as
well as contracts with such agencies ("public sector contracts"). Public sector
contracts are subject to detailed regulatory requirements and public policies,
as well as funding priorities. These contracts may be conditioned upon the
continuing availability of public funds, which in turn depends upon lengthy and
complex budgetary procedures, and may be subject to significant pricing
constraints. Moreover, public sector contracts may generally be terminated for
reasons beyond the control of the contractor, including when such termination is
in the best interests of the governmental agency. There can be no assurance that
these factors or others unique to public sector contracts will not have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Government Regulation."

COMPETITIVE BIDDING; RISKS OF FIXED PRICE CONTRACTS

Fixed price contracts are typically awarded in the rail system services and
products business pursuant to a competitive bidding process. In compiling its
bid on a particular project, each Founding Company must estimate the time it
will take to complete the project, along with the project's labor and supply
costs. These costs may be affected by a variety of factors, some of which may be
beyond the Company's control. If the Company is unable to predict accurately the
costs of fixed price contracts, certain projects could have lower margins than
anticipated or the Company could suffer a loss on a project, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.

RELIANCE ON SUBCONTRACTORS AND SUPPLIERS

The Company generally performs its electrical contracting services for
signaling and communication systems as a subcontractor to companies which design
the systems and manufactures or
10
<PAGE> 14

purchase the necessary equipment. The Company also acts as the prime contractor
and subcontracts the design of the signal or communication system and necessary
equipment. When the Company is a prime contractor for such projects, it
generally requires the subcontractors to post performance bonds. However, the
Company is dependent upon the subcontractor to perform design and other services
and provide equipment. Moreover, for certain projects there are a limited number
of companies which can perform the subcontract should the initial subcontractor
default. As a result, the Company is dependent upon its subcontractors to
perform under the subcontracts. Further, the suppliers of major components of
electrical signaling and communication systems for transit authorities are
manufactured to specifications and require a long lead time for production.
Should a subcontractor or supplier default for any reason whatsoever, or should
a supplier refuse to do business with the Company, it could have a material
adverse effect on the Company's business, financial condition and results of
operations.

BID AND PERFORMANCE BONDS

Institutional and public works projects are frequently long-term, complex
projects requiring significant technical and managerial skills and financial
strength to, among other things, obtain bid and performance bonds, which are
often a condition to bidding for, and awarding of, contracts for such projects.
There can be no assurance that the Company will be able to obtain bid and
performance bonds in the future, and the inability to procure such bonds could
have a material adverse effect on the Company's business, financial condition
and results of operations.

AVAILABILITY OF RAW MATERIALS

Historically, the cost of both the lumber used to produce wooden ties and
steel has fluctuated significantly due to market and industry conditions.
Increasing demand for these raw materials may result in cost increases, and
there can be no assurance that the Company will be able to recoup any such
increases through price increases for its products. Further, a reduction in
supply of lumber or steel due to increased demand or other factors could have a
material adverse affect on the Company's business, financial condition and
results of operations.

LABOR RELATIONS

On a pro forma combined basis, as of March 31, 1998 approximately 67% of
the Company's employees were covered under various collective bargaining
agreements. In June 1994, one of the Founding Companies was affected by a strike
by the United Brotherhood of Teamsters. There can be no assurance that future
work stoppages will not affect the Founding Companies. In addition, labor
agreements are generally negotiated on an industry-wide basis and the
determination of the terms and conditions of future labor agreements could be
beyond the Company's control. There can be no assurance that the Company will
not be subject to terms and conditions in future labor agreements that could
have a material adverse affect on the Company's business, financial condition
and results of operations. See "Business -- Employees."

ENVIRONMENTAL COMPLIANCE AND GOVERNMENT REGULATION

The Founding Companies' operations are subject to extensive federal, state
and local regulation under environmental laws and regulations concerning, among
other things, emissions to the air, discharges to waters and the generation,
handling, storage, transportation, treatment and disposal of waste, hazardous
substances, underground and aboveground storage tanks and soil and groundwater
contamination. Environmental liability can extend to previously owned
properties, leased properties and properties owned by third parties, as well as
to properties currently owned and used by the Founding Companies. Environmental
liabilities can also arise from claims asserted by adjacent landowners or other
third parties in toxic tort litigation. The Company could incur significant
ongoing costs associated with environmental regulatory compliance. Furthermore,
certain of the Founding Companies use hazardous materials in their own
operations. Although the Company
11
<PAGE> 15

believes the Founding Companies are in material compliance with all of the
various regulations applicable to their businesses, there can be no assurance
that requirements will not change in the future or that the Company will not
incur significant costs to comply with such requirements.

In addition to safety, health and other regulations of general
applicability, the operations of the Company may be significantly affected by
regulations of the Surface Transportation Board ("STB"), the Federal Railroad
Administration ("FRA"), the Occupational Safety and Health Administration
("OSHA"), state departments of transportation and other state and local
regulatory agencies. Changes in regulation of the rail and transit industry
through legislative, administrative judicial or other action could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Government Regulation."

DEPENDENCE ON KEY PERSONNEL

The Company believes that its success will depend to a significant extent
upon the efforts and abilities of John G. Larkin, its Chairman of the Board and
Chief Executive Officer, Michael R. Azarela, its Executive Vice President and
Chief Financial Officer, John Kennedy, its Vice President and Chief Operating
Officer, and Harold C. Kropp, Jr., its Vice President and Chief Accounting
Officer and, due to the Company's decentralized operating strategy, senior
management of the Founding Companies. While the Company has entered into
employment agreements with Messrs. Larkin, Azarela, Kennedy, and Kropp and will
enter into employment agreements with senior management of the Founding
Companies in connection with the Combination, there can be no assurance that
such individuals will remain with the Company throughout the terms of the
agreements, or thereafter. The Company likely will depend on the senior
management of any significant business it acquires in the future. The loss of
the services of one or more of these key employees before the Company is able to
attract and retain qualified replacement personnel could have a material adverse
effect on the Company's business, financial condition and results of operation.
See "Management." The Company does not maintain any life insurance policies on
its senior management personnel.

COMPENSATION DIFFERENTIAL

In connection with the Combination, the Company will enter into employment
agreements with the owners of the Founding Companies who perform services for
such companies. The total compensation packages to be paid under such agreements
are considerably lower than those historically received by certain owners of the
Founding Companies in profitable years. However, approximately 50% of the
historical compensation of the owners of the Founding Companies in 1997 was
comprised of bonus compensation, often tied to profitability. Following the
initial two-year term of the employment agreements, the Company will reevaluate
its compensation structure after examining operating results and the value of
the services such individuals are providing to the Company. To the extent that
salaries following the initial term are materially higher than those currently
contemplated, the Company's business, financial condition and results of
operations could be adversely affected. See "Management -- Employment
Agreements."

SUBSTANTIAL PROCEEDS OF OFFERING TO BENEFIT AFFILIATES

Net proceeds of $69.8 million from the Offering will be used to pay the
cash portion of the purchase price for the Founding Companies in the Combination
and $23.4 million will be used to repay outstanding indebtedness of certain of
the Founding Companies. A substantial portion of this indebtedness has been
guaranteed by, or is payable to, stockholders or affiliates of Founding
Companies. See "Formation of the Company -- The Combination."

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<PAGE> 16

POTENTIAL CONFLICTS OF INTEREST

The Company is subject to risks associated with potential conflicts of
interest that may arise out of the interrelationships among certain of the
officers of the Founding Companies and related third party entities with which
the Founding Companies conduct business transactions. For a detailed description
of these and certain other related party transactions, see "Certain
Relationships and Related Party Transactions." While the Company intends to
conduct all related party transactions on terms no less favorable than those the
Company could negotiate with an unrelated third party, the interests of officers
of the Founding Companies in their capacities with related third party entities
may come into conflict with the interests of such persons in their capacities
with the Company.

POTENTIAL INFLUENCE OF EXISTING STOCKHOLDERS

After the Offering, the Company's executive officers and directors will
beneficially own an aggregate of approximately % of the outstanding shares
of Common Stock (approximately % if the Underwriters' over-allotment option
is exercised in full). The Company's executive officers and directors if acting
together may be able to substantially influence the election of directors and
matters requiring the approval of the stockholders of the Company. This
concentration of ownership may also have the effect of delaying or preventing a
change in control of the Company. See "Principal and Selling Stockholders."

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have shares of
Common Stock outstanding. The shares sold in the Offering will be freely
tradeable without restriction or further registration under the Securities Act,
unless acquired by an "affiliate" of the Company, as that term is defined in
Rule 144 promulgated under the Securities Act ("Rule 144"). Shares held by
affiliates will be subject to resale limitations of Rule 144 described below.
All of the remaining outstanding shares of Common Stock will be available
for resale at various dates beginning 180 days after the date of this
Prospectus, upon expiration of applicable lock-up agreements described below as
the holding provisions of Rule 144 under the Securities Act are satisfied. In
addition, shares of Common Stock are reserved for issuance pursuant to
the Company's Incentive Plan and Directors' Stock Plan. The Company intends to
file a registration statement on Form S-8 as soon as practicable after the
consummation of the Offering with respect to the shares of Common Stock issuable
pursuant to the Incentive Plan. In addition, the Company intends to register
additional shares of Common Stock under the Securities Act for its use in
connection with future acquisitions.

Sales of substantial amounts of Common Stock, or the perception that such
sales could occur, could adversely affect prevailing market prices of the Common
Stock. Each of the Company and the directors and executive officers of the
Company, as well as certain other officers of the Company, has agreed that,
without the prior written consent of BT Alex. Brown Incorporated on behalf of
the Underwriters, it will not, subject to certain exceptions, during the period
ending 180 days after the date of this Prospectus, (i) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, lend or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock or (ii) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
the Common Stock, whether any such transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise. See "Underwriting." Further, the stockholders of each of the
Founding Companies have agreed with the Company that they will not sell, pledge,
transfer or otherwise dispose of any shares of Common Stock for a period of one
year from the date of the closing of the Combination.

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<PAGE> 17

From the first year anniversary of the consummation of the Offering to the
fourth anniversary of the consummation of the Offering the Company will make
available selling opportunities for the recipients of Common Stock in the
Combination to sell at various dates a certain number of shares of Common Stock
owned by them. Every quarter during the foregoing period, these owners of Common
Stock will be permitted to sell up to 8% of the Common Stock received by them.
If such owner does not sell such shares in a given quarter, such owner may sell
such shares in any later quarter, provided that in no event may an owner sell
more than 20% of the shares of Common Stock received by such owner in any one
quarter. The Company may elect to make available (i) additional opportunities to
sell shares of Common Stock and/or (ii) the opportunity to sell an amount in
excess of such amount in any particular quarter. Such sales will take place
either through block trades or registered offerings.

NO PRIOR MARKET FOR THE COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE

Prior to the Offering, there has been no public market for the Company's
Common Stock. There can be no assurance that an active public market for the
Common Stock will develop or be sustained after the Offering or that purchasers
of Common Stock will be able to resell their Common Stock at prices equal to or
greater than the initial public offering price. The initial public offering
price of the Common Stock will be determined by negotiation between the Company
and the representatives of the Underwriters based on the factors described under
"Underwriting" and may not be indicative of the market price for the Common
Stock after the Offering.

The trading price of the Common Stock could fluctuate in response to
various factors related to the Company, its competitors, the transportation
industry or the financial markets in general. Such factors include, but are not
limited to, quarterly operating results, changes in financial analysts'
recommendations or earnings estimates and changes in general or regional
economic conditions. Moreover, the stock market has experienced extreme price
and volume fluctuations in recent periods, which have not necessarily been
related to corporate operating performance. The volatility of the market could
adversely affect the market price of the Common Stock and the ability of the
Company to raise equity in the public markets. See "Underwriting."

DILUTION TO NEW INVESTORS

After giving effect to the Combination, purchasers of Common Stock in the
Offering will experience immediate and substantial dilution in the pro forma as
adjusted net tangible book value of their shares in the amount of $8.92 per
share. See "Dilution." If the Company issues additional shares of Common Stock
in the future, including shares which may be issued pursuant to the exercise of
stock options and future acquisitions, purchasers of Common Stock in the
Offering may experience further dilution in the net tangible book value per
share of the Common Stock.

CERTAIN ANTITAKEOVER PROVISIONS

Certain provisions of the Company's Restated Certificate of Incorporation
(the "Certificate of Incorporation") and Bylaws and Delaware law may make a
change in the control of the Company more difficult to effect, even if a change
in control were in the stockholders' interest. The Company is subject to the
anti-takeover provisions of Section 203 of the Delaware General Corporation Law,
which prohibit the Company from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an "interested stockholder," unless the
business combination is approved in a prescribed manner. In addition, the
Company's Certificate of Incorporation and Bylaws provide for a nine member
Board of Directors to be elected to staggered one-, two- and three- year terms
and, thereafter, for successive three-year terms. Additionally, the Certificate
of Incorporation provides that the Company may issue up to 10,000,000 shares of
preferred stock with rights and preferences determined by the Board of
Directors. Such issuance may make it more difficult for a third party to obtain
a majority of the Company's outstanding stock. See "Description of Capital
Stock -- Certain Provisions of Delaware Law and the Company's Certificate of
Incorporation and Bylaws."

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<PAGE> 18

FORMATION OF THE COMPANY

INCORPORATION

RailWorks was incorporated in Delaware in March 1998 as a holding company
to acquire companies that provide rail system services, including construction
and rehabilitation, repair and maintenance, and related products. Prior to the
Combination and the Offering, RailWorks issued shares of Common Stock for cash
to John G. Larkin, the Chairman of the Board and Chief Executive Officer of the
Company, in connection with its incorporation. See "Certain Relationships and
Related Party Transactions -- Organization of RailWorks Corporation."

THE COMBINATION

Simultaneously with and as a condition to the closing of the Offering,
RailWorks will acquire in separate transactions all of the issued and
outstanding capital stock of each of the Founding Companies for an aggregate
consideration of approximately $188.0 million (subject to adjustment), which
consists of: (i) $69.8 million in cash to be paid to the stockholders of the
Founding Companies, which will be paid from the proceeds of the Offering; and
(ii) the $118.2 million estimated fair value of shares of Common Stock
to be issued to the stockholders of the Founding Companies. In addition, in
connection with the Combination, the Company will assume approximately $23.4
million of long-term indebtedness of certain of the Founding Companies, which
will be repaid with the proceeds of the Offering. The purchase price for each
Founding Company was determined based on negotiations between RailWorks and the
Founding Companies. The factors considered by the parties in determining the
purchase price included, among other factors, historical operating results,
growth rates, and assets and liabilities of the Founding Companies, and such
factors were applied consistently to each Founding Company. Each Acquisition is
subject to substantially the same terms and conditions. The following table
contains information concerning the aggregate cash to be paid and Common Stock
expected to be issued (at an assumed initial public offering price of $12.00 per
share) (subject to adjustment) in connection with the Combination:

<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SHARES OF SHARES OF
COMMON COMMON ASSUMED TOTAL
FOUNDING COMPANY CASH STOCK STOCK INDEBTEDNESS CONSIDERATION
- ---------------- ----------- --------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Comstock Holdings, Inc., the
accounting acquiror.......
Annex Railroad Builders,
Inc.(1)...................
Comtrak Construction,
Inc.......................
Condon Brothers, Inc........
CPI Concrete Products
Incorporated..............
H.P. McGinley,
Incorporated..............
Kennedy Railroad Builders,
Inc.(2)...................
Merit Railroad Builders,
Inc.......................
Midwest Railroad
Contractors, Inc..........
New England Construction
Services, Inc.............
Railroad Service, Inc.(3)...
Southern Indiana Wood
Preserving Co.............
U.S. Trackworks, Inc.(4)....
Wm. A. Smith Construction
Co., Inc.(5)..............
</TABLE>

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

(1) Includes Mize Construction Company, Railroad Specialities, Inc. and U.S.
Railway Supply Inc., all of which are under common control.

15
<PAGE> 19

(2) Includes Alpha-Keystone Engineering, Inc. and Railcorp, Inc., all of which
are under common control.
(3) Includes Minnesota Railroad Service, Inc., all of which are under common
control.
(4) Includes Northern Rail Service and Supply Co., all of which are under common
control.
(5) Includes Wm. A. Smith Rerailing Service, Inc., all of which are under common
control.

The consummation of each Acquisition is contingent upon the consummation of
the Offering and the satisfaction of customary closing conditions, including the
absence of any material adverse change in the business, operations and financial
condition of the Founding Companies and the Company and certification by the
parties to each Acquisition Agreement that the representations and warranties
made by such party in the Acquisition Agreement are true and correct as of the
consummation of the Acquisition and that such party has performed its
obligations under the Acquisition Agreement. The Acquisition Agreements provide
that the stockholders of the Founding Companies will indemnify RailWorks from
certain liabilities that may arise in connection with the Combination. Each of
the Acquisition Agreements provides that RailWorks and certain key employees of
each of the Founding Companies will enter into employment agreements with the
Company.

ORGANIZER

The Company was organized by IPO Development(TM) Company, L.L.P. ("IPODC"),
which was not previously affiliated with any of the Founding Companies. IPODC
identified the Founding Companies, arranged for the Company's retention of its
executive officers and managed the organizational stages of the Combination and
the Offering. In exchange for the services provided by IPODC, the Founding
Companies have agreed to pay IPODC and/or it's designees upon the completion of
the Combination and the Offering, a fee equal to 3 1/2% of the total
consideration to be paid to the Founding Companies in the Combination plus
$500,000.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby (at an assumed initial offering price of $ per share), after
deducting estimated underwriting discounts and other offering expenses, all of
which are payable by the Company, are estimated to be approximately $
million. The principal uses of such net proceeds to the Company are described
below.

Approximately (i) $69.8 million of the net proceeds will be used to pay the
cash portion of the aggregate purchase price for the Founding Companies in the
Combination, (ii) $23.4 million of the net proceeds will be used to repay
indebtedness of certain of the Founding Companies and (iii) $2.5 million of the
net proceeds will be paid to others on behalf of the Founding Companies. See
"Formation of the Company -- The Combination" and "Certain Relationships and
Related Party Transactions -- The Combination."

Pending the application of any such proceeds as described above, the
Company intends to invest any such amounts in short-term investment grade
securities.

DIVIDEND POLICY

The Company does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future because it intends to retain any earnings to
finance the expansion of its business and for general corporate purposes. Any
payment of future dividends will be at the discretion of the Board of Directors
of the Company and will depend upon, among other factors, the Company's
earnings, financial condition, capital requirements, level of indebtedness,
contractual restrictions with respect to the payment of dividends and other
considerations that the Company's Board of Directors deems relevant.

16
<PAGE> 20

CAPITALIZATION

The following table sets forth the capitalization of Comstock, as the
"accounting acquiror," as of March 31, 1998 and of the Company at March 31, 1998
(i) on a pro forma combined basis and (ii) on a pro forma as adjusted basis.
This table should be read in conjunction with the Unaudited Pro Forma As
Adjusted Financial Statements and the notes thereto included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
THE COMPANY
-----------------------
COMSTOCK AS OF
-------------- MARCH 31, 1998
AS OF -----------------------
MARCH 31, PRO FORMA PRO FORMA
1998 COMBINED AS ADJUSTED
-------------- --------- -----------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents............................... $ 945 $ 2,829 $ 829
Short-term debt and current portion of long-term
obligations........................................... 1,066 79,711 --
Long-term debt and capital lease obligations, less
current portion....................................... 12,352 16,026 --
Stockholders' equity:
Preferred Stock: $0.01 par value per share;
10,000,000 shares authorized; no shares issued and
outstanding........................................ -- -- --
Common Stock: $0.01 par value per share;
100,000,000 shares authorized; 150,000 shares
outstanding historically; 10,300,000 shares
issued and outstanding pro forma combined; and
18,900,000 shares issued and outstanding, pro forma
as adjusted(1)..................................... 1 102 189
Additional paid-in capital.............................. 9 62,383 156,033
Retained earnings....................................... 2,094 2,094 2,094
------- -------- --------
Total stockholders' equity......................... 2,104 64,579 158,316
Total capitalization.......................... $16,467 $163,145 $159,145
======= ======== ========
</TABLE>

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

(1) Does not include: (i) shares of Common Stock that are reserved for
issuance under the Incentive Plan, of which an aggregate of shares
and options to purchase restricted shares will be granted to the
Company's executive officers upon consummation of the Offering and (ii)
shares of Common Stock reserved for issuance under the Directors'
Stock Plan. See "Formation of the Company -- The Combination,"
"Management -- 1998 Stock Incentive Plan," "-- 1998 Non-Employee Directors'
Stock Plan" and "-- Employment Agreements" and "Principal and Selling and
Selling Stockholders."

17
<PAGE> 21

DILUTION

At March 31, 1998, the Company had a deficit in pro forma combined net
tangible book value of $35.7 million, or $3.48 per share of Common Stock. Pro
forma combined net tangible book value per share is determined by dividing the
pro forma combined net tangible book value of the Company (tangible assets less
liabilities) by the number of shares of Common Stock outstanding prior to the
Offering. Adjusting for the sale by the Company of 8.6 million shares of Common
Stock offered hereby (at an assumed initial public offering price of $12.00 per
share) and the application of the estimated net proceeds therefrom as described
under "Use of Proceeds," the pro forma as adjusted net tangible book value of
the Company at March 31, 1998 would have been $58.0 million, or $3.08 per share.
This represents an immediate dilution in pro forma as adjusted net tangible book
value to new investors of $8.92 per share and an immediate increase in pro forma
as adjusted net tangible book value to existing stockholders of $6.56 per share.
The following table illustrates this per share dilution to new investors:

<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $12.00
------
Pro forma combined net tangible book value (deficit)...... $(3.48)
------
Increase in pro forma combined net tangible book value
resulting from the Offering............................ $ 6.56
Pro forma as adjusted net tangible book value after the
Offering.................................................. 3.08
------
Dilution per share to new investors......................... $ 8.92
======
</TABLE>

18
<PAGE> 22

SELECTED PRO FORMA AS ADJUSTED FINANCIAL DATA

The Company was established in March 1998 to acquire the Founding Companies
simultaneously with and as a condition to the consummation of the Offering. For
accounting and financial statement purposes, Comstock has been identified as the
accounting acquiror consistent with SAB No. 97 of the Commission. The
acquisition of the remaining Founding Companies were accounted for as purchases
in accordance with APB No. 16. The selected pro forma as adjusted data are not
necessarily indicative of the operating results or financial position that would
have been achieved had the Combination and Offering been consummated and should
not be construed as representative of future operating results or financial
position. The selected pro forma as adjusted financial data should be read in
conjunction with the Unaudited Pro Forma As Adjusted Financial Statements and
the notes thereto and the historical financial statements of the Founding
Companies and the notes thereto included elsewhere in this Prospectus. The
Company anticipates that following the Combination it will realize savings from
the following: more efficient utilization of equipment and the Company's
workforce; the combination of administrative functions such as accounting,
finance, employee benefits at the corporate level; better pricing on purchases
of equipment and supplies; and, to a lesser extent, joint bidding on larger rail
projects. However, these savings cannot be quantified or reasonably estimated
and have not been reflected in the Unaudited Pro Forma As Adjusted Financial
Statements.

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

19
<PAGE> 23

benefits to the stockholders of the Founding Companies (the "Compensation
Differential"), (ii) a net reduction in lease-related expenses of $1.2
million, $366,000 and $239,000 for the twelve months ended December 31, 1997
and the three months ended March 31, 1997 and 1998, respectively, in
connection with the amendments of lease agreements in connection with the
Combination and (iii) a reduction of compensation expense of $400,000 in the
three months ended March 31, 1998, in connection with expense incurred due
to a stock transfer between stockholders, (iv) an increase of $1.9 million,
$481,000 and $481,000 for the twelve months ended December 31, 1997 and the
three months ended March 31, 1997 and 1998, respectively, of expenses
associated with corporate management, as well as costs associated with being
a public company.
(3) Consists of $105.5 million of goodwill and $5.0 million of other intangible
assets to be recorded as a result of the Combination and amortized over a
40-year period and 10-year period, respectively.
(4) Assumes that all income is subject to a corporate income tax rate of 39% and
that all goodwill amortization is non-deductible for income tax purposes.
(5) Includes (i) 10.3 million shares to be issued to stockholders of the
Founding Companies and (ii) 8.6 million shares to be sold in the Offering.
(6) The pro forma combined and pro forma as adjusted balance sheet data assume
that the Combination and Offering were consummated on March 31, 1998.
(7) Excludes $69.8 million payable to the Founding Companies and $2.5 million
payable to others on behalf of the Founding Companies for services provided
in connection with the Combination which will be paid immediately upon
consummation of the Offering.
(8) Adjusted to reflect the sale of the 8.6 million shares of Common Stock
offered hereby and the application of the estimated net proceeds therefrom.
See "Use of Proceeds."

20
<PAGE> 24

SELECTED FINANCIAL DATA OF THE FOUNDING COMPANIES

The following selected historical financial data of the Founding Companies
has been derived from financial statements of each Founding Company for the
respective periods, and should be read in conjunction with the related audited
financial statements (if applicable), Management's Discussion and Analysis of
Financial Condition and Results of Operations (if applicable), and other
information included elsewhere in this Prospectus. The interim financial
statements from which the selected financial data for the three months ended
March 31, 1997 and 1998 were derived were proposed on the same basis as the
annual financial statements and, in the opinion of management, reflect all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation. However, the selected financial data for the three months ended
March 31, 1997 and 1998 were not necessarily indicative of results which can be
expected for a full year or future periods.

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
COMSTOCK HOLDINGS, INC., THE
ACCOUNTING ACQUIROR:
Revenue........................ $170,665 $157,749 $181,616 $188,767 $153,610 $32,401 $41,628
Contract costs................. 148,728 137,607 164,777 169,303 136,678 27,997 37,205
-------- -------- -------- -------- -------- ------- -------
Gross profit................... 21,937 20,142 16,839 19,464 16,932 4,404 4,423
General and administrative
expenses..................... 16,954 16,963 15,624 15,053 13,733 3,895 3,224
Depreciation and
amortization................. 1,934 1,447 1,263 1,365 (213) (61) (39)
Impairment of long-lived
assets....................... -- -- 20,105 -- -- -- --
Management fees................ 1,677 961 913 941 -- -- --
Operating income (loss)........ 1,372 771 (21,066) 2,105 3,412 570 4,462
Total Assets................... $ 97,004 $ 89,168 $ 86,108 $ 84,344 $ 68,352 $64,417
Long-Term Debt................. -- -- 17,041 2,404 12,449 12,352
</TABLE>

21
<PAGE> 25

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AT MARCH 31,
------------------------------------ -----------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
MIDWEST CONSTRUCTION SERVICES, INC.:
Revenue........................................ $ 9,316 $ 10,842 $ 9,676 $ 2,281 $ 2,456
Contract costs................................. 7,950 9,339 8,637 1,951 2,106
---------- ---------- ---------- ------- -------
Gross profit................................... 1,366 1,503 1,039 330 350
General and administrative expenses............ 644 649 645 149 189
Operating income............................... 722 854 394 181 161
RAILROAD SERVICE, INC.:
Revenue........................................ $ 9,044 $ 10,709 $ 9,363 $ 238 $ 1,268
Contract costs................................. 7,330 8,199 7,065 455 1,290
---------- ---------- ---------- ------- -------
Gross profit................................... 1,714 2,510 2,298 (217) (22)
General and administrative expenses............ 1,289 1,418 1,450 268 721
Operating income............................... 425 1,092 848 (485) (743)
U.S. TRACKWORKS, INC.:
Revenue........................................ $ 4,363 $ 4,819 $ 4,814 $ 279 $ 651
Contract costs................................. 3,041 4,466 3,740 269 522
---------- ---------- ---------- ------- -------
Gross profit................................... 1,322 353 1,074 10 129
General and administrative expenses............ 1,115 443 736 161 156
Operating income (loss)........................ 207 (90) 338 (151) (27)
SOUTHERN INDIANA WOOD PRESERVING COMPANY, INC.:
Revenue........................................ $ 10,049 $ 8,149 $ 8,901 $ 1,750 $ 2,342
Costs of sales................................. 8,437 6,727 7,539 1,511 1,847
---------- ---------- ---------- ------- -------
Gross profit................................... 1,612 1,422 1,362 239 495
General and administrative expenses............ 580 570 529 90 197
Operating income............................... 1,032 852 833 149 298
WM. A. SMITH CONSTRUCTION CO., INC.:
Revenue........................................ $ 4,117 $ 5,797 $ 5,086 $ 1,028 $ 1,810
Contract costs................................. 3,387 4,973 4,238 883 1,600
---------- ---------- ---------- ------- -------
Gross profit................................... 730 824 848 145 210
General and administrative expenses............ 494 497 635 115 152
Operating income............................... 236 327 213 30 58
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED NINE MONTHS ENDED
MARCH 31, ENDED MARCH 31,
---------------- DECEMBER 31, ---------------
1996 1997 1997 1997 1998
------ ------- ------------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ANNEX RAILROAD BUILDERS, INC.:
Revenue............................................... $8,760 $11,614 $11,236 $4,219 $2,105
Contract costs........................................ 7,397 9,912 9,459 3,628 1,763
------ ------- ------- ------ ------
Gross profit.......................................... 1,363 1,702 1,777 591 342
General and administrative expenses................... 815 1,153 799 314 208
Operating income...................................... 548 549 978 277 134
KENNEDY RAILROAD BUILDERS, INC.:
Revenue............................................... $6,652 $ 9,704 $ 8,296 $2,245 $2,384
Contract costs........................................ 5,120 7,968 6,605 1,958 2,079
------ ------- ------- ------ ------
Gross profit.......................................... 1,532 1,736 1,691 287 305
General and administrative expenses................... 1,348 1,498 1,163 396 417
Operating income (loss)............................... 185 238 528 (109) (112)
</TABLE>

22
<PAGE> 26

<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
--------------------------- TEN MONTHS ENDED
ENDED MARCH 31,
FEBRUARY 29, FEBRUARY 28, DECEMBER 31, ---------------
1996 1997 1997 1997 1998
------------ ------------ ------------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
H.P. MCGINLEY, INCORPORATED:
Revenue...................................... $4,822 $4,425 $5,910 $ 743 $1,365
Cost of goods sold........................... 3,691 3,017 3,357 500 887
------ ------ ------ ------ ------
Gross profit................................. 1,131 1,408 2,553 243 478
General and administrative expenses.......... 1,113 1,294 1,835 317 352
Operating income (loss)...................... 18 114 718 (74) 126
NEW ENGLAND RAILROAD CONSTRUCTION COMPANY,
INC.:
Revenue...................................... $5,039 $7,462 $4,001 $2,222 $ 341
Contract costs............................... 4,712 5,866 3,321 1,705 537
------ ------ ------ ------ ------
Gross profit................................. 327 1,596 680 517 (196)
General and administrative expenses.......... 396 779 652 162 122
Operating income (loss)...................... (69) 817 28 355 (318)
</TABLE>

<TABLE>
<CAPTION>
TWO MONTHS
ENDED
YEAR ENDED JANUARY 31, MARCH 31,
--------------------------- ---------------
1996 1997 1998 1997 1998
------- ------- ------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CPI CONCRETE PRODUCTS INCORPORATED
Revenue................................................... $11,016 $10,098 $10,986 $1,792 $1,669
Cost of goods sold........................................ 8,418 7,887 8,841 1,558 1,397
------- ------- ------- ------ ------
Gross profit.............................................. 2,598 2,211 2,145 234 272
General and administrative expenses....................... 1,606 1,526 1,473 232 165
Operating income.......................................... 992 685 672 2 107
</TABLE>

23
<PAGE> 27

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

GENERAL

RailWorks was formed in March 1998 to become a leading nationwide provider
of rail system services, including construction and rehabilitation, repair and
maintenance, and related products. The Company primarily performs services
pursuant to contracts for the completion of specific projects, some of which
take up to five years to complete. On most projects, the Company contracts
directly with rail system operators, while on other projects the Company acts as
a subcontractor to prime contractors. RailWorks Corporation, which has conducted
no operations to date, has entered into agreements to acquire the Founding
Companies simultaneously with the consummation of the offering. In 1997, on a
pro forma as adjusted basis, the Company had revenue of $253.5 million,
operating income of $8.4 million and net income of $5.2 million. For the three
months ended March 31, 1998, on a pro forma as adjusted basis, the Company had
revenue of $60.6 million, operating income of $1.3 million and net income of
$0.8 million.

While the Company intends to conduct its business through the Founding
Companies, certain aspects of their operations, such as administrative
functions, will be integrated to achieve cost savings through the elimination of
duplicative functions. Such integration may also necessitate additional costs
and expenditures for corporate management and administration, systems
integration, employee relocation and severance and facilities expansion. As a
result of these various costs and potential cost savings, comparison of future
operating results with historical operating results may not be meaningful.

In addition, the Founding Companies have operated historically under
varying tax structures, including both S and C Corporations, which have
influenced the historical level of owners' compensation. As a result of varying
practices regarding employee-stockholder compensation among the Founding
Companies, comparison of operating results among the Founding Companies and from
period to period in respect of a particular Founding Company may not be
meaningful. Upon consummation of the Combination, certain employee-stockholders
will enter into employment agreements and the aggregate compensation paid to the
stockholders of the Founding Companies will be reduced as reflected in the
Unaudited Pro Forma As Adjusted Statements of Income. Following the initial
two-year term of the employment agreements, the Company will reevaluate its
compensation structure after examining operating results and the value of the
services such individuals are providing the Company. See "Risk
Factors -- Compensation Differential".

REVENUE AND COSTS

The Company recognizes revenues from fixed-fee contracts using the
percentage-of-completion method, measured by the percentage of cost incurred to
date to management's estimated total cost for each contract. Changes in job
performance, job conditions and estimated profitability may result in revisions
to cost and income, which are recognized in the period in which the revisions
are determined. Revenues from time-and-material contracts are recognized
currently as the work is performed.

Contract costs consist primarily of wages and benefits of employees,
subcontracted services, materials, parts and supplies, depreciation, fuel and
other vehicle expenses and equipment rental, as well as indirect costs related
to contract performance. Contract costs are charged to expense as incurred.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined.

In the case of product sales, the Company recognizes revenue when products
are delivered to customers pursuant to shipping agreements. Cost of goods sold
includes raw materials cost and production cost.

24
<PAGE> 28

The Company's gross margin for a project depends on the relative proportion
of costs related to labor and materials and on whether the Company functions as
a prime contractor as opposed to a subcontractor. A significant portion of the
Company's revenue is attributable to materials and supplies installed in
connection with its contracting activities. Costs from materials and supplies
are typically passed-through to the customer and revenue from these items has a
significantly lower profit margin than revenue related to other activities. For
projects in which a higher percentage of the contract costs consist of labor,
the Company's bid price includes a higher gross margin than for projects in
which materials represent more of the contract costs due to the greater
difficulty in estimating the required labor. Material costs can be estimated
with greater accuracy and prices often can be fixed by placing orders at the
time a project is bid or commenced. The Company generally realizes higher gross
margins on projects in which it functions as a prime contractor.

FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

The Founding Companies have in the past experienced quarterly variations in
revenue, operating income (including operating losses), net income (including
net losses) and cash flows (including cash flow deficits) as a result of various
factors, including projects commenced and completed during a quarter, the number
of business days in a quarter, and the size and scope of projects. A variation
in the number of projects, progress on projects, or the timing of the initiation
or completion of projects can cause periods in which certain resources are not
generating revenue as well as significant variations in operating results
between reporting periods. Negative fluctuations have been particularly
pronounced, and net losses have been incurred, in the first and fourth calendar
quarters, generally due to adverse weather conditions. The Company expects to
continue to experience such quarterly fluctuations in operating results,
including possible net losses. See "Risk Factors -- Rail System Cyclicality" and
"-- Fluctuations in Quarterly Operating Results."

PRO FORMA AS ADJUSTED RESULTS OF OPERATIONS

The pro forma as adjusted results of operations of the Founding Companies
for the periods presented may not be comparable to, and may not be indicative
of, the Company's post-Combination results of operations because (i) the
Founding Companies were not under common control or management during the
periods presented and (ii) the pro forma as adjusted data do not reflect all of
the potential benefits and cost savings the Company expects to realize when
operating as a combined entity. The following discussion should be read in
conjunction with the Unaudited Pro Forma As Adjusted Financial Statements and
the related notes thereto and the historical financial statements of the
Founding Companies and the related notes appearing elsewhere in this Prospectus.

The following table sets forth selected pro forma as adjusted financial
data for the periods indicated.

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
-----------------
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Revenue..................................................... $51,396 $60,612
Contract costs and cost of goods sold....................... 44,793 54,160
Gross profit................................................ 6,603 6,452
General and administrative expenses......................... 5,991 5,331
Intangible amortization..................................... 712 712
Income from operations...................................... 808 1,296
</TABLE>

25
<PAGE> 29

Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997

Revenue. Revenue increased to $60.6 million for the three months ended
March 31, 1998 from $51.4 million for the three months ended March 31, 1997, an
increase of $9.2 million, or 17.9%. Revenue increased primarily as a result of
higher revenue at Comstock. See "-- Comstock Holdings, Inc."

Gross Profit. Gross profit decreased to $6.5 million for the three months
ended March 31, 1998 from $6.6 million for the three months ended March 31,
1997, a decrease of $0.2 million or 2.3%. As a percentage of revenue, gross
profit decreased to 10.6% for the three months ended March 31, 1998 from 12.8%
for the three months ended March 31, 1997. The decline in gross profit as a
percentage of revenue was the result of the completion of several large
contracts with unusually high margins which were in process during the three
months ended March 31, 1997. See "-- Quarterly Fluctuations in Results of
Operations."

General and Administrative Expenses. General and administrative expenses
decreased to $5.3 million for the three months ended March 31, 1998 from $6.0
million for the three months ended March 31, 1997, a decrease of $0.7 million or
11.0%. As a percentage of revenue, general and administrative expenses decreased
to 8.8% for the three months ended March 31, 1998 from 11.7% for the three
months ended March 31, 1997. The decline in general and administrative expenses
as a percentage of revenue was principally the result of leveraging general and
administrative expenses over a higher sales volume.

Operating Income. Operating income increased to $1.1 million for the three
months ended March 31, 1998 from $0.6 million for the three months ended March
31, 1997, an increase of $0.5 million or 83.2%. As a percentage of revenue,
operating income increased to 1.8% for the three months ended March 31, 1998
from 1.2% for the three months ended March 31, 1997.

PRO FORMA AS ADJUSTED LIQUIDITY AND CAPITAL RESOURCES

Capital expenditures are expected to be approximately $1.0 million and $3.0
million in 1998 and 1999, and will primarily be used to support expansion of the
management information systems for RailWorks.

Cash for future acquisitions and working capital will be financed by funds
generated from operations, together with borrowings under a credit facility. The
Company's credit facility is expected to be established prior to consummation of
the Combination and the Offering. The Company intends to finance future
acquisitions with cash and shares of common stock.

RESULTS OF OPERATIONS OF THE FOUNDING COMPANIES

Prior to the Combination each of the Founding Companies (other than Annex
Railroad Builders, Inc., CPI Concrete Products Incorporated, Kennedy Railroad
Builders, Inc. and Wm. A. Smith Construction Co., Inc.) elected to be treated as
an S Corporation. As a result, no Founding Company other than these Founding
Companies has been subject to federal income taxes. The selling, general and
administrative expenses of the Founding Companies include compensation to
employee-stockholders of the Founding Companies totaling $ million,
$ million and $ million for the fiscal years ended December 31,
1996 and 1997 and the three months ended March 31, 1998, respectively. Upon
consummation of the Combination, certain employee-stockholders will enter into
employment agreements and the aggregate compensation paid to stockholders of the
Founding Companies will be reduced as reflected in the Unaudited Pro Forma As
Adjusted Statement of Income. Following the initial two-year term of the
employment agreements, the Company will reevaluate its compensation structure
after examining operating results and the value of the services such individuals
are providing the Company. As a result of varying practices regarding
compensation to employee-stockholders among the Founding Companies, the
comparison of operating margins among the Founding Companies and from period to
period in respect of a

26
<PAGE> 30

particular Founding Company may not be meaningful. The following information
describes the results of operations for certain of the Founding Companies.

COMSTOCK HOLDINGS, INC.

Founded in 1904, L.K. Comstock & Co., Inc. ("L.K. Comstock"), a wholly
owned subsidiary of Comstock, is one of the largest electrical contractors in
the United States, based on revenue. L.K. Comstock specializes in power,
communication and signaling installations for rail-based transit systems and
also provides electrical contracting services for commercial buildings, heavy
industrial and manufacturing plants and power plants. Through incremental
investments from 1986 through 1989, L.K. Comstock's former parent company,
Comstock Group, Inc. ("CGI"), was acquired by Spie Enertrans S.A. ("Spie"), a
multinational electrical engineering firm headquartered in Paris, France. During
Spie's ownership, L.K. Comstock sought to increase revenue by expanding its non-
transit operations in California and entering into joint ventures to design and
build large power and industrial projects in other locations. Effective January
1, 1997, L.K. Comstock was acquired (the "Comstock Acquisition") from Spie by
Comstock, a corporation owned by employees of L.K. Comstock. Comstock's revenue
in fiscal 1997 was $153.6 million, representing 60.6% of the Company's pro forma
as adjusted revenue for 1997.

Following the Comstock Acquisition, Comstock's management instituted a plan
to reduce Comstock's costs and improve profitability. Comstock has begun to
reduce general and administrative expenses by eliminating certain management
positions, including those of several French expatriates, and reducing its Los
Angeles-based staff. Comstock has also been improving gross profit margins
through (i) improved control over contract costs by consolidating transit
project estimating and bidding functions (ii) exiting unprofitable, risky
operations which had been expanded under Spie's ownership (such as electrical
projects for traffic systems, non-rail projects in California and large joint
ventures for the design and construction of power and industrial plants). Under
joint ventures with general construction contractors as preferred by Spie,
Comstock had limited management control and was subject to increased costs due
to general contract conditions. Since the Comstock Acquisition, management has
focused the business to benefit from its core competencies, including rail-based
transit projects. In 1997, Comstock derived 57.1% of its revenue and 67.7% of
its gross profit from rail-related projects as compared to 47.9% and 52.1%,
respectively, in 1996.

The following table sets forth certain selected financial data and data as
a percentage of revenue for the periods indicated.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------------------------ ---------------------------------
1995 1996 1997 1997 1998
---------------- ---------------- ---------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue.............. $181,616 100.0% $188,767 100.0% $153,610 100.0% $32,401 100.0% $41,628 100.0%
Contract costs....... 164,777 90.7 169,303 89.7 136,678 89.0 27,997 86.4 37,205 89.4
Gross profit......... 16,839 9.3 19,464 10.3 16,932 11.0 4,404 13.6 4,404 10.6
General and
administrative
expenses........... 15,624 8.6 15,053 8.0 13,733 8.9 3,895 12.0 3,224 7.7
</TABLE>

Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997

Revenue. Revenue increased to $41.6 million for the three months ended
March 31, 1998 from $32.4 million for the three months ended March 31, 1997, an
increase of $9.2 million, or 28.5%. This increase was a result of a $12.3
million increase in revenue from commercial and other operations due to the
commencement of work on certain large projects, including those at John F.
Kennedy International Airport in New York ("JFK"). This increase was partially
offset by a decrease of $2.9 million in revenue from rail-related projects due
to delays in the commencement of certain large projects.

27
<PAGE> 31

Gross Profit. Gross profit was $4.4 million for the three-month periods
ended March 31, 1998 and 1997. As a percentage of revenue, gross profit
decreased to 10.6% for the three months ended March 31, 1998 from 13.6% for the
three months ended March 31, 1997. This decrease was the result of costs
associated with the commencement of the JFK projects and a change in the mix of
projects.

General and Administrative Expenses. General and administrative expenses
decreased to $3.2 million for the three months ended March 31, 1998 from $3.9
million for the three months ended March 31, 1997, a decrease of $0.7 million,
or 17.2%. As a percentage of revenue, general and administrative expenses
decreased to 7.7% for the three months ended March 31, 1998 from 12.0% for the
three months ended March 31, 1997. This decline was a result of reductions in
executive and administrative staff and tighter cost controls by management which
ensured that general and administrative expenses did not increase
proportionately with the increase in revenue.

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

Revenue. Revenue decreased to $153.6 million for the year ended December
31, 1997 from $188.8 million for the year ended December 31, 1996, a decrease of
$35.2 million, or 18.6%. This decline was due to a decrease in revenue from
Comstock's power and industrial operations attributable to the completion of
certain large projects in 1996 or early 1997 that were not immediately replaced,
as well as a decrease in revenue from Comstock's traffic operations, offset in
part by an increase in revenue from Comstock's commercial operations.

Gross Profit. Gross profit decreased to $16.9 million for the year ended
December 31, 1997 from $19.4 million for the year ended December 31, 1996, a
decrease of $2.5 million, or 13.0%. As a percentage of revenue, gross profit
increased to 11.0% for the year ended December 31, 1997 from 10.3% for the year
ended December 31, 1996. Gross profit decreased as a result of the decline in
revenue, offset in part by tighter cost controls implemented by management and a
reduction in the amount of activity in traffic and Los Angeles non-rail
projects. Additionally, the 1996 gross profit benefitted from a reduction in
contract reserves related to the settlement of outstanding project
contingencies.

General and Administrative Expenses. General and administrative expenses
decreased to $13.7 million for the year ended December 31, 1997 from $15.1
million for the year ended December 31, 1996, a decrease of $1.3 million, or
8.8%. This decrease was a result of the tighter cost controls implemented by
management, including reductions in executive and administrative staff in the
power, industrial and Los Angeles-based non-rail operations. As a percentage of
revenue, general and administrative expenses increased to 8.9% for the year
ended December 31, 1997 from 8.0% for the year ended December 31, 1996. This
increase was the result of the decrease in revenue.

Year Ended December 31, 1996 Compared to Year Ended 1995

Revenue. Revenue increased to $188.8 million for the year ended December
31, 1996 from $181.6 million for the year ended December 31, 1995, an increase
of $7.2 million, or 4.0%. This 4.0% increase was due to a $22.1 million increase
in revenue from Comstock's rail related operations, resulting from the
commencement of several projects in the Metropolitan New York area, partially
offset by a reduction of approximately $13 million in revenue from Comstock's
commercial and other operations due to the completion of several projects in
1995 or early 1996 which were not immediately replaced.

Gross Profit. Gross profit increased to $19.5 million for the year ended
December 31, 1996 from $16.8 million for the year ended December 31, 1995, an
increase of $2.5 million, or 15.6%. As a percentage of revenue, gross profit
increased to 10.3% for the year ended December 31, 1996 from 9.3% for the year
ended December 31, 1995. Gross profit increased principally as a result of a
reduction in contract reserves of approximately $3 million related to the
settlement of outstanding project contingencies (see "Certain Transactions and
Related Party Transactions -- Other Transactions"), and to a lesser extent,
increased revenue.
28
<PAGE> 32

General and Administrative Expenses. General and administrative expenses
decreased to $15.1 million for the year ended December 31, 1997 from $15.6
million for the year ended December 31, 1996, a decrease of $0.6 million, or
3.7%. As a percentage of revenue, general and administrative expenses decreased
to 8.0% in the year ended December 31, 1996 from 8.6% for the year ended
December 31, 1995. This decrease was the result of a reduction in administrative
staff and expenses at Comstock's Los Angeles office.

LIQUIDITY AND CAPITAL RESOURCES OF COMSTOCK

At March 31, 1998, Comstock had cash and cash equivalents of $0.9 million
and working capital of $25.6 million. For the three months ended March 31, 1998,
cash flow from operations was $1.5 million which was principally used to reduce
the outstanding balance on Comstock's credit line.

At December 31, 1997, Comstock had cash and cash equivalents of $1.1
million and working capital of $26.5 million. For the year ended December 31,
1997, Comstock had a cash flow deficit from operations of $3.2 million primarily
due to an increase in billed and unbilled accounts receivable. In connection
with the Comstock Acquisition, L.K. Comstock received $14.9 million in cash from
Spie and issued a contingent promissory note for such amount. See "Certain
Transactions and Related Party Transactions -- Other Transactions." The proceeds
of the contingent promissory note were used primarily to reduce long-term
borrowings.

L.K. Comstock has a $17 million revolving credit line pursuant to two
separate agreements with Harris Trust and Savings Bank. Borrowings bear interest
at either 1% over the prime rate or 3.25% over LIBOR. These borrowings are
secured by substantially all of the assets of L.K. Comstock and are subject to
various financial covenants. Comstock, and to a limited extent, certain members
of Comstock's management, has guaranteed a portion of the borrowings. The total
amount of borrowings including letters of credit under these credit lines was
$15.0 million at March 31, 1998. After the closing of the Offering, Railworks
will assume the obligations under the credit line and repay all outstanding
borrowings.

During the remainder of 1998, Comstock is obligated to make aggregate
payments of $750,000, together with interest accruing at 8.5% per annum, in full
satisfaction of a note to BW Capital. Railworks will assume this obligation and
repay the amount outstanding. In the first quarter of 1998, Comstock made
payments of $950,000 on such note.

The contracts under which Comstock performs services generally require
retainage ranging from 2% to 10% of the total contract price until the project
is complete. At December 31, 1997, $15.0 million of Comstock's accounts
receivable consisted of retainage. In some instances, the terms of the contract
allow Comstock to replace the amount withheld with certain marketable
securities, such as treasury bonds, and retain the yield on such investments. At
March 31, 1998, $4.4 million of Comstock's retainage was invested in marketable
securities. Comstock estimates that approximately 50% of this retainage will be
collected in 1998.

Prior to the Comstock Acquisition, Comstock maintained a deductible of
$250,000 per incident on its auto and general liability insurance. At December
31, 1997, Comstock carried a $3.6 million liability on its balance sheet as a
reserve against these liabilities. Currently, Comstock maintains considerably
lower deductibles on its insurance policies to provide greater predictability
and consistency in insurance and liability costs.

ANNEX RAILROAD BUILDERS, INC.

Founded in 1961, Annex Railroad Builders, Inc. ("Annex") provides
construction, rehabilitation, repair and maintenance services for railroad track
in the Midwestern and Southern United States. In calender year 1997, Annex
derived approximately 69% from maintenance and repair and

29
<PAGE> 33

31% of its revenue from new construction and rehabilitation. Annex's revenue in
calendar year 1997 was $15.4 million, representing 6.1% of the Company's pro
forma as adjusted revenue for 1997.

The following table sets forth certain selected pro forma as adjusted
financial data and data as a percentage of revenue for the periods indicated.

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
MARCH 31, ENDED THREE MONTHS ENDED MARCH 31,
--------------- DECEMBER 31, -------------------------------
1997 1997 1997 1998
--------------- --------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue............................ $11,614 100.0% $11,236 100.0% $4,219 100.0% $2,105 100.0%
Contract costs..................... 9,912 85.3 9,459 84.2 3,628 86.0 1,763 83.8
Gross profit....................... 1,702 14.7 1,777 15.8 591 14.0 342 16.2
General and administrative
expenses......................... 1,153 9.9 799 7.1 314 7.4 208 9.9
Operating income................... 549 4.7 978 8.7 277 6.6 134 6.4
</TABLE>

Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997

Revenue. Revenue decreased to $2.1 million for the three months ended
March 31, 1998 from $4.2 million for the three months ended March 31, 1997, a
decrease of $2.1 million, or 50.1% as a result of two government projects that
were completed in fiscal 1997 that were not replaced in fiscal 1998.

Gross Profit. Gross profit decreased to $0.3 million for the three months
ended March 31, 1998 from $0.6 million for the three months ended March 31,
1997, a decrease of $0.2 million, or 42.1%. As a percentage of revenue, gross
profit increased to 16.2% for the three months ended March 31, 1998 from 14.0%
for the three months ended March 31, 1997. Gross profit decreased largely as a
result of the decline in revenue.

General and Administrative Expenses. General and administrative expenses
decreased to $0.2 million for the three months ended March 31, 1998 from $0.3
million for the three months ended March 31, 1997, a decrease of $0.1 million,
or 33.8%. As a percentage of revenue, general and administrative expenses
increased to 9.9% for the three months ended March 31, 1998 from 7.4% for the
three months ended March 31, 1997. Despite the decrease in salaries and wages
that caused the decline in general and administrative expenses, general and
administrative expenses as a percentage of revenue increased due to significant
fixed general and administrative expenses that did not decrease with the lower
revenue.

Operating Income. Operating income decreased to $0.1 million for the three
months ended March 31, 1998 from $0.3 million for the three months ended March
31, 1997, a decrease of $0.1 million, or 51.6%. As a percentage of revenue,
operating income decreased to 6.4% for the three months ended March 31, 1998
from 6.6% for the three months ended March 31, 1997.

Nine Months Ended December 31, 1997 Compared to Year Ended March 31, 1997

Because Annex has changed its fiscal year end from March 31 to December 31,
the period ended December 31, 1997 is only a nine-month period as compared to a
twelve-month period for the year ended March 31, 1997.

Revenue. Revenue was $11.2 million for the nine months ended December 31,
1997 and $11.6 million for the year ended March 31, 1997. Revenue increased to
$13.3 million in the twelve-month period ended March 31, 1998 from $11.6 million
in the year ended March 31, 1997, an increase of $1.7 million, or 14.9%. This
increase was attributable to an increase in the number of contracts in process.

Gross Profit. Gross profit was $1.8 million for the nine months ended
December 31, 1997 and $1.7 million for the year ended March 31, 1997. Gross
profit increased to $2.1 million for the twelve-month period ended March 31,
1998 from $1.7 million for the year ended March 31, 1997, an

30
<PAGE> 34

increase of $0.4 million, or 24.5%. As a percentage of revenue, gross profit
increased to 15.9% for the twelve-month period ended March 31, 1998 from 14.7%
for the year ended March 31, 1997. Gross profit increased principally as a
result of higher margin contracts which generated higher revenue with a less
than proportional increase in cost.

General and Administrative Expenses. General and administrative expenses
were $0.8 million for the nine months ended December 31, 1997 and $1.2 million
for the year ended March 31, 1997. General and administrative expenses decreased
to $1.0 million for the twelve-month period ended March 31, 1998 from $1.2
million for the year ended March 31, 1997, a decrease of $0.1 million, or 12.6%.
As a percentage of revenue, general and administrative expenses decreased to
7.6% for the twelve-month period ended March 31, 1998 from 9.9% for the year
ended March 31, 1997. This decrease was the result of lower salary and wage
expense despite the increase in revenue, for the twelve-month period ended March
31, 1998.

Operating Income. Operating income was $1.0 million for the nine months
ended December 31, 1997 and $0.5 for the year ended March 31, 1997. Operating
income increased to $1.1 million for the twelve-month period ended March 31,
1998 from $0.5 million for the year ended March 31, 1997, an increase of $0.6
million, or 102.4%. As a percentage of revenue, operating income increased to
8.3% for the twelve-month period ended March 31, 1998 from 4.7% for the year
ended March 31, 1997.

CPI CONCRETE PRODUCTS INCORPORATED

Founded in 1974, CPI Concrete Products Incorporated ("CPI Concrete")
provides prestressed and precast concrete products to rail systems, highways,
bridges, airports, power plants and dams throughout the United States. CPI
Concrete's revenue in 1997 was approximately $11 million, representing 4.3% of
the Company's pro forma as adjusted revenue for 1997.

The following table sets forth certain selected pro forma as adjusted
financial data and data as a percentage of revenue for the periods indicated.

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, TWO MONTHS ENDED MARCH 31,
----------------------------------------------------- --------------------------------
1996 1997 1998 1997 1998
--------------- --------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue.............. $11,016 100.0% $10,098 100.0% $10,986 100.0% $1,792 100.0% $1,669 100.0%
Cost of goods sold... 8,418 76.4 7,887 78.1 8,841 80.5 1,558 86.9 1,397 83.7
Gross profit......... 2,598 23.6 2,211 21.9 2,145 19.5 234 13.1 272 16.3
General and
administrative
expenses........... 1,606 14.6 1,526 15.1 1,473 13.4 232 12.9 165 9.9
</TABLE>

Two Months Ended March 31, 1998 Compared to Two Months Ended March 31, 1997

Revenue. Revenue decreased to $1.7 million for the two months ended March
31, 1998 from $1.8 million for the two months ended March 31, 1997, a decrease
of $0.1 million, or 6.9%. This decrease was the result of a marginal decrease in
the number of units sold.

Gross Profit. Gross profit increased to $0.3 million for the two months
ended March 31, 1998 from $0.2 million for the two months ended March 31, 1997,
an increase of $38,000 or 16.2%. As a percentage of revenue, gross profit
increased to 16.3% for the two months ended March 31, 1998 from 13.1% for the
two months ended March 31, 1997. Gross profit increased due to a more favorable
product mix that resulted in lower costs.

General and Administrative Expenses. General and administrative expenses
remained relatively stable at $0.2 million for the two-month periods ended March
31, 1998 and 1997. As a percentage of revenue, general and administrative
expenses decreased to 9.9% for the two months

31
<PAGE> 35

ended March 31, 1998 from 12.9% for the two months ended March 31, 1997. This
decrease was a result of a reduction in performance bonuses.

Year Ended January 31, 1998 Compared to Year Ended January 31, 1997

Revenue. Revenue increased to $11.0 million for the year ended January 31,
1998 from $10.1 million for the year ended January 31, 1997, an increase of $0.9
million, or 8.8%. This increase was due to an increase in the number of units
sold.

Gross Profit. Gross profit decreased to $2.1 million for the year ended
January 31, 1998 from $2.2 million for the year ended January 31, 1997, a
decrease of $0.1 million, or 3.0%. As a percentage of revenue, gross profit
decreased to 19.5% for the year ended January 31, 1998 from 21.9% for the year
ended January 31, 1997. Gross profit decreased as a result of increased costs of
goods sold, offset in part by increased revenues.

General and Administrative Expenses. General and administrative expenses
remained constant at $1.5 million for the years ended January 31, 1998 and 1997.
As a percentage of revenue, general and administrative expenses decreased to
13.4% for the year ended January 31, 1998 from 15.1% for the year ended January
31, 1997. This decrease was the result of leveraging general and administrative
expenses over higher revenue.

Year Ended January 31, 1997 Compared to Year Ended January 31, 1996

Revenue. Revenue decreased to $10.1 million for the year ended January 31,
1997 from $11.0 million for the year ended January 31, 1996, a decrease of $0.9
million, or 8.3%. This decrease was the result of a decline in the number of
units sold.

Gross Profit. Gross profit decreased to $2.2 million for the year ended
January 31, 1997 from $2.6 million for the year ended January 31, 1996, a
decrease of $0.4 million, or 14.9%. As a percentage of revenue, gross profit
decreased to 21.9% for the year ended January 31, 1997 from 23.6% for the year
ended January 31, 1996. The decline in gross profit was due to higher wages
combined with lower revenue.

General and Administrative Expenses. General and administrative expenses
decreased to $1.5 million for the year ended January 31, 1997 from $1.6 million
for the year ended January 31, 1996, a decrease of $0.1 million or 5.0%. As a
percentage of revenue, general and administrative expenses increased to 15.1%
for the year ended January 31, 1997 from 14.6% for the year ended January 31,
1996.

KENNEDY RAILROAD BUILDERS, INC., ALPHA-KEYSTONE ENGINEERING, INC., AND RAILCORP,
INC.

Founded in 1965, Kennedy Railroad Builders, Inc. ("Kennedy") provides
construction, rehabilitation and maintenance services primarily for industrial
companies in the Northeastern and mid-Southern United States. Alpha-Keystone
Engineering, Inc. ("Alpha-Keystone"), an affiliate of Kennedy, also provides
design and engineering services for railroad construction projects. Railcorp,
Inc. ("Railcorp"), an affiliate of Kennedy, provides construction,
rehabilitation and maintenance services. In 1997, Kennedy, Alpha-Keystone and
Railcorp collectively derived approximately 70% of their revenue from new
construction and rehabilitation and 30% from maintenance and repair.
Collectively, Kennedy's, Alpha-Keystone's and Railcorp's revenue in calendar
year 1997 were $10.6 million, representing 4.2% of the Company's pro forma as
adjusted revenue for 1997.

32
<PAGE> 36

The following table sets forth certain combined selected pro forma as
adjusted financial data and data as a percentage of revenue for the periods
indicated.

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED MARCH 31, ENDED THREE MONTHS ENDED MARCH 31,
------------------------------- DECEMBER 31, -------------------------------
1996 1997 1997 1997 1998
-------------- -------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue............... $6,652 100.0% $9,704 100.0% $8,296 100.0% $2,245 100.0% $2,384 100.0%
Contract costs........ 5,120 77.0 7,968 82.1 6,605 79.6 1,958 87.2 2,079 87.2
Gross profit.......... 1,532 23.0 1,736 17.9 1,691 20.4 287 12.8 305 12.8
General and
administrative
expenses............ 1,347 20.2 1,498 15.4 1,163 14.0 396 17.6 417 17.5
Operating income
(loss).............. 185 2.8 238 2.5 528 6.4 (109) (4.9) (112) (4.7)
</TABLE>

Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997

Revenue. Revenue increased to $2.4 million for the three months ended
March 31, 1998 from $2.2 million for the three months ended March 31, 1997, an
increase of $0.1 million, or 6.2%, as a result of incremental construction
projects in process.

Gross profit. Gross profit remained at $0.3 million for the three months
ended March 31, 1998 and 1997. As a percentage of revenue, gross profit remained
at 12.8% for the three months ended March 31, 1998 and 1997.

General and Administrative Expenses. General and administrative expenses
remained at $0.4 million for the three months ended March 31, 1998 for the three
months ended March 31, 1997. As a percentage of revenue, general and
administrative expenses remained relatively stable at 17.5% for the three months
ended March 31, 1998 and 17.6% for the three months ended March 31, 1997.

Operating Income. Kennedy, Alpha-Keystone and Railcorp experienced
combined operating loss of $0.1 million for the three months ended March 31,
1998 and 1997.

Nine Months Ended December 31, 1997 Compared to Year Ended March 31, 1997

Because Kennedy, Alpha-Keystone and Railcorp changed their fiscal year ends
from March 31 to December 31, the period ended December 31, 1997 is a nine-month
period as compared to a twelve-month period for the year ended March 31, 1997.

Revenue. Revenue was $8.3 million for the nine months ended December 31,
1997 and $9.7 million for the year ended March 31, 1997. Revenue increased to
$10.7 million for the twelve-month period ended March 31, 1998 from $9.7 million
for the year ended March 31, 1997, an increase of $1.0 million, or 10.1%. This
increase was a result of incremental construction projects in process during the
twelve months ended March 31, 1998.

Gross Profit. Gross profit was $1.7 million for the nine months ended
December 31, 1997 and $1.7 million for the year ended March 31, 1997. Gross
profit increased to $2.0 million for the twelve-month period ended March 31,
1998 from $1.7 million for the year ended March 31, 1997, an increase of $0.3
million, or 15.0%. As a percentage of revenue, gross profit increased to 18.7%
for the twelve-month period ended March 31, 1998 from 17.9% for the twelve-month
period ended March 31, 1997. Gross profit increased primarily due to higher
revenue with a less than proportional increase in contract costs.

General and Administrative Expenses. General and administrative expenses
were $1.2 million for the nine months ended December 31, 1997 and $1.5 million
for the year ended March 31, 1997. General and administrative expenses increased
to $1.6 million for the twelve-month period ended March 31, 1998 from $1.5
million for the year ended March 31, 1997, an increase of $0.1 million or

33
<PAGE> 37

5.5%. As a percentage of revenue, general and administrative expenses decreased
to 14.8% for the twelve-month period ended March 31, 1998 from 15.4% for the
twelve-month period ended March 31, 1997. The increase in general and
administrative expenses was due to higher salaries and wages.

Operating Income. Operating income was $0.5 million for the nine months
ended December 31, 1997 and $0.2 million for the year ended March 31, 1997.
Operating income increased to $0.4 million for the twelve-month period ended
March 31, 1998 from $0.2 million for the year ended March 31, 1997, an increase
of $0.2 million, or 74.8%. As a percentage of revenue, operating income
increased to 3.9% for the twelve-month period ended March 31, 1998 from 2.5% for
the year ended March 31, 1997.

Year Ended March 31, 1997 Compared to Year Ended March 31, 1996

Revenue. Revenue increased to $9.7 million for the year ended March 31,
1997 from $6.7 million for the year ended March 31, 1996, an increase of $3.1
million, or 45.9%. This increase was the result of expanding into new markets
and Alpha-Keystone commencing operations, which added revenue from engineering
services and increased contracting business.

Gross Profit. Gross profit increased to $1.7 million for the year ended
March 31, 1997 from $1.5 million for the year ended March 31, 1996, an increase
of $0.2 million, or 13.3%. Despite the increase in gross profit, gross profit as
a percentage of revenue decreased to 17.9% for the year ended March 31, 1997
from 23.0% for the year ended March 31, 1996 due to lower profit margins on
certain contracts.

General and Administrative Expenses. General and administrative expenses
increased to $1.5 million for the year ended March 31, 1997 from $1.3 million
for the year ended March 31, 1996, an increase of $0.2 million or 11.2%. As a
percentage of revenue, general and administrative expenses decreased to 15.4%
for the year ended March 31, 1997 from 20.2% for the year ended March 31, 1996.
The decline in general and administrative expenses as a percentage of revenue
was a result of leveraging general and administrative expenses over a higher
sales volume despite an increase in salaries and wages.

Operating Income. Operating income remained stable at $0.2 million for the
year ended March 31, 1997 and 1996, an increase of $0.1 million, or 28.6%. As a
percentage of revenue, operating income decreased to 2.5% for the year ended
March 31, 1997 from 2.8% for the year ended March 31, 1996.

MIDWEST CONSTRUCTION SERVICES, INC.

Founded in 1982, Midwest Construction Services, Inc. ("Midwest") provides
construction, rehabilitation, repair and maintenance services primarily to
companies in the steel industry throughout the Midwestern United States. Unlike
the other Founding Companies, most of Midwest's customers have long-term
contracts with Midwest. In 1997, Midwest derived approximately 67% of its
revenue from maintenance and repair, approximately 18% from new construction and
rehabilitation, and approximately 15% from other services. Midwest's revenue in
1997 was $9.7 million, representing 3.8% of the Company's pro forma as adjusted
revenue for 1997.

34
<PAGE> 38

The following table sets forth certain selected pro forma as adjusted
financial data and data as a percentage of revenue for the periods indicated.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------------------- -------------------------------
1995 1996 1997 1997 1998
-------------- --------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue.............. $9,316 100.0% $10,842 100.0% $9,676 100.0% $2,281 100.0% $2,456 100.0%
Contract costs....... 7,950 85.3 9,339 86.1 8,637 89.3 1,951 85.5 2,106 85.8
Gross profit......... 1,366 14.7 1,503 13.9 1,039 10.7 330 14.5 350 14.2
General and
administrative
expenses........... 644 6.9 649 6.0 645 6.7 149 6.5 189 7.7
Operating income..... 722 7.8 854 7.9 394 4.1 181 7.9 161 6.5
</TABLE>

Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997

Revenue. Revenue increased to $2.5 million for the three months ended
March 31, 1998 from $2.3 million for the three months ended March 31, 1997, an
increase of $0.2 million, or 7.7%, as a result of additional projects in
process.

Gross Profit. Gross profit remained flat at $0.3 million for the three
months ended March 31, 1998 and 1997. As a percentage of revenue, gross profit
remained relatively stable at 14.2% for the three months ended March 31, 1998
and 14.5% in the three months ended March 31, 1997.

General and Administrative Expenses. General and administrative expenses
increased to $0.2 million for the three months ended March 31, 1998 from $0.1
million for the three months ended March 31, 1997, an increase of $40,000 or
26.8%. As a percentage of revenue, general and administrative expenses increased
to 7.7% for the three months ended March 31, 1998 from 6.5% for the three months
ended March 31, 1997. The increase was a result of increased professional fees.

Operating Income. Operating income remained relatively constant at $0.2
million for the three month periods ended March 31, 1998 and 1997. As a
percentage of revenue, operating income decreased to 6.5% in the three months
ended March 31, 1998 from 7.9% for the three months ended March 31, 1997.

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

Revenue. Revenue decreased to $9.7 million for the year ended December 31,
1997 from $10.8 million for the year ended December 31, 1996, a decrease of $1.2
million, or 10.8%. This decrease was due to reduced spending on maintenance
projects by several customers.

Gross Profit. Gross profit decreased to $1.0 million for the year ended
December 31, 1997 from $1.5 million for the year ended December 31, 1996, a
decrease of $0.5 million, or 30.9%. As a percentage of revenue, gross profit
decreased to 10.7% for the year ended December 31, 1997 from 13.9% for the year
ended December 31, 1996. The decrease in gross profit was due to higher wages
and salaries.

General and administrative expenses. General and administrative expenses
remained stable at $0.6 million for the year ended December 31, 1997 and 1996.
As a percentage of revenue, general and administrative expenses increased to
6.7% for the year ended December 31, 1997 from 6.0% for the year ended December
31, 1996. Although general and administrative expenses remained stable, they
increased as a percentage of revenue because a significant portion of these
expenses were fixed and did not decrease with revenue.

Operating Income. Operating income decreased to $0.4 million for the year
ended December 31, 1997 from $0.9 million for the year ended December 31, 1996,
a decrease of $0.5 million, or 53.9%. As a percentage of revenue, operating
income decreased to 4.1% for the year ended December 31, 1997 from 7.9% for the
year ended December 31, 1996.

35
<PAGE> 39

Year Ended December 31, 1996 Compared to Year Ended December 31, 1995

Revenue. Revenue increased to $10.8 million for the year ended December
31, 1996 from $9.3 million for the year ended December 31, 1995, an increase of
$1.5 million, or 16.4%. This increase was the result of incremental maintenance
projects in process during 1996.

Gross Profit. Gross profit increased to $1.5 million for the year ended
December 31, 1996 from $1.4 million for the year ended December 31, 1995, an
increase of $0.1 million, or 10.0%. As a percentage of revenue, gross profit
decreased to 13.9% for the year ended December 31, 1996 from 14.7% for the year
ended December 31, 1995 as a result of an increase in revenue from lower margin
contracts.

General and Administrative Expenses. General and administrative expenses
remained stable at $0.6 million for the years ended December 31, 1996 and 1995.
As a percentage of revenue, general and administrative expenses decreased to
6.0% for the year ended December 31, 1996 from 6.9% for the year ended December
31, 1995. The decline in general and administrative expenses as a percentage of
revenue was a result of leveraging general and administrative expenses over a
higher sales volume.

Operating Income. Operating income increased to $0.9 million for the year
ended December 31, 1996 from $0.7 million for the year ended December 31, 1995,
an increase of $0.1 million, or 18.3%. As a percentage of revenue, operating
income increased to 7.9% for the year ended December 31, 1996 from 7.8% for the
year ended December 31, 1995.

RAILROAD SERVICE, INC. AND MINNESOTA RAILROAD SERVICE, INC.

Founded in 1972, Railroad Service, Inc. ("Railroad Service") provides
construction, maintenance and rehabilitation services primarily to industrial
companies for the Northern and Midwestern United States. Minnesota Railroad, an
affiliate of Railroad Service, provides the same services as Railroad Service
but utilizes unionized laborers. For 1997, Railroad Service and Minnesota
Railroad Service, Inc. ("Minnesota Railroad") collectively derived approximately
64% of their revenue from new construction and approximately 32% from
maintenance and repair. Collectively, Railroad Service's and Minnesota
Railroad's revenue for 1997 was $9.4 million, representing 3.7% of the Company's
pro forma as adjusted revenue for 1997.

The following table sets forth certain combined selected financial data and
data as a percentage of revenue for the periods indicated.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------------------- --------------------------------
1995 1996 1997 1997 1998
-------------- --------------- -------------- --------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue.............. $9,044 100.0% $10,709 100.0% $9,363 100.0% $ 238 100.0% $1,268 100.0%
Contract Costs....... 7,330 81.0 8,199 76.6 7,065 75.5 455 191.2 1,290 101.7
Gross Profit (Loss).. 1,714 19.0 2,510 23.4 2,298 24.5 (217) (91.2) (22) (1.7)
General and
Administrative
Expenses........... 1,289 14.3 1,418 13.2 1,450 15.5 268 112.6 721 56.9
Operating Income
(Loss)............. 425 4.7 1,092 10.2 848 9.0 (485) (203.8) (743) (58.6)
</TABLE>

Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997

Revenue. Revenue increased to $1.3 million for the three months ended
March 31, 1998 from $0.2 million for the three months ended March 31, 1997, an
increase of $1.0 million. This increase was the result of the commencement of a
large contract pursuant to which most materials were installed initially (see
"-- Revenue and Costs") as well as unseasonably good weather which increased the
available working days during the period.

36
<PAGE> 40

Gross Profit (Loss). Gross loss decreased to ($22,000) for the three
months ended March 31, 1998 from ($0.2) million for the three months ended March
31, 1997, a decrease of $0.2 million. As a percentage of revenue, gross profit
increased to (1.7%) for the three months ended March 31, 1998 from (91.2%) for
the three months ended March 31, 1997. Contract costs exceeded revenue for the
three month periods ended March 31, 1997 and 1998. The increase in gross profit
was due to the increased absorption of fixed costs as revenue increased.

General and Administrative Expenses. General and administrative expenses
increased to $0.7 million for the three months ended March 31, 1998 from $0.3
million for the three months ended March 31, 1997, an increase of 0.5 million.
As a percentage of revenue, general and administrative expenses decreased to
56.9% for the three months ended March 31, 1998 from 112.6% for the three months
ended March 31, 1997. The decline in general and administrative expenses as a
percentage of revenue was a result of higher sales volume.

Operating Income (Loss). Operating loss decreased to ($0.7) million for
the three months ended March 31, 1998 from $(0.5) million for the three months
ended March 31, 1997, a decrease of $0.3 million.

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

Revenue. Revenue decreased to $9.4 million for the year ended December 31,
1997 from $10.7 million for the year ended December 31, 1996, a decrease of $1.3
million, or 12.6%, due to the sale of a subsidiary of Railroad Service fewer
construction projects in process during the period.

Gross Profit. Gross profit decreased to $2.3 million for the year ended
December 31, 1997 from $2.5 million for the year ended December 31, 1996, a
decrease of $0.2 million, or 8.5%. As a percentage of revenue, gross profit
increased to 24.5% for the year ended December 31, 1997 from 23.4% for the year
ended December 31, 1996. The decrease in gross profit was a result of lower
revenue, offset in part by the higher profitability of remaining contracts.

General and Administrative Expenses. General and administrative expenses
increased to $1.5 million for the year ended December 31, 1997 from $1.4 million
for the year ended December 31, 1996, an increase of $32,000, or 2.3%. As a
percentage of revenue, general and administrative expenses increased to 15.5%
for the year ended December 31, 1997 from 13.2% for the year ended December 31,
1996. The slight increase in general and administrative expenses as a percentage
of revenue, despite the decline in revenue, was a result of the fixed nature of
a significant portion of general and administrative expenses.

Operating Income. Operating income decreased to $0.8 million for the year
ended December 31, 1997 from $1.1 million for the year ended December 31, 1996,
a decrease of $0.2 million, or 22.3%.

Year Ended December 31, 1996 Compared to Year Ended December 31, 1995

Revenue. Revenue increased to $10.7 million for the year ended December
31, 1996 from $9.0 million for the year ended December 31, 1995, an increase of
$1.7 million, or 18.4%. This increase was the result of several incremental
contracts in process.

Gross Profit. Gross profit increased to $2.5 million for the year ended
December 31, 1996 from $1.7 million for the year ended December 31, 1995, an
increase of $0.8 million, or 46.4%. As a percentage of revenue, gross profit
increased to 23.4% for the year ended December 31, 1996 from 19.0% for the year
ended December 31, 1995. The increase in gross profit was principally due to a
decrease in material and labor costs and, to a lesser extent, the increase in
revenue.

General and Administrative Expenses. General and administrative expenses
increased to $1.4 million for the year ended December 31, 1996 from $1.3 million
for the year ended December 31, 1995, an increase of $0.1 million, or 10.0%. As
a percentage of revenue, general and administrative

37
<PAGE> 41

expenses decreased to 13.2% for the year ended December 31, 1996 from 14.3% for
the year ended December 31, 1995. This decrease was a result of leveraging
general and administrative expenses over a higher sales volume, despite an
increase in administrative expense and wages.

Operating Income. Operating income increased to $1.1 million for the year
ended December 31, 1996 from $0.4 million for the year ended December 31, 1995,
an increase of $0.7 million, or 156.9%. As a percentage of revenue, operating
income increased to 10.2% for the year ended December 31, 1996 from 4.7% for the
year ended December 31, 1995.

INFLATION

The Company does not believe that inflation has had a material effect on
its results of operations in recent years. However, there can be no assurance
that the Company's business will not be affected by inflation in the future.

YEAR 2000

The Company intends to replace all of the Founding Companies' computer
systems with a new integrated management information system during 1999. The new
system will be Year 2000 compatible. The Company believes the effects, if any,
that the Year 2000 issues may have on its business will not be material to the
Company's financial condition or results of operations.

38
<PAGE> 42

BUSINESS

OVERVIEW

INDUSTRY OVERVIEW

The rail passenger and freight industries have undergone significant
fundamental changes in recent years. Changes in the industry have affected
transit systems, passenger railroads, regional and shortline railroads and Class
I railroads. In addition, industrial and other commercial companies that own and
maintain their own rail systems have become more focused on transportation
logistics and achieving cost efficiencies. These changes have resulted in an
ongoing reconfiguration of the country's rail infrastructure, significant new
construction projects and emerging demand for outsourced construction,
rehabilitation, repair and maintenance services.

Companies that install trackwork in their plants to transport raw
materials, equipment and finished goods, and sidings are often installed as part
of plant construction or expansion. In addition, many large companies that have
previously relied on a single railroad for the delivery of large quantities of
raw materials or for the shipment of their finished products have constructed
rail lines to connect to alternate railroads. Industrial companies build these
"customer-owned" lines to improve the service that they receive and to lower
freight expenses, and typically use independent contractors to design, construct
and maintain these rail lines.

The growth of major metropolitan areas and the aging of existing rail
systems have resulted in significant developments in passenger rail transit
services over the last 20 years. Heavy rail, commuter rail (service between
metropolitan and suburban areas) and light rail (typically, short trains
operating on right-of-way that is not separated from other traffic) have emerged
as attractive alternatives to bus or automobile transit and older commuter rail
systems have been rehabilitated and extended to handle increased ridership. Many
older urban systems (such as the New York City subway system) are undergoing
significant rehabilitation and/or modernization, while major heavy rail systems
built in the 1970s (such as the systems in San Francisco and Atlanta) are being
extended and upgraded. Additionally, there have been several recent initiatives
to develop high-speed rail transit networks between major urban areas (for
example, in Florida and the Northeast Corridor). There are now 16 commuter rail
agencies in 13 urban areas and 22 light rail agencies nationwide. Commuter and
light rail ridership has increased 28% and 56%, respectively, from 1985 to 1995.
Since 1979, approximately 15 cities have constructed new light rail-based
transit systems and other cities have either extended or refurbished their
existing systems, with ridership increasing by approximately 150% over the
period from 1978 through 1996. Accordingly, opportunities to provide
rail-related signaling, communication, electrical and track system construction,
rehabilitation, repair and maintenance services have increased and are expected
to continue to increase significantly.
39
<PAGE> 43

As a result of industry consolidation there are only nine Class I railroads
(as defined by the STB) operating primarily in the United States today, compared
to 27 in 1980. These railroads are Burlington Northern Sante Fe Railway,
Conrail, CSX Transportation, Illinois Central, Kansas City Southern Lines,
Norfolk Southern, Union Pacific, Canadian National and Canadian Pacific.
According to the American Association of Railroads, these railroads accounted
for 73% of the rail mileage operated in the United States and 91% of railroad
revenue in 1996. In recent years, the Class I railroads have sought to
rationalize their systems, for example by "double-tracking" certain high traffic
main lines and abandoning portions of their systems that generate lower volumes
of traffic. Mergers of Class I systems have also created significant
construction projects as the systems are reconfigured and integrated.
Historically, the major railroads have been vertical organizations that sought
to perform their own construction and maintenance by utilizing specialized
workforces and equipment for these functions. In recent years, however, the
Class I railroads have sought to improve their cost structures, and some of
these railroads are beginning to outsource certain construction and maintenance
functions to independent contractors.

In recent years, the number and coverage of shortline and regional
railroads (i.e., those railroads which are not Class I railroads) have increased
significantly. The Staggers Rail Act of 1980 provided for partial deregulation
of the railroad industry and created mechanisms by which larger railroads could
more easily dispose of portions of rail line. Since that time, the larger
railroad systems in the United States have streamlined their operations by
disposing of portions of their systems that generate lower volumes of traffic
and other companies have acquired portfolios of shortline railroads. Today,
there are approximately 550 shortline and regional railroads, which in the
aggregate generated approximately 9% of all railroad revenue in 1997. The
percentage of total track miles operated by shortline and regional railroads in
the United States increased to 27% in 1995 from approximately 17% in 1986.
Shortline and regional railroads spend a relatively large portion of their
capital and operating budgets on maintenance of their track assets, because
these assets are often in poor condition when they are acquired. These railroads
typically utilize independent contractors for their maintenance and construction
programs, since they do not have systems large enough to support the purchases
of equipment and development of workforces that would be required for these
functions.

The Company estimates that in 1997, expenditures by rail-based transit
systems, railroads and industrial companies on domestic rail system construction
and maintenance services of the types offered by the Founding Companies were
approximately $12 billion, consisting of approximately $6 billion by passenger
rail authorities and transit authorities (including Amtrak), approximately $5
billion by Class I railroads, approximately $650 million by regional and
shortline railroads, and approximately $.5 billion by industrial companies.
Additionally, the Company believes that expenditures for these services outside
the United States have increased significantly in recent years as a result of
infrastucture construction and modernization programs, as well as privatization
of large rail systems. In many instances, foreign governments and companies have
sought the expertise of American designers, engineers and construction managers.

While outsourcing of similar functions has been prevalent for long periods
in many industries, outsourcing in the rail system services and products
industry is a relatively recent trend that is still evolving and the market for
these services remains highly fragmented. Several large construction companies
provide design and construction services to the Class I railroads and other
large rail companies. However, the Company believes that the larger construction
companies do not offer the same level and continuity of service as contractors
that focus primarily on rail system projects. The Company believes that larger
customers are seeking to establish relationships with contractors that
specialize in rail system services and products and that can provide efficient,
integrated solutions over the entire life cycle of their assets. While there are
numerous smaller rail system construction, rehabilitation, repair and
maintenance companies working in local or regional markets, they are unable to
compete with the larger companies because their limited financial resources make
it difficult for them to bid on larger jobs and because they are unable to
utilize their equipment and

40
<PAGE> 44

workforces beyond their local and regional markets. Additionally, larger rail
systems and industrial companies are increasingly seeking to enter into
arrangements with a smaller number of contractors that can provide services on a
national or regional basis, in order to ensure centralized management of their
rail assets, adherence to uniform quality standards and more cost-effective
procurement practices.

COMPETITIVE STRENGTHS

Management believes that the Company has the following competitive
strengths:

Breadth of Services and Products. Management believes that rail system
operators are increasingly seeking to purchase services and supplies on an
integrated basis from fewer vendors. The Company will offer a broader range of
services and products than most industry participants. The Company's service and
product offerings include (i) construction and rehabilitation of track,
signaling, communications, electrical and other track-related systems, (ii)
repair and maintenance of these systems, (iii) a broad range of products,
including rail, ties, spikes, frogs (rail intersections), tie plates and ballast
and (iv) electrical installation services and concrete products for non-rail
customers. For the year ended December 31, 1997, rail-related construction and
rehabilitation, repair and maintenance, and OTM and product sales accounted for
46.7%, 14.6% and 6.7%, respectively, of the Company's 1997 pro forma as adjusted
revenue and non-rail services and products accounted for 32.0% of this revenue.

Diverse Customer Base. The Founding Companies' have long-standing
relationships with a wide variety of customers, including: (i) commercial and
industrial companies such as Commonwealth Edison, USS, a division of USX, and
Terminal One at JFK International (Airport), which have contracted with the
Company for track construction and maintenance and non-rail electrical
contracting work; (ii) transit authorities such as the New York Metropolitan
Transit Authority, the Los Angeles Metropolitan Transit Authority and the
Baltimore Metropolitan Transit Authority, which have contracted with the Company
for electrical installations, signaling, communications and station projects;
(iii) shortline railroads such as Indiana Southern Railroad Company, Branford
Steam/Amtrak and I&M Rail Link, which have contracted with the Company for
track construction and maintenance work and product supply; and (iv) Class I
railroads such as Illinois Central Railroad, Union Pacific Railroad and CSX
Transportation which have utilized the Company for repair and maintenance,
construction and engineering.

STRATEGY

The Company's goal is to become the leading provider of integrated rail
system solutions, offering a full range of rail-related services and products to
a diverse base of customers throughout the United States. Key elements of the
Company's strategy include the following:

Provide Integrated Solutions for Rail Systems. Rail system owners are
increasingly seeking to outsource their Construction, rehabilitation, repair and
maintenance requirements and to utilize fewer suppliers to provide a full range
of these services and related products. The Company believes that as a result of
the Combination, it will be able to provide its customers with integrated
solutions that can be efficiently designed, constructed, maintained, operated
and supplied, resulting in lower costs over the life cycle of their rail assets.

41
<PAGE> 45

Capitalize on Scale and Geographic Coverage. The Company believes that the
increased scale that will be achieved through the Combination will position it
to undertake larger projects that are beyond the scope of those previously
undertaken by the individual Founding Companies. Each of the Founding Companies
was constrained by applicable bonding limits and the limited size of its
workforce. The Company also intends to utilize its geographic scope to develop a
national accounts program to serve customers with multiple sites and cross-sell
its broad range of service and product offerings. Over time, the Company may
increase its activity in international markets, where privatizations of
railroads and large transit projects are creating increased demand for
sophisticated design and construction management services.

Reduce Operating Costs. The Company believes that the scale of its
operations and administrative integration of the Founding Companies following
the Combination will provide it with a better cost structure than regional and
smaller competitors. Key areas in which the Company expects to achieve cost
savings include (i) purchasing of equipment and supplies, (ii) lower insurance
expenses, (iii) reduced financing costs and (iv) better utilization of equipment
and the Company's workforce. The Company also expects to reduce administrative
expenses through the integration of certain accounting, financing, human
resources and other functions.

Expand Through Acquisitions. The rail system service and supply industry
is highly fragmented, and the Company believes that it is well-positioned to
pursue the consolidation of these segments on a nationwide basis. Following the
Offering, the Company expects to pursue an acquisition program that will include
(i) strategic acquisitions intended to expand the Company's geographic coverage
throughout the United States and broaden its lines of services and products,
(ii) acquisitions intended to position the Company to offer its customers
complementary services and products and (iii) smaller "tuck-in" acquisitions
intended to add density and operating leverage within the Company's current
markets. The Company believes that the experience and industry reputations of
the senior managers of the Founding Companies and senior corporate management of
the Company will provide it with a competitive advantage in identifying,
completing and integrating these acquisitions. The key elements of the Company's
acquisition strategy include the following:

Enter New Geographic Markets. The Company intends to expand into
geographic markets it does not currently serve by acquiring
well-established contractors, and related supply companies that, similar to
the Founding Companies, are leaders in their regional or local markets. In
addition, the Company believes that after an initial emphasis on
acquisitions within the United States, it may pursue international
acquisition opportunities for further expansion.

Enter Complementary Services and Product Markets. The Company intends
to acquire companies offering complementary services and products to those
currently offered by the Company. Specifically, the Company believes that
there will be attractive acquisition opportunities with respect to design
and engineering firms, designers and manufacturers of signaling and
communication systems and suppliers of electrical equipment, rail, switches
and panels and concrete and steel ties.

Expand Within Existing Geographic Markets. The Company also plans to
acquire additional companies in many of the regions in which it currently
operates in order to expand the volume and scope of its operations in a
particular market. The Company will pursue "tuck-in" acquisitions of
smaller companies to increase utilization of its existing fixed assets and
equipment or to gain access to new customers, thereby improving operating
efficiencies and more effectively using its capital resources without a
proportionate increase in administrative costs.

Leverage Management Expertise. The senior managers of each of the
Founding Companies have an average of 14 years of experience in the rail
system services and products industry. The Company will utilize a
management structure which will enable these individuals to focus on
operations rather than administrative tasks. In addition, the Company's
Chief Executive
42
<PAGE> 46

Officer, Chief Financial Officer and Chief Operating Officer each have in
excess of 15 years experience in the transportation industry. Senior
management of the Company will coordinate the operations of the Founding
Companies, provide strategic guidance for the Company, drive the Company's
acquisition program and promote the development of national accounts. As
part of this strategy, the Company intends to foster a culture of
cooperation and teamwork among the Founding Companies that emphasizes
dissemination of best practices among its regional and local management
teams and joint bidding on larger projects.

SERVICES AND PRODUCTS

The following is a summary of the primary services and products offered by
the Company.

Rail-Related New Construction and Rehabilitation. New construction
projects undertaken by the Company consist primarily of the installation of
traction, power, signalling and communication systems for rail-based transit
authorities and the construction of trackwork for commercial and industrial
companies and, to a lesser extent, transit authorities. Trackwork projects may
involve adding turnouts (i.e. connections between main lines and sidings),
expanding rail infrastructure or rebuilding outdated systems. In connection with
new track construction, the Company will assist with permits governing railroad
approvals, other regulatory requirements and subcontractor direction. For 1997,
on a pro forma as adjusted basis, the Company derived 46.7% of its revenue from
new rail construction and rehabilitation.

Rail-Related Repair and Maintenance. The Company's repair services include
moving turnouts, adding rail car storage, and replacing ties, rail and/or
surfacing. The Company assists its customers with the design and implementation
of preventive maintenance programs that lengthen the life and provide for the
safer operation of the track components of their rail systems. Such maintenance
projects include tightening bolts, checking gauges, checking the track for
deviations in gauge, line and surface, surfacing the track, and lining the
track. The Company intends to focus on establishing regular maintenance programs
for its customers and believes that the industry is moving toward more
sophisticated maintenance programs. The Company also provides site services to
its customers, including excavation of the railbed, cutting, filling and
preparing the railbed, grading and subgrading, drainage and paving. For 1997, on
a pro forma as adjusted basis, the Company derived 14.6% of its revenue from
rail-related repair and maintenance services.

Rail-Related Products. The Company believes its ability to offer materials
and supplies in conjunction with its construction, rehabilitation and
maintenance services will provide it with a competitive advantage in bidding on
rail system projects. Additionally, the Company's network of contractors
throughout the country will strive to provide leads for the Company's sales of
materials and supply. The Company seeks to provide its customers with a broad
range of products and materials required for the construction, rehabilitation
and maintenance of rail systems. For 1997, on a pro forma as adjusted basis, the
Company derived 6.7% of its revenue from the sale of products. Major categories
of products supplied by the Company include the following:

- Rail. The Company provides "relay" rail (previously used rail that
remains suitable for use in yard, branch and secondary tracks). The
Company offers products in a broad range of weights, including all major
types of heavy and light rail.

- Ties and Wood Products. The Company provides creosote-treated wooden
ties, switch and bridge timbers, and treated timber grade crossing
materials. The Company also sells specialized wood products, including
blocking supply lumber.

- Concrete Products. The Company provides pre-stressed and pre-cast
concrete products, including poles, columns, beams and other structural
support elements used to construct rail systems.

43
<PAGE> 47

- Other Track Materials. The Company provides rail product accessories,
including spikes, tie plates, joint bars, anchors, gage drives and bolts.
Most of the products are offered in both new and "relay" forms.

Non-Rail System Services and Products. Through Comstock, the Company
provides a complete range of electrical and instrumentation installation
services, with a special emphasis on commercial buildings, heavy industrial and
manufacturing plants and power plants. Through CPI Concrete, the Company
provides a range of pre-stressed and pre-cast concrete products used in airport,
highway and bridge construction. For 1997, on a pro forma as adjusted basis, the
Company derived 32.0% of its revenue from these services and products.

- Commercial. Comstock provides electrical power and lighting installation
services for commercial buildings primarily in the New York City
metropolitan area. In recent years, Comstock has worked with commercial
builders and developers on installations in office buildings, financial
institutions, airport facilities, broadcast studios and retail complexes.
Financial institution installations have included data/communications
systems for brokerage firms, insurance companies and banks, with a
specialization in large trading floors. Comstock provides electrical
services for new construction, as well as on-site maintenance service for
existing buildings.

- Industrial and Manufacturing. Comstock provides electrical and
instrumentation installation services for heavy industrial and
manufacturing plants throughout the United States. Services include both
new construction and maintenance/modification, with recent projects
including pulp and paper facilities, steel mills, chemical and
petrochemical plants, oil refineries and automotive assembly plants.

- Power. Comstock provides electrical installation services for power
plant construction and renovation projects throughout the United States.
In addition to new plant construction, services provided by Comstock
include life extensions, control upgrades, substations/switch yards and
emissions control projects. Facilities services include coal-fired,
hydroelectric, waste-to-energy and cogeneration plants.

- Concrete Products. CPI Concrete provides pre-stressed and pre-cast
concrete products for highways and bridges, locks and dams, airports,
power and light companies and buildings. Specifically, CPI Concrete
offers its customers an assortment of decorative and utility poles and
bridge girders along with wall panels, floors and roofs, columns, beams
and other structural support elements.

44
<PAGE> 48

THE FOUNDING COMPANIES

The Founding Companies were selected based on their regional or local
market leadership, diverse and long-standing customer relationships,
profitability and geographic diversity. Furthermore, except for Comstock (which
accounts for 60.6% of the Company's pro forma revenue for 1997), no Founding
Company accounts for more than 6.0% of the Company's pro forma as adjusted
revenue for 1997. Following the Combination, the Company will offer a variety of
services and products throughout the United States to a variety of customer
types. The following charts represent the breakdown of service/product revenue
mix, geographic region and customer type as a percentage of the Company's pro
forma revenue for 1997:

Pie chart depicting "BY SERVICE/PRODUCT":

1) Non rail services and products -- 32.0%
2) Rail-related new construction and rehabilitation -- 46.7%
3) Rail-related products -- 6.7%
4) Rail-related maintenance and repair -- 14.6%

Pie chart depicting "BY GEOGRAPHIC REGION":

1) Northeast -- 49.0%
2) Midwest -- 26.0%
3) West -- 16.4%
4) South -- 8.6%

Pie chart depicting "BY CUSTOMER TYPE":

1) Industrial corporations and non-transit governmental entities -- 61.8%
2) Transit authorities -- 31.2%
3) Shortline and commuter railroads -- 5.5%
4) Class I railroads -- 1.5%

45
<PAGE> 49

The following table summarizes certain information relating to the Founding
Companies:

<TABLE>
<CAPTION>
YEAR LOCATION OF PRINCIPAL PRINCIPAL PRINCIPAL 1997
NAME FOUNDED HEADQUARTERS BUSINESS REGION CUSTOMERS EMPLOYEES REVENUE
- ---- ------- ----------------- ---------------- --------- ---------------- ------------- ----------
(APPROXIMATE) (MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Comstock............. 1904 White Plains, NY Electrical Northeast Transit 985 $153.6
authorities,
commercial,
industrial and
power companies
Annex(1)............. 1961 Indianapolis, IN Construction, Midwest Governmental 121 15.4
rehabilitation, South entities and
maintenance, shortline
repair railroads
CPI Concrete......... 1974 Memphis, TN Concrete South Industrial 75 11.0
products companies
Kennedy(2)........... 1965 Shiremanstown, PA Construction, Northeast Industrial 84 10.6
rehabilitation, South companies
maintenance,
repair, design
and engineering
Midwest.............. 1982 Merrillville, IN Construction, Midwest Industrial 94 9.7
rehabilitation, companies
maintenance,
repair
Railroad
Service(3).......... 1972 Lakeville, MN Construction, Midwest Industrial 22 9.4
maintenance, companies
repair
Southern Indiana..... 1981 Winslow, IN Creosote-treated United Class I 29 8.9
ties States railroads,
industrial
companies,
railroad
contractors
Merit................ 1986 Bridgeton, MO Construction, Midwest Industrial 188 6.9
maintenance, companies
repair
H.P. McGinley........ 1974 McAllisterville, Creosote-treated United Class I 31 6.4
PA ties, specialty States railroads,
wood products railroad
contractors
New England.......... 1979 Bridgeport, CT Construction, Northeast Class I 17 5.8
maintenance, railroads,
repair transit
authorities
Wm. A. Smith(4)...... 1924 Houston, TX Construction, South Industrial 79 5.1
maintenance, companies
repair
Condon............... 1974 Spokane, WA Construction, West Industrial 59 4.9
maintenance companies
U.S. Trackworks(5)... 1983 Wayland, MI Construction, Midwest Shortline 45 4.8
maintenance, railroads,
repair industrial
companies
Comtrak.............. 1984 Alpharetta, GA Construction, South Transit 19 1.0
maintenance, authorities
repair
</TABLE>

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

(1) Includes Mize Construction, Railroad Specialties and US. Railway Supply, all
of which are under common control.
(2) Includes Alpha-Keystone and Railcorp, all of which are under common control.
(3) Includes Minnesota Railroad, all of which are under common control.
(4) Includes Smith Rerailing, all of which are under common control.
(5) Includes Northern Rail, all of which are under common control.

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<PAGE> 50

ONGOING ACQUISITION PROGRAM

The Company believes that it will be regarded by acquisition candidates as
an attractive acquiror based on: (i) the Company's strategy for creating a
professionally managed, integrated rail system construction, rehabilitation and
maintenance company that will operate throughout the United States and in
selected international markets; (ii) the Company's decentralized operating
strategy, which emphasizes an ongoing role for owners, management and key
personnel of acquired businesses, as well as meaningful equity positions for
these individuals, enabling them to participate in the Company's growth; (iii)
the Company's increased visibility and access to financial resources as a public
company; and (iv) the potential for increased profitability of the acquired
company due to savings in workforce and equipment utilization, improvements in
the purchasing and financing of equipment, centralization of administrative
functions and improved information systems capabilities.

The Company believes that management of the Founding Companies will be
instrumental in identifying future acquisitions. Several of the principals of
the Founding Companies have leadership roles in industry trade associations,
which have enabled these individuals to become personally acquainted with the
owners of numerous acquisition targets across the country. See
"Management -- Executive Officers and Directors." The Company expects that the
visibility of these individuals and the Company within the rail system industry
will increase the awareness and interest of acquisition candidates in the
Company and its acquisition program. In addition, the Company intends to utilize
an internal acquisition team that will devote substantial time to pursuing the
Company's acquisition strategy. The Company currently has no agreements,
arrangements or understandings to effect any acquisitions other than the
Combination. There can be no assurance that the Company will identify, acquire
or manage profitably additional businesses or that financing will be available
for future acquisitions. See "Risk Factors -- Risks Associated with Acquisition
Strategy and Financing."

The Company's acquisition program is expected to (i) expand its geographic
coverage throughout the United States, (ii) add density and operating leverage
within its current markets through smaller "tuck-in" acquisitions and (iii)
position the Company to offer its customers complementary services and products.
The Company intends initially to focus on acquisition opportunities within the
United States. However, the Company believes that after its initial domestic
emphasis it may look to international acquisition opportunities for further
expansion.

As consideration for future acquisitions, the Company intends to use
various combinations of its Common Stock, cash and notes. The consideration for
each future acquisition will vary on a case-by-case basis, with the major
factors in establishing the purchase price being historical operating results,
future prospects of the target and the ability of the target to complement the
services and products offered by the Company. Within 90 days following the
completion of this Offering, the Company intends to register additional shares
of Common Stock under the Securities Act for its use in connection with future
acquisitions. The Company believes that it can structure acquisitions as
tax-free reorganizations by using its Common Stock as consideration.

SOURCES OF SUPPLY

The Company purchases new rail from a limited number of suppliers. New rail
is generally installed only on main lines, where the track may carry high
volumes of heavy traffic at high speeds. Over time rail is removed, inspected
and, if in appropriate condition, refurbished for sale as "relay" rail. Relay
rail is typically installed on secondary (non-main line) tracks, as well as yard
or branch tracks. Total rail life before scrapping may be as long as 60 years.
The Company also purchases a large volume of relay rail that is refurbished by
third parties and resold.

Similarly, the Company regularly purchases entire sections of track that
are removed and subsequently disassembled at the Company's facilities. The
Company inspects the various track components -- rail, ties, and
accessories -- and items are placed into the Company's inventory
47
<PAGE> 51

(either in their "as removed" condition or after being refurbished by third
parties) or sold by the Company for scrap. Additionally, in connection with
certain repair and rehabilitation projects, the Company acquires trackwork that
is removed.

The Company believes that upon completion of the Combination, it will be
able to purchase materials in sufficient quantities to permit it to realize
purchasing economies and discounts from its suppliers. Additionally, the
Company's network of contractors is expected to position the Company to acquire
previously-used track on comparatively advantageous terms.

In its installation of electrical signaling and communication systems for
transit authorities, the Company purchases equipment from a limited number of
suppliers. See "Risk Factors -- Reliance on Subcontractors and Suppliers."

Two of the Founding Companies process creosote-treated wooden ties. Their
operations include the purchase of raw lumber, trimming the lumber to specified
sizes, pressurized impregnation of the lumber with creosote preservative and
finishing of the ties (which would include the pre-drilling of spike holes and
the attachment of plates, as specified by the customer). The service life of
pressure treated ties has been extended to a range of 25 to 40 years.

SALES AND MARKETING

Upon completion of the Combination, the Company intends to implement a
targeted national sales program to further develop the business of each of the
Founding Companies. The focus of this initiative will be on the Class I
railroads and other large industrial companies with facilities in multiple
areas, which the individual Founding Companies have previously been unable to
serve on a comprehensive, nationwide basis. In addition, the Company's ability
to offer electrical installation services together with rail-related
construction, rehabilitation, repair and maintenance services and related
products is expected to result in opportunities for the Company to cross-sell
its services to large industrial companies. The Company believes that it will
have an advantage over its competitors since it will be able to offer
consistent, high-quality service and products in most regions of the United
States, thereby enabling customers to use the Company's services and products in
multiple locations rather than dealing with numerous regional or local
companies.

The Combination will significantly broaden the respective offerings of
services and products of the Founding Companies, and management believes that
the Company will be positioned to achieve significant synergies and
cross-selling in its marketing programs. The Company believes that it will be
able to develop cross-selling programs under which (i) its design and
engineering groups will provide timely leads to its construction, product supply
and electrical installation subsidiaries, (ii) its electrical signaling and
communications groups, which have previously utilized third parties for track
engineering and construction, will be able to utilize the other Founding
Companies for these projects, and (iii) its track construction subsidiaries will
be able to contract with Comstock for signaling, communication and electrical
installation services. Similarly, the Company's product supply subsidiaries
have, over the years, developed long-term relationships with the Class I
railroads and large industrial companies, and the Company believes that these
relationships will provide a basis for marketing its outsourced construction and
maintenance services.

For 1997, on a pro forma as adjusted basis, a majority of the Company's
revenue was derived from contracts entered into through a competitive bidding
process. Many projects that are competitively bid require the company that is
awarded the project to post a bond, which varies according to the size of the
project. Each company has a bonding limit, which is based on the company's
working capital and work in progress. The bond provides the customer with
insurance in the event that the company is unable to complete the project.
Accordingly, the ability of each of the Founding Companies to bid on larger
projects has been limited by its ability to obtain the required bonding. The
increased size of the Company following the Combination compared to the size of
each individual Founding Company will increase the bonding limits for each
Founding Company. Therefore, upon completion of the Combination and the
Offering, the Company believes that each
48
<PAGE> 52

of the Founding Companies, as a subsidiary of the Company, will be positioned to
bid on and undertake significantly larger construction and maintenance projects.
Similarly, the Company also expects that the increased bonding capacity will
permit it to bid on and undertake more projects than could smaller companies.

CUSTOMERS

For 1997, on a pro forma as adjusted basis, the Company derived 61.7% of
its revenue from industrial companies, commercial enterprises and governmental
entities (excluding transit authorities), 31.3% of its revenue from rail-based
transit authorities and commuter railroads, 5.5% of its revenue from shortline
and regional railroads, and 1.5% of its revenue from Class I railroads. No
single customer accounted for more than 6.0% of the Company's pro forma as
adjusted revenue for 1997. The following table lists the top four customers of
the Company in each category on a pro forma as adjusted basis:

<TABLE>
<S> <C> <C>
INDUSTRIAL COMPANIES/ TRANSIT AUTHORITIES AND SHORTLINE AND REGIONAL RAILROADS
COMMERCIAL ENTERPRISES/ COMMUTER RAILROADS Indiana Southern Railroad
GOVERNMENT Metropolitan Transit Company
Commonwealth Edison Authority (New York) Branford Steam/Amtrak
U.S. Army Corps of Engineers LAMTA (Los Angeles) I&M Rail Link
USS, a division of USX MTA (Baltimore) Norfolk & Western Railway
Terminal One Group Associates SEPTA (Pennsylvania)
CLASS I RAILROAD
Illinois Central Railroad
Union Pacific Railroad
Conrail
CSX Transportation

</TABLE>

Many of the customers that purchase products and supplies from the Founding
Companies, such as Class I railroads, have not historically used external
providers for their rail system construction, rehabilitation and maintenance
services. Following the Combination, the Company expects to leverage its
relationships with these customers into an additional source of customers for
its service businesses.

A majority of the Company's business is generated through competitive
bidding, and the Company's track construction and repair suppliers generally do
not enter into long-term contracts with its customers. To a limited extent, the
Founding Companies have historically been suppliers to and customers of each
other. The Company expects that these relationships will continue following the
Combination, and that the Company's strategy of fostering cooperation and
teamwork will yield new opportunities for the Founding Companies and
subsequently acquired companies.

COMPETITION

The rail system services and products industry is highly competitive, and
projects are often awarded through competitive bidding. The Company competes
with other rail system construction, rehabilitation and maintenance companies,
electrical contractors and suppliers of products, some of which have
significantly greater resources than the Company. An inability of the Company to
compete successfully against its existing and future competitors would have a
material adverse effect on its business, results of operations and financial
condition. While the Company believes that it competes effectively within its
industry, additional competitors with greater resources than the Company may
enter the industry and compete effectively against the Company. Moreover, the
Company may depend in part upon opportunities for consolidation in the rail
system industry in order to execute effectively its acquisition and vertical
integration strategy. If the Company's

49
<PAGE> 53

customers do not receive the Company's vertical integration strategy favorably,
such customers have numerous alternative sources of services and supply.

RISK MANAGEMENT AND SAFETY

Because the Founding Company's businesses are labor intensive, workers'
compensation will be a significant operating expense for the Company. In
addition, the Company could be exposed to possible claims by its customers,
alleging discrimination or harassment by the Company's employees. The Company
could also be exposed to liability for the acts or negligence of its employees
who cause personal injury or damage while on assignment, as well as claims of
misuse of client proprietary information or theft of client property. The
Company has adopted policies and procedures intended to reduce its exposure to
these risks.

The Founding Companies maintain insurance against these risks with policy
limits they consider sufficient which they believe are consistent with industry
standards. The Company intends to retain a risk management professional who,
with the assistance of the Founding Company presidents, would be responsible for
claims management and the establishment of appropriate reserves for the
deductible portion of claims. The Company also expects to implement quarterly
safety committee meetings with the Founding Company presidents and conduct
routine safety inspections of local work sites.

EQUIPMENT AND FACILITIES

The Founding Companies operate specialized equipment used in rail
construction, rehabilitation, repair and maintenance. This equipment is portable
and, consequently, the Company intends to share equipment where appropriate and
cost effective. For example, during the winter months, the Founding Companies
located in the northern region of the United States could re-locate their
equipment to the Founding Companies located in the south. Each of the Founding
Companies generally performs its own equipment maintenance.

The Company's corporate offices are in approximately 2,200 square feet of
leased space in a suburb of Baltimore, Maryland. In addition to its corporate
offices, upon consummation of the Combination, the Company will maintain the
following facilities:

<TABLE>
<CAPTION>
FOUNDING COMPANY LOCATION PRINCIPAL USE OWNED OR LEASED
- ---------------- -------- ------------- ---------------
<S> <C> <C> <C>
Annex................ Indianapolis, IN Office and Yard Owned
Comstock............. White Plains, NY Office Leased
Maspeth, GA Office
Atlanta, GA Office
San Francisco, CA Office Leased
Cincinnati, OH Office
Longview, WA Office/warehouse Leased
Los Angeles, CA Office/warehouse Leased
Woodside, NY Office/warehouse Leased
Glendale, NY Office/warehouse Leased
Comtrak.............. Alpharetta, GA Office and Yard Leased
Sewell, NJ Regional Office Leased
Condon............... Spokane, WA Office and Yard Leased
CPI Concrete......... Memphis, TN Office and Yard Owned
H.P. McGinley........ McAlisterville, PA Wood Processing Owned
Plant
Kennedy.............. Shiremanstown, PA Office and Yard Leased
North Jackson, OH Sales, Maintenance, Leased
Yard
Mechanicsburg, PA(2 loc.) Design and Leased
Engineering
</TABLE>

50
<PAGE> 54

<TABLE>
<CAPTION>
FOUNDING COMPANY LOCATION PRINCIPAL USE OWNED OR LEASED
- ---------------- -------- ------------- ---------------
<S> <C> <C> <C>
Washington, DC Sales Leased
Merit................ Bridgeton, MO Office Leased
Midwest.............. Merrillville, IN Office Leased
Burns Harbor, IN Yard Owned
New England.......... Bridgeport, CT Office Owned
Monroe, CT Storage, Yard Leased
Railroad Service..... Lakeville, MN Office and Yard Leased
Fargo, ND Yard Leased
Southern Indiana..... Winslow, IN Office Owned
Winslow, IN Wood Processing Leased
Plant
U.S. Trackworks...... Wayland, MI Office Leased
Miamitown, OH Storage Leased
Wm. A. Smith......... Houston, TX(2 loc.) Office and Yard Owned
</TABLE>

GOVERNMENT REGULATION

Overview. In addition to the environmental, safety and other regulations
generally applicable to all businesses, the Company's business is impacted by
regulations that are administered by the STB, the successor to the Interstate
Commerce Commission ("ICC"), and the FRA and by regulatory agencies in the
various states in which the Company and its customers do business. Since 1980,
there has been a significant relaxation in regulations governing the sale,
leasing or other transfer of railroad properties, and this change has favorably
affected the operations of many of the Company's customers. Various interests in
the United States have sought and continue to seek reimposition of government
controls on the railroad industry in areas deregulated in whole or in part since
1980, including stricter rate regulation and more onerous labor protection
conditions for rail line transfers.

Railroad Regulations. The ICC Termination Act, which was enacted on
December 29, 1995, eliminated the ICC as an independent agency and created the
STB, a new agency within the Department of Transportation which began
functioning on January 1, 1996. The ICC Termination Act changed the procedure
and timing for federal approval of rail projects, including abandonments, line
sales, mergers, rates and tariffs, simplifying and streamlining the abandonment
process. The FRA regulates railroad safety and equipment standards, including
track maintenance and train speed standards, special procedures for handling
hazardous shipments, locomotive and railcar inspection and repair requirements,
operating practices and crew qualifications. The Roadway Worker Protection
Rules, which were promulgated by the FRA, apply to rail contractors and
establish certain safety criteria that must be complied with on rail projects.

ISTEA. According to the Construction Equipment Guide, Congress is
currently considering the largest highway and mass transit bills in history. Two
bills are under consideration, both of which authorize over 40 percent more than
the 1991 Intermodal Surface Transportation Efficiency Act ("ISTEA"), whose
funding has expired.

State Regulatory Agencies. State regulatory agencies no longer have
authority to engage in economic regulation of railroads that are part of the
intrastate network. State and local governments generally retain jurisdiction
over local rail safety matters, such as the installation of grade crossings and
grade crossing warnings devices.

ENVIRONMENTAL MATTERS

The principal environmental regulatory requirements applicable to the
Company's operations relate to the use of creosote to treat lumber, and the
generation, storage, transportation and off-site treatment or disposal of solid
and hazardous wastes. The Company intends to implement environmental compliance
programs designed to maintain compliance with applicable technical and
operations requirements. The Founding Companies believe that their operations
have all required

51
<PAGE> 55

environmental permits and currently are in compliance, in all material respects,
with such regulatory requirements, except where the failure to comply, either
individually or in the aggregate, would not have a material adverse effect on
the Company's business, results of operations or financial condition.

The historical and current uses of the Company's facilities may have
resulted in spills or releases of various solid or hazardous wastes that may
contain hazardous substances ("Hazardous Substances"), which now, or in the
future, could require remediation. The Company also may be subject to
requirements related to remediation of Hazardous Substances that have been
released into the environment at properties that it owns or operates, or owned
or operated in the past or at properties to which it sends, or may have sent,
Hazardous Substances for treatment or disposal. Such remediation requirements
generally are imposed without regard to fault, and liability for any required
environmental remediation can be substantial. There are currently no claims,
either threatened or pending, against the Company for environmental remediation
of Hazardous Substances which individually or in the aggregate would have a
material adverse effect on the Company's business, results of operations or
financial condition.

EMPLOYEES

On a pro forma combined basis as of March 31, 1998, the Company employed
approximately 1,748 employees, all of whom were full-time employees.
Approximately 1,533 of the Company's employees were engaged in operations, and
215 were engaged in a variety of sales, administrative and managerial functions.
The Company believes that its relations with all of its employees are good.

An aggregate of approximately 1,175 people employed by Annex, Comstock,
Kennedy, Merit, Midwest, New England and U.S. Trackworks are members of certain
labor unions and are employed pursuant to a collective bargaining agreement.
Certain of the Founding Companies are parties to collective bargaining
agreements with the International Brotherhood of Electrical Workers, Laborers'
International Union of North America, the International Union of Operating
Engineers, United Brotherhood of Carpenters and Joiners of America and the
United Brotherhood of Teamsters. Certain of the Founding Companies' customers
only hire unionized labor. Furthermore, except for a one-week work stoppage in
Connecticut by the United Brotherhood of Teamsters in June 1994, the Founding
Companies have experienced no work stoppages in the past five years.

INFORMATION TECHNOLOGY SYSTEMS

The Company will require integrated information technology systems in order
to effectively integrate, manage and optimize its operations, particularly as it
executes its growth strategy. The Company is in the process of selecting and
implementing the required systems and plans to complete the process following
the Combination. The Company believes that these information technology systems
will be used for a variety of purposes, including monitoring inventory levels,
tracking the progress of construction projects and integrating of the Company's
financial, general ledger, payables and receivables function. In addition, the
Company will network its corporate offices to the offices of the Founding
Companies and will have e-mail capability to all offices. The Company expects
that the required systems will be purchased and installed in 1999 and that its
expenditures for these systems will not be material to the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Pro Forma As Adjusted Liquidity and Capital Resources." All of the
new systems will be Year 2000 compatible. Until these new systems are fully
operational, each of the Founding Companies will continue using the information
systems that are currently being utilized.

LEGAL PROCEEDINGS

From time to time, the Company may be involved in routine legal proceedings
incidental to the conduct of its business. In the opinion of management, the
litigation, individually or in the aggregate, to which the Company is currently
a party, is not likely to have a material adverse effect on the Company's
business, financial condition and results of operations.

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<PAGE> 56

MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES

The following table sets forth certain information concerning each of the
executive officers, directors and key employees of the Company following the
consummation of this Offering:

<TABLE>
<CAPTION>
EXECUTIVE OFFICERS AND DIRECTORS: AGE POSITION
- --------------------------------- --- --------
<S> <C> <C>
John G. Larkin....................... 42 Chairman of the Board, Chief Executive Officer
and Director
Michael R. Azarela................... 40 Executive Vice President, Chief Financial
Officer and Director
John Kennedy......................... 59 Vice President, Chief Operating Officer and
Director
Harold C. Kropp, Jr.................. 43 Vice President, Chief Accounting Officer
Scott D. Brace....................... 42 President of Railroad Service and named to be a
Director
Steve C. Goggin...................... 51 President of Merit and named to be a Director
Peter Alan Pasch..................... 48 President of Comstock and named to be a Director
Lambertus L. Tameling................ 62 President of U.S. Trackworks and named to be a
Director
KEY EMPLOYEES:
- ---------------
John D. Baker........................ 44 President of CPI Concrete
Ronald E. Brown...................... 63 President of Annex
Mark Condon.......................... 37 President of Condon
Sean G. Gough........................ 41 President of Southern Indiana
Anthony Julian....................... 44 President of New England
Fulton Kennedy....................... 43 President of Kennedy
John H. Lapp......................... 55 President of Comtrak
Harry Lucaitis....................... 65 President of Midwest
David McGinley....................... 43 President of H.P. McGinley
Jack I. Wilt......................... 51 President of Wm. A. Smith
</TABLE>

John G. Larkin has been the Chairman of the Board and Chief Executive
Officer and a director of RailWorks since its inception in March 1998. For the
past 20 years, Mr. Larkin has worked in the transportation industry. From
December 1994 to February 1998, Mr. Larkin was Managing Director of BT. Alex
Brown Incorporated, where he focused on the transportation industry. Prior
thereto, he served in various capacities at BT Alex. Brown Incorporated since
1987, focused exclusively on the transportation industry. From 1986 to 1987, Mr.
Larkin was Assistant Vice President of CSX Transportation, Inc., where he was
responsible for strategic planning and analysis. From 1985 to 1986, Mr. Larkin
was Director of Strategic Planning of Seaboard System Railroad, Inc. From
January 1979 through July of 1982, Mr. Larkin served as an engineering project
coordinator for Day & Zimmerman, Inc., an engineering and construction
management firm. During this period, Mr. Larkin was focused exclusively on
railroad and rail transit design and valuation projects. Mr. Larkin has a Master
of Business Administration from Harvard University, Master of Science in Civil
Engineering from the University of Texas and a Bachelor of Science in Civil
Engineering from the University of Vermont.

Michael R. Azarela has served as the Executive Vice President, Chief
Financial Officer and a director of RailWorks since May 1998. Mr. Azarela has
served as Chief Executive Officer of L.K.

53
<PAGE> 57

Comstock since February 1998, Senior Vice President and Chief Financial Officer
of CGI and Spie from May 1994 to February 1998, Chairman of the Board of
Comstock since December 1996 and Vice President and Treasurer of L.K. Comstock
from September 1992 to April 1994 and in various other positions at Comstock
since June 1983. Mr. Azarela is a certified public accountant and has a Master
of Business Administration from Iona College.

John Kennedy has served as the Vice President, Chief Operating Officer and
a director of RailWorks since its inception in March 1998. Mr. Kennedy has
served as President of Kennedy Railroad from March 1966 to February 1998, as
President of Railcorp, Inc. from April 1986 to February 1998 and as Principal of
Alpha-Keystone from January 1996 to February 1998. Mr. Kennedy is the brother of
Fulton Kennedy. From 1980 to 1988, Mr. Kennedy served as an Elected Member of
the Pennsylvania House of Representatives.

Harold C. Kropp, Jr. has served as the Vice President, Chief Accounting
Officer of RailWorks since its inception in March 1998. Prior thereto, Mr. Kropp
was a valuation specialist at Larson, Kellett & Associates, P.C. from May 1996
to March 1998. Prior thereto, he was the Controller of Eck Realty Co. from
September 1994 to May 1996 and the Chief Financial Officer of Dame Media, Inc.
from April 1993 to September 1994. Mr. Kropp was employed by a large regional
certified public accounting firm from January 1983 to April 1993 where he
achieved the level of partner. Mr. Kropp is a certified public accountant
accredited in business valuation, a certified valuation analyst and a certified
management accountant.

Scott D. Brace will serve as President of Railroad Service and a director
of RailWorks after the Combination. Mr. Brace has served as Vice President of
Railroad Service since May 1989 and as President of Minnesota Railroad Service,
Inc. since May 1989. Mr. Brace is President-elect of the National Railroad
Construction and Maintenance Association, Inc. (the "NRCMA").

Steve C. Goggin will serve as President of Merit after the Combination. Mr.
Goggin has served as President of Merit since October 1986. Mr. Goggin is a past
President of the NRCMA.

Peter Alan Pasch will serve as President of Comstock and a director of the
Company after the Combination. Mr. Pasch has served as President and Chief
Operating Officer of Comstock since April 1997. From October 1995 to April 1997,
Mr. Pasch served as Executive Vice President of Comstock in charge of operations
outside the New York Metropolitan area. Mr. Pasch served as Executive Vice
President of Comstock from September 1987 to September 1995. Mr. Pasch joined
Comstock in 1973 after receiving his Bachelor of Science and Master of
Engineering Degrees from Rensselaer Polytechnic Institute. Mr. Pasch is a
Registered Professional Engineer in 45 states, a Master Electrician in 18 states
and is a member of the International Brotherhood of Electrical Workers.

Lambertus L. Tameling will serve as President of U.S. Trackworks and a
director of RailWorks after the Combination. Mr. Tameling has served as
President of U.S. Trackworks since April 1986 and as President of Northern Rail
since February 1992. Mr. Tameling is a past President of the NRCMA.

John D. Baker will serve as President of CPI Concrete after the
Combination. Mr. Baker has served as President of CPI Concrete since December
1989.

Ronald E. Brown will serve as President of Annex after the Combination. Mr.
Brown has served as President of Annex since 1965. Mr. Brown is a past officer
of the NRCMA.

Mark Condon will serve as President of Condon after the Combination. Mr.
Condon has served as President of Condon since January 1984.

Sean G. Gough will serve as President of Southern Indiana after the
Combination. Mr. Gough has served as President of Southern Indiana since
December 1986. From October 1994 to December 1996, Mr. Gough was a director and
Secretary of AAA Railway Supply.

Anthony Julian will serve as President of New England Railroad after the
Combination. Mr. Julian has served as President of New England Railroad since
1979.

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<PAGE> 58

Fulton Kennedy will serve as President of Kennedy Railroad after the
Combination. Mr. Kennedy has served as Vice President of Kennedy Railroad since
April 1994 and served as Treasurer and General Manger of Kennedy Railroad from
January 1980 to April 1994. Mr. Kennedy is the brother of John Kennedy.

John H. Lapp will serve as President of Comtrak after the Combination. Mr.
Lapp has served as President of Comtrak since May 1990.

Harry Lucaitis will serve as President of Midwest after the Combination.
Mr. Lucaitis has served as President of Midwest since December 1982. Mr.
Lucaitis is the father of William Lucaitis.

David McGinley will serve as President of H.P. McGinley after the
Combination. Mr. McGinley has served as President of H.P. McGinley since January
1994 and has President of Appalachian Stone, Inc. since October 1985. Mr.
McGinley is a director of the First National Bank of Newport.

Jack I. Wilt will serve as President of Wm. A. Smith after the Combination.
Mr. Wilt has served as President of Wm. A. Smith since March 1990 and as
President of Smith Rerailing since November 1993.

The Company intends to elect two independent directors promptly following
consummation of this Offering, which will bring the size of the Board of
Directors to nine. The Company does not currently intend to increase the size of
the Board of Directors beyond nine members. The members of the Company's Board
of Directors serve staggered terms as follows: the terms of Messrs. Kennedy and
Pasch expire at the 1999 Annual Meeting of Stockholders; the terms of Messrs.
Azarela, Goggin and Tameling expire at the 2000 Annual Meeting of Stockholders;
and the terms of Messrs. Larkin and Brace expire at the 2001 Annual Meeting of
Stockholders.

COMMITTEES OF THE BOARD OF DIRECTORS

Upon consummation of the Offering and election of two independent
directors, the Company's Board of Directors will establish an Audit Committee
and a Compensation Committee.

The responsibilities of the Audit Committee will include recommending to
the Board of Directors the independent certified public accountants to be
selected to conduct the annual audit of the books and records of the Company,
reviewing the proposed scope of such audit and approving the audit fees to be
paid, reviewing accounting and financial controls of the Company with the
independent public accountants and the Company's financial and accounting staff
and reviewing and approving transactions between the Company and its directors,
officers and affiliates. The Company's two independent directors will be the
members of the Audit Committee.

The Compensation Committee will provide a general review of the Company's
compensation plans and policies to ensure that they meet corporate objectives.
As described below, the Company's existing plans with respect to executive
compensation are largely based upon contractual commitments set forth in
employment agreements that are either in effect or are to be entered into upon
consummation of the Combination. See "-- Executive Compensation." The
responsibilities of the Compensation Committee also include administering the
Incentive Plan, including selecting the officers and salaried employees to whom
awards will be granted. The Company's two independent directors will be the
members of the Compensation Committee.

DIRECTOR COMPENSATION

Directors who are not currently receiving compensation as officers,
employees or consultants of the Company are entitled to receive an annual
retainer fee of $ , plus reimbursement of expenses for each meeting of
the Board of Directors and each committee meeting that they attend n person. In
addition, non-employee directors receive certain formula grants of non-qualified
stock options under the Directors' Stock Plan. See "-- 1998 Non-Employee
Directors' Stock Plan."

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<PAGE> 59

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the Compensation Committee will be the Company's two
independent directors.

EXECUTIVE COMPENSATION

RailWorks was incorporated in March 1998. Effective upon consummation of
the Combination and for the balance of 1998, the Company will, pursuant to
employment agreements, pay compensation based on the following annual salaries
to its Chief Executive Officer, Chief Financial Officer, Chief Operating Officer
and Chief Accounting Officer named below who will be executive officers of the
Company and whom the Company believes will be its only executive officers in
1998 (together, the "Named Executive Officers").

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS
ANNUAL -------------------------
COMPENSATION SECURITIES
------------------ RESTRICTED UNDERLYING
NAME POSITION SALARY BONUS STOCK AWARDS OPTIONS
- ---- ------------------------ -------- ------- ------------ ----------
<S> <C> <C> <C> <C> <C>
John G. Larkin....... Chief Executive Officer $350,000 (1)
Michael R. Azarela... Chief Financial Officer 225,000 (2)
John Kennedy......... Chief Operating Officer 185,000 (3)
Harold C. Kropp,
Jr................. Chief Accounting Officer 185,000 (3)
</TABLE>

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

(1) 5% of the First Bonus Pool (as hereinafter defined) and 33.3% of the Second
Bonus Pool (as hereinafter defined).
(2) 2% of the First Bonus Pool and 13.3% of the Second Bonus Pool.
(3) 1.5% of the Bonus Pool and 10.0% of the Second Bonus Pool (as hereinafter
defined).

EMPLOYMENT AGREEMENTS

The Company has conducted limited operations and generated no revenue to
date and did not pay any of its executive officers compensation during 1997. The
Company anticipates that during 1998 its most highly compensated executive
officers will be Messrs. Larkin, Azarela, Kennedy and Kropp.

The Company has entered into employment agreements with each of the Named
Executive Officers. The agreements expire on December 31, 2001 (the "Expiration
Date"). Each agreement is terminable by the Company with or without cause or
upon the employee's death or inability to perform his duties on account of a
disability for a period of six months during any consecutive twelve month period
or by the employee. The agreements provide for annual base salaries of $350,000,
$225,000, $185,000 and $185,000 for Messrs. Larkin, Azarela, Kennedy and Kropp,
respectively, and provide that these executive officers will receive 5%, 2%,
1.5% and 1.5% respectively, of the Company's first bonus pool (the "First Bonus
Pool") and 33.3%, 13.3%, 10.0% and 10.1%, respectively, of the Company's second
bonus pool (the "Second Bonus Pool"). The First Bonus Pool will consist of 10%
of the Company's pre-tax profits and the Second Bonus Pool will consist of 15%
of the amount by which the Company's net income exceeds certain benchmarks. In
addition, the agreements provide that each Executive Officer of the Company will
be granted shares of restricted stock and options to purchase Common Stock, as
set forth herein. Each agreement will also contain noncompetition and
nonsolicitation provisions.

Upon consummation of the Combination, the Company will enter into
employment agreements with certain employee-stockholders of each Founding
Company. The agreements will expire on the second anniversary of the closing
date of the Offering. On and after such date, the owners may give twelve months
written notice of termination of the agreement (the "Expiration Date"). Each
agreement will be terminable by the Company with or without cause or upon the
employee's death or inability to perform his duties on account of a disability
for a period of six months during any
56
<PAGE> 60

consecutive twelve-month period or by the employee. Each agreement will provide
for an annual base salary and will provide that the salary will be adjusted
after the initial term of the agreement to reflect the employee's duties and
responsibilities. Furthermore, each employee will be entitled to a portion of
the First Bonus Pool and the Second Bonus Pool. As a group, the owners of the
Founding Companies will be entitled to an aggregate of 40% of the First Bonus
Pool and 33.3% of the Second Bonus Pool.

EXECUTIVE COUNCIL

Upon consummation of the Combination, each Founding Company President will
be appointed to the Company's Executive Council, which will be chaired by John
Kennedy, the Company's Vice President and Chief Operating Officer. The Executive
Council will meet weekly to participate in short- and long-term planning
sessions, coordinate the Company's marketing efforts, discuss new jobs that are
out for bid and establish best practices. In addition, the Executive Council
will present its views regularly to the Board of Directors.

1998 STOCK INCENTIVE PLAN

The Company's Board of Directors has adopted, and the Company's
stockholders have approved, the Company's 1998 Stock Incentive Plan (the
"Incentive Plan"). There are shares of Common Stock reserved for
issuance under the Incentive Plan. The purpose of the Incentive Plan is to
provide executive officers (including directors who also serve as executive
officers), key employees, consultants and other service providers with
additional incentives by enabling such persons to increase their ownership
interests in the Company. Individual awards under the Incentive Plan may take
the form of one or more of: (i) either incentive stock options ("ISOs") or non-
qualified stock options ("NQSOs," and together with ISOs, "Options"); (ii) stock
appreciation rights ("SARs"); (iii) restricted or deferred stock; (iv) dividend
equivalents; (v) bonus shares and awards in lieu of Company obligations to pay
cash compensation; and (vi) other awards the value of which is based in whole or
in part upon the value of the Common Stock. Upon a change of control of the
Company (as defined in the Incentive Plan), certain conditions and restrictions
relating to an award with respect to the exercisability or settlement of such
award will lapse.

The Compensation Committee will administer the Incentive Plan and generally
select the individuals who will receive awards. In addition, the Compensation
Committee will determine the type and number of awards and the terms and
conditions of those awards (including exercise prices, vesting and forfeiture
conditions, performance conditions and periods during which awards will remain
outstanding). The Incentive Plan also provides that no participant may be
granted in any calendar year awards which may be settled by delivery of more
than shares and limits payments under cash-settled awards in any
calendar year to an amount equal to the fair market value of that number of
shares.

The Company generally will be entitled to a tax deduction equal to the
amount of compensation realized by a participant through awards under the
Incentive Plan, except that (i) no deduction is permitted in connection with
ISOs if the participant holds the shares acquired upon exercise for the required
holding periods, and (ii) deductions for some awards could be limited under the
$1 million deductibility cap of Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"). This limitation, however, should not apply to
awards granted under a plan during a grace period of up to three years following
the Offering, and should not apply to certain options, SARs and
performance-based awards granted thereafter if the Company complies with certain
requirements under Section 162(m) of the Code.

The Incentive Plan will remain in effect until terminated by the Board of
Directors. The Incentive Plan may be amended by the Board of Directors without
the consent of the stockholders of the Company, except that any amendment,
although effective when made, will be subject to

57
<PAGE> 61

stockholder approval if required by any federal or state law or regulation or by
the rules of any stock exchange or automated quotation system on which the
Common Stock may then be listed or quoted.

1998 NON-EMPLOYEE DIRECTORS' STOCK PLAN

The Company's Board of Directors has adopted, and the Company's
stockholders have approved, the 1998 Non-Employee Directors' Stock Plan (the
Directors' Stock Plan), which provides for the annual grant of Options to the
non-employee members of the Board of Directors.

Options granted under the Directors' Stock Plan will have an exercise price
per share equal to the fair market value of a share on the date of grant (in the
case of initial grants upon the effective date of the registration statement of
which this Prospectus forms a part (the "Initial Grants"), the initial public
offering price per share). Options will expire at the earlier of 10 years from
the date of grant or one year after termination of service as a director.
Options will vest and become exercisable 25% per year commencing on the first
anniversary of the date of grant. In the event of a change in control of the
Company (as defined in the Directors' Stock Plan) prior to normal vesting, all
Options not already exercisable would become fully vested and exercisable. A
non-employee director's death would also cause immediate vesting of his
non-vested options.

The Directors' Stock Plan will remain in effect until terminated by the
Board of Directors or until no shares of Common Stock are available for issuance
under the Directors' Stock Plan. The Directors' Stock Plan may be amended by the
Board of Directors without the consent of the stockholders of the Company,
except that any amendment, although effective when made, will be subject to
stockholder approval if required by any federal or state law or regulation or by
the rules of any stock exchange or automated quotation system on which the
Common Stock may then be listed or quoted.

NEW PLAN BENEFITS

Upon the effective date of the registration statement of which this
Prospectus forms a part, it is contemplated that the Company will grant
restricted shares of Common Stock to the Company's executive officers and
Options to purchase an aggregate of shares of Common Stock under the
Incentive Plan at an exercise price equal to the initial public offering price
per share. These Options include: (i) Options to purchase an aggregate of
shares that will be granted to executive officers of the Founding
Companies, who will become directors of the Company after the Combination; and
(ii) Options to purchase an aggregate of shares to be granted to non-
executive employees. One-third of these options will vest each year commencing
one year from the date of grant. All Options granted under the Incentive Plan
will expire on the tenth anniversary of the date of grant. In addition, it is
contemplated that Initial Grants will be made under the Directors' Stock Plan
upon the effective date of the registration statement of which this Prospectus
forms a part. The following table sets forth certain information with respect to
all of the restricted stock and Option grants currently contemplated to be
granted pursuant to the Incentive Plan and the Directors' Stock Plan.

<TABLE>
<CAPTION>
NAME SHARES OF RESTRICTED STOCK
- ---- --------------------------
<S> <C>
John G. Larkin..............................................
Michael R. Azarela..........................................
John Kennedy................................................
Harold C. Kropp, Jr.........................................
</TABLE>

58
<PAGE> 62

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Set forth below is a description of certain transactions and relationships
between RailWorks Corporation and certain persons who will become officers,
directors and principal stockholders of the Company following the Combination
and the Offering. In addition, set forth below is certain information regarding
transactions and relationships prior to the Combination between certain of the
Founding Companies and their respective officers, directors and principal
stockholders.

ORGANIZATION OF RAILWORKS CORPORATION

RailWorks was founded in March 1998 as a holding company to acquire
businesses in the rail service and supply industry. Prior to the Combination and
the Offering, RailWorks Corporation issued 10 shares of Common Stock for cash to
Mr. Larkin, the Company's Chairman and Chief Executive Officer. For information
regarding certain employment arrangements between the Company and certain
directors, officers and key employees, see "Management -- Employment
Agreements."

THE COMBINATION

Simultaneously with, and as a condition to, the closing of the Offering,
the Company will consummate the Combination pursuant to the Acquisition
Agreements pursuant to which RailWorks will acquire each Founding Company in a
reverse subsidiary merger. The aggregate consideration to be paid by the Company
in of the Combination will be approximately $188.0 million (subject to
adjustment), which consists of: (i) $69.8 million in cash, which will be paid
from the proceeds of the Offering; and (ii) the $118.2 million estimated fair
value of shares of Common Stock to be issued to the stockholders of the
Founding Companies. For information regarding the consideration paid to each
Founding Company, see "Formation of the Company -- the Combination" and "Use of
Proceeds." In connection with the Combination, the Company will assume
approximately $23.4 of long-term indebtedness of certain of the Founding
Companies which will be repaid with the proceeds of the Offering. The
consummation of each Acquisition Agreement is contingent upon the consummation
of the Offering and customary closing conditions. The Acquisition Agreements
require certain of the executive officers of each of the Founding Companies to
enter into employment agreements with their respective Founding Companies
effective upon consummation of the Combination. In addition, one or more
executives of certain of the Founding Companies will be elected to the Board of
Directors of the Company following the consummation of the Offering. See
"Formation of the Company," "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Pro Forma As
Adjusted Liquidity and Capital Resources," "Management -- Employment
Agreements," "Shares Eligible for Future Sale," and the Unaudited Pro Forma As
Adjusted Financial Statements and the notes thereto appearing elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
SHARES VALUE OF
OF SHARES OF
COMMON COMMON ASSUMED TOTAL
FOUNDING COMPANY CASH STOCK STOCK INDEBTEDNESS CONSIDERATION
- ---------------- ------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Comstock.............................
Annex(1).............................
Comtrak..............................
Condon...............................
CPI Concrete.........................
H.P. McGinley........................
Kennedy(2)...........................
Merit................................
Midwest..............................
New England..........................
</TABLE>

59
<PAGE> 63

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

(1) Includes Mize Construction, Railroad Specialties, and U.S. Railway, all of
which are under common control.
(2) Includes Alpha-Keystone and Railcorp, all of which are under common control.
(3) Includes Minnesota Railroad, all of which are under common control.
(4) Includes Northern Rail, all of which are under common control.
(5) Includes Smith Rerailing, all of which are under common control.

OTHER TRANSACTIONS

Certain of the Founding Companies have engaged in transactions with
companies that are under common ownership, which transactions are described
below. Any future transactions between the Company and its officers, directors
or principal stockholders will be approved by a majority of the disinterested
members of the Board of Directors.

Comstock

RailWorks will acquire all of the outstanding stock of Comstock in a
reverse subsidiary merger for (i) million in cash and (ii) shares of
Common Stock. In connection with the acquisition, Peter Alan Pasch, the
President and Chief Operating Officer of Comstock, will become a director of the
Company. Mr. Pasch will enter into a two-year employment agreement with Comstock
after the acquisition.

Effective January 1, 1997, Comstock acquired all of the outstanding stock
of L. K. Comstock from Spie for $5 million plus a contingent payment of up to $5
million based on 1997, 1998 and 1999 pre-tax income. In May 1998, Comstock
agreed to pay Spie $1.6 million in lieu of such contingent payment. Such
payment, which will be paid by the Company, is due on September 9, 1998, subject
to the completion of the Combination.

In connection with the Comstock Acquisition, Comstock, L. K. Comstock, Spie
and a subsidiary of Spie entered into an Indemnity and Cooperation Agreement
pursuant to which L.K. Comstock issued a contingent promissory note to Spie in
the amount of approximately $14.9 million (the "Contingent Note") collateralized
by any proceeds derived from three projects (the "Spie Projects") for which
Comstock had not been fully paid. Each of these projects is the subject of a
lawsuit in which L.K. Comstock is suing for payment of a portion of the contract
price. In each proceeding, the defendant has filed a counterclaim against L.K.
Comstock for breach of contract. Spie is obligated to indemnify L.K. Comstock
for all losses and expenses incurred with respect to these lawsuits. The
Contingent Note is payable only from amounts collected by L.K. Comstock with
respect to the Spie Projects prior to April 3, 2007, at which time the
Contingent Note will be canceled. As such, Spie and any successor or creditor
may not look to any other assets of L.K. Comstock or the Company to satisfy the
Contingent Note. Because there is a right of offset for any gains or losses
incurred in connection with the Spie Projects, neither the Contingent Note nor
the right to receive proceeds from the Spie Projects is reflected in Comstock's
financial statements or the Company's Unaudited Pro Forma As Adjusted Financial
Statements.

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<PAGE> 64

Kennedy

RailWorks will acquire all of the outstanding stock of Kennedy,
Alpha-Keystone and Railcorp in reverse subsidiary mergers for an aggregate of
(i) $ million in cash and (ii) shares of Common Stock. Mr. Fulton
Kennedy, the President of Kennedy, is the brother of John Kennedy, the Vice
President and Chief Operating Officer and a director of the Company. Fulton
Kennedy will enter into a two-year employment agreement with Kennedy after the
Acquisition.

Merit

RailWorks will acquire all of the outstanding stock of Merit in a reverse
subsidiary merger for (i) $ million in cash and (ii) shares of Common
Stock. In connection with the acquisition, Mr. Steve C. Goggin, the President of
Merit, will become a director of the Company. Mr. Goggin will enter into a
two-year employment agreement with Merit after the Acquisition.

Mr. Goggin is the sole shareholder of Shelter Rail Leasing. Annex leases
certain equipment from Shelter Rail Leasing and lease payments to Shelter Rail
Leasing totaled $183,000 in 1997. All payments to Shelter Rail Leasing will be
terminated upon consummation of the Combination.

Railroad Service

RailWorks will acquire all of the outstanding stock of Railroad Service and
Minnesota Railroad in reverse subsidiary mergers for an aggregate of (i) $
million in cash and (ii) shares of Common Stock. Mr. Scott D. Brace, the
President of Railroad Service, will become a director of the Company. Mr. Brace
will enter into a two-year employment agreement with Railroad Service after the
Acquisition.

Mr. Brace is a 44% shareholder of Railroad Services and Minnesota Railroad.
Railroad Services and Minnesota Railroad periodically make payments for
subcontracting and administrative services to each other throughout the year.

U.S. Trackworks

RailWorks will acquire all of the outstanding stock of U.S. Trackworks and
Northern Rail in reverse subsidiary mergers for an aggregate of (i) $
million in cash and (ii) shares of Common Stock. In connection with the
acquisition, Mr. Lambertus L. Tameling, the President of U.S. Trackworks, will
become a director of the Company. Mr. Tameling will enter into a two-year
employment agreement with U.S. Trackworks after the Acquisition.

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<PAGE> 65

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of , 1998, assuming completion
of the Combination, and as adjusted to reflect the sale of the Common Stock
being offered hereby, by: (i) each person (or group of affiliated persons) known
by the Company to be the beneficial owner of more than five percent of the
outstanding Common Stock; (ii) each Named Executive Officer of the Company;
(iii) each director of the Company and each person named to become a director;
(iv) all of the Company's directors, persons named to become directors and
executive officers, as a group and (v) each person who may sell shares of Common
Stock in the Offering. Each stockholder possesses sole voting and investment
power with respect to the shares listed, unless otherwise noted.

<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON
STOCK BENEFICIALLY
OWNED
----------------------
NUMBER OF SHARES BEFORE THE AFTER THE
BENEFICIAL OWNER OF COMMON STOCK OFFERING OFFERING
- ---------------- ---------------- ---------- ---------
<S> <C> <C> <C>
John G. Larkin........................................
John Kennedy..........................................
Michael R. Azarela....................................
Harold C. Kropp, Jr...................................
Scott D. Brace........................................
Steve C. Goggin.......................................
Peter Alan Pasch......................................
Lambertus L. Tameling.................................
All executive officers, directors and persons named to
be directors as a group (8 persons).................
Escrow Agent (to be named)(1).........................
</TABLE>

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

* less than one percent

(1) Certain owners of the Founding Companies (the Selling Stockholders) who will
receive shares of Common Stock in the Combination have granted to the
Underwriters an option, exercisable within 30 days of the date of this
Prospectus, to purchase up to an aggregate of shares of Common
Stock for the purpose of covering over-allotments. The Escrow Agent is
acting as agent for the Selling Stockholders. The following sets forth, for
each of the Selling Stockholders, his or her name, Founding Company
affiliation and the assumed number of shares of Common Stock to be received
in the Combination (subject to adjustment) and (assuming that the
over-allotment option is exercised in full): Comstock -- Michael R. Azarela
( ), John Baua ( ), Michael A. Cahn ( ),
Gene Cellini; Keith C. George ( ), Gary Guild ( ),
Robert Herschenfeld ( ), Frank Leonhartsberger ( ),
John P. Nuzzo ( ), Doug Orcutt ( ), Nicholas
Pentelides ( ), Nat A. Pappagallo ( ), Peter Alan
Pasch ( ), Lex A. Passman ( ), Michael L. Rothschild
( ) and David Zury ( ); Annex -- Ronald E. Brown
( ), Mark A. Brown ( ) and James D. Lawyer
( ); Mize Construction Company -- Ronald E. Brown ( )
and Mark A. Brown ( ); Contra K -- John H. Lapp ( )
and Eileen Lapp ( ); Condon Brothers -- Mark Condon
( ), John J. Condon ( ) and John J. Condon, Jr.
( ); CPI Concrete -- John Baker; H.P. McGinley -- David H.
McGinley ( ); Kennedy -- John Kennedy ( ) and Fulton
Kennedy ( ); Merit -- Steve Goggin ( );
Midwest -- Harry Lucaitis ( ); Minnesota Railroad Service,
Inc. -- E. Donald Matson ( ) and Scott D. Brace ( );
New England Railroad -- Anthony Julian, Jr. ( ); Daniel F. Julian
( ) and Michael A. Julian ( ); Northern Rail Service
and Supply Company, Inc. -- Arnold D.

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<PAGE> 66

Morren ( ); Cynthia L. Morren ( ); Douglas J. Nagel
( ) and Lambertus L. Tameling ( ); Railcorp
Inc. -- John Kennedy ( ) and Fulton Kennedy ( );
Railroad Service, Inc. -- E. Donald Matson ( ) and Scott D. Brace
( ); Railroad Specialties -- Ronald E. Brown ( );
Julie M. Brown ( ) and Rebecca S. Lawyer; Southern
Indiana -- Sean G. Gough ( ); U.S. Railway Supply Inc. -- Julie
M. Brown ( ); Ronald E. Brown ( ) and Rebecca S.
Lawyer ( ); U.S. Truckworks -- Arnold D. Morren ( ),
Cynthia D. Morren ( ), Douglas J. Nagel ( ) and
Lambertus L. Tameling ( ); Wm. A. Smith -- Jack I. Wilt
( ), Daniel E. Burg ( ), Richard H. Stephens
( ) and Robert O. Carson ( ); Wm. A. Smith Rerailing
Services, Inc. -- Jack I. Wilt ( ), Daniel E. Burg
( ), Richard H. Stephens ( ) and Robert O. Carson
( ); and Alpha-Keystone -- John Kennedy ( ) and Fulton
Kennedy ( ).

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<PAGE> 67

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, par value $0.01 per share, and 10,000,000 shares of preferred
stock, par value $0.01 per share. The following summary description of the
capital stock of the Company does not purport to be complete and is subject to
the detailed provisions of, and qualified in its entirety by reference to, the
Company's Certificate of Incorporation and Bylaws, copies of which have been
filed as exhibits to the registration statement of which this Prospectus forms a
part, and to the applicable provisions of the General Corporation Law of the
State of Delaware (the "DGCL").

COMMON STOCK

The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to the
rights of any holders of Preferred Stock, holders of Common Stock are entitled
to receive ratably such dividends as may be declared by the Board of Directors
out of funds legally available. See "Dividend Policy." In the event of a
liquidation, dissolution or winding up of the Company, holders of the Common
Stock are entitled to share ratably in the distribution of all assets remaining
after payment of liabilities, subject to the rights of any holders of preferred
stock of the Company. The holders of Common Stock have no preemptive rights to
subscribe for additional shares of the Company and no right to convert their
Common Stock into any other securities. In addition, there are no redemption or
sinking fund provisions applicable to the Common Stock. All of the outstanding
shares of Common Stock are, and the shares of Common Stock offered hereby will
be, fully paid and nonassessable.

PREFERRED STOCK

The Company has 10,000,000 shares of authorized but undesignated preferred
stock. The Board of Directors is authorized to provide for the issuance of
additional classes and series of preferred stock out of these undesignated
shares, and the Board of Directors may establish the voting powers,
designations, preferences and relative, participating, optional or other special
rights and qualifications, limitations or restrictions of any such additional
class or series of preferred stock, including the dividend rights, dividend
rate, terms of redemption, redemption price or prices, conversion rights and
liquidation preferences of the shares constituting any series, without any
further vote or action by the stockholders of the Company. The issuance of
preferred stock by the Board of Directors could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding voting
stock of the Company, thereby delaying, deferring or preventing a change in
control of the Company.

CERTAIN PROVISION OF DELAWARE LAW AND THE COMPANY'S CERTIFICATE OF INCORPORATION
AND BYLAWS

The Company is subject to the provisions of Section 203 of the DGCL.
Section 203 prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
A "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder. Subject to
certain exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns or within three years prior to the proposed
business combination has owned 15% or more of the corporation's voting stock.

The Company's Certificate of Incorporation provides that liability of
directors of the Company is eliminated to the fullest extent permitted under
Section 102(b)(7) of the DGCL. As a result, no director of the Company will be
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability: (i) for any breach of the
director's duty of loyalty to the Company or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) for any wilful or negligent

64
<PAGE> 68

payment of an unlawful dividend, stock purchase or redemption; or (iv) for any
transaction from which the director derived an improper personal benefit.

The Company's Bylaws provides that the Board of Directors be elected to
staggered one-, two-and three-year terms and, thereafter, for successive
three-year terms. In addition, directors may only be removed from office for
cause. These provisions of the Bylaws could discourage potential acquisition
proposals and could delay or prevent a change in control of the Company.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is First Union
Shareholder Services.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have shares of
Common Stock outstanding, based upon the number of shares outstanding as of
, 1998 and assuming consummation of the Combination. The
shares sold in the Offering will be freely tradeable without restriction or
further registration under the Securities Act, unless acquired by an "affiliate"
of the Company, as that term is defined in Rule 144; shares held by affiliates
will be subject to resale limitations of Rule 144 described below. All of the
remaining outstanding shares of Common Stock will be available for
resale at various dates beginning 180 days after the date of this Prospectus,
upon expiration of applicable lock-up agreements described below and subject to
compliance with Rule 144 under the Securities Act as the holding provisions of
Rule 144 are satisfied. Further, upon consummation of the Offering,
restricted shares of Common Stock will be granted to Executive Officers and
shares of Common Stock will be issuable upon the exercise of stock
options to be granted on the effective date of the registration statement of
which this Prospectus forms a part. Such options will vest and become
exercisable 25% per year commencing on the date of grant. The Company intends to
file a registration statement on Form S-8 as soon as practicable after the
consummation of the Offering with respect to the restricted shares and the
shares of Common Stock issuable upon exercise of all such options. In addition,
within 90 days following the completion of the Offering, the Company intends to
register additional shares of Common Stock under the Securities Act
for its use in connection with future acquisitions.

In general, under Rule 144 as currently in effect, a stockholder who has
beneficially owned for at least one year shares privately acquired directly or
indirectly from the Company or from an affiliate of the Company, and persons who
are affiliates of the Company who have acquired the shares in registered
transactions, will be entitled to sell within any three-month period a number of
shares that does not exceed the greater of: (i) one percent of the outstanding
shares of Common Stock (approximately shares immediately after
completion of the Offering); or (ii) the average weekly trading volume in the
Common Stock during the four calendar weeks preceding such sale. Sales under
Rule 144 are also subject to certain requirements relating to the manner and
notice of sale and the availability of current public information about the
Company.

The Company, each of its directors and officers and stockholders have
agreed with the Underwriters not to offer, sell or otherwise dispose of any
shares of Common Stock or securities convertible into or exercisable or
exchangeable for such shares for a period of 180 days after the date of this
Prospectus without the prior written consent of BT Alex. Brown Incorporated. The
holders of the shares of Common Stock issued or to be issued in the Combination
and certain related persons have agreed with the Underwriters not to offer, sell
or otherwise dispose of any shares of Common Stock or securities convertible
into or exercisable or exchangeable for such shares for a period of 180 days
after the date of this Prospectus without the prior written consent of BT Alex.
Brown Incorporated. Furthermore, each stockholder of the Founding Companies has
agreed with the Company that they will not sell, pledge, transfer or otherwise
dispose of any shares of Common Stock for a period of one year from the date of
the closing of the Combination.

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<PAGE> 69

Prior to this Offering, there has been no market for the Common Stock. No
predictions can be made with respect to the effect, if any, that public sales of
shares of the Common Stock or the availability of shares for sale will have on
the market price of the Common Stock after the completion of the Offering. Sales
of substantial amounts of Common Stock in the public market following the
Offering, or the perception that such sales may occur, could adversely affect
the market price of the Common Stock or the ability of the Company to raise
capital through sales of its equity securities. See "Risk Factors -- No Prior
Market for the Common Stock; Possible Volatility of Stock Price."

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<PAGE> 70

UNDERWRITING

Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date of this Prospectus (the "Underwriting Agreement"), the
Underwriters named below, for whom BT Alex. Brown Incorporated and Schroder &
Co. Inc. are acting as Representatives, have severally agreed to purchase, and
the Company has agreed to sell to them, severally, the respective number of
shares of Common Stock set forth opposite the names of such Underwriters below:

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---- ---------
<S> <C>
BT Alex. Brown Incorporated.................................
Schroder & Co. Inc..........................................

---------
Total.............................................
=========
</TABLE>

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

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

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

Application has been made to list the Common Stock on The Nasdaq National
Market under the symbol "RWKS."

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

Each of the Company and the directors, executive officers and stockholders
of the Company has agreed that, without the prior written consent of BT Alex.
Brown Incorporated on behalf of the Underwriters, they will not, during the
period ending 180 days after the date of this Prospectus (i) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option

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<PAGE> 71

or contact to sell, grant any option, right or warrant to purchase, lend or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock or (ii) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
the Common Stock, whether any such transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise. The restrictions described in this paragraph do not apply to
(w) the sale of the Shares to the Underwriters, (x) the issuance by the Company
of the shares of Common Stock upon the exercise of any option or a warrant or
the conversion of a security outstanding on the date of this Prospectus of which
the Underwriters have been advised in writing, (y) the issuance of shares to be
used as consideration for future acquisitions or (z) the grant of options under
the Company's stock option plans, provided such options do not vest prior to the
180-day period referenced herein, and provided further that, in the case of
subclauses (x) and (y), the recipient of any such shares agrees to be bound by
the transfer restrictions set forth herein.

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

From time to time, each of the Underwriters and their respective affiliates
may provide investment banking services to the Company.

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

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

Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price was determined by negotiations between
the Company and the Representatives. Among the factors considered in determining
the initial public offering price were the future prospects of the Company and
its industry in general, revenue, earnings and certain other financial and
operating information of the Founding Companies in recent periods, and the
price-earnings ratios, price-sales ratios, market prices of securities and
certain financial and operating information of companies engaged in activities
similar to those of the Company.

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<PAGE> 72

CERTAIN U.S. FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK

The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of Common Stock
applicable to a beneficial owner thereof that is a "Non-U.S. Holder." A
"Non-U.S. Holder" is a person or entity other than (i) a citizen or resident of
the United States, (ii) a corporation or partnership created or organized in or
under the laws of the United States or of any state, (iii) an estate the income
of which is subject to U.S. federal income tax, regardless of its source or (iv)
a trust if (a) a court within the United States is able to exercise primary
supervision over the administration of the trust and (b) one or more United
States persons have the authority to control all substantial decisions of the
trust.

An individual may, subject to certain exceptions, be deemed to be a
resident alien (as opposed to a non-resident alien) by virtue of being present
in the United States at least 31 days in the calendar year and for an aggregate
of at least 183 days during a three-year period that includes the current
calendar year (counting for such purposes all of the days present in the current
year, one-third of the days present in the immediately preceding year, and
one-sixth of the days present in the second preceding year). Resident aliens are
subject to U.S. federal tax as if they were U.S. citizens and, thus, are not
Non-U.S. Holders for purposes of this discussion.

This discussion is based on the Code existing and proposed regulations
promulgated thereunder and administrative and judicial interpretations thereof
as of the date hereof, all of which are subject to change, including changes
with retroactive effect. This discussion does not address all aspects of U.S.
federal income and estate taxation that may be important to Non-U.S. Holders in
light of their particular circumstances (including tax consequences applicable
to Non-U.S. Holders that are, or hold interests in Common Stock through,
partnerships or other fiscally transparent entities) and does not address United
States state and local or non-United States tax consequences. Prospective
Non-U.S. Holders should consult their own tax advisors with respect to the
particular U.S. federal income and estate tax consequences to them of owning and
disposing of Common Stock, as well as the tax consequences arising under the
laws of any other taxing jurisdiction.

DIVIDENDS

Subject to the discussion below, dividends, if any, paid to a Non-U.S.
Holder of Common Stock generally will be subject to United States withholding
tax at a rate of 30% of the gross amount of the dividend or such lower rate as
may be specified by an applicable income tax treaty. Non-U.S. Holders (and in
the case of Non-U.S. Holders that are treated as partnerships or other fiscally
transparent entities, partners, shareholders or other beneficiaries of such
Non-U.S. Holders) may be required to satisfy certain certification requirements
and provide certain information in order to claim treaty benefits. Special rules
regarding the availability of treaty benefits apply with respect to entities
that are treated as partnerships or other fiscally transparent entities for U.S.
federal income tax purposes but treated as corporations for purposes of the tax
laws of an applicable treaty country (or, conversely, treated as corporations
for U.S. federal income tax purposes but treated as partnerships or other
fiscally transparent entities for purposes of the tax laws of an applicable
treaty country). Any such entities that hold Common Stock, and partners,
beneficiaries and shareholders of such entities, should consult their tax
advisors as to the applicability of such rules to their particular
circumstances.

Dividends paid to a Non-U.S. Holder that are (i) effectively connected with
the Non-U.S. Holder's conduct of a trade or business within the United States
and (ii) if a tax treaty applies, attributable to a permanent establishment
maintained by the Non-U.S. Holder, will not be subject to the withholding tax
(provided in either case the Non-U.S. Holder files the appropriate documentation
with the Company or its Paying Agent), but, instead, will be subject to regular
U.S. federal income tax at the graduated rates in the same manner as if the
Non-U.S. Holder were a U.S. resident. In addition to such graduated tax in the
case of a Non-U.S. Holder that is a corporation, effectively

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<PAGE> 73

connected dividends or, if a tax treaty applies, dividends attributable to a
U.S. permanent establishment of the corporate Non-U.S. Holder, may be subject to
a "branch profits tax" which is imposed, under certain circumstances, at a rate
of 30% (or such lower rate as may be specified by an applicable tax treaty) of
the non-U.S. corporation's effectively connected earnings and profits, subject
to certain adjustments.

GAIN ON DISPOSITION OF COMMON STOCK

A Non-U.S. Holder generally will not be subject to U.S. federal income tax
(and no tax will generally be withheld) with respect to gain realized on a sale
or other disposition of Common Stock unless (i) the gain is effectively
connected with a trade or business of such Non-U.S. Holder in the United States
or, if a tax treaty applies, attributable to a United States permanent
establishment of the Non-U.S. Holder, (ii) in the case of certain Non-U.S.
Holders who are nonresident alien individuals and hold the Common Stock as a
capital asset, such individuals are present in the United States for 183 or more
days in the taxable year of the sale or other disposition and certain other
conditions are met, (iii) the Non-U.S. Holder is subject to tax pursuant to the
provisions of the Code regarding the taxation of U.S. expatriates or (iv) the
Company is or has been a "U.S. real property holding corporation" within the
meaning of the Code and the Non-U.S. Holder owned directly or pursuant to
certain attribution rules more than 5% of the Company's Common Stock (assuming
the Common Stock is regularly traded on an established securities market within
the meaning of the Code) at any time within the shorter of the five-year period
preceding such disposition or such Non-U.S. Holder's holding period. The Company
is not, and does not anticipate becoming, a U.S. real property holding
corporation.

If a Non-U.S. Holder who is an individual falls under clause (i) of the
preceding paragraph, he or she will, unless an applicable treaty provides
otherwise, be taxed on the net gain derived from the sale at regular graduated
U.S. federal income tax rates. If an individual Non-U.S. Holder falls under
clause (ii) of the preceding paragraph, he or she will be subject to a flat 30%
tax on the gain derived from the sale, which may be offset by certain United
States-source capital losses. If a Non-U.S. Holder that is a corporation falls
under clause (i) in the preceding paragraph, it will be taxed on the net gain
from the sale at regular graduated U.S. federal income tax rates and may be
subject to an additional branch profits tax at a rate of 30% (or such lower rate
as may be specified by an applicable tax treaty) on the non-U.S. corporation's
effectively connected earnings and profits, subject to certain adjustments.

INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING

Generally, the Company must report annually to the Internal Revenue Service
the amount of dividends paid to a Non-U.S. Holder and the amount, if any, of tax
withheld with respect to, such Non-U.S. Holder. A similar report is sent to the
Non-U.S. Holder. Pursuant to tax treaties or certain other agreements, the
Internal Revenue Service may make its reports available to tax authorities in
the recipient's country of residence.

Currently, United States backup withholding tax (which generally is a
withholding tax imposed at a rate of 31% on certain payments to persons that
fail to furnish the information required under the United States information
reporting requirements) will generally not apply to dividends paid on Common
Stock to a Non-U.S. Holder at an address outside the United States, unless the
payor has actual knowledge that the payee is a U.S. Holder. Backup withholding
tax generally will apply to dividends paid on Common Stock at addresses inside
the United States to Non-U.S. Holders who fail to provide certain identifying
information in the manner required.

In addition, information reporting and backup withholding imposed at a rate
of 31% will apply to the proceeds of a disposition of Common Stock paid to or
through a U.S. office of a broker unless the disposing holder, under penalties
of perjury, certifies as to its non-U.S. status or otherwise establishes an
exemption. Generally, U.S. information reporting and backup withholding will not

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<PAGE> 74

apply to a payment of disposition proceeds if the payment is made outside the
United States through a non-U.S. office of a non-U.S. broker. However, U.S.
information reporting requirements (but not backup withholding) will apply to a
payment of disposition proceeds outside the United States if the payment is made
through an office outside the United States of a broker that is (i) a U.S.
person, (ii) a foreign person which derives 50% or more of its gross income for
certain periods from the conduct of a trade or business in the United States or
(iii) a "controlled foreign corporation" for U.S. federal income tax purposes,
unless the broker maintains documentary evidence that the holder is a Non-U.S.
Holder and certain other conditions are met, or the holder otherwise establishes
an exemption.

Recently adopted United States Treasury regulations, which generally are
effective for payments made after December 31, 1999, subject to certain
transition rules, alter the foregoing rules in certain respects. Among other
things, such regulations provide certain presumptions under which a Non-U.S.
Holder is subject to backup withholding at the rate of 31% and information
reporting unless the Company receives certification from the holder of non-U.S.
status. Depending on the circumstances, this certification will need to be
provided (i) directly by the Non-U.S. Holder, (ii) in the case of a Non-U.S.
Holder that is treated as a partnership or other fiscally transparent entity, by
the partners, shareholders or other beneficiaries of such entity, or (iii) by
certain qualified financial institutions or other qualified entities on behalf
of the Non-U.S. Holder.

Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the Internal
Revenue Service.

FEDERAL ESTATE TAX

An individual holder who is not a citizen or resident (as defined for U.S.
federal estate tax purposes) of the United States and at the time of death is
treated as the owner of, or has made certain lifetime transfers of, an interest
in the Common Stock will be required to include the value thereof in his gross
estate for U.S. federal estate tax purposes, and may be subject to U.S. federal
estate tax unless an applicable estate tax treaty provides otherwise.

NOTICE TO CANADIAN RESIDENTS

RESALE RESTRICTIONS

The distribution of the Common Stock in Canada is being made only on a
private placement basis exempt from the requirement that the Company and the
Selling Stockholders prepare and file a prospectus with the securities
regulatory authorities in each province where trades of the Common Stock are
effected. Accordingly, any resale of the Common Stock in Canada must be made in
accordance with applicable securities laws which will vary depending on the
relevant jurisdiction, and which may require resales to be made in accordance
with available statutory exemptions or pursuant to a discretionary exemption
granted by the applicable Canadian securities regulatory authority. Purchasers
are advised to seek legal advice prior to any resale of the Common Stock.

REPRESENTATIONS OF PURCHASERS

Each purchaser of the Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company, the Selling
Stockholders and the dealer from whom such purchase confirmation is received
that (i) such purchaser is entitled under applicable provincial securities laws
to purchase such Common Stock without the benefit of a prospectus qualified
under such securities laws, (ii) where required by law, that such purchaser is
purchasing as principal and not as agent, and (iii) such purchaser has reviewed
the text above under "-- Resale Restrictions."

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<PAGE> 75

RIGHTS OF ACTION (ONTARIO PURCHASERS)

The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.

ENFORCEMENT OF LEGAL RIGHTS

All of the issuer's directors and officers as well as the experts named
herein and the Selling Shareholders may be located outside of Canada and, as a
result, it may not be possible for Canadian purchasers to effect service of
process within Canada upon the issuer or such persons. All or a substantial
portion of the assets of the issuer and such persons may be located outside of
Canada and, as a result, it may not be possible to satisfy a judgment against
the issuer or such persons in Canada or to enforce a judgment obtained in
Canadian courts against the issuer or such persons outside of Canada.

NOTICE TO BRITISH COLUMBIA RESIDENTS

A purchaser of Common Stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
Common Stock acquired by such purchaser pursuant to the Offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from the Company. Only one
such report must be filed in respect of Common Stock acquired on the same date
and under the same prospectus exemption.

TAXATION AND ELIGIBILITY FOR INVESTMENT

Canadian purchasers of Common Stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the Common
Stock in their particular circumstances and with respect to the eligibility of
the Common Stock for investment by the purchaser under relevant Canadian
legislation.

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<PAGE> 76

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by King & Spalding, Atlanta, Georgia. Certain legal matters in
connection with the Offering will be passed upon for the Underwriters by
Shearman & Sterling, New York, New York.

EXPERTS

The audited financial statements included in this Prospectus and elsewhere
in the registration statement for Railworks Corporation, Annex Railroad
Builders, Inc., Comstock Holdings, Inc., Condon Brothers, Inc., H.P. McGinley,
Inc., Kennedy Railroad Builders, Inc. and Associated Companies, Merit Railroad
Contractors, Inc., Midwest Construction Services, Inc., Railroad Service Inc.
and Minnesota Railroad Service, Inc., Southern Indiana Wood Preserving Co., U.S.
Trackworks, Inc. and Northern Rail Service and Supply Co., and Wm. A. Smith
Construction Co., Inc. and Wm. A. Smith Rerailing Services, Inc. have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.

The audited financial statements included in this Prospectus for CPI
Concrete Products Incorporated and elsewhere in the registration statement have
been audited by Cannon and Company, independent public accountants, as indicated
in their reports with respect thereto, and are included herein in reliance upon
the authority of said firm as experts in giving said reports.

The audited financial statements included in this Prospectus for New
England Railroad Construction Company, Inc. and elsewhere in the registration
statement have been audited by Dworken, Hillman, LaMorte & Sterczala, P.C.,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-1 (together with all Amendments, schedules and exhibits thereto, the
"Registration Statement") under the Securities Act with respect to the Common
Stock offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and the Common Stock, reference is made to the
Registration Statement. Statements contained in this Prospectus as to the
contents of any contract, agreement or other document are not necessarily
complete, and in each instance reference is made to the copy of such contract,
agreement or other document filed as an exhibit to the Registration Statement.
The Registration Statement may be inspected without charge at the public
reference facilities maintained by the Commission in Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and its regional offices located at Seven
World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Section of the Commission,
Washington, D.C. at prescribed rates. The Registration Statement may also be
obtained through the Commission's Internet address at "http://www.sec.gov".

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INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
RAILWORKS CORPORATION UNAUDITED PRO FORMA AS ADJUSTED
FINANCIAL STATEMENTS
Introduction to Unaudited Pro Forma As Adjusted Financial
Statements............................................. F-4
Unaudited Pro Forma As Adjusted Balance Sheet as of March
31, 1998............................................... F-5
Unaudited Pro Forma As Adjusted Statements of Income for
the Year Ended December 31, 1997 and the Three Months
Ended March 31, 1998................................... F-6
Notes to Unaudited Pro Forma As Adjusted Financial
Statements............................................. F-7
RAILWORKS CORPORATION
Report of Independent Public Accountants.................. F-9
Balance Sheet as of March 31, 1998........................ F-10
Statement of Income for the Period from Inception to March
31, 1998............................................... F-11
Statement of Changes in Stockholder's Equity for the
Period from Inception through March 31, 1998........... F-12
Notes to Financial Statements............................. F-13
ANNEX RAILROAD BUILDERS, INC.
Report of Independent Public Accountants.................. F-14
Balance Sheets as of March 31, 1997, December 31, 1997 and
March 31, 1998......................................... F-15
Statements of Operations for the Year Ended March 31,
1997, the Nine Months Ended December 31, 1997 and the
Three Months Ended March 31, 1997 and 1998............. F-16
Statements of Stockholders' Equity for the Year Ended
March 31, 1997 and the Nine Months Ended December 31,
1997................................................... F-17
Statements of Cash Flows for the Year Ended March 31,
1997, the Nine Months Ended December 31, 1997 and the
Three Months Ended March 31, 1997 and 1998............. F-18
Notes to Financial Statements............................. F-19
COMSTOCK HOLDINGS, INC.
Report of Independent Public Accountants.................. F-25
Consolidated Balance Sheets as of December 31, 1996, 1997
and March 31, 1998..................................... F-26
Consolidated Statements of Operations for the Years Ended
December 31, 1995, 1996 and 1997 and the Three Months
Ended March 31, 1997 and 1998.......................... F-27
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1995, 1996 and 1997........... F-28
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1996 and 1997 and the Three Months
Ended March 31, 1997 and 1998.......................... F-29
Notes to Consolidated Financial Statements................ F-30
CONDON BROTHERS, INC.
Report of Independent Public Accountants.................. F-39
Balance Sheets as of December 31, 1996 and 1997 and March
31, 1998............................................... F-40
Statements of Operations for the Years Ended December 31,
1995, 1996 and 1997 and the Three Months Ended March
31, 1997 and 1998...................................... F-41
Statements of Stockholders' Equity for the Years Ended
December 31, 1995, 1996 and 1997....................... F-42
Statements of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997 and the Three Months Ended March
31, 1997 and 1998...................................... F-43
Notes to Financial Statements............................. F-44
</TABLE>

F-1
<PAGE> 78

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
CPI CONCRETE PRODUCTS INCORPORATED
Independent Auditor's Report.............................. F-50
Balance Sheets as of January 31, 1997 and 1998............ F-51
Statements of Earnings and Retained Earnings for the Years
Ended January 31, 1996, 1997 and 1998 and the Two
Months Ended March 31, 1997 and 1998................... F-52
Statements of Cash Flows for the Years Ended January 31,
1996, 1997 and 1998 and the Two Months Ended March 31,
1997 and 1998.......................................... F-53
Notes to Financial Statements............................. F-54
H.P. McGINLEY, INCORPORATED
Report of Independent Public Accountants.................. F-59
Balance Sheets as of February 28, 1997, December 31, 1997
and March 31, 1998..................................... F-60
Statements of Operations for the Years Ended February 29,
1996 and February 28, 1997, the Ten Months Ended
December 31, 1997 and the Three Months Ended February
28, 1997 and March 31, 1998............................ F-61
Statements of Stockholder's Equity for the Years Ended
February 29, 1996 and February 28, 1997 and the Ten
Months Ended December 31, 1997......................... F-62
Statements of Cash Flows for the Years Ended February 29,
1996 and February 28, 1997, the Ten Months Ended
December 31, 1997 and the Three Months Ended February
28, 1997 and March 31, 1998............................ F-63
Notes to Financial Statements............................. F-64
KENNEDY RAILROAD BUILDERS, INC. AND ASSOCIATED COMPANIES
Report of Independent Public Accountants.................. F-68
Combined Balance Sheets as of March 31, 1997, December 31,
1997 and March 31, 1998................................ F-69
Combined Statements of Operations for the Years Ended
March 31, 1996 and 1997, the Nine Months Ended December
31, 1997 and the Three Months Ended March 31, 1997 and
1998................................................... F-70
Combined Statements of Stockholders' Equity for the Years
Ended March 31, 1996 and 1997 and the Nine Months Ended
December 31, 1997...................................... F-71
Combined Statements of Cash Flows for the Years Ended
March 31, 1996 and 1997, the Nine Months Ended December
31, 1997 and the Three Months Ended March 31, 1997 and
1998................................................... F-72
Notes to Combined Financial Statements.................... F-73
MERIT RAILROAD CONTRACTORS, INC.
Report of Independent Public Accountants.................. F-80
Balance Sheets as of December 31, 1996 and 1997 and March
31, 1998............................................... F-81
Statements of Operations for the Years Ended December 31,
1995, 1996 and 1997 and the Three Months Ended March
31, 1997 and 1998...................................... F-82
Statements of Stockholders' Equity for the Years Ended
December 31, 1995, 1996 and 1997....................... F-83
Statements of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997 and the Three Months Ended March
31, 1997 and 1998...................................... F-84
Notes to Financial Statements............................. F-85
</TABLE>

F-2
<PAGE> 79

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
MIDWEST CONSTRUCTION SERVICES, INC.
Report of Independent Public Accountants.................. F-90
Balance Sheets as of December 31, 1996 and 1997 and March
31, 1998............................................... F-91
Statements of Operations and Retained Earnings for the
Years Ended December 31, 1995, 1996 and 1997 and the
Three Months Ended March 31, 1997 and 1998............. F-92
Statements of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997 and the Three Months Ended March
31, 1997 and 1998...................................... F-93
Notes to Financial Statements............................. F-94
NEW ENGLAND RAILROAD CONSTRUCTION COMPANY, INC.
Report of Independent Public Accountants.................. F-102
Balance Sheets as of February 28, 1997, December 31, 1997
and March 31, 1998..................................... F-103
Statements of Operations for the Years Ended February 29,
1996 and February 28, 1997, and the Ten Months Ended
December 31, 1997 and Three Months Ended March 31, 1997
and 1998............................................... F-104
Statements of Shareholders' Equity for the Years Ended
February 29, 1996 and February 28, 1997 and the Ten
Months Ended December 31, 1997 and the Three Months
Ended March 31, 1998................................... F-105
Statements of Cash Flows for the Years Ended February 29,
1996 and February 28, 1997, and the Ten Months Ended
December 31, 1997 and Three Months Ended March 31, 1997
and 1998............................................... F-106
Notes to Financial Statements............................. F-107
RAILROAD SERVICE, INC. AND MINNESOTA RAILROAD SERVICE, INC.
Report of Independent Public Accountants.................. F-114
Combined Balance Sheets as of December 31, 1996 and 1997
and March 31, 1998..................................... F-115
Combined Statements of Operations for the Years Ended
December 31, 1995, 1996 and 1997 and the Three Months
Ended March 31, 1997 and 1998.......................... F-116
Combined Statements of Stockholders' Equity for the Years
Ended December 31, 1995, 1996 and 1997................. F-117
Combined Statements of Cash Flows for the Years Ended
December 31, 1995, 1996 and 1997 and the Three Months
Ended March 31, 1997 and 1998.......................... F-118
Notes to Combined Financial Statements.................... F-119
SOUTHERN INDIANA WOOD PRESERVING CO., INC.
Report of Independent Public Accountants.................. F-125
Balance Sheets as of December 31, 1997 and March 31,
1998................................................... F-126
Statements of Operations for the Year Ended December 31,
1997 and the Three Months Ended March 31, 1997 and
1998................................................... F-127
Statement of Stockholder's Equity for the Year Ended
December 31, 1997...................................... F-128
Statements of Cash Flows for the Year Ended December 31,
1997 and the Three Months Ended March 31, 1997 and
1998................................................... F-129
Notes to Financial Statements............................. F-130
U.S. TRACKWORKS, INC. AND NORTHERN RAIL SERVICE AND SUPPLY
CO.
Report of Independent Public Accountants.................. F-133
Combined Balance Sheets as of December 31, 1996 and 1997
and March 31, 1998..................................... F-134
Combined Statements of Operations for the Years Ended
December 31, 1996 and 1997 and the Three Months Ended
March 31, 1997 and 1998................................ F-135
Combined Statements of Changes in Stockholders' Equity for
the Years Ended December 31, 1995, 1996 and 1997....... F-136
Combined Statements of Cash Flows for the Years Ended
December 31, 1996 and 1997 and the Three Months Ended
March 31, 1997 and 1998................................ F-137
Notes to Combined Financial Statements.................... F-138
</TABLE>

F-3
<PAGE> 80

RAILWORKS CORPORATION

UNAUDITED PRO FORMA AS ADJUSTED FINANCIAL STATEMENTS
BASIS OF PRESENTATION

The following unaudited pro forma as adjusted financial statements give
effect to the acquisitions by RailWorks Corporation (the "Company") of Annex
Railroad Builders, Inc., Comstock Holdings, Inc. ("Comstock"), Comtrack
Construction, Inc., Condon Brothers, Inc., CPI Concrete Products Incorporated,
H.P. McGinley, Incorporated, Kennedy Railroad Builders, Inc., Merit Railroad
Builders, Inc., Midwest Railroad Contractors, Inc., New England Construction
Services, Inc., Railroad Service, Inc., Southern Indiana Wood Preserving Co.,
U.S. Trackworks, Inc., and Wm. A. Smith Construction Co., Inc., (together, the
"Founding Companies"). These acquisitions (the "Combination") will occur
simultaneously with the closing of the Company's initial public offering (the
"Offering") and will be accounted for using the purchase method of accounting.
Pursuant to the requirements of SAB 97, Comstock has been identified as the
accounting acquiror for accounting and financial statement purposes.

The unaudited pro forma as adjusted balance sheet gives effect to the
Combination and the Offering as if they had occurred on March 31, 1998. The
unaudited pro forma as adjusted statement of income for the year ending December
31, 1997, gives effect to these transactions as if they had occurred on January
1, 1997, while the unaudited pro forma as adjusted statement of income for the
three months ended March 31, 1998, gives effect to these transactions as if they
had occurred on January 1, 1998.

The Company has analyzed the savings that it expects to realize by
consolidating certain operational and general and administrative functions. The
Company has not and cannot quantify these savings until completion of the
combination of the Founding Companies. These anticipated savings have not been
included in the pro forma as adjusted financial information of the Company.

The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions and may be revised as additional information
becomes available. The pro forma as adjusted financial data does not purport to
represent what the Company's financial position or results of operations would
actually have been if such transactions in fact had occurred on those dates or
to project the Company's financial position or results of operations for any
future period. Since the Founding Companies were not under common control or
management, historical combined results may not be comparable to, or indicative
of, future performance. The unaudited pro forma as adjusted financial statements
should be read in conjunction with the other financial statements and notes
thereto included elsewhere in this Prospectus. See "Risk Factors" included
elsewhere herein.

F-4
<PAGE> 81

RAILWORKS CORPORATION

UNAUDITED PRO FORMA AS ADJUSTED BALANCE SHEET

<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------------------------------------------------------------
COMBINED
HISTORICAL PRO FORMA POST
FINANCIAL PRO FORMA FOR THE COMBINATION PRO FORMA
STATEMENTS ADJUSTMENTS COMBINATION ADJUSTMENTS AS ADJUSTED
------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 4,429,000 $ (1,600,000)(f) $ 2,829,000 $ (95,737,000)(q) $ 829,000
93,737,000(p)
Accounts receivable................ 58,366,000 58,366,000 58,366,000
Officer and affiliate notes
receivable....................... 218,000 218,000 218,000
Costs and estimated earnings in
excess of billings on uncompleted
contracts........................ 8,608,000 8,608,000 8,608,000
Inventory.......................... 19,474,000 19,474,000 19,474,000
Prepaid expenses................... 1,443,000 1,443,000 1,443,000
Deferred income taxes.............. 110,000 110,000 110,000
------------ ------------ ------------ ------------- ------------
Total current assets......... 92,648,000 (1,600,000) 91,048,000 (2,000,000) 89,048,000
------------ ------------ ------------ ------------- ------------
PROPERTY, PLANT AND EQUIPMENT, NET... 11,508,000 10,766,000(b) 22,274,000 22,274,000
------------ ------------ ------------ ------------- ------------
OTHER ASSETS:
Goodwill........................... -- 95,323,000(c) 95,323,000 95,323,000
Other intangible assets............ -- 5,000,000(c) 5,000,000 5,000,000
Cash surrender value of officer's
life insurance................... 935,000 935,000 935,000
Other.............................. 1,012,000 1,012,000 1,012,000
------------ ------------ ------------ ------------- ------------
Total other assets........... 1,947,000 100,323,000 102,270,000 102,270,000
------------ ------------ ------------ ------------- ------------
$106,103,000 $109,489,000 $215,592,000 $ (2,000,000) $213,592,000
============ ============ ============ ============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................... $ 30,451,000 $ $ 30,451,000 $ $ 30,451,000
Notes payable...................... 3,835,000 3,835,000 (3,835,000)(q) --
Current maturities of long-term
debt and capital leases.......... 2,925,000 2,925,000 (2,925,000)(q) --
Officer notes payable.............. 644,000 72,307,000(c) 72,951,000 (72,951,000)(q) --
Billings in excess of costs and
estimated earnings on uncompleted
contracts........................ 5,476,000 5,476,000 5,476,000
Accrued expenses................... 11,010,000 11,010,000 11,010,000
Income taxes payable............... 515,000 515,000 515,000
------------ ------------ ------------ ------------- ------------
Total current liabilities.... 54,856,000 72,307,000 127,163,000 (79,711,000) 47,452,000
------------ ------------ ------------ ------------- ------------
LONG-TERM DEBT AND CAPITAL LEASES,
net of current maturities.......... 16,026,000 16,026,000 (16,026,000)(q) --
DEFERRED INCOME TAXES................ 106,000 4,199,000(b) 6,255,000 6,255,000
1,950,000(c)
NEGATIVE GOODWILL.................... 10,143,000 (10,143,000)(c) -- --
Other................................ 1,569,000 1,569,000 1,569,000
------------ ------------ ------------ ------------- ------------
Total noncurrent
liabilities................ 27,844,000 (3,994,000) 23,850,000 (16,026,000) 7,824,000
------------ ------------ ------------ ------------- ------------
STOCKHOLDERS' EQUITY:
Contributed capital................ 4,280,000 (4,270,000)(a) 62,485,000 93,737,000(p) 156,222,000
62,475,000(c)
Retained earnings.................. 19,123,000 (17,029,000)(a) 2,094,000 2,094,000
------------ ------------ ------------ ------------- ------------
Total stockholders' equity... 23,403,000 41,176,000 64,579,000 93,737,000 158,316,000
------------ ------------ ------------ ------------- ------------
$106,103,000 $109,489,000 $215,592,000 $ (2,000,000) $213,592,000
============ ============ ============ ============= ============
</TABLE>

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

F-5
<PAGE> 82

RAILWORKS CORPORATION

UNAUDITED PRO FORMA AS ADJUSTED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
FOR THE TWELVE MONTHS ENDED FOR THE THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1998
------------------------------------------- -----------------------------------------
COMBINED COMBINED
HISTORICAL HISTORICAL
FINANCIAL PRO FORMA PRO FORMA FINANCIAL PRO FORMA PRO FORMA
STATEMENTS ADJUSTMENTS AS ADJUSTED STATEMENTS ADJUSTMENTS AS ADJUSTED
------------ ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUE................... $253,093,000 $ $253,093,000 $60,612,000 $ $60,612,000
CONTRACT COSTS AND COST OF
SALES................... 217,461,000 1,538,000(e) 218,999,000 53,490,000 385,000(b) 53,875,000
------------ ----------- ------------ ----------- ----------- -----------
Gross profit............ 35,632,000 1,538,000 34,094,000 7,122,000 385,000 6,737,000
GENERAL AND ADMINISTRATIVE
EXPENSES................ 27,364,000 3,117,000(d) 24,473,000 6,510,000 779,000(d) 5,441,000
(5,205,000)(g) (1,229,000)(g)
1,925,000(h) 481,000(h)
(668,000)(k) (242,000)(k)
(850,000)(j) (219,000)(j)
(1,210,000)(i) (239,000)(i)
(400,000)(l)
------------ ----------- ------------ ----------- ----------- -----------
INCOME FROM OPERATIONS.... 8,268,000 1,353,000 9,621,000 612,000 684,000 1,296,000
OTHER INCOME (EXPENSE)
Interest income......... 1,225,000 (295,000)(m) 930,000 338,000 338,000
Interest expense........ (2,413,000) 2,413,000(r) -- (579,000) 579,000(r) --
Other................... 632,000 632,000 105,000 105,000
------------ ----------- ------------ ----------- ----------- -----------
INCOME BEFORE PROVISION
FOR INCOME TAXES........ 7,712,000 3,471,000 11,183,000 476,000 1,263,000 1,739,000
PROVISION FOR INCOME
TAXES(n)................ 2,525,000 2,752,000(n) 5,277,000 379,000 528,000(n) 907,000
------------ ----------- ------------ ----------- ----------- -----------
NET INCOME................ $ 5,187,000 $ 719,000 $ 5,906,000 $ 97,000 $ 735,000 $ 832,000
============ =========== ============ =========== =========== ===========
Net income per share.... $ .31 $ .04
============ ===========
Shares used in computing
net income per
share................. 18,860,000 18,860,000
</TABLE>

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

F-6
<PAGE> 83

RAILWORKS CORPORATION

NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS

1. GENERAL

RailWorks Corporation, a Delaware corporation was formed to become a
leading nationwide provider of rail services, including system construction and
rehabilitation, repair and maintenance and related products.

2. COMBINED HISTORICAL FINANCIAL STATEMENTS

The combined historical financial statements represent the financial
position and results of operations of the Founding Companies and were derived
from the respective historical financial statements. All Founding Companies have
a December 31 year-end, or their historical financial results have been recast
to a December 31 year-end for purposes of the unaudited pro forma as adjusted
statement of income for the year ended December 31, 1997. Historical financial
information for the three months ended March 31, 1998 has been used for purposes
of the unaudited pro forma as adjusted statement of income for the three months
ended March 31, 1998.

3. ACQUISITION OF FOUNDING COMPANIES

Concurrent with the closing of the Offering, the Company will acquire all
of the outstanding stock of the Founding Companies. The acquisitions will be
accounted for using the purchase method of accounting, with Comstock as the
accounting acquiror.

4. PRO FORMA BALANCE SHEET AND STATEMENT OF INCOME ADJUSTMENTS

a. Records the elimination of the historical stockholders' equity of the
Founding Companies (excluding Comstock).

b. Adjusts the carrying value of property, plant and equipment purchased
from the Founding Companies (excluding Comstock) to estimated fair market value
and records the related deferred income taxes.

c. Records an estimate of the goodwill and other intangible assets and the
related deferred income taxes to be recorded in connection with the Combination
as the result of the related issuance of shares and notes payable to the
stockholders of the Founding Companies and expenses associated with the
Combination. The total purchase price related to the shares issued is based upon
an estimated fair value of $12 per share which represents the estimated initial
public offering price.

d. Records the pro forma goodwill amortization expense using a 40-year
estimated life and the pro forma other intangible asset amortization using a
10-year estimated life.

e. Records the pro forma Price Compsup depreciation of the increased
carrying value of property, plant and equipment.

f. Records contingent purchase price due to the former owner of a Founding
Company.

g. Adjusts compensation expense to the level that the owners of the
Founding Companies have contractually agreed to receive subsequent to the
Combination.

h. Records estimated expenses for the Company's new corporate office,
including compensation for the executive officers.

i. Reflects the savings to be realized on a lease renewal by a Founding
Company.

j. Reflects the reduction of insurance costs to be realized by the Company
as a group as opposed to the combined historical cost to the Founding Companies.

F-7
<PAGE> 84
RAILWORKS CORPORATION

NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)

k. To eliminate identifiable, incremental costs incurred by the Founding
Companies in conjunction with this merger which are not expected to be
recurring.

l. To eliminate the compensation expense recorded by a Founding Company in
connection with transfers of stock between existing stockholders.

m. Eliminate one-time fee earned by a Founding Company.

n. Records the incremental provision for federal and state income taxes
assuming a 39% statutory tax rate increased by goodwill amortization which is
not deductible for income tax purposes.

o. Includes: (i) 9,853,000 shares issued to the stockholders of the
Founding Companies in connection with the Combination, (ii) 8,579,000 shares
issued in connection with this Offering and (iii) 428,000 shares issued to a
service provider in connection with the Combination. Excludes 1,640,000 shares
to be issued to management subsequent to the Offering.

POST COMBINATION ADJUSTMENTS

p. The proceeds from the issuance of 8.6 million shares of the Company's
Common Stock, net of estimated offering costs (based on the initial public
offering price of $12 per share) will be applied as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Gross proceeds of the Offering.............................. $102,943
Underwriting discount....................................... (7,206)
Estimated expenses.......................................... (2,000)
Payment of certain debt obligations......................... (23,430)
Payment of other obligations................................ (2,530)
Payment of amounts payable to the owners of the Founding
Companies................................................. (69,777)
--------
$ (2,000)
========
</TABLE>

Offering costs primarily consist of underwriting discounts and commissions,
accounting fees, legal fees, and printing expenses.

q. Reflects the payment of debt from the proceeds of the Offering.

r. Reflects the elimination of interest expense as all Founding Company
debt will be repaid with a portion of the proceeds from the Offering.

5. STOCK GRANTS TO EXECUTIVE MANAGEMENT TEAM

In connection with the Combination and IPO, RailWorks intends to grant
1,640,000 shares of its common stock to its executive management team. This
grant has not been reflected in these statements. The Company estimates the
expense it will recognize upon granting the shares will approximate $19.7
million.

F-8
<PAGE> 85

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To RailWorks Corporation:

We have audited the accompanying balance sheet of RAILWORKS CORPORATION (a
Delaware corporation), as of March 31, 1998, and the related statements of
income and changes in stockholder's equity for the period from inception (March
20, 1998) to March 31, 1998. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of RailWorks Corporation as of
March 31, 1998, and the results of its operations for the period from inception
(March 20, 1998) to March 31, 1998, in conformity with generally accepted
accounting principles.

Arthur Andersen LLP

Nashville, Tennessee
May 20, 1998

F-9
<PAGE> 86

RAILWORKS CORPORATION

BALANCE SHEET

<TABLE>
<CAPTION>
MARCH 31,
1998
---------
<S> <C>
ASSETS
CASH........................................................ $100
----
Total assets...................................... $100
====
STOCKHOLDER'S EQUITY
STOCKHOLDER'S EQUITY:
Preferred stock $.01 par value, 10,000,000 shares
authorized, no shares issued........................... $ --
Common stock, $.01 par value, 100,000,000 shares
authorized, 10 shares issued and outstanding........... --
Additional paid-in capital................................ 100
Retained earnings......................................... --
----
Total stockholder's equity........................ $100
====
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-10
<PAGE> 87

RAILWORKS CORPORATION

STATEMENT OF INCOME
FOR THE PERIOD FROM INCEPTION (MARCH 20, 1998) TO MARCH 31, 1998

<TABLE>
<S> <C>
REVENUES.................................................... $ --
SELLING, GENERAL AND ADMINISTRATION EXPENSES................ --
--------
INCOME BEFORE INCOME TAXES.................................. --
PROVISION FOR INCOME TAXES.................................. --
--------
NET INCOME.................................................. $ --
========
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-11
<PAGE> 88

RAILWORKS CORPORATION

STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE PERIOD FROM INCEPTION (MARCH 20, 1998)
THROUGH MARCH 31, 1998

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- -------- -----
<S> <C> <C> <C> <C> <C>
Issuance of common stock.......................... 10 $-- $100 $-- $100
Net income........................................ -- -- -- -- --
-- -- ---- -- ----
BALANCE, March 31, 1998........................... 10 $-- $100 $-- $100
== == ==== == ====
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-12
<PAGE> 89

RAILWORKS CORPORATION

NOTES TO FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION

RailWorks Corporation ("RailWorks" or the "Company"), was formed in March
1998 to become a leading nationwide provider of rail services, including system
construction and rehabilitation, repair and maintenance services and related
products. RailWorks intends to acquire fourteen U.S. businesses (the
"Acquisitions"), complete an initial public offering (the "Offering") of its
common stock and, subsequent to the Offering, continue to acquire, through
merger or purchase, similar companies to expand its national operations.

RailWorks has not conducted any operations, and all activities to date have
related to the acquisitions and the initial public offering ("IPO"). Cash of
$100 was generated from the initial capitalization of the Company (see Note 2).
Accordingly, cash flows would not provide meaningful information and have been
omitted. There is no assurance that the pending acquisitions discussed below
will be completed and that RailWorks will be able to generate future operating
revenues.

2. STOCKHOLDER'S EQUITY

In connection with the organization and initial capitalization of
RailWorks, the Company issued 10 shares of common stock for $100.

3. SUBSEQUENT EVENTS (UNAUDITED)

RailWorks and its newly formed, wholly owned subsidiaries have signed
definitive agreements to acquire by merger the Founding Companies to be
effective with the IPO. The companies to be acquired are: Annex Railroad
Builders, Inc., Comtrack Construction, Inc., Comstock Holdings, Inc., Condon
Brothers, Inc., CPI Concrete Products Incorporated, H.P. McGinley, Incorporated,
Kennedy Railroad Builders, Inc., Merit Railroad Builders, Inc., Midwest Railroad
Contractors, Inc., New England Construction Services, Inc., Railroad Service,
Inc., Southern Indiana Wood Preserving Co., U.S. Trackworks, Inc. and W.A. Smith
Construction Co., Inc. Consideration that will be paid by RailWorks to acquire
the Founding Companies will consist of a combination of cash and common stock.
The amount of such consideration will be determined on the closing date;
however, it is expected to approximate $187.4 million.

Additionally RailWorks intends to grant 1,640,000 shares of its common
stock to its executive management team. The Company estimates the expense it
will recognize upon granting the shares will approximate $19.7 million.

F-13
<PAGE> 90

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Annex Railroad Builders, Inc.:

We have audited the accompanying balance sheets of ANNEX RAILROAD BUILDERS,
INC. (the "Company") (an Indiana corporation) as of March 31, 1997 and December
31, 1997, and the related statements of operations, stockholders' equity and
cash flows for the year ended March 31, 1997 and the nine-month period ended
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Annex Railroad Builders,
Inc. as of March 31, 1997 and December 31, 1997, and the results of its
operations and its cash flows for the year ended March 31, 1997 and the nine-
month period ended December 31, 1997 in conformity with generally accepted
accounting principles.

Arthur Andersen LLP

Nashville, Tennessee
February 20, 1998

F-14
<PAGE> 91

ANNEX RAILROAD BUILDERS, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
1997 1997 1998
----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 63,344 $ 48,105 $ 0
Accounts receivable, net of allowance of $20,000
and $16,600, respectively....................... 2,039,394 2,139,185 1,432,321
Employee loans and advances........................ 19,504 13,371 14,335
Costs and estimated earnings in excess of billings
on uncompleted contracts........................ 775,818 1,146,737 1,251,865
Inventory.......................................... 84,085 166,718 190,643
Prepaid expenses................................... 6,545 26,828 6,429
Deferred tax assets................................ 28,759 48,683 48,683
----------- ----------- ----------
Total current assets....................... 3,017,449 3,589,627 2,944,276
----------- ----------- ----------
PROPERTY, PLANT AND EQUIPMENT:
Land and buildings................................. 137,314 137,314 137,314
Machinery and equipment............................ 2,037,065 2,000,665 1,988,222
Office furniture and equipment..................... 42,087 46,090 46,090
----------- ----------- ----------
2,216,466 2,184,069 2,171,626
Less accumulated depreciation...................... (1,461,727) (1,534,166) (1,564,776)
----------- ----------- ----------
Property, plant and equipment, net......... 754,739 649,903 606,850
----------- ----------- ----------
OTHER ASSETS:
Cash value of life insurance, face value of
$1,710,000...................................... 294,724 280,901 311,458
----------- ----------- ----------
Total other assets......................... 294,724 280,901 311,458
----------- ----------- ----------
$ 4,066,912 $ 4,520,431 $3,862,584
=========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................... $ 1,023,434 $ 1,001,775 $ 602,094
Line of credit..................................... 325,000 50,000 125,000
Current obligations under capital leases........... 120,464 99,604 117,119
Billings in excess of costs and estimated earnings
on uncompleted contracts........................ 43,752 125,959 33,164
Accrued expenses................................... 283,292 537,477 264,735
Current maturities of long-term debt............... 76,998 45,611 22,151
----------- ----------- ----------
Total current liabilities.................. 1,872,940 1,860,426 1,164,263
----------- ----------- ----------
LONG-TERM DEBT, net of current maturities............ 28,376 -- --
----------- ----------- ----------
CAPITAL LEASE OBLIGATIONS, net of current
obligations........................................ 119,219 42,935 --
----------- ----------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value; 5,000 shares authorized
and outstanding................................. 52,469 52,469 52,469
Retained earnings.................................. 2,103,182 2,564,601 2,645,852
Treasury stock..................................... (109,274) -- --
----------- ----------- ----------
Total stockholders' equity................. 2,046,377 2,617,070 2,698,321
----------- ----------- ----------
$ 4,066,912 $ 4,520,431 $3,862,584
=========== =========== ==========
</TABLE>

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

F-15
<PAGE> 92

ANNEX RAILROAD BUILDERS, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR NINE MONTHS THREE MONTHS ENDED
ENDED ENDED -------------------------
MARCH 31, DECEMBER 31, MARCH 31, MARCH 31,
1997 1997 1997 1998
----------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE.................................. $11,614,058 $11,236,193 $4,218,672 $2,105,345
CONTRACT COSTS........................... 9,912,053 9,458,716 3,627,484 1,763,234
----------- ----------- ---------- ----------
Gross profit........................... 1,702,005 1,777,477 591,188 342,111
GENERAL AND ADMINISTRATIVE EXPENSES...... 1,153,273 799,704 314,319 207,940
----------- ----------- ---------- ----------
INCOME FROM OPERATIONS................... 548,732 977,773 276,869 134,171
----------- ----------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest income........................ 26,690 11,593 4,190 2,486
Interest expense....................... (46,865) (39,662) (14,608) (3,459)
----------- ----------- ---------- ----------
(20,175) (28,069) (10,418) (973)
----------- ----------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME
TAXES.................................. 528,557 949,704 266,451 133,198
PROVISION FOR INCOME TAXES............... 228,946 369,011 103,916 51,947
----------- ----------- ---------- ----------
NET INCOME............................... $ 299,611 $ 580,693 $ 162,535 $ 81,251
=========== =========== ========== ==========
</TABLE>

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

F-16
<PAGE> 93

ANNEX RAILROAD BUILDERS, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
NUMBER
OF
COMMON COMMON TREASURY RETAINED
SHARES STOCK STOCK EARNINGS TOTAL
------ ------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, March 31, 1996.............. 5,000 $52,469 $(109,274) $1,813,571 $1,756,766
----- ------- --------- ---------- ----------
Net income......................... -- -- -- 299,611 299,611
Dividends.......................... -- -- -- (10,000) (10,000)
----- ------- --------- ---------- ----------
BALANCE, March 31, 1997.............. 5,000 52,469 (109,274) 2,103,182 2,046,377
----- ------- --------- ---------- ----------
Net income......................... -- -- -- 580,693 580,693
Dividends.......................... -- -- -- (10,000) (10,000)
Retirement of treasury stock....... -- -- 109,274 (109,274) --
----- ------- --------- ---------- ----------
BALANCE, December 31, 1997........... 5,000 $52,469 $ -- $2,564,601 $2,617,070
===== ======= ========= ========== ==========
</TABLE>

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

F-17
<PAGE> 94

ANNEX RAILROAD BUILDERS, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR NINE MONTHS THREE MONTHS ENDED
ENDED ENDED ---------------------------
MARCH 31, DECEMBER 31, MARCH 31, MARCH 31,
1997 1997 1997 1998
--------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................... $ 299,611 $ 580,693 $ 162,535 $ 81,251
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred income tax benefit.................. -- (19,924) -- --
Depreciation and amortization................ 240,344 171,856 60,979 59,554
(Gain)/loss from sale of equipment........... 1,117 145 -- (2,500)
Change in operating assets:
Accounts receivable........................ (752,515) (99,791) 226,174 706,864
Costs and estimated earnings in excess of
billings on uncompleted contracts....... (337,359) (370,919) (74,324) (105,128)
Inventory.................................. (25,290) (82,633) 56,500 (23,925)
Prepaid expenses........................... 16,748 (20,283) 4,009 20,399
Accounts payable........................... 465,399 (21,659) 146,386 (399,681)
Accrued expenses........................... (139,977) 254,185 (180,148) (272,742)
Billings in excess of costs and estimated
earnings on uncompleted contracts....... (36,086) 82,207 (129,953) (92,795)
--------- --------- --------- ---------
Net cash provided by (used in) operating
activities............................ (268,008) 473,877 272,158 (28,703)
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net employee advances (payments)............... (1,050) 6,133 (205) (964)
Increase in cash value of life insurance....... (53,796) (42,340) (29,396) (30,557)
Proceeds from life insurance policies.......... -- 56,163 -- --
Decrease in notes receivable................... 43,574 -- 43,574 --
Purchases of property, plant, and equipment.... (102,224) (87,176) -- (16,501)
Proceeds from sale of equipment................ -- 20,011 -- 2,500
--------- --------- --------- ---------
Net cash provided by (used) in investing
activities............................ (113,496) (47,209) 13,973 (45,522)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under line of
credit....................................... 75,000 (275,000) (175,000) 75,000
Principal payments under capital lease
obligations.................................. (17,712) (97,144) (17,712) (25,420)
Principal payments on long-term debt........... (116,248) (59,763) (20,075) (23,460)
Borrowings under long-term debt................ 19,752 -- -- --
Dividends paid................................. (10,000) (10,000) (10,000) --
--------- --------- --------- ---------
Net cash provided by (used in) financing
activities............................ (49,208) (441,907) (222,787) 26,120
--------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents........................... (430,712) (15,239) 63,344 (48,105)
CASH AND CASH EQUIVALENTS, beginning of period... 494,056 63,344 -- 48,105
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period......... $ 63,344 $ 48,105 $ 63,344 $ --
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest..................................... $ 46,865 $ 39,662 $ 14,608 $ 3,459
========= ========= ========= =========
Income taxes................................. $ 230,973 $ 218,256 $ -- $ 146,989
========= ========= ========= =========
</TABLE>

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

F-18
<PAGE> 95

ANNEX RAILROAD BUILDERS, INC.

NOTES TO FINANCIAL STATEMENTS

1. NATURE OF BUSINESS

Annex Railroad Builders, Inc. (the "Company"), a C corporation, operates as
a construction contractor constructing, repairing and maintaining railroad
tracks for private and government customers located throughout the Midwest. The
work is performed under various forms of contracts, including fixed-fee and
time-and-material contracts.

2. SIGNIFICANT ACCOUNTING POLICIES

YEAR-END

In 1997, the Company changed its financial reporting year-end to December
31. These financial statements reflect the results of operations for the year
ended March 31, 1997 and the nine months ended December 31, 1997.

USE OF ESTIMATES

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

REVENUE AND COST RECOGNITION

The Company recognizes revenues from fixed-fee contracts using the
percentage-of-completion method, measured by the percentage of cost incurred to
date to management's estimated total cost for each contract. This method is used
because management considers total cost to be the best available measure of
progress on the contracts. Changes in job performance, job conditions and
estimated profitability may result in revisions to cost and income, which are
recognized in the period in which the revisions are determined.

Revenues from time-and-material contracts are recognized currently as the
work is performed.

Contract costs include all direct material, labor and equipment costs and
those indirect costs related to contract performance and are charged to expense
as incurred. Provisions for estimated losses on uncompleted contracts are made
in the period in which such losses are determined.

The asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The liability, "Billings in excess of costs and estimated earnings on
uncompleted contracts," represents billings in excess of revenues recognized.

CASH AND CASH EQUIVALENTS

The Company considers cash and cash equivalents to include cash on hand and
temporary cash investments purchased with an original maturity of three months
or less.

FINANCIAL INSTRUMENTS AND CREDIT RISK

The Company operates primarily in the Midwest. As such, the Company's
accounts receivable are from the same geographic region. The terms of the sales
give rise to unsecured accounts receivable, as is common industry practice. At
December 31, 1997, approximately 10% of the accounts receivable was due from one
customer. Contract revenue earned from three customers

F-19
<PAGE> 96
ANNEX RAILROAD BUILDERS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

comprised approximately 39% of total contract revenue for the nine months ended
December 31, 1997.

INVENTORY

Inventory, consisting principally of stored materials and parts to be used
for contracts, is stated at the lower of cost or market. Cost is determined by
the first-in, first-out (FIFO) method.

PROPERTY, PLANT AND EQUIPMENT

The Company records property, plant and equipment at cost. Depreciation is
computed using the straight-line and accelerated methods over the estimated
useful life of the asset as follows:

<TABLE>
<S> <C>
Buildings................................................. 30 - 39 years
Machinery and equipment................................... 5 years
Office furniture and equipment............................ 7 years
</TABLE>

As assets are retired or otherwise disposed of, the cost and accumulated
depreciation are eliminated from the accounts, and any gain or loss is reflected
in net income.

INCOME TAXES

The provision for income taxes is based on earnings reported by the
Company. In accordance with Statement of Financial Accounting Standards No. 109,
a deferred income tax asset or liability is determined by applying currently
enacted tax laws and rates to the expected reversal of the cumulative temporary
differences between the carrying value of assets and liabilities for financial
statement and income tax purposes.

INTERIM FINANCIAL STATEMENTS

The unaudited financial statements included herein have been prepared,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"). In the opinion of management, the accompanying
unaudited financial statements reflect all adjustments necessary to present
fairly the financial position as of March 31, 1998 and the results of operations
and cash flows for the three months ended March 31, 1997 and 1998.

3. ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following at March 31, 1997 and
December 31, 1997:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1997
---------- ------------
<S> <C> <C>
Contract receivables....................................... $ 798,167 $ 996,507
Contract retainages........................................ 1,172,772 1,162,678
Other...................................................... 85,055 --
---------- ----------
2,055,994 2,159,185
Less allowance for doubtful accounts....................... 16,600 20,000
---------- ----------
$2,039,394 $2,139,185
========== ==========
</TABLE>

Contract retainages have been billed but are not due pursuant to contract
provisions until contract completion. Such contract retainages are expected to
be collected within the following year.

F-20
<PAGE> 97
ANNEX RAILROAD BUILDERS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

Information with respect to contracts in process at March 31, 1997 and
December 31, 1997 is as follows:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1997
---------- ------------
<S> <C> <C>
Costs incurred on uncompleted contracts.................... $5,117,839 $9,342,909
Estimated earnings......................................... 1,824,146 3,477,468
---------- ----------
6,941,985 12,820,377
Less billings to date...................................... 6,209,919 11,799,599
---------- ----------
$ 732,066 $1,020,778
========== ==========
</TABLE>

Contracts in process are included in the accompanying balance sheet under
the following captions:

<TABLE>
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... $775,818 $1,146,737
Billings in excess of costs and estimated earnings on
uncompleted contracts..................................... (43,752) (125,959)
-------- ----------
$732,066 $1,020,778
======== ==========
</TABLE>

5. LINE OF CREDIT

The Company maintains a revolving line of credit with maximum borrowings of
$1,200,000 which matures on July 31, 1998. The line of credit bears interest at
prime plus .75% (9.25% at December 31, 1997) which is payable monthly. The
collateral for the line of credit includes the Company's accounts receivable,
inventory, machinery and equipment. In addition, it is personally guaranteed up
to $500,000 by one of the principal stockholders. During the year ended March
31, 1997 and the nine months ended December 31, 1997, the weighted average
amount outstanding on the line of credit was approximately $356,000 and
$221,000, respectively, and the maximum amount outstanding was approximately
$575,000 and $500,000, respectively. The outstanding balance of the revolving
credit facility at March 31, 1997 and December 31, 1997 was $325,000 and
$50,000, respectively.

6. CAPITAL LEASES

The Company's capital leases relate to machinery and equipment which have
net book values of $239,683 and $205,916, respectively at March 31, 1997 and
December 31, 1997. The terms of these leases range from 15 to 24 months. The
effective interest rates on these leases range from 5% to 11%.

Future minimum lease payments under capital leases are as follows:

F-21
<PAGE> 98
ANNEX RAILROAD BUILDERS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

7. LONG-TERM DEBT

Long-term debt consisted of the following:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1997
--------- ------------
<S> <C> <C>
Note payable to bank, interest at 8.90%, payable in monthly
installments of $3,811, maturing September 1998, secured
by equipment.............................................. $63,993 $32,927
Note payable to bank, interest at 8.42%, payable in monthly
installments of $1,367, maturing March 1998, secured by
equipment................................................. 15,654 4,009
Note payable to bank, interest at 7.90%, payable in monthly
installments of $892, maturing October 1998, secured by
equipment................................................. 15,890 8,675
Other notes payable......................................... 9,837 --
------- -------
105,374 45,611
Less current maturities..................................... 76,998 45,611
------- -------
$28,376 $ --
======= =======
</TABLE>

Both the long-term debt and the line of credit contain certain restrictive
covenants which place some requirements and restrictions on the Company
regarding disposition of assets, financial ratios, capital expenditures,
acquisitions and operations. The Company was in compliance with these covenants
at December 31, 1997.

8. PROFIT SHARING PLAN

During the fiscal year ended March 31, 1996, the Company established a
profit sharing plan for full-time, non-union employees. To be eligible, an
employee must have been employed by the Company for two years. All
contributions, which are at management's discretion, are vested after six years.
Company contributions to the plan were $86,600 and $90,980 for the year ended
March 31, 1997 and the nine months ended December 31, 1997, respectively.

9. INCOME TAXES

The income tax provision for the year ended March 31, 1997 and the nine
months ended December 31, 1997 consisted of the following:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1997
--------- ------------
<S> <C> <C>
Current provision:
Federal................................................... $186,675 $309,722
State..................................................... 42,271 79,213
-------- --------
228,946 388,935
Deferred benefit............................................ -- (19,924)
-------- --------
$228,946 $369,011
======== ========
</TABLE>

F-22
<PAGE> 99
ANNEX RAILROAD BUILDERS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The income tax provision as reported in the statements of operations
differs from the amounts computed by applying federal statutory rates due to the
following:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1997
--------- ------------
<S> <C> <C>
Federal income tax at statutory rate........................ $179,709 $322,899
State income taxes, net of federal income tax benefit....... 27,899 52,281
Other....................................................... 21,338 (6,169)
-------- --------
Provision for income taxes.................................. $228,946 $369,011
======== ========
</TABLE>

The tax effect of temporary differences that give rise to significant
portions of deferred tax assets at March 31, 1997 and December 31, 1997
consisted of the following:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1997
--------- ------------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts........................... $ 6,474 $ 7,856
Accrued management bonus.................................. 22,285 40,827
------- -------
Total deferred tax assets......................... $28,759 $48,683
======= =======
</TABLE>

10. RELATED PARTY TRANSACTIONS

The Company has sales and purchases of supplies and services with related
parties under common ownership with the Company. The following represents these
transactions at March 31, 1997 and December 31, 1997:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1997
--------- ------------
<S> <C> <C> <C>
U.S. Railway Supply, Inc............... Sales $ 80,409 $ 21,183
Accounts Receivable 18,394 21,183
Purchases 602,915 462,349
Accounts Payable -- 86,757
Railroad Specialties................... Sales $ 72,172 $ 17,635
Accounts Receivable 22,693 28,628
Purchases 15,787 135,765
Central Indiana and Western Railroad
Company.............................. Sales $105,840 $ 58,752
Accounts Receivable 11,762 17,771
R. & M.B. Rail Co., Inc................ Sales $124,548 $ 60,266
Accounts Receivable 15,564 78,059
Purchases 14,780 15,955
Accounts Payable 7,988 5,346
</TABLE>

11. COMMITMENTS AND CONTINGENCIES

LITIGATION

The Company is engaged in various lawsuits arising in the ordinary course
of business. In the opinion of management, based upon the advice of counsel, the
ultimate outcome of these lawsuits will not have a material impact on the
Company's financial statements.

F-23
<PAGE> 100
ANNEX RAILROAD BUILDERS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

12. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following disclosure of estimated fair values of financial instruments
is made in accordance with the requirements of SFAS No. 107, "Disclosures about
Fair Value of Financial Instruments." The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies.

CASH, ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE

The carrying amounts of these items are a reasonable estimate of their fair
value due to their short-term nature.

LINE OF CREDIT, LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

The carrying amount of the line of credit facility approximates fair value
as the interest rate fluctuates with changes in market conditions. The carrying
amount of long-term debt and capital lease obligations based on borrowing rates
currently available to the Company is a reasonable estimation of fair value.

13. SUBSEQUENT EVENT (UNAUDITED)

On May 21, 1998, the stockholders of the Company entered into an Agreement
and Plan of Reorganization (the "Agreement") with RailWorks Corporation. Under
the terms of the Agreement, the stockholders will exchange their stock of the
Company for cash and stock of RailWorks Corporation. The transaction is expected
to be completed in August 1998.

F-24
<PAGE> 101

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Comstock Holdings, Inc.:

We have audited the accompanying consolidated balance sheet of Comstock
Holdings, Inc. and subsidiary as of December 31, 1997, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the year then ended. We have also audited the accompanying balance sheet of L.K.
Comstock & Company, Inc. ("Predecessor Company") as of December 31, 1996 and the
related statements of income, shareholder's equity and cash flows for each of
the two years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Comstock Holdings, Inc. and
subsidiary as of December 31, 1997, and the results of their operations and
their cash flows for the year ended December 31, 1997 and of the financial
position of the Predecessor Company as of December 31, 1996 and the results of
its operations and cash flows for each of the two years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.

Arthur Andersen LLP

Stamford, Connecticut
February 26, 1998

F-25
<PAGE> 102

COMSTOCK HOLDINGS, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
-----------
DECEMBER 31,
---------------------- MARCH 31,
1996 1997 1998
----------- ------- -----------
($ IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................................. $ 4,171 $ 1,120 $ 945
Accounts receivable.................................. 49,266 46,436 44,062
Costs and estimated earnings in excess of billings on
uncompleted contracts............................. 18,754 17,149 17,189
Inventory............................................ 1,536 1,240 250
Investment in joint venture.......................... 5,693 -- --
Deferred tax asset................................... -- 1,020 596
Other current assets................................. 706 977 907
------- ------- -------
Total current assets......................... 80,126 67,942 63,949
EQUIPMENT AND LEASEHOLD IMPROVEMENTS................... 10,985 448 513
LESS -- ACCUMULATED DEPRECIATION AND AMORTIZATION...... 7,184 56 84
------- ------- -------
3,801 392 429
OTHER ASSETS........................................... 417 18 39
------- ------- -------
$84,344 $68,352 $64,417
======= ======= =======

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt................. $22,486 $ 2,555 $ 1,066
Accounts payable and accrued liabilities............. 23,706 22,547 24,269
Accrued payroll and related withholdings............. 6,447 4,711 5,180
Billings in excess of costs and estimated earnings on
uncompleted contracts............................. 6,314 8,510 4,285
Other current liabilities............................ 1,916 3,119 3,537
------- ------- -------
Total current liabilities.................... 60,869 41,442 38,337
LONG-TERM DEBT......................................... 2,404 12,449 12,352
EXCESS OF ACQUIRED NET ASSETS OVER COST................ -- 10,210 10,143
OTHER LIABILITIES...................................... 4,081 2,813 1,481
COMMITMENTS AND CONTINGENCIES (Notes 1, 8 and 9)
SHAREHOLDERS' EQUITY:
Predecessor Company:
Common stock, $.25 par value, 1,500 shares
authorized, 1,200 shares issued and
outstanding..................................... -- -- --
Comstock Holdings, Inc.:
Common stock, $.01 par value, 150,000 shares
authorized 111,500 shares issued and
outstanding..................................... -- 1 1
Additional paid-in capital........................ 18,479 9 9
Retained earnings................................. (1,489) 1,428 2,094
------- ------- -------
SHAREHOLDERS' EQUITY................................... 16,990 1,438 2,104
------- ------- -------
$84,344 $68,352 $64,417
======= ======= =======
</TABLE>

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

F-26
<PAGE> 103

COMSTOCK HOLDINGS, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------- THREE MONTHS
PREDECESSOR COMPANY ENDED MARCH 31,
------------------- -----------------
1995 1996 1997 1997 1998
-------- -------- -------- ------- -------
(UNAUDITED)
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
REVENUES................................ $181,616 $188,767 $153,610 $32,401 $41,628
CONTRACT COSTS.......................... 164,777 169,303 136,678 27,997 37,205
-------- -------- -------- ------- -------
Gross profit on contracts..... 16,839 19,464 16,932 4,404 4,423
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 15,624 15,053 13,733 3,895 3,224
DEPRECIATION AND AMORTIZATION........... 1,263 1,365 (213) (61) (39)
INTEREST EXPENSE........................ 871 2,023 1,761 564 420
INTEREST AND OTHER INCOME............... (2,115) (476) (975) (726) (292)
IMPAIRMENT OF LONG-LIVED ASSETS (NOTE
1).................................... 20,105 -- -- -- --
-------- -------- -------- ------- -------
Income (loss) before
management fees and income
taxes....................... (18,909) 1,499 2,626 732 1,110
MANAGEMENT FEES CHARGED BY FORMER
PARENT................................ 913 941 -- -- --
-------- -------- -------- ------- -------
Income (loss) before income
taxes....................... (19,822) 558 2,626 732 1,110
PROVISION FOR INCOME TAXES.... 150 500 1,198 292 444
-------- -------- -------- ------- -------
Net income (loss)............. $(19,972) $ 58 $ 1,428 $ 440 $ 666
======== ======== ======== ======= =======
</TABLE>

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

F-27
<PAGE> 104

COMSTOCK HOLDINGS, INC.

STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON ADDITIONAL
STOCK PAID-IN RETAINED
PAR VALUE CAPITAL EARNINGS TOTAL
--------- ---------- -------- -------
($ IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE, December 31, 1994........................... $-- $37,904 $18,425 $56,329
Assumption of certain net liabilities of Comstock
Group, Inc...................................... -- (15,790) -- (15,790)
Net loss........................................... -- -- (19,972) (19,972)
--- ------- ------- -------
BALANCE, December 31, 1995........................... -- 22,114 (1,547) 20,567
Capital contribution............................... -- 1,110 -- 1,110
Transfer of note receivable........................ -- (4,745) -- (4,745)
Net income......................................... -- -- 58 58
--- ------- ------- -------
BALANCE, December 31, 1996........................... $-- $18,479 $(1,489) $16,990
=== ======= ======= =======
- --------------------------------------------------------------------------------------------------
Capital contribution............................... $ 1 $ 9 $ -- $ 10
Net income......................................... -- -- 1,428 1,428
--- ------- ------- -------
BALANCE, December 31, 1997........................... $ 1 $ 9 $ 1,428 $ 1,438
=== ======= ======= =======
</TABLE>

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

F-28
<PAGE> 105

COMSTOCK HOLDINGS, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
PREDECESSOR THREE MONTHS
COMPANY ENDED MARCH 31,
--------------------- -----------------
1995 1996 1997 1997 1998
--------- --------- --------- ------- -------
(UNAUDITED)
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................... $(19,972) $ 58 $ 1,428 $ 440 $ 666
Adjustments to reconcile net income to net cash
used in operating activities--
Depreciation and amortization................. 1,263 1,365 (213) (61) (39)
Impairment of Long-Lived Assets............... 20,105 -- --
Deferred taxes................................ -- -- 664 110 424
Gain on sale of equipment..................... (10) (39) (194) (74) (8)
Change in contract reserves................... -- (3,000) -- -- --
Change in assets and liabilities:
Increase in accounts receivable and costs
and estimated earnings in excess of
billings on uncompleted contracts........ (18,263) (6,231) (8,176) (18,391) (105)
Decrease (increase) in inventory............ 621 (947) 296 207 990
Increase (decrease) in other current
assets................................... (975) (4,209) (271) (469) 70
Decrease (increase) in accounts payable and
accrued liabilities...................... 11,420 (1,772) (1,159) (3,866) 1,722
Increase in accrued payroll and related
withholdings............................. 530 365 549 2,675 469
Increase (decrease) in billings in excess of
costs and estimated earnings on
uncompleted contracts.................... 747 2,307 3,320 3,259 (3,107)
Increase (decrease) in other current
liabilities.............................. (2,447) (103) 909 187 418
Increase (decrease) in other assets......... 59 (3) (18) (14) (21)
Decrease (increase) in other liabilities.... 587 257 (336) 31 (11)
-------- -------- -------- ------- -------
Net cash (used in) provided by operating
activities............................. (6,335) (11,952) (3,201) (15,966) 1,468
-------- -------- -------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of equipment................ 27 130 194 74 8
Purchase of equipment and leasehold
improvements.................................. (1,607) (690) (448) (119) (65)
-------- -------- -------- ------- -------
Net cash used in investing activities.... (1,580) (560) (254) (45) (57)
-------- -------- -------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from contingent promissory notes....... -- -- 14,608 14,608 --
Repayment of contingent promissory notes........ -- -- (157) (157) --
Proceeds from note payable...................... -- -- 4,000 9,096 --
Repayments of note payable...................... -- -- (4,000) -- --
Proceeds from long-term borrowings.............. 15,641 7,961 16,937 -- 2,019
Repayment of long-term borrowings............... (5,000) (2,312) (26,823) (4,361) (3,605)
Decrease in due to affiliates................... (6,766) -- -- -- --
Capital contribution............................ -- 1,110 -- -- --
-------- -------- -------- ------- -------
Net cash provided by (used in) financing
activities............................. 3,875 6,759 4,565 19,186 (1,586)
-------- -------- -------- ------- -------
Net (decrease) increase in cash.......... (4,040) (5,753) 1,110 3,175 (175)
CASH, beginning of period......................... 13,964 9,924 10 10 1,120
-------- -------- -------- ------- -------
CASH, end of period............................... $ 9,924 $ 4,171 $ 1,120 $ 3,185 $ 945
======== ======== ======== ======= =======
SUPPLEMENTARY DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for interest........ $ 781 $ 1,305 $ 1,478 $ 612 $ 355
Cash paid during the period for income taxes.... $ 116 $ 57 $ 188 $ 92 $ 66
</TABLE>

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

F-29
<PAGE> 106

COMSTOCK HOLDINGS, INC.

NOTES TO FINANCIAL STATEMENTS

(1) BASIS OF FINANCIAL STATEMENT PRESENTATION

Comstock Holdings, Inc. (formerly LKC Acquisition Corp.) (together with its
predecessor company, "Holdings" or the "Company"), was incorporated on November
20, 1996 as a Delaware corporation for the purpose of acquiring L.K. Comstock &
Company, Inc. (the "Predecessor Company"). Holdings had no operations from
incorporation through January 1, 1997.

Effective January 1, 1997, the Company purchased the stock of the
Predecessor Company. The accompanying financial statements, including those of
the Predecessor Company prior to the acquisition date, have been prepared by
Holdings management and present the financial position and results of operations
of Holdings from the acquisition date and of the Predecessor Company for the
periods prior to the acquisition date. Accordingly, the financial information
for periods prior to the acquisition date does not reflect the significant
impact of the acquisition or of the purchase accounting adjustments on the
financial position and results of operations of Holdings.

The Predecessor Company was acquired by Holdings through various agreements
(the "Agreements") entered into by Comstock Group, Inc. ("Group", the
Predecessor Company's former parent), Spie Group Inc. ("Spie", the parent of
Group), Spie Enertrans SA ("Enertrans", the former parent of Spie) and Schneider
Electric Holdings Inc. ("Schneider", the parent of Spie). The Agreements
principally called for: (1) the sale of the common stock of the Predecessor
Company to Holdings (the "Sale"), (2) the issuance of various contingent
promissory notes by the Company to Enertrans and Group in exchange for
approximately $18,903,000, (3) the transfer of various intangible assets of Spie
to the Company, (4) the provision for various income tax elections and
indemnifications, and (5) certain other indemnifications and cooperative
understandings, all as described below. Also in connection with Agreements, the
Company entered into certain borrowing arrangements with its lenders (see Note
6). The effects of the Agreements have been accounted for as a purchase in the
accompanying financial statements as of January 1, 1997.

The principal terms of the Agreements are as follows:

(1) The payment at closing of $5,105,000 to Group by Holdings. Such
payment was substantially funded by the Predecessor Company.

(2) Contingent payments by Holdings to Group of 30% of the Company's
annual pre-tax income, as defined, through 1999 up to an aggregate of
$2,500,000.

(3) Additional contingent payments by Holdings to Group of 40% of the
Company's annual pre-tax income through 1999, after subtracting the payment
in (1) above and contingent payments in (2) above, up to an aggregate of
$2,500,000.

Accordingly, a distribution of $294,000 has been accrued to fund the
estimated 1997 contingent purchase price payment with a corresponding reduction
of excess of acquired net assets over cost.

Also under the terms of the Agreement, under certain conditions, Enertrans
has the right of first refusal for a period of three years for the subsequent
resale of the Predecessor Company's common shares by Holdings.

As part of the Agreements, certain intangible assets (recorded at no value)
were assigned to the Company. In addition, the Company issued a promissory note
(the "Contingent Promissory Note"), collateralized by certain investments
related to customer contracts involving claims and an investment in a joint
venture (the "Investments"). The remaining balance of the Contingent Promissory
Note of $14,451,000 at December 31, 1997 is payable only from amounts collected
by the Company relating to the Investments until April 3, 2007, at which time
the note is cancelled. As such, Enertrans and any successor to it or creditor
may not look to any other Company assets to satisfy this

F-30
<PAGE> 107
COMSTOCK HOLDINGS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

indebtedness. Accordingly, management believes a right of offset exists for
financial reporting purposes and the Investments and the Contingent Promissory
Note have been offset in the accompanying balance sheet at December 31, 1997 in
accordance with SFAS No. 125 "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities."

In connection with the sale, $5,095,000 of cash from the Predecessor
Company was used by Holdings to fund its acquisition of the Predecessor Company.
Accordingly, and as a result of the purchase price adjustments, the fair value
of the net assets acquired exceeds the purchase price funded solely by Holdings.
In accordance with Accounting Principles Board Opinion 16 "Business
Combinations", the excess of the cost of net assets acquired first reduced the
non current assets to zero with the remainder allocated to "Excess of Acquired
Net Assets Over Cost", (negative goodwill) which amount will be amortized over
40 years.

Group was acquired by Spie through a series of incremental investments
completed in 1989 and accounted for as a purchase. The principal accounting
effect on the Predecessor Company of this purchase was the push down of the
excess of the purchase price over net assets acquired (goodwill), which amount
was amortized over 40 years. In March 1995, the Financial Accounting Standards
Board issued, and the Predecessor Company adopted, Statement No. 121 "Accounting
for the Impairment of Long-Lived Assets", (SFAS No. 121). Management of the
Predecessor Company reviewed its long-lived assets, including goodwill, in
connection with adopting SFAS No. 121 and concluded, after considering the
Predecessor Company's projected levels of profitability based on the then
current expected market conditions, that certain long-lived assets (consisting
primarily of goodwill) were impaired and, accordingly, recorded a charge to
reflect this impairment.

(2) DESCRIPTION OF BUSINESS

The Company provides electrical contracting services directly to end users
and, indirectly, by acting as a subcontractor for construction managers, general
contractors and other subcontractors. Services are provided to a broad range of
customers including corporations, municipalities and other governmental
entities, primarily in the Northeast and, to a lesser extent, in the Midwestern
and West Coast regions of the United States.

(3) ACCOUNTING POLICIES

PRINCIPLES OF PREPARATION

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

ACCOUNTING FOR CONTRACTS

Earned revenues and cost of earned revenues represent the portion of the
contract price and the related cost recognized under the Company's accounting
policies for construction contracts.

The Company recognizes earned revenues and costs using the percentage of
completion method based on the ratio of costs incurred to total estimated costs.

Contract losses are provided for when they become known. In forecasting
ultimate profitability on certain contracts, estimated recoveries may be
included for work performed under customer change orders to contracts for which
firm prices have not yet been negotiated. Due to uncertainties inherent in the
estimation and performance processes, it is possible that completion costs,
including

F-31
<PAGE> 108
COMSTOCK HOLDINGS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

those arising from contract penalty provisions and final contract settlements,
will be revised in the near-term. Such revisions to costs and income are
recognized in the period in which the revisions are determined.

DEPRECIATION AND AMORTIZATION

Equipment is depreciated principally on the straight-line method over the
estimated useful life. Leasehold improvements are amortized using the
straight-line method over the life of the lease.

INVENTORY

Inventory is recorded at cost.

CASH AND CASH EQUIVALENTS

The Company considers cash and cash equivalents to include cash on hand and
temporary cash investments purchased with an original maturity of three months
or less.

INTERIM FINANCIAL STATEMENTS

(4) INCOME TAXES

In accordance with the terms of the Agreements, the Company and Group
elected to treat the sale of the Company under Section 338(h)(10) of the
Internal Revenue Code. The effect of this election eliminated the Company's
ability to use net operating loss carryforwards and certain other related tax
attributes generated prior to the Sale.

Also as a result of this election and the terms of the Agreements, the
financial reporting basis of Holding's investment in the Predecessor Company is
less than its income tax reporting basis. Such difference may result in future
deductions for income tax purposes and, under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes", is treated as a temporary
difference. The effect of this difference was recorded as a deferred tax asset
at the time of the Sale. Such temporary differences primarily relate to
long-term contracts and other reserves. The net deferred tax asset of
approximately $1,684,000 resulting from these differences increased the excess
of acquired net assets over cost by the same amount. Also, under the Agreements,
Group has indemnified the Company for all liabilities for income taxes and any
related litigation imposed on the Predecessor Company for any period prior to
the Sale.

The Predecessor Company's results were included in the consolidated federal
income tax return of Spie. During 1996, the Company utilized a portion of its
net operating loss carryforwards ("NOLs") to eliminate its statutory federal
income tax provision. State and local returns were filed and the related
provisions recorded on a separate company basis.

F-32
<PAGE> 109
COMSTOCK HOLDINGS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The provision for income taxes for 1997 included in the statement of
operations consists of (in thousands):

<TABLE>
<CAPTION>
1997
------------------
CURRENT DEFERRED TOTAL
------- -------- ------
<S> <C> <C> <C>
Federal................................................... $ -- $ 941 $ 941
State..................................................... 132 125 257
---- ------ ------
$132 $1,066 $1,198
==== ====== ======
</TABLE>

The Company's effective tax rate differs from the U.S. Statutory rate of
34% as follows (in thousands):

<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
---------------
1995 1996 1997
------- ----- ------
<S> <C> <C> <C>
U.S. Statutory Rate........................................ $(6,739) $ 189 $ 893
Benefit of NOL............................................. -- (189) --
State and local taxes...................................... 43 242 206
Federal alternative minimum tax............................ -- 150 --
Goodwill impairment and other permanent items.............. 6,846 108 99
------- ----- ------
$ 150 $ 500 $1,198
======= ===== ======
</TABLE>

(5) ACCOUNTS RECEIVABLE AND CONTRACTS IN PROGRESS

Accounts receivable consists of (in thousands):

<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
-----------
DECEMBER 31,
---------------------
1996 1997
----------- -------
<S> <C> <C>
Billed...................................................... $34,284 $31,400
Retainages.................................................. 14,982 15,036
------- -------
$49,266 $46,436
======= =======
</TABLE>

Retainages of approximately $4,045,000 and $4,388,000 at December 31, 1996
and 1997 are invested in U.S. government obligations and municipal bonds. These
securities are classified as held to maturity and are valued at cost which
approximates market value. The Company anticipates that 53% of all retainages at
December 31, 1997 will be collected within one year.

Costs and estimated earnings in excess of billings on uncompleted contracts
arise when revenues have been recorded but the amounts cannot be billed under
the terms of the contracts. Such amounts are recoverable from customers upon
various measures of performance, including achievement of certain milestones,
completion of specified units or completion of the contract. The Company
anticipates that substantially all amounts, other than unanticipated additional
contract costs (see below), will be billed and collected within one year.

The Company has recorded as costs and estimated earnings in excess of
billings on uncompleted contracts amounts that it seeks or will seek to collect
from customers or others for errors or changes in contract specifications or
design, contract change orders in dispute or unapproved as to both scope and
price, or other customer-related causes of unanticipated additional contract
costs (pending change orders and claims). These amounts are recorded at their
estimated net realizable value when realization is probable and can be
reasonably estimated. No profit is recognized on the
F-33
<PAGE> 110
COMSTOCK HOLDINGS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

construction costs incurred in connection with these amounts. Pending change
orders and claims involve the use of estimates and it is reasonably possible
that revisions to the estimated recoverable amounts of recorded pending change
orders and claims may be made in the near-term. Claims made by the Company
involve negotiation and, in certain cases, litigation. The Company expenses such
costs as incurred, although it may seek to recover these costs as part of the
claim. The Company believes that it has established legal bases for pursuing
recovery of recorded claims and it is management's intention to pursue and
litigate these claims, if necessary, until a decision or settlement is reached.

The Company is pursuing unanticipated additional contract costs on certain
completed contracts. Costs and estimated earnings in excess of billings on
uncompleted contracts includes unbilled revenues of approximately $2,200,000 and
$3,915,000 at December 31, 1996 and 1997, respectively, related to these
contracts. In addition, billed accounts receivable and retainages include
contractually billed amounts related to these contracts of approximately
$1,600,000 and $2,257,000 at December 31, 1996 and 1997, respectively. Certain
contractually billed amounts related to these contracts may not be paid by the
customer to the Company until final resolution of the contract. The Company has
established reserves of approximately $2,200,000 and $2,285,000 related to
unbilled revenues at December 31, 1996 and 1997, respectively.

Costs and estimated earnings on uncompleted contracts and related amounts
billed are as follows (in thousands):

<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
-----------
DECEMBER 31,
----------------------
1996 1997
----------- --------
<S> <C> <C>
Billings.................................................... $363,010 $400,949
Costs and estimated earnings................................ 375,450 409,588
-------- --------
$ 12,440 $ 8,639
======== ========
</TABLE>

Such amounts are included in the accompanying balance sheets under the
following captions:

<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
-----------
DECEMBER 31,
---------------------
1996 1997
----------- -------
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... $18,754 $17,149
Billings in excess of costs and estimated earnings on
uncompleted contracts..................................... (6,314) (8,510)
------- -------
$12,440 $ 8,639
======= =======
</TABLE>

At December 31, 1995, 1996 and 1997, earned revenues from government
related funding sources were 50%, 61% and 66%, respectively, of total earned
revenues. Approximately 23%, 27% and 30% of total earned revenues for 1995, 1996
and 1997, respectively, were from a single government customer.

F-34
<PAGE> 111
COMSTOCK HOLDINGS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(6) DEBT

Long term debt consists of (in thousands):

<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
-----------
DECEMBER 31,
--------------------- MARCH 31,
1996 1997 1998
----------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Revolving Credit Agreement(a)...................... $19,500 $12,057 $12,057
Temporary Revolver(b).............................. 4,400 550 --
Promissory Note(c)................................. -- 1,700 750
Fixed Asset Notes.................................. 990 697 611
------- ------- -------
24,890 15,004 13,418
Less -- Current portion............................ 22,486 2,555 1,066
------- ------- -------
$ 2,404 $12,449 $12,352
======= ======= =======
</TABLE>

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

(a) On April 4, 1997, the Company entered into a secured revolving credit
agreement (the "Revolver") with a maximum aggregate principal amount of
$15,000,000 (the "Commitment"). The Revolver expires December 31, 1999.
Loans under the Revolver may be Base Rate or Eurodollar loans. Interest on
Base Rate loans is at a rate of 1% plus the Base Rate, as defined,
(approximately the prime rate); interest on Eurodollar loans is at 3.25%
plus the Eurodollar Rate, as defined, (approximately LIBOR). An annual
facility fee of 1% and a commitment fee of 1/2 of 1% is payable on the
total Commitment and the total unused Commitment, respectively. Up to
$10,000,000 of letters of credit may be drawn against the Commitment,
$2,911,655 of which was drawn at December 31, 1997.
(b) On December 11, 1997, the Company entered into a short-term secured
revolving credit agreement (the "Temporary Revolver") with a maximum
principal amount of $2,000,000. The Temporary Revolver expires on April 30,
1998. Interest on the unpaid principal is at a rate of 2% plus the Base
Rate (approximately prime rate).
(c) Interest on this agreement is payable semi-annually at the rate of 8.5% and
the principal is due in 1998.

The Revolver and the Temporary Revolver are secured by substantially all
the assets of the Company and are guaranteed by Holdings and certain of its
shareholders. The Revolver and Temporary Revolver contain restrictive covenants
that, among other things, impose limitations on the Company with respect to its
ability to incur additional indebtedness, make certain investments, sell assets
or pay dividends. The Revolver and the Temporary Revolver also contain various
financial covenants which require the Company to meet certain targets including,
but not limited to, the maintenance of tangible net worth, a current ratio, a
debt to equity ratio and quarterly earnings before interest, taxes and
depreciation (EBITDA). The most restrictive of these convenants is the
requirement of a minimum of $750,000 of EBITDA per quarter.

(7) EMPLOYEE BENEFIT PLANS

Group sponsored a qualified employee incentive savings plan which was
assumed by Holdings. Under the plan, nonunion employees who have completed one
year of service could elect to contribute to the plan from 1% to 15% of their
compensation. The Company makes a base contribution to the plan equal to 2% of
covered payroll and a partial matching contribution (as defined) not to exceed
4% of a participant's covered payroll. The Company's expense for contribu-

F-35
<PAGE> 112
COMSTOCK HOLDINGS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

tions under the plan was approximately $342,000, $337,000, and $321,000 during
1995, 1996, and 1997, respectively.

Prior to the Sale, the Company was generally self-insured for its
automobile and general liability insurance and, to a lesser extent, for workers'
compensation. Included primarily in accrued payroll and related withholdings at
December 31, 1996 and 1997 are reserves of $5,419,000 and $3,574,000,
respectively, relating to these insurance liabilities. The Company currently
participates in a paid indemnity plan for these insurance coverages.

The Company sponsored an unfunded, fully insured postretirement medical
plan covering eligible retirees and their dependents which it elected to
terminate effective December 31, 1997. In 1995 and 1996 the Company offered, at
group rates, comprehensive medical care benefits to retirees and their covered
dependents. The Company contributed approximately one-half of the total premium
medical cost. Under the plan, employees were eligible to enroll on the first day
of the month following retirement from the Company after age 55 and ten years of
service. Upon adoption of Financial Accounting Standard No. 106, "Employers'
Accounting for Postretirement Benefits other than Pensions" the accumulated
postretirement benefit obligation was $943,000. This amount was amortized over
20 years.

The postretirement benefit cost for 1995 and 1996 included the following
items (in thousands):

<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
-----------
1995 1996
---- ----
<S> <C> <C>
Service cost................................................ $ 49 $ 42
Interest cost............................................... 79 81
Transition amortization..................................... 47 47
---- ----
$175 $170
==== ====
</TABLE>

The following table sets forth the plans' funded status and the accrued
postretirement benefit obligations as of December 31 (in thousands):

<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
-------------
1995 1996
------ ----
<S> <C> <C>
Accumulated benefit obligations attributable to:
Retirees and their spouses.................................. $ 659 $583
Eligible active employees and their spouses................. 266 207
Ineligible active employees and their spouses............... 213 172
------ ----
$1,138 $962
====== ====
</TABLE>

The assumed discount rate used to measure the accumulated postretirement
benefit obligation was of 7.25% in 1995 and 1996. The assumed health care cost
trend rate was 10% and 9.5% in December 31, 1995 and 1996, respectively
gradually decreasing to an ultimate rate of 5% in 2004 for participants under
age 65. For those above age 65, 8% was used in 1995 and 7.5% in 1996, gradually
decreasing to an ultimate rate of 5% in 2004. A one percent increase in the
assumed health care cost trend rate would increase costs by $24,000 and $25,000
in 1995 and 1996 respectively. The accumulated postretirement benefit obligation
would increase by approximately $194,000 and $158,000 in 1995 and 1996
respectively. This plan was discontinued in 1997.

The Company has nonqualified defined benefit plans covering certain current
and former employees which provide benefits based on years of service and
compensation. In aggregate, at

F-36
<PAGE> 113
COMSTOCK HOLDINGS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

December 31, 1996 and 1997 approximately $1,486,000 and $1,518,000, respectively
relating to these programs is included in the accompanying balance sheets.

The Company's self-insurance programs and certain employee benefit plan
liabilities are estimated using actuarial estimates and management assumptions.
These estimates are based on historical information, along with certain
assumptions about future events. Changes in assumptions, as well as changes in
actual experience could cause these estimates to change.

(8) COMMITMENTS AND CONTINGENCIES

The Company has leases for warehouse and office facilities, a majority of
which contain renewal options and require minimum rental payments by the
Company, plus maintenance, insurance and similar expenses. The future minimum
payments under all leases were as follows at December 31, 1997 (in thousands):

<TABLE>
<S> <C>
1998........................................................ $2,167
1999........................................................ 1,164
2000........................................................ 823
2001........................................................ 751
2002 and thereafter......................................... 2,947
------
$7,852
======
</TABLE>

As inducement for entering into a new lease agreement for office space in
1994, the Predecessor Company was granted a tenant work allowance of
approximately $1,138,000. Such allowance was included in other liabilities and
was amortized on a straight-line basis over the term of the lease. The
unamortized balance at December 31, 1996 was $930,000. Such balance was written
off in 1997 as part of the purchase accounting adjustments in the acquisition of
the Predecessor Company. Rental expense for 1995, 1996, and 1997, including
amounts charged to cost of earned revenues, was approximately $3,710,000,
$3,527,000, and $2,685,000.

The Company's performance under certain construction contracts is secured
by performance bonds for which the Company pays a separate fee.

(9) LEGAL MATTERS

The Company is party to various legal actions, arising in the normal course
of business and including matters related to construction contract claims, some
of which involve substantial sums. The Company believes that the disposition of
all such actions, individually or in the aggregate, will not have a material
adverse effect on the consolidated financial position or results of operations
of the Company taken as a whole.

(10) FAIR VALUE OF FINANCIAL INSTRUMENTS

The following disclosure of estimated fair value of financial instruments
is made in accordance with the requirements of SFAS No. 107, "Disclosures about
Fair Value of Financial Instruments." The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies.

CASH, ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE

The carrying amounts of these items are a reasonable estimate of their fair
value due to their short-term nature.

F-37
<PAGE> 114
COMSTOCK HOLDINGS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

REVOLVING CREDIT AND LONG-TERM DEBT

The carrying value of the Company's debt approximates fair value. The fair
value of fixed rate long-term debt is based upon quoted market prices for these
or similar issues or rates currently available to the Company for debt with
similar terms and maturities.

(11) SUBSEQUENT EVENTS (UNAUDITED)

On May 21, 1998, the stockholders of the Company entered into an Agreement
and Plan of Reorganization (the "Reorganization") with RailWorks Corporation.
Under the terms of the Reorganization, the stockholders will exchange their
stock of the Company for cash and stock of RailWorks Corporation. The
transaction is expected to be completed in August 1998.

Also in connection with the planned Initial Public Offering of RailWorks
Corporation following the Reorganization, and subject to completion of such
offering, Group agreed to accept a one-time payment of $1,600,000 to satisfy all
contingent payments owed in connection with the Agreements.

F-38
<PAGE> 115

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Condon Brothers, Inc.:

We have audited the accompanying balance sheets of Condon Brothers, Inc. (a
Washington corporation) as of December 31, 1996 and 1997, and the related
statements of operations, stockholders' equity and cash flows for the years
ended December 31, 1995, 1996 and 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Condon Brothers, Inc. as of
December 31, 1996 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles.

Arthur Andersen LLP

Boise, Idaho
February 20, 1998

F-39
<PAGE> 116

CONDON BROTHERS, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $ 649 $ 1,096 $ 918
Accounts receivable, net of allowance of $15,600,
$30,060 and $8,650, respectively.................. 1,278,055 445,677 1,040,739
Costs and estimated earnings in excess of billings on
uncompleted contracts............................. 205,236 75,987 53,386
Inventory............................................ 932,917 1,172,193 1,070,960
Prepaid expenses..................................... 47,065 40,839 34,436
Loan to shareholder.................................. -- -- 50,000
---------- ---------- ----------
Total current assets......................... 2,463,922 1,735,792 2,250,439
---------- ---------- ----------
PLANT AND EQUIPMENT:
Machinery and equipment.............................. 917,559 1,072,916 1,162,841
Vehicles............................................. 356,188 473,128 473,128
Office furniture and equipment....................... 14,923 30,021 31,420
---------- ---------- ----------
1,288,670 1,576,065 1,667,389
Less accumulated depreciation........................ (584,738) (720,374) 789,810
---------- ---------- ----------
Plant and equipment, net..................... 703,932 855,691 877,579
---------- ---------- ----------
OTHER ASSETS:
Cash surrender value of life insurance............... 20,411 28,338 32,417
Investments -- land.................................. 20,800 20,800 20,800
---------- ---------- ----------
Total other assets........................... 41,211 49,138 53,217
---------- ---------- ----------
$3,209,065 $2,640,621 $3,181,235
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses................ $ 885,456 $ 847,919 $ 966,915
Deferred compensation................................ 85,410 82,910 90,410
Due to related party................................. 12,788 10,000 5,000
Lines of credit...................................... 650,000 -- 400,000
Current maturities of long-term debt................. 105,862 214,718 229,491
Billings in excess of costs and estimated earnings on
uncompleted contracts............................. 70,821 7,949 79,416
Reserve for losses on uncompleted contracts.......... 167,107 -- --
---------- ---------- ----------
Total current liabilities.................... 1,977,444 1,163,496 1,771,232
---------- ---------- ----------
LONG-TERM DEBT, NET OF CURRENT MATURITIES.............. 256,025 491,307 415,162
---------- ---------- ----------
Total liabilities............................ 2,233,469 1,654,803 2,186,394
---------- ---------- ----------
STOCKHOLDERS' EQUITY:
Common stock, $.05 par value; authorized shares,
1,000,000; issued and outstanding shares,
580,000........................................... 29,000 29,000 29,000
Additional paid-in capital........................... 24,155 24,155 24,155
Retained earnings.................................... 922,441 932,663 941,686
---------- ---------- ----------
Total stockholders' equity................... 975,596 985,818 994,841
---------- ---------- ----------
$3,209,065 $2,640,621 $3,181,235
========== ========== ==========
</TABLE>

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

F-40
<PAGE> 117

CONDON BROTHERS, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE THREE MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------ ---------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- -------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE.......................... $2,983,492 $5,516,610 $4,487,098 $943,971 $1,237,458
CONTRACT COSTS................... 1,912,362 4,115,260 3,370,548 661,316 955,981
---------- ---------- ---------- -------- ----------
Gross profit................... 1,071,130 1,401,350 1,116,550 282,655 281,477
GENERAL AND ADMINISTRATIVE
EXPENSES....................... 757,185 838,725 983,116 207,450 259,600
---------- ---------- ---------- -------- ----------
INCOME FROM OPERATIONS........... 313,945 562,625 133,434 75,205 21,877
OTHER INCOME (EXPENSE):
Other revenue, net............. 92,158 141,342 59,729 3,041 12,505
Interest income................ 2,295 -- 1,608 153 177
Interest expense............... (60,426) (55,834) (75,625) (20,823) (25,536)
---------- ---------- ---------- -------- ----------
NET INCOME............. $ 347,972 $ 648,133 $ 119,146 $ 57,576 $ 9,023
========== ========== ========== ======== ==========
</TABLE>

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

F-41
<PAGE> 118

CONDON BROTHERS, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
NUMBER
OF ADDITIONAL
COMMON COMMON PAID-IN RETAINED
SHARES STOCK CAPITAL EARNINGS TOTAL
------- ------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994.............. 580,000 $29,000 $24,155 $ 1,010 $ 54,165
Net income............................ -- -- -- 347,972 347,972
Dividends............................. -- -- -- (31,196) (31,196)
------- ------- ------- --------- ---------
BALANCE, December 31, 1995.............. 580,000 29,000 24,155 317,786 370,941
Net income............................ -- -- -- 648,133 648,133
Dividends............................. -- -- -- (43,478) (43,478)
------- ------- ------- --------- ---------
BALANCE, December 31, 1996.............. 580,000 29,000 24,155 922,441 975,596
Net income............................ -- -- -- 119,146 119,146
Dividends............................. -- -- -- (108,924) (108,924)
------- ------- ------- --------- ---------
BALANCE, December 31, 1997.............. 580,000 $29,000 $24,155 $ 932,663 $ 985,818
======= ======= ======= ========= =========
</TABLE>

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

F-42
<PAGE> 119

CONDON BROTHERS, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------ ---------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................... $ 347,972 $ 648,133 $ 119,146 $ 57,576 $ 9,023
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation........................... 108,093 139,772 184,479 42,495 69,842
Gain from sale of equipment............ (92,226) (120,468) (60,858) (3,000) (12,500)
Reserve for losses on uncompleted
contracts............................ (115,049) 167,107 (167,107) (114,311) --
Other.................................. 4,957 (20,411) (7,944) 9,364 3,431
Change in working capital items:
Accounts receivable.................... (2,576) (954,769) 832,378 759,243 (595,062)
Costs and estimated earnings in excess
of billings on uncompleted
contracts............................ 216,113 (86,695) 129,249 (59,710) 22,601
Inventory.............................. (150,559) (502,304) (239,276) 4,150 101,233
Prepaid expenses....................... (4,451) 2,065 6,226 10,286 6,403
Accounts payable and accrued expenses.. (38,645) 528,659 (37,537) (428,025) 118,996
Deferred compensation.................. 27,705 -- (2,500) -- --
Due to related party................... 5,637 (7,961) (2,788) (2,542) (5,000)
Billings in excess of costs and
estimated earnings on uncompleted
contracts............................ 1,675 66,783 (62,872) (35,667) 71,467
---------- ---------- ---------- --------- ---------
Net cash provided by (used in)
operating activities............ 308,646 (140,089) 690,596 239,859 (209,566)
---------- ---------- ---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures..................... (276,750) (432,024) (372,987) (58,635) (106,366)
Proceeds from sale of plant and
equipment.............................. 104,240 126,943 97,624 3,000 27,126
---------- ---------- ---------- --------- ---------
Net cash used in investing
activities...................... (172,510) (305,081) (275,363) (55,635) (79,240)
---------- ---------- ---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from lines of credit............ 255,000 1,173,106 428,425 150,000 400,000
Payments on lines of credit.............. (375,000) (593,521) (628,425) (300,000) --
Proceeds from long-term debt............. 84,172 -- -- -- --
Payments on long-term debt............... (94,867) (90,730) (105,862) (34,221) (61,372)
Dividends paid........................... (31,196) (43,478) (108,924)
Loan to shareholder...................... -- -- -- -- (50,000)
---------- ---------- ---------- --------- ---------
Net cash provided by (used in)
financing activities............ (161,891) 445,377 (414,786) (184,221) 288,628
---------- ---------- ---------- --------- ---------
Net increase (decrease) in cash
and cash equivalents............ (25,755) 207 447 3 (178)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD................................... 26,197 442 649 649 1,096
---------- ---------- ---------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD... $ 442 $ 649 $ 1,096 $ 652 $ 918
========== ========== ========== ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for
interest............................... $ 60,426 $ 55,834 $ 75,625 $ 20,823 $ 25,536
========== ========== ========== ========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Refinance of lines of credit and
long-term debt......................... $ 449,668 $ -- $ 450,000
========== ========== ==========
</TABLE>

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

F-43
<PAGE> 120

CONDON BROTHERS, INC.

NOTES TO THE FINANCIAL STATEMENTS

1. NATURE OF BUSINESS

Condon Brothers, Inc. (the "Company"), a Washington corporation, is in the
business of railroad track construction, maintenance, salvage and related sales
primarily in the Pacific Northwest. The majority of construction and maintenance
work is performed under fixed price contracts. The duration of the Company's
contracts is typically less than one year.

2. SIGNIFICANT ACCOUNTING POLICIES

REVENUE AND CONTRACT COST RECOGNITION

The Company recognizes revenues from fixed-fee contracts using the
percentage-of-completion method, measured by the percentage of contract cost
incurred to date to management's estimated total cost for each contract.
Management considers comparison of costs incurred to date to total cost to be
the best available measure of progress on the contracts. Changes in job
performance, job conditions and estimated profitability may result in revisions
to total expected project costs and the anticipated gross profit and are
recognized in the period in which determined.

Revenues from time-and-material contracts are recognized as the work
progresses.

The asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts", represents revenues recognized in excess of amounts
billed. The liability, "Billings in excess of costs and estimated earnings on
uncompleted contracts", represents billings in excess of revenues recognized.

CASH AND CASH EQUIVALENTS

The Company considers cash and cash equivalents to include cash on hand and
temporary cash investments purchased with an original maturity of three months
or less.

FINANCIAL INSTRUMENTS AND CREDIT RISK

The Company operates primarily in the Pacific Northwest. As such, the
Company's revenues and related accounts receivable are principally from the same
geographic region. The terms of the sales give rise to unsecured accounts
receivable, as is common industry practice.

INVENTORY

Inventory consists principally of stored rails, ties and other track
materials ("OTM") and parts to be used for contracts or resale and are stated at
the lower of cost or market. Market is based on estimated proceeds expected to
be obtained upon ultimate sale.

The Company's principal method of acquiring inventory items is through
salvage operations. Items acquired through salvage operations are valued based
on costs incurred to acquire the items, including payments to third parties,
direct labor and other direct contract costs, and those indirect costs related
to contract performance. These costs are netted with any third party payments
received for the salvage operations. The Company compares total cost of salvaged
materials to market for rails, ties and OTM recovered and adjustments are made
if the calculated market value is less than the total salvage cost. In addition,
the Company evaluates amounts held in inventory and adjusts for rails, ties and
OTM quantities that exceed anticipated usage.

F-44
<PAGE> 121
CONDON BROTHERS, INC.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

Inventory consisted of the following at December 31:

<TABLE>
<CAPTION>
1996 1997
-------- ----------
<S> <C> <C>
Rails....................................................... $443,299 $ 536,825
Ties........................................................ 255,486 210,932
Other track material........................................ 234,132 229,005
-------- ----------
Total Rail Inventory.............................. 932,917 976,762
Mining equipment and other items............................ -- 195,431
-------- ----------
Total Inventory................................... $932,917 $1,172,193
======== ==========
</TABLE>

The Company has salvaged and recorded at cost $195,431 of inventory which
is comprised of various mine equipment, small locomotives and other items. The
Company believes it will realize amounts recorded upon disposition.

PLANT AND EQUIPMENT

The Company records plant and equipment at cost. Depreciation is computed
using the straight-line method over the estimated useful life of the asset as
follows:

<TABLE>
<S> <C>
Machinery and equipment..................................... 5 - 10 years
Vehicles.................................................... 5 - 7 years
Office furniture and equipment.............................. 5 years
</TABLE>

As assets are retired or otherwise disposed of, the cost and accumulated
depreciation are eliminated from their respective accounts and any gain or loss
is reflected in net income.

Maintenance, repairs and minor replacements are expensed as incurred and
were $179,343 in 1995, $256,727 in 1996, and $353,428 in 1997.

INVESTMENTS -- LAND

The Company has recorded $114,700 in accounts payable and accrued expenses
in the Balance Sheets related to amounts owed for materials recovered during a
1993 salvage operation. Included in this salvage operation was land acquired for
$20,800. Upon satisfaction of the obligation for the salvaged materials, clear
title will be presented to the Company by the seller for the land.

INCOME TAXES

The Company operates as a sub-chapter S corporation. Accordingly, the
income taxes for the earnings of the Company are the responsibility of the
owners; therefore, these financial statements do not reflect any current or
deferred federal or state income taxes for the Company.

USE OF ESTIMATES

F-45
<PAGE> 122
CONDON BROTHERS, INC.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

INTERIM FINANCIAL STATEMENTS

The unaudited financial statements included herein have been prepared,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"). In the opinion of management, the accompanying
unaudited financials statements reflect all adjustments necessary to present
fairly the financial position as of March 31, 1998 and the results of operations
and cash flows for the three months ended March 31, 1997 and 1998.

3. ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following at December 31:

<TABLE>
<CAPTION>
1996 1997
---------- --------
<S> <C> <C>
Contract receivables........................................ $1,074,663 $401,698
Contract retainages......................................... 218,577 53,186
Other....................................................... 415 20,853
Less allowance for doubtful accounts........................ (15,600) (30,060)
---------- --------
$1,278,055 $445,677
========== ========
</TABLE>

Contract retainages have been billed but are not considered due until
contract completion. Such contract retainage is expected to be collected within
the following year. Other accounts receivable consist primarily of amounts due
from current and former employees.

4. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

Information with respect to contracts in process was as follows at December
31:

<TABLE>
<CAPTION>
1996 1997
---------- --------
<S> <C> <C>
Costs incurred on uncompleted contracts..................... $1,871,741 $626,543
Estimated earnings.......................................... 103,055 129,903
---------- --------
1,974,796 756,446
Less: Billings to date...................................... 1,840,381 688,408
---------- --------
$ 134,415 $ 68,038
========== ========
</TABLE>

Contracts in process at December 31 are included in the accompanying
Balance Sheets under the following captions:

<TABLE>
<CAPTION>
1996 1997
-------- -------
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... $205,236 $75,987
Billings in excess of costs and estimated earnings on
uncompleted contracts..................................... (70,821) (7,949)
-------- -------
$134,415 $68,038
======== =======
</TABLE>

Provisions for losses on uncompleted contracts are recognized when it is
determined that total costs will exceed the allowable contract revenue.

F-46
<PAGE> 123
CONDON BROTHERS, INC.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

5. OPERATING LEASES

The Company leases from C. B. Enterprises, a related party, the Spokane,
Washington yard, which includes a maintenance shop and office building under an
agreement expiring on November 1, 1999. Minimum rental commitments under the
noncancellable lease agreement are:

Total rental expense for 1995, 1996 and 1997 for all operating leases
amounted to $72,157, $77,086 and $109,989, respectively.

6. LINES OF CREDIT

At December 31, 1997, the Company had a $300,000 operating line of credit
with Washington Trust Bank. Interest was payable monthly at the Bank's prime
rate plus .75%. Advances on the operating line were $300,000 and zero, as of
December 31, 1996 and 1997, respectively. The operating line expires May 1,
1998. Security for the line is accounts receivable, inventory and equipment.

Effective January 6, 1998, the Company has renegotiated its operating line
of credit, reducing line capacity to $200,000. All other terms have remained the
same. Effective in February of 1998, the Company established an additional line
of credit of $200,000. The line matures on May 18, 1998. All other terms are
consistent with the existing line. Draws on these lines totaled $300,000 as of
February 20, 1998.

In addition to the above operating lines of credit with Washington Trust
Bank, two additional lines of credit were issued during the year ended December
31, 1996, for operations. These additional lines allow draws up to $350,000.
Advances on the lines were $350,000 as of December 31, 1996. Interest accrues
monthly at the Bank's prime rate plus .75%. Security for the lines is accounts
receivable, inventory and equipment. These operating lines were repaid during
1997.

7. LONG-TERM DEBT

Long-term debt and related current maturities consist of the following at
December 31:

<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Note payable to Washington Trust Bank, payable in monthly
installments of $11,226 including interest at 9% with the
balance due January 30, 1999. Secured by accounts
receivable, inventory and equipment....................... $ -- $ 450,000
Note payable to Washington Trust Bank, payable in monthly
installments of $11,305 including interest at 9.50% and
matures January 1, 2000. Secured by accounts receivable,
inventory and equipment................................... 361,887 256,025
--------- ---------
361,887 706,025
Less current maturities..................................... (105,862) (214,718)
--------- ---------
$ 256,025 $ 491,307
========= =========
</TABLE>

F-47
<PAGE> 124
CONDON BROTHERS, INC.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

Aggregate maturities on principal under long-term debt obligations are as
follows:

8. RELATED PARTY TRANSACTIONS

Payments were made to C. B. Enterprises (a partnership), a related party,
under an operating lease for the Spokane, Washington yard and buildings. Such
payments totaled $57,600 for the year ended December 31, 1995 and $60,000 for
the years ended December 31, 1996 and 1997. The Company also leases certain
equipment to C. B. Enterprises, which is recognized as revenue. Revenue
recognized totaled $9,000, $8,085 and $12,683 for the years ended December 31,
1995, 1996 and 1997. Amounts due to C. B. Enterprises are classified as Due to
related party in the Balance Sheets and are $12,788 and $10,000 as of December
31, 1996 and 1997, respectively.

In 1995, the Company transferred a building and related leasehold
improvements to C. B. Enterprises, a related party, in exchange for a reduction
in amounts owed by the Company to C. B. Enterprises. No gain or loss was
recognized on this transaction. For purposes of the Statements of Cash Flows,
this transfer of approximately $120,000, net, has been treated as a noncash
transaction.

No other material related party transactions have occurred.

9. PROFIT SHARING PLAN

The Company has adopted a profit-sharing plan (the Plan) covering all full
time employees with one year of service. Participants become fully vested after
six years of service. Contributions made to the Plan for the years ended
December 31, 1995, 1996 and 1997, were $5,000, $50,000 and $100,000,
respectively.

10. DEFERRED COMPENSATION PAYABLE

In 1993, the Company and one of its officers entered into a discretionary
deferred compensation agreement. The deferred compensation was to be payable to
the officer 90 days following the date on which he gives written notification to
Condon Brothers, Inc. of his retirement from the Company. During 1995, the
Company made the decision to suspend the agreement. At December 31, 1996 and
1997, the Company has an $85,410 and an $82,910 deferred compensation liability,
respectively, to the officer which will be paid to him upon his retirement. The
amount charged to operations was $30,000 for 1995 and zero for 1996 and 1997.

11. CASH SURRENDER VALUE OF LIFE INSURANCE

The Company maintains life insurance policies on two officers. The face
value of these policies was $300,000 each at December 31, 1996 and 1997. The
cash surrender value on these policies was $20,411 and $28,338 as of December
31, 1996 and 1997, respectively.

12. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following estimated fair values of financial instruments are provided
pursuant to the requirements of Statement of Financial Accounting Standards No.
107, "Disclosures about Fair

F-48
<PAGE> 125
CONDON BROTHERS, INC.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

Value of Financial Instruments." The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies.

ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE

The carrying amounts of these items at December 31, 1996 and 1997, are a
reasonable estimate of their fair value due to their short-term and liquid
nature.

LONG-TERM DEBT

The carrying amount of the line of credit facility approximates fair value
as the interest rate fluctuates with changes in market conditions. It is
estimated that the fair value of the long-term debt is approximately market.
Management estimated the fair value of the long-term debt based on the remaining
term to maturity and a comparison of their current interest rates to market
rates for similar obligations.

13. CONTINGENCIES

The Company has accrued $120,000 in accounts payable and accrued expenses
in the Balance Sheets associated with a 1997 railroad salvage contract. The
total amount of the salvage contract was originally $174,000. Due to a reduction
in the amount of rail, ties and OTM allowed to be salvaged, the Company is
presently in negotiations to have the contract obligation reduced. If the
Company is unsuccessful in obtaining a change-order for the contract, an
additional cost of $54,000 will be recognized in the financial statements as
inventory to the extent the value is supported by comparison to the Company's
expected market value.

14. SUBSEQUENT EVENT (UNAUDITED)

F-49
<PAGE> 126

INDEPENDENT AUDITOR'S REPORT

The Stockholders and Board of Directors
CPI Concrete Products Incorporated
Memphis, Tennessee

We have audited the accompanying balance sheets of CPI Concrete Products
Incorporated, as of January 31, 1997 and 1998, and the related statements of
earnings and retained earnings and cash flows for the years ended January 31,
1996, 1997 and 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CPI Concrete Products
Incorporated, as of January 31, 1997 and 1998, and the results of its operations
and its cash flows for the years ended January 31, 1996, 1997 and 1998, in
conformity with generally accepted accounting principles.

Cannon & Co.

Memphis, Tennessee
March 11, 1998

F-50
<PAGE> 127

CPI CONCRETE PRODUCTS INCORPORATED

BALANCE SHEETS
JANUARY 31, 1997 AND 1998

<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash...................................................... $ 594,964 $ 656,574
Accounts Receivable....................................... 1,132,841 1,129,047
Inventory................................................. 1,792,047 1,723,197
Prepaid Expenses.......................................... 23,058 57,843
Prepaid Taxes............................................. 123,251
Deferred Tax Assets....................................... 25,920 21,376
---------- ----------
Total Current Assets.............................. 3,692,081 3,588,037
PROPERTY, PLANT AND EQUIPMENT
Land, Buildings and Equipment............................. 3,417,251 3,754,126
Less Accumulated Depreciation............................. 1,968,933 2,284,215
---------- ----------
1,448,318 1,469,911
OTHER ASSETS
Loan Costs, Net of Accumulated Amortization of $7,218, and
$9,842, Respectively................................... 19,028 16,404
Refundable Deposits....................................... 550 550
---------- ----------
19,578 16,954
---------- ----------
$5,159,977 $5,074,902
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable.......................................... $ 813,815 $ 498,855
Customer Deposits......................................... 27,133 93,096
Accrued Wages............................................. 37,516 42,696
Taxes Withheld and Accrued................................ 80,142 89,354
Accrued Expenses.......................................... 365,734 134,957
Accrued Income Taxes...................................... 13,750 58,763
Current Portion of Long-Term Debt......................... 270,650 247,706
---------- ----------
Total Current Liabilities......................... 1,608,740 1,165,427
LONG-TERM DEBT, Less Current Portion........................ 680,634 593,952
DEFERRED INCOME TAXES....................................... 25,920 26,000
STOCKHOLDERS' EQUITY
Common Stock, No Par Value; Shares Authorized 3,000;
Shares Issued 2,161 (8 in Treasury, 253 in ESOP)....... 428,700 428,700
Retained Earnings......................................... 2,419,199 2,864,039
---------- ----------
2,847,899 3,292,739
Less Treasury Stock, 8 Shares at Cost..................... 3,216 3,216
---------- ----------
2,844,683 3,289,523
---------- ----------
$5,159,977 $5,074,902
========== ==========
</TABLE>

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

F-51
<PAGE> 128

CPI CONCRETE PRODUCTS INCORPORATED

STATEMENTS OF EARNINGS AND RETAINED EARNINGS

<TABLE>
<CAPTION>
UNAUDITED
-----------------------
TWO MONTHS ENDED
YEARS ENDED JANUARY 31, MARCH 31,
--------------------------------------- -----------------------
1996 1997 1998 1997 1998
----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
REVENUES
Gross Sales............... $12,315,284 $11,189,406 $12,077,672 $1,795,089 $1,669,187
Less: Delivery Expense.... 1,297,443 1,090,668 1,088,323 3,047 252
Cash Discounts...... 1,996 1,238 3,758 67 269
----------- ----------- ----------- ---------- ----------
NET SALES................... 11,015,845 10,097,500 10,985,591 1,791,975 1,668,666
Rental Income............. 55,016 67,483 133,906 50,638 6,321
Gain on Sale of
Equipment.............. 10,739 3,467
Interest Income........... 8,653 14,224 15,919 2,540 3,709
Miscellaneous Income...... 14,727 14,434 4,678 251 4,743
----------- ----------- ----------- ---------- ----------
Total Revenue..... 11,104,980 10,197,108 11,140,094 1,845,404 1,683,439
COST AND EXPENSES
Cost of Goods Sold........ 8,418,189 7,886,659 8,840,881 1,558,385 1,397,060
Depreciation.............. 299,798 305,133 315,280 52,626 50,107
Operating Expenses........ 1,306,450 1,220,449 1,157,917 179,580 115,237
Interest.................. 135,727 97,527 90,266 12,636 11,147
Loss on Sale of
Equipment.............. 14,403 2,637 1,340
----------- ----------- ----------- ---------- ----------
10,174,567 9,512,405 10,405,684 1,803,227 1,573,551
----------- ----------- ----------- ---------- ----------
EARNINGS BEFORE INCOME
TAXES..................... 930,413 684,703 734,410 42,177 109,888
FEDERAL AND STATE INCOME
TAXES..................... 366,984 267,558 289,570 7,808 42,940
----------- ----------- ----------- ---------- ----------
NET EARNINGS................ 563,429 417,145 444,840 34,369 66,948
RETAINED EARNINGS AT
BEGINNING OF YEAR......... 1,438,625 2,002,054 2,419,199 2,419,199 2,864,039
----------- ----------- ----------- ---------- ----------
RETAINED EARNINGS AT END OF
YEAR...................... $ 2,002,054 $ 2,419,199 $ 2,864,039 $2,453,568 $2,930,987
=========== =========== =========== ========== ==========
</TABLE>

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

F-52
<PAGE> 129

CPI CONCRETE PRODUCTS INCORPORATED

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
UNAUDITED
-------------------------
TWO MONTHS ENDED
YEARS ENDED JANUARY 31, MARCH 31,
--------------------------------------- -------------------------
1996 1997 1998 1997 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash Received From Customers.................. $10,290,908 $10,852,300 $12,210,899 $ 1,694,139 $ 1,603,726
Cash Paid to Suppliers and Employees.......... (9,195,808) (9,767,453) (11,503,170) (1,730,793) (1,224,431)
Interest Received............................. 8,653 14,224 15,919 2,540 3,709
Interest Paid................................. (126,297) (98,923) (90,266) (12,636) (11,147)
Income Tax Refund Received.................... 74,974
Income Taxes Paid............................. (280,853) (382,083) (200,245) (12,750) (10,322)
----------- ----------- ----------- ----------- -----------
Net Cash Provided by Operating
Activities............................ 696,603 618,065 508,111 (59,500) 361,535
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment......................... (453,759) (96,199) (336,875) (17,031) (20,464)
Proceeds From Sale of Equipment............... 62,000 12,750
----------- ----------- ----------- ----------- -----------
Net Cash Used in Investing Activities... (391,759) (83,449) (336,875) (17,031) (20,464)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings.................................... 110,466 61,307 241,151
Payouts -- Long-Term Debt..................... (118,669) (335,252) (350,777) (56,583) (59,570)
Payouts -- Capital Lease Obligation........... (2,656)
----------- ----------- ----------- ----------- -----------
Net Cash (Used in) Financing
Activities............................ (10,859) (273,945) (109,626) (56,583) (59,570)
----------- ----------- ----------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS....... 293,985 260,671 61,610 (133,114) 281,501
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR.......................................... 40,308 334,293 594,964 594,964 656,574
----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR........ $ 334,293 $ 594,964 $ 656,574 $ 461,850 $ 938,075
=========== =========== =========== =========== ===========
RECONCILIATION OF NET EARNINGS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net Earnings.................................... $ 563,429 $ 417,145 $ 444,840 $ 34,369 $ 66,948
Adjustments to Reconcile Net Earnings to Net
Cash Provided by Operating Activities
Amortization.................................. 2,625 2,625 2,625 343 343
Depreciation.................................. 299,798 305,133 315,280 52,626 50,107
Gain on Sale of Equipment..................... (10,739) (3,467)
Loss on Sale of Equipment..................... 14,403 2,637
Officer Compensation -- Issuance of Common
Stock....................................... 52,700
Change in Assets and Liabilities
Decrease (Increase) in Accounts Receivable.... (792,469) 770,089 3,794 (148,725) (76,003)
Decrease (Increase) in Inventory.............. 151,251 (271,783) 68,850 (34,736) 370,200
Decrease (Increase) in Prepaid Expenses....... 4,218 (10,391) (34,785) (56,096) 518
Decrease (Increase) in Prepaid Taxes.......... (123,251) 123,251
Decrease (Increase) in Deferred Tax Assets.... (25,920) 4,544 (185) 5,489
Increase (Decrease) in Accounts Payable....... 172,470 (176,565) (314,960) 99,993 (44,668)
Increase (Decrease) in Customer Deposits...... 17,789 (88,183) 65,963 (22,435)
Increase (Decrease) in Accrued Wages.......... (53,212) 15,364 5,180 56,788 51,068
Increase (Decrease) in Taxes Withheld and
Accrued..................................... (25,043) (30,100) 9,212 20,252 (33,828)
Increase (Decrease) in Accrued Expenses....... 203,484 (86,529) (230,776) (80,757) (34,795)
Increase (Decrease) in Accrued Income Taxes... 64,699 (104,659) 45,013 (537) 31,429
Increase (Decrease) in Deferred Income
Taxes....................................... 31,200 25,920 80 (2,835) (2,838)
----------- ----------- ----------- ----------- -----------
Total Adjustments....................... 133,174 200,920 63,271 (93,869) 294,587
----------- ----------- ----------- ----------- -----------
Net Cash Provided by Operating Activities....... $ 696,603 $ 618,065 $ 508,111 $ (59,500) $ 361,535
=========== =========== =========== =========== ===========
</TABLE>

SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:

The Company issued 100 shares of common stock valued at $52,700 as
additional officer compensation for the year ended January 31, 1996.

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

F-53
<PAGE> 130

CPI CONCRETE PRODUCTS INCORPORATED

NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1996, 1997 AND 1998

NOTE 1. -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying financial statements include the accounts of CPI Concrete
Products Incorporated as of January 31, 1996, 1997 and 1998. The Company is
located in Memphis, Tennessee and is in the business of processing and selling
concrete poles and concrete products in the Mid-South geographical region. The
Company extends credit to their customers, with the majority of customers
located in Tennessee, Mississippi and Arkansas. No collateral is required for
trade accounts receivable.

Inventory is valued at the lower of cost (first-in, first-out method) or
market. At January 31, 1997 and 1998 the inventory consisted of the following
items:

<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Raw Materials.............................................. $ 441,440 $ 325,406
Finished Goods............................................. 1,350,607 1,397,791
---------- ----------
$1,792,047 $1,723,197
========== ==========
</TABLE>

These statements reflect the accrual basis of accounting which requires
recognition of revenues when earned and expenses when incurred without regard to
the exchange of each.

Property, plant and equipment are stated at cost. Depreciation is provided
on the straight-line and declining balance methods over the estimated useful
lives of the various assets. Lives used for calculating depreciation are:
buildings 15-20 years and machinery and equipment 3-10 years. Amortization of
loan costs is made over a 120 month period.

Expenditures for maintenance, repairs and minor renewals are expenses as
incurred; expenditures for improvements, replacements and major renewals are
capitalized. Assets retired, or otherwise disposed of, are eliminated from the
asset accounts along with related amounts of accumulated depreciation. Any gains
or losses from disposals are included in income.

The Company has adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes", which requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse (see Note 5).

As of January 31, 1997, and 1998 the Company has deposits in a financial
institution which exceed the FDIC insured limit by $82,372, and $421,898,
respectively.

For the purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.

Amortizable assets are recorded at cost. Amortization is calculated by the
straight-line method over a 5 year life. Amortization expense for the years
ended, January 31, 1996, 1997 and 1998 was $2,625, $2,625 and $2,625,
respectively.

The preparation of the financial statements in conformity with generally
accepted accounting principles requires the use of management estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period.

F-54
<PAGE> 131
CPI CONCRETE PRODUCTS INCORPORATED

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform with the 1998 financial statement presentation.

NOTE 2. -- PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment as of January 31, 1997 is comprised as
follows:

<TABLE>
<CAPTION>
ACCUMULATED METHOD OF USEFUL LIVES
COST DEPRECIATION DEPRECIATION (YEARS)
---------- ------------ ----------------- ------------
<S> <C> <C> <C> <C>
Land........................ $ 201,505 $ N/A N/A
Buildings................... 902,825 505,166 Straight-Line 15-20
Straight-Line and
Machinery and Equipment..... 2,312,921 1,463,767 Declining Balance 3-10
---------- ----------
$3,417,251 $1,968,933
========== ==========
</TABLE>

Property, plant and equipment as of January 31, 1998 is comprised as
follows:

<TABLE>
<CAPTION>
ACCUMULATED METHOD OF USEFUL LIVES
COST DEPRECIATION DEPRECIATION (YEARS)
---------- ------------ ----------------- ------------
<S> <C> <C> <C> <C>
Land........................ $ 201,505 $ N/A N/A
Buildings................... 921,100 535,048 Straight-Line 15-20
Straight-Line and
Machinery and Equipment..... 2,631,521 1,749,167 Declining Balance 3-10
---------- ----------
$3,754,126 $2,284,215
========== ==========
</TABLE>

Depreciation expense for the years ended January 31, 1996, 1997 and 1998
was $299,798, $305,133 and $315,280 respectively.

NOTE 3. LONG-TERM DEBT

Long-term debt consisted of the following as of January 31, 1997 and 1998:

<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Union Planters National Bank SBA loan payable in monthly
installments of $11,453 through April, 2004, including
interest at a variable rate adjustable to 1% above prime,
currently at 8.5%; secured by equipment, mortgage on
property and a personal guarantee by stockholders......... $646,371 $514,608
Union Planters Bank note payable for loan consolidation
payable in monthly installments of $6,207 through April,
1998, plus interest currently at 8.5%, variable rate
adjusted to 1% above prime; secured by the realty at 1365
Harbor and machinery, fixtures and equipment.............. 92,865 18,382
Boatmen's note payable for equipment in monthly installments
of $5,212 through November, 1997, including interest at
8.25%; collateralized by two forklifts, a concrete
transporter, and an overhead crane........................ 50,093
</TABLE>

F-55
<PAGE> 132
CPI CONCRETE PRODUCTS INCORPORATED

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Pitney Bowes Credit Corporation note payable in monthly
installments of $289 through April, 1997, non-interest
bearing; secured by equipment............................. 938 313
Tennessee Small Business Energy Loan Program note payable
for purchasing boiler; payable in monthly installments of
$1,808 through April, 2000, including interest at 5%;
collateralized by boiler and associated equipment......... 64,916 46,086
Union Planters Bank note payable for conversion of two
operating leases to term debt; payable in monthly
installments of $5,914 through April, 2001, including
interest at 8.15%; secured by equipment................... 197,453
Union Planters Bank note payable for purchasing travel lift;
payable in monthly installments of $4,861 through April,
1999, including interest at 8.15%; collateralized by
travel lift............................................... 96,101 64,816
-------- --------
951,284 841,658
Less portion due within one year............................ 270,650 247,706
-------- --------
$680,634 $593,952
======== ========
</TABLE>

The following is a summary of anticipated future payments of notes at
January 31, 1998.

<TABLE>
<CAPTION>
YEARS ENDING JANUARY 31,
- ------------------------------------------------------------
<S> <C>
1999.............................................. $247,706
2000.............................................. 198,802
2001.............................................. 187,779
2002.............................................. 137,255
2003.............................................. 70,116
--------
$841,658
========
</TABLE>

4. LEASES

The Company leases certain autos and trucks under the classification of
operating leases. The following is a schedule of future minimum lease payments
for operating leases as of January 31, 1998:

<TABLE>
<CAPTION>
YEARS ENDING JANUARY 31,
- ------------------------------------------------------------
<S> <C>
1999.............................................. $20,088
2000.............................................. 15,803
2001.............................................. 3,135
-------
Total Minimum Lease Payments...................... $39,026
=======
</TABLE>

Rent expense under operating leases totaled $219,600, $241,723 and $65,433
for the years ended January 31, 1996, 1997 and 1998.

F-56
<PAGE> 133
CPI CONCRETE PRODUCTS INCORPORATED

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

5. FEDERAL AND STATE INCOME TAXES

The provision for income taxes at January 31, 1996, 1997 and 1998 is
comprised of the following:

<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
CURRENTLY PAYABLE
Federal........................................... $286,631 $226,067 $241,671
State............................................. 49,153 41,491 43,275
-------- -------- --------
335,784 267,558 284,946
DEFERRED TAXES
Federal........................................... 26,500 3,893
State............................................. 4,700 731
-------- -------- --------
31,200 4,624
-------- -------- --------
Federal and State Income Taxes...................... $366,984 $267,558 $289,570
======== ======== ========
</TABLE>

The items which give rise to temporary differences are listed below as
follows at January 31, 1996, 1997 and 1998:

<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
DEFERRED TAX ASSETS
Allowance for Back Charges -- Federal............. $ 4,880 $ 4,260 $ 984
Allowance for Back Charges -- State............... 900 800 180
Uniform Capitalization of Inventory -- Federal.... 16,640 17,540 17,018
Uniform Capitalization of Inventory -- State...... 3,120 3,320 3,194
------- ------- -------
$25,540 $25,920 $21,376
======= ======= =======
DEFERRED TAX LIABILITIES
Excess Tax Depreciation -- Federal................ $21,510 $21,830 $21,895
Excess Tax Depreciation -- State.................. 4,030 4,090 4,105
------- ------- -------
$25,540 $25,920 $26,000
======= ======= =======
</TABLE>

6. EMPLOYEE BENEFIT PLANS

In 1986, the Company established an Employee Stock Ownership Plan (ESOP) to
provide additional retirement benefits to employees. The vesting provisions of
the ESOP trust instrument are based on vesting years of service. A participant
will always be 100% vested at normal retirement age. At January 31, 1996, 1997
and 1998 the ESOP owned 253 shares of the Company's common stock at a cost of
$212,995. Contributions by the Company to the ESOP for the years ended January
31, 1996, 1997 and 1998 totaled $40,000, $10,000 and $1,000, respectively.

In June 1996, the Company adopted a 401(k) plan covering substantially all
employees who have met the minimum age requirements and who have completed one
year of continuous service. The Company's contribution is equal to 50% of each
participant's contribution of up to 3% of salary. Contributions totaled $0,
$29,509, and $41,460 for the years ended January 31, 1996, 1997 and 1998,
respectively.

F-57
<PAGE> 134
CPI CONCRETE PRODUCTS INCORPORATED

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

7. TREASURY STOCK

The Company purchased common stock from employees who had been participants
in the ESOP as follows:

<TABLE>
<S> <C>
September 9, 1988........................................... 2.22 Shares
September 1, 1989........................................... 4.41 Shares
December 27, 1989........................................... 1.85 Shares
-----------
Total............................................. 8.48 Shares
===========
</TABLE>

No activity from December 28, 1989 to January 31, 1998.

8. CONTINGENCIES AND COMMITMENTS

The Company and its two principal shareholders are parties to a stock
retirement agreement which requires the Company, upon the death of any of these
shareholders, to purchase his holdings of the Company's common stock at a price
of $514 per share. The Company has life insurance policies on the lives of the
aforementioned shareholders to fund substantially all of such obligation in the
event of their death.

At January 31, 1998, the Company had an unused line of credit with a bank.
The line totals $800,000, has an interest rate of prime plus 1.0%, and the
principal and interest are due on the first day of each month.

9. SUBSEQUENT EVENT (UNAUDITED)

F-58
<PAGE> 135

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To H.P. McGinley, Incorporated:

We have audited the accompanying balance sheets of H.P. MCGINLEY,
INCORPORATED (the "Company") (a Pennsylvania corporation) as of February 28,
1997 and December 31, 1997, and the related statements of operations,
stockholder's equity and cash flows for the years ended February 29, 1996 and
February 28, 1997 and the ten months ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of H.P. McGinley, Incorporated
as of February 28, 1997 and December 31, 1997, and the results of its operations
and its cash flows for the years ending February 29, 1996 and February 28, 1997
and the ten months ended December 31, 1997, in conformity with generally
accepted accounting principles.

Arthur Andersen LLP

Nashville, Tennessee
February 26, 1998

F-59
<PAGE> 136

H.P. MCGINLEY, INCORPORATED

BALANCE SHEETS

<TABLE>
<CAPTION>
FEBRUARY 28, DECEMBER 31, MARCH 31,
1997 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................... $ 9,466 $ 575,514 $ 614,392
Accounts receivable............................... 338,029 975,707 716,924
Inventory......................................... 688,580 893,783 965,210
Prepaid expenses.................................. 15,635 8,083 6,684
----------- ----------- -----------
Total current assets...................... 1,051,710 2,453,087 2,303,210
----------- ----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements............................. 98,982 98,982 98,982
Buildings and improvements........................ 231,891 231,891 231,891
Machinery and equipment........................... 1,433,821 1,433,821 1,433,821
Office furniture and equipment.................... 76,805 76,805 76,805
Transportation equipment.......................... 574,578 574,578 574,578
----------- ----------- -----------
2,416,077 2,416,077 2,416,077
Less accumulated depreciation..................... (1,770,932) (1,836,255) (1,840,807)
----------- ----------- -----------
Property, plant and equipment, net........ 645,145 579,822 575,270
----------- ----------- -----------
OTHER ASSETS:
Deferred income taxes............................. 6,000 6,500 --
----------- ----------- -----------
Total other assets........................ 6,000 6,500 --
----------- ----------- -----------
$ 1,702,855 $ 3,039,409 $ 2,878,480
=========== =========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable.................................. $ 100,825 $ 79,668 $ 21,550
Demand note payable to stockholder................ 257,139 946,375 618,922
Accrued expenses.................................. 58,342 10,186 81,427
Income taxes payable.............................. 50,000 336,100 401,960
----------- ----------- -----------
Total current liabilities................. 466,306 1,372,329 1,123,859
----------- ----------- -----------
DEFERRED INCOME TAXES............................... -- -- 7,653
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, $1 par value; authorized shares,
10,000; issued and outstanding shares, 1,000... 1,000 1,000 1,000
Retained earnings................................. 1,235,549 1,666,080 1,745,968
----------- ----------- -----------
Total stockholder's equity................ 1,236,549 1,667,080 1,746,968
----------- ----------- -----------
$ 1,702,855 $ 3,039,409 $ 2,878,480
=========== =========== ===========
</TABLE>

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

F-60
<PAGE> 137

H.P. MCGINLEY, INCORPORATED

STATEMENTS OF OPERATIONS

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

F-61
<PAGE> 138

H.P. MCGINLEY, INCORPORATED

STATEMENTS OF STOCKHOLDER'S EQUITY

<TABLE>
<CAPTION>
NUMBER OF
COMMON COMMON RETAINED
SHARES STOCK EARNINGS TOTAL
--------- ------ ---------- ----------
<S> <C> <C> <C> <C>
BALANCE, February 28, 1995...................... 1,000 $1,000 $1,151,864 $1,152,864
Net income.................................... -- -- 12,149 12,149
----- ------ ---------- ----------
BALANCE, February 29, 1996...................... 1,000 1,000 1,164,013 1,165,013
Net income.................................... -- -- 71,536 71,536
----- ------ ---------- ----------
BALANCE, February 28, 1997...................... 1,000 1,000 1,235,549 1,236,549
Net income.................................... -- -- 430,531 430,531
----- ------ ---------- ----------
BALANCE, December 31, 1997...................... 1,000 $1,000 $1,666,080 $1,667,080
===== ====== ========== ==========
</TABLE>

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

F-62
<PAGE> 139

H.P. MCGINLEY, INCORPORATED

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS THREE MONTHS ENDED
--------------------------- ENDED ---------------------------
FEBRUARY 29, FEBRUARY 28, DECEMBER 31, FEBRUARY 28, MARCH 31,
1996 1997 1997 1997 1998
------------ ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)........ $ 12,149 $ 71,536 $ 430,531 $(43,237) $ 79,888
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation.......... 46,033 68,359 65,323 23,359 4,552
Change in operating
assets:
Accounts
receivable....... (79,189) (19,476) (637,678) (4,250) 258,783
Inventory........... (4,731) (277,170) (205,203) (45,293) (71,427)
Prepaid expenses.... 16,656 31,927 7,552 1,995 1,399
Accounts payable.... 13,546 19,225 (21,157) 4,658 (58,118)
Accrued expenses.... 4,640 (39,262) (48,156) 11,485 71,241
Deferred taxes...... 10,200 (3,210) (500) -- 14,153
Income taxes
payable.......... -- 50,000 286,100 (30,000) 65,860
-------- --------- --------- -------- ---------
Net cash provided
by (used in)
operating
activities..... 19,304 (98,071) (123,188) (81,283) 366,331
-------- --------- --------- -------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures..... (33,950) (174,921) -- (38,500) --
-------- --------- --------- -------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net borrowings from
shareholder........... 208,413 858 689,236 (31,706) (327,453)
-------- --------- --------- -------- ---------
NET INCREASE (DECREASE) IN
CASH..................... 193,767 (272,134) 566,048 (151,489) 38,878
CASH AND CASH EQUIVALENTS,
beginning of period...... 87,833 281,600 9,466 160,955 575,514
-------- --------- --------- -------- ---------
CASH AND CASH EQUIVALENTS,
end of period............ $281,600 $ 9,466 $ 575,514 $ 9,466 $ 614,392
======== ========= ========= ======== =========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the
period for
interest............ $ -- $ -- $ 24,832 $ -- $ --
======== ========= ========= ======== =========
Cash paid during the
period for income
taxes............... $ -- $ -- $ -- $ -- $ --
======== ========= ========= ======== =========
</TABLE>

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

F-63
<PAGE> 140

H.P. MCGINLEY, INCORPORATED

NOTES TO FINANCIAL STATEMENTS

1. NATURE OF BUSINESS

H.P. McGinley, Inc. (the "Company"), a Pennsylvania corporation, operates
as a manufacturer of specialty hardwood products, including railroad ties and
shipping materials. The Company services customers in Pennsylvania and
surrounding states.

2. SIGNIFICANT ACCOUNTING POLICIES

YEAR-END

In 1997, the Company changed its financial reporting year-end to December
31. These financial statements reflect the results of operations for the years
ended February 29, 1996 and February 28, 1997 and the ten months ended December
31, 1997.

USE OF ESTIMATES

REVENUE AND COST RECOGNITION

The Company recognizes revenue when products are delivered to customers
pursuant to shipping agreements. Cost of goods sold includes the raw materials
cost and costs of producing the product, including milling and preservative
treatment.

CASH AND CASH EQUIVALENTS

The Company considers cash and cash equivalents to include cash on hand and
temporary cash investments purchased with an original maturity of three months
or less.

FINANCIAL INSTRUMENTS AND CREDIT RISK

The Company operates primarily in the northeast United States. As such, the
Company's accounts receivable are from the same geographic region. In addition,
the Company's customers are primarily in the railroad/railroad construction
business or the transportation business. The terms of the sales give rise to
unsecured accounts receivable, as is common industry practice.

INVENTORY

Inventory, consisting principally of raw materials and finished goods, is
stated at the lower of cost (first-in, first-out (FIFO)) or market.

PROPERTY, PLANT AND EQUIPMENT

The Company records property, plant and equipment at cost. Depreciation is
computed using the straight-line and accelerated methods over the estimated
useful lives of the assets as follows:

<TABLE>
<S> <C>
Buildings and improvements................................ 15 to 30 years
Machinery and equipment................................... 5 to 7 years
Office furniture and equipment............................ 5 to 7 years
Transportation equipment.................................. 5 to 7 years
</TABLE>

F-64
<PAGE> 141
H.P. MCGINLEY, INCORPORATED

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

As assets are retired or otherwise disposed of, the cost and accumulated
depreciation are eliminated from the accounts, and any gain or loss is reflected
in net income. Normal maintenance and repairs are charged to expense as
incurred; major renewals or betterments which extend the life or increase the
value of assets are capitalized.

INCOME TAXES

The provision for income taxes is based on earnings reported by the
Company. In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 109, a deferred income tax asset or liability is determined by applying
currently enacted tax laws and rates to the expected reversal of the cumulative
temporary differences between the carrying value of assets and liabilities for
financial statement and income tax purposes.

INTERIM FINANCIAL INFORMATION

3. INVENTORIES

The principal components of inventories are as follows:

<TABLE>
<CAPTION>
FEBRUARY 28, DECEMBER 31,
1997 1997
------------ ------------
<S> <C> <C>
Raw materials.............................................. $317,403 $378,814
Finished goods............................................. 371,177 514,969
-------- --------
$688,580 $893,783
======== ========
</TABLE>

4. EMPLOYEE BENEFIT PLANS

The Company had a defined benefit pension plan (the "Plan") for all
employees meeting certain age and length of service requirements. Benefits were
based primarily on years of service and average annual compensation during the
highest five consecutive years. In fiscal 1997, the Company terminated the Plan
and distributed vested benefits in accordance with ERISA requirements. The
Company made a contribution of $25,000 during the year ended February 29, 1996
and a final contribution to the Plan of $26,377 during the year ended February
28, 1997.

The Company maintains a defined contribution benefit plan which covers
substantially all eligible employees. Contributions to the defined contribution
benefit plan during the years ended February 29, 1996 and February 28, 1997 and
the ten months ended December 31, 1997 amounted to $8,865, $40,922 and $0,
respectively.

5. INCOME TAXES

Under the asset and liability method of SFAS 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS

F-65
<PAGE> 142
H.P. MCGINLEY, INCORPORATED

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

109, the effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.

A reconciliation of the United States statutory corporate rate to the
effective tax rate is as follows:

<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS
--------------------------- ENDED
FEBRUARY 29, FEBRUARY 28, DECEMBER 31,
1996 1997 1997
------------ ------------ ------------
<S> <C> <C> <C>
Tax charge at standard U.S. rate of 34%....... $ 7,599 $40,231 $243,655
State taxes, net of Federal benefit........... 1,340 6,334 43,194
Other......................................... 1,261 225 (749)
------- ------- --------
$10,200 $46,790 $286,100
======= ======= ========
</TABLE>

The components of the net deferred income tax asset (liability) at February
28, 1997 and December 31, 1997 are as follows:

<TABLE>
<CAPTION>
FEBRUARY 28, DECEMBER 31,
1997 1997
------------ ------------
<S> <C> <C>
Non-current asset (liability):
Inventory................................................ $5,031 $10,125
Property, plant and equipment............................ (1,381) (3,645)
Other.................................................... 2,350 20
------ -------
Total non-current asset.......................... $6,000 $ 6,500
====== =======
</TABLE>

State income taxes totaling approximately $1,530, $7,019 and $42,915 have
been provided for the years ended February 28, 1996 and 1997 and the ten months
ended December 31, 1997, respectively.

6. RELATED PARTY TRANSACTIONS

The Company's stockholder periodically advances funds to the Company. Such
advances were noninterest bearing through February 28, 1997. Subsequent to March
1, 1997, the advances bear interest at 9% per annum. The advances are due on
demand and repayment is expected as funds become available. Amounts advanced
from the stockholder totaled $257,139 and $946,375 as of February 28, 1997 and
December 31, 1997, respectively.

7. COMMITMENTS AND CONTINGENCIES

LITIGATION

The Company is subject to various claims and legal actions incidental to
the Company's business. Management is not aware of any claims against the
Company which might have a material impact on the Company's results of
operations or financial position.

8. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following estimated fair values of financial instruments is made in
accordance with the requirements of SFAS No. 107, "Disclosures about Fair Value
of Financial Instruments." The estimated fair value amounts have been determined
by the Company using available market information and appropriate valuation
methodologies.

F-66
<PAGE> 143
H.P. MCGINLEY, INCORPORATED

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

CASH, ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE

The carrying amounts of these items are a reasonable estimate of their fair
value due to their short-term nature.

9. SIGNIFICANT CUSTOMERS

A significant portion of the Company's sales were to one unaffiliated
customer. Amounts due from this customer represented 25% of the total accounts
receivable at December 31, 1997 and 14% of sales for the period then ended. The
loss of this customer would have a material effect on the Company's business if
this loss was not offset by additional business from other sources.

10. SUBSEQUENT EVENT (UNAUDITED)

F-67
<PAGE> 144

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Kennedy Railroad Builders, Inc.:

We have audited the accompanying combined balance sheets of KENNEDY
RAILROAD BUILDERS, INC. (a Pennsylvania corporation) AND ASSOCIATED COMPANIES
(collectively, the "Company") as of March 31, 1997 and December 31, 1997, and
the related combined statements of operations, stockholders' equity and cash
flows for the years ended March 31, 1996 and 1997 and the nine month period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Kennedy
Railroad Builders, Inc. and Associated Companies as of March 31, 1997 and
December 31, 1997, and the results of their operations and their cash flows for
the years ended March 31, 1996 and 1997 and the nine months ended December 31,
1997 in conformity with generally accepted accounting principles.

Arthur Andersen LLP

Nashville, Tennessee
February 27, 1998

F-68
<PAGE> 145

KENNEDY RAILROAD BUILDERS, INC.
AND ASSOCIATED COMPANIES

COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
1997 1997 1998
----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 68,143 $ 170,289 $ 235,514
Accounts receivable, net of allowance of $25,000 each
period.................................................. 1,549,947 1,543,062 1,426,948
Officer and affiliate notes receivable.................... 59,445 102,431 168,127
Costs and estimated earnings in excess of billings on
uncompleted contracts................................... 360,386 292,611 425,488
Inventory................................................. 525,626 855,723 831,545
Prepaid expenses.......................................... 33,022 106,115 62,953
Deferred income taxes..................................... 10,125 10,125 10,125
----------- ----------- -----------
Total current assets............................... 2,606,694 3,080,356 3,160,700
----------- ----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Buildings................................................. 153,910 153,910 153,910
Machinery and equipment................................... 1,790,725 2,228,879 2,846,326
Office furniture and equipment............................ 96,337 96,194 94,378
Transportation equipment.................................. 1,077,000 1,182,299 1,206,646
Leasehold improvements.................................... 59,342 63,325 92,716
----------- ----------- -----------
3,177,314 3,724,607 4,393,976
Less accumulated depreciation............................. (1,571,497) (1,952,101) (2,081,459)
----------- ----------- -----------
Property, plant and equipment, net................. 1,605,817 1,772,506 2,312,517
----------- ----------- -----------
OTHER ASSETS:
Cash surrender value of officer's life insurance.......... 19,330 19,330 19,377
Officer note receivable................................... 16,661 -- --
----------- ----------- -----------
Total other assets................................. 35,991 19,330 19,377
----------- ----------- -----------
$ 4,248,502 $ 4,872,192 $ 5,492,594
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 1,143,284 $ 1,208,485 $ 1,331,831
Line of credit............................................ 250,000 562,705 978,170
Current maturities of long-term debt and capital leases... 312,505 315,324 380,339
Officer notes payable..................................... 92,088 80,000 80,000
Billings in excess of costs and estimated earnings on
uncompleted contracts................................... 228,344 280,569 139,806
Accrued expenses.......................................... 322,364 136,767 182,620
Income taxes payable...................................... 12,003 123,828 36,610
----------- ----------- -----------
Total current liabilities.......................... 2,360,588 2,707,678 3,129,376
----------- ----------- -----------
LONG-TERM DEBT AND CAPITAL LEASES, net of current
maturities................................................ 771,705 806,466 1,124,582
DEFERRED INCOME TAXES....................................... 8,526 14,580 14,580
----------- ----------- -----------
Total noncurrent liabilities....................... 780,231 821,046 1,139,162
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Contributed capital....................................... 20,000 20,000 20,000
Retained earnings......................................... 1,087,683 1,323,468 1,204,056
----------- ----------- -----------
Total stockholders' equity......................... 1,107,683 1,343,468 1,224,056
----------- ----------- -----------
$ 4,248,502 $ 4,872,192 $ 5,492,594
=========== =========== ===========
</TABLE>

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

F-69
<PAGE> 146

KENNEDY RAILROAD BUILDERS, INC.
AND ASSOCIATED COMPANIES

COMBINED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS ENDED
YEAR ENDED MARCH 31, ENDED MARCH 31,
----------------------- DECEMBER 31, -------------------------
1996 1997 1997 1997 1998
---------- ---------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE.............................. $6,652,473 $9,703,996 $8,295,814 $2,244,554 2,384,129
CONTRACT COSTS....................... 5,119,614 7,967,579 6,605,074 1,957,561 2,078,971
---------- ---------- ---------- ---------- ----------
Gross profit................ 1,532,859 1,736,417 1,690,740 286,993 305,158
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 1,347,595 1,497,998 1,163,290 396,310 417,035
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS........ 185,264 238,419 527,450 (109,317) (111,877)
OTHER INCOME (EXPENSE)
Interest income.................... 11,746 13,566 10,408 3,103 8,682
Interest expense................... (104,963) (108,736) (113,486) (25,422) (41,557)
Real estate venture, net........... 127,364 -- -- -- --
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES....................... 219,411 143,249 424,372 (131,636) (144,752)
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. 96,273 65,206 178,587 (52,654) (55,340)
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS)........... $ 123,138 $ 78,043 $ 245,785 $ (78,982) $ (89,412)
========== ========== ========== ========== ==========
</TABLE>

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

F-70
<PAGE> 147

KENNEDY RAILROAD BUILDERS, INC.
AND ASSOCIATED COMPANIES

COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
CONTRIBUTED RETAINED
CAPITAL EARNINGS TOTAL
----------- ---------- ----------
<S> <C> <C> <C>
BALANCE, March 31, 1995................................. $19,000 $ 901,502 $ 920,502
Net income............................................ -- 123,138 123,138
------- ---------- ----------
BALANCE, March 31, 1996................................. 19,000 1,024,640 1,043,640
Net income............................................ -- 78,043 78,043
Issuance of equity.................................... 1,000 -- 1,000
Dividends............................................. -- (15,000) (15,000)
------- ---------- ----------
BALANCE, March 31, 1997................................. 20,000 1,087,683 1,107,683
Net income............................................ -- 245,785 245,785
Dividends............................................. -- (10,000) (10,000)
------- ---------- ----------
BALANCE, December 31, 1997.............................. $20,000 $1,323,468 $1,343,468
======= ========== ==========
</TABLE>

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

F-71
<PAGE> 148

KENNEDY RAILROAD BUILDERS, INC.
AND ASSOCIATED COMPANIES

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS ENDED
YEAR ENDED MARCH 31, ENDED MARCH 31,
---------------------- DECEMBER 31, -------------------------
1996 1997 1997 1997 1998
--------- --------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................... $ 123,138 $ 78,043 $ 245,785 $ (78,982) $ (89,412)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation............................ 323,401 460,577 397,230 146,345 132,564
Deferred income taxes................... 5,863 (1,599) 6,054 -- --
Gain from sale of real estate........... (547,364) -- -- -- --
Change in operating assets:
Accounts receivable................... (118,451) (759,843) 6,885 (92,836) 116,114
Costs and estimated earnings in excess
of billings on uncompleted
contracts........................... (32,863) (261,195) 67,775 (102,152) (132,877)
Inventory............................. (262,030) 163,460 (330,097) 42,405 24,178
Prepaid expenses...................... 13,008 14,092 (73,093) 5,052 43,162
Cash value of life insurance.......... (4,838) (9,937) -- -- (47)
Accounts payable and accrued
expenses............................ 155,073 712,030 (120,396) 157,857 169,199
Billings in excess of costs and
estimated earnings on uncompleted
contracts........................... (208,098) 202,873 52,225 74,145 (140,763)
Income taxes payable.................. (1,650) (24,793) 111,825 (6,782) (87,218)
Other................................. (583) (49,413) (42,986) -- --
--------- --------- --------- --------- ---------
Net cash provided by (used in)
operating activities.............. (555,394) 524,295 321,207 145,052 34,900
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of real estate......... 547,364 -- -- -- --
Proceeds from officer notes receivable.... 251,184 10,651 16,661 2,510 --
Capital expenditures...................... (309,732) (237,369) (240,058) (62,502) (22,325)
--------- --------- --------- --------- ---------
Net cash provided by (used in)
investing activities.............. 488,816 (226,718) (223,397) (59,992) (22,325)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt...... (497,905) (241,567) (286,281) (65,285) (267,119)
Long-term borrowings...................... 301,142 -- -- -- --
Line of credit, net....................... 97,500 (133,000) 312,705 (37,500) 415,465
Notes payable to officers, net............ 203,642 (150,234) (12,088) (42,512) (65,696)
Payment of dividends...................... -- (15,000) (10,000) -- (30,000)
Proceeds from equity issuance............. -- 1,000 -- -- --
--------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities.............. 104,379 (538,801) 4,336 (145,297) 52,650
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and
cash equivalents.................. 37,801 (241,224) 102,146 (60,237) 65,225
CASH AND CASH EQUIVALENTS, beginning of
period.................................... 271,566 309,367 68,143 128,380 170,289
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period.... $ 309,367 $ 68,143 $ 170,289 $ 68,143 $ 235,514
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest.................................. $ 104,848 $ 109,075 $ 113,486 $ 26,758 $ 40,895
========= ========= ========= ========= =========
Income taxes.............................. $ 82,961 $ 85,766 $ 66,869 $ -- $ --
========= ========= ========= ========= =========
NONCASH INVESTING AND FINANCING
TRANSACTIONS:
The Company incurred long-term liabilities
for the purchase of equipment totaling
$385,680, $527,744 and $323,861 for the
years ended March 31, 1996 and 1997 and
the nine months ended December 31, 1997,
respectively.
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-72
<PAGE> 149

KENNEDY RAILROAD BUILDERS, INC.
AND ASSOCIATED COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS

1. ORGANIZATION AND NATURE OF BUSINESS

The accompanying combined financial statements include the accounts of
Kennedy Railroad Builders, Inc. ("Kennedy"), Railcorp, Inc. ("Railcorp") and
Alpha-Keystone Engineering, Inc. ("Alpha") (collectively, referred to as the
"Company"). Each of these companies are subject to common control and are
presented on a combined basis.

The Company operates as a contractor, constructing, repairing and
maintaining railroad tracks for private and government customers located
throughout the northeastern region of the United States. The work is performed
under various forms of contracts, including fixed-fee and time-and-material
contracts.

2. SIGNIFICANT ACCOUNTING POLICIES

YEAR-END

In 1997, the Company changed its financial reporting year-end to December
31. These combined financial statements reflect the results of operations for
the years ended March 31, 1996 and 1997 and the nine months ended December 31,
1997.

COMBINATION POLICIES

The Company includes the combined accounts of three companies subject to
common control. All significant transactions between the three companies are
eliminated in combination. Alpha was incorporated in February 1996. The results
for Alpha for the period from inception to March 31, 1997 are included in the
Company's financial statements for the year ended March 31, 1997.

USE OF ESTIMATES

REVENUE AND COST RECOGNITION

The Company recognizes revenues from fixed-fee contracts using the
percentage-of-completion method, measured by the percentage of cost incurred to
date to management's estimated total cost for each contract. That method is used
because management considers total cost to be the best available measure of
progress on the contracts. Changes in job performance, job conditions and
estimated profitability may result in revisions to cost and income, which are
recognized in the period in which the revisions are determined.

Revenues from time-and-material contracts are recognized currently as the
work is performed.

The asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts", represents revenues recognized in excess of amounts
billed. The liability, "Billings in excess of

F-73
<PAGE> 150
KENNEDY RAILROAD BUILDERS, INC.
AND ASSOCIATED COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

costs and estimated earnings on uncompleted contracts", represents billings in
excess of revenues recognized.

CASH AND CASH EQUIVALENTS

The Company considers cash and cash equivalents to include cash on hand and
temporary cash investments purchased with an original maturity of three months
or less.

FINANCIAL INSTRUMENTS AND CREDIT RISK

The Company operates primarily in the northeastern region of the United
States. As such, the Company's accounts receivable are from the same geographic
region. The terms of the sales give rise to unsecured accounts receivable, as is
common industry practice.

INVENTORIES

Inventories, consisting principally of stored materials and parts to be
used for contracts, are stated at the lower of cost or market. Cost is
determined by the first-in, first-out (FIFO) method.

PROPERTY, PLANT AND EQUIPMENT

The Company records property, plant and equipment at cost. Depreciation is
computed using the straight-line and the accelerated methods over the estimated
useful life of the asset as follows:

<TABLE>
<S> <C>
Buildings............................................... 39 years
Machinery and equipment................................. 3 - 7 years
Office furniture and equipment.......................... 5 - 8 years
Leasehold improvements.................................. 31 - 39 years
</TABLE>

As assets are retired or otherwise disposed of, the cost and accumulated
depreciation are eliminated from the accounts, and any gain or loss is reflected
in net income. The cost of maintenance and repair is charged to income as
incurred. Significant renewals and betterments are capitalized and depreciated
over the assets remaining useful life.

INCOME TAXES

Kennedy and Railcorp are both C corporations for Federal income tax
purposes. Alpha is a S corporation. As a result, the income of the Alpha is not
taxed at the corporate level. For purposes of the accompanying financial
statements, Alpha has been treated as a C corporation and income taxes have been
provided at the statutory rate and recorded using the provisions of SFAS No.
109.

INTERIM FINANCIAL STATEMENTS

F-74
<PAGE> 151
KENNEDY RAILROAD BUILDERS, INC.
AND ASSOCIATED COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

necessary to present fairly the financial position as of March 31, 1998 and the
results of operations and cash flows for the three months ended March 31, 1997
and 1998.

3. ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1997
---------- ------------
<S> <C> <C>
Contract receivables...................................... $1,554,728 $1,415,973
Contract retainages....................................... 20,219 152,089
Other..................................................... 59,445 102,431
---------- ----------
1,634,392 1,670,493
Less allowance for doubtful accounts...................... (25,000) (25,000)
---------- ----------
$1,609,392 $1,645,493
========== ==========
</TABLE>

Contract retainages have been billed but are not due pursuant to contract
provisions until contract completion. Such contract retainage is expected to be
collected within the following year.

4. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

Information with respect to contracts in process are as follows:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1997
----------- ------------
<S> <C> <C>
Costs incurred on uncompleted contracts.................. $ 2,668,688 $ 2,997,477
Estimated earnings....................................... 1,318,562 1,267,960
----------- -----------
3,987,250 4,265,437
Less billings, plus retainage............................ (3,855,208) (4,253,395)
----------- -----------
$ 132,042 $ 12,042
=========== ===========
Contracts in process are included in the accompanying balance sheet under the
following captions:
Costs and estimated earnings in excess of billings on
uncompleted contracts............................... $ 360,386 $ 292,611
Billings in excess of costs and estimated earnings on
uncompleted contracts............................... (228,344) (280,569)
----------- -----------
$ 132,042 $ 12,042
=========== ===========
</TABLE>

5. REAL ESTATE VENTURE

During the year ended March 31, 1996, the Company was involved in a real
estate transaction located in Lemoyne, Pennsylvania whereby the Company entered
into a purchase agreement. Prior to settlement, the Company identified a buyer
for the property at a price higher than their purchase price. The Company was
paid $497,364 in fiscal 1996 and an additional $50,000 (based on the
satisfactory settlement of certain contingencies) in fiscal 1997. The total
proceeds of $547,364 were reduced by expenses of the transaction totaling
approximately $420,000, including commissions and bonuses to certain
shareholders and employees of the Company that were primarily responsible for
this transaction.

F-75
<PAGE> 152
KENNEDY RAILROAD BUILDERS, INC.
AND ASSOCIATED COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

6. LINE OF CREDIT

The Company has a revolving line of credit agreement with a bank. The line
of credit includes maximum borrowings totaling $1,300,000. Borrowing under the
line of credit shall not exceed 80% of qualified accounts receivable and 50% of
inventory. It bears interest at the bank's prime rate (8.50% at December 31,
1997) which is payable due monthly and expires on July 31, 1998. The line of
credit is secured by all of the Kennedy's assets and is guaranteed by the
officers of Kennedy. The outstanding principal totals $250,000 and $562,705 as
of March 31, 1997 and December 31, 1997, respectively.

7. LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1997
---------- ------------
<S> <C> <C>
Note payable to a bank, interest at 8.25%, payable in
monthly installments of $418, maturing August 2007,
secured by real property................................. $ 35,046 $ 33,449
Mortgage note payable to Alliance Benefit Group, interest
at 9.00%, payable in monthly installments of $885 with a
balloon payment due on April 2, 2002, secured by real
property. Refinanced in May 1997......................... 98,891 --
Mortgage note payable to Alliance Benefit Group, interest
at 9.00%, payable in monthly installments of $878 with a
balloon payment due July 1999, secured by real
property................................................. -- 108,605
Equipment notes payable, principal and interest at rates
from 4.8% to 15.48%, payable monthly, maturing from
January 1998 to October 2003, secured by equipment....... 950,273 979,736
---------- ----------
1,084,210 1,121,790
Less current maturities.................................... (312,505) (315,324)
---------- ----------
$ 771,705 $ 806,466
========== ==========
</TABLE>

Aggregate principal payments as of December 31, 1997 on long-term debt
(excluding the line of credit) are scheduled as follows:

<TABLE>
<S> <C>
1998........................................................ $ 315,324
1999........................................................ 358,379
2000........................................................ 202,046
2001........................................................ 137,984
2002........................................................ 83,595
Thereafter.................................................. 24,462
----------
$1,121,790
==========
</TABLE>

8. PROFIT SHARING PLAN

The Company maintains a 401(k) plan that allows eligible employees to defer
a portion of their income through contributions to the plan. Under the
provisions of the plan, employees may

F-76
<PAGE> 153
KENNEDY RAILROAD BUILDERS, INC.
AND ASSOCIATED COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

contribute a portion of their compensation, and the Company matches up to 2.00%
percent of the employees qualified wages. In addition, the Company can make
additional discretionary contributions. Company contributions to the plan were
$36,737, $52,420 and $27,788, for the years ended March 31, 1996 and 1997 and
the nine months ended December 31, 1997, respectively.

9. INCOME TAXES

In accordance with SFAS No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. Under
SFAS 109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.

A reconciliation of the United States statutory corporate rate to the
effective tax rate is as follows:

<TABLE>
<CAPTION>
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Tax charge at standard U.S. rate of 34%................ $74,600 $48,705 $144,286
State taxes............................................ 14,481 9,454 27,852
Life insurance premiums................................ 7,209 6,485 6,075
Other.................................................. (17) 562 374
------- ------- --------
$96,273 $65,206 $178,587
======= ======= ========
</TABLE>

The components of the net deferred income tax asset (liability) are as
follows:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1997
--------- ------------
<S> <C> <C>
Current Asset:
Accounts receivable valuation............................. $ 10,125 $ 10,125
-------- --------
Total current asset............................... 10,125 10,125
-------- --------
Non-current Asset (Liability):
Tax over book depreciation................................ (12,555) (14,580)
Alternative minimum tax credit............................ 4,029 --
-------- --------
Total non-current liability....................... (8,526) (14,580)
-------- --------
Net deferred tax asset...................................... $ 1,599 $ (4,455)
======== ========
</TABLE>

The Company has provided state income taxes totaling approximately $15,451,
$10,465, and $29,421 for the years ended March 31, 1996 and 1997 and the nine
months ended December 31, 1997, respectively.

10. RELATED PARTY TRANSACTIONS

Payments were made to certain shareholders of the Company under operating
leases for office facilities and a storage area. Such payments totaled $30,192,
$36,552 and $29,128 for the years ended March 31, 1996 and 1997 and the nine
months ended December 31, 1997, respectively.

The Company has notes receivable from officers of Kennedy. Monthly payments
of $500 and $508 include principal and interest at 6%. The notes receivable are
unsecured.

F-77
<PAGE> 154
KENNEDY RAILROAD BUILDERS, INC.
AND ASSOCIATED COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

The Company has notes payable in the amounts of $12,088, and $0 as of March
31, 1997 and December 31, 1997, respectively, to shareholders of Kennedy. The
notes are unsecured and noninterest bearing. Additionally, the Company has a
note payable to a shareholder in the amount of $80,000, as of March 31, 1997 and
December 31, 1997. The note is unsecured and bears interest at 9%.

11. COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

The Company leases office space and equipment under agreements expiring at
various dates through the year 1999, including leases with certain shareholders
of the Company. Remaining minimum rental commitments under these noncancellable
lease agreements in effect at December 31, 1997 are as follows:

<TABLE>
<CAPTION>
SHAREHOLDERS THIRD PARTIES
------------ -------------
<S> <C> <C>
1998...................................................... $31,537 $17,662
1999...................................................... 6,556 10,749
</TABLE>

Rental expense including leases with certain shareholders of the Company
and cancelable leases totaled $289,128, $344,277 and $416,012, for the years
ended March 31, 1996 and 1997 and the nine months ended December 31, 1997,
respectively.

LITIGATION

12. SHAREHOLDERS' EQUITY

The combined contributed capital of the Company is as follows:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1997
--------- ------------
<S> <C> <C>
Kennedy -- Common stock, par value $1 per share; authorized
1,000,000 shares, issued and outstanding 18,000 shares.... $18,000 $18,000
Railcorp -- Common stock, par value $1 per share; authorized
10,000 shares, issued and outstanding 1,000 shares........ 1,000 1,000
Alpha -- Common stock, par value $.02 per share; authorized
100,000 shares, issued and outstanding 50,000 shares...... 1,000 1,000
------- -------
$20,000 $20,000
======= =======
</TABLE>

13. FAIR VALUE OF FINANCIAL INSTRUMENTS

F-78
<PAGE> 155
KENNEDY RAILROAD BUILDERS, INC.
AND ASSOCIATED COMPANIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

CASH, ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE

The carrying amounts of these items are a reasonable estimate of their fair
value due to their short-term nature.

LONG-TERM DEBT

The carrying amount of the line of credit facility approximates fair value
as the interest rate fluctuates with changes in market conditions. The carrying
value of other loans relating to real estate, vehicles and equipment approximate
fair value as the interest rates are comparable to market rates today.

14. SUBSEQUENT EVENT (UNAUDITED)

F-79
<PAGE> 156

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Merit Railroad Contractors, Inc.:

We have audited the accompanying balance sheets of Merit Railroad
Contractors, Inc. (a Missouri corporation) as of December 31, 1996 and 1997, and
the related statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Merit Railroad Contractors,
Inc. as of December 31, 1996 and 1997, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.

Arthur Andersen LLP

St. Louis, Missouri,
February 6, 1998

F-80
<PAGE> 157

MERIT RAILROAD CONTRACTORS, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 121,274 $ 35,313 $ --
Accounts receivable, net of allowance of $75,317
for both 1996 and 1997.......................... 1,410,674 930,307 1,214,295
Costs and estimated earnings in excess of billings
on uncompleted contracts........................ 280,850 38,638 67,797
Other receivables.................................. 97,500 -- 25,000
Inventories........................................ 200,000 312,392 290,730
Prepaid expenses................................... 19,000 17,130 35,130
----------- ----------- ----------
Total current assets....................... 2,129,298 1,333,780 1,632,952
----------- ----------- ----------
PROPERTY AND EQUIPMENT:
Machinery and equipment............................ 948,272 985,419 976,645
Automobiles and trucks............................. 512,133 619,928 627,923
Office furniture and equipment..................... 121,073 126,446 128,412
Leasehold improvements............................. -- 54,244 54,244
----------- ----------- ----------
1,581,478 1,786,037 1,787,224
Less accumulated depreciation...................... (1,014,814) (1,064,361) (1,057,557)
----------- ----------- ----------
Property and equipment, net................ 566,664 721,676 729,667
----------- ----------- ----------
$ 2,695,962 $ 2,055,456 $2,362,619
=========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................... $ 618,696 $ 210,222 $ 420,995
Current maturities of long-term debt............... 96,602 78,125 78,125
Revolving line of credit........................... -- 300,000 350,000
Billings in excess of costs and estimated earnings
on uncompleted contracts........................ 130,110 162,559 424,711
Accrued expenses................................... 262,940 165,057 146,290
Payable to affiliate............................... 58,169 58,169 58,169
----------- ----------- ----------
Total current liabilities.................. 1,166,517 974,132 1,478,290
----------- ----------- ----------
LONG-TERM DEBT, net of current maturities............ 94,908 138,373 115,349
----------- ----------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; authorized shares,
30,000; issued and outstanding shares, 1,000.... 1,000 1,000 1,000
Additional paid-in capital......................... 99,000 99,000 99,000
Retained earnings.................................. 1,334,537 842,951 668,980
----------- ----------- ----------
Total stockholders' equity................. 1,434,537 942,951 768,980
----------- ----------- ----------
$ 2,695,962 $ 2,055,456 $2,362,619
=========== =========== ==========
</TABLE>

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

F-81
<PAGE> 158

MERIT RAILROAD CONTRACTORS, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------ ------------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE........................ $7,319,655 $9,931,173 $6,949,859 $ 986,360 $1,180,924
CONTRACT COSTS................. 5,994,090 8,160,424 6,202,588 872,222 1,112,480
---------- ---------- ---------- ---------- ----------
Gross profit................. 1,325,565 1,770,749 747,271 114,138 68,444
GENERAL AND ADMINISTRATIVE
EXPENSES..................... 857,926 1,126,280 970,941 179,024 264,891
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) FROM
OPERATIONS................... 467,639 644,469 (223,670) (64,886) (196,447)
OTHER INCOME (EXPENSE)
Interest income.............. 1,429 8,806 416 212 --
Interest expense............. (31,494) (17,371) (40,972) (3,820) (12,062)
Other, net................... 19,034 17,264 (121,865) 589 34,538
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS).............. $ 456,608 $ 653,168 $ (386,091) $ (67,905) $ (173,971)
========== ========== ========== ========== ==========
</TABLE>

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

F-82
<PAGE> 159

MERIT RAILROAD CONTRACTORS, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
NUMBER
OF ADDITIONAL
COMMON COMMON PAID-IN RETAINED
SHARES STOCK CAPITAL EARNINGS TOTAL
------ ------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994............ 1,000 $1,000 $99,000 $ 703,763 $ 803,763
Dividends paid...................... -- -- -- (215,700) (215,700)
Net income.......................... -- -- -- 456,608 456,608
----- ------ ------- ---------- ----------
BALANCE, December 31, 1995............ 1,000 1,000 99,000 944,671 1,044,671
Dividends paid...................... -- -- -- (263,302) (263,302)
Net income.......................... -- -- -- 653,168 653,168
----- ------ ------- ---------- ----------
BALANCE, December 31, 1996............ 1,000 1,000 99,000 1,334,537 1,434,537
Dividends paid...................... -- -- -- (105,495) (105,495)
Net loss............................ -- -- -- (386,091) (386,091)
----- ------ ------- ---------- ----------
BALANCE, December 31, 1997............ 1,000 $1,000 $99,000 $ 842,951 $ 942,951
===== ====== ======= ========== ==========
</TABLE>

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

F-83
<PAGE> 160

MERIT RAILROAD CONTRACTORS, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------- -------------------------
1995 1996 1997 1997 1998
---------- --------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................... $ 456,608 $ 653,168 $(386,091) $ (67,905) $(173,971)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization...... 194,902 199,096 194,915 41,456 49,030
(Gain) loss from sale of
equipment........................ (18,762) (12,181) 14,865 -- (34,140)
Change in operating assets:
Accounts receivable, net......... (749,991) 247,728 480,367 436,970 (283,988)
Costs and estimated earnings in
excess of billings on
uncompleted contracts......... (72,707) (263,696) 242,212 (261,284) (29,159)
Other receivables................ (19,899) 5,000 97,500 97,500 (25,000)
Inventory........................ (25,000) 132,455 (112,392) -- 21,662
Prepaid expenses................. (12,679) 31,130 1,870 (94,606) (18,000)
Accounts payable................. 434,946 (215,773) (408,474) (404,446) 210,773
Billings in excess of costs and
estimated earnings on
uncompleted contracts......... 669,920 (578,630) 32,449 266,387 262,152
Accrued expenses................. 143,177 49,549 (97,883) (116,649) (18,767)
---------- --------- --------- --------- ---------
Net cash provided by (used in)
operating activities........ 1,000,515 247,846 59,338 (102,577) (39,408)
---------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and
equipment.......................... 38,705 3,300 10,052 -- --
Capital expenditures................. (120,524) (234,413) (244,459) (78,080) (5,373)
Proceeds from repayment of affiliate
loans.............................. -- 39,327 -- -- --
---------- --------- --------- --------- ---------
Net cash used in investing
activities.................. (81,819) (191,786) (234,407) (78,080) (5,373)
---------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term
debt............................... (82,647) (126,725) (105,397) (88,479) (40,532)
(Payments of) borrowings under line
of credit.......................... (250,000) -- 300,000 150,000 50,000
Payable to affiliate................. -- 58,169 -- -- --
Dividends paid....................... (215,700) (263,302) (105,495) -- --
---------- --------- --------- --------- ---------
Net cash (used in) provided by
financing activities........ (548,347) (331,858) 89,108 61,521 9,468
---------- --------- --------- --------- ---------
Net increase (decrease) in
cash and cash equivalents... 370,349 (275,798) (35,313) (119,136) (35,313)
CASH AND CASH EQUIVALENTS, beginning of
period............................... 26,723 397,072 35,313 121,274 35,313
---------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of
period............................... $ 397,072 $ 121,274 $ -- $ 2,138 $ --
========== ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest........................... $ 31,494 $ 17,371 $ 40,972 $ 3,820 $ 12,062
========== ========= ========= ========= =========
Noncash transactions:
Purchase of property and equipment
under long-term debt............. $ 170,857 $ 87,093 $ 130,385 -- --
========== ========= ========= ========= =========
</TABLE>

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

F-84
<PAGE> 161

MERIT RAILROAD CONTRACTORS, INC.

NOTES TO FINANCIAL STATEMENTS

1. NATURE OF BUSINESS

Merit Railroad Contractors, Inc. (the "Company"), a Missouri corporation
operates as a construction contractor, constructing, repairing and maintaining
railroad tracks for private and government customers located throughout
Illinois, Kentucky, Missouri, Tennessee and Wisconsin. The work is performed
under various forms of contracts, including fixed-fee, unit-price and time-
and-material contracts. The length of the contracts vary, but is typically less
than one year.

2. SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

REVENUE AND COST RECOGNITION

The Company recognizes revenues from fixed-fee contracts using the
percentage-of-completion method, measured by the percentage of cost incurred to
date to management's estimated total cost for each contract. This method is used
because management considers total cost to be the best available measure of
progress on the contracts. Changes in job performance, job conditions and
estimated profitability may result in revisions to cost and income, which are
recognized in the period in which the revisions are determined.

Revenues from time-and-material contracts are recognized as the work is
performed.

CASH AND CASH EQUIVALENTS

The Company considers cash and cash equivalents to include cash on hand and
temporary cash investments purchased with an original maturity of three months
or less.

FINANCIAL INSTRUMENTS AND CREDIT RISK

The Company operates primarily in Illinois, Kentucky, Missouri, Tennessee
and Wisconsin. As such, the Company's accounts receivable are from the same
geographic region. The Company's customers are not concentrated in any specific
industry group. Although the Company limits its credit risk by exercising lien
rights when available, terms of the majority of sales give rise to unsecured
accounts receivable, as is common industry practice.

During the years ended December 31, 1995, 1996 and 1997, one customer
accounted for 11% of revenue, one customer accounted for 37% of revenue and one
customer accounted for 11% of revenue, respectively.

F-85
<PAGE> 162
MERIT RAILROAD CONTRACTORS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

INVENTORIES

Inventories, consisting principally of stored materials and parts to be
used for contracts, are stated at the lower of cost or market. Cost is
determined by the first-in, first-out (FIFO) method.

PROPERTY AND EQUIPMENT

The Company records property and equipment at cost. Depreciation is
computed using the straight-line and the declining-balance method over the
estimated useful lives of the assets as follows:

<TABLE>
<S> <C>
Machinery and equipment................... 5-7 years
Automobiles and trucks.................... 5 years
Office furniture and equipment............ 5-7 years
Leasehold improvements.................... Lesser of 5 years or lease terms
</TABLE>

As assets are retired or otherwise disposed of, the cost and accumulated
depreciation are eliminated from the accounts, and any gain or loss is reflected
in other income.

ASSET IMPAIRMENT

If facts and circumstances suggest that a long-lived asset may be impaired,
the carrying value is reviewed. If this review indicates that the value of the
asset will not be recoverable, as determined based on projected undiscounted
cash flows related to the asset over its remaining life, then the carrying value
of the asset is reduced to its estimated fair value.

OTHER INCOME (EXPENSE)

Other income (expense) includes gain and loss on disposition of property
and equipment, sale of scrap and other miscellaneous income and expense, all of
which are not directly related to the Company's primary business. During 1997,
the Company incurred $107,000 of costs related to the movement of inventory and
equipment from an old location to a new location.

INCOME TAXES

The Company operates as a sub-chapter S corporation. Accordingly, the
income taxes are the responsibility of the owners; and the accompanying
financial statements do not reflect any federal or state income taxes for the
Company.

The Company uses different methods of accounting for tax and financial
reporting. The primary difference relates to the use of the accrual basis for
financial reporting and the cash basis for tax reporting.

INTERIM FINANCIAL STATEMENTS

F-86
<PAGE> 163
MERIT RAILROAD CONTRACTORS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

3. ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Contract receivables........................................ $1,335,792 $ 919,270
Contract retainage.......................................... 150,199 86,354
---------- ----------
1,485,991 1,005,624
Less allowance for doubtful accounts........................ (75,317) (75,317)
---------- ----------
$1,410,674 $ 930,307
========== ==========
</TABLE>

Contract retainage have been billed but are not due pursuant to contract
provisions until contract completion. Such contract retainage is expected to be
collected within the following year.

4. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

Information with respect to contracts in process at December 31, 1996 and
1997, is as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
Costs incurred on uncompleted contracts.................. $ 3,228,970 $ 1,383,021
Estimated earnings....................................... 642,668 203,021
----------- -----------
3,871,638 1,586,042
Less billings to date.................................... (3,720,898) (1,709,963)
----------- -----------
$ 150,740 $ (123,921)
=========== ===========
</TABLE>

Contracts in process are included in the accompanying balance sheets under
the following captions:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
-------- ---------
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... $280,850 $ 38,638
Billings in excess of costs and estimated earnings on
uncompleted contracts..................................... (130,110) (162,559)
-------- ---------
$150,740 $(123,921)
======== =========
</TABLE>

5. OPERATING LEASES

The Company leases office space and a storage yard in St. Louis under an
agreement expiring in June 2001. Minimum rental commitments under this
noncancelable lease agreement in effect at December 31, 1997, are:

<TABLE>
<S> <C>
1998........................................................ $ 49,200
1999........................................................ 49,200
2000........................................................ 49,200
2001........................................................ 20,500
2002 and thereafter......................................... --
--------
$168,100
========
</TABLE>

F-87
<PAGE> 164
MERIT RAILROAD CONTRACTORS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Total rental expense for 1995, 1996 and 1997 for all operating leases
amounted to $13,800, $60,700 and $68,000, respectively.

6. LINE OF CREDIT

The Company has a revolving line of credit agreement with a bank. The line
of credit has a maximum borrowing limit of $450,000 and is payable on demand. It
bears interest at prime plus 1% (9.5% at December 31, 1997) which is due
monthly. The outstanding principle was $0 and $300,000 at December 31, 1996 and
1997, respectively. The line is collateralized by accounts receivable, property
and equipment, and personal guarantees of certain stockholders.

7. LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Notes payable to banks and equipment company; interest
varying from 7.5% to 11.75%, per annum; payable in monthly
installments, maturities ranging from July 1997 through
August 2002............................................... $191,510 216,498
Less current maturities..................................... (96,602) (78,125)
-------- --------
$ 94,908 $138,373
======== ========
</TABLE>

Several of the notes payable bear interest at prime plus 1%.

The notes payable are collateralized by accounts receivable and property
and equipment.

Aggregate principal payments as of December 31, 1997 on long-term debt are
scheduled as follows:

8. PROFIT SHARING PLAN

The Company maintains a 401(k) Salary Deferral Plan (the "401(k) Plan")
that allows eligible employees to defer a portion of their income through
contributions to the plan. Under the provisions of the plan, employees may
contribute up to a maximum of 15 percent of employee compensation or limitations
established pursuant to the Internal Revenue Code. The Company's contribution to
the 401(k) Plan is discretionary and determined annually by the Board of
Directors. The Company contributed $30,000, $-0-and $-0- to the 401(k) Plan for
the years ended December 31, 1995, 1996 and 1997, respectively.

The Company also maintains a Money Purchase Plan whereby mandatory
contributions are made by the Company. The Company makes contributions to this
plan based on 5% of employee eligible compensation. The Company contributed
$28,300, $33,700 and $32,500 to the Money Purchase Plan for the years ended
December 31, 1995, 1996 and 1997, respectively.

F-88
<PAGE> 165
MERIT RAILROAD CONTRACTORS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

9. RELATED PARTY TRANSACTIONS

The Company's office and storage yard in St. Louis are leased from an
affiliated company under a five year lease that expires in June 2001, with
monthly payments of $4,100. In addition to the minimum rent, the Company is
required to pay a percentage rent amount equal to 1% of gross receipts in excess
of $6,100,000. The amount of rent charged to operations was $58,700 and $57,200
for the years ended December 31, 1996 and 1997, respectively. There was no such
lease agreement in 1995. The Company also leases certain equipment from another
affiliated entity on a month-to-month basis and was charged $71,200, $89,800 and
$181,500 during 1995, 1996 and 1997, respectively.

The payable to affiliate arose in 1996 and is payable on demand. No
interest is due on the note.

10. COMMITMENTS AND CONTINGENCIES

LITIGATION

The Company is engaged in various lawsuits arising in the ordinary course
of business. In the opinion of management, based upon the advice of legal
counsel, the ultimate outcome of these lawsuits will not have a material adverse
impact on the Company's financial position or results of operations.

CONTINGENCY

The Company completed a contract during 1995 on which a dispute arose with
a subcontractor to the job. The subcontractor has indicated additional charges
are due as a result of work performed over the amounts due under its original
contract with the Company. Specifically, the subcontractor alleges the
engineering firm contracted by the Company's customer grossly underestimated the
amount of excavation work required at the job site. Although no evaluation of
the threatened litigation can be determined at this time, management believes
the Company's exposure for monetary damages should be minimal due to the fact
that the subcontractor's claims are essentially against the Company's customer
and the customer's engineering firm. At December 31, 1996 and 1997, the Company
was owed $81,000 from its customer that is being withheld pending resolution of
the dispute and owed its subcontractor $38,053 in connection with the original
contract terms. An allowance of $40,000 has been specifically provided for the
potential uncollectibility of amounts due from the customer.

11. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of cash, accounts receivable and accounts payable are
a reasonable estimate of their fair value due to their short-term nature.

12. SUBSEQUENT EVENT (UNAUDITED)

F-89
<PAGE> 166

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Midwest Construction Services, Inc.:

We have audited the accompanying balance sheets of MIDWEST CONSTRUCTION
SERVICES, INC. ("the Company") (an Indiana corporation), as of December 31, 1996
and 1997, and the related statements of operations and retained earnings and
cash flows for each of the three years ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Midwest Construction
Services, Inc. as of December 31, 1996 and 1997, and the results of its
operations and its cash flows for each of the three years ended December 31,
1997, in conformity with generally accepted accounting principles.

Arthur Andersen LLP

Chicago, Illinois
February 19, 1998

F-90
<PAGE> 167

MIDWEST CONSTRUCTION SERVICES, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 373,904 $ 260,631 $ 321,684
Accounts receivable -- net......................... 1,015,729 999,168 1,224,055
Other receivables.................................. -- 896 --
Costs and estimated earnings in excess of billings
on uncompleted contracts........................ -- 17,571 18,660
Inventory.......................................... 626,564 637,367 562,929
Prepaid expenses................................... 60,412 45,486 30,275
---------- ---------- ----------
Total current assets....................... 2,076,609 1,961,119 2,157,603
---------- ---------- ----------
PROPERTY AND EQUIPMENT:
Autos and trucks................................... 797,581 723,803 723,803
Construction equipment............................. 1,574,778 1,650,838 1,650,838
Office equipment................................... 90,407 101,712 102,547
Leasehold improvements............................. 26,131 26,131 26,131
---------- ---------- ----------
2,488,897 2,502,484 2,503,319
Less -- Accumulated depreciation................... 1,521,906 1,738,885 1,815,127
---------- ---------- ----------
Total property and equipment, net.......... 966,991 763,599 688,192
---------- ---------- ----------
Total assets............................... $3,043,600 $2,724,718 $2,845,795
========== ========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable...................................... $ 157,330 $ 354,066 $ 496,389
Notes payable -- stockholders...................... 111,171 3,389 3,389
Accounts payable................................... 191,574 248,069 326,753
Other accrued expenses............................. 109,668 208,051 273,342
Accrued salaries................................... 66,553 35,531 29,320
Billings in excess of costs and estimated earnings
on uncompleted contracts........................ -- 81,957 41,820
---------- ---------- ----------
Total current liabilities.................. 636,296 931,063 1,171,013
---------- ---------- ----------
LONG-TERM LIABILITIES:
Notes payable...................................... 45,639 24,665 19,147
Notes payable -- stockholders...................... 367,813 37,436 37,436
---------- ---------- ----------
Total long-term liabilities................ 413,452 62,101 56,583
---------- ---------- ----------
Total liabilities.......................... 1,049,748 993,164 1,227,596
---------- ---------- ----------
STOCKHOLDERS' EQUITY:
Common stock, no par value, 1,000 shares
authorized, issued and outstanding.............. 10,000 10,000 10,000
Retained earnings.................................. 1,983,852 1,721,554 1,608,199
---------- ---------- ----------
Total stockholders' equity................. 1,993,852 1,731,554 1,618,199
---------- ---------- ----------
Total liabilities and stockholders'
equity................................... $3,043,600 $2,724,718 $2,845,795
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these balance sheets.

F-91
<PAGE> 168

MIDWEST CONSTRUCTION SERVICES, INC.

STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

<TABLE>
<CAPTION>
THREE MONTHS ENDING
FOR THE YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- -------------------------
1995 1996 1997 1997 1998
---------- ----------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE....................... $9,316,391 $10,842,457 $9,675,673 $2,281,294 $2,456,436
COST OF REVENUE............... 7,949,761 9,338,686 8,636,800 1,951,021 2,106,551
---------- ----------- ---------- ---------- ----------
Gross profit........ 1,366,630 1,503,771 1,038,873 330,273 349,885
GENERAL AND ADMINISTRATIVE
EXPENSES.................... 644,590 649,368 644,871 149,362 188,946
---------- ----------- ---------- ---------- ----------
Income from
operations........ 722,040 854,403 394,002 180,911 160,939
OTHER INCOME.................. 82,356 38,909 38,801 3,514 1,622
---------- ----------- ---------- ---------- ----------
Net income.......... 804,396 893,312 432,803 184,425 162,561
RETAINED EARNINGS:
Beginning of period......... 2,431,176 1,090,540 1,983,852 1,983,852 1,721,556
Less -- Dividend
distributions............ 2,145,032 -- 695,101 -- 275,918
---------- ----------- ---------- ---------- ----------
End of period............... $1,090,540 $ 1,983,852 $1,721,554 $2,168,277 $1,608,199
========== =========== ========== ========== ==========
</TABLE>

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

F-92
<PAGE> 169

MIDWEST CONSTRUCTION SERVICES, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, MARCH 31,
1995 1996 1997 1997 1998
----------- ---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................. $ 804,396 $ 893,312 $ 432,803 $ 184,425 $ 162,561
Adjustments to reconcile net income to
net cash provided by operating
activities --
Depreciation.......................... 258,251 316,434 317,538 80,377 76,242
Gain on sale of assets................ (35,081) (20,230) (15,235) -- --
Gain on sale of marketable
securities.......................... (21,280) -- -- -- --
(Increase) decrease in --
Accounts receivable, net............ 26,938 390,776 16,561 (143,707) (224,887)
Other receivables................... 489 -- (896) -- 896
Costs and estimated earnings in
excess of billings on uncompleted
contracts......................... (303,051) 303,051 (17,571) (42,857) (1,089)
Inventory........................... 29,825 (83,786) (10,803) (5,866) 74,438
Prepaid expenses.................... 60,360 19,257 14,926 32,674 11,157
Increase (decrease) in --
Accounts payable.................... 316,627 (268,563) 56,495 61,146 78,684
Other accrued expenses.............. 10,874 (34,554) 98,383 31,412 69,345
Accrued salaries.................... (5,945) 15,922 (31,022) (57,601) (6,211)
Billings in excess of costs and
estimated earnings on uncompleted
contracts......................... -- -- 81,957 -- (40,137)
----------- ---------- ---------- --------- ---------
Net cash provided by operating
activities...................... 1,142,403 1,531,619 943,136 140,003 200,999
----------- ---------- ---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment................... (385,825) (385,683) (117,161) (70,629) (834)
Proceeds from sale of assets............ 35,967 27,790 18,250 -- --
Decrease in notes receivables........... 60,000 -- -- -- --
Investments redeemed, gross............. 416,423 -- -- -- --
Investments purchased................... (255,888) -- -- -- --
----------- ---------- ---------- --------- ---------
Net cash used in investing
activities...................... (129,323) (357,893) (98,911) (70,629) (834)
----------- ---------- ---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional borrowing from notes
payable............................... 457,007 797,311 1,301,390 -- 150,000
Reduction of principal of notes
payable............................... (576,375) (880,483) (1,125,628) (72,708) (13,194)
Dividend distribution................... (2,145,032) -- (695,101) -- (275,918)
Additional borrowing from notes
payable -- stockholder................ 1,227,312 16,368 -- -- --
Reduction of principal of notes
payable -- stockholder................ -- (764,696) (438,159) (195,571) --
----------- ---------- ---------- --------- ---------
Net cash used in financing
activities...................... (1,037,088) (831,500) (957,498) (268,279) (139,112)
----------- ---------- ---------- --------- ---------
NET INCREASE (DECREASE) IN CASH........... (24,008) 342,226 (113,273) (198,905) 61,053
CASH AND CASH EQUIVALENTS, beginning of
period.................................. 55,686 31,678 373,904 373,904 260,631
----------- ---------- ---------- --------- ---------
CASH AND CASH EQUIVALENTS, end of
period.................................. $ 31,678 $ 373,904 $ 260,631 $ 174,999 $ 321,684
=========== ========== ========== ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
INFORMATION:
Cash paid for interest.................. $ 38,357 $ 88,344 $ 23,733 $ 2,907 $ 9,963
=========== ========== ========== ========= =========
</TABLE>

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

F-93
<PAGE> 170

MIDWEST CONSTRUCTION SERVICES, INC.

NOTES TO THE FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

Midwest Construction Services, Inc. (the "Company") operates as a
construction contractor, constructing, repairing and maintaining railroad tracks
primarily to steel processors throughout Northwest Indiana. The work is
performed under various forms of contracts, including fixed-fee and
time-and-material contracts.

REVENUE AND COST RECOGNITION

The Company recognizes revenues from fixed-price construction contracts
using the percentage-of-completion method, measured by the percentage of cost
incurred to date to management's estimated total cost for each contract. That
method is used because management considers total cost to be the best available
measure of progress on the contracts. Changes in job performance, job conditions
and estimated profitability may result in revisions to cost and income, which
are recognized in the period in which the revisions are determined.

Revenues from time-and-material contracts are recognized as the work is
performed.

Contract costs include all direct material and labor costs and those
indirect costs related to contract performance. General and administrative costs
are charged to expense as incurred. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined.

USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS

CASH AND CASH EQUIVALENTS

Cash and cash equivalents, as reported on the accompanying balance sheets
and statements of cash flows, includes all amounts in non-interest-bearing
checking accounts and interest-bearing money market accounts.

FINANCIAL INSTRUMENTS AND CREDIT RISK

The Company operates primarily in Northwest Indiana and primarily serves
the steel industry. As such, the Company's accounts receivable are from the same
geographic region. The terms of the sales give rise to unsecured accounts
receivable, as is common industry practice. The Company is dependent on the
steel industry and the economic trends that affect the steel industry.

F-94
<PAGE> 171
MIDWEST CONSTRUCTION SERVICES, INC.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

INVESTMENTS

Management determines the appropriate classifications of securities at the
time of purchase. If management has the intent and the Company has the ability
at the time of purchase to hold securities until maturities or on a long-term
basis, they are classified as held to maturity securities and carried at
amortized historical cost. Securities to be held for indefinite periods of time
and not intended to be held to maturity or on a long-term basis are classified
as available for sale and carried at fair value.

Realized gains and losses on dispositions are based on the net proceeds and
the amortized historical cost of the securities sold, using the specific
identification method. Unrealized gains and losses on available for sale
securities are based on the difference between book value and fair value of each
security. These gains and losses are credited or charged to stockholders'
equity, whereas realized gains and losses are reported on the Company's
statements of income.

INVENTORY

Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first-out ("FIFO") method. Market is based on estimated net
realizable value.

PROPERTY AND EQUIPMENT

Property and equipment is recorded at cost. Depreciation is computed using
the straight-line and the accelerated method over the estimated useful life of
the asset as follows:

<TABLE>
<S> <C>
Autos and trucks............................................ 5 years
Construction equipment...................................... 5-7 years
Office equipment............................................ 3-10 years
Leasehold improvements...................................... 39 years
==========
</TABLE>

When assets are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts and any gain or loss is
reflected in net income. Maintenance and repairs are charged to income as
incurred; significant renewals and betterments are capitalized.

INCOME TAXES

Effective April 1, 1991, the Company has elected to be taxed as an "S"
Corporation under the provision of Subchapter "S" of the Internal Revenue Code.
As such, the Corporation pays no income tax, and revenue and expenses pass
through to the shareholders who pay income taxes on the earnings at their
respective tax rates. Therefore, these financial statements do not reflect any
federal or state income taxes for the Company.

F-95
<PAGE> 172
MIDWEST CONSTRUCTION SERVICES, INC.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

INTERIM FINANCIAL STATEMENTS

The unaudited financial statements included herein have been prepared,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"). In the opinion of management, the accompanying
unaudited financial statements reflect all adjustments (consisting of only
normally recurring accruals) necessary to present fairly the financial position
as of March 31, 1998 and the results of operations and cash flows for the three
months ended March 31, 1997 and 1998.

2. ACCOUNTS RECEIVABLE

The Company has the following receivables at December 31, 1996 and 1997:

<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Billed receivables.......................................... $ 927,808 $ 834,840
Unbilled receivables........................................ 100,544 176,951
---------- ----------
1,028,352 1,011,791
Less -- Allowance for uncollectible accounts................ 12,623 12,623
---------- ----------
Total accounts receivable, net.................... $1,015,729 $ 999,168
========== ==========
</TABLE>

3. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

Information with respect to contracts in process at December 31, 1996 and
1997, are as follows:

<TABLE>
<CAPTION>
1996 1997
---- --------
<S> <C> <C>
Costs incurred on uncompleted contracts..................... $0 $262,907
Estimated earnings.......................................... 0 32,619
-- --------
0 295,526
Less -- Billings to date.................................... 0 359,912
-- --------
$0 $(64,386)
== ========
</TABLE>

Contracts in process are included in accompanying balance sheets under the
following captions:

<TABLE>
<CAPTION>
1996 1997
---- --------
<S> <C> <C>
Costs and estimated earnings in excess of billings
on uncompleted contracts.................................. $0 $ 17,571
Billings in excess of costs and estimated earnings
on uncompleted contracts.................................. 0 (81,957)
-- --------
$0 $(64,386)
== ========
</TABLE>

4. INVESTMENTS

During 1995, the Company sold available for sale securities. The proceeds
and gross gains and losses on these sales are as follows:

<TABLE>
<CAPTION>
GROSS GROSS GROSS
AMORTIZED PROCEEDS REALIZED REALIZED
COST FROM SALE GAIN LOSS
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Equity securities common stock............. $395,143 $416,423 $41,196 $(19,916)
======== ======== ======= ========
</TABLE>

F-96
<PAGE> 173
MIDWEST CONSTRUCTION SERVICES, INC.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

The change in the stockholders' equity component, net unrealized holding
gains and losses on available for sale securities is as follows:

<TABLE>
<CAPTION>
1995 NET
UNREALIZED
HOLDING
GAIN (LOSS)
-----------
<S> <C>
Balance at beginning of year................................ $ (4,130)
Valuation of securities to fair value....................... (17,150)
Net realized gain on sale of investments.................... 21,280
--------
Balance at end of year...................................... $ --
========
</TABLE>

5. NOTES PAYABLE

<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
National City Bank, $750,000 revolving line of credit,
interest at bank's base rate, due August, 1998, secured by
accounts receivable, inventory and general intangibles and
stockholders' guarantee................................... $ -- $325,000
Associates Commercial Corp., 7.5%, monthly payments of
$6,542 including interest, due November 1997, secured by
equipment................................................. 69,337 --
National City Bank, 7.9%, monthly payments of $1,986
including interest, due January 2000, secured by four
vehicles.................................................. 65,021 45,636
CIT Group/Equipment Financing, 0%, monthly payments of
$9,538, due June 1997, secured by equipment............... 47,688 --
A.I. Credit Corp., 7.3%, monthly payments of $5,310
including interest, due April 1997........................ 20,923 --
A.I. Credit Corp., 7.59%, monthly payments of $2,732
including interest, due March, 1998....................... -- 8,095
-------- --------
Total notes payable............................... 202,969 378,731
Less -- Current portion..................................... 157,330 354,066
-------- --------
Total long-term notes payable..................... $ 45,639 $ 24,665
======== ========
</TABLE>

Aggregate principal payments as of December 31, 1997, on the notes payable
are scheduled as follows:

<TABLE>
<CAPTION>
YEAR ENDED AMOUNT
- ---------- --------
<S> <C>
December 31 --
1998...................................................... $354,066
1999...................................................... 22,689
2000...................................................... 1,976
========
</TABLE>

F-97
<PAGE> 174
MIDWEST CONSTRUCTION SERVICES, INC.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

6. NOTES PAYABLE -- STOCKHOLDERS

<TABLE>
<CAPTION>
1996 1997
-------- -------
<S> <C> <C>
Stockholder, 8%, monthly payments of $11,578, including
interest, balloon payment due January 2001, secured by
inventory, chattel paper, accounts receivable, equipment
and general intangibles................................... $436,321 $ --
Stockholder, 8%, monthly payments of $385 including
interest, balloon payment due January 2001, secured by
inventory, chattel paper, accounts receivable, equipment
and general intangibles................................... 42,663 40,825
-------- -------
Total............................................. 478,984 40,825
Less -- Current portion..................................... 111,171 3,389
-------- -------
Total long term notes payable..................... $367,813 $37,436
======== =======
</TABLE>

Aggregate principal payments as of December 31, 1997, on the notes payable
to shareholders are scheduled as follows:

<TABLE>
<CAPTION>
YEAR ENDED AMOUNT
- ---------- -------
<S> <C>
December 31 --
1998...................................................... $ 3,389
1999...................................................... 3,670
2000...................................................... 3,975
2001...................................................... 4,305
2002...................................................... 4,662
Thereafter................................................ 20,824
=======
</TABLE>

7. OPERATING LEASES

The Company leases its office facility on a month-to-month basis. Monthly
rent is currently $1,200. Rent expense for the year ended December 31, 1997, was
$14,400. Management expects the future minimum lease obligation for the lease
for its office facility to be $14,400 for the year ending December 31, 1998.

The Company leases two vehicles under an operating lease. Total monthly
lease payments are $1,197. The down payment of $12,600 for both vehicles is
being amortized over the terms of the leases. The leases are for two years and
expire in May, 1999. The vehicle lease payments for the year ended December 31,
1997, were $15,506. The prepaid lease expense for the year ended December 31,
1997, was $9,100. The expected minimum lease payments and amortization of the
down payment for the remainder of the leases are as follows:

<TABLE>
<CAPTION>
YEAR ENDED AMOUNT
- ---------- -------
<S> <C>
1998..................... $20,664
1999..................... 8,610
=======
</TABLE>

F-98
<PAGE> 175
MIDWEST CONSTRUCTION SERVICES, INC.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

8. MAJOR CUSTOMERS

The Company had two major customers for the years ended December 31, 1996
and 1997, each having sales exceeding 10% of total sales. Sales to these
customers as a percentage of total revenues for the years ended December 31,
1996 and 1997, are as follows:

<TABLE>
<CAPTION>
1996 1997
----- -----
<S> <C> <C>
USX Corp.................................................... 44.9% 46.4%
Bethlehem Steel............................................. 35.0 37.9
All other customers......................................... 20.1 15.7
----- -----
Total............................................. 100.0% 100.0%
===== =====
</TABLE>

9. MAINTENANCE LEASES

The Company is currently operating under the following open purchase orders
or maintenance contracts:

<TABLE>
<CAPTION>
EXPIRATION
CUSTOMER DATE DESCRIPTION
- -------- ---------- -----------
<S> <C> <C>
NIPSCO -- Schafer Generating 12-31-99 Cost-plus; supervision, labor and
Station........................... equipment for railroad track
maintenance
NIPSCO -- Michigan City Generating 12-31-99 Cost-plus; labor, material and
Station........................... equipment to perform repairs to
railroad tracks and switches
NIPSCO -- Mitchell Generating 12-31-99 Cost-plus; supervision and labor to
Station........................... replace rails, ties and ballast as
needed on plant railroad tracks
NIPSCO -- Bailey Generating 12-31-99 Cost-plus; supervision, material,
Station........................... labor and equipment to make
emergency repairs to plant track
system
Luria Brothers/Philip Metals Inc.... 12-31-98 Cost-plus; supervision, labor,
tools, equipment and material to
maintain entire track system
Bethlehem Steel Corp. -- Burns 12-31-00 Time and materials; supervision,
Harbor Plant labor, material, insurance and
equipment to perform general track
maintenance and snow removal
USX Corporation..................... 09-22-02 Time and materials; supervision,
labor, material, insurance and
equipment to perform general track
maintenance and snow removal
</TABLE>

10. RETIREMENT PLAN

As of January 1, 1996, the Company implemented a salary reduction
simplified employee pension plan covering all eligible employees over the age of
21, who have completed a specific period of service, and are not covered by a
collective bargaining agreement. Employer contributions

F-99
<PAGE> 176
MIDWEST CONSTRUCTION SERVICES, INC.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

are 5% of employees' gross income. The pension expense for the years ended
December 31, 1996 and 1997, were $25,556 and $23,038, respectively.

11. COMMITMENTS AND CONTINGENCIES

LITIGATION

In the ordinary course of business, the Company enters into contracts that
require the Company to provide general liability insurance coverage which names
their customer as the co-insured policyholder. In addition, some contracts
require that the Company indemnify their customers against certain legal claims
related to the contracted work the Company will perform. As a result, the
Company from time to time is involved in their customer's lawsuits and is
contingently liable for the outcome of such legal cases.

In 1994, an accident occurred on a customer's property that resulted in the
death of two Company employees and the injury of two other Company employees.
Settlements have been achieved in the fatality cases which were funded by the
Company's insurance carriers and the customer. The two injured employees have
sued the customer. Though the Company is not party to these personal injury
suits, the customer has indicated that they may seek a contribution from the
Company toward any settlement.

The Company is direct party to an uninsured personal injury suit resultant
from a 1994 accident at a customer location that occurred in proximity to where
the Company was working. The Company is vigorously defending this case and
believes that it has both adequate reserves and good defenses to any claim of
liability that may be asserted against it related to this personal injury case.

The Company is involved in three other personal injury suits (one in which
the Company is direct party and two in which the Company is indirectly involved)
that are all covered by the Company's insurance policies.

In the case of all known contingencies, the Company accrues a charge for a
loss when it is probable and the amount is reasonably estimable. Based on the
current available information, the Company believes that the established
reserves are adequate to cover all known contingencies and that future costs
related to these contingent liabilities will not have a material adverse effect
on the Company's financial statements.

12. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following estimated fair values of financial instruments is made in
accordance with the requirements of Statement of Financial Accounting Standards
No. 107, "Disclosure about Fair Value of Financial Instruments." The estimated
fair value amounts have been determined by the Company using available market
information and appropriate valuation methodologies.

CASH, ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE

The carrying amounts of these items are a reasonable estimate of their fair
value due to their short-term nature.

LINE-OF-CREDIT FACILITY

The carrying amount of the line-of-credit facility approximates fair value
as the interest rate fluctuates with changes in market conditions.

F-100
<PAGE> 177
MIDWEST CONSTRUCTION SERVICES, INC.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

13. SUBSEQUENT EVENT (UNAUDITED)

F-101
<PAGE> 178

INDEPENDENT AUDITORS' REPORT

Board of Directors
New England Railroad Construction Company, Inc.
Bridgeport, Connecticut

We have audited the accompanying balance sheets of New England Railroad
Construction Company, Inc. as of December 31, 1997 and February 28, 1997, and
the related statements of operations and shareholders' equity and cash flows for
the ten months ended December 31, 1997 and each of the two years in the period
ended February 28, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of New England Railroad
Construction Company, Inc. as of December 31, 1997 and February 28, 1997, and
the results of its operations and its cash flows for the ten months ended
December 31, 1997 and each of the two years in the period ended February 28,
1997, in conformity with generally accepted accounting principles.

DWORKEN, HILLMAN, LAMORTE & STERCZALA, P.C.

February 24, 1998
Bridgeport, Connecticut

F-102
<PAGE> 179

NEW ENGLAND RAILROAD CONSTRUCTION COMPANY, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
FEBRUARY 28, DECEMBER 31, MARCH 31,
1997 1997 1998
------------ ------------ ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS (NOTES 7 AND 8)
CURRENT ASSETS:
Cash and cash equivalents............................. $ 29,066 $ 250,678 $ 275,207
Contract and retainage receivables (Notes 2, 3 and
6).................................................. 3,122,929 1,491,925 952,648
Accounts receivable, related parties (Note 6)......... 32,050 39,544 39,544
Inventory............................................. 88,308 143,531 142,391
Deferred income taxes (Note 12)....................... 10,350
Costs and estimated earnings in excess of billings on
uncompleted contracts (Note 5)...................... 10,868 32,045
Prepaid expenses and other (Note 6)................... 66,183 100,937 158,630
---------- ---------- ----------
Total current assets........................ 3,349,404 2,026,615 1,610,815
Property, plant and equipment (Note 4)................ 588,305 863,751 872,148
---------- ---------- ----------
$3,937,709 $2,890,366 $2,482,963
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt (Notes 6 and 8)..... $ 239,033 $ 356,201 $ 298,658
Accounts payable...................................... 900,335 215,644 237,681
Accrued expenses (Note 9)............................. 173,814 180,717 74,578
Deferred income taxes (Note 12)....................... 333,900 27,200
Billings in excess of costs and estimated earnings on
uncompleted contracts (Note 5)...................... 639,258 284,679 274,556
---------- ---------- ----------
Total current liabilities................... 2,286,340 1,064,441 885,473
---------- ---------- ----------
Long-term debt, net of current portion (Note 8)....... 227,570 397,422 359,025
---------- ---------- ----------
Deferred income taxes (Note 12)....................... 56,400 43,200 48,050
---------- ---------- ----------
SHAREHOLDERS' EQUITY:
Common stock, no par value; authorized 5,000 shares;
issued and outstanding 1,320 shares................. 114,000 114,000 114,000
Retained earnings..................................... 1,253,399 1,271,303 1,076,415
---------- ---------- ----------
1,367,399 1,385,303 1,190,415
---------- ---------- ----------
$3,937,709 $2,890,366 $2,482,963
========== ========== ==========
</TABLE>

See notes to financial statements.

F-103
<PAGE> 180

NEW ENGLAND RAILROAD CONSTRUCTION COMPANY, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED TEN MONTHS THREE MONTHS ENDED
--------------------------- ENDED ----------------------
FEBRUARY 29, FEBRUARY 28, DECEMBER 31, MARCH 31, MARCH 31,
1996 1997 1997 1997 1998
------------ ------------ ------------ ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Earned revenue (Notes 3, 6 and
10).......................... $5,039,151 $7,462,151 $4,000,543 $2,222,187 $ 340,990
Cost of earned revenue (Note
6)........................... 4,712,320 5,866,220 3,320,362 1,704,868 537,137
---------- ---------- ---------- ---------- ---------
Gross profit (loss)............ 326,831 1,595,931 680,181 517,319 (196,147)
General and administrative
expenses..................... 395,362 779,202 652,197 162,291 122,185
---------- ---------- ---------- ---------- ---------
Income (loss) from operations.. (68,531) 816,729 27,984 355,028 (318,332)
---------- ---------- ---------- ---------- ---------
Other charges (credits):
(Gain) loss on disposition of
equipment................. (186,027) (19,000) 500 (500)
Other income................. (6,338) (3,096) (14,996) (660) (3,514)
Interest expense............. 48,890 41,282 40,976 11,986 13,170
---------- ---------- ---------- ---------- ---------
42,552 (147,841) 6,980 11,826 9,156
---------- ---------- ---------- ---------- ---------
Income (loss) before income
taxes........................ (111,083) 964,570 21,004 343,202 (327,488)
---------- ---------- ---------- ---------- ---------
Income taxes (benefit) (Note
12):
Current...................... (200) 248,800 323,000 88,400 (99,900)
Deferred..................... (51,800) 168,800 (319,900) 59,900 (32,700)
---------- ---------- ---------- ---------- ---------
(52,000) 417,600 3,100 148,300 (132,600)
---------- ---------- ---------- ---------- ---------
Net income (loss).............. $ (59,083) $ 546,970 $ 17,904 $ 194,902 $(194,888)
========== ========== ========== ========== =========
Earnings (loss) per share...... $ (44.76) $ 414.37 $ 13.56 $ 147.65 $ (147.64)
========== ========== ========== ========== =========
Shares outstanding............. 1,320 1,320 1,320 1,320 1,320
</TABLE>

See notes to financial statements.

F-104
<PAGE> 181

NEW ENGLAND RAILROAD CONSTRUCTION COMPANY, INC.

STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
NUMBER OF COMMON RETAINED
COMMON SHARES STOCK EARNINGS TOTAL
------------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, March 1, 1995.............. 1,320 $114,000 $ 765,512 $ 879,512
Net loss.......................... (59,083) (59,083)
----- -------- ---------- ----------
Balance, February 29, 1996.......... 1,320 114,000 706,429 820,429
Net income........................ 546,970 546,970
----- -------- ---------- ----------
Balance, February 28, 1997.......... 1,320 114,000 1,253,399 1,367,399
Net income........................ 17,904 17,904
----- -------- ---------- ----------
Balance, December 31, 1997.......... 1,320 114,000 1,271,303 1,385,303
Net loss (unaudited).............. (194,888) (194,888)
----- -------- ---------- ----------
Balance, March 31, 1998
(unaudited)....................... 1,320 $114,000 $1,076,415 $1,190,415
===== ======== ========== ==========
</TABLE>

See notes to financial statements.

F-105
<PAGE> 182

NEW ENGLAND RAILROAD CONSTRUCTION COMPANY, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED TEN MONTHS THREE MONTHS ENDED
--------------------------- ENDED ---------------------
FEBRUARY 29, FEBRUARY 28, DECEMBER 31, MARCH 31, MARCH 31,
1996 1997 1997 1997 1998
------------ ------------ ------------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................... $ (59,083) $ 546,970 $ 17,904 $ 194,902 $(194,888)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization.... 191,782 144,302 131,978 40,752 36,594
(Gain) loss on disposition of
equipment...................... (186,027) (19,000) 500 (500)
Deferred income taxes............ (51,800) 168,800 (319,900) 59,900 (32,700)
(Increase) decrease in assets:
Contract and retainage
receivables................. 1,021,987 (1,924,109) 1,631,004 (416,542) 539,277
Accounts receivable, related
parties..................... (68,404) 80,000 (7,494) 28,635
Inventory...................... (10,938) 72,359 (55,223) 85,578 1,140
Costs and estimated earnings in
excess of billings on
uncompleted contracts....... 78,734 87,538 10,868 27,377 (32,045)
Prepaid expenses and other..... (38,222) 30,142 (56,762) 59,790 (57,693)
Increase (decrease) in
liabilities:
Accounts payable............... (460,219) 354,390 (684,691) (267,867) 22,037
Accrued expenses............... (12,971) 140,398 6,903 80,185 (106,139)
Billings in excess of costs and
estimated earnings on
uncompleted contracts....... (549,345) 282,932 (354,579) 268,540 (10,123)
----------- ----------- ----------- --------- ---------
Net cash provided by (used in)
operating activities............... 41,521 (202,305) 301,008 161,750 164,960
----------- ----------- ----------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of equipment.... 253,000 23,200 500
Purchases of equipment............. (29,702) (90,947) (149,616) (27,000) (44,991)
Proceeds from sale of bonds........ 25,000
----------- ----------- ----------- --------- ---------
Net cash provided by (used in)
investing activities............... (29,702) 187,053 (126,416) (27,000) (44,491)
----------- ----------- ----------- --------- ---------
Cash from financing activities:
Proceeds from issuance of debt..... 150,000 290,000 50,000
Principal payments on long-term
debt............................. (137,506) (173,079) (242,980) (52,909) (95,940)
----------- ----------- ----------- --------- ---------
Net cash provided by (used in)
financing activities............... (137,506) (23,079) 47,020 (2,909) (95,940)
----------- ----------- ----------- --------- ---------
Net increase (decrease) in cash...... (125,687) (38,331) 221,612 131,841 24,529
Cash and cash equivalents at
beginning of period................ 193,084 67,397 29,066 91,182 250,678
----------- ----------- ----------- --------- ---------
Cash and cash equivalents at end of
period............................. $ 67,397 $ 29,066 $ 250,678 $ 223,023 $ 275,207
=========== =========== =========== ========= =========
</TABLE>

See notes to financial statements.

F-106
<PAGE> 183

NEW ENGLAND RAILROAD CONSTRUCTION COMPANY, INC.

NOTES TO FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1997,
TEN MONTHS ENDED DECEMBER 31, 1997 AND
THREE MONTHS ENDED MARCH 31, 1997 AND 1998

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

DESCRIPTION OF BUSINESS:

The Company performs railroad repair and construction projects primarily
for state and city governments located in the Northeastern United States.

ESTIMATES AND ASSUMPTIONS:

Management uses estimates and assumptions in preparing financial statements
in accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets and liabilities and the
reported revenue and expenses. Actual results could vary from the estimates that
were used.

FAIR VALUE OF FINANCIAL INSTRUMENTS:

The carrying amounts of cash and cash equivalents, contract and retainage
receivable and accounts payable approximate fair value because of their
short-term nature. The carrying amount of long-term debt approximates fair value
based on the borrowing rates currently available to the Company for bank loans
with similar terms and maturities.

REVENUE AND COST RECOGNITION:

Earnings on long-term construction contracts are recognized on the
percentage-of-completion method in the ratio of costs incurred to total
estimated costs. Earnings and costs on contracts are subject to revision
throughout the terms of the contracts; required adjustments are made in the
period revisions become known. Because of inherent uncertainties in estimating
costs, it is at least reasonably possible that the Company's estimates of costs
and revenues will change in the near term. Provisions are made for the full
amounts of anticipated losses when first determinable. Claims for additional
contract revenues are recognized at the point it is probable that the claim will
result in additional revenue and the amount can be estimated reliably.

Balances billed but not paid according to retainage provisions under
construction contracts generally become due upon contract completion and
acceptance by the owners. Construction contracts normally are completed within
one to two years.

INVENTORY:

Inventory, principally materials and supplies, is stated at the lower of
cost or net realizable value. Cost is determined by the first-in, first-out
(FIFO) method.

PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment is stated at cost. Depreciation is provided
principally by use of the straight-line method over the estimated useful life of
the related asset. Accelerated methods are used for income tax reporting
purposes.

F-107
<PAGE> 184
NEW ENGLAND RAILROAD CONSTRUCTION COMPANY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

INCOME TAXES:

Deferred income taxes are determined based on the difference between the
financial statement and income tax basis of assets and liabilities using tax
rates expected to be in effect in the years in which the differences are
expected to reverse. The temporary differences relate primarily to the reporting
of revenue recognition on long-term contracts, depreciation and net operating
loss carryforwards.

CASH AND CASH EQUIVALENTS:

From time to time, the Company's cash balance with financial institutions
exceeds the maximum FDIC insured balance of $100,000. The Company has not
experienced any losses in such accounts and believes it is not exposed to any
significant credit risk on cash and cash equivalents.

For the reporting of cash flows, the Company considers savings accounts and
certificate of deposits with original maturities of three months or less to be
cash and cash equivalents.

YEAR-END

2. CONTRACT AND RETAINAGE RECEIVABLES:

<TABLE>
<CAPTION>
FEBRUARY 28, DECEMBER 31, MARCH 31,
1997 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Completed contracts........................... $ 285,144 $1,199,475 $708,300
Uncompleted contracts......................... 2,208,445
Retainage..................................... 659,340 322,450 274,348
---------- ---------- --------
3,152,929 1,521,925 982,648
Less allowance for doubtful accounts.......... 30,000 30,000 30,000
---------- ---------- --------
$3,122,929 $1,491,925 $952,648
========== ========== ========
</TABLE>

3. CLAIMS:

During the year ended February 28, 1997, the Company settled two claims for
$230,000. These claims represent additional costs incurred and profits lost by
the Company due to performing work out of sequence, drawing revisions and
specification changes by the project owners. The settlements are included in
contract and retainage receivables and earned revenue as of and for the year
ended February 28, 1997.

F-108
<PAGE> 185
NEW ENGLAND RAILROAD CONSTRUCTION COMPANY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. PROPERTY, PLANT AND EQUIPMENT:

<TABLE>
<CAPTION>
FEBRUARY 28, DECEMBER 31, MARCH 31,
1997 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Land.................................................. $ 70,334 $ 70,334 $ 70,334
Building and improvements............................. 212,765 212,765 212,765
Vehicles and equipment................................ 2,269,364 2,410,882 2,455,873
Tools................................................. 49,487 49,487 49,487
Office equipment...................................... 67,481 67,481 67,481
---------- ---------- ----------
2,669,431 2,810,949 2,855,940
Less accumulated depreciation......................... 2,081,126 1,947,198 1,983,792
---------- ---------- ----------
$ 588,305 $ 863,751 $ 872,148
========== ========== ==========
</TABLE>

5. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS:

<TABLE>
<CAPTION>
FEBRUARY 28, DECEMBER 31, MARCH 31,
1997 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Costs incurred on uncompleted contracts............... $6,537,599 $ 799,465 $ 528,415
Estimated earnings.................................... 1,825,521 197,933 95,498
---------- ---------- ---------
8,363,120 997,398 623,913
Less billings to date................................. 8,991,510 1,282,077 866,424
---------- ---------- ---------
$ (628,390) $ (284,679) $(242,511)
========== ========== =========
</TABLE>

Included in the balance sheets under the following captions:

<TABLE>
<CAPTION>
FEBRUARY 28, DECEMBER 31, MARCH 31,
1997 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts............................... $ 10,868 $ 32,045
Billings in excess of costs and estimated earnings on
uncompleted contracts............................... (639,258) $ (284,679) (274,556)
---------- ---------- ---------
$ (628,390) $ (284,679) $(242,511)
========== ========== =========
</TABLE>

6. RELATED PARTY TRANSACTIONS:

The Company has transactions in the normal course of business with various
related parties. Balances with related parties are included in the balance
sheets under the following captions:

<TABLE>
<CAPTION>
FEBRUARY 28, DECEMBER 31, MARCH 31,
1997 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Contract and retainage receivables............ $133,576 $203,329
Accounts receivable, related parties.......... $ 32,050 39,544 39,544
Prepaid expenses and other.................... 55,000 28,500 13,500
Current portion of long-term debt............. 150,000 210,000 150,000
</TABLE>

F-109
<PAGE> 186
NEW ENGLAND RAILROAD CONSTRUCTION COMPANY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Transactions with related parties are included in the statements of
operations under the following captions:

<TABLE>
<CAPTION>
TEN MONTHS
YEARS ENDED ENDED THREE MONTHS ENDED
FEBRUARY 29, FEBRUARY 28, DECEMBER 31, MARCH 31, MARCH 31,
1996 1997 1997 1997 1998
------------ ------------ ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Earned revenue............ $23,300 $ 9,664 $271,056 $ 1,410 $69,752
Cost of earned revenue.... 11,736 7,724 260,260 1,410 69,752
Rent expense.............. 60,000 60,000 50,000 15,000 15,000
</TABLE>

The Company rents a storage yard on a month to month basis, from a related
party for $5,000 per month.

7. LINE OF CREDIT:

The Company has a $475,000 line of credit to be used for working capital
needs expiring in June 1998. Interest is due monthly on advances at the bank's
prime rate plus 1 1/2%. Substantially all assets are pledged as collateral and
repayment is guaranteed by the shareholders. There were no outstanding
borrowings on the line of credit at March 31, 1998, December 31, 1997 and
February 28, 1997.

8. LONG-TERM DEBT:

<TABLE>
<CAPTION>
FEBRUARY 28, DECEMBER 31, MARCH 31,
1997 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Note payable, bank, payable in monthly installments of
$5,000 plus interest at prime plus 1.5% through
October 2000. Substantially all assets are pledged
as collateral and repayment is guaranteed by the
shareholders........................................ $160,000 $110,000 $ 95,000
Notes payable, shareholders, due on demand plus
interest at prime plus 1%........................... 150,000 210,000 150,000
Notes payable, equipment, due in aggregate monthly
installments of $8,942 including interest ranging
from 7.9% to 9.3% maturing at various dates through
October 2002. Collateralized by equipment........... 94,461 382,040 363,288
Note payable, mortgage, payable in monthly
installments of $1,190 including interest at prime
plus 1.5% through September 2002.................... 58,148 51,583 49,395
Note payable, mortgage, payable in monthly
installments of $419 including interest at prime
plus 1%. This note was paid in full as of December
31, 1997............................................ 3,994
-------- -------- --------
466,603 753,623 657,683
Less current portion.................................. 239,033 356,201 298,658
-------- -------- --------
$227,570 $397,422 $359,025
======== ======== ========
</TABLE>

F-110
<PAGE> 187
NEW ENGLAND RAILROAD CONSTRUCTION COMPANY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Aggregate maturities of long-term debt follow:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
- ------------------------
<S> <C>
1998.............................................. $356,201
1999.............................................. 144,200
2000.............................................. 102,950
2001.............................................. 102,322
2002.............................................. 47,950
--------
$753,623
========
</TABLE>

Both the long-term debt and the line of credit contain certain restrictive
covenants which place some requirements and restrictions on the Company
regarding the maintenance of certain financial ratios measured on an annual
basis.

9. ACCRUED EXPENSES:

<TABLE>
<CAPTION>
FEBRUARY 28, DECEMBER 31, MARCH 31,
1997 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Income taxes...................................... $ 25,212 $110,191
Payroll and benefits.............................. 43,130 33,248 $30,702
Profit sharing.................................... 78,897 43,876
Insurance......................................... 26,575 28,152
Other............................................. 9,126
-------- -------- -------
$173,814 $180,717 $74,578
======== ======== =======
</TABLE>

10. MAJOR CUSTOMERS:

Approximately 62%, 63% and 48% of earned revenue was derived from four
customers in each of the ten months ended December 31, 1997 and the years ended
February 28, 1997 and February 29, 1996, respectively. Only one customer
accounted for more than 10% of earned revenue in both the ten months ended
December 31, 1997 and the year ended February 28, 1997.

11. PROFIT SHARING PLAN:

The Company sponsors a noncontributory trusteed profit sharing plan
covering substantially all of its employees not covered by a collective
bargaining agreement meeting certain minimum requirements. The plan provides for
contributions by the Company in such amounts as the Board of Directors may
annually determine. Profit sharing expense was $20,823, $90,810 and $25,906 for
the ten months ended December 31, 1997 and the years ended February 28, 1997 and
February 29, 1996, respectively.

F-111
<PAGE> 188
NEW ENGLAND RAILROAD CONSTRUCTION COMPANY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

12. INCOME TAXES:

Components of income taxes follow:

<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------------
FEBRUARY 29, FEBRUARY 28,
1996 1997
------------------- ---------------------
CURRENT DEFERRED CURRENT DEFERRED
------- --------- --------- ---------
<S> <C> <C> <C> <C>
Tax expense (benefit) before application
of operating loss carryforwards........ $(200) $ 210,700 $ 556,900 $(139,300)
Tax expense (benefit) of operating loss
carry forwards......................... (262,500) (308,100) 308,100
----- --------- --------- ---------
Tax expense (benefit).................... $(200) $ (51,800) $ 248,800 $ 168,800
===== ========= ========= =========
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED
TEN MONTHS ENDED -------------------------------------------
DECEMBER 31, 1997 MARCH 31, 1997 MARCH 31, 1998
-------------------- --------------------- -------------------
CURRENT DEFERRED CURRENT DEFERRED CURRENT DEFERRED
-------- --------- --------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Tax expense (benefit)
before application
of operating loss
carryforwards...... $323,000 $(319,900) $ 198,000 $ (49,700) $(99,900) $(32,700)
Tax expense (benefit)
of operating loss
carryforwards...... $(109,600) $ 109,600
-------- --------- --------- --------- -------- --------
Tax expense
(benefit).......... $323,000 $(319,900) $ 88,400 $ 59,900 $(99,900) $(32,700)
======== ========= ========= ========= ======== ========
</TABLE>

A reconciliation of the United States statutory corporate rate to the
effective tax rate is as follows:

F-112
<PAGE> 189
NEW ENGLAND RAILROAD CONSTRUCTION COMPANY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The components of the net deferred income tax asset (liability) at December
31, 1997, February 28, 1997 and March 31, 1998 are as follows:

<TABLE>
<CAPTION>
FEBRUARY 28, DECEMBER 31, MARCH 31,
1997 1997 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Current asset (liability):
Deferred gross profit on contracts in
progress................................. $(344,250) $(37,550)
Accounts receivable valuation............... 10,350 10,350 $ 10,350
--------- -------- --------
(333,900) (27,200) 10,350
Non-current liability:
Tax depreciation in excess of book
depreciation............................. (56,400) (43,200) (48,050)
--------- -------- --------
Net deferred tax liability.................... $(390,300) $(70,400) $(37,700)
========= ======== ========
</TABLE>

13. CONCENTRATION OF LABOR:

Approximately 72% of the Company's labor force is subject to a union
contract expiring in March 1999.

14. SUPPLEMENTAL CASH FLOW INFORMATION AND SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:

Cash paid for interest was $39,314, $42,216 and $48,890 for the ten months
ended December 31, 1997 and the years ended February 28, 1997 and February 29,
1996, respectively.

Cash paid for income taxes was $238,021, $204,670 and $11,726 for the ten
months ended December 31, 1997 and the years ended February 28, 1997 and
February 29, 1996, respectively.

The Company acquired equipment in exchange for installment note obligations
of $240,000 and $99,771 for the ten months ended December 31, 1997 and the year
ended February 28, 1997, respectively.

15. SUBSEQUENT EVENT (UNAUDITED):

F-113
<PAGE> 190

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Railroad Service, Inc. and Minnesota Railroad Service, Inc.:

We have audited the accompanying combined balance sheets of RAILROAD
SERVICE, INC. (a Nevada corporation) and MINNESOTA RAILROAD SERVICE, INC. (a
Tennessee corporation) as of December 31, 1996 and 1997, and the related
combined statements of operations, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1997. These combined
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.

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

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Railroad
Service, Inc. and Minnesota Railroad Service, Inc. as of December 31, 1996 and
1997, and the results of their combined operations and their combined cash flows
for the years then ended in conformity with generally accepted accounting
principles.

Arthur Andersen LLP

Columbus, Ohio,
February 23, 1998

F-114
<PAGE> 191

RAILROAD SERVICE, INC.
AND
MINNESOTA RAILROAD SERVICE, INC.

COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 21,796 $ 839,210 $ 595,279
Accounts receivable....................................... 1,657,019 918,794 711,493
Costs and estimated earnings in excess of billings on
uncompleted contracts................................... 62,842 155,140 224,470
Notes receivable, current portion......................... -- 66,666 70,499
Due from related parties.................................. 9,558 -- --
Material on hand.......................................... 302,867 240,131 273,297
Prepaid expenses.......................................... -- -- 2,689
---------- ---------- ----------
Total current assets............................... 2,054,082 2,219,941 1,877,727
---------- ---------- ----------
PROPERTY, PLANT AND EQUIPMENT:
Tools and equipment....................................... 3,041,036 2,803,466 2,806,125
Vehicles and trailers..................................... 946,744 881,053 880,553
Office equipment.......................................... 129,600 129,612 130,880
Leasehold improvements.................................... 125,119 125,119 125,119
Less accumulated depreciation and amortization............ (3,200,703) (2,991,931) (3,059,089)
---------- ---------- ----------
Property, plant and equipment, net................. 1,041,796 947,319 883,588
---------- ---------- ----------
OTHER ASSETS:
Notes receivable, long-term portion....................... -- 66,668 66,668
Notes receivable, related parties......................... 170,577 170,577 174,416
Cash value of life insurance.............................. 527,699 571,629 571,629
Loan origination costs, net............................... 9,498 2,794 2,794
---------- ---------- ----------
Total other assets................................. 707,774 811,668 815,507
---------- ---------- ----------
TOTAL ASSETS....................................... $3,803,652 $3,978,928 $3,576,822
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 434,566 $ 445,800 $ 623,293
Accrued expenses.......................................... 145,695 149,141 326,724
Billings in excess of costs and estimated earnings on
uncompleted contracts................................... 84,841 79,733 70,471
Current maturities of long-term debt...................... 358,621 278,246 278,247
---------- ---------- ----------
Total current liabilities.......................... 1,023,723 952,920 1,298,735
---------- ---------- ----------
NOTES PAYABLE -- RELATED PARTIES............................ 207,365 246,798 246,798
LONG-TERM DEBT, net of current maturities................... 741,763 594,075 591,324
---------- ---------- ----------
Total noncurrent liabilities....................... 949,128 840,873 838,122
---------- ---------- ----------
TOTAL LIABILITIES.................................. 1,972,851 1,793,793 2,136,857
---------- ---------- ----------
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock.............................................. 172,700 172,700 172,700
Additional paid-in capital................................ 838,731 838,731 1,238,382
Retained earnings......................................... 819,370 1,173,704 28,883
---------- ---------- ----------
Total stockholders' equity......................... 1,830,801 2,185,135 1,439,965
---------- ---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......... $3,803,652 $3,978,928 $3,576,822
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these combined balance sheets.

F-115
<PAGE> 192

RAILROAD SERVICE, INC.
AND
MINNESOTA RAILROAD SERVICE, INC.

COMBINED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- -------------------------
1995 1996 1997 1997 1998
---------- ----------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSTRUCTION INCOME EARNED.... $9,043,959 $10,708,870 $9,363,191 $ 238,294 $1,267,901
CONTRACT COSTS INCURRED....... 7,330,086 8,199,458 7,065,419 455,455 1,290,407
---------- ----------- ---------- --------- ----------
Gross profit................ 1,713,873 2,509,412 2,297,772 (217,161) (22,506)
GENERAL AND ADMINISTRATIVE
EXPENSES.................... 1,288,688 1,417,546 1,449,737 268,162 721,052
---------- ----------- ---------- --------- ----------
OPERATING INCOME (LOSS)....... 425,185 1,091,866 848,035 (485,323) (743,558)
---------- ----------- ---------- --------- ----------
OTHER INCOME (EXPENSE)
Interest income............. 14,911 15,352 38,464 3,838 14,672
Interest expense............ (174,724) (137,763) (116,345) (11,348) (20,685)
Gain on disposal of
equipment................ 73,910 31,763 207,160 160,603 --
Other income, net........... 17,659 5,106 -- -- --
---------- ----------- ---------- --------- ----------
TOTAL OTHER INCOME
(EXPENSE)................... (68,244) (85,542) 129,279 153,093 (6,013)
---------- ----------- ---------- --------- ----------
NET INCOME (LOSS)............. $ 356,941 $ 1,006,324 $ 977,314 $(332,230) $ (749,571)
========== =========== ========== ========= ==========
</TABLE>

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

F-116
<PAGE> 193

RAILROAD SERVICE, INC.
AND
MINNESOTA RAILROAD SERVICE, INC.

COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1994..................... $172,700 $838,731 $ (187,675) $ 823,756
Net income................................... -- -- 356,941 356,941
-------- -------- ---------- ----------
BALANCE, December 31, 1995..................... 172,700 838,731 169,266 1,180,697
Net income................................... -- -- 1,006,324 1,006,324
Distributions to shareholders................ -- -- (356,220) (356,220)
-------- -------- ---------- ----------
BALANCE, December 31, 1996..................... 172,700 838,731 819,370 1,830,801
Net income................................... -- -- 977,314 977,314
Distributions to shareholders................ -- -- (622,980) (622,980)
-------- -------- ---------- ----------
BALANCE, December 31, 1997..................... $172,700 $838,731 $1,173,704 $2,185,135
======== ======== ========== ==========
</TABLE>

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

F-117
<PAGE> 194

RAILROAD SERVICE, INC.
AND
MINNESOTA RAILROAD SERVICE, INC.

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------- -------------------------
1995 1996 1997 1997 1998
--------- ---------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................................... $ 356,941 $1,006,324 $ 977,314 $ (332,230) $(749,571)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................ 294,624 295,660 305,730 4,425 67,161
Gain on sale of equipment................................ (73,910) (31,763) (207,160) (160,603) --
Compensation in exchange for paid-in capital............. -- -- -- -- 399,651
Change in assets and liabilities:
Decrease (increase) in:
Accounts receivable.................................... (545,662) (400,191) 738,225 1,383,162 207,301
Due from related parties............................... 65,003 1,442 9,558 (7,001) --
Costs and estimated earnings in excess of billings on
uncompleted contracts................................ (56,348) 23,450 (92,298) 29,126 (69,330)
Material on hand....................................... 158,361 93,611 62,736 22,298 (33,166)
Prepaid expenses....................................... 10,236 65,574 -- -- (2,689)
Increase (decrease) in:
Accounts payable....................................... 179,816 (149,087) 11,234 (287,175) 177,493
Accrued expenses....................................... 71,985 53,068 3,446 (105,717) (117,667)
Billings in excess of costs and estimated earnings on
uncompleted contracts................................ 103,727 (56,648) (5,108) (9,954) (9,262)
--------- ---------- --------- ---------- ---------
Net cash provided by operating activities............ 564,773 901,440 1,803,677 536,331 (130,079)
--------- ---------- --------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment............... 79,875 42,500 122,634 -- --
Capital expenditures....................................... (161,481) (532,158) (320,023) (72,797) (3,430)
Issuance of notes receivable............................... (30,178) -- -- (3,838) (7,672)
Receipts on notes receivable............................... -- -- 66,666 -- --
Cash value of life insurance............................... (30,321) (37,577) (43,930) -- --
--------- ---------- --------- ---------- ---------
Net cash used in investing activities................ (142,105) (527,235) (174,653) (76,635) (11,102)
--------- ---------- --------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt....................... (334,448) (370,360) (414,523) (4,146) (2,750)
Net borrowings under revolving line of credit agreement.... (600,000) -- -- -- --
Long-term borrowings....................................... 405,206 354,130 186,460 43,690 --
Proceeds from issuance of notes payable -- related
parties.................................................. 15,000 39,865 119,433 -- --
Principal payments on notes payable -- related parties..... (35,166) (130,114) (80,000) (80,000) --
Distribution paid.......................................... -- (356,220) (622,980) (75,000) (100,000)
--------- ---------- --------- ---------- ---------
Net cash used in financing activities................ (549,408) (462,699) (811,610) (115,456) (102,750)
--------- ---------- --------- ---------- ---------
Net increase (decrease) in cash and cash
equivalents......................................... (126,740) (88,494) 817,414 344,240 (243,931)
CASH AND CASH EQUIVALENTS, beginning of period.............. 237,030 110,290 21,796 21,796 839,210
--------- ---------- --------- ---------- ---------
CASH AND CASH EQUIVALENTS, end of period.................... $ 110,290 $ 21,796 $ 839,210 $ 366,036 $ 595,279
========= ========== ========= ========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest................................................. $ 173,009 $ 135,940 $ 113,647 $ 10,454 $ 15,597
========= ========== ========= ========== =========
</TABLE>

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:

During 1997 a note receivable in the amount of $200,000 was issued in
exchange for fixed assets, see Note. 9.

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

F-118
<PAGE> 195

RAILROAD SERVICE, INC.
AND
MINNESOTA RAILROAD SERVICE, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS

1. NATURE OF BUSINESS

Railroad Service, Inc. (RSI) and Minnesota Railroad Service, Inc. (MRSI)
(together the "Companies") operate as a construction contractor, constructing,
repairing and maintaining railroad tracks for private and government customers
located throughout the United States with concentrations of work primarily in
the upper midwest. The work is performed under various forms of contracts,
including fixed-fee and time-and-material contracts. The time period of the
contracts vary, but they are generally less than one year.

The Companies have common ownership and share management personnel and
facilities. The combined statements of financial position, income and cash flows
are presented in these financial statements. All intercompany transactions and
balances have been eliminated.

2. SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

REVENUE AND COST RECOGNITION

The Companies recognize revenues from fixed-fee contracts using the
percentage-of-completion method, measured by the percentage of cost incurred to
date to management's estimated total cost for each contract. That method is used
because management considers total cost to be the best available measure of
progress on the contracts. Changes in job performance, job conditions and
estimated profitability may result in revisions to cost and revenue, which are
recognized in the period in which the revisions are determined.

Revenues from time-and-material contracts are recognized currently as the
work is performed.

Contract costs include all direct material, labor, equipment costs and
those indirect costs related to contract performance which are charged to
expense as incurred. Provisions for estimated losses on uncompleted contracts
are made in the period in which such losses are determined.

CASH AND CASH EQUIVALENTS

The Companies consider cash and cash equivalents to include cash on hand
and temporary cash investments purchased with an original maturity of three
months or less.

FINANCIAL INSTRUMENTS AND CREDIT RISK

The Companies operate primarily in the upper midwestern region of the
United States. The Companies' accounts receivable are from the same geographic
region. The terms of the sales give rise to unsecured accounts receivable, as is
common industry practice. The Companies periodically assess collection of its
receivables and provide allowance for doubtful accounts as appropriate. No such
allowances were deemed necessary as of December 31, 1996 and 1997.

F-119
<PAGE> 196
RAILROAD SERVICE, INC.
AND
MINNESOTA RAILROAD SERVICE, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

CONCENTRATIONS OF CUSTOMERS

Approximately 55% of accounts receivable at December 31, 1997 were with
four customers. In 1995 approximately 27% of revenues were earned from two
customers. In 1997 three customers accounted for approximately 40% of revenues.

MATERIAL ON HAND

Material on hand principally consists of stored materials and parts to be
used for contracts and have been stated at the lower of cost or market. Cost is
determined by the first-in, first-out (FIFO) method.

PROPERTY, PLANT AND EQUIPMENT

The Companies record property, plant and equipment at cost. Depreciation
and amortization is computed using the straight-line method over the estimated
useful life of the asset as follows:

<TABLE>
<S> <C>
Tools and equipment......................................... 4 - 7 years
Vehicles and trailers....................................... 4 - 7 years
Office equipment............................................ 4 - 10 years
Leasehold improvements...................................... 7 - 18 years
</TABLE>

As assets are retired or otherwise disposed of, the cost and accumulated
depreciation and amortization are eliminated from the accounts, and any gain or
loss is reflected in net income.

INCOME TAXES

The Companies operate as sub-chapter S corporations for Federal and certain
state income tax reporting purposes. Accordingly, the income taxes for the
earnings of the Companies are the responsibility of the owners. Therefore, these
financial statements do not reflect any Federal income taxes for the Companies.

COMMON STOCK

Common stock of the Companies consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Railroad Service, Inc.
Authorized shares, no par value........................... 2,500 2,500
-------- --------
Issued and outstanding.................................... 1,577 1,577
-------- --------
Stated at................................................. $157,700 $157,700
-------- --------
Minnesota Railroad Service, Inc.
Authorized shares, no par value........................... 2,500 2,500
-------- --------
Issued and outstanding.................................... 150 150
-------- --------
Stated at................................................. 15,000 15,000
-------- --------
Total common stock.......................................... $172,700 $172,700
======== ========
</TABLE>

F-120
<PAGE> 197
RAILROAD SERVICE, INC.
AND
MINNESOTA RAILROAD SERVICE, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

INTERIM FINANCIAL STATEMENTS

3. ACCOUNTS RECEIVABLE

Accounts receivable consist of the following at December 31, 1996 and 1997:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1997
---------- --------
<S> <C> <C>
Contract receivables........................................ $1,622,557 $887,194
Contract retainages......................................... 34,462 31,600
---------- --------
$1,657,019 $918,794
========== ========
</TABLE>

Contract retainages have been billed but are not due pursuant to contract
provisions until contract completion. Such contract retainage is expected to be
collected within the following year.

4. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

Information with respect to contracts in process at December 31, 1996 and
1997 are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Costs incurred on uncompleted contracts..................... $2,053,687 $1,150,665
Estimated earnings.......................................... 514,242 400,247
---------- ----------
2,567,929 1,550,912
Less billings to date....................................... 2,589,928 1,475,505
---------- ----------
$ (21,999) $ 75,407
========== ==========
</TABLE>

Contracts in process are included in the accompanying combined balance
sheets under the following captions:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... $ 62,842 $155,140
Billings in excess of costs and estimated earnings on
uncompleted contracts..................................... 84,841 79,733
-------- --------
$(21,999) $ 75,407
======== ========
</TABLE>

The asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The liability, "Billings in excess of costs and estimated earnings on
uncompleted contracts", represents billings in excess of revenues recognized.

F-121
<PAGE> 198
RAILROAD SERVICE, INC.
AND
MINNESOTA RAILROAD SERVICE, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

5. OPERATING LEASES

The Companies lease office space and equipment under agreements expiring at
various dates through the year 1999. Minimum rental commitments under these
noncancelable lease agreements in effect at December 31, 1997, are:

<TABLE>
<S> <C>
1998........................................................ $51,630
1999........................................................ 20,750
2000........................................................ --
2001........................................................ --
2002........................................................ --
Thereafter.................................................. --
-------
$72,380
=======
</TABLE>

Total rental expense for 1995, 1996 and 1997 for all operating leases
amounted to $62,000, $67,000 and $60,000, respectively.

6. LINE OF CREDIT

RSI has a $300,000 line of credit, with an additional seasonal limit of
$100,000 from a bank. Interest is payable monthly at 2.5% over the bank's
reference rate of interest for the years ended December 31, 1995 and 1996 and at
1% over the bank's reference rate of interest for the year ended December 31,
1997. The line is secured by accounts receivable, material on hand, equipment
and assignment of certain life insurance policies. The line is also personally
guaranteed by certain shareholders of the Companies. At December 31, 1997, there
were no borrowings against the line.

7. LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Note payable to insurance company (RSI), interest at 8%,
with no monthly principal installments or maturity date,
secured by the life insurance policy...................... $ 379,758 $ 410,140
Note payable to bank (RSI), interest at 9.5%, payable in six
monthly installments of $42,222 each year (May-October),
maturing December 1999, secured by all of RSI's assets.... -- 399,642
Note payable to shareholder (RSI), interest at 9.5%, with no
monthly installments, maturing April 2000, unsecured...... -- 246,799
Note payable to bank (RSI), interest at 9.5%, payable in six
monthly installments of $33,333 each year (May-October),
paid in full in 1997, secured by machinery and
equipment................................................. 154,516 --
Note payable to bank (RSI), interest at 11%, payable in
monthly installments of $12,500, paid in full in 1997,
secured by machinery and equipment........................ 225,000 --
</TABLE>

F-122
<PAGE> 199
RAILROAD SERVICE, INC.
AND
MINNESOTA RAILROAD SERVICE, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Note payable to bank (RSI), interest at 8.7%, payable in
monthly installments of $8,722, paid in full in 1997,
secured by all company assets............................. $ 261,365 $ --
Note payable to bank (RSI), interest at 9.5%, with monthly
installments of $1,637, paid in full in 1997, secured by
all company assets........................................ 38,064 --
Various notes payable to related parties and Companies'
shareholders (RSI and MRSI), interest at 9.5%, with no
monthly installments, paid in full in 1997, unsecured..... 207,365 --
Various notes payable to banks and finance companies (RSI
and MRSI), interest rates from 2.9% to 11.75%, due in even
monthly principal and interest payments, secured by
vehicles and equipment.................................... 41,681 62,538
---------- ----------
Total debt.................................................. 1,307,749 1,119,119
Less current maturities..................................... 358,621 278,246
---------- ----------
Long-term portion........................................... $ 949,128 $ 840,873
========== ==========
</TABLE>

Aggregate principal payments, as of December 31, 1997, on long-term debt
are scheduled as follows:

<TABLE>
<S> <C>
1998........................................................ $ 278,246
1999........................................................ 195,863
2000........................................................ 234,870
2001........................................................ --
2002........................................................ --
Thereafter.................................................. 410,140
----------
$1,119,119
==========
</TABLE>

Certain of the long-term debt instruments and the line of credit agreement
contain restrictive covenants which places requirements and restrictions on the
Companies regarding disposition of assets, financial ratios, capital
expenditures, acquisitions and operations. The Companies were not in compliance
with certain covenants at December 31, 1997; however, waivers for the covenants
were obtained from the bank.

8. PROFIT SHARING PLAN

The Companies have 401(k) profit sharing plans covering substantially all
employees not covered under collective bargaining agreements. The Companies may
contribute a discretionary amount as determined each year by the Companies. The
discretionary contribution is subject to a six-year vesting schedule. The
discretionary contribution expense for the Companies was $33,384, $101,683 and
$80,485, for the years ended December 31, 1995, 1996 and 1997, respectively.

9. SALE OF BRANCH

Effective March 1997 RSI sold all assets relating to the Milwaukee branch
operations. RSI received an initial $75,000 payment and a note receivable for
$200,000 with an interest rate of 2% over the base rate paid by RSI to a certain
bank. RSI realized a gain of $160,603 on the sale. For the

F-123
<PAGE> 200
RAILROAD SERVICE, INC.
AND
MINNESOTA RAILROAD SERVICE, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

year ended December 31, 1997, the note had a remaining balance of $133,334 which
is included in other income in the combined 1997 statement of income. This
receivable is secured by the equipment involved in the sale and is personally
guaranteed by the owners of the acquiring company.

In connection with the sale, the Companies and their shareholders have
entered into a covenant not to compete for a period of five years from the date
of the agreement, subject to certain geographical and size limitations. The
Companies may bid new work in the circumscribed area if certain restrictions are
met.

10. RELATED PARTY TRANSACTIONS

Related parties of the Companies include the shareholders of the Companies
and various entities related through common ownership and management. The
Companies and related parties provide products and services to each other.
Transactions with related parties included in the combined financial statements
resulted in the recognition of approximately $14,900, $26,900 and $15,300 of
income and approximately $91,700, $86,400 and $72,400 of expense for the years
ended December 31, 1995, 1996 and 1997, respectively.

Due from related parties consists of charges from the Companies to
affiliated companies for labor, equipment and administrative services.

11. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following estimated fair values of financial instruments is made in
accordance with the requirements of SFAS No. 107, "Disclosures about Fair Value
of Financial Instruments." The estimated fair value amounts have been determined
by the Companies using available market information and appropriate valuation
methodologies.

CASH, ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE

The carrying amounts of these items are a reasonable estimate of their fair
value due to their short-term nature.

LONG-TERM DEBT

The line of credit facility approximates fair value as the interest rate
fluctuates with changes in market conditions. It is estimated that the carrying
amount of the long-term debt approximates market. Management estimated the fair
value of the long-term debt based on the remaining term to maturity and the
current interest rate environment as a market does not exist for the debt or
similar debt of the Companies.

12. SUBSEQUENT EVENTS (UNAUDITED)

Effective January 2, 1998, the majority stockholder gifted 55 shares of
Railroad Service, Inc. stock and 5 shares of Minnesota Railroad Service, Inc.
stock to another shareholder. Accordingly, $399,651 was recorded as a charge to
compensation expense and a contribution of paid-in capital in the three months
ended March 31, 1998.

F-124
<PAGE> 201

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Southern Indiana Wood Preserving Company, Inc.:

We have audited the accompanying balance sheet of SOUTHERN INDIANA WOOD
PRESERVING COMPANY, INC. (the "Company") (an Indiana corporation) as of December
31, 1997, and the related statements of operations, stockholder's equity and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Southern Indiana Wood
Preserving Company, Inc. as of December 31, 1997, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.

Arthur Andersen LLP

Indianapolis, Indiana
April 13, 1998

F-125
<PAGE> 202

SOUTHERN INDIANA WOOD PRESERVING COMPANY, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ -- $ --
Receivables, net of allowance of $78,119.................. 1,510,605 1,885,190
Inventory................................................. 2,171,870 2,332,663
Prepaid expenses and other................................ 16,870 20,605
----------- -----------
Total current assets.............................. 3,699,345 4,238,458
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements..................................... 7,372 7,372
Buildings and improvements................................ 84,697 84,697
Leasehold improvements.................................... 128,328 128,328
Machinery and equipment................................... 1,309,439 1,364,528
Transportation equipment.................................. 258,074 258,074
Office furniture and equipment............................ 34,578 34,578
----------- -----------
1,822,488 1,877,577
Less -- Accumulated depreciation.......................... (1,143,341) (1,175,896)
----------- -----------
Property, plant and equipment, net................ 679,147 701,681
----------- -----------
OTHER ASSETS................................................ 1,802 1,802
----------- -----------
$ 4,380,294 $ 4,941,941
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Book cash overdraft....................................... $ 70,680 $ 89,233
Accounts payable.......................................... 186,685 138,235
Line of credit............................................ 680,000 1,205,000
Accrued expenses.......................................... 134,160 168,023
Taxes payable............................................. 11,570 8,757
----------- -----------
Total current liabilities......................... 1,083,095 1,609,248
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, no par value; authorized shares, 1,000;
issued and outstanding shares, 100..................... 1,000 1,000
Additional paid-in capital................................ 194,100 194,099
Retained earnings......................................... 3,102,099 3,137,594
----------- -----------
Total stockholder's equity........................ 3,297,199 3,332,693
----------- -----------
$ 4,380,294 $ 4,941,941
=========== ===========
</TABLE>

The accompanying notes are an integral part of this balance sheet.

F-126
<PAGE> 203

SOUTHERN INDIANA WOOD PRESERVING COMPANY, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE YEAR FOR THE THREE MONTHS
ENDED ENDED MARCH 31,
DECEMBER 31, -------------------------
1997 1997 1998
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
SALES................................................. $8,900,635 $1,749,594 $2,341,610
COST OF SALES......................................... 7,538,546 1,510,526 1,846,539
---------- ---------- ----------
Gross profit........................................ 1,362,089 239,068 495,071
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.......... 529,106 90,180 196,838
---------- ---------- ----------
INCOME FROM OPERATIONS................................ 832,983 148,888 298,233
OTHER INCOME (EXPENSE):
Interest income..................................... 10,966 2,860 948
Interest expense.................................... (5,132) -- (16,579)
Gain on sale of equipment........................... 5,000 5,000 550
Miscellaneous expense............................... (2,807) 1,732 278
---------- ---------- ----------
8,027 9,592 (14,803)
---------- ---------- ----------
NET INCOME............................................ $ 841,010 $ 158,480 $ 283,430
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of this statement.

F-127
<PAGE> 204

SOUTHERN INDIANA WOOD PRESERVING COMPANY, INC.

STATEMENT OF STOCKHOLDER'S EQUITY

<TABLE>
<CAPTION>
NUMBER OF ADDITIONAL
COMMON COMMON PAID-IN RETAINED
SHARES STOCK CAPITAL EARNINGS TOTAL
--------- ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996......... 100 $1,000 $194,100 $ 3,346,357 $ 3,541,457
Net income....................... -- -- -- 841,010 841,010
Distributions.................... -- -- -- (1,085,268) (1,085,268)
--- ------ -------- ----------- -----------
BALANCE, December 31, 1997......... 100 $1,000 $194,100 $ 3,102,099 $ 3,297,199
=== ====== ======== =========== ===========
</TABLE>

The accompanying notes are an integral part of this statement.

F-128
<PAGE> 205

SOUTHERN INDIANA WOOD PRESERVING COMPANY, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEAR FOR THE THREE MONTHS
ENDED ENDED MARCH 31,
DECEMBER 31, -------------------------
1997 1997 1998
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 841,010 $ 158,480 $ 283,430
Adjustments to reconcile net income to net cash used
by operating activities --
Depreciation and amortization.................... 121,416 22,717 32,554
Gain on sale of equipment........................ (5,000) (5,000) (550)
Change in operating assets --
Receivables.................................... (659,924) (491,683) (374,585)
Inventory...................................... (708,084) 66,564 (160,793)
Prepaid expenses and other..................... 11,577 (2,472) (3,735)
Book cash overdraft............................ 70,680 -- 18,553
Accounts payable............................... 159,321 194,550 (48,450)
Accrued expenses............................... 3,175 (109,040) 33,863
Taxes payable.................................. 8,603 4,525 (2,813)
----------- --------- ---------
Net cash used in operating activities....... (157,226) (161,359) (222,526)
----------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................ (260,417) (15,116) (55,089)
Proceeds from sale of equipment..................... 5,000 5,000 550
----------- --------- ---------
Net cash used in investing activities....... (255,417) (10,116) (54,539)
----------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings............................... 680,000 -- 525,000
Payments of distributions........................... (1,085,268) (579,816) (247,935)
----------- --------- ---------
Net cash provided by (used in) financing
activities................................ (405,268) (579,816) 277,065
----------- --------- ---------
Net decrease in cash and cash equivalents... (817,911) (751,291) --
----------- --------- ---------
CASH AND CASH EQUIVALENTS, beginning of period........ 817,911 817,911 --
----------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period.............. $ -- $ 66,620 $ --
=========== ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest............ $ 5,132 $ -- $ 16,579
=========== ========= =========
</TABLE>

The accompanying notes are an integral part of this statement.

F-129
<PAGE> 206

SOUTHERN INDIANA WOOD PRESERVING COMPANY, INC.

NOTES TO FINANCIAL STATEMENTS

1. NATURE OF BUSINESS

Southern Indiana Wood Preserving Company, Inc. (the "Company") (an Indiana
corporation) operates as a wood preserving company specializing in producing
pressure, creosote treated wood products for private and government customers
located throughout the United States, primarily in the Midwest.

2. SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

REVENUE RECOGNITION

The Company recognizes revenues at the time of shipment of goods.

FINANCIAL INSTRUMENTS AND CREDIT RISK

The Company operates in Indiana. However, the Company's accounts receivable
include other geographic regions of the United States. The terms of the sales
give rise to unsecured accounts receivable, as is common industry practice.
During 1997, no single customer provided for greater than 10% of sales.

INVENTORY

Inventory, consisting principally of trimmed and graded railroad ties, is
stated at the lower of cost or market. Cost is determined by the average cost
method.

PROPERTY, PLANT AND EQUIPMENT

The Company records property, plant and equipment at cost. Depreciation is
computed using straight-line and accelerated methods over the estimated useful
lives of the assets as follows:

<TABLE>
<S> <C>
Buildings.................................................. 25 Years
Machinery and equipment.................................... 7 - 10 Years
Office furniture and equipment............................. 5 - 10 Years
Leasehold improvements..................................... 10 Years
</TABLE>

As assets are retired or otherwise disposed of, the cost and accumulated
depreciation are eliminated from the accounts, and any gain or loss is reflected
in the statement of income.

INCOME TAXES

The Company operates as an S corporation. Accordingly, the income taxes for
the earnings of the Company are the responsibility of the owner; therefore,
these financial statements do not reflect any Federal or state income taxes.

F-130
<PAGE> 207
SOUTHERN INDIANA WOOD PRESERVING COMPANY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

INTERIM FINANCIAL STATEMENTS

3. RECEIVABLES

Receivables consist of the following at December 31, 1997:

<TABLE>
<S> <C>
Trade receivables........................................... $1,545,035
Supplier receivables........................................ 43,259
Other receivables........................................... 430
----------
1,588,724
Less -- Allowance for doubtful accounts..................... 78,119
----------
$1,510,605
==========
</TABLE>

4. INVENTORY

Inventory consists of the following at December 31, 1997:

<TABLE>
<S> <C>
Raw materials............................................... $ 143,140
Work in process............................................. 1,743,072
Finished goods.............................................. 285,658
----------
$2,171,870
==========
</TABLE>

5. OPERATING LEASES

The Company leases production space under an agreement expiring May 1,
1999. Minimum future lease payments under the current lease agreement in effect
at December 31, 1997 are:

Total rental expense for 1997 was $9,119.

6. LINE OF CREDIT

The Company has a revolving line of credit agreement with a bank. The line
of credit has a limit of $2,000,000 and is secured by the Company's trade
receivables and inventories. The maturity date of the line of credit agreement
is June 30, 1998. Interest is at prime (8.5% at December 31, 1997) which is
payable monthly. The outstanding principle at December 31, 1997 is $680,000.

7. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)

The Company has adopted a noncontributory cash employees' stock ownership
plan (ESOP) covering all full-time employees who have met certain service
requirements. It provides for discretionary contributions by the corporation up
to the maximum amount permitted under the

F-131
<PAGE> 208
SOUTHERN INDIANA WOOD PRESERVING COMPANY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Internal Revenue Code. The plan has received IRS approval under Sec. 401(A) and
501(A) of the Internal Revenue Code.

Total contributions made to the plan in 1997 were $157,480.

8. CONTINGENCIES

The Company is currently not engaged in any lawsuits arising in the
ordinary course of business.

The Company is subject to certain Federal, state and local environmental
laws and regulations relating to the use of creosote. Creosote is used in the
Company's manufacturing process to treat the ties so that they can withstand
exposure to outside elements. Creosote, a coal tar treated derivative, has been
recognized by environmental regulating agencies as a hazardous material. The
Company currently believes that it is in compliance with the environmental laws
and regulations surrounding creosote. The Company has not been notified of any
violations of the regulations by regulatory agencies.

9. FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair values of financial instruments is determined in
accordance with the requirements of Statement of Financial Accounting Standards
No. 107, "Disclosures About Fair Value of Financial Instruments." The carrying
value of receivables, accounts payable and the line of credit have been
determined by the Company to approximate their fair value using available market
information and appropriate valuation methodologies.

10. SUBSEQUENT EVENT (UNAUDITED)

F-132
<PAGE> 209

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To U.S. Trackworks, Inc. and
Northern Rail Service and Supply Co.:

We have audited the accompanying combined balance sheets of U.S.
TRACKWORKS, INC. AND NORTHERN RAIL SERVICE AND SUPPLY CO. (Michigan
corporations) as of December 31, 1996 and 1997, and the related combined
statements of operations, changes in stockholders' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
financial statements based on our audits.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of U.S. Trackworks,
Inc. and Northern Rail Service and Supply Co. as of December 31, 1996 and 1997,
and the results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.

Arthur Andersen LLP

Nashville, Tennessee
February 20, 1998

F-133
<PAGE> 210

U.S. TRACKWORKS, INC. AND
NORTHERN RAIL SERVICE AND SUPPLY CO.

COMBINED BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable..................................... $ 163,754 $ 611,430 $ 235,130
Distributions payable to stockholders................ -- -- 100,000
Current maturities of long-term debt................. 59,967 68,015 30,368
Billings in excess of costs and estimated earnings on
uncompleted contracts............................. -- 21,303 21,303
Accrued expenses..................................... 94,427 113,447 50,193
Line of credit....................................... 490,000 465,000 330,000
Note payable -- related party........................ 100,000 -- --
---------- ---------- ----------
Total current liabilities.................... 908,148 1,279,195 766,994
---------- ---------- ----------
DEFERRED COMPENSATION.................................. 73,156 83,135 88,498
LONG-TERM DEBT, net of current maturities.............. 24,416 13,123 10,404
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock......................................... 431,550 431,550 431,550
Additional paid-in capital........................... 45,291 45,291 45,291
Retained earnings.................................... 150,833 398,944 262,343
---------- ---------- ----------
Total stockholders' equity................... 627,674 875,785 739,184
---------- ---------- ----------
Total liabilities and stockholders' equity... $1,633,394 $2,251,238 $1,605,080
========== ========== ==========
</TABLE>

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

F-134
<PAGE> 211

U.S. TRACKWORKS, INC. AND
NORTHERN RAIL SERVICE AND SUPPLY CO.

COMBINED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- -------------------------
1996 1997 1997 1998
---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES.................................... $4,819,123 $4,814,005 $ 278,870 $ 650,540
COST OF REVENUES............................ 4,466,547 3,740,346 269,235 521,593
---------- ---------- --------- ---------
GROSS PROFIT................................ 352,576 1,073,659 9,635 128,947
GENERAL AND ADMINISTRATIVE EXPENSES......... 442,754 736,138 160,758 155,442
---------- ---------- --------- ---------
INCOME (LOSS) FROM OPERATIONS............... (90,178) 337,521 (151,123) (26,495)
---------- ---------- --------- ---------
OTHER INCOME (EXPENSE):
Interest income........................... 509 179 23 61
Interest expense.......................... (38,555) (40,841) (8,087) (10,167)
---------- ---------- --------- ---------
Total other expense............... (38,046) (40,662) (8,064) (10,106)
---------- ---------- --------- ---------
NET INCOME (LOSS)........................... $ (128,224) $ 296,859 $(159,187) $ (36,601)
========== ========== ========= =========
</TABLE>

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

F-135
<PAGE> 212

U.S. TRACKWORKS, INC. AND
NORTHERN RAIL SERVICE AND SUPPLY CO.

COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
NUMBER OF PAR VALUE OF ADDITIONAL
COMMON COMMON PAID-IN RETAINED
SHARES STOCK CAPITAL EARNINGS TOTAL
--------- ------------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995......... 43,155 $431,550 $45,291 $ 503,785 $ 980,626
Distributions to stockholders.... -- -- -- (224,728) (224,728)
Net loss......................... -- -- -- (128,224) (128,224)
------ -------- ------- --------- ---------
BALANCE, December 31, 1996......... 43,155 431,550 45,291 150,833 627,674
Distributions to stockholders.... -- -- -- (48,748) (48,748)
Net income....................... -- -- -- 296,859 296,859
------ -------- ------- --------- ---------
BALANCE, December 31, 1997......... 43,155 $431,550 $45,291 $ 398,944 $ 875,785
====== ======== ======= ========= =========
</TABLE>

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

F-136
<PAGE> 213

U.S. TRACKWORKS, INC. AND
NORTHERN RAIL SERVICE AND SUPPLY CO.

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
--------------------- -------------------------
1996 1997 1997 1998
--------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................. $(128,224) $ 296,859 $(159,187) $ (36,601)
Adjustments to reconcile net (loss) income to
net cash (used in) provided by operating
activities:
Depreciation................................ 136,968 133,904 24,155 35,898
Amortization................................ 2,124 2,000 500 500
Gain from sales of property and equipment... (615) (2,051) -- --
Changes in operating assets and liabilities:
Accounts receivable...................... (129,595) (171,073) 535,377 270,282
Costs and estimated earnings in excess of
billings on uncompleted contracts...... (20,577) (238,811) 20,577 234,533
Inventory................................ (57,410) (42,082) (1,206) (1,199)
Prepaid expenses......................... (40,494) 3,395 25,206 21,870
Accounts payable......................... (49,843) 447,676 (60,428) (376,300)
Billings in excess of costs and estimated
earnings on uncompleted contracts...... -- 21,303 -- --
Accrued expenses......................... (116,927) 19,020 (73,601) (63,254)
--------- --------- --------- ---------
Net cash provided by (used in)
operating activities................. (404,593) 470,140 311,393 85,729
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property and
equipment................................... 7,100 25,600 -- --
Purchases of property and equipment........... (64,995) (215,511) -- (11,541)
--------- --------- --------- ---------
Net cash used in investing
activities........................... (57,895) (189,911) -- (11,541)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt.......... (33,917) (136,464) (29,996) (40,366)
Proceeds from long-term debt.................. 26,634 133,219 -- --
Line of credit borrowings (repayments), net... 440,000 (25,000) (285,000) (135,000)
Note payable -- related party borrowings
(repayments), net........................... 100,000 (100,000) -- --
Distributions to stockholders................. (224,728) (48,748) -- --
--------- --------- --------- ---------
Net cash provided by (used in)
financing activities................. 307,989 (176,993) (314,996) (175,366)
--------- --------- --------- ---------
Net (decrease) increase in cash and
cash equivalents..................... (154,499) 103,236 (3,603) (101,178)
CASH AND CASH EQUIVALENTS, beginning of
period........................................ 175,785 21,286 21,286 124,522
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period........ $ 21,286 $ 124,522 $ 17,683 $ 23,344
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest.................................... $ 33,283 $ 20,878 $ 14,110 $ 12,108
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING INFORMATION:
Distributions payable to stockholders......... $ -- $ -- -- $ 100,000
========= ========= ========= =========
</TABLE>

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

F-137
<PAGE> 214

U.S. TRACKWORKS, INC. AND
NORTHERN RAIL SERVICE AND SUPPLY CO.

NOTES TO COMBINED FINANCIAL STATEMENTS

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

U.S. Trackworks, Inc. (a Michigan corporation) operates as a construction
contractor, constructing, repairing and maintaining railroad tracks for private
and government customers located primarily in the Midwest United States. The
work is performed under various forms of contracts, including fixed-fee and
time-and-material contracts. Northern Rail Service and Supply Co. (a Michigan
corporation) operates in Michigan and provides maintenance services on railroad
tracks primarily under time-and-material contracts.

BASIS OF PRESENTATION

These combined financial statements include the accounts and results of
operations of both U.S. Trackworks, Inc. and Northern Rail Service and Supply
Co., which are commonly owned. U.S. Trackworks, Inc. and Northern Rail Service
and Supply Co. are collectively referred to as the "Company." All significant
intercompany transactions and balances have been eliminated in combination.

CASH AND CASH EQUIVALENTS

For purposes of the combined balance sheets and the combined statements of
cash flows, the Company considers cash and cash equivalents to include cash on
hand and highly liquid debt instruments with an original maturity of three
months or less.

INVENTORY

Inventory, consisting principally of stored materials and parts to be used
for contracts, is stated at the lower of cost or market. Cost is determined by
the first-in, first-out (FIFO) method.

PROPERTY AND EQUIPMENT

The Company records property and equipment at cost. Depreciation is
computed using the straight-line method over the estimated useful life of the
asset. Newly purchased equipment is depreciated over eight years and used
equipment is depreciated over five years. Repairs to existing equipment that
lengthen the asset's useful life are depreciated over three years.

When assets are retired or otherwise disposed of, the cost and accumulated
depreciation are removed from the accounts and any gain or loss is reflected in
the combined statements of operations.

CONCENTRATION OF CREDIT RISKS

The Company's credit risks primarily relate to cash and accounts
receivable. Cash is primarily held in bank accounts. Accounts receivable
represent amounts due from the Company's customers. The Company performs
continual credit evaluations of its customers and, from time to time, an
individual customer's accounts receivable balance may represent a significant
portion of the Company's total accounts receivable balance. At December 31,
1997, one customer accounted for approximately 36% of the accounts receivable
balance.

F-138
<PAGE> 215
U.S. TRACKWORKS, INC. AND
NORTHERN RAIL SERVICE AND SUPPLY CO.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

REVENUE AND COST RECOGNITION

The Company recognizes revenues from fixed-fee contracts using the
percentage-of-completion method, measured by the percentage of cost incurred to
date to management's estimated total cost for each contract. That method is used
because management considers total cost to be the best available measure of
progress on the contracts. Changes in job performance, job conditions and
estimated profitability may result in revisions to cost and income, which are
recognized in the period in which the revisions are determined.

Revenues from time-and-material contracts are recognized currently as the
work is performed.

Contract costs include all direct material, labor and equipment costs
related to contract performance. General and administrative costs are charged to
expense as incurred. Provisions for estimated losses on uncompleted contracts
are made in the period in which such losses are determined.

INCOME TAXES

The Company operates as an S Corporation. Accordingly, the income taxes
related to the earnings of the Company are the responsibility of the owners;
therefore, these combined financial statements do not reflect any federal or
state income taxes for the Company.

SINGLE BUSINESS TAX

The Company is subject to a single business tax in its incorporated state
of Michigan. The tax is calculated on the apportioned activity of the Company in
Michigan and is included in general and administrative expenses in the
accompanying combined statements of income.

USE OF ESTIMATES

Management uses estimates and assumptions in preparing financial
statements. Those estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities, and
the reported revenues and expenses. Actual results could vary from the estimates
that were assumed in preparing the financial statements.

INTERIM FINANCIAL STATEMENTS

F-139
<PAGE> 216
U.S. TRACKWORKS, INC. AND
NORTHERN RAIL SERVICE AND SUPPLY CO.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

2. ACCOUNTS RECEIVABLE

Accounts receivable consist of the following at December 31, 1996 and 1997:

<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Contract receivables........................................ $652,513 $966,668
Retainage................................................... 132,689 25,609
Other....................................................... 36,002 --
-------- --------
$821,204 $992,277
======== ========
</TABLE>

Retained accounts receivable represents amounts retained by customers from
contract billings and are payable to the Company upon satisfactory completion of
contract terms. At December 31, 1997, all retainage was expected to be collected
within one year.

3. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

Information with respect to contracts in process at December 31, 1996 and
1997:

<TABLE>
<CAPTION>
1996 1997
-------- ----------
<S> <C> <C>
Costs incurred on uncompleted contracts..................... $ 82,308 $ 730,843
Estimated earnings.......................................... -- 352,761
-------- ----------
82,308 1,083,604
Less billings to date....................................... (61,731) (845,519)
-------- ----------
$ 20,577 $ 238,085
======== ==========
</TABLE>

Contracts in process are included in the accompanying combined balance
sheets under the following captions:

<TABLE>
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... $20,577 $259,388
Billings in excess of costs and estimated earnings on
uncompleted contracts..................................... -- (21,303)
------- --------
$20,577 $238,085
======= ========
</TABLE>

4. LINE OF CREDIT

The Company has a revolving line of credit agreement collateralized by the
assets of the Company with a credit limit of $550,000. The line of credit bears
interest at the prime rate plus 1/2% (9% at December 31, 1997) which is payable
monthly. The Company is subject to ongoing compliance with financial and other
covenants under the line of credit, all of which the Company is in compliance or
has obtained appropriate waivers at December 31, 1997. During 1996 and 1997, the
weighted average amount outstanding on the line of credit was approximately
$270,000 and $360,000, respectively, and the maximum amount outstanding was
approximately $570,000 and $590,000, respectively. At December 31, 1996 and
1997, the balance outstanding under the line of credit is $490,000 and $465,000,
respectively, and is due on demand.

F-140
<PAGE> 217
U.S. TRACKWORKS, INC. AND
NORTHERN RAIL SERVICE AND SUPPLY CO.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

5. LONG-TERM DEBT

Long-term debt consists of the following at December 31, 1996 and 1997:

<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Long-term note, interest based on prime rate plus 3/4%
(9.25% at December 31, 1997), payable in monthly
installments of $2,778 plus interest through 1998, secured
by equipment.............................................. $ 57,749 $ 24,416
Long-term note, interest at a fixed rate of 8.95%, payable
in monthly principal and interest payments of $692 through
2000, secured by a vehicle................................ -- 19,096
Long-term note, interest at a fixed rate of 9.4%, payable in
monthly principal and interest payments of $3,252 through
1998, secured by equipment................................ -- 15,886
Unsecured long-term note, interest at a fixed rate of 7.3%,
payable in monthly principal and interest payments of
$7,247 through 1998....................................... 26,634 21,740
-------- --------
84,383 81,138
Less current maturities..................................... (59,967) (68,015)
-------- --------
$ 24,416 $ 13,123
======== ========
</TABLE>

Aggregate principal payments as of December 31, 1997 on long-term debt are
scheduled as follows:

6. BENEFIT PLANS

The Company participates in a defined contribution pension plan for certain
union employees. The plan provides benefits to all employees covered under the
union's collective bargaining agreement. The benefits are based upon the number
of hours worked. The Company's practice is to fund amounts that are tax
deductible and that are required by statute and applicable regulations. The
Company contributed $31,118 and $33,167 related to the 1996 and 1997 plan years,
respectively.

The Company participates in a discretionary contribution pension plan for
certain union employees. The plan provides for annual contributions at the
discretion of management during years when the Company generates a profit. The
Company contributed approximately $12,000 for both the 1996 and 1997 plan years.

The Company maintains a non-contributory profit sharing plan for all
non-union employees. The plan provides for annual contributions of up to 15% of
wages earned during years when the Company generates a profit. No plan
contributions were made in 1996. The Company contributed $20,952 for the 1997
plan year.

The Company maintains a 401(k) plan for certain employees of the Company
that is funded by these employees through payroll deductions. The Company does
not make any contributions to this plan.
F-141
<PAGE> 218
U.S. TRACKWORKS, INC. AND
NORTHERN RAIL SERVICE AND SUPPLY CO.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

The Company also maintains life insurance policies on certain management
personnel. These policies will transfer to the insured personnel upon retirement
and are included in deferred compensation in the accompanying combined balance
sheets.

7. COMMON STOCK

Common stock consists of the following at December 31, 1996 and 1997:

<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
U.S. Trackworks, Inc. -- $10 par value; 45,000 shares
authorized, 26,314 shares issued and outstanding.......... $263,140 $263,140
Northern Rail Service and Supply Co. -- $10 par value;
16,841 shares authorized, issued and outstanding.......... 168,410 168,410
-------- --------
$431,550 $431,550
======== ========
</TABLE>

8. RELATED PARTY TRANSACTIONS

At December 31, 1996, the Company had a non-interest bearing note payable
to a related party under common ownership with the Company. All amounts
outstanding were repaid in 1997.

Two management companies that are owned by a member of management provide
certain management services to the Company, as well as lease office space and
equipment to the Company. The Company incurred management fees to these
management companies of approximately $225,000 and $450,000 in 1996 and 1997,
respectively.

The Company maintains a relationship with a subcontracting company that is
owned by a stockholder of the Company. Fees paid to the subcontractor in 1997
were approximately $80,000. No fees were paid in 1996.

9. COMMITMENTS AND CONTINGENCIES

LEASES

The Company leases certain equipment under a noncancellable operating lease
that expires in 1998. The remaining commitment under this operating lease was
$14,550 at December 31, 1997.

Rent expense for the years ended December 31, 1996 and 1997 amounted to
$130,777 and $70,134, respectively.

LITIGATION

10. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following estimated fair values of financial instruments is made in
accordance with the requirements of Statement of Financial Accounting Standards
No. 107, "Disclosures About Fair

F-142
<PAGE> 219
U.S. TRACKWORKS, INC. AND
NORTHERN RAIL SERVICE AND SUPPLY CO.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Value of Financial Instruments." The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies.

Cash, accounts receivable and accounts payable

The carrying amounts of these items are a reasonable estimate of their fair
value due to their short-term nature.

Line of credit and long-term debt

The carrying amount of the line of credit facility approximates fair value
as the interest rate fluctuates with changes in market conditions. The carrying
amount of long-term debt, based on borrowing rates currently available to the
Company, is a reasonable estimation of fair value.

11. SUBSEQUENT EVENT (UNAUDITED)

F-143
<PAGE> 220

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Wm. A. Smith Construction Co., Inc., and
Wm. A. Smith Rerailing Services, Inc.:

We have audited the accompanying combined balance sheet of Wm. A. Smith
Construction Co., Inc., and Wm. A. Smith Rerailing Services, Inc., as of
December 31, 1997, and the related combined statements of operations,
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the management of Wm. A. Smith Construction
Co., Inc., and Wm. A. Smith Rerailing Services, Inc. Our responsibility is to
express an opinion on these financial statements based on our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Wm. A. Smith Construction
Co., Inc., and Wm. A. Smith Rerailing Services, Inc., as of December 31, 1997,
and the results of their operations and their cash flows for the year then ended
in conformity with generally accepted accounting principles.

Arthur Andersen LLP

Houston, Texas
February 26, 1998

F-144
<PAGE> 221

======================================================

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

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
The Company........................... 1
The Offering.......................... 3
The Combination....................... 4
Risk Factors.......................... 7
Formation of the Company.............. 15
Use of Proceeds....................... 16
Dividend Policy....................... 16
Capitalization........................ 17
Dilution.............................. 18
Summary Pro Forma As Adjusted
Financial Data...................... 19
Selected Financial Data of the
Founding Companies.................. 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 24
Business.............................. 39
Management............................ 53
Certain Relationships and Related
Party Transactions.................. 59
Principal and Selling Stockholders.... 62
Description of Capital Stock.......... 64
Shares Eligible for Future Sale....... 65
Underwriting.......................... 67
Certain U.S. Federal Tax
Considerations for Non-U.S. Holders
of Common Stock..................... 69
Notice to Canadian Residents.......... 71
Legal Matters......................... 73
Experts............................... 73
Additional Information................ 73
Index to Financial Statements......... F-1
</TABLE>

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

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

Shares
RAILWORKS CORPORATION
Common Stock
[LOGO]
-------------------

PROSPECTUS
-------------------
BT Alex. Brown

Schroder & Co. Inc.
, 1998

======================================================
<PAGE> 222

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the fees and expenses in connection with the
issuance and distribution of the securities being registered hereunder. Except
for the SEC registration fee and NASD filing fee, all amounts are estimates.

<TABLE>
<S> <C>
SEC registration fee........................................ $ 35,400
NASD filing fee............................................. $ 12,500
Nasdaq National Market listing fee.......................... *
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
Blue Sky fees and expenses (including counsel fees)......... *
Printing and Engraving expenses............................. *
Transfer Agent and Registrar fees and expenses.............. *
Miscellaneous expenses...................................... *
--------
Total............................................. *
========
</TABLE>

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

* To be provided by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL")
permits a corporation, in its certificate of incorporation, to limit or
eliminate, subject to certain statutory limitations, the liability of directors
to the corporation or its stockholders for monetary damages for breaches of
fiduciary duty, except for liability (a) for any breach of the director's duty
of loyalty to the corporation or its stockholders, (b) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (c) under Section 174 of the DGCL, or (d) for any transaction from which
the director derived an improper personal benefit. Article 10 of the
registrant's restated Certificate of Incorporation provides that the personal
liability of directors of the registrant is eliminated to the fullest extent
permitted by Section 102(b)(7) of the DGCL.

Under Section 145 of the DGCL, a corporation has the power to indemnify
directors and officers under certain prescribed circumstances and subject to
certain limitations against certain costs and expenses, including attorneys'
fees actually and reasonably incurred in connection with any action, suit or
proceeding, whether civil, criminal, administrative or investigative, to which
any of them is a party by reason of being a director or officer of the
corporation if it is determined that the director or officer acted in accordance
with the applicable standard of conduct set forth in such statutory provision.
Article 7 of the registrant's Bylaws provides that the registrant will indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding by reason of the
fact that he is or was a director, officer, employee or agent of the registrant,
or is or was serving at the request of the registrant as a director, officer,
employee or agent of another entity, against certain liabilities, costs and
expenses. Article 7 further permits the registrant to maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
registrant, or is or was serving at the request of the registrant as a director,
officer, employee or agent of another entity, against any liability asserted
against such person and incurred by such person in any such capacity or arising
out of his status as such, whether or not the registrant would have the power to
indemnify such person against such liability under the DGCL. The registrant
expects to maintain directors' and officers' liability insurance.

Under the Underwriting Agreement, the Underwriters are obligated, under
certain circumstances, to indemnify directors and officers of the registrant
against certain liabilities, including

II-1
<PAGE> 223

liabilities under the Securities Act of 1933, as amended (the "Securities Act").
Reference is made to the form of Underwriting Agreement filed as Exhibit 1.01
hereto.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

On March 13, 1998, the Company issued ten shares of common stock to John G.
Larkin for $10 per share. This issuance was exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER NUMBER DESCRIPTION
- ------- ------------------
<C> <C> <S>
1.1* -- Form of Underwriting Agreement
3.1 -- Restated Certificate of Incorporation of the Company
3.2 -- Bylaws of the Company
4.1* -- Specimen Common Stock Certificate
5.1* -- Opinion of King and Spalding as to the legality of the
Common Stock being registered
10.1* -- Form of Agreement and Plan of Reorganization between the
Company and the Founding Companies
10.2* -- Form of Employment Agreement between the Company and its
Executive Officers
10.3* -- Form of Employment Agreement between each Founding Company
and Founding Company Officer
10.4* -- 1998 Stock Incentive Plan
10.5* -- 1998 Non-Employee Directors' Stock Option Plan
10.6 -- Indemnity and Cooperation Agreement dated as of April 3,
1997 between Spie Enertrans S.A., Comstock Group, Inc., L.K.
Comstock & Company and LKC Acquisition Corp., together with
Memorandum of Understanding dated August 20, 1997 between
Spie Enertrans S.A., Comstock Group, Inc., L.K. Comstock &
Company and LKC Acquisition Corp.
23.1* -- Consent of King and Spalding (contained in Exhibit 5.1)
23.2 -- Consent of Arthur Andersen LLP
23.3 -- Consent of Dworken, Hillman, LaMorte & Sterczala, P.C.
23.4 -- Consent of Cannon and Company
24.1 -- Powers of Attorney (contained on signature page)
27.1 -- Financial data schedule (for SEC filing purposes only)
99.1 -- Consent of persons named to be directors
</TABLE>

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

* To be filed by amendment

(b) Financial Statement Schedules.

Not Applicable

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing

II-2
<PAGE> 224

provisions, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer, or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered hereunder,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.

The Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-3
<PAGE> 225

SIGNATURES AND POWER OF ATTORNEY

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of
Georgia, on May 22, 1998.

RAILWORKS CORPORATION

By: /s/ JOHN G. LARKIN
------------------------------------
John G. Larkin
Chairman of the Board and
Chief Executive Officer

KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints John G. Larkin, Michael R. Azarela and John
Kennedy, and each of them, his true and lawful attorney-in-fact and agents, with
full power of substitution and resubstitution, from such person and in each
person's name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to the Registration Statement,
and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission and to sign
and file any other registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933
granting unto said attorneys-in-fact and agents, full power and authority to do
and perform each and every act and thing requisite and necessary to be done as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may lawfully do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on May 22, 1998.

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>

/s/ JOHN G. LARKIN Chairman of the Board, Chief Executive Officer
- ----------------------------------------------------- and Director (Principal Executive Officer)
John G. Larkin

/s/ MICHAEL R. AZARELA Executive Vice President, Chief Financial
- ----------------------------------------------------- Officer and Director (Principal Financial
Michael R. Azarela Officer)

/s/ JOHN KENNEDY Vice President, Chief Operating Officer and
- ----------------------------------------------------- Director
John Kennedy

/s/ HAROLD C. KROPP, JR. Vice President and Chief Accounting Officer
- ----------------------------------------------------- (Principal Accounting Officer)
Harold C. Kropp, Jr.
</TABLE>

II-4

<PAGE> 1
EXHIBIT 3.1

AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
RAILWORKS CORPORATION

RailWorks Corporation, a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify:

I. The name of the Corporation is RailWorks Corporation and the
Corporation was originally incorporated under the name Railworks
Corporation, and the original Certificate of Incorporation of the
Corporation was filed with the Secretary of State of the State of
Delaware on March 20, 1998.

II. Pursuant to Section 242 and 245 of the Delaware General
Corporation Law ("DGCL"), this Restated Certificate of Incorporation
restates and integrates and further amends the provisions of the March
20, 1998 Certificate of Incorporation of the Corporation, and has been
consented to in writing by the Board of Directors and the sole
stockholder of the Corporation.

III. The text of the March 20, 1998 Certificate of Incorporation as
heretofore amended or supplemented is hereby restated and further
amended to read in its entirety as follows:

The name of the Corporation is RailWorks Corporation.

The address of its registered agent in the State of Delaware is 1209
Orange Street Wilmington, Delaware 19801 in the county of New Castle. The name
of its registered agent at such address is The Corporation Trust Company.
3.

The purpose for which the Corporation is organized is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of Delaware, and the Corporation shall have all powers necessary
to engage in such acts or activities, including, but not limited to, the powers
enumerated in the General Corporation Law of Delaware or any amendment thereto.

<PAGE> 2

The total number of shares of all classes of Capital Stock which the
Corporation shall have the authority to issue is 110,000,000 shares, consisting
of (i) 100,000,000 shares of common stock, $.01 par value per share (the "Common
Stock"), and (ii) 10,000,000 shares of preferred stock, $.01 par value per share
(the "Preferred Stock").

The holders of the Common Stock shall have the exclusive voting power
for all purposes. On all matters to be voted or acted upon by the stockholders,
each holder of the Common Stock will be entitled to one vote for each share of
such stock held of record in the holder's name on the books of the corporation
at the time determined according to law.

Subject to the terms contained in any designation of a series of
Preferred Stock, the Board of Directors is expressly authorized, at any time and
from time to time, to fix, by resolution or resolutions, the following
provisions for shares of any class or classes of Preferred Stock of the
Corporation or any series of any class of Preferred Stock:

(a) the designation of such class or series, the number
of shares to constitute such class or series which
may be increased or decreased (but not below the
number of shares of that class or series then
outstanding) by resolution of the Board of Directors,
and the stated value thereof if different form the
par value thereof;

(b) whether the shares of such class or series shall have
voting rights, in addition to any voting rights
provided by law, and, if so, the terms of such voting
rights;

(c) the dividends, if any, payable on such class or
series, whether any such dividends shall be
cumulative, and, if so, from what dates, the
conditions and dates upon which such dividends shall
be payable, the preference or relation which such
dividends shall bear to the dividends payable on any
shares of stock of any other class or any other
series of the same class;

(d) whether the shares of such class or series shall be
subject to redemption by the Corporation, and, if so,
the times, prices and other conditions of such
redemption;

(e) the amount or amounts payable upon shares of such
series upon, and the rights of the holders of such
class or series in, the voluntary or involuntary

-2-

<PAGE> 3

liquidation, dissolution or winding up, or upon any
distribution of the assets, of the Corporation;

(f) whether the shares of such class or series shall be
subject to the operation of a retirement or sinking
fund and, if so, the extent to and manner in which
any such retirement or sinking fund shall be applied
to the purchase or redemption of the shares of such
class or series for retirement or other corporate
purposes and the terms and provisions relative to the
operation thereof;

(g) whether the shares of such class or series shall be
convertible into, or exchangeable for, shares of
stock of any other class or any other series of the
same class or any other securities and, if so, the
price or prices or the rate or rates of conversion or
exchange and the method, if any, of adjusting the
same, and any other terms and conditions of
conversion or exchange;

(h) the limitations and restrictions, if any, to be
effective while any shares of such class or series
are outstanding upon the payment of dividends or the
making of other distributions on, and upon the
purchase, redemption or other acquisition by the
Corporation of, the Common Stock or shares of stock
of any other class or any other series of the same
class;

(i) the conditions or restrictions, if any, upon the
creation of indebtedness of the Corporation or upon
the issue of any additional stock, including
additional shares of such class or series or of any
other series of the same class or of any other class;

(j) the ranking (be in pari passu, junior or senior) of
each class or series vis-a-vis any other class or
series of any class of Preferred Stock as to the
payment of dividends, the distribution of assets and
all other matters; and

(k) any other powers, preferences and relative,
participating, optional and other special rights, and
any qualifications, limitations and restrictions
thereof, insofar as they are not inconsistent with
the provisions of this Restated Certificate of
Incorporation, to the full extent permitted in
accordance with the laws of the State of Delaware.

The powers, preferences and relative, participating, optional and other
special rights of each class or series of Preferred Stock, and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding.

-3-

<PAGE> 4

The number of directors of the corporation shall be such as from time
to time may be fixed by, or in the manner provided in, the Bylaws, but in no
case shall the number be less than the minimum number authorized by the laws of
Delaware. Directors need not be stockholders. The elections of directors need
not be by ballot.

The business and affairs of the Corporation shall be managed by or
under the direction of a Board of Directors, the exact number of which shall be
determined from time to time by resolution adopted by the affirmative vote of a
majority of the directors then in office. The Board of Directors shall be
divided into three classes, designated Class I, Class II and Class III. Each
class shall consist, as nearly as may be possible, of one-third of the total
number of directors constituting the entire Board of Directors. Each director
shall serve for a term ending on the date of the third annual meeting following
the annual meeting at which such director was elected; provided, however, that
the directors first elected to Class I shall serve for a term ending on the date
of the annual meeting next following the end of the calendar year 1998, the
director first elected to Class II shall serve for a term ending on the date of
the second annual meeting next following calendar year 1998, and the director
first elected to Class III shall serve for a year ending on the date of the
third annual meeting next following the end of the calendar year 1998. Any
director who may be elected by holders of any series of Preferred Stock then
outstanding shall serve for a term ending on the date of the next annual meeting
following the annual meeting at which such director was elected.

10.

In the event of any increase or decrease in the authorized number of
directors:

(a) Each director then serving shall nevertheless
continue as a director of the class of which he is a
member until the expiration of his term, or his prior
death, retirement, resignation or removal; and

(b) Newly-created or eliminated directorships resulting
form any increase or decrease shall be apportioned by
the Board of Directors among the three classes so as
to keep the number of directors in each class as
nearly equal as possible.

11.

Subject to the rights of the holders of any series of Preferred Stock
then outstanding to fill director vacancies, vacancies on the Board of Directors
(including vacancies resulting from retirement, resignation, removal from office
or death) shall be filled exclusively by the Board of Directors. Any director so
elected shall hold office until the next annual meeting of shareholders.

-4-

<PAGE> 5

12.

A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the Director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law as the same exists or hereafter may be amended or (iv) for any transaction
from which the director derived an improper personal benefit. If the Delaware
General Corporation Law hereafter is amended to authorize the further
elimination or limitation of the liability of directors, then, in addition to
the limitation on personal liability provided herein, the liability of a
director of the corporation shall be limited to the fullest extent permitted by
the amended Delaware General Corporation Law. Any repeal or modification of this
paragraph by the stockholders of the corporation shall be prospective only, and
shall not adversely affect any limitation on the personal liability of a
director of the corporation existing at the time of such repeal or modification.

13.

The Board of Directors shall have the power to adopt, amend or repeal
the Bylaws, subject only to such limitations, if any, as the Bylaws of the
corporation may from time to time impose.

14.

The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation or any amendment
thereto in the manner now or hereafter prescribed by statute, and all rights
conferred on the stockholders hereunder are granted subject to this reservation.

-5-

<PAGE> 6

IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Incorporation as of the 20th day of May, 1998.

/s/ John G. Larkin
-----------------------------------------
John G. Larkin
Chairman of the Board and Chief Executive
Officer

<PAGE> 1
EXHIBIT 3.2

As adopted by the
Board of Directors
on March 20, 1998

BYLAWS
OF
RAILWORKS CORPORATION

ARTICLE 1.

OFFICES AND REGISTERED AGENT

1.1 Registered Offices and Registered Agent. The initial registered
office of the Corporation and the initial registered agent of the Corporation at
said office shall be as set forth in the Certificate of Incorporation of the
Corporation. The registered office of the Corporation and the registered agent
of the Corporation at such office may be changed from time to time by the
Corporation in the manner specified by law.

1.2 Additional Offices. The Corporation may establish offices at such
other place or places both within and without the State of Delaware as the Board
of Directors may from time to tune determine.

ARTICLE 2.

MEETINGS OF STOCKHOLDERS

2.1 Place and Time of Meetings. Meetings of the Stockholders shall be
held at the registered office of the Corporation, or at such other place either
within or without the State of Delaware as the Board of Directors or the
Stockholders may from time to time select, at such time as may be fixed by the
Board of Directors or the Stockholders.

2.2 Annual Meeting. The annual meeting of the Stockholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held at such place, either within or
without the State of Delaware, on such date and at such time as the Board of
Directors may by resolution provide. The Board of Directors may specify by
resolution prior to any special meeting of Stockholders held within the year
that such meeting shall be in lieu of the annual meeting. In lieu of an annual
meeting, directors may be elected by the written consent of the Stockholders in
accordance with Section 2.11 of these Bylaws.

<PAGE> 2

2.3 Special Meetings. Special meetings of the Stockholders may be
called at any time by the Chairman or Vice Chairman of the Board of Directors,
by the Chief Executive Officer or by a majority of the Board of Directors.

2.4 Notice of Meeting. Written notice stating the place, day, and hour
of the meeting and, in the case of a special meeting, the purpose or purposes
for which the meeting is called, shall be given not less than ten (10) nor more
than sixty (60) days before the date of the meeting, either by hand or by
first-class mail, by or at the direction of the Chief Executive Officer, the
Secretary or the other person or persons calling the meeting, to each
Stockholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail with
postage thereon prepaid, addressed to the Stockholder at his address as it
appears on the records of the Corporation.

2.5 Waiver of Notice. Notice of a meeting need not be given to any
Stockholder who signs a waiver of notice, in person or by proxy, either before
or after the meeting. Attendance of a Stockholder at a meeting, either in person
or by proxy, shall of itself constitute waiver of notice and waiver of any and
all objections to the place of the meeting, the time of the meeting, or the
manner in which it has been called or convened, except when a Stockholder
attends a meeting solely for the purpose of stating, at the beginning of the
meeting, any such objection or objections to the transaction of business. Unless
otherwise specified herein, neither the business transacted nor the purpose
of the meeting need be specified in the waiver.

2.6 List of Stockholders. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten (10) days before
every meeting of Stockholders, a complete list of the Stockholders entitled to
vote at the meeting, arranged in alphabetical order, showing the address of each
Stockholder and the number of shares registered in the name of each Stockholder.
Such list shall be open to the examination of any Stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.

2.7 Quorum. A majority of else shares entitled to vote, represented in
person or by proxy, shall constitute a quorum at any meeting of Stockholders. If
a quorum is present, the affirmative vote of a majority of the shares
represented at the meeting and entitled to vote on the subject matter shall be
the act of the Stockholders, unless the vote of a greater number or voting by
classes or series is required by the Delaware General Corporation Law. When a
quorum is once present to organize a meeting, the Stockholders present may
continue to do business at the meeting or any adjournment thereof
notwithstanding the withdrawal of enough Stockholders to leave less than a
quorum.

-2-

<PAGE> 3

2.8 Adjournment. Any meeting of the Stockholders may be adjourned by
the holders of a majority of the voting shares represented at a meeting, whether
or not a quorum is present. Notice of the adjourned meeting or of the business
to be transacted at such meeting shall not be necessary, provided the time and
place to which the meeting is adjourned are announced at the meeting at which
the adjournment is taken, and provided that, if the adjournment is for more than
thirty (30) days, or if after the adjournment a new record date is fixed for the
meeting, a notice of the adjourned meeting shall be given to each Stockholder of
record entitled to vote at the meeting. At an adjourned meeting at which a
quorum is present or represented, any business may be transacted that could have
been transacted at the meeting originally called.

2.9 Voting Rights. Each Stockholder shall be entitled at each
Stockholders' meeting to one vote for each share of the capital stock having
voting power held by such Stockholder.

2.10 Proxies. A Stockholder entitled to vote may vote in person or by
proxy executed in writing by the Stockholder or by his attorney-in-fact. A proxy
shall not be valid after three years from the date of its execution unless a
longer period is expressly stated in such proxy.

2.11 Action of Stockholders Without Meeting. Any action required to be,
or which may be, taken at a meeting of stockholders, may be taken without a
meeting, without prior notice and without a vote, if written consent, setting
forth the action so taken, shall be signed and dated by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing. Such
consent shall have the same force and effect as an affimative vote of the
stockholders and shall be filed with the minutes of the proceedings of the
stockholders.

2.12 Notice of Business. No business may be transacted at an annual
meeting of stockholders, other than business that is either (a) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the board of directors (or any duly authorized committee thereof), (b) otherwise
properly brought before the annual meeting by or at the direction of the board
of directors (or any duly authorized committee thereof) or (c) otherwise
properly brought before the annual meeting by any stockholder of the Corporation
(i) who is a stockholder of record on the date of the giving of the notice
provided for in this Section 2.12 of this Article 2 and on the record date for
the determination of stockholders entitled to vote at such annual meeting and
(ii) who complies with the notice procedures set forth in the Section 2.12 of
this Article 2. The nomination by a stockholder of any person for election as a
director, other than the persons nominated by the Board of Directors or any duly
authorized committee thereof, shall be considered business other than business
specified in clauses (a) and (b) above and shall be permitted only upon
compliance with the requirements of this Section 2.12 of this Article 2.

-3-

<PAGE> 4

In addition to any other applicable requirements for business to be
properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation.

To be timely, a stockholder's notice to the secretary must be delivered
to or mailed and received at the principal executive offices of the Corporation
not less than sixty (60) days nor more than ninety (90) days prior to the
anniversary date of the immediately preceding annual meeting of stockholders;
provided, however, that in the event that the annual meeting is called for a
date that is not within thirty (30) days before or after such anniversary date,
notice by the stockholder in order to be timely must be so received not later
than the close of business on the tenth (10th) day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure of the date of the annual meeting was made, whichever first occurs.

To be in proper written form, a stockholder's notice to the secretary
must be set forth as to each matter such stockholder proposes to bring before
the annual meeting (i) a brief description of the business described to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and record address of such stockholder,
(iii) the class or series and number of shares of capital stock of the
Corporation which are owned beneficially or of record by such stockholder, (iv)
a description of all arrangements or understandings between such stockholder and
any other person or persons (including their names) in connection with the
proposal of such business by such stockholder and any material interest of such
stockholder in such business, (v) a representation that such stockholder intends
to appear in person or by proxy at the annual meeting to bring such business
before the meeting, and (vi) in the case of the nomination of a person as a
director, a brief description of the background and credentials of such person
including (A) the name, age, business address and residence address of such
person, (B) the principal occupation or employment of such person, (C) the
class and number of shares of the Corporation which are beneficially owned by
such person, and (D) any other information relating to such person that is
required to be disclosed in solicitations of proxies for election of Directors,
or as otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (including without limitation such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected).

No business shall be conducted at the annual meeting of stockholders
except business brought before the annual meeting in accordance with the
procedures set forth in this Section 2.12 of this Article 2, provided, however
that, once business has been properly brought before the annual meeting in
accordance with such procedures, nothing in this Section 2.12 of this Article 2
shall be deemed to preclude discussion by any stockholder of any such business.
If the Chairman of an annual meeting determines that business was not properly
brought before the meeting in accordance with the foregoing procedures, the
chairman shall declare to the meeting that the business was not properly brought
before the meeting and such business shall not be transacted.

-4-

<PAGE> 5
ARTICLE 3.

DIRECTORS

3.1 Number, Qualification and Term of Office. The business and affairs
of the Corporation shall be managed by a Board of Directors which shall consist
of not less than one (1) or more than nine (9) members. The initial number of
Directors shall be as set forth in the Certificate of Incorporation of the
Corporation. The exact number of Directors within the maximum and minimum
provided above may be changed by resolution of the Board of Directors from time
to time. The Directors shall be natural persons of the age of eighteen (18)
years or over, but need not be residents of the State of Delaware or hold shares
of stock in the Corporation. Directors shall hold office until the Annual
Meeting of Stockholders for the year in which their terms expire and until their
successors shall be duly elected and shall qualify, subject, however, to prior
death, resignation, retirement, disqualification or removal from office.

3.2 Vacancies. Any vacancy occurring in the Board of Directors may be
filled by the affirmative vote of a majority of the remaining Directors, though
less than a quorum, or by the sole remaining Director, or if the vacancy is not
so filled, or if no Director remains, by the Stockholders. A Director elected to
fill a vacancy shall serve for the unexpired term of his predecessor in office.

3.3 Compensation. The board of directors may from time to time by
resolution authorize the payment of fees or other compensation to the directors
for services as such to the corporation, including, but not limited to, fees for
attendance at all meetings of the board or of the executive or other committees,
and determine the amount of such fees and compensation. Directors shall in any
event be paid their traveling expenses for attendance at all meetings of the
board or any committees of the board. Nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity and receiving compensation therefor in amounts authorized or otherwise
approved from time to time by the board or the executive committee.

ARTICLE 4.

MEETINGS OF THE BOARD

4.1 Place and Time of Meetings. Regular meetings of the Board of
Directors may be held without notice at such time and place within or without
the State of Delaware as the Board of Directors may from time to time designate.

4.2 Annual Meeting. The Board of Directors shall meet each year
immediately following the annual meeting of the Stockholders at the place that
meeting has been held for the purpose of electing officers and for the
consideration of other business.

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<PAGE> 6

4.3 Special Meetings. Special meetings of the Board of Directors may be
called at any time by the Chairman of the Board or by any two Directors, unless
the Board of Directors consists of one Director, in which case special meetings
may be called by the sole director.

4.4 Notice of Meetings. Notice of the annual meeting of the Board of
Directors need not be given. Written notice of each special meeting setting
forth the time and place of the meeting shall be given to each Director at least
two days before the meeting. This notice may be given either by hand or by
sending a copy of the notice through the United States mail or by telephone,
telecopy or cablegram, charges prepaid, to the address of each Director
appearing on the books of the Corporation. No notice of any meeting of the Board
of Directors or waiver of notice of such meeting need state the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
of Directors.

4.5 Waiver of Notice. A Director may waive, in writing, notice of a
special meeting of the Board either before or after the meeting, and his waiver
shall be deemed the equivalent of giving notice. Attendance of a Director at a
meeting shall constitute a waiver of notice of that meeting unless he attends
for the express purpose of objecting to the transaction of business because the
meeting has not been lawfully called or converted.

4.6 Quorum. At meetings of the Board of Directors, a majority of the
Directors in office shall be necessary to constitute a quorum for the
transaction of business. Except as otherwise required by law, if a quorum is
present, the acts of a majority of the Directors in attendance shall be the acts
of the Board.

4.7 Adjournment. A meeting of the Board of Directors may be adjourned
by a majority of the Directors present, whether or not a quorum exists. Notice
of the time and the place of the adjourned meeting and of the business to be
transacted thereat, other than by announcement at the meeting at which the
adjournment is taken, shall not be necessary. At an adjourned meeting at which a
quorum is present, any business may be transacted that could have been
transacted at the meeting originally called.

4.8 Action by Consent. Any action required or permitted to be taken at
a meeting of the Board of Directors or of any committee thereof may be taken
without a meeting if written consent, setting forth the action so taken, shall
be signed by all the Directors or all members of the committee and filed with
the minutes of the proceedings of the Board of Directors or the committee. Such
consent shall have the same force and effect as a unanimous vote of the Board of
Directors.

4.9 Telephonic Meetings Permitted. Members of the Board of Directors,
or any committee designated by the Board of Directors, may participate in a
meeting thereof by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this bylaw shall
constitute presence in person at such meeting.

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ARTICLE 5.

COMMITTEES

5.1 Executive Committee.

(a) The Board of Directors may, by resolution adopted by a majority
of the entire Board, designate an Executive Committee of one or more Directors.
Each member of the Executive Committee shall hold office until the first meeting
of the Board of Directors after the annual meeting of Shareholders next
following his election and until his successor member of the Executive Committee
is elected, or until his death, resignation or removal, or until he shall cease
to be a Director.

(b) During the intervals between the meetings of the Board of
Directors, unless otherwise provided by prior action of the Board of Directors,
the Executive Committee may exercise all of the powers of the Board of Directors
in the management of the business affairs of the Corporation; provided, however,
that the Executive Committee shall not have the power to amend or repeal any
resolution of the Board of Directors that by its terms shall not be subject to
amendment or repeal by the Executive Committee, and the Executive Committee
shall not have the power to (i) approve or adopt, or recommend to the
Stockholders, any action or matter for which Stockholder approval is expressly
required by the Delaware General Corporation Law or (ii) adopt, amend or repeal
the Bylaws of the Corporation.

(c) The Executive Committee shall meet from time to time on call of
the Chairman or Vice Chairman of the Board or the Chief Executive Officer or a
majority of the members of the Executive committee. Meetings of the Executive
Committee may be held at such place or places, within or without the State of
Delaware, as the Executive Committee shall determine or as may be specified or
fixed in the respective notices or waivers of such meetings The Executive
Committee may fix its own rules of procedure, including provision for notice of
its meetings. It shall keep a record of its proceedings and shall report these
proceedings to the Board of Directors at the meeting thereof held next after
they have been taken, and all such proceedings shall be subject to revision or
alteration by the Board of Directors except to the extent that action shall have
been taken pursuant to or in reliance upon such proceedings prior to any such
revision or alteration.

(d) The Executive Committee shall act by majority vote of its
members.

(e) The Board of Directors, by resolution adopted in accordance
with paragraph (a) of this section, may designate one or more Directors as
alternate members of any such committee, who may act in the place and stead of
any absent member or members at any meeting of such committee.

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5.2 Other Committees. The Board of Directors, by resolution adopted by
a majority of the entire Board, may designate one or more additional committees,
each committee to consist of one or more of the Directors of the Corporation,
which shall have such name or names and shall have and may exercise such powers
of the Board of Directors in the management of the business and affairs of the
Corporation, except the powers denied to the Executive Committee, as may be
determined from time to time by the Board of Directors.

5.3 Removal. The Board of Directors shall have power at any time to
remove any member of any committee, with or without cause, and to fill vacancies
in and to dissolve any such committee.

ARTICLE 6.

OFFICERS

6.1 Officers. The officers of the Corporation shall consist of a Chief
Executive Officer, a Chief Financial Officer and a Secretary and, if deemed by
the Board of Directors to be necessary or appropriate to conduct the business of
the Corporation, a Chairman of the Board, one or more Vice Presidents, a
Treasurer and one or more Assistant Secretaries and Assistant Treasurers. Two or
more offices may be held by the same person except that one person shall not at
the same time hold the offices of Chief Executive Officer and Vice President or
the offices of Chief Executive Officer and Secretary. The officers shall be
elected by the Directors or, where specifically provided herein, may be
appointed by the Chief Executive Officer or the Chairman of the Board, and each
officer shall hold office for the term to which he is elected or appointed and
has qualified or until his earlier resignation, removal from office, death or
incapacity to serve.

6.2 Chairman of the Board, If elected by the Board of Directors, the
Chairman of the Board shall preside at all meetings of the Board of Directors
and of the Stockholders and shall discharge the duties of a presiding officer,
shall present at each annual meeting of the Stockholders a report of the
business of the Corporation for the preceding fiscal year. The Chairman of the
Board and shall be an ex-officio member of all standing committees and shall
preside at meetings of such committees unless the Board of Directors, in
constituting such committees, shall designate or elect some other person to be
the chairman thereof. The Chairman of the Board shall also have such other
duties as the Board of Directors shall designate.

6.3 Chief Executive Officer. Unless otherwise specified by the Board of
Directors, the Chief Executive Officer shall have the responsibility for the
general supervision of the business affairs of the Corporation. He shall also
perform whatever other duties the Board of Directors may from time to time
prescribe.

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<PAGE> 9

6.4 Chief Financial Officer. The Chief Financial Officer, shall be
charged with the management of the financial affairs of the Corporation, shall
have the power to recommend action concerning the Corporation's affairs to the
Chief Executive Officer, and shall perform whatever other duties the Board of
Directors may from time to time prescribe.

6.5 Secretary. The Secretary shall keep minutes of all meetings of the
Stockholders and Directors and have charge of the minute books, stock books and
seal of the corporation and shall perform such other duties and have such other
powers as may from time to time be delegated to him by the Chief Executive
Officer.

6.6 Vice President. In the absence or disability of the Chief Executive
Officer, the Vice Presidents, if any, elected by the Board of Directors shall
perform the duties and exercise the powers of the Chief Executive Officer. The
Vice Presidents shall perform such other duties and have such other powers as
the Chief Executive Officer, the Chairman of the Board or the Board of Directors
may from time to time prescribe. The Board of Directors may designate one or
more Vice Presidents or may otherwise specify the order of seniority of the Vice
Presidents. The duties and powers of the Chief Executive Officer shall disburse
to the Vice Presidents in such specified order of seniority.

6.7 Assistant Secretary and Assistant Treasurer. Assistants to the
Secretary and Treasurer, if any, may be appointed by the Chairman of the Board
and shall have such duties as shall be delegated to them by the Chief Executive
Officer, the Chairman of the Board or the Board of Directors.

6.8 Vacancies. When a vacancy occurs in one of the executive offices by
death, resignation, or otherwise, it may be filled by the Board of Directors.
The officer so selected shall hold office for the remainder of the term of the
officer vacating such office and until his successor has been elected or
appointed and has qualified, or until his earlier resignation, removal from
office, death or incapacity to serve.

6.9 Compensation. The Board of Directors shall fix the compensation of
the officers of the Corporation. The compensation of other agents and employees
of the corporation may be fixed by the Board of Directors or by an officer to
whom that function has been delegated by the Board.

6.10 Delegation of Duties. Whenever an officer is absent or whenever
for any reason the Board of Directors may deem it desirable, the Board may
delegate the powers and duties of an officer to any other officer or officers or
to any Director or Directors.

6.11 Removal of Officers Agents. An officer or agent of the Corporation
may be removed by a majority vote of the Board of Directors whenever in its
judgment the best interests of the Corporation will be served by the removal.
The removal shall be without prejudice to the contract rights, if any, of the
person so removed.

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ARTICLE 7.

CAPITAL

7.1 Certificates. The interest of each Stockholder shall be evidenced
by a certificate or certificates representing shares of stock of the
Corporation, which shall be in such form as the Board of Directors may from time
to time adopt and shall be numbered and shall be entered in the books of the
Corporation as they are issued. Each certificate shall be signed by the Chief
Executive Officer or a Vice President and the Secretary or an Assistant
Secretary and shall be sealed with the seal of the Corporation or a facsimile
thereof; provided, however, that where such certificate is countersigned by a
transfer agent, or registered by a registrar, the signatures of such officers
may be facsimiles.

7.2 Transfers. Transfers of stock shall be made on the books of the
Corporation only by the person named in the certificate, or by attorney lawfully
constituted in writing, and upon surrender of the certificate therefor, or in
the case of a certificate alleged to have been lost, stolen or destroyed, upon
compliance with the provisions of Section 7.4 of these Bylaws.

7.3 Record Date. In lieu of closing the stock transfer books, the Board
of Directors may fix in advance a date as the record date for a determination of
Stockholders entitled to notice of and to vote at any meeting of Stockholders or
any adjournment thereof, or entitled to receive payment of any dividend, or in
order to make a determination of Stockholders for any other proper purpose, such
date to be no more than sixty (60) days and, in case of a meeting of
Stockholders, not less than ten (10) days, prior to the date on which the
particular action requiring such determination of Stockholders is to be taken.

7.4 Lost Certificates. Any person claiming a certificate of stock to be
lost, stolen or destroyed shall make an affidavit or affirmation of the fact in
such manner as the Board of Directors may require and shall, if the Directors so
require, give the Corporation a bond of indemnity in form and amount and with
one or more sureties satisfactory to the Board of Directors, whereupon an
appropriate new certificate may be issued in lieu of the one alleged to have
been lost, stolen or destroyed.

ARTICLE 8.

FISCAL YEAR, BANK DEPOSITS, CHECKS, ETC.

8.1 Fiscal Year. The fiscal year of the corporation shall commence or
end at such time as the board of directors may designate.

8.2 Bank Deposits, Checks, etc. The funds of the corporation shall be
deposited in the name of the corporation or of any division thereof in such
banks or trust companies in the

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<PAGE> 11

United States or elsewhere as may be designated from time to time by the board
of directors or executive committee, or by such officer or officers as the board
or executive committee may authorize to make such designations.

All checks, drafts or other orders for the withdrawal of funds from any
bank account shall be signed by such person or persons as may be designated from
time to time by the board of directors or executive committee or as may be
designated by an officer or officers authorized by the board of directors or
executive committee to make such designations. The signatures on checks, drafts
or other orders for the withdrawal of funds may be in facsimile if authorized in
the designation.

ARTICLE 9.

MISCELLANEOUS

9.1 Inspection of Books. The Board of Directors shall have power to
determine which accounts and books of the Corporation, if any, shall be open to
the inspection of Stockholders, except such as may by law be specifically open
to inspection, and shall have power to fix reasonable rules and regulations not
in conflict with the applicable law for the inspection of accounts and books
that by law or by determination of the Board of Directors shall be open to
inspection.

9.2 Seal. The corporate seal shall be in such form as the Board of
Directors may from time to time determine. In the event that it is inconvenient
at any time to use the corporate seal of the Corporation, the words "Seal" or
"Corporate Seal" enclosed in parentheses or scroll shall be deemed the corporate
seal of the Corporation.

ARTICLE 10.

INDEMNIFICATION AND INSURANCE

10.1 Right to Indemnification. Each person who was or is made a party
or is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter after a "Proceeding"), by reason of the fact that he or she, or a
person of whom he or she is the legal representative, is or was a director,
officer, employee or agent of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of
such proceeding is alleged action in an official capacity as a director,
officer, employee or (if serving for another corporation at the request of the
Corporation) agent or in any other capacity while serving as a director,
officer, employee or (if serving for another corporation at the request

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of the Corporation) agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended, (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than said law permitted the
Corporation to provide prior to such amendment) against all expense, liability
and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts to be paid in settlement) reasonably incurred or suffered
by such person in connection therewith and such indemnification shall continue
as to a person who has ceased to be a director, officer, employee or (if serving
for another corporation at the request of the Corporation) agent and shall inure
to the benefit of his or her heirs, executors and administrators; provided,
however, that except as provided in Section 2 hereof with respect to proceedings
seeking to enforce rights to indemnification, the Corporation shall indemnify
any such persons seeking indemnification in connection with a proceeding (or
part thereof) initiated by such person only if such proceeding (or part thereof)
was authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Section shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, if the Delaware General Corporation Law requires, the payment of
such expenses incurred by a director or officer in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of the proceeding shall be made only upon delivery to the
Corporation of an undertaking, by or on behalf of such director or officer, to
repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Article 9 or
otherwise.

10.2 Payment of Indemnification. If a claim under this Article 9 is not
paid in full by the Corporation within 90 days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that the
claimant has not met the standards of conduct which make it permissible under
the Delaware General Corporation Law for the Corporation to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall be
on the Corporation. Neither the failure of the Corporation (including its Board
of Directors, independent legal counsel, or stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or stockholders) that the claimant has not
met such applicable standard of conduct, should be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.

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10.3 Indemnification Not Exclusive. The right to indemnification and
the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Article 9 shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.

10.4 Insurance. The Corporation may maintain insurance, at its expense,
to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.

ARTICLE 1.

AMENDMENT

11.1 The Bylaws of the Corporation may be altered, amended, or repealed
and new Bylaws may be adopted by the Board of Directors at any regular or
special meeting of the Board of Directors; provided, however, that any Bylaws
adopted by the Board of Directors may be altered, amended or repealed, and new
Bylaws adopted by the Stockholders. If such action is to be taken at a meeting
of the Stockholders, notice of the general nature of the proposed change in the
Bylaws shall have been given in the notice of the meeting. The Stockholders may
prescribe that any Bylaw or Bylaws adopted by them shall not be altered, amended
or repealed by the Board of Directors.

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EXHIBIT 10.6

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

INDEMNITY AND COOPERATION AGREEMENT

between

SPIE ENERTRANS S.A.,

COMSTOCK GROUP, INC.,

L.K. COMSTOCK & COMPANY, INC.,

and

LKC ACQUISITION CORP.

Dated as of April 3, 1997

-----------------------------
<PAGE> 2
INDEMNITY AND COOPERATION AGREEMENT this "Agreement", dated as of April
3, 1997, between Spie Enertrans S.A., a societe anonyme organized under the laws
of the Republic of France ("Spie Enertrans"), Comstock Group, Inc., a
corporation organized under the laws of New York ("Comstock"), L.K. Comstock &
Company, a corporation organized under the laws of New York ("LKC" or the
"Company") and LKC Acquisition Corp., a corporation organized under the laws of
Delaware ("LKC Acquisition").

W I T N E S S E T H:

WHEREAS, LKC is a party to contracts the ("Project Contracts") related
to the Projects (as hereinafter defined);

WHEREAS, Spie Enertrans has loaned LKC $14,903,215 (the "Loan") in
return for LKC's Contingent Promissory Note dated April 3, 1997 with a principal
amount of $14,903,215 (as adjusted as provided therein) secured by general
intangibles for moneys due or to become due under the Project Contracts.

NOW, THEREFORE, in order to facilitate the repayment of the Loan, the
parties hereto agree as follows:

<PAGE> 3
ARTICLE I

Section 1. Indemnity. Spie Enertrans agrees to indemnify LKC and
hold it harmless from all Direct Costs.

"Direct Costs" shall mean all documented amounts paid by LKC
excluding overhead which are incurred pursuant to the terms of the Project
Contracts or which may arise out of litigation to collect amounts due under the
Project Contracts, including amounts expended by LKC in accordance with Secion
2(a) hereof, other than those i) arising out of the (x) negligence of LKC in
the performance after the Closing of its obligations under the Project
Contracts, (y) failure by the Company after the Closing to take actions
required to be taken pursuant to the Project Contracts or (z) failure by the
Company to take action required by this Agreement. Notwithstanding anything to
the contrary contained herein, Direct Costs shall not include (x) expenses
incurred as a result of claims for consequential damages, e.g., loss of
business income or opportunity or (y) expenses arising out of any fraudulent
actions by LKC.

"Projects" shall mean (a) the LAX Airfield Signage and Lighting
Agreement - Phase 2; (b) the Sunnyside Yard SFC Station Contract No.
8-295-41840; and (c) the Turnkey Agreement for the Brooklyn Navy Yard
Cogeneration Project by and between Brooklyn Navy Yard Cogeneration Partners,
L.P. and PMNC, a joint venture, in connection with the projects

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known as the Los Angeles International Airport Project and the Sunnyside Yard
Converter Station Project and LKC's investment in the Brooklyn Navy Yard
Cogeneration Joint Venture, respectively.
Section 2. Claim Recovery. a) LKC shall use its best efforts, in
such form and manner as Spie Enertrans may reasonably request from time to
time, to prepare, present, pursue and negotiate claims in respect of moneys due
LKC associated with each of the Projects (each, a "Claim") in order to enable
Spie Enertrans to recover through repayment of the Loan all amounts due or
which may become due thereunder. LKC shall promptly inform Spie Enertrans of
all material developments in the course of recovery of all claims.
(b) From time to time, Spie Enertrans shall designate a
representative in order to coordinate the Claim recovery effort with LKC. LKC
agrees that the Claim recovery effort shall be performed by LKC under the
guidance and supervision of, and in accordance with reasonable instructions
from, such representative of Spie Enertrans. LKC agrees to provide such
representative an office at its headquarters, together with secretarial
support, a telephone and other customary accoutrements free of cost to Spie
Enertrans. LKC and Spie Enertrans agree that such representative shall meet
with representatives of LKC in

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order to coordinate such Claim recovery effort as often as is reasonably deemed
to be necessary by Spie Enertrans.

(c) Neither LKC nor any LKC employee shall have the right to negotiate
or accept any settlement with respect to any Claim or group of Claims without
the express written consent of the chief executive officer of Spie Enertrans or
any other person designated in writing specifically for such purpose by such
chief executive officer.

(d) Spie Enertrans agrees to reimburse LKC within thirty (30) days after
receipt by Spie Enertrans of a report set forth in paragraph (e) below, for
Direct Costs provided that each expense of over $2,000 shall require the prior
written approval of Spie Enertrans.

(e) No later than fifteen (15) days after the end of each calendar month,
LKC shall provide Spie Enertrans with a summary description of (i) the status
of any Claim outstanding as of the end of such month, (ii) the actions taken
by LKC in connection with the recovery of any Claim and (iii) a description of
Direct Costs for such month in respect of which LKC requests reimbursement by
Spie Enertrans in accordance with paragraph (d) above and Section 1 of this
Agreement.

(f) LKC shall cause all proceeds from the Claims which are recovered by
LKC to be deposited directly by the debtor thereof into a segregated account
established in a

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manner to be decided by Spie Enertrans at Harris Trust and Savings Bank. LKC
agrees that it shall not deposit or transfer any other funds into such account
or remove any funds from such account. The terms of such account shall provide
that all moneys held in such account shall be held solely for the benefit of
Spie Enertrans and that only Spie Enertrans shall have the right to make
withdrawals and payments from such account.

(g) Scheduled interest payments made by LKC to Spie Enertrans pursuant to
the Contingent Promissory Note of LKC shall be reimbursed by Spie Enertrans as
Direct Costs without deduction or setoff. Any U.S. tax withholdings are for
the account of Spie Enertrans.

(h) At Spie Enertrans' request, LKC agrees to use its best efforts to
assign its rights under the Project Contracts to Spie Enertrans to the fullest
extent permitted under such Project Contracts and applicable law, provided,
however, that LKC shall be under no obligation to agree to an assignment that
would materially and adversely affect LKC.

(i) Within 30 days of the date hereof, Spie shall use its best efforts to
secure a bank guarantee, letter of credit or other comparable arrangement with
a bank, in substantially the form attached as Annex A hereto. In the event
that a bank shall refuse to enter into such an

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arrangement with Spie, LKC and Spie shall use their respective best efforts to
execute a guarantee agreement effecting an arrangement, coordinated with a
bank, financial institution or insurance company, having a similar effect as
the arrangement reflected in Annex A hereto. If Spie fails to secure such bank
guarantee, letter of credit or other comparable arrangement with a bank,
financial institution or insurance company, or if Spie fails to enter into a
guarantee agreement with LKC, within 30 days of the date hereof, Spie shall be
in material breach of its obligations hereunder. LKC shall not unreasonably
withhold its agreement to accept those arrangements having a similar effect as
the arrangements reflected in Annex A hereto.

Section 3. Right of First Refusal. (a) In the event that, during the
three-year period contemplated by clause (ii) of Section 2.1(b) of the Stock
Purchase Agreement between Comstock and LKC Acquisition dated as of April 3,
1997 (the "Stock Purchase Agreement"), LKC Acquisition wishes to sell, assign,
pledge or otherwise transfer ("Transfer") all or a portion of its Shares of
Common Stock, par value $0.25 per share (the "Shares") of LKC, to a third party
(the "Proposed Transferee") for an amount which is less than the pro rata
portion of the Purchase Price, as defined in Section 2.1(b) of the Stock
Purchase Agreement, (which shall include any amount paid to

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Comstock pursuant to clauses (ii) and (iii) of Section 2.1(b) up to and
including, the date of such Proposed Transfer) paid for such Shares, LKC
Acquisition shall not sell such Shares without having previously offered such
Shares to Spie Enertrans in accordance with the provisions of this Section 3.

(b) In the event of a Proposed Transfer as set forth in paragraph (a)
above, LKC Acquisition shall give to Spie Enertrans 60-days' prior written
notice of its intention to Transfer solely for cash consideration all or a
portion of its Shares, identifying the Proposed Transferee and specifying all
of the proposed terms of the Transfer. Such notice shall constitute an offer by
LKC Acquisition, irrevocable for 60 days, to sell all or such portion of its
Shares to Spie Enertrans. Such notice shall be accompanied by a copy of the
written, legally binding agreement (or other evidence to such effect
satisfactory to Spie Enertrans) of the Proposed Transferee to purchase all or
such portion of the Shares to be so Transferred by LKC Acquisition setting
forth the price to be paid by the Transferee (together, a "Transfer Notice").

(c) Within 60 days after receipt by Spie Enertrans of a Transfer Notice,
Spie Enertrans may, by giving written notice to LKC Acquisition, elect to
purchase all or such portion of the Shares set forth in such Transfer

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Notice at the price and on the other terms and conditions set forth in the
Transfer Notice.

(d) If Spie Enertrans shall not have given the notice contemplated by
paragraph (c) above, LKC Acquisition shall have the right, exercisable not
later than 180 days (subject to extension to comply with any applicable law)
after the giving of a Transfer Notice, to sell all or such portion of the
Shares to the Proposed Transferee at the price and on the other terms and
conditions set forth in such Transfer Notice.

(e) The closing of any purchase and sale of Shares pursuant to this
Section 3 shall take place on such date as set forth in a notice from Spie
Enertrans to LKC Acquisition. At any such closing, LKC Acquisition shall
deliver any necessary and appropriate instruments of conveyance in order to
effectuate the transfer of the Shares against payment of the applicable
purchase price by wire transfer of immediately available funds.

Section 4. Sale of Shares. Notwithstanding anything to the contrary
provided herein, in the event that LKC Acquisition shall sell all or a portion
of the Shares to a third party prior to the expiration of the three-year period
contemplated by clause (ii) of Section 2.1(b) of the Stock Purchase Agreement
without the prior written consent of Comstock and Spie Enertrans (other than
(i) any such sale covered by Section 3, (ii) the sale or transfer of not more

-8-
<PAGE> 10
than 10% in the aggregate of the Shares to employees or directors of LKC and
iii. the sale or transfer of all or any portion of the Shares to employees or
directors of LKC within the context of a merger or consolidation in accordance
with Section E, provided that, in the case of (ii) and (iii), each such employee
or director agrees in writing to assume (jointly with the surviving entity, in
the case of (iii)) the obligations of LKC Acquisition under Section 2.1 of the
Stock Purchase Agreement and Sections 3 and 4 hereof), LKC Acquisition shall pay
to Comstock on demand an amount equal to the sum of (a) the difference between
(i) $2.5 million and (ii) the aggregate amount paid by LKC Acquisition (or any
Affiliate (as defined in the Stock Purchase Agreement) of LKC Acquisition) to
Comstock pursuant to Section 2.1(b)(ii) of the Stock Purchase Agreement and (b)
the difference between (i) $2.5 million and (ii) the aggregate amount paid by
LKC Acquisition or any Affiliate of LKC Acquisition) to Comstock pursuant to
Section 2.1(b)(iii) of the Stock Purchase Agreement.

Section 5. LKC Acquisition and LKC Limitations on Merger, etc. Prior
to the expiration of the three-year period contemplated in Section 2.1(b)(ii)
of the Stock Purchase Agreement, neither LKC Acquisition nor LKC shall
liquidate itself, enter into any merger or consolidation with any other Person
or sell, transfer or dispose of all or

-9-
<PAGE> 11
substantially all of its assets without the express written consent of Comstock
provided that such consent shall not be unreasonably withheld in the case of a
merger between LKC and LKC Acquisition where LKC expressly assumes all
obligations of LKC Acquisition hereunder.

Section 6. Public Disclosure. The parties to this Agreement hereby
agree that, except as may be required to comply with the requirements of
applicable law or the rules and regulations of each stock exchange upon which
the securities of one of the parties or its Affiliates as defined in the Stock
Purchase Agreement) is listed, no press release or similar public announcement
or communication will be made or caused to be made concerning the execution or
performance of this Agreement unless specifically approved in advance by all
parties hereto (which approval shall not be unreasonably withheld); provided,
however, that, to the extent that either party to this Agreement is required by
law or the rules and regulations of any stock exchange upon which the securities
of one of the parties or its Affiliated is listed to make such a public
disclosure, such public disclosure shall only be made after prior consultation
with the other parties to this Agreement.

Section 7. Method of Asserting Claims

(a) All claims for indemnification by LKC shall be asserted and
resolved as set forth in this Section 7.

- 10 -
<PAGE> 12
(b) In the event that any written claim or demand for which Spie
Enertrans would be liable to LKC is asserted against or sought to be collected
from LKC by a third party LKC shall promptly, but in no event more than 15 days
following LKC's receipt of such claim or demand, notify Spie Enertrans of such
claim or demand and the amount or the estimate amount thereof to the extent then
feasible (which estimate shall not in any manner prejudice the right of LKC to
indemnification to the fullest extent provided hereunder; (the "Third Party
Claim Notice") and in the event that LKC shall assert a claim for indemnity
under this section 7, not including a third party claim, LKC shall notify Spie
Enertrans promptly following its discovery of the facts or circumstances giving
rise thereto (together, with a Third Party Claim Notice, a "Claim Notice");
provided that the failure to notify on the part of LKC in the manner set forth
herein shall not foreclose any rights otherwise available to LKC hereunder,
except to the extent that Spie Enertrans is prejudiced by such failure to
notify. Spie Enertrans shall have 30 days from the personal delivery or mailing
of the Third Party Claim Notice (except that such a period shall be decreased to
a time 10 days before a scheduled appearance date in a litigated matter) (the
"Notice Period") to notify LKC (i) whether or not Spie Enertrans disputes the
liability of Spie Enertrans to LKC hereunder with respect to such

- 11 -
<PAGE> 13
claim or demand and ii) whether or not it desires to defend LKC against such
claim or demand. All costs and expenses incurred by Spie Enertrans in defending
such claim or demand shall be a liability of, and shall be paid by, Spie
Enertrans. In the event that Spie Enertrans notifies LKC within the Notice
Period that it desires to defend LKC against such claim or demand, except as
hereinafter provided, Spie Enertrans shall have the right to defend LKC by
appropriate proceedings and by counsel reasonably acceptable to LKC. If LKC
desires to participate in, but not control, any such defense or settlement it
may do so at its sole cost and expense. LKC shall not settle a claim or demand
without the consent of Spie Enertrans. Spie Enertrans shall not, without the
prior written consent of LKC, settle, compromise or offer to settle or
compromise any such claim or demand on a basis which would result in the
imposition of a consent order, injunction or decree which would restrict the
future activity or conduct of, or which would otherwise have a material
adverse effect on, LKC or any subsidiary or Affiliate thereof. If Spie
Enertrans elects not to defend LKC against such claim or demand, whether by not
giving LKC timely notice as provided above or otherwise, then the amount of any
such claim or demand, or, if the same be contested by LKC, then that portion of
any such claim or demand as to which such defense is unsuccessful (and all
reasonable costs and expenses

-12-
<PAGE> 14
pertaining to such defense) shall be the liability of Spie Enertrans hereunder.
To the extent Spie Enertrans shall control or participate in the defense or
settlement of any third party claim or demand, LKC will give to Spie Enertrans
and its counsel reasonable access to all business records and other documents
relevant to such defense or settlement, and shall permit them to consult with
the employees and counsel of LKC. LKC shall use its best efforts in the defense
of all such claims, and in connection therewith shall be entitled to
reimbursement by Spie Enertrans of expenses directly related to efforts
undertaken at the specific request of Spie Enertrans.

Section 8. Termination. Sections 1 and 2 to this Agreement may be
terminated at any time (a) by agreement of Spie Enertrans and LKC, (b) by Spie
Enertrans, if upon notice from Spie Enertrans to LKC that Spie Enertrans has
fulfilled all of its obligations hereunder and intends to terminate the
Agreement, LKC does not object to such termination within 45 calender days or
(c) by LKC, if upon notice from LKC to Spie Enertrans that LKC has fulfilled all
of its obligations hereunder and intends to terminate the Agreement, Spie
Enertrans does not object to such termination within 45 calender days. This
Agreement in its entirety may be terminated at any time by Agreement of all
parties hereto. Notwithstanding anything to the contrary

-13-
<PAGE> 15
contained herein, all notices pursuant to this Section 8 shall be delivered
personally or by certified mail.

In the event of the termination of this Agreement in accordance with this
Section 8, this Agreement shall hereafter become void and have no effect, and
no party hereto shall have any liability to the other parties hereto, except
for breaches prior to the date of such termination.

Section 9. Amendment and Modification; Waiver.

This Agreement may be amended or modified only in writing, signed by all
parties hereto, with respect to any of the terms contained herein.

Section 10. Assignment. No party to this Agreement may assign any of its
rights or obligations under this Agreement without the prior written consent of
the other parties hereto, except that Spie Enertrans may assign its rights and
obligations hereunder to a wholly-owned subsidiary of Spie Enertrans provided
that Spie Enertrans guarantees the obligations of such subsidiary.

Section 11. Entire Agreement. This Agreement and the Stock Purchase
Agreement contain the entire agreement between the parties hereto with respect
to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters.

Section 12. Fulfillment of Obligations. Any obligation of any party to any
other party under this Agree-

-14-
<PAGE> 16
ment, which obligation is performed, satisfied or fulfilled by an Affiliate of
such party, shall be deemed to have been performed, satisfied or fulfilled by
such party.

Section 13. Parties in Interest; No Third Party Beneficiaries. This
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective successors and permitted assigns. Nothing in this
Agreement, express or implied, is intended to confer upon any Person other than
Spie Enertrans, Comstock, LKC, LKC Acquisition or their successors or permitted
assigns any rights or remedies under or by reason of this Agreement.

Section 14. Counterparts. This Agreement and any amendments hereto may be
be executed in one or more counterparts, each of which shall be deemed to be an
original by the parties executing such counterpart, but all of which shall be
considered one and the same instrument.

Section 15. Section Headings. The section headings contained in this
Agreement are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement.

Section 16. Notices. All notices hereunder shall be deemed given if in
writing and delivered personally or sent by telecopy, telex or telegram or by
registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other addresses as shall be specified by like
notice):

-15-
<PAGE> 17
(a) if to Comstock, to:

COMSTOCK GROUP, INC.
c/o Square D Company
1415 S. Roselle Road
Palatine, Illinois 60067

Attention: General Counsel

With a copy to:

Sullivan & Cromwell
125 Broad Street
New York, New York 10004

Attention: Allan M. Chapin, Esq.

(b) if to LKC or LKC Acquisition, to:

L.K. Comstock & Company, Inc.
LKC Acquisition Corp.
One North Lexington Avenue
White Plains, NY 10601

Attention: Lex A. Passman

Spie Enertrans, S.A.
Parc Saint-Christophe
Pole Edison
95861 Cergy-Pontoise
Telephone: 011 331 34 22 57 63
Facsimile: 011 331 34 22 61 14
Attention: Directeur Administratif et
Financier

Any notice given by mail or telegram shall be effective when received. Any
notice given by telex shall be effective when the appropriate telex or telecopy
answerback is received.

SECTION 17. GOVERNING LAW; SUBMISSION TO JURISDICTION; SELECTION OF
FORUM. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO THE CHOICE OF LAW
PRINCIPLES THEREOF. EACH PARTY HERETO AGREES THAT IT SHALL

-16-

<PAGE> 18
BRING ANY ACTION OR PROCEEDING IN RESPECT OF ANY CLAIM ARISING OUT OF OR
RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTAINED IN OR CONTEMPLATED BY
THIS AGREEMENT, WHETHER IN TORT OR CONTRACT OR AT LAW OR IN EQUITY, EXCLUSIVELY
IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK OR
THE SUPREME COURT OF THE STATE OF NEW YORK FOR THE COUNTY OF NEW YORK (THE
"CHOSEN COURTS") AND (I) IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF
THE CHOSEN COURTS, (II) WAIVES ANY OBJECTION TO LAYING VENUE IN ANY SUCH ACTION
OR PROCEEDING IN THE CHOSEN COURTS, (III) WAIVES ANY OBJECTION THAT THE CHOSEN
COURTS ARE AN INCONVENIENT FORUM OR DO NOT HAVE JURISDICTION OVER ANY PARTY
HERETO AND (IV) AGREES THAT SERVICE OF PROCESS UPON SUCH PARTY IN ANY SUCH
ACTION OR PROCEEDING SHALL BE EFFECTIVE IF NOTICE IS GIVEN IN ACCORDANCE WITH
THIS AGREEMENT. SPIE ENERTRANS IRREVOCABLY DESIGNATES CT CORPORATION AS ITS
AGENT AND ATTORNEY-IN-FACT FOR THE ACCEPTANCE OF SERVICE OF PROCESS AND MAKING
AN APPEARANCE ON ITS BEHALF IN ANY SUCH CLAIM OR PROCEEDING AND TAKING ALL SUCH
ACTS AS MAY BE NECESSARY OR APPROPRIATE IN ORDER TO CONFER JURISDICTION OVER IT
UPON THE CHOSEN COURTS AND LKC STIPULATES THAT SUCH CONSENT AND APPOINTMENT ARE
IRREVOCABLE AND COUPLED WITH AN INTEREST.

Section 18. SEVERABILITY. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof. If
any provision of this Agreement, or the application thereof to any person or
entity or any circumstance, is invalid or unenforceable, (a) a suitable and
equitable provision shall be substituted therefor in order to carry out, so
far as may be valid and enforceable, the intent and purpose of such invalid or
unenforceable provision and (b) the remainder of this Agreement and the
application of such

-17-
<PAGE> 19
provision to other persons, entities or circumstances shall not be affected
by such invalidity or unenforceability, nor shall such invalidity or
unenforceability affect the validity or enforceability of such provision,
or the application thereof, in any other jurisdiction.

-18-
<PAGE> 20
IN WITNESS WHEREOF, this Agreement has been signed on behalf of each of
the parties hereto as of the date first written above.

SPIES ENERTRANS S.A.

By: /s/ B. Cornet
-------------------------------------
Name: B. Cornet
Title: C.E.O.

Solely for purposes of
Sections 4, 5, 6, 8, 9,
10, 11, 12, 13, 14, 15,
16, 17 and 18 hereof

COMSTOCK GROUP, INC.

By: /s/ J. P. Salazar
-------------------------------------
Name: J. P. Salazar
Title: Vice President

L.K. COMSTOCK & COMPANY,
INC.

By: /s/ Lester O. Wuerfl, Jr.
-------------------------------------
Name: Lester O. Wuerfl, Jr.
Title: Chairman

-22-
<PAGE> 21
LKC ACQUISITION CORP.

By: /s/ Michael R.
-------------------
Name: Michael R.
Title: President

- 23 -
<PAGE> 22
MEMORANDUM OF UNDERSTANDING

This will confirm the understanding of today, August 26, 1997 concerning a
clarification of Section 2 of the Indemnity and Cooperation Agreement between
Spie Enertrans, S.A. ("Spie Enertrans"), Comstock Group, Inc., L.K. Comstock
and Company, Inc. ("LKC") and LKC Acquisition Corp. dated as of April 3, 1997
(the "Indemnity and Cooperation Agreement") and specifically, the respective
roles of Spie Enertrans and LKC with respect to Claim Recovery(1).

With respect to LKC's obligations under Section 2(a) of the Indemnity and
Cooperation Agreement to wit, that LKC "shall use its best efforts to prepare,
present, pursue and negotiate" the Claims, the parties agree that LKC will
handle the day-to-day aspects of Claims Recovery, including but not limited to
(1) providing documents in the possession and control of LKC relating to the
Claims to Spie Enertrans and its representative and to the lawyers in charge of
prosecuting each Claim (the "Lawyers"), (2) making LKC's employees reasonably
available to Spie Enertrans and its representative and to the Lawyers, (3)
keeping Spie Enertrans and its representative advised on a timely and prompt
basis of all material developments in connection with recovery of all Claims,
and (4) referring all material matters in connection with recovery of the
claims to Spie Enertrans and its representative; and Spie Enertrans will
supervise, direct and control the Claims recovery effort, including but not
limited to making all material decisions in connection with the recovery of all
Claims. In that connection, Spie Enertrans will have direct access to the
Lawyers for each claim and LKC agrees to send a letter to its Lawyers in the
form of the letter annexed as Exhibit A hereto.

Spie Enertrans hereby assures you and confirms that in connection with the
recovery of the Claims, Spie Enertrans will not hold LKC responsible and will
not seek to recover damages from LKC unless LKC fails to comply with its
obligations under Section 2 of the Indemnity and Cooperation Agreement as
clarified herein.

The foregoing will be confirmed in a letter from Pierre Fortune on behalf of
Spie Enertrans to Pierre Lescaut on behalf of LKC, who shall countersign the
letter and return it to Spie Enertrans.

Spie Enertrans, S.A. L.K. Comstock and Company, Inc.
by its Representative

by: /s/ Jean Coret by: /s/ Lex A. Passman
-------------------------- ----------------------------
Jean Coret Lex A. Passman

- ------------------------
(1) All terms used herein have the same definitions as the terms used in the
Indemnity and Cooperation Agreement.

<PAGE> 1
EXHIBIT 23.2

As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.

/s/ Arthur Andersen LLP
-----------------------
ARTHUR ANDERSEN LLP

Nashville, Tennessee
May 22, 1998

<PAGE> 1

EXHIBIT 23.3

[LETTERHEAD DWORKEN, HILLMAN, LAMORTE & STERCZALA, P.C.]

CONSENT OF INDEPENDENT AUDITORS

We consent to the use in this Registration Statement and Prospectus of
Railworks Corporation, relating to the offering of 100,000,000 shares of common
stock, of our reports dated February 24, 1998 on the financial statements and
the financial statement schedules of New England Railroad Construction Company,
Inc. contained in this Registration Statement, and to the use of our name, and
the statements with respect to us, under the heading "Experts" in the
Prospectus.

/s/ Dworken, Hillman, LaMorte & Sterczala, P.C.
DWORKEN, HILLMAN, LAMORTE & STERCZALA, P.C.

May 20, 1998
Bridgeport, Connecticut

<PAGE> 1

EXHIBIT 23.4

[CANNON & COMPANY LETTERHEAD]

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT

We hereby consent to the use of our audit report dated March 11, 1998 on the
financial statements of CPI CONCRETE PRODUCTS, INCORPORATED for the years ended
January 31, 1998, 1997 and 1996 included in the Registration Statement for
Railworks on Form S-1 and to the reference to our Firm under the caption
"Experts" in the Prospectus.

/s/ Cannon & Company
--------------------
CANNON & COMPANY

Memphis, Tennessee
May 4, 1998

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF RAILWORKS CORPORATION FOR THE QUARTER ENDED
MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 100
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 100
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 100
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0<F1>
<FN>
<F1>COMPANY FORMED ON MARCH 20, 1998 AND HAS CONDUCTED NO OPERATIONS TO DATE.
</FN>

</TABLE>

<PAGE> 1
EXHIBIT 99.1

CONSENT TO BE NAMED AS A DIRECTOR NOMINEE

The undersigned hereby consents to be named in the Registration Statement
on Form S-1 to which this Consent has been filed as an exhibit as a person who
shall become a Director of RailWorks Corporation following the completion of
the offering to which said registration Statement pertains.

/s/ Scott D. Brace
----------------------------------
Scott D. Brace

May __, 1998
<PAGE> 2

CONSENT TO BE NAMED AS A DIRECTOR NOMINEE

/s/ Steve Goggin
----------------------------------
Steve Goggin

May __, 1998
<PAGE> 3
CONSENT TO BE NAMED AS A DIRECTOR NOMINEE

/s/ Peter Alan Pasch
----------------------------------
Peter Alan Pasch

May __, 1998

<PAGE> 4
CONSENT TO BE NAMED AS A DIRECTOR NOMINEE

/s/ Lambertus L. Tameling
----------------------------------
Lambertus L. Tameling

May __, 1998