<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 30, 1998
REGISTRATION NO. 333-53483
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
---------------------
AMENDMENT NO. 1
TO
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
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=========================================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE(3)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share............. 7,820,000 shares $17.00 $132,940,000 $39,218
=========================================================================================================================
</TABLE>
(1) Includes 1,020,000 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.
(3) A filing fee of $35,400 has previously been paid.
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.
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<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.
SUBJECT TO COMPLETION
JUNE 30, 1998
6,800,000 Shares
(RAILWORKS LOGO)
COMMON STOCK
------------------
Of the 6,800,000 shares of Common Stock offered hereby, 6,659,065 are being
sold by RailWorks Corporation (the "Company") and 140,935 shares are being sold
by a stockholder of the Company. In addition, certain other stockholders of the
Company have granted the Underwriters a 30-day option to purchase up to
1,020,000 additional shares of Common Stock solely to cover over-allotments, if
any. See "Underwriting." 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." Prior to the Offering, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price per share will be between $15.00 and $17.00 per share. See "Underwriting"
for a discussion of the factors to be considered in determining the initial
public offering price. The Common Stock has been approved for quotation on The
Nasdaq National Market under the symbol "RWKS."
------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 HEREOF.
------------------
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>
=====================================================================================================================
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS(3)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............ $ $ $ $
- ---------------------------------------------------------------------------------------------------------------------
Total(3)............. $ $ $ $
=====================================================================================================================
</TABLE>
(1) The Company and the Selling Stockholders (as defined herein) have agreed to
indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933.
(2) Before deducting expenses of the Offering payable by the Company estimated
at $2.2 million.
(3) Certain Selling Stockholders have granted the Underwriters a 30-day option
to purchase up to 1,020,000 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 option is exercised 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 offices
of BT Alex. Brown Incorporated, Baltimore, Maryland, on or about ,
1998.
BT AlexS Brown
Schroder & Co. Inc.
Piper Jaffray Inc.
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE> 3
COLLAGE OF PHOTOGRAPHS DEPICTING THE TYPES OF SERVICES TO BE PROVIDED BY
RAILWORKS, SUBTITLED "RAILWORKS, TIES IT TOGETHER, INTEGRATED RAIL SYSTEM
SOLUTIONS."
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 OVER-ALLOT 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"), 22 companies (collectively, the "Founding Companies") that
will become wholly-owned subsidiaries of RailWorks Corporation. See "Formation
of the Company." Unless otherwise indicated or the context otherwise requires,
(i) all references to the "Company" and "RailWorks" include RailWorks
Corporation and the Founding Companies after giving effect to the Combination,
(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 RailWorks Corporation. 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 based on an assumed initial public offering price of $16.00 per share
as described in the Unaudited Pro Forma As Adjusted Financial Statements, and
"pro forma as adjusted" information gives further effect to the sale of the
shares of Common Stock offered hereby at an assumed initial public offering
price of $16.00 per share and the application of the net proceeds therefrom as
set forth herein under "Use of Proceeds."
THE COMPANY
RailWorks Corporation 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 Corporation
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 will establish a
significant operating enterprise which management believes will serve as the
foundation for a consolidation of the highly-fragmented rail system services and
products industry. Based on their experience in the rail system services and
products industry, management believes that there is a trend among rail system
operators toward increased outsourcing of services and the use of fewer vendors.
The Company believes that the Combination and future acquisitions will enable it
to capitalize on this trend. The Company's strategy is based on providing a full
range of rail-related services and products on a national basis and offering
integrated rail system solutions under the "RailWorks" brand. For the year ended
December 31, 1997, on a pro forma as adjusted basis, the Company had revenue of
$256.5 million, operating income of $11.0 million and net income of $6.5
million. For the three months ended March 31, 1998, on a pro forma as adjusted
basis, the Company had revenue of $61.8 million, operating income of $1.4
million and net income of $902,000. Based on estimates of the Founding
Companies, management estimates that approximately 68.4% of the Company's pro
forma as adjusted revenue for the year ended December 31, 1997 was derived from
rail-related operations and 31.6% was derived from non-rail related operations.
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 in new
construction projects and rehabilitation of rail systems, (ii) ongoing
reconfiguration and rationalization of rail infrastructure primarily due to
industry consolidation, (iii) the use of fewer vendors by rail system operators
and (iv) the fragmented nature of the rail system services and products
industry. Based on information from the American Association of Railroads
("AAR") and the American Public Transit Association ("APTA"), management
believes that expenditures by rail system operators for new construction,
rehabilitation, repair and maintenance were approximately
1
<PAGE> 5
$14 billion in 1997. Shortline railroads, industrial companies and transit
authorities generally outsource rail-related work because they lack the
know-how, specialized equipment and resources to cost-effectively install signal
systems or build and maintain their own tracks. Management believes that as
Class I railroads continue to seek to reduce costs they will increasingly
outsource rail-related work to companies that can offer integrated rail system
services and products in multiple locations. Finally, the rail system services
and products industry is highly fragmented, presenting a consolidation
opportunity for the Company. Management believes that an integrated rail system
services and products provider would have a competitive advantage over smaller
competitors, many of which lack the bonding capacity required to undertake large
projects and are unable to provide the integration of design, construction,
rehabilitation, repair and maintenance services increasingly sought by rail
system operators.
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. Management further believes that 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 rail-related products, including rail, ties, spikes,
frogs (rail intersections), tie plates and ballast and (iv) for non-rail
customers, electrical installation services and concrete products. Based on
estimates of the Founding Companies, management estimates that revenue from
rail-related (i) construction and rehabilitation, (ii) repair and maintenance
and (iii) other track materials ("OTM") and products accounted for 46.5%, 15.4%
and 6.5%, respectively, of the Company's pro forma as adjusted revenue for the
year ended December 31, 1997 and non-rail services and products accounted for
31.6% 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, United States Steel, and
Terminal One at JFK International Airport, which have contracted with the
Company for track construction and maintenance or 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 or station projects;
(iii) shortline railroads such as Indiana Southern Railroad Company, Branford
Steam Railroad and I&M Rail Link, which have contracted with the Company for
track construction and maintenance work or 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 or 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. In addition, the
Company expects to continue to provide non-rail services and products in
response to market opportunities. Key elements of the Company's strategy include
the following:
2
<PAGE> 6
- 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. As a result of the Combination, the Company will be
able to provide its customers with integrated rail system solutions that
management believes can be efficiently designed, constructed, maintained,
operated and supplied, resulting in lower costs over the life cycle of
customers' 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 rail-related projects that were beyond
the scope of those previously undertaken by the individual 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 rail customers with multiple sites and
"cross-sell" its broad range of rail-related services and products. The
Company currently has very limited international operations but over time
it 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 its regional and smaller competitors. Key areas in which the Company
expects to achieve cost savings include (i) purchasing of equipment and
supplies, (ii) insurance expenses, (iii) financing costs and (iv)
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. The Company does not intend to expand its non-rail business
through 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 of experience in the
transportation industry, including, in the case of John Larkin (the
Company's Chief Executive Officer), approximately 11 years of experience
as an equity research analyst focusing on the transportation industry.
Senior management of the Company will coordinate the operations of the
Founding Companies, provide strategic guidance for the Company, implement
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. For example,
management believes it can successfully implement best practices in the
areas of 24-hour emergency rerailment services, annual maintenance
contracts and efficient inventory management.
3
<PAGE> 7
THE OFFERING
Common Stock offered by the Company....... 6,659,065 shares
Common Stock offered by the Selling
Stockholders.............................. 140,935 shares(1)
Common Stock to be outstanding after the
Offering.................................. 15,073,530 shares(2)
Use of proceeds........................... The net proceeds of the Offering
to the Company will be used to pay
the cash portion of the aggregate
purchase price for the Founding
Companies in the Combination, to
repay indebtedness of certain of
the Founding Companies and to pay
expenses of the Offering. The
Company will not receive any
proceeds from the sale of shares
of Common Stock to be sold by the
Selling Stockholders. See "Use of
Proceeds."
Nasdaq National Market Symbol............. RWKS
- ---------------
(1) IPO Development Company L.L.P. ("IPODC") is selling 140,935 shares of Common
Stock in the Offering. Certain other stockholders of the Company (together
with IPODC, the "Selling Stockholders") have granted the Underwriters a
30-day option to purchase up to 1,020,000 additional shares of Common Stock
solely to cover over-allotments, if any. See "Principal and Selling
Stockholders" and "Underwriting."
(2) Includes (i) 1,130,504 shares of Common Stock to be granted to executive
officers of the Company and (ii) 75,368 shares of Common Stock to be granted
to corporate-level employees of the Company upon consummation of the
Offering. Does not include 2,000,000 shares of Common Stock that are
reserved for issuance under the Company's 1998 Incentive Stock Plan (the
"Incentive Plan"), of which options to purchase 20,000 shares will be
granted to the Company's non-employee directors upon consummation of the
Offering. See "Formation of the Company -- The Combination,"
"Management -- 1998 Incentive Stock Plan" and "Principal and Selling
Stockholders."
RISK FACTORS
See "Risk Factors" beginning on page 8 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) previous losses of certain Founding Companies and
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 provisions in the Company's governing instruments and under
Delaware law.
4
<PAGE> 8
THE COMBINATION
Simultaneously with and as a condition to the closing of the Offering,
RailWorks Corporation will consummate the Combination pursuant to agreements
that it has entered into with the Founding Companies and their stockholders
(each an "Acquisition Agreement" and together the "Acquisition Agreements").
Assuming an initial public offering price of $16.00 per share, the aggregate
consideration to be paid by RailWorks Corporation in the Combination will be
$187.3 million (subject to adjustment), which consists of (i) $72.0 million in
cash to be paid from the proceeds of the Offering (representing 72.6% of the
estimated net proceeds of the Offering) and (ii) the $115.3 million estimated
fair value of 7,208,583 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 $26.6 million of indebtedness of certain of the Founding
Companies (including approximately $3 million of indebtedness incurred to
finance the redemption of shares of common stock of a Founding Company held by
an employee stock ownership plan (an "ESOP")). Such indebtedness will be repaid
with a portion of the proceeds of the Offering (representing 26.8% of the
estimated net proceeds of the Offering). The purchase price for each Founding
Company was determined based on negotiations between RailWorks Corporation and
the Founding Companies. The factors considered by the parties in determining the
purchase price were historical operating results, growth rates and assets and
liabilities of the Founding Companies, and such factors were applied
consistently to each Founding Company. For additional information regarding the
consideration to be paid to the owners of each Founding Company, see "Formation
of the Company -- The Combination".
As a result of the Combination, all 22 Founding Companies will become
wholly-owned subsidiaries of RailWorks Corporation. The consummation of each
acquisition that is a part of the Combination (each an "Acquisition" and
together the "Acquisitions") is contingent upon the consummation of the Offering
and customary closing conditions. The Acquisition Agreements require certain
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. After the Offering, the stockholders of the
Founding Companies, management of the Company and IPODC will own in the
aggregate 54.9% of the outstanding Common Stock, assuming the Underwriters'
over-allotment option is not exercised. The recipients of shares of Common Stock
in the Combination are the Selling Stockholders and, therefore, they may be
deemed to be "statutory underwriters" for purposes of the Securities Act of 1933
(the "Securities Act"). 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.
5
<PAGE> 9
SUMMARY PRO FORMA AS ADJUSTED FINANCIAL DATA
RailWorks Corporation was formed 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 the accounting
requirements of Staff Accounting Bulletin ("SAB") No. 97 of the Securities and
Exchange Commission (the "Commission") because its owners will receive the
largest portion (34.3%) of the shares of Common Stock issued to the Founding
Companies in the Combination. The acquisitions of the remaining Founding
Companies will be accounted for as purchases in accordance with Accounting
Principles Board ("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 the Company's future operating results or
financial position. The summary pro forma as adjusted financial data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," 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: (i) more efficient utilization of equipment and the
Company's workforce; (ii) the combination of administrative functions such as
accounting, finance and human resources and certain other functions at the
corporate level; (iii) better pricing on purchases of equipment and supplies;
and, to a lesser extent, (iv) joint bidding on larger rail projects. Those
savings, which cannot be quantified or reasonably estimated, have not been
reflected in the Unaudited Pro Forma As Adjusted Financial Statement or in the
summary data presented below.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
TWELVE MONTHS MARCH 31,
ENDED -----------------
DECEMBER 31, 1997 1997 1998
----------------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
INCOME STATEMENT DATA(1):
Revenue................................................. $256,508 $52,810 $61,810
Gross profit............................................ 35,035 7,097 7,192
General and administrative expenses(2).................. 21,290 5,507 5,060
Intangibles amortization(3)............................. 2,780 695 695
Income from operations.................................. 10,965 895 1,437
Interest and other income (expense), net................ 1,215 704 405
Income before income taxes.............................. 12,180 1,599 1,842
Net income(4)........................................... 6,548 752 902
Net income per share.................................... .43 .05 .06
Shares used in computing net income per share(5)........ 15,074 15,074 15,074
</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).......................................... $ 32,989 $ 41,813
Total assets................................................ 211,298 209,177
Long-term debt and capital leases, net...................... 16,113 --
Stockholders' equity........................................ 56,970 153,857
</TABLE>
(footnotes appear on following page)
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(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 general and administrative expenses reflect (i)
$5.2 million, $1.2 million and $1.2 million for the twelve months ended
December 31, 1997 and the three months ended March 31, 1997 and 1998,
respectively, in pro forma reductions in salaries, bonuses and benefits to
the stockholders of the Founding Companies and other management personnel
(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 a lease renewal by a Founding Company,
(iii) elimination of compensation expense of $400,000 in the three months
ended March 31, 1998, incurred in connection with the transfer of stock
between stockholders of a Founding Company and (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, for
estimated expenses of the Company's corporate office, including compensation
for its executive officers.
(3) As a result of the Combination (at an assumed initial public offering price
of $16.00 per share), the Company will have $91.1 million of goodwill and
$5.0 million of other intangible assets which will be 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) 7,208,583 shares to be issued to stockholders of the Founding
Companies, (ii) 6,659,065 shares to be sold by the Company in the Offering
and (iii) 1,205,882 shares to be issued to management.
(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 $72.0 million payable to the Founding Companies which will be paid
immediately upon consummation of the Offering.
(8) Adjusted to reflect the sale of the 6,659,065 million shares of Common Stock
offered by the Company hereby and the application of the estimated net
proceeds therefrom at an assumed initial public offering price of $16.00 per
share. See "Use of Proceeds."
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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. RailWorks Corporation was formed 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 as adjusted 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 executive 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 officers 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. The factors
considered by the parties in determining the purchase prices for the Founding
Companies were historical operating results, growth rates and the assets and
liabilities of the Founding Companies. 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 $149.5 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 $91.1 million of this excess
is reflected as goodwill 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."
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
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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 considers 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 "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 accounts 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 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 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
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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. Approximately 26.2% of
the Company's pro forma as adjusted revenue for the twelve months ended December
31, 1997 was derived from 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. Further, the Company's electrical installation business
is focused in the Northeastern United States and is therefore particularly
susceptible to economic downturns in that region. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Results of
Operations of the Founding Companies -- Comstock Holdings, Inc."
History of Losses; Fluctuations in Quarterly Operating Results. From time
to time, primarily due to industry cyclicality and uncertainties inherent in the
competitive bidding process, certain of the Founding Companies have experienced
net losses. See "-- Competitive Bidding; Risks of Fixed Price Contracts." For
the year ended December 31, 1995, Comstock incurred a net loss of approximately
$20 million, primarily as a result of a one-time accounting charge for the
impairment of certain long-lived assets. In addition, Comtrak Construction, Inc.
and Merit Railroad Contractors, Inc. incurred net losses in 1997 and U.S.
Trackworks, Inc. incurred a net loss in 1996 primarily due to insufficient
revenues to support fixed overhead. There can be no assurance that these
Founding Companies, other Founding Companies or the Company will be profitable
in the future. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
In addition, 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 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. For example, over the
last two years each of Comtrak Construction, Inc., H.P. McGinley, Incorporated,
Kennedy Railroad Builders, Inc., Merit Railroad Contractors, Inc., New England
Railroad Construction Company, Inc., Railroad Service, Inc., and U.S.
Trackworks, Inc. have experienced losses in the first quarters of certain fiscal
years. 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."
Amortization of Intangible Assets. Approximately $96.1 million, or 46%, 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 (assuming an
initial public offering price of $16.00 per share). 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
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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 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. Management believes that the Founding Companies compete effectively
in their industries. 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. Certain competitors may also provide a
broad range of services and products and may have sufficient bonding capacity to
undertake large projects. The Company also provides electrical contracting
services to non-rail industrial and commercial customers. While management
believes that the Company will be able to compete effectively in the non-rail
electrical contracting business, 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.
Based on estimates of the Founding Companies, management estimates that the
Company derived approximately 55% of its pro forma as adjusted revenue for the
year ended December 31, 1997 from public sector contracts and funding. See
"Business -- Government Regulation."
Competitive Bidding; Risks of Fixed Price Contracts. Fixed price contracts
are typically awarded in the rail system services and products industry 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
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which design the systems and manufacture or purchase the necessary equipment. In
other instances, the Company 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
subcontractors to post performance bonds. The Company may not require a
subcontractor to post a performance bond in situations where (i) the
subcontractor has strong experience with a specific type of project and
demonstrates financial stability and (ii) the customer does not require bonds
from the Company as prime contractor. However, the Company is dependent upon the
subcontractor to perform design and other services and provide equipment. 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 major components of electrical signaling and communication systems for
transit authorities are manufactured to specifications and require long lead
times for production. Should a subcontractor or supplier default, 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 the 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 effect 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 effect 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 believes that 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.
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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 industries
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 certain executive officers of each of the Founding
Companies will enter into employment agreements with their respective Founding
Companies in connection with the Combination, there can be no assurance that
such individuals will remain with the Company throughout the terms of their
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.
The Company does not maintain any life insurance policies on its executive
officers or senior management personnel. See "Management."
Compensation Differential. In connection with the Combination, certain
executive officers of each of the Founding Companies will enter into employment
agreements with their respective Founding 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 45% 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. At an assumed
initial public offering price of $16.00 per share, net proceeds of $72.0 million
from the Offering will be used to pay the cash portion of the purchase price for
the Founding Companies in the Combination and $26.6 million will be used to
repay outstanding indebtedness of certain of the Founding Companies (including
approximately $3 million of indebtedness incurred to finance the redemption of
shares of common stock of a Founding Company held by an ESOP). Approximately
$10.8 million of this indebtedness has been guaranteed by, or is payable to,
stockholders or affiliates of Founding Companies. See "Formation of the
Company -- The Combination."
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
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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
15.7% of the outstanding shares of Common Stock (14.4% 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 15,073,530 shares of Common Stock outstanding. The 6,800,000
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 8,273,530 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 as the
holding provisions of Rule 144 are satisfied. In addition, 2,000,000 shares of
Common Stock are reserved for issuance pursuant to the Incentive 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, within 90
days after the consummation of the Offering the Company intends to register
shares of Common Stock under the Securities Act for its use in connection with
future acquisitions.
Sales of substantial amounts of Common Stock in the public market following
the Offering, or the perception that such sales could occur, could adversely
affect prevailing market prices of the Common Stock or the ability of the
Company to raise capital through sales of its equity securities. 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.
From the first 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.
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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 $12.17 per share, or 76.1%, assuming an initial
public offering price of $16.00 per share. See "Dilution." Within 90 days after
consummation of the Offering the Company intends to register additional shares
of Common Stock for issuance in future acquisitions. 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 (the "DGCL"), 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."
15
<PAGE> 19
FORMATION OF THE COMPANY
INCORPORATION
RailWorks Corporation 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 Corporation
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 Corporation will acquire in separate transactions all of the issued
and outstanding capital stock of each of the Founding Companies for an aggregate
consideration (assuming an initial public offering price of $16.00 per share) of
$187.3 million (subject to adjustment), which consists of (i) $72.0 million in
cash, which will be paid from the proceeds of the Offering (representing 72.6%
of the estimated net proceeds of the Offering) and (ii) the $115.3 million
estimated fair value of 7,208,583 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 $26.6 million of indebtedness of certain of
the Founding Companies (including approximately $3 million of indebtedness
incurred to finance the redemption of shares of common stock of a Founding
Company held by an ESOP). Such indebtedness will be repaid with a portion of the
proceeds of the Offering (representing 26.8% of the estimated net proceeds of
the Offering). The purchase price for each Founding Company was determined based
on negotiations between RailWorks Corporation and the Founding Companies. The
factors considered by the parties in determining the purchase price were
historical operating results, growth rates and assets and liabilities of the
Founding Companies, and such factors were applied consistently to each Founding
Company. 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 $16.00 per share) in connection with the Combination (subject
to adjustment):
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SHARES OF SHARES OF
COMMON COMMON ASSUMED TOTAL
CASH(1) STOCK(1) STOCK INDEBTEDNESS CONSIDERATION(2)
------- --------- --------- ------------ ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Comstock Holdings, Inc., the accounting
acquiror.............................. $26,634 2,101,333 $ 33,621 $13,418 $ 60,255
Annex Railroad Builders, Inc.(3)........ 6,525 636,637 10,186 276 16,711
Comtrak Construction, Inc............... 1,014 169,933 2,719 7 3,733
Condon Brothers, Inc.................... 3,240 459,170 7,347 1,045 10,587
CPI Concrete Products Incorporated...... 4,059 296,438 4,743 3,782(4) 8,802
H.P. McGinley, Incorporated............. 5,150 519,192 8,307 619 13,457
Kennedy Railroad Builders, Inc.(5)...... 3,191 306,465 4,903 2,563 8,094
Merit Railroad Contractors, Inc......... 2,266 226,849 3,630 602 5,896
Midwest Construction Services, Inc...... 2,977 354,301 5,669 556 8,646
New England Railroad Construction
Company, Inc.......................... 3,624 365,356 5,846 658 9,470
Railroad Service, Inc.(6)............... 3,960 409,657 6,555 1,116 10,515
Southern Indiana Wood Preserving
Company, Inc.......................... 3,633 560,547 8,969 1,205 12,602
U.S. Trackworks, Inc.(7)................ 1,507 221,723 3,548 371 5,055
Wm. A. Smith Construction Co.,
Inc.(8)............................... 1,690 266,228 4,260 340 5,950
------- --------- -------- ------- --------
Subtotal........................... $69,470 6,893,829 $110,303 $26,558 $179,773
------- --------- -------- ------- --------
IPODC(9)................................ 2,480 314,754 5,036 -- 7,516
------- --------- -------- ------- --------
Total......................... $71,950 7,208,583 $115,339 $26,558 $187,289(9)
======= ========= ======== ======= ========
</TABLE>
(footnotes appear on following page)
16
<PAGE> 20
(footnotes from previous page)
- ---------------
(1) Fees to be paid to IPODC on behalf of the Founding Companies are set forth
separately in the table and are excluded from the amounts set forth for the
Founding Companies.
(2) Excludes assumed indebtedness.
(3) Includes Mize Construction Company, Railroad Specialities, Inc. and U.S.
Railway Supply Inc., all of which are under common control.
(4) Includes approximately $3 million of indebtedness incurred to finance the
redemption of shares of common stock of a Founding Company held by an ESOP.
(5) Includes Alpha-Keystone Engineering, Inc. and Railcorp, Inc., all of which
are under common control.
(6) Includes Minnesota Railroad Service, Inc., which is under common control.
(7) Includes Northern Rail Service and Supply Co., which is under common
control.
(8) Includes Wm. A. Smith Rerailing Service, Inc., which is under common
control.
(9) In exchange for services provided by IPODC, the Founding Companies have
agreed to pay IPODC a fee equal to 3 1/2% of the total consideration paid to
the Founding Companies in the Combination. Such fee will be paid in cash and
shares of Common Stock in the amounts reflected in the table. The table
excludes $500,000 of fees payable by the Company. See "-- Organizer."
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 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. Each Acquisition is subject to substantially the same
terms and conditions. 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. The Acquisition Agreements require
certain 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. After the Offering, the stockholders
of the Founding Companies, management of the Company and IPODC will in the
aggregate own 54.9% of the outstanding Common Stock, assuming the Underwriters'
over-allotment option is not exercised.
ORGANIZER
The Company was organized by 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
initial organizational stages of the Combination and the Offering. In exchange
for the services provided by IPODC, the Founding Companies have agreed to pay
IPODC or its designees upon the completion of the Combination and the Offering,
a fee equal to 3 1/2% of the total consideration paid to the Founding Companies
in the Combination. Such fee will be paid out of the cash and shares of Common
Stock to be received by the Founding Companies. IPODC is selling in the Offering
140,935 of the shares of Common Stock that it will receive from the Founding
Companies. In addition, the Company has agreed to pay IPODC $500,000 in exchange
for services provided in the Combination and certain future fees upon the
consummation of any acquisition of certain specified companies. The Company
currently has no understanding, agreement or arrangement with respect to the
acquisition of any of such companies. For accounting purposes, the $500,000 fee
payable in the Combination by the Company to IPODC has been included in the
calculation of the aggregate purchase price.
17
<PAGE> 21
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered by it hereby (at an assumed initial public offering price of $16.00 per
share), after deducting estimated underwriting discounts and commissions payable
by the Company, are estimated to be $99.1 million. Of such net proceeds, the
Company intends to use (i) $72.0 million to pay the cash portion of the
aggregate purchase price for the Founding Companies in the Combination, (ii)
$26.6 million to repay indebtedness of certain of the Founding Companies
(including approximately $3 million of indebtedness incurred to finance the
redemption of shares of common stock of a Founding Company held by an ESOP) and
(iii) the remainder to pay a portion of the expenses of the Offering. The
expenses of the Offering not covered by the net proceeds will be paid from the
Credit Facility (as defined herein) and cash on hand. See "Formation of the
Company -- The Combination" and "Certain Relationships and Related Party
Transactions -- The Combination."
The Company will not receive any proceeds from the sale of shares of Common
Stock to be sold by the Selling Stockholders.
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.
18
<PAGE> 22
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 to reflect the Combination and (ii) on a pro
forma as adjusted basis to reflect the Combination and the Offering. 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)
<S> <C> <C> <C>
Cash and cash equivalents............................. $ 945 $ 3,013 $ 892
Short-term debt and current portion of long-term
obligations......................................... 1,066 82,395(1) --
Long-term debt and capital lease obligations, less
current portion..................................... 12,352 16,113 --
Stockholders' equity:
Preferred Stock: $0.01 par value per share;
10,000,000 shares of the Company authorized; no
shares outstanding............................... -- -- --
Common Stock: $0.01 par value per share;
100,000,000 shares of the Company authorized;
150,000 shares of Comstock outstanding
historically; 8,414,465 shares outstanding pro
forma combined; and 15,073,530 shares outstanding
pro forma as adjusted(2)......................... 1 84 151
Additional paid-in capital.......................... 9 74,086 170,906
Retained earnings................................... 2,094 (17,200) (17,200)
------- -------- --------
Total stockholders' equity....................... 2,104 56,970 153,857
------- -------- --------
Total capitalization........................ $16,467 $158,491 $154,749
======= ======== ========
</TABLE>
- ---------------
(1) Consists of (i) $71,950,000 to be paid to the owners of the Founding
Companies in the Combination and (ii) $10,445,000 of existing short-term and
current portion of long-term debt of the Founding Companies.
(2) Includes (i) 1,130,504 shares of Common Stock to be granted to executive
officers of the Company and (ii) 75,368 shares of Common Stock to be granted
to corporate-level employees of the Company upon consummation of the
Offering. Does not include 2,000,000 shares of Common Stock that are
reserved for issuance under the Incentive Plan, of which options to purchase
20,000 restricted shares will be granted to the Company's non-employee
directors upon consummation of the Offering. See "Formation of the
Company -- The Combination," "Management -- 1998 Incentive Stock Plan" and
"Principal and Selling Stockholders."
19
<PAGE> 23
DILUTION
At March 31, 1998, the Company had a deficit in pro forma combined net
tangible book value of $39.1 million, or $4.65 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 6,659,065 shares of Common
Stock offered hereby (at an assumed initial public offering price of $16.00 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 $57.7 million, or $3.83 per share.
This represents an immediate dilution in pro forma as adjusted net tangible book
value to new investors of $12.17 per share, or 76.1%, and an immediate increase
in pro forma as adjusted net tangible book value to existing stockholders of
$8.48 per share. The following table illustrates this per share dilution to new
investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $16.00
------
Pro forma combined net tangible book value (deficit)...... $(4.65)
Increase in pro forma combined net tangible book value
resulting from the Offering............................ $ 8.48
------
Pro forma as adjusted net tangible book value after the
Offering.................................................. 3.83
------
Dilution per share to new investors......................... $12.17
======
</TABLE>
The following table sets forth, as of March 31, 1998, the number of shares
of Common Stock of the Company purchased, the total cash consideration paid and
the average price per share paid by the existing stockholder, the owners of the
Founding Companies, executive management and new investors purchasing shares of
Common Stock in the Offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- ------------------------- PRICE
NUMBER(1) PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ---------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............. 10 --% $ -- --% $10
Owners of Founding Companies(2)... 7,067,648 46.9 113,082,000 51.0 $16
Executive management.............. 1,205,872 8.0 -- --
New investors..................... 6,800,000 45.1 108,800,000 49.0 $16
---------- ----- ------------
15,073,530 100.0% $221,882,000 100.0%
========== ===== ============
</TABLE>
- ---------------
(1) Excludes 2,000,000 shares of Common Stock that are reserved for issuance
under the Incentive Plan, of which options to purchase 20,000 shares of
Common Stock will be granted to the Company's non-employee directors upon
consummation of the Offering.
(2) Represents shares to be issued to the stockholders of the Founding Companies
in the Combination (including 173,818 shares to be held by to IPODC
following consummation of the Offering). The total consideration reflects an
assumed initial public offering price of $16.00 per share.
20
<PAGE> 24
SELECTED PRO FORMA AS ADJUSTED FINANCIAL DATA
RailWorks Corporation was formed 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 because its owners will receive the largest portion (34.3%) of the
shares of Common Stock issued to the owners of the Founding Companies in the
Combination. The acquisitions of the remaining Founding Companies will be
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 the
Company's future operating results or financial position. The selected pro forma
as adjusted financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," 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: (i) more efficient
utilization of equipment and the Company's workforce; (ii) the combination of
administrative functions such as accounting, finance and human resources and
certain other functions at the corporate level; (iii) better pricing on
purchases of equipment and supplies; and, to a lesser extent, (iv) joint bidding
on larger rail projects. Those savings, which cannot be quantified or reasonably
estimated, have not been reflected in the Unaudited Pro Forma As Adjusted
Financial Statements or in the selected data presented below.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
TWELVE MONTHS MARCH 31,
ENDED -----------------
DECEMBER 31, 1997 1997 1998
----------------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
INCOME STATEMENT DATA(1):
Revenue................................................. $256,508 $52,810 $61,810
Gross profit............................................ 35,035 7,097 7,192
General and administrative expenses(2).................. 21,290 5,507 5,060
Intangibles amortization(3)............................. 2,780 695 695
Income from operations.................................. 10,965 895 1,437
Interest and other income (expense), net................ 1,215 704 405
Income before income taxes.............................. 12,180 1,599 1,842
Net income(4)........................................... 6,548 752 902
Net income per share.................................... .43 .05 .06
Shares used in computing net income per share(5)........ 15,074 15,074 15,074
</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).......................................... $ 32,989 $ 41,813
Total assets................................................ 211,298 209,177
Long-term debt and capital leases, net...................... 16,113 --
Stockholders' equity........................................ 56,970 153,857
</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.
21
<PAGE> 25
(2) The pro forma as adjusted general and administrative expenses data reflect
(i) $5.2 million, $1.2 million and $1.2 million for the twelve months ended
December 31, 1997 and the three months ended March 31, 1997 and 1998,
respectively, in pro forma reductions in salaries, bonuses and benefits to
the stockholders of the Founding Companies and other management personnel
(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 a lease renewal by a Founding Company,
(iii) elimination of compensation expense of $400,000 in the three months
ended March 31, 1998, incurred in connection with the transfer of stock
between stockholders of a Founding Company and (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, for
estimated expenses of the Company's corporate office, including compensation
for its executive officers.
(3) As a result of the Combination (at an assumed initial public offering price
of $16.00 per share), the Company will have $91.1 million of goodwill and
$5.0 million of other intangible assets which will be 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) 7,208,583 shares to be issued to stockholders of the Founding
Companies, (ii) 6,659,065 shares to be sold by the Company in the Offering
and (iii) 1,205,882 shares to be issued to management.
(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 $72.0 million payable to the Founding Companies which will be paid
immediately upon consummation of the Offering.
(8) Adjusted to reflect the sale of the 6,659,065 shares of Common Stock offered
by the Company hereby and the application of the estimated net proceeds
therefrom at an assumed initial public offering price of $16.00 per share.
See "Use of Proceeds."
22
<PAGE> 26
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 selected financial data
for the three months ended March 31, 1997 and 1998 were derived from unaudited
financial statements prepared 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, financial data for any interim period are not necessarily indicative of
results which can be expected for a full year.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
COMSTOCK HOLDINGS, INC., THE
ACCOUNTING ACQUIROR:
Income Statement Data:
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 -- -- --
Net income (loss).............. 2,594 2,782 (19,972) 58 1,428 440 666
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT MARCH 31,
---------------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets................... $ 97,004 $ 89,168 $ 86,108 $ 84,344 $ 68,352 $84,609 $64,417
Long-term debt................. -- -- 17,041 2,404 12,449 29,634 12,352
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED,
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ -----------------
1995 1996 1997 1997 1998
-------- -------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
COMTRAK CONSTRUCTION, INC.:
Revenue............................................. $ 2,976 $ 2,633 $ 1,009 $ 267 $ 175
Contract costs...................................... 2,576 1,984 857 228 138
Gross profit........................................ 400 649 152 39 37
General and administrative expenses................. 431 438 454 102 132
Net income (loss)................................... 44 160 (160) (53) (56)
CONDON BROTHERS, INC.:
Revenue............................................. $ 2,983 $ 5,517 $ 4,487 $ 944 $ 1,238
Contract costs...................................... 1,912 4,115 3,371 661 956
Gross profit........................................ 1,071 1,402 1,116 283 282
General and administrative expenses................. 757 839 983 208 260
Net income.......................................... 348 648 119 58 9
</TABLE>
23
<PAGE> 27
<TABLE>
<CAPTION>
THREE MONTHS
ENDED,
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ -----------------
1995 1996 1997 1997 1998
-------- -------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
MERIT RAILROAD CONTRACTORS, INC.:
Revenue............................................. $ 7,320 $ 9,931 $ 6,950 $ 986 $ 1,181
Contract costs...................................... 5,994 8,160 6,203 872 1,112
Gross profit........................................ 1,326 1,771 747 114 69
General and administrative expenses................. 858 1,126 971 179 265
Net income (loss)................................... 457 653 (386) (68) (174)
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
Net income.......................................... 804 893 433 184 163
RAILROAD SERVICE, INC. AND AFFILIATE:
Revenue............................................. $ 9,044 $ 10,709 $ 9,363 $ 238 $ 1,268
Contract costs...................................... 7,330 8,199 7,065 455 1,290
Gross profit (loss)................................. 1,714 2,510 2,298 (217) (22)
General and administrative expenses................. 1,289 1,418 1,450 268 721
Net income (loss)................................... 357 1,006 977 (332) (750)
U.S. TRACKWORKS, INC. AND AFFILIATE:
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
Net income (loss)................................... 192 (128) 297 (159) (37)
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
Net income.......................................... 1,042 889 841 158 283
WM. A. SMITH CONSTRUCTION CO., INC. AND AFFILIATE:
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
Net income.......................................... 307 154 229 25 48
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
NINE MONTHS ENDED
YEAR ENDED MARCH 31, ENDED MARCH 31,
--------------------------- DECEMBER 31, ---------------
1996 1997 1997 1997 1998
------------ ------------ ------------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ANNEX RAILROAD BUILDERS, INC. AND AFFILIATES:
Revenue...................................... $13,308 $15,467 $15,099 $5,286 $2,923
Contract costs............................... 11,137 12,948 12,406 4,512 2,280
Gross profit................................. 2,171 2,519 2,693 774 643
General and administrative expenses.......... 1,235 1,674 1,326 453 370
Net income................................... 707 599 970 206 218
</TABLE>
24
<PAGE> 28
<TABLE>
<CAPTION>
THREE MONTHS
NINE MONTHS ENDED
YEAR ENDED MARCH 31, ENDED MARCH 31,
--------------------------- DECEMBER 31, ---------------
1996 1997 1997 1997 1998
------------ ------------ ------------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
KENNEDY RAILROAD BUILDERS, INC. AND
ASSOCIATED COMPANIES:
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
Net income (loss)............................ 123 78 246 (79) (89)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
--------------------------- TEN MONTHS ENDED
ENDED MARCH 31,
FEBRUARY 29, FEBRUARY 28, DECEMBER 31, ---------------
1996 1997 1997 1997 1998
------------ ------------ ------------ ------ ------
(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
Net income (loss)............................ 12 72 431 (43) 80
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 (loss).......................... 327 1,596 680 517 (196)
General and administrative expenses.......... 396 779 652 162 122
Net income (loss)............................ (59) 547 18 195 (195)
</TABLE>
<TABLE>
<CAPTION>
TWO MONTHS
ENDED
YEAR ENDED JANUARY 31, MARCH 31,
--------------------------------- ---------------
1996 1997 1998 1997 1998
------- ------- ------- ------ ------
(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............................. 8,717 8,192 9,156 1,611 1,447
Gross profit................................... 2,299 1,906 1,830 181 222
General and administrative expenses............ 1,442 1,317 1,248 192 126
Net income..................................... 563 417 445 34 67
</TABLE>
25
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
RailWorks Corporation 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. 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 $256.5 million,
operating income of $11.0 million and net income of $6.5 million. For the three
months ended March 31, 1998, on a pro forma as adjusted basis, the Company had
revenue of $61.8 million, operating income of $1.4 million and net income of
$902,000.
While the Company intends to conduct the operations of the Founding
Companies on a decentralized basis, the Company will integrate certain aspects
of its operations, such as administrative functions, in order to achieve
potential 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. The Company does not anticipate any material
reduction in its workforce to result from this integration. As a result of these
various additional 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 executive officers of
each of the Founding Companies will enter into employment agreements with their
respective Founding Companies. The aggregate compensation to be paid to such
executive officers will be reduced as reflected in the Unaudited Pro Forma As
Adjusted Statements of Income included elsewhere in this Prospectus. 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 price contracts using the
percentage-of-completion method, measured by the percentage of costs 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 principally 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.
26
<PAGE> 30
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.
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 or as a subcontractor. The Company generally realizes higher
gross margins on projects in which it functions as a prime contractor. A
significant portion of the Company's revenue is attributable to materials and
supplies installed in connection with its contracting activities. Costs of
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 consists 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.
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 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. See "Risk Factors -- Rail System Cyclicality" and
"-- History of Losses; Fluctuations in Quarterly Operating Results."
PRO FORMA AS ADJUSTED RESULTS OF OPERATIONS
The pro forma as adjusted results of operations of the Company 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 as a result
of 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.
27
<PAGE> 31
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..................................................... $52,810 $61,810
Contract costs and cost of goods sold....................... 45,713 54,618
Gross profit................................................ 7,097 7,192
General and administrative expenses......................... 5,507 5,060
Intangibles amortization.................................... 695 695
Net income.................................................. 752 902
</TABLE>
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997
Revenue. Revenue increased to $61.8 million for the three months ended
March 31, 1998 from $52.8 million for the three months ended March 31, 1997, an
increase of $9.0 million, or 17.0%. Revenue increased primarily as a result of
higher revenue at Comstock. See "-- Comstock Holdings, Inc."
Gross Profit. Gross profit increased to $7.2 million for the three months
ended March 31, 1998 from $7.1 million for the three months ended March 31,
1997, an increase of $95,000 or 1.3%. As a percentage of revenue, gross profit
decreased to 11.6% for the three months ended March 31, 1998 from 13.4% 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 $5.1 million for the three months ended March 31, 1998 from $5.5
million for the three months ended March 31, 1997, a decrease of $447,000 or
8.1%. This decrease was the result of improved workers' compensation claims
experience and reduced costs at Comstock due to cost reductions implemented
following its acquisition from Spie (as described below). As a percentage of
revenue, general and administrative expenses decreased to 8.2% for the three
months ended March 31, 1998 from 10.4% 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.
Net Income. Net income increased to $902,000 for the three months ended
March 31, 1998 from $752,000 for the three months ended March 31, 1997, an
increase of $150,000 or 19.9%. As a percentage of revenue, net income increased
to 1.5% for the three months ended March 31, 1998 from 1.4% for the three months
ended March 31, 1997.
PRO FORMA AS ADJUSTED LIQUIDITY AND CAPITAL RESOURCES
The Company expects capital expenditures of approximately $1.0 million and
$3.0 million in 1998 and 1999, respectively, primarily to support expansion of
its management information systems.
Cash for future acquisitions and working capital will be financed by funds
generated from operations, together with borrowings under a three-year, $75.0
million senior revolving credit facility (the "Credit Facility") which
NationsBank, N.A. ("NationsBank") has committed to extend upon consummation of
the Offering and the satisfaction of certain customary closing conditions. The
Credit Facility will be secured by a first lien on all of the capital stock of
the Company's subsidiaries and on all accounts receivable of the Company and its
subsidiaries. The credit agreement (the "Credit Agreement") governing the Credit
Facility will contain a negative pledge
28
<PAGE> 32
on all other assets of the Company and its subsidiaries and other usual and
customary covenants and events of default for transactions of the type
contemplated by the Credit Facility. Borrowings under the Credit Facility will
bear interest, at the option of the Company, at an interest rate equal to (i)
LIBOR plus the applicable margin for LIBOR loans, which ranges from 100 basis
points to 200 basis points based on the ratio of Funded Debt to EBITDA (as such
terms will be defined in the Credit Agreement) or (ii) the Alternate Base Rate
(defined as the higher of (a) the NationsBank prime rate and (b) the Federal
Funds rate plus 50 basis points) plus up to 50 basis points based on the ratio
of Funded Debt to EBITDA. The Company may also finance future acquisitions with
shares of Common Stock.
RESULTS OF OPERATIONS OF THE FOUNDING COMPANIES
Prior to the Combination, the Founding Companies (other than Annex Railroad
Builders, Inc., Comstock Holdings, Inc., CPI Concrete Products Incorporated,
H.P. McGinley, Incorporated, Kennedy Railroad Builders, Inc., New England
Railroad Construction Company, Inc., and Wm. A. Smith Construction Co., Inc.)
elected to be treated as S Corporations for federal income tax purposes. As a
result, these S Corporations were not subject to federal income taxes. The
selling, general and administrative expenses of the Founding Companies include
compensation to employee-stockholders of the Founding Companies for the years
ended December 31, 1996 and 1997 and the three months ended March 31, 1998. Upon
consummation of the Combination, certain executive officers of each of the
Founding Companies will enter into employment agreements with their respective
Founding Companies. The aggregate compensation to be paid to such executive
officers will be reduced as reflected in the Unaudited Pro Forma As Adjusted
Statements of Income included elsewhere in this Prospectus. 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." 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 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 certain employees of L.K. Comstock. Comstock's
revenue in fiscal 1997 was $153.6 million, representing 59.9% 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. As a result of this plan,
Comstock has reduced 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
29
<PAGE> 33
transit project estimating and bidding functions and (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. Following the Comstock
Acquisition, management has focused the business to benefit from its core
competencies, including rail-based transit projects. However, Comstock's
electricians and supervisors are capable of performing services on rail and
non-rail projects, thus enabling the efficient use of experienced labor on
projects in response to demand. Additionally, its accounting and management
systems are designed to provide necessary information for both rail and non-rail
projects. In 1997, Comstock derived 56.7% of its revenue and 58.6% of its gross
profit from rail-related projects as compared to 48.1% and 48.5%, 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 4,423 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
Net income
(loss)............. (19,972) (11.0) 58 -- 1,428 0.9 440 1.4 666 1.6
</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").
Gross Profit. Gross profit remained stable at $4.4 million for the three
months 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 JFK 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 $671,000, 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.
Net Income. Net income increased to $666,000 for the three months ended
March 31, 1998 from $440,000 for the three months ended March 31, 1997, an
increase of $226,000, or 51.4%. As a percentage of revenue, net income increased
to 1.6% for the three months ended March 31, 1998 from 1.4% for the three months
ended March 31, 1997. The increase in net income was primarily due to the
reduction in general and administrative expenses described above and a decrease
in interest expense due to lower average borrowings.
30
<PAGE> 34
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 decrease was due to a decrease in revenue from
Comstock's power and industrial operations attributable to the completion of
certain large projects in 1996 and 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.
The decrease in revenue from traffic operations, as well as a portion of the
decrease in revenue from power and industrial operations, were due to the change
in strategic focus discussed above and it is unlikely that such projects will be
replaced. Rail-related revenue did not change significantly from 1996 to 1997
due to limited bonding capacity.
Gross Profit. Gross profit decreased to $16.9 million for the year ended
December 31, 1997 from $19.5 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-based non-rail
projects which had significantly lower margins. Additionally, 1996 gross profit
benefitted from 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."
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.
Net Income. Net income increased to $1.4 million for the year ended
December 31, 1997 from $58,000 for the year ended December 31, 1996, an increase
of $1.4 million. For each period, net income as a percentage of revenue was less
than 1%. The increase in net income was partially due to the reduction of
general and administrative expenses discussed above and the elimination of
management expenses of $941,000 paid to Spie and related entities in 1996. In
addition, as a result of the Comstock Acquisition and the related purchase
accounting, approximately $1.5 million of depreciation and amortization were
eliminated in 1997 as compared to 1996. These factors which increased net income
were partially offset by the decrease in gross profit due to the factors
discussed above.
Year Ended December 31, 1996 Compared to Year Ended December 31, 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 3.9%. This 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
that 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 $2.6 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
31
<PAGE> 35
project contingencies (see "Certain Transactions and Related Party
Transactions -- Other Transactions") and, to a lesser extent, increased revenue.
General and Administrative Expenses. General and administrative expenses
decreased to $15.1 million for the year ended December 31, 1996 from $15.6
million for the year ended December 31, 1995, a decrease of $571,000, or 3.7%.
As a percentage of revenue, general and administrative expenses decreased to
8.0% for the year ended December 31, 1996 from 8.6% for the year ended December
31, 1995. This decrease was primarily the result of a reduction in
administrative staff and expenses at Comstock's Los Angeles office.
Net Income (Loss). Net income increased to $58,000 from a net loss of
$20.0 million for the year ended December 31, 1995, an improvement of $20.0
million. The improvement in net income was primarily due to a charge of $20.1
million incurred in 1995 for the impairment of long-lived assets and the
increase in gross profit due to the factors discussed above. These factors were
partially offset by an increase in interest expense of $1.2 million due to
higher average borrowings.
LIQUIDITY AND CAPITAL RESOURCES OF COMSTOCK HOLDINGS, INC.
At March 31, 1998, Comstock had cash and cash equivalents of $945,000 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 described below.
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 the commencement of certain new rail-related projects which increased the
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, have guaranteed a portion of the borrowings. The total
amount of borrowings including letters of credit outstanding 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. See "Use of Proceeds."
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 March 31, 1998, $14.6 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,
$4.9 million of Comstock's retainage was invested in marketable securities.
Comstock estimates that $7.3 million of this retainage will be collected by
March 31, 1999.
Prior to the Comstock Acquisition, Comstock maintained a deductible of
$250,000 per incident on its auto and general liability insurance policies. At
December 31, 1997, Comstock carried a $3.6 million liability on its balance
sheet as a reserve against these liabilities. Currently, Comstock
32
<PAGE> 36
maintains considerably lower deductibles on its insurance policies to provide
greater predictability and consistency in insurance and liability costs.
ANNEX RAILROAD BUILDERS, INC. AND AFFILIATES
Founded in 1961, Annex Railroad Builders, Inc. and its affiliates ("Annex")
provide construction, rehabilitation, repair and maintenance services for
railroad track in the Midwestern and Southern United States. In calender year
1997, Annex estimates that it derived approximately 69% of its revenue from
maintenance and repair and 31% of its revenue from new construction and
rehabilitation. Annex's revenue in calendar year 1997 was $19.1 million,
representing 7.4% of the Company's pro forma as adjusted revenue for 1997.
The following table sets forth certain selected combined financial data and
data as a percentage of revenue for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED THREE MONTHS ENDED MARCH 31,
MARCH 31, DECEMBER 31, -------------------------------
1997 1997 1997 1998
--------------- --------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue............................ $15,467 100.0% $15,099 100.0% $5,286 100.0% $2,923 100.0%
Contract costs..................... 12,948 83.7 12,406 82.2 4,512 85.4 2,280 78.0
Gross profit....................... 2,519 16.3 2,693 17.8 774 14.6 643 22.0
General and administrative
expenses......................... 1,674 10.8 1,326 8.8 453 8.6 370 12.7
Net income......................... 599 3.9 970 6.4 206 3.9 218 7.5
</TABLE>
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997
Revenue. Revenue decreased to $2.9 million for the three months ended
March 31, 1998 from $5.3 million for the three months ended March 31, 1997, a
decrease of $2.4 million, or 44.7%, primarily as a result of two large
government projects that were completed in 1997.
Gross Profit. Gross profit decreased to $643,000 for the three months
ended March 31, 1998 from $774,000 for the three months ended March 31, 1997, a
decrease of $131,000, or 16.9%. As a percentage of revenue, gross profit
increased to 22.0% for the three months ended March 31, 1998 from 14.6% for the
three months ended March 31, 1997. Gross profit decreased as a result of the
decline in revenue. Despite the decrease in gross profit, gross profit as a
percentage of revenue increased due to an improvement in the types of jobs
performed.
General and Administrative Expenses. General and administrative expenses
decreased to $370,000 for the three months ended March 31, 1998 from $453,000
for the three months ended March 31, 1997, a decrease of $82,000, or 18.3%. As a
percentage of revenue, general and administrative expenses increased to 12.7%
for the three months ended March 31, 1998 from 8.6% 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.
Net Income. Net income remained relatively stable at $218,000 for the
three months ended March 31, 1998 and $206,000 for the three months ended March
31, 1997. As a percentage of revenue, net income increased to 7.5% for the three
months ended March 31, 1998 from 3.9% for the three months ended March 31, 1997.
The increase in net income as a percentage of revenue resulted from the decrease
in revenue, offset in part by the decrease in general and administrative
expenses, as described above.
33
<PAGE> 37
Nine Months Ended December 31, 1997 Compared to Year Ended March 31, 1997
Because Annex changed its fiscal year end in 1997 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 $15.1 million for the nine months ended December 31,
1997 and $15.5 million for the year ended March 31, 1997. Revenue increased to
$18.0 million in the twelve-month period ended March 31, 1998 from $15.5 million
in the year ended March 31, 1997, an increase of $2.5 million, or 16.5%. This
increase was attributable to an increase in the number of contracts in process
due to strong demand for government projects.
Gross Profit. Gross profit was $2.7 million for the nine months ended
December 31, 1997 and $2.5 million for the year ended March 31, 1997. Gross
profit increased to $3.3 million for the twelve-month period ended March 31,
1998 from $2.5 million for the year ended March 31, 1997, an increase of
$817,000, or 32.4%. As a percentage of revenue, gross profit increased to 18.5%
for the twelve-month period ended March 31, 1998 from 16.3% 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 $1.3 million for the nine months ended December 31, 1997 and $1.7 million
for the year ended March 31, 1997. General and administrative expenses remained
relatively stable at $1.7 million for the twelve-month period ended March 31,
1998 and for the year ended March 31, 1997. As a percentage of revenue, general
and administrative expenses decreased to 9.4% for the twelve-month period ended
March 31, 1998 from 10.8% for the year ended March 31, 1997. This decrease was
the result of relatively stable expenses despite the increase in revenue.
Net Income. Net income was $970,000 for the nine months ended December 31,
1997 and $599,000 for the year ended March 31, 1997. Net income increased to
$1.2 million for the twelve-month period ended March 31, 1998 from $599,000 for
the year ended March 31, 1997, an increase of $589,000, or 98.3%. As a
percentage of revenue, net income increased to 6.6% for the twelve-month period
ended March 31, 1998 from 3.9% for the year ended March 31, 1997. The increase
in net income was the result of the increase in gross profit discussed above.
CPI CONCRETE PRODUCTS INCORPORATED
Founded in 1974, CPI Concrete Products Incorporated ("CPI Concrete")
provides pre-stressed and pre-cast concrete products to rail systems, highways,
bridges, airports, power plants and dams throughout the United States. CPI
Concrete's revenue in 1997 was approximately $10.9 million, representing 4.3% of
the Company's pro forma as adjusted revenue for 1997.
The following table sets forth certain selected 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
--------------- --------------- --------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<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
(includes
depreciation)...... 8,717 79.1 8,192 81.1 9,156 83.3 1,611 89.9 1,447 86.7
Gross profit......... 2,299 20.9 1,906 18.9 1,830 16.7 181 10.1 222 13.3
General and
administrative
expenses........... 1,442 13.1 1,317 13.1 1,248 11.3 192 10.7 126 7.5
Net income........... 563 5.1 417 4.1 445 4.1 34 1.9 67 4.0
</TABLE>
34
<PAGE> 38
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 $123,000, or 6.9%. This decrease was the result of a marginal decrease in the
number of units sold.
Gross Profit. Gross profit increased to $222,000 for the two months ended
March 31, 1998 from $181,000 for the two months ended March 31, 1997, an
increase of $41,000 or 22.7%. As a percentage of revenue, gross profit increased
to 13.3% for the two months ended March 31, 1998 from 10.1% for the two months
ended March 31, 1997. Gross profit increased due to a more favorable product mix
that resulted in lower costs of goods sold.
General and Administrative Expenses. General and administrative expenses
decreased to $126,000 for the two months ended March 31, 1998 from $192,000 for
the two months ended March 31, 1997, a decrease of $66,000, or 34.4%. As a
percentage of revenue, general and administrative expenses decreased to 7.5% for
the two months ended March 31, 1998 from 10.7% for the two months ended March
31, 1997. This decrease was a result of a reduction in performance bonuses.
Net Income. Net income increased to $67,000 for the two months ended March
31, 1998 from $34,000 for the two months ended March 31, 1997. As a percentage
of revenue, net income increased to 4.0% for the two months ended March 31, 1998
from 1.9% for the two months ended March 31, 1997. This increase was the result
of the factors discussed above.
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
$888,000, or 8.8%. This increase was due to an increase in the number of units
sold.
Gross Profit. Gross profit decreased to $1.8 million for the year ended
January 31, 1998 from $1.9 million for the year ended January 31, 1997, a
decrease of $76,000, or 4.0%. As a percentage of revenue, gross profit decreased
to 16.7% for the year ended January 31, 1998 from 18.9% for the year ended
January 31, 1997. Gross profit decreased as a result of increased cost of goods
sold, offset in part by increased revenues.
General and Administrative Expenses. General and administrative expenses
remained relatively constant at $1.2 million for the year ended January 31, 1998
and $1.3 million for the year ended January 31, 1997. As a percentage of
revenue, general and administrative expenses decreased to 11.3% for the year
ended January 31, 1998 from 13.1% for the year ended January 31, 1997. This
decrease was the result of leveraging general and administrative expenses over
higher revenue.
Net Income. Net income remained relatively stable at $445,000 for the year
ended January 31, 1998 compared to $417,000 for the year ended January 31, 1997.
As a percentage of revenue, net income remained stable at 4.1%.
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
$918,000, or 8.3%. This decrease was the result of a decline in the number of
units sold.
Gross Profit. Gross profit decreased to $1.9 million for the year ended
January 31, 1997 from $2.3 million for the year ended January 31, 1996, a
decrease of $393,000, or 17.1%. As a percentage of revenue, gross profit
decreased to 18.9% for the year ended January 31, 1997 from 20.9% for the year
ended January 31, 1996. The decline in gross profit was due to an increase in
wages combined with lower revenue.
35
<PAGE> 39
General and Administrative Expenses. General and administrative expenses
decreased to $1.3 million for the year ended January 31, 1997 from $1.4 million
for the year ended January 31, 1996, a decrease of $125,000 or 8.7%. As a
percentage of revenue, general and administrative expenses remained relatively
stable at 13.1% and 13.0% for the years ended January 31, 1997 and 1996,
respectively.
Net Income. Net income decreased to $417,000 for the year ended January
31, 1997 from $563,000 for the year ended January 31, 1996, a decrease of
$146,000 or 25.9%. As a percentage of revenue, net income decreased to 4.1% of
revenue for the year ended January 31, 1997 compared to 5.1% for the year ended
January 31, 1996. The decrease was the result of the increase in wages discussed
above.
KENNEDY RAILROAD BUILDERS, INC. AND ASSOCIATED COMPANIES
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 estimate that, collectively, they 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 was $10.5 million, representing 4.1% of the Company's pro
forma as adjusted revenue for 1997.
The following table sets forth certain selected combined 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
Net income (loss)..... 123 1.8 78 0.8 246 3.0 (79) (3.5) (89) (3.7)
</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 $139,000, or 6.2%, primarily as a result of an increase in the
number of construction projects in process.
Gross Profit. Gross profit remained relatively constant at $305,000 and
$287,000 for the three months ended March 31, 1998 and 1997, respectively. 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 relatively constant at $417,000 and $396,000 for the three months ended
March 31, 1998 and 1997, respectively. As a percentage of revenue, general and
administrative expenses remained relatively stable at 17.5% and 17.6% for the
three months ended March 31, 1998 and 1997, respectively.
Net Loss. Kennedy, Alpha-Keystone and Railcorp experienced a combined net
loss of $89,000 for the three months ended March 31, 1998 compared to $79,000
for the three months ended
36
<PAGE> 40
March 31, 1997. As a percentage of revenue, the combined net loss increased to
3.7% for the three months ended March 31, 1998 compared to 3.5% for the three
months ended March 31, 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 in 1997, 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 the result of an increase in the number of 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 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 $260,000, 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 $82,000 or 5.5%. This
increase in general and administrative expenses was due to higher salaries and
wages. 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.
Net Income. Net income was $246,000 for the nine months ended December 31,
1997 and $78,000 for the year ended March 31, 1997. Net income increased to
$157,000 for the twelve-month period ended March 31, 1998 from $78,000 for the
year ended March 31, 1997. As a percentage of revenue, net income increased to
1.5% for the twelve-month period ended March 31, 1998 from 0.8% for the year
ended March 31, 1997. The increase was the result of the increase in gross
profit discussed above.
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 the commencement of operations by Alpha-Keystone, which added revenue from
engineering services and facilitated the award of additional construction
contracts.
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 $204,000, 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 $151,000 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,
37
<PAGE> 41
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.
Net Income. Net income decreased to $78,000 for the year ended March 31,
1997 from $123,000 for the year ended March 31, 1996, a decrease of $45,000, or
36.6%. As a percentage of revenue, net income decreased to 0.8% for the year
ended March 31, 1997 from 1.8% for the year ended March 31, 1996. The decrease
was the result of the lower margins on certain contracts discussed above.
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 estimates that it 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.
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.............. $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 85.7
Gross profit......... 1,366 14.7 1,503 13.9 1,039 10.7 330 14.5 350 14.3
General and
administrative
expenses........... 644 6.9 649 6.0 645 6.7 149 6.5 189 7.7
Net income........... 804 8.6 893 8.2 433 4.5 184 8.1 163 6.6
</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 $175,000, or 7.7%, primarily as a result of an increase in the
number of projects in process.
Gross Profit. Gross profit remained relatively constant at $350,000 and
$330,000 for the three months ended March 31, 1998 and 1997, respectively. As a
percentage of revenue, gross profit remained relatively stable at 14.3% for the
three months ended March 31, 1998 and 14.5% for the three months ended March 31,
1997.
General and Administrative Expenses. General and administrative expenses
increased to $189,000 for the three months ended March 31, 1998 from $149,000
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.
Net Income. Net income remained relatively constant at $163,000 for the
three months ended March 31, 1998 compared to $184,000 for the three months
ended March 31, 1997. As a percentage of revenue, net income decreased to 6.6%
for the three months ended March 31, 1998 from 8.1% for the three months ended
March 31, 1997. The decrease as a percentage of revenues was due to the increase
in professional fees discussed above.
38
<PAGE> 42
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 fewer contracts awarded through
competitive bidding.
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 $464,000, 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 material
costs as a percentage of revenue.
General and Administrative Expenses. General and administrative expenses
remained constant at approximately $645,000 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.
Net Income. Net income decreased to $433,000 for the year ended December
31, 1997 from $893,000 for the year ended December 31, 1996, a decrease of
$460,000, or 51.5%. As a percentage of revenue, net income decreased to 4.5% for
the year ended December 31, 1997 from 8.2% for the year ended December 31, 1996.
The decrease was the result of the decrease in revenues discussed above.
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 $137,000, 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 relatively constant 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 as result of leveraging general and administrative expenses over a higher
sales volume.
Net Income. Net income increased to $893,000 for the year ended December
31, 1996 from $804,000 for the year ended December 31, 1995, an increase of
$89,000, or 11.1%. As a percentage of revenue, net income decreased to 8.2% for
the year ended December 31, 1996 from 8.6% for the year ended December 31, 1995.
The decrease in net income as a percentage of revenue resulted from the increase
in revenue from lower margin contracts as discussed above.
RAILROAD SERVICE, INC. AND AFFILIATE
Founded in 1972, Railroad Service, Inc. ("Railroad Service") provides
construction, maintenance and rehabilitation services primarily to industrial
companies located in the Northern and Midwestern United States. Minnesota
Railroad Service, Inc. ("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 estimate that, collectively,
they derived approximately 64% of revenue from new construction, approximately
32% from maintenance and repair and
39
<PAGE> 43
approximately 4% from other services. 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 selected combined 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
Net income (loss).... 357 3.9 1,006 9.4 977 10.4 (332) (139.5) (750) (59.1)
</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 $238,000 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, as
well as unseasonably good weather which increased the available working days
during the period.
Gross Loss. Gross loss decreased by $195,000 to $22,000 for the three
months ended March 31, 1998 from a gross loss of $217,000 for the three months
ended March 31, 1997. Contract costs exceeded revenue for the three month
periods ended March 31, 1997 and 1998. The improvement in gross loss was due to
the increased absorption of fixed costs as revenue increased.
General and Administrative Expenses. General and administrative expenses
increased to $721,000 for the three months ended March 31, 1998 from $268,000
for the three months ended March 31, 1997, an increase of $453,000 due to a
transfer of stock between the owners of Railroad Service in 1998, which resulted
in a $400,000 charge to executive compensation. 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.
Net Loss. Net loss increased to $750,000 for the three months ended March
31, 1998 from $332,000 for the three months ended March 31, 1997, an increase of
$418,000 or 125.9%. As a percentage of revenue, net loss improved to 59.1% for
the three months ended March 31, 1998 compared to 139.5% for the three months
ended March 31, 1997. The increase in net loss and decrease in loss as a
percentage of revenue was the result of items discussed above.
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 division of Railroad Service and, as a
result, 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 $212,000, or 8.4%. 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.
40
<PAGE> 44
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 was a result of the fixed nature of a significant portion of general
and administrative expenses.
Net Income. Net income remained relatively stable at $977,000 for the year
ended December 31, 1997 compared to $1.0 million for the year ended December 31,
1996. Net income as a percentage of revenue increased to 10.4% from 9.4%. The
increase as a percentage of revenue was the result of the higher profitability
on contracts discussed above.
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%, due to 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 $796,000, 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 as a percentage of revenue
was due to improved contract performance and a more favorable competitive
environment.
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 $129,000, or 10.0%. As a
percentage of revenue, general and administrative 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.
Net Income. Net income increased to $1.0 million for the year ended
December 31, 1996 from $357,000 for the year ended December 31, 1995, an
increase of $649,000, or 181.8%. As a percentage of revenue, net income
increased to 9.4% for the year ended December 31, 1996 from 3.9% for the year
ended December 31, 1995. The increase was a result of the improved contract
performance discussed above
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 that the effects, if
any, that Year 2000 issues may have on its business will not be material to the
Company's business, financial condition or results of operations.
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BUSINESS
OVERVIEW
RailWorks Corporation 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 Corporation
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 will establish a
significant operating enterprise which management believes will serve as the
foundation for a consolidation of the highly-fragmented rail system services and
products industry. Based on their experience in the rail system services and
products industry, management believes that there is a trend among rail system
operators toward increased outsourcing of services and the use of fewer vendors.
Management believes that the Combination and future acquisitions will enable it
to capitalize on this trend. The Company's strategy is based on providing a full
range of rail-related services and products on a national basis and offering
integrated rail system solutions under the "RailWorks" brand. In 1997, on a pro
forma as adjusted basis, the Company had revenue of $256.5 million, operating
income of $11.0 million and net income of $6.5 million. For the three months
ended March 31, 1998, on a pro forma as adjusted basis, the Company had revenue
of $61.8 million, operating income of $1.4 million and net income of $902,000.
Based on estimates of the founding companies, management estimates that
approximately 68.4% of the Company's pro forma as adjusted revenue for the year
ended December 31, 1997 was derived from rail-related operations and 31.6% was
derived from non-rail related operations.
INDUSTRY OVERVIEW
The rail passenger and freight industries have undergone significant
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 install trackwork in their plants to transport raw materials,
equipment and finished goods. This trackwork consists of connector lines that
provide access to Class I or shortline railroads and railyards to coordinate the
shipment and delivery of cargo to and from their plants. Companies are
responsible for maintaining their own track and typically construct and
reconfigure trackage as part of plant construction and 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 rights-of-way that are 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).
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According to APTA, there are now 16 commuter rail agencies in 13 urban areas and
22 light rail agencies nationwide. According to APTA, 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. On June 9, 1998, the President signed the Transportation
Equity Act for the 21st Century ("TEA 21"), which provides $42 billion of funds
for transit projects during the next six fiscal years. See "Government
Regulation -- TEA 21." This represents more than a 40% increase of funding from
the previous six-year period. Accordingly, opportunities to provide rail-related
signaling, communication, electrical and track system construction,
rehabilitation, repair and maintenance services for transit systems have
increased and are expected to continue to increase significantly.
As a result of industry consolidation there are only eight 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, CSX Transportation, Kansas City Southern Lines, Norfolk Southern
Railway Company, Union Pacific, Consolidated Rail Corporation, Canadian National
and Canadian Pacific. According to the AAR, 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. Management believes that as Class I railroads seek to
continue to improve their cost structures, they will increasingly 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. According
to the AAR, 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.
Based on information published by the AAR and APTA, 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 $14
billion, consisting of approximately $6 billion by passenger rail authorities
and transit authorities (including Amtrak), approximately $6 billion by Class I
railroads, approximately $1 billion by regional and shortline railroads and
approximately $1 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.
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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
workforces beyond their local and regional markets. Additionally, management
believes that 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
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. Management further believes that 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 rail-related products, including rail, ties, spikes,
frogs (rail intersections), tie plates and ballast and (iv) for its non-rail
customers, electrical installation services and concrete products. Based on
estimates of the Founding Companies, management estimates that revenue from
rail-related (i) construction and rehabilitation, (ii) repair and maintenance
and (iii) OTM and products accounted for 46.5%, 15.4% and 6.5%, respectively, of
the Company's pro forma as adjusted revenue for the year ended December 31, 1997
and non-rail services and products accounted for 31.6% 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, United States Steel and
Terminal One at JFK International (Airport), which have contracted with the
Company for track construction and maintenance or 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 or station projects;
(iii) shortline railroads such as Indiana Southern Railroad Company, Branford
Steam Railroad and I&M Rail Link, which have contracted with the Company for
track construction and maintenance work or 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 or 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 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. In addition, the
Company expects to continue to provide non-rail services and products in
response to market opportunities. Key elements of the Company's strategy include
the following:
Provide Integrated Solutions for Rail Systems. Management believes that
rail system owners 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
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<PAGE> 48
products. As a result of the Combination, the Company will be able to provide
its customers with integrated rail system solutions which management believes
can be efficiently designed, constructed, maintained, operated and supplied,
resulting in lower costs over the life cycle of customers' 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 rail-related 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 rail customers with multiple sites
and "cross-sell" its broad range of rail-related services and products. The
Company currently has very limited international operations but 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 its regional
and smaller competitors. Key areas in which the Company expects to achieve cost
savings include (i) purchasing of equipment and supplies, (ii) insurance
expenses, (iii) financing costs and (iv) 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. The Company does
not intend to expand its non-rail business through 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 Founding Companies. 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.
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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 of
experience in the transportation industry, including, in the case of John Larkin
(the Company's Chief Executive Officer) approximately 11 years of experience as
an equity research analyst focusing on the transportation industry. Senior
management of the Company will coordinate the operations of the Founding
Companies, provide strategic guidance for the Company, implement 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. For example, management believes it can successfully implement
best practices in the areas of 24-hour emergency rerailment services, annual
maintenance contracts and efficient inventory management.
The Company's non-rail related business consists primarily of commercial
and industrial electrical contracting provided by Comstock and the manufacture
and sale of concrete products by CPI Concrete. The Company intends to continue
to focus Comstock's business to benefit from its core competencies, including
rail-based transit projects, and to utilize Comstock's market position in its
non-rail business to exploit opportunities as they arise, but not to expand such
business significantly. The Company intends to expand both CPI Concrete's rail
and non-rail businesses by leveraging its customer base and geographic coverage.
The Company expects that its non-rail business, as a percentage of revenue, will
decrease over time.
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. Based on
estimates of the Founding Companies, management estimates that the Company
derived 46.5% of its pro forma as adjusted revenue for the year ended December
31, 1997 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. Based on
estimates of the Founding Companies, management estimates that the Company
derived 15.4% of its pro forma as adjusted revenue for the year ended December
31, 1997 from rail-related repair and maintenance services.
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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. Based on estimates of the Founding Companies,
management estimates that the Company derived 6.5% of its pro forma as adjusted
revenue for the year ended December 31, 1997 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.
- 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. Based on estimates of the Founding Companies,
management estimates that the Company derived 31.6% of its pro forma as adjusted
revenue for the year ended December 31, 1997 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.
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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 59.9% of the Company's pro forma as adjusted revenue for the year
ended December 31, 1997), no Founding Company accounts for more than 10.0% of
the Company's pro forma as adjusted revenue for that year. See "Risk
Factors -- History of Losses; Fluctuations in Quarterly Operating Results."
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 estimated breakdown of service/product revenue
mix, geographic region and customer type as a percentage of the Company's pro
forma as adjusted revenue for the year ended December 31, 1997:
(BY SERVICE/PRODUCT(1) CHART) (BY GEOGRAPHIC REGION(1) CHART)
(BY CUSTOMER TYPE(1) CHART)
- ---------------
(1) The information contained in these charts was compiled by the Company on the
basis of an estimate by each Founding Company of the breakdown of its
revenue for the twelve months ended December 31, 1997 by service/product,
geographic region and customer type. During 1997, each Founding Company was
independently owned and operated and, as a result, the methods for
determining the revenue breakdowns may not be uniform. The Company
aggregated these estimates to present the information contained above and
elsewhere in this Prospectus.
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The following table summarizes certain information relating to the Founding
Companies. The 1997 revenue column below contains data for the 12-month period
ended December 31, 1997. Consequently, revenue data presented below for Founding
Companies that have fiscal year ends other than December 31 do not agree with
the selected financial data and other historical data contained elsewhere in
this Prospectus.
<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 144 19.1
rehabilitation, South entities and
maintenance and shortline
repair railroads
CPI Concrete......... 1974 Memphis, TN Concrete South Industrial 75 10.9
products companies
Kennedy(2)........... 1965 Shiremanstown, PA Construction, Northeast Industrial 84 10.5
rehabilitation, South companies
maintenance,
repair, design
and engineering
Midwest.............. 1982 Merrillville, IN Construction, Midwest Industrial 94 9.7
rehabilitation, companies
maintenance and
repair
Railroad
Service(3).......... 1972 Lakeville, MN Construction, Midwest Industrial 22 9.4
maintenance and 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 7.0
maintenance and companies
repair
H.P. McGinley........ 1974 McAllisterville, Creosote-treated United Class I 31 6.4
PA ties and States railroads,
specialty wood railroad
products contractors
New England.......... 1979 Bridgeport, CT Construction, Northeast Class I 25 5.6
maintenance and railroads,
repair transit
authorities,
industrial
companies
Wm. A. Smith(4)...... 1924 Houston, TX Construction, South Industrial 79 5.1
maintenance and companies
repair
U.S. Trackworks(5)... 1983 Wayland, MI Construction, Midwest Shortline 45 4.8
maintenance and railroads,
repair industrial
companies
Condon............... 1974 Spokane, WA Construction and West Industrial 59 4.5
maintenance companies
Comtrak.............. 1984 Alpharetta, GA Construction, South Transit 19 1.0
maintenance and 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, which is under common control.
(4) Includes Smith Rerailing, which is under common control.
(5) Includes Northern Rail, which is under common control.
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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, Directors and Key Employees." 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
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<PAGE> 54
(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 in its marketing
programs. Management also 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 construction and maintenance services.
A majority of the Company's pro forma as adjusted revenue for the year
ended December 31, 1997 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
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<PAGE> 55
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
Based on estimates of the Founding Companies, management estimates that the
Company derived 61.6% of its pro forma as adjusted revenue for the year ended
December 31, 1997 from industrial companies, commercial enterprises and
governmental entities (excluding transit authorities), 30.9% from rail-based
transit authorities, 6.0% from shortline and commuter railroads, and 1.5% from
Class I railroads. No single customer accounted for more than 6.0% of the
Company's pro forma as adjusted revenue for the year ended December 31, 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>
TRANSIT AUTHORITIES AND
COMMUTER RAILROADS
Metropolitan Transit
Authority (New York)
LAMTA (Los Angeles)
MTA (Baltimore)
SEPTA (Pennsylvania)
INDUSTRIAL COMPANIES/ SHORTLINE AND REGIONAL RAILROADS
COMMERCIAL ENTERPRISES/ Indiana Southern Railroad
GOVERNMENT Company
Commonwealth Edison Branford Steam Railroad
U.S. Army Corps of Engineers I&M Rail Link
United States Steel Norfolk & Western Railway
Terminal One Group Associates
CLASS I RAILROADS
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. Management believes the Founding Companies compete effectively in
their industries. 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. Certain competitors may also provide a
broad range of services and products and may have sufficient bonding capacity to
undertake large projects. 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
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<PAGE> 56
Company's 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 it is
appropriate and cost effective. For example, during the winter months, the
Founding Companies located in the Northern United States could relocate 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 3,000 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 PRINCIPAL USE OWNED OR LEASED
- ---------------- LOCATION ------------- ---------------
<S> <C> <C> <C>
Annex.................. Indianapolis, IN Office and Yard Owned
Comstock............... White Plains, NY Office Leased
Maspeth, NY Office/warehouse Leased
Atlanta, GA Office/warehouse Leased
San Francisco, CA Office Leased
Cincinnati, OH Office Leased
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 Leased
H.P. McGinley.......... McAlisterville, PA Wood Processing Owned
Plant
</TABLE>
53
<PAGE> 57
<TABLE>
<CAPTION>
FOUNDING COMPANY PRINCIPAL USE OWNED OR LEASED
- ---------------- LOCATION ------------- ---------------
<S> <C> <C> <C>
Kennedy................ Shiremanstown, PA Office and Yard Leased
North Jackson, OH Sales, Maintenance, Leased
Yard
Mechanicsburg, PA(2 loc.) Design and Leased
Engineering
Washington, DC Sales Leased
Merit.................. Bridgeton, MO Office Leased
Midwest................ Merrillville, IN Office Leased
Burns Harbor, IN Yard Owned
New England............ Bridgeport, CT Office Leased
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.
TEA 21. On June 9, 1998, the President signed TEA 21, the six-year surface
transportation program that represents a significant development in the federal
transit program. TEA 21, the largest infrastructure funding bill in U.S.
history, authorizes funding for transit in the amount of $42 billion over six
years. TEA 21 authorizes over 40 percent more than the 1991 Intermodal Surface
Transportation Efficiency Act, 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.
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<PAGE> 58
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 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.
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<PAGE> 59
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.
ORGANIZER
The Company was organized by 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
initial organizational stages of the Combination and the Offering. In exchange
for the services provided by IPODC, the Founding Companies have agreed to pay
IPODC or its designees upon the completion of the Combination and the Offering,
a fee equal to 3 1/2% of the total consideration paid to the Founding Companies
in the Combination. Such fee will be paid out of the cash and shares of Common
Stock to be received by the Founding Companies. IPODC is selling in the Offering
140,935 of the shares of Common Stock that it will receive from the Founding
Companies. In addition, the Company has agreed to pay IPODC $500,000 in exchange
for services provided in the Combination and certain future fees upon the
consummation of any acquisition of certain specified companies. The Company
currently has no understanding, agreement or arrangement with respect to the
acquisition of any of such companies. For accounting purposes, the $500,000 fee
payable in the Combination by the Company to IPODC has been included in the
calculation of the aggregate purchase price.
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<PAGE> 60
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.................. 41 Vice President and Chief Accounting Officer
Ronald W. Drucker.................... 57 Director
R.C. Matney.......................... 60 Director
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
William Lucaitis..................... 37 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 a 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, including as an equity research analyst, 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.
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<PAGE> 61
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. 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 and 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.
Ronald W. Drucker has been a director of RailWorks since June 1998. Mr.
Drucker has been an independent consultant on transportation and technology
issues since May 1992. From September 1966 to April 1992, Mr. Drucker served in
various capacities for CSX Corporation and certain of its subsidiaries,
including Chief Engineer, Senior Vice President for Transportation and President
and Chief Executive Officer of CSX Rail Transport. Additionally, from December
1989 to October 1997, he was the Chairman of the Board of Encompass, a global
logistics information partnership. Mr. Drucker also serves on the Board of
Directors of Landstar System, Inc., Jacksonville University, the National
Defense Transportation Association and the New World Symphony Orchestra.
R.C. Matney has been a director of RailWorks since June 1998. Mr. Matney
has been President, Chairman of the Board of Directors and Chief Executive
Officer of Mark VII Transportation Company, Inc., since he founded the Company
in January 1989. From March 1985 to December 1988, he served as President of
American President Distribution Services, Inc. Prior thereto, Mr. Matney was the
President of the Surface Transportation Group of Brae Corporation from October
1980 to March 1985. Mr. Matney is a former member of the Intermodal Freight
Committee of the National Transportation Research Board.
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
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<PAGE> 62
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.
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.
William Lucaitis will serve as President of Midwest after the Combination.
Mr. Lucaitis has served as President of Midwest since April 1998. Prior thereto,
he served as Vice President of Midwest from December 1989 to April 1998.
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, 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
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<PAGE> 63
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 fees of $2,000
per Board meeting attended and $1,000 per committee meeting attended, plus
reimbursement of expenses for each meeting of the Board of Directors and each
committee meeting that they attend in person. In addition, each non-employee
director will be granted options to purchase 10,000 shares of Common Stock upon
consummation of the Offering. See "-- 1998 Incentive Stock Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Following consummation of the Offering the members of the Compensation
Committee will be Messrs. Drucker and Matney, 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
ANNUAL AWARDS
COMPENSATION ------------
------------------ RESTRICTED
NAME POSITION SALARY BONUS STOCK AWARDS
- ---- ------------------------ -------- ------- ------------
<S> <C> <C> <C> <C>
John G. Larkin................. Chief Executive Officer $350,000 (1) 678,299
Michael R. Azarela............. Chief Financial Officer 225,000 (2) 150,735
John Kennedy................... Chief Operating Officer 185,000 (3) 150,735
Harold C. Kropp, Jr............ Chief Accounting Officer 185,000 (3) 150,735
</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.
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.
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<PAGE> 64
The Company has entered into employment agreements with each of the Named
Executive Officers. The agreements expire on December 31, 2001 (the "Expiration
Date") and will continue on a year-to-year basis, unless terminated by either
party. 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. At any time after the Offering, the employee may request a
loan from the Company in the amount of the income taxes due on stock granted to
the employee under his employment agreement. The loan will be collateralized
only by the stock granted and the employee otherwise will not be personally
obligated to repay the loan. The term of the loan will be five years, requiring
annual interest payments; however, the term will be accelerated following
termination of employment. Each agreement will also contain noncompetition,
nonsolicitation and confidential information 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 employees 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 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 Incentive Plan. There are 2,000,000
shares of Common Stock reserved for issuance under the Incentive Plan. The
purpose of the Incentive Plan is to provide executive officers, directors and
key employees 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
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<PAGE> 65
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 100,000 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 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.
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<PAGE> 66
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 Corporation was formed 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,
RailWorks Corporation will consummate the Combination pursuant to the
Acquisition Agreements pursuant to which it will acquire each Founding Company
in a reverse subsidiary merger. Assuming an initial public offering price of
$16.00 per share, the aggregate consideration to be paid by RailWorks
Corporation in the Combination will be approximately $187.3 million (subject to
adjustment), which consists of (i) $72.0 million in cash, which will be paid
from the proceeds of the Offering (representing 72.6% of the estimated net
proceeds of the Offering) and (ii) the $115.3 million estimated fair value of
7,208,583 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." In
addition, in connection with the Combination, the Company will assume $26.6
million of indebtedness (representing 26.8% of the estimated net proceeds of the
Offering) of certain of the Founding Companies (including approximately $3
million of indebtedness incurred to finance the redemption of shares of Common
Stock of a Founding Company held by an ESOP). Such indebtedness will be repaid
with a portion of the proceeds of the Offering (representing 26.8% of the
estimated net proceeds of the Offering).
As a result of the Combination, all 22 Founding Companies will become
wholly-owned subsidiaries of RailWorks Corporation. 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. After the Offering, the stockholders
of the Founding Companies, management of the Company and IPODC will own in the
aggregate 54.9% of the outstanding Common Stock, assuming the over-allotment
option is not exercised. The recipients of shares of Common Stock in the
Combination are Selling Stockholders and, therefore, they may be deemed to be
"statutory underwriters" for purposes of the Securities Act. See "Formation of
the Company," "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.
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<PAGE> 67
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SHARES OF SHARES OF
COMMON COMMON ASSUMED TOTAL
CASH(1) STOCK(1) STOCK INDEBTEDNESS CONSIDERATION(2)
------- --------- --------- ------------ ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Comstock Holdings, Inc., the accounting
acquiror.............................. $26,634 2,101,333 $ 33,621 $13,418 $ 60,255
Annex Railroad Builders, Inc.(3)........ 6,525 636,637 $ 10,186 276 16,711
Comtrak Construction, Inc............... 1,014 169,933 2,719 7 3,733
Condon Brothers, Inc.................... 3,240 459,170 7,347 1,045 10,587
CPI Concrete Products Incorporated...... 4,059 296,438 4,743 3,782(4) 8,802
H.P. McGinley, Incorporated............. 5,150 519,192 8,307 619 13,457
Kennedy Railroad Builders, Inc.(5)...... 3,191 306,465 4,903 2,563 8,094
Merit Railroad Contractors, Inc......... 2,266 226,849 3,630 602 5,896
Midwest Construction Services, Inc...... 2,977 354,301 5,669 556 8,646
New England Railroad Construction
Company, Inc.......................... 3,624 365,356 5,846 658 9,470
Railroad Service, Inc.(6)............... 3,960 409,657 6,555 1,116 10,515
Southern Indiana Wood Preserving
Company, Inc.......................... 3,633 560,547 8,969 1,205 12,602
U.S. Trackworks, Inc.(7)................ 1,507 221,723 3,548 371 5,055
Wm. A. Smith Construction Co.,
Inc.(8)............................... 1,690 266,228 4,260 340 5,950
------- --------- -------- ------- --------
Subtotal........................... $69,470 6,893,829 $110,303 $26,558 $179,773
------- --------- -------- ------- --------
IPODC(9)................................ 2,480 314,754 5,036 -- 7,516
------- --------- -------- ------- --------
Total......................... $71,950 7,208,583 $115,339 $26,558 $187,289(9)
======= ========= ======== ======= ========
</TABLE>
- ---------------
(1) Fees to be paid to IPODC on behalf of the Founding Companies are set forth
separately in the table and are excluded from the amounts set forth for the
Founding Companies.
(2) Excludes assumed indebtedness.
(3) Includes Mize Construction Company, Railroad Specialities, Inc. and U.S.
Railway Supply Inc., all of which are under common control.
(4) Includes approximately $3 million of indebtedness incurred to finance the
redemption of shares of common stock of a Founding Company held by an ESOP.
(5) Includes Alpha-Keystone Engineering, Inc. and Railcorp, Inc., all of which
are under common control.
(6) Includes Minnesota Railroad Service, Inc., which is under common control.
(7) Includes Northern Rail Service and Supply Co., which is under common
control.
(8) Includes Wm. A. Smith Rerailing Service, Inc., which is under common
control.
(9) In exchange for services provided by IPODC, the Founding Companies have
agreed to pay IPODC a fee equal to 3 1/2% of the total consideration paid to
the Founding Companies in the Combination. Such fee will be paid in cash and
shares of Common Stock in the amounts reflected in the table. The table
excludes $500,000 of fees payable by the Company. See "-- Organizer."
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) $26.6 million in cash and (ii) 2,101,333
shares of Common Stock. In connection with the acquisition, Peter Alan Pasch,
the President and Chief Operating Officer of Comstock, will become a
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<PAGE> 68
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 $5.0 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 CGI 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.
Kennedy
RailWorks will acquire all of the outstanding stock of Kennedy,
Alpha-Keystone and Railcorp in reverse subsidiary mergers for an aggregate of
(i) $3.2 million in cash and (ii) 306,465 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) $2.3 million in cash and (ii) 226,849 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 $181,500 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) $4.0
million in cash and (ii) 409,657 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 42.5% 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) $1.5 million
in cash and (ii) 221,723 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> 69
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock 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) the Selling Stockholders.
Each stockholder possesses sole voting and investment power with respect to the
shares listed, unless otherwise noted.
<TABLE>
<CAPTION>
PERCENTAGE OF
PERCENTAGE COMMON
OF COMMON STOCK
STOCK BENEFICIALLY
BENEFICIALLY OWNED
NUMBER OF SHARES OWNED ASSUMING
OF COMMON STOCK AFTER THE NUMBER EXERCISE OF
IMMEDIATELY AFTER THE OFFERING OF SHARES OVER-
OFFERING AND THE AND THE SUBJECT TO OVER- ALLOTMENT
COMBINATION COMBINATION ALLOTMENT OPTION OPTION IN FULL
--------------------- ------------ ----------------- --------------
<S> <C> <C> <C> <C>
BENEFICIAL OWNER
- ----------------------------------------
EXECUTIVE OFFICERS, DIRECTORS AND
NOMINEES FOR DIRECTOR:
John G. Larkin(1)....................... 678,309 4.5% -- 4.5%
John Kennedy(2)......................... 351,647 2.3 29,727 2.1
Michael R. Azarela(2)................... 442,587 2.9 43,182 2.7
Harold C. Kropp, Jr.(2)................. 150,735 1.0 -- 1.0
Ronald W. Drucker....................... -- -- -- --
R. C. Matney............................ -- -- -- --
Scott D. Brace(3)....................... 166,020 1.1 24,564 *
Steve C. Goggin(3)...................... 226,849 1.5 33,564 1.3
Peter Alan Pasch(3)..................... 291,852 1.9 43,182 1.6
Lambertus L. Tameling(3)................ 52,663 * 7,792 *
All executive officers, directors and
persons named to be directors as a
group (10 persons).................... 2,360,662 15.7 182,011 14.4
SELLING STOCKHOLDERS:
IPODC(4)................................ 173,819 1.1 -- 1.1
John Baker(3)........................... 296,438 2.0 43,861 1.7
John Barra(3)........................... 9,728 * 1,439 *
Daniel E. Burg(3)....................... 82,407 * 12,193 *
Julie M. Brown(3)....................... 31,233 * 4,621 *
Mark A. Brown(3)........................ 90,540 * 13,396 *
Ronald E. Brown(3)...................... 420,956 2.8 62,284 2.4
Michael A. Cahn(3)...................... 272,395 1.8 40,303 1.5
Robert O. Carson(3)..................... 47,129 * 6,973 *
Gene Cellini(3)......................... 19,457 * 2,879 *
John J. Condon(3)....................... 136,228 * 20,156 *
John J. Condon, Jr.(3).................. 161,471 1.1 23,891 *
Mark Condon(3).......................... 161,471 1.1 23,891 *
Keith C. George(3)...................... 272,395 1.8 40,303 1.5
Sean G. Gough(3)........................ 560,547 3.7 82,938 3.2
Gary Guild(3)........................... 19,457 * 2,879 *
Robert Herschenfeld(3).................. 19,457 * 2,879 *
Anthony Julian, Jr.(3).................. 121,785 * 18,019 *
Daniel F. Julian(3)..................... 121,785 * 18,019 *
Michael F. Julian(3).................... 121,785 * 18,019 *
Fulton Kennedy(3)....................... 105,553 * 15,617 *
Eileen Lapp(3).......................... 67,973 * 10,057 *
</TABLE>
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<PAGE> 70
<TABLE>
<CAPTION>
PERCENTAGE OF
PERCENTAGE COMMON
OF COMMON STOCK
STOCK BENEFICIALLY
BENEFICIALLY OWNED
NUMBER OF SHARES OWNED ASSUMING
OF COMMON STOCK AFTER THE NUMBER EXERCISE OF
IMMEDIATELY AFTER THE OFFERING OF SHARES OVER-
OFFERING AND THE AND THE SUBJECT TO OVER- ALLOTMENT
COMBINATION COMBINATION ALLOTMENT OPTION OPTION IN FULL
--------------------- ------------ ----------------- --------------
<S> <C> <C> <C> <C>
John H. Lapp(3)......................... 101,960 * 15,086 *
James D. Lawyer(3)...................... 62,674 * 9,273 *
Rebecca S. Lawyer(3).................... 31,233 * 4,621 *
Frank Leonhartsberger(3)................ 19,457 * 2,879 *
Harry Lucaitis(3)....................... 354,301 2.3 52,422 2.0
David H. McGinley(3).................... 519,192 3.4 76,819 2.9
E. Donald Matson(3)..................... 243,637 1.6 36,048 1.4
Arnold D. Morren(3)..................... 58,200 * 8,611 *
Cynthia L. Morren(3).................... 5,535 * 819 *
Douglas J. Nagel(3)..................... 105,326 * 15,584 *
John P. Nuzzo(3)........................ 19,457 * 2,879 *
Doug Orcutt(3).......................... 19,457 * 2,879 *
Nicholas Pantelides(3).................. 272,395 1.8 40,303 1.5
Nat A. Pappagallo(3).................... 19,457 * 2,879 *
Lex A. Passman(3)....................... 272,395 1.8 40,303 1.5
Michael L. Rothschild(3)................ 272,395 1.8 40,303 1.5
Richard H. Stephens(3).................. 54,285 * 8,032 *
Jack I. Wilt(3)......................... 82,407 * 12,193 *
Daniel Zury(3).......................... 9,728 * 1,439 *
</TABLE>
- ---------------
* less than one percent
(1) Prior to consummation of the Offering and the Combination, Mr. Larkin owned
ten shares of Common Stock, representing all the outstanding shares of
Common Stock of the Company.
(2) Includes 150,735 shares of Common Stock issued to the executive officer upon
consummation of the Combination and the Offering.
(3) Certain owners of the Founding Companies (the Selling Stockholders) who will
receive shares of Common Stock in the Combination have granted to the
Underwriters a 30-day option to purchase up to 1,020,000 additional shares
of Common Stock solely to cover over-allotments, if any. The Selling
Stockholders may be deemed to be "statutory underwriters" for purposes of
the Securities Act. The address of the Selling Stockholders is c/o RailWorks
Corporation, c/o Comstock Holdings Inc., One North Lexington Avenue, White
Plains, New York 10601.
(4) Represents shares to be received from the Founding Companies as payment of a
portion of the fees earned by IPODC in connection with the Combination.
Excludes 140,935 shares of Common Stock being sold by IPODC in the Offering.
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<PAGE> 71
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 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 PROVISIONS 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 willful or negligent
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<PAGE> 72
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 15,073,530 shares of
Common Stock outstanding, assuming consummation of the Combination. The
6,800,000 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 8,273,530 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 as the holding provisions of Rule 144 are
satisfied. In addition, 2,000,000 shares of Common Stock are reserved for
issuance pursuant to the Company's Incentive Plan. Upon consummation of the
Offering, options to purchase 20,000 shares of Common Stock will be granted
pursuant to the Incentive Plan to non-employee directors of the Company. 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 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 150,735 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, 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.
From the first 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
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<PAGE> 73
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.
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> 74
UNDERWRITING
Subject to the terms and conditions contained in an Underwriting Agreement
dated the date of this Prospectus (the "Underwriting Agreement"), the
Underwriters named below, through their representatives, BT Alex. Brown
Incorporated, Schroder & Co. Inc. and Piper Jaffray Inc. (together, the
"Representatives"), have severally agreed to purchase from the Company the
following respective number of shares of Common Stock at the initial public
offering price less the underwriting discounts and commissions set forth on the
cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------ ---------
<S> <C>
BT Alex. Brown Incorporated.................................
Schroder & Co. Inc..........................................
Piper Jaffray Inc...........................................
---------
Total............................................. 6,800,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all of the shares of Common Stock offered hereby if
any such shares are purchased.
The Company and the Selling Stockholders have been advised by the
Representatives that the Underwriters propose to offer the shares of Common
Stock to the public at the initial public offering price set forth on the cover
page of this Prospectus and to certain dealers at such prices less a concession
not in excess of $ per share. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per share to
certain other dealers. After commencement of the initial public offering, the
offering price and certain other terms may be changed by the Representatives.
The Selling Stockholders have granted to the Underwriters an option,
exercisable not later than 30 days from the date of this Prospectus, to purchase
up to 1,020,000 additional shares of Common Stock at the initial public offering
price less the underwriting discounts and commissions set forth on the cover
page of this Prospectus. To the extent that the Underwriters exercise such
option, each of the Underwriters will have a firm commitment to purchase
approximately the same percentage thereof that the number of shares of Common
Stock to be purchased by it in the above table bears to 6,800,000 and the
Selling Stockholders will be obligated, pursuant to the option, to sell such
shares to the Underwriters. The Underwriters may exercise such option only to
cover over-allotments made in connection with the sale of the Common Stock
offered hereby. If purchased, the Underwriters will offer such additional shares
on the same terms as those on which the 6,800,000 shares are being offered.
The Common Stock has been approved for quotation on The Nasdaq National
Market under the symbol "RWKS."
At the request of the Company, the Underwriters have reserved up to 340,000
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.
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<PAGE> 75
The Underwriting Agreement contains covenants of indemnity and contribution
between the Underwriters, the Company and the Selling Stockholders regarding
certain liabilities, including liabilities under the Securities Act.
To facilitate the Offering of the Common Stock, the Underwriters may engage
in transactions that stabilize, maintain or otherwise affect the market price of
the Common Stock. Specifically, the Underwriters may over-allot shares of the
Common Stock in connection with this Offering, thereby creating a short position
in the Underwriters' syndicate account. Additionally, to cover such over-
allotments or to stabilize the market price of the Common Stock, the
Underwriters may bid for, and purchase, shares of the Common Stock in the open
market. Any of these activities may maintain the market price of the Common
Stock at a level above that which might otherwise prevail in the open market.
The Underwriters are not required to engage in these activities, and, if
commenced, any such activities may be discontinued at any time. The
Representatives, on behalf of the Underwriters, also may reclaim selling
concessions allowed to an Underwriter or dealer, if the syndicate repurchases
shares distributed by that Underwriter or dealer.
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, sell or offer any
shares of Common Stock or options, rights or warrants to acquire any Common
Stock except for (i) the sale of the Shares to the Underwriters, (ii) 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 Representatives have been advised in writing, (iii)
the issuance of shares to be used as consideration for future acquisitions or
(iv) 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 (ii) and (iii), the recipient of any
such shares agrees to be bound by the transfer restrictions set forth herein.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
From time to time, each of the Underwriters and their respective affiliates
may provide investment banking services to the Company.
Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock has been
determined by negotiations between the Company and the Representatives. Among
the factors considered in determining the initial public offering price were
prevailing market conditions, 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> 76
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> 77
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 "IRS") 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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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, (the "New Withholding
Regulations") alter the foregoing rules in certain respects. The New Withholding
Regulations generally are effective for payments made after December 31, 1998,
subject to certain transition rules. The IRS recently issued a notice announcing
the intent of the Treasury Department and the IRS to amend the New Withholding
Regulations so that they generally will not apply to payments made before
January 1, 2000. Among other things, the New Withholding 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 IRS.
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.
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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 (as defined below), of which this Prospectus forms
a part, for Railworks Corporation, Annex Railroad Builders, Inc. and Affiliates,
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 Company, Inc., U.S.
Trackworks, Inc. and Northern Rail Service and Supply Co. 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, of
which this Prospectus forms a part, 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, of which this Prospectus forms a part, 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
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<S> <C>
RAILWORKS CORPORATION UNAUDITED PRO FORMA AS ADJUSTED
FINANCIAL STATEMENTS
Unaudited Pro Forma As Adjusted Financial
Statements -- Basis of Presentation.................... 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 Twelve Months Ended December 31, 1997 and for the
Three Months Ended March 31, 1998...................... F-6
Notes to Unaudited Pro Forma Financial Statements......... F-7
RAILWORKS CORPORATION
Report of Independent Public Accountants.................. F-10
Balance Sheet as of March 31, 1998........................ F-11
Statement of Income for the Period from Inception to March
31, 1998............................................... F-12
Statement of Changes in Stockholder's Equity for the
Period from Inception through March 31, 1998........... F-13
Notes to Financial Statements............................. F-14
ANNEX RAILROAD BUILDERS, INC. AND AFFILIATES
Report of Independent Public Accountants.................. F-15
Combined Balance Sheets as of March 31, 1997, December 31,
1997 and March 31, 1998................................ F-16
Combined 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-17
Combined Statements of Stockholders' Equity for the Year
Ended March 31, 1997 and the Nine Months Ended December
31, 1997............................................... F-18
Combined 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-19
Notes to Combined Financial Statements.................... F-20
COMSTOCK HOLDINGS, INC.
Report of Independent Public Accountants.................. F-26
Consolidated Balance Sheets as of December 31, 1996 and
1997 and March 31, 1998................................ F-27
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-28
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1995, 1996 and 1997........... F-29
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-30
Notes to Financial Statements............................. F-31
CONDON BROTHERS, INC.
Report of Independent Public Accountants.................. F-40
Balance Sheets as of December 31, 1996 and 1997 and March
31, 1998............................................... F-41
Statements of Operations for the Years Ended December 31,
1995, 1996 and 1997 and for Three Months Ended March
31, 1997 and 1998...................................... F-42
Statements of Stockholders' Equity for the Years Ended
December 31, 1995, 1996 and 1997....................... F-43
Statements of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997 and for the Three Months Ended
March 31, 1997 and 1998................................ F-44
Notes to the Financial Statements......................... F-45
</TABLE>
F-1
<PAGE> 81
<TABLE>
<CAPTION>
PAGE
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<S> <C>
CPI CONCRETE PRODUCTS INCORPORATED
Independent Auditor's Report.............................. F-51
Balance Sheets as of January 31, 1997 and 1998............ F-52
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-53
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-54
Notes to Financial Statements............................. F-55
H.P. McGINLEY, INCORPORATED
Report of Independent Public Accountants.................. F-60
Balance Sheets as of February 28, 1997, December 31, 1997
and March 31, 1998..................................... F-61
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-62
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-63
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-64
Notes to Financial Statements............................. F-65
KENNEDY RAILROAD BUILDERS, INC. AND ASSOCIATED COMPANIES
Report of Independent Public Accountants.................. F-69
Combined Balance Sheets as of March 31, 1997, December 31,
1997 and March 31, 1998................................ F-70
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-71
Combined Statements of Stockholders' Equity for the Years
Ended March 31, 1996 and 1997 and the Nine Months Ended
December 31, 1997...................................... F-72
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-73
Notes to Combined Financial Statements.................... F-74
MERIT RAILROAD CONTRACTORS, INC.
Report of Independent Public Accountants.................. F-81
Balance Sheets as of December 31, 1996 and 1997 and March
31, 1998............................................... F-82
Statements of Operations for the Years Ended December 31,
1995, 1996 and 1997 and for the Three Months Ended
March 31, 1997 and 1998................................ F-83
Statements of Stockholders' Equity for the Years Ended
December 31, 1995, 1996 and 1997....................... F-84
Statements of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997 and for the Three Months Ended
March 31, 1997 and 1998................................ F-85
Notes to Financial Statements............................. F-86
</TABLE>
F-2
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
MIDWEST CONSTRUCTION SERVICES, INC.
Report of Independent Public Accountants.................. F-91
Balance Sheets as of December 31, 1996 and 1997 and March
31, 1998............................................... F-92
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-93
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-94
Notes to the Financial Statements......................... F-95
NEW ENGLAND RAILROAD CONSTRUCTION COMPANY, INC.
Independent Auditors' Report.............................. 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, 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 COMPANY, 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 for 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 for 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, 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> 83
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. and Affiliates ("Annex"), Comstock Holdings, Inc.
("Comstock"), Comtrak Construction, Inc. ("Comtrak"), Condon Brothers,
Inc.("Condon"), CPI Concrete Products Incorporated ("CPI"), H.P. McGinley,
Incorporated ("McGinley"), Kennedy Railroad Builders, Inc. and Affiliates
("Kennedy"), Merit Railroad Contractors, Inc. ("Merit"), Midwest Construction
Services, Inc. ("Mid-West"), New England Railroad Construction Company, Inc.
("New England"), Railroad Service, Inc. and Affiliate ("Railroad Service"),
Southern Indiana Wood Preserving Company, Inc. ("Southern Indiana"), U.S.
Trackworks, Inc. and Affiliate ("Trackworks"), and Wm. A. Smith Construction
Co., Inc. and Affiliate ("Smith"), (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 as its owners will receive the largest portion
(34.3%) of the shares of Common Stock issued to the Founding Companies in the
Combination.
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 identified certain savings which are expected to occur as a
result of the Combination. These savings have been reflected in the unaudited
pro forma as adjusted statements of income. The Company has analyzed certain
additional 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 additional 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> 84
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.......... $ 4,613,000 $ (1,600,000)(f) $ 3,013,000 $ (99,008,000)(s) $ 892,000
96,887,000(r)
Accounts receivable................ 58,829,000 58,829,000 58,829,000
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.......................... 19,633,000 19,633,000 19,633,000
Prepaid expenses................... 1,443,000 1,443,000 1,443,000
Deferred income taxes.............. 110,000 110,000 110,000
------------ ------------ ------------ ------------- ------------
Total current assets......... 93,454,000 (1,600,000) 91,854,000 (2,121,000) 89,733,000
------------ ------------ ------------ ------------- ------------
PROPERTY, PLANT AND EQUIPMENT, NET... 11,694,000 9,680,000(b) 21,374,000 21,374,000
------------ ------------ ------------ ------------- ------------
OTHER ASSETS:
Goodwill........................... -- 91,108,000(c) 91,108,000 91,108,000
Other intangible assets............ -- 5,000,000(c) 5,000,000 5,000,000
Cash surrender value of officer's
life insurance................... 950,000 950,000 950,000
Other.............................. 1,012,000 1,012,000 1,012,000
------------ ------------ ------------ ------------- ------------
Total other assets........... 1,962,000 96,108,000 98,070,000 98,070,000
------------ ------------ ------------ ------------- ------------
$107,110,000 $104,188,000 $211,298,000 $ (2,121,000) $209,177,000
============ ============ ============ ============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................... $ 30,862,000 $ 500,000(c) $ 31,362,000 $ (500,000)(s) $ 30,862,000
Notes payable...................... 3,835,000 3,835,000 (3,835,000)(s) --
Current maturities of long-term
debt and capital leases.......... 2,948,000 2,948,000 (2,948,000)(s) --
Officer notes payable.............. 662,000 71,950,000(c) 75,612,000 (75,612,000)(s) --
3,000,000(g)
Billings in excess of costs and
estimated earnings on uncompleted
contracts........................ 5,588,000 5,588,000 5,588,000
Accrued expenses................... 10,955,000 10,955,000 10,955,000
Income taxes payable............... 515,000 515,000 515,000
------------ ------------ ------------ ------------- ------------
Total current liabilities.... 55,365,000 75,450,000 130,815,000 (82,895,000) 47,920,000
------------ ------------ ------------ ------------- ------------
LONG-TERM DEBT AND CAPITAL LEASES,
net of current maturities.......... 16,113,000 16,113,000 (16,113,000)(s) --
DEFERRED INCOME TAXES................ 106,000 3,775,000(b) 5,831,000 5,831,000
1,950,000(c)
NEGATIVE GOODWILL.................... 10,143,000 (8,543,000)(c) -- --
(1,600,000)(f)
OTHER................................ 1,569,000 1,569,000 1,569,000
------------ ------------ ------------ ------------- ------------
Total noncurrent
liabilities................ 27,931,000 (4,418,000) 23,513,000 (16,113,000) 7,400,000
------------ ------------ ------------ ------------- ------------
STOCKHOLDERS' EQUITY:
Contributed capital................ 4,281,000 (4,271,000)(a) 74,170,000 96,887,000(r) 171,057,000
54,866,000(c)
19,294,000(h)
Retained earnings.................. 19,533,000 (14,439,000)(a) (17,200,000) (17,200,000)
(3,000,000)(g)
(19,294,000)(h)
------------ ------------ ------------ ------------- ------------
Total stockholders' equity... 23,814,000 33,156,000 56,970,000 96,887,000 153,857,000
------------ ------------ ------------ ------------- ------------
$107,110,000 $104,188,000 $211,298,000 $ (2,121,000) $209,177,000
============ ============ ============ ============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 85
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...................... $256,508,000 $ $256,508,000 $61,810,000 $ $61,810,000
CONTRACT COSTS AND COST OF
SALES...................... 220,090,000 1,383,000(e) 221,473,000 54,272,000 346,000 (e) 54,618,000
------------ ----------- ------------ ----------- ----------- -----------
Gross profit............... 36,418,000 (1,383,000) 35,035,000 7,538,000 (346,000) 7,192,000
GENERAL AND ADMINISTRATIVE
EXPENSES................... 27,298,000 (5,205,000)(i)(d) 21,290,000 6,858,000 (1,179,000)(i) 5,060,000
1,925,000 (j) 481,000(j)
(668,000)(m) (242,000)(m)
(850,000)(l) (219,000)(l)
(1,210,000)(k) (239,000)(k)
(400,000)(n)
INTANGIBLES AMORTIZATION..... (269,000) 3,049,000 (d) 2,780,000 (67,000) 762,000 (d) 695,000
------------ ----------- ------------ ----------- ----------- -----------
INCOME FROM OPERATIONS....... 9,389,000 1,576,000 10,965,000 747,000 690,000 1,437,000
OTHER INCOME (EXPENSE)
Interest income............ 1,296,000 (295,000)(o) 1,001,000 355,000 355,000
Interest expense........... (2,397,000) 2,397,000(t) -- (579,000) 579,000 (t) --
Other...................... 214,000 214,000 50,000 50,000
------------ ----------- ------------ ----------- ----------- -----------
INCOME BEFORE PROVISION FOR
INCOME TAXES............... 8,502,000 3,678,000 12,180,000 573,000 1,269,000 1,842,000
PROVISION FOR INCOME TAXES... 2,439,000 3,193,000 (p) 5,632,000 366,000 574,000 (p) 940,000
------------ ----------- ------------ ----------- ----------- -----------
NET INCOME................... $ 6,063,000 $ 485,000 $ 6,548,000 $ 207,000 $ 695,000 $ 902,000
============ =========== ============ =========== =========== ===========
Net income per share....... $ .43 $ .06
============ ===========
Shares used in computing
net income per share(q).. 15,074,000 15,074,000
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 86
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.
Amounts (in thousands) by company for selected categories are as follows:
<TABLE>
<CAPTION>
FOR THE TWELVE MONTHS FOR THE THREE MONTHS
ENDED DECEMBER 31, 1997 ENDED MARCH 31, 1998 AT MARCH 31,
----------------------------------- ---------------------------------- 1998
INCOME NET INCOME NET ------------
REVENUE FROM OPERATIONS INCOME REVENUE FROM OPERATIONS INCOME TOTAL ASSETS
-------- --------------- ------ ------- --------------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Annex................ $ 19,090 $1,652 $1,132 $ 2,922 $ 272 $219 $ 4,869
Comstock............. 153,610 3,412 1,428 41,628 1,238 666 64,417
Comtrak.............. 1,009 (303) (160) 175 (95) (56) 565
Condon............... 4,487 134 119 1,237 22 9 3,181
CPI.................. 10,928 772 518 2,050 64 40 5,026
Kennedy.............. 10,540 418 167 2,384 (112) (89) 5,493
McGinley............. 6,420 659 399 1,365 126 80 2,878
Merit................ 6,950 (223) (386) 1,181 (196) (174) 2,363
Mid-West............. 9,676 394 433 2,456 161 163 2,846
New England.......... 5,634 265 145 341 (318) (195) 2,483
Railroad Service..... 9,363 848 977 1,268 (744) (750) 3,577
Southern Indiana..... 8,901 833 841 2,342 298 283 4,942
Trackworks........... 4,814 338 296 651 (27) (37) 1,605
Smith................ 5,086 190 154 1,810 58 48 2,865
-------- ------ ------ ------- ------ ---- --------
$256,508 $9,389 $6,063 $61,810 $ 747 $207 $107,110
======== ====== ====== ======= ====== ==== ========
</TABLE>
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 purchase price to be paid for the Founding Companies, including
Comstock, consists of:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
7,208,583 shares of the Company at an estimated price of
$16....................................................... $115,337
Cash paid................................................... 71,950
Expenses to complete the Combination........................ 500
--------
$187,787
========
</TABLE>
F-7
<PAGE> 87
RAILWORKS CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
The purchase price will be allocated to the assets purchased and
liabilities assumed based on their estimated fair values. As Comstock has been
determined to be the accounting acquiror, the excess of the amount paid for
Comstock over its net book value, $58.4 million, is not included in the purchase
price allocation. The estimated fair values of the assets purchased and
liabilities assumed are as follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 91,854
Property, plant and equipment............................... 21,374
Goodwill.................................................... 91,108
Other intangible assets..................................... 5,000
Other non-current assets.................................... 1,962
Current liabilities......................................... (58,365)
Non-current liabilities..................................... (23,513)
--------
$129,420
========
</TABLE>
Management is currently evaluating the assets purchased and liabilities
assumed. Any change in the estimated fair values will result in a corresponding
change in goodwill. Additionally, any difference between the estimated price of
$16 per share of the Company common stock issued to the owners of the Founding
Companies in connection with the Combination and the actual price per share will
result in a corresponding change to goodwill.
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 $16 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 assets amortization using a
10-year estimated life.
e. Records the pro forma 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. Records the planned purchase of a minority shareholder of a Founding
Company prior to the Combination. The purchase price is estimated based on the
value assigned to the Founding Company in the Combination.
h. Records the granting of 1,205,872 shares to management at an estimated
price of $16 per share. This amount will be charged to expense in the period in
which the grant occurs, but has not been reflected in the unaudited pro forma as
adjusted statements of income herein.
i. Reduces compensation expense to the level that the owners of the
Founding Companies have contractually agreed to receive subsequent to the
Combination. In 1997, the owners of the Founding
F-8
<PAGE> 88
RAILWORKS CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
Companies received total compensation of $6,914,000, consisting of salary of
$3,826,000 and bonuses of $3,088,000. Subsequent to the Combination, they will
receive total estimated compensation of $2,341,000. The change in compensation
structure reflects the conversion from the compensation arrangements normally
paid to owners of closely-held companies to those found in a publicly-held
company and the change in responsibilities of the individuals. Additionally,
this adjustment reduces compensation expense for personnel which have been
terminated in conjunction with Comstock's cost reduction initiatives.
j. Records estimated expenses for the Company's new corporate office,
including compensation for the executive officers.
k. Reflects the savings to be realized on a lease renewal by a Founding
Company.
l. 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.
m. To eliminate identifiable, incremental costs incurred by the Founding
Companies in conjunction with the Combination which are not expected to be
recurring.
n. To eliminate the compensation expense recorded by a Founding Company in
connection with transfers of stock between existing stockholders.
o. To eliminate a $295,000 nonrecurring fee earned by a Founding Company in
connection with services provided for its former owner.
p. 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.
q. Includes: (i) 7,208,583 shares issued to the stockholders of the
Founding Companies in connection with the Combination, (ii) 6,659,065 shares
issued by the Company in connection with this Offering, and (iii) 1,205,882
shares to be issued to management.
POST COMBINATION ADJUSTMENTS
r. The proceeds from the issuance of 6,659,065 shares of the Company's
Common Stock, net of estimated offering costs (based on the assumed initial
public offering price of $16 per share) will be applied as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Gross proceeds of the Offering.............................. $106,545
Underwriting discount....................................... (7,458)
Estimated expenses.......................................... (2,200)
Payment of certain debt obligations......................... (26,558)
Payment of other obligations................................ (500)
Payment of amounts payable to the owners of the Founding
Companies................................................. (71,950)
--------
$ (2,121)
========
</TABLE>
Offering costs primarily consist of underwriting discounts and commissions,
accounting fees, legal fees, and printing expenses.
s. Reflects the payment of debt from the proceeds of the Offering.
t. Reflects the elimination of interest expense as all Founding Company
debt will be repaid with a portion of the proceeds from the Offering.
F-9
<PAGE> 89
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-10
<PAGE> 90
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-11
<PAGE> 91
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-12
<PAGE> 92
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-13
<PAGE> 93
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 Offering. 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 Offering. The companies to be acquired are: Annex Railroad
Builders, Inc. and Affiliates, Comtrack Construction, Inc., Comstock Holdings,
Inc., Condon Brothers, Inc., CPI Concrete Products Incorporated, H.P. McGinley,
Incorporated, Kennedy Railroad Builders, Inc. and Associated Companies, Merit
Railroad Contractors, Inc., Midwest Construction Services, Inc., New England
Railroad Construction Company, Inc., Railroad Service, Inc. and Minnesota
Railroad Service, Inc., Southern Indiana Wood Preserving Company, Inc., U.S.
Trackworks, Inc. and Northern Rail Service and Supply Co., and Wm.A. Smith
Construction Co., Inc. and Wm.A. Smith Rerailing Service, 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 $187.8
million.
Additionally RailWorks intends to grant 1,205,872 shares of its common
stock to its executive management team. The Company estimates the expense it
will recognize upon granting the shares will approximate $19.3 million.
In June 1998 RailWorks Board of Directors adopted the Company's 1998 Stock
Incentive Plan which reserves 2,000,000 shares of common stock for issuance
under the plan.
F-14
<PAGE> 94
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Annex Railroad Builders, Inc. and Affiliates:
We have audited the accompanying combined balance sheets of ANNEX RAILROAD
BUILDERS, INC. (an Indiana corporation) AND AFFILIATES (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 year ended
March 31, 1997 and the nine 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.
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. and Affiliates as of March 31, 1997 and December 31, 1997, and the results
of their operations and their cash flows for the year ended March 31, 1997 and
the nine months ended December 31, 1997 in conformity with generally accepted
accounting principles.
Nashville, Tennessee
May 15, 1998
F-15
<PAGE> 95
ANNEX RAILROAD BUILDERS, INC. AND AFFILIATES
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......................... $ 397,324 $ 201,016 $ 183,461
Accounts receivable, net of allowance of $16,600,
$20,000 and $20,000, respectively.............. 2,540,878 2,775,817 1,891,805
Employee loans and advances....................... 22,280 16,360 17,291
Costs and estimated earnings in excess of billings
on uncompleted contracts....................... 801,078 1,162,368 1,411,522
Inventory......................................... 84,085 166,718 190,643
Prepaid expenses.................................. 132,019 27,663 7,118
Deferred tax assets............................... 28,759 48,683 48,683
----------- ----------- -----------
Total current assets...................... 4,006,423 4,398,625 3,750,523
----------- ----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Land and buildings................................ 279,607 279,853 279,853
Machinery and equipment........................... 2,242,568 2,269,335 2,258,752
Office furniture and equipment.................... 50,405 56,343 71,659
----------- ----------- -----------
2,572,580 2,605,531 2,610,264
Less accumulated depreciation..................... (1,680,097) (1,779,337) (1,817,624)
----------- ----------- -----------
Property, plant and equipment, net........ 892,483 826,194 792,640
----------- ----------- -----------
OTHER ASSETS:
Cash value of life insurance, face value of
$1,810,000..................................... 306,466 295,448 326,005
----------- ----------- -----------
Total other assets........................ 306,466 295,448 326,005
----------- ----------- -----------
$ 5,205,372 $ 5,520,267 $ 4,869,168
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................. $ 1,507,884 $ 1,337,542 $ 942,096
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....................... 126,698 213,703 144,951
Accrued expenses.................................. 342,993 595,954 299,260
Current maturities of long-term debt.............. 81,876 93,763 45,303
----------- ----------- -----------
Total current liabilities................. 2,504,915 2,390,566 1,673,729
----------- ----------- -----------
LONG-TERM DEBT, net of current maturities........... 120,007 105,102 86,269
----------- ----------- -----------
CAPITAL LEASE OBLIGATIONS, net of current
obligations....................................... 119,219 42,935 --
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value; 8,000 shares
authorized, 5,750 outstanding.................. 56,769 56,769 56,769
Retained earnings................................. 2,513,736 2,924,895 3,052,401
Treasury stock.................................... (109,274) -- --
----------- ----------- -----------
Total stockholders' equity................ 2,461,231 2,981,664 3,109,170
----------- ----------- -----------
$ 5,205,372 $ 5,520,267 $ 4,869,168
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-16
<PAGE> 96
ANNEX RAILROAD BUILDERS, INC. AND AFFILIATES
COMBINED 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.................................. $15,467,498 $15,098,726 $5,285,691 $2,922,658
CONTRACT COSTS........................... 12,948,083 12,405,910 4,511,953 2,279,505
----------- ----------- ---------- ----------
Gross profit........................ 2,519,415 2,692,816 773,738 643,153
GENERAL AND ADMINISTRATIVE EXPENSES...... 1,674,321 1,326,435 452,609 370,319
----------- ----------- ---------- ----------
INCOME FROM OPERATIONS................... 845,094 1,366,381 321,129 272,834
OTHER INCOME (EXPENSE):
Interest income........................ 31,216 15,065 5,319 3,092
Interest expense....................... (47,956) (42,530) (16,478) (6,298)
----------- ----------- ---------- ----------
(16,740) (27,465) (11,159) (3,206)
INCOME BEFORE PROVISION FOR INCOME
TAXES.................................. 828,354 1,338,916 309,970 269,628
PROVISION FOR INCOME TAXES............... 228,946 369,011 103,916 51,947
----------- ----------- ---------- ----------
NET INCOME............................... $ 599,408 $ 969,905 $ 206,054 $ 217,681
=========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-17
<PAGE> 97
ANNEX RAILROAD BUILDERS, INC. AND AFFILIATES
COMBINED 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.............. 5,750 $56,769 $(109,274) $2,300,628 $2,248,123
----- ------- --------- ---------- ----------
Net income......................... -- -- -- 599,408 599,408
Dividends.......................... -- -- -- (386,300) (386,300)
----- ------- --------- ---------- ----------
BALANCE, March 31, 1997.............. 5,750 56,769 (109,274) 2,513,736 2,461,231
----- ------- --------- ---------- ----------
Net income......................... -- -- -- 969,905 969,905
Dividends.......................... -- -- -- (449,472) (449,472)
Retirement of treasury stock....... -- -- 109,274 (109,274) --
----- ------- --------- ---------- ----------
BALANCE, December 31, 1997........... 5,750 $56,769 $ -- $2,924,895 $2,981,664
===== ======= ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-18
<PAGE> 98
ANNEX RAILROAD BUILDERS, INC. AND AFFILIATES
COMBINED 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...................................... $ 599,408 $ 969,905 $ 206,054 $ 217,681
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred income tax benefit................... -- (19,924) -- --
Depreciation and amortization................. 250,215 192,773 64,137 68,051
(Gain)/loss from sale of equipment............ 1,117 145 -- --
Change in operating assets:
Accounts receivable......................... (677,293) (234,939) 290,522 884,012
Costs and estimated earnings in excess of
billings on uncompleted contracts........ (287,483) (361,290) (409,227) (249,154)
Inventory................................... (25,290) (82,633) 56,500 (23,925)
Prepaid expenses............................ (106,458) 104,356 4,164 20,545
Accounts payable............................ 577,961 (170,342) 118,766 (395,446)
Accrued expenses............................ (107,036) 252,961 (208,494) (296,694)
Billings in excess of costs and estimated
earnings on uncompleted contracts........ (59,381) 87,005 89,765 (68,752)
--------- --------- --------- ---------
Net cash provided by operating
activities........................... 165,760 738,017 212,187 156,318
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net employee advances (payments)................ (728) 5,920 (392) (931)
Increase in cash value of life insurance........ (53,796) (45,145) (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..... (110,932) (146,640) (24,343) (34,497)
Proceeds from sale of equipment................. -- 20,011 -- --
--------- --------- --------- ---------
Net cash used in investing
activities........................... (121,882) (109,691) (10,557) (65,985)
--------- --------- --------- ---------
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............ (131,138) (73,290) (21,784) (67,293)
Borrowings under long-term debt................. 19,752 70,272 -- --
Dividends paid.................................. (386,300) (449,472) (86,330) (90,175)
--------- --------- --------- ---------
Net cash used in financing
activities........................... (440,398) (824,634) (300,826) (107,888)
--------- --------- --------- ---------
Net increase (decrease) in cash and
cash equivalents..................... (396,520) (196,308) (99,196) (17,555)
CASH AND CASH EQUIVALENTS, beginning of period.... 793,844 397,324 333,980 201,016
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period.......... $ 397,324 $ 201,016 $ 234,784 $ 183,461
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest...................................... $ 55,023 $ 52,894 $ 14,608 $ 3,459
========= ========= ========= =========
Income taxes.................................. $ 235,131 $ 218,799 $ -- $ 146,989
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-19
<PAGE> 99
ANNEX RAILROAD BUILDERS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS ACTIVITIES
The accompanying combined financial statements of Annex Railroad Builders,
Inc. and Affiliates (collectively the "Company") include the accounts of Annex
Railroad Builders, Inc. ("Annex") (an Indiana corporation), R. & M. B. Rail Co.,
d/b/a Mize Construction Company ("Mize") (an Indiana corporation), Railroad
Specialties, Inc., ("RSI") (an Indiana corporation) and U.S. Railway Supply,
Inc. ("US Rail") (an Indiana corporation). These entities are included in the
combined financial statements due to certain shareholder's majority ownership in
each. The majority of the Company operates as a construction contractor
constructing, repairing, and maintaining railroad tracks for private and
government customers located throughout the Midwest. This work is performed
under various forms of contracts, including fixed-fee and time-and-material
contracts. One entity operates a supply company that provides railroad
construction supplies to certain railroad construction contractors.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION
The above companies have been included in the combined financial
statements. All material intercompany transactions and balances have been
eliminated. Although the fiscal year of Annex ends March 31, the affiliates are
included in the combined financial statements on the basis of fiscal years
ending December 31. In 1997, Annex changed its financial reporting year-end to
December 31.
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.
F-20
<PAGE> 100
ANNEX RAILROAD BUILDERS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Contract revenue earned from three customers comprised approximately 29% 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............................................... 27.5 - 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
Mize, RSI and U.S. Rail operate as Sub-Chapter S Corporations. Accordingly,
the taxable income of Mize, RSI, and US Rail included in the combined financial
statements of the Company is reported by the owners in their respective
individual tax returns; therefore, the combined financial statements of the
Company do not reflect an income tax provision for these entities.
The provision for income taxes is based on earnings reported by Annex. 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.
F-21
<PAGE> 101
ANNEX RAILROAD BUILDERS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. ACCOUNTS RECEIVABLE
At March 31, 1997 and December 31, 1997, accounts receivable consisted of
the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1997
---------- ------------
<S> <C> <C>
Contract receivables....................................... $1,299,651 $1,633,139
Contract retainages........................................ 1,172,772 1,162,678
Other...................................................... 85,055 --
---------- ----------
2,557,478 2,795,817
Less allowance for doubtful accounts....................... 16,600 20,000
---------- ----------
$2,540,878 $2,775,817
========== ==========
</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.
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................... $5,426,971 $ 9,508,537
Estimated earnings........................................ 1,824,146 3,477,468
---------- -----------
7,251,117 12,986,005
Less billings to date..................................... 6,576,737 12,037,340
---------- -----------
$ 674,380 $ 948,665
========== ===========
</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..................................... $ 801,078 $1,162,368
Billings in excess of costs and estimated earnings on
uncompleted contracts..................................... (126,698) (213,703)
--------- ----------
$ 674,380 $ 948,665
========= ==========
</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.
F-22
<PAGE> 102
ANNEX RAILROAD BUILDERS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. CAPITAL LEASES
The Company's capital leases relate to machinery and equipment which have
net book values of $239,683 and $205,916 at March 31, 1997 and December 31,
1997, respectively. 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:
<TABLE>
<S> <C>
1998........................................................ $ 99,604
1999........................................................ 42,935
--------
$142,539
========
</TABLE>
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
Mortgage note payable to bank, interest at 7.125%, payable
in monthly installments of $996, maturing January 2009,
secured by property....................................... 96,509 90,802
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
Note payable to bank, interest at 8.50%, payable in monthly
installments of $738, maturing February 2000, secured by
equipment................................................. -- 17,359
Other notes payable......................................... 9,837 45,093
-------- --------
201,883 198,865
Less current maturities..................................... 81,876 93,763
-------- --------
$120,007 $105,102
======== ========
</TABLE>
The future maturities of long-term debt as of December 31, 1997 are as
follows:
<TABLE>
<S> <C>
1998........................................................ $ 93,763
1999........................................................ 23,455
2000........................................................ 7,413
2001........................................................ 6,518
2002........................................................ 6,998
Thereafter.................................................. 60,718
--------
$198,865
========
</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,
F-23
<PAGE> 103
ANNEX RAILROAD BUILDERS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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 be employed with the Company for two years. All contributions,
which are at management's discretion, are vested after six years. Company
contributions to the plan were $117,717 and $121,421 for the year ended March
31, 1997 and the nine months ended December 31, 1997, respectively.
9. INCOME TAXES
The income tax provision for Annex 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>
The income tax provision as reported in the combined 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 a related
party under common ownership. Sales to this company were $105,840, and $58,752
for the year ended March 31, 1997 and for the nine months ended December 31,
1997, respectively. The Company had
F-24
<PAGE> 104
ANNEX RAILROAD BUILDERS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
receivables from this company totaling $11,762 and $17,771 at March 31, 1997 and
December 31, 1997, respectively.
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.
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-25
<PAGE> 105
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-26
<PAGE> 106
COMSTOCK HOLDINGS, INC.
CONSOLIDATED 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 $64,417
======= ======= =======
</TABLE>
The accompanying notes to financial statements are an integral part of these
financial statements.
F-27
<PAGE> 107
COMSTOCK HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------- THREE MONTHS
PREDECESSOR COMPANY ENDED MARCH 31,
------------------- -----------------
1995 1996 1997 1997 1998
-------- -------- -------- ------- -------
(UNAUDITED)
($ 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-28
<PAGE> 108
COMSTOCK HOLDINGS, INC.
CONSOLIDATED 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-29
<PAGE> 109
COMSTOCK HOLDINGS, INC.
CONSOLIDATED 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-30
<PAGE> 110
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-31
<PAGE> 111
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-32
<PAGE> 112
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
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.
(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-33
<PAGE> 113
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-34
<PAGE> 114
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-35
<PAGE> 115
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-36
<PAGE> 116
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-37
<PAGE> 117
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-38
<PAGE> 118
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-39
<PAGE> 119
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.
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 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-40
<PAGE> 120
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-41
<PAGE> 121
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-42
<PAGE> 122
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-43
<PAGE> 123
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-44
<PAGE> 124
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.
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 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-45
<PAGE> 125
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
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.
F-46
<PAGE> 126
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-47
<PAGE> 127
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:
<TABLE>
<S> <C>
1998........................................................ $ 60,000
1999........................................................ 55,000
--------
$115,000
========
</TABLE>
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-48
<PAGE> 128
CONDON BROTHERS, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate maturities on principal under long-term debt obligations are as
follows:
<TABLE>
<S> <C>
1998........................................................ $214,718
1999........................................................ 480,056
2000........................................................ 11,251
--------
$706,025
========
</TABLE>
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-49
<PAGE> 129
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 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 adverse impact on
the Company's financial position, operations or liquidity.
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)
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-50
<PAGE> 130
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.
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 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-51
<PAGE> 131
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-52
<PAGE> 132
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-53
<PAGE> 133
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-54
<PAGE> 134
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-55
<PAGE> 135
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-56
<PAGE> 136
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>
NOTE 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-57
<PAGE> 137
CPI CONCRETE PRODUCTS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 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>
NOTE 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-58
<PAGE> 138
CPI CONCRETE PRODUCTS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 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.
NOTE 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.
NOTE 9. -- 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-59
<PAGE> 139
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.
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 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-60
<PAGE> 140
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-61
<PAGE> 141
H.P. MCGINLEY, INCORPORATED
STATEMENTS OF OPERATIONS
<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>
REVENUE..................... $4,821,862 $4,425,187 $5,909,679 $ 743,408 $1,364,748
COST OF GOODS SOLD.......... 3,690,780 3,016,827 3,356,518 500,564 886,685
---------- ---------- ---------- ---------- ----------
Gross profit...... 1,131,082 1,408,360 2,553,161 242,844 478,063
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES.................. 1,113,062 1,294,731 1,834,752 316,795 351,872
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) FROM
OPERATIONS................ 18,020 113,629 718,409 (73,951) 126,191
OTHER INCOME (EXPENSE)
Interest income........... 4,329 4,697 23,054 714 8,597
Interest expense.......... -- -- (24,832) -- --
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE
PROVISION FOR INCOME
TAXES..................... 22,349 118,326 716,631 (73,237) 134,788
PROVISION (BENEFIT) FOR
INCOME TAXES.............. 10,200 46,790 286,100 (30,000) 54,900
---------- ---------- ---------- ---------- ----------
NET INCOME
(LOSS).......... $ 12,149 $ 71,536 $ 430,531 $ (43,237) $ 79,888
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-62
<PAGE> 142
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-63
<PAGE> 143
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-64
<PAGE> 144
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
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 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-65
<PAGE> 145
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
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 February 28, 1997 and March 31, 1998.
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-66
<PAGE> 146
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-67
<PAGE> 147
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)
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-68
<PAGE> 148
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.
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 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-69
<PAGE> 149
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-70
<PAGE> 150
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-71
<PAGE> 151
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-72
<PAGE> 152
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-73
<PAGE> 153
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
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. 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 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
F-74
<PAGE> 154
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
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.
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
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
F-75
<PAGE> 155
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-76
<PAGE> 156
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-77
<PAGE> 157
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-78
<PAGE> 158
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
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.
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
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-79
<PAGE> 159
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)
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-80
<PAGE> 160
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.
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 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-81
<PAGE> 161
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-82
<PAGE> 162
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-83
<PAGE> 163
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-84
<PAGE> 164
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-85
<PAGE> 165
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
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 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 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-86
<PAGE> 166
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
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.
F-87
<PAGE> 167
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-88
<PAGE> 168
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:
<TABLE>
<S> <C>
1998........................................................ $ 78,125
1999........................................................ 85,580
2000........................................................ 41,468
2001........................................................ 8,889
2002........................................................ 2,436
--------
$216,498
========
</TABLE>
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-89
<PAGE> 169
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.
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 approximates fair value.
12. 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-90
<PAGE> 170
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.
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 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-91
<PAGE> 171
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-92
<PAGE> 172
MIDWEST CONSTRUCTION SERVICES, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<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>
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-93
<PAGE> 173
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-94
<PAGE> 174
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.
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.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
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.
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-95
<PAGE> 175
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-96
<PAGE> 176
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..................... $-- $262,907
Estimated earnings.......................................... -- 32,619
-- --------
-- 295,526
Less -- Billings to date.................................... -- 359,912
-- --------
$-- $(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.................................. $-- $ 17,571
Billings in excess of costs and estimated earnings
on uncompleted contracts.................................. -- (81,957)
-- --------
$-- $(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-97
<PAGE> 177
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-98
<PAGE> 178
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-99
<PAGE> 179
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 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.
F-100
<PAGE> 180
MIDWEST CONSTRUCTION SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
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.
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-101
<PAGE> 181
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.
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 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> 182
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> 183
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> 184
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> 185
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> 186
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> 187
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:
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.
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> 188
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> 189
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> 190
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> 191
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:
<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>
Tax charge at standard
U.S. rate of 34%...... $(37,768) $327,954 $ 7,141 $116,689 $(111,346)
Non-deductible
expenses.............. 195 666 751 90 1,520
Alternative minimum
tax................... 23,366 5,412
Tax rate differences and
adjustment of prior
years' taxes.......... (6,546) (1,231) (6,247)
State taxes, net of
federal benefit....... (7,881) 66,845 1,455 26,109 (22,774)
-------- -------- ------- -------- ---------
$(52,000) $417,600 $ 3,100 $148,300 $(132,600)
======== ======== ======= ======== =========
</TABLE>
F-112
<PAGE> 192
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):
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-113
<PAGE> 193
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> 194
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> 195
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> 196
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> 197
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> 198
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
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 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> 199
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> 200
RAILROAD SERVICE, INC.
AND
MINNESOTA RAILROAD SERVICE, INC.
NOTES TO COMBINED 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 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 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> 201
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> 202
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> 203
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.
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-124
<PAGE> 204
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.
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 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> 205
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> 206
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> 207
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> 208
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> 209
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
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 those 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> 210
SOUTHERN INDIANA WOOD PRESERVING COMPANY, INC.
NOTES TO 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 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. 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:
<TABLE>
<S> <C>
1998........................................................ $10,031
1999........................................................ 11,034
-------
$21,065
=======
</TABLE>
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> 211
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)
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-132
<PAGE> 212
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.
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 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> 213
U.S. TRACKWORKS, INC. AND
NORTHERN RAIL SERVICE AND SUPPLY CO.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $ 21,286 $ 124,522 $ 23,344
Accounts receivable.................................. 821,204 992,277 721,995
Costs and estimated earnings in excess of billings on
uncompleted contracts............................. 20,577 259,388 24,855
Inventory............................................ 217,345 259,427 260,626
Prepaid expenses..................................... 33,813 30,418 8,548
---------- ---------- ----------
Total current assets.............................. 1,114,225 1,666,032 1,039,368
---------- ---------- ----------
PROPERTY AND EQUIPMENT:
Construction equipment............................... 904,287 1,012,099 1,023,640
Transportation equipment............................. 466,030 468,783 468,783
Office equipment..................................... 24,051 10,101 10,101
---------- ---------- ----------
1,394,368 1,490,983 1,502,524
Less accumulated depreciation........................ (956,688) (995,245) (1,031,143)
---------- ---------- ----------
Property and equipment, net.................. 437,680 495,738 471,381
---------- ---------- ----------
OTHER ASSETS, net...................................... 81,489 89,468 94,331
---------- ---------- ----------
Total assets................................. $1,633,394 $2,251,238 $1,605,080
========== ========== ==========
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> 214
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> 215
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> 216
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> 217
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> 218
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.
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.
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
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.
F-139
<PAGE> 219
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> 220
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:
<TABLE>
<S> <C>
1998........................................................ $68,015
1999........................................................ 7,516
2000........................................................ 5,607
-------
$81,138
=======
</TABLE>
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> 221
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
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.
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> 222
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)
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-143
<PAGE> 223
Map of the United States entitled "Railworks' National Network," showing the
locations of track contractors, L.K. Comstock, and suppliers.
<PAGE> 224
======================================================
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 OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
The Company........................... 1
The Offering.......................... 4
The Combination....................... 5
Summary Pro Forma As Adjusted
Financial Data...................... 6
Risk Factors.......................... 8
Formation of the Company.............. 16
Use of Proceeds....................... 18
Dividend Policy....................... 18
Capitalization........................ 19
Dilution.............................. 20
Selected Pro Forma As Adjusted
Financial Data...................... 21
Selected Financial Data of the
Founding Companies.................. 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 26
Business.............................. 42
Management............................ 57
Certain Relationships and Related
Party Transactions.................. 63
Principal and Selling Stockholders.... 66
Description of Capital Stock.......... 68
Shares Eligible for Future Sale....... 69
Underwriting.......................... 71
Certain U.S. Federal Tax
Considerations for Non-U.S. Holders
of Common Stock..................... 73
Legal Matters......................... 76
Experts............................... 76
Additional Information................ 76
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.
======================================================
======================================================
6,800,000 Shares
(RAILWORKS LOGO)
Common Stock
-------------------
PROSPECTUS
-------------------
BT AlexS Brown
Schroder & Co. Inc.
Piper Jaffray Inc.
, 1998
======================================================
<PAGE> 225
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........................................ $ 39,218
NASD filing fee............................................. 13,794
Nasdaq National Market listing fee.......................... 100,000
Accounting fees and expenses................................ 1,200,000
Legal fees and expenses..................................... 450,000
Blue Sky fees and expenses (including counsel fees)......... 3,000
Printing and Engraving expenses............................. 380,000
Transfer Agent and Registrar fees and expenses.............. 5,000
Miscellaneous expenses...................................... 8,988
----------
Total............................................. $2,200,000
==========
</TABLE>
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 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.
II-1
<PAGE> 226
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.
Concurrently with the Consummation of the Offering, the Company will issue
an aggregate of 1,205,872 shares of Common Stock to executive officers and
corporate-level employees of the Company. This issuance was exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933.
Concurrently with the consummation of the Offering, the Company will issue
an aggregate of 7,208,583 shares of Common Stock to (i) certain owners of the
Founding Companies as partial consideration for the acquisitions of such
Founding Companies and (ii) to IPODC on behalf of the Founding Companies. All of
the purchasers of such Common Stock are "accredited investors," as defined in
the Securities Act of 1933. 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 -- Uniform Provisions for the Acquisition of Founding Companies
10.2 -- Agreement and Plan of Reorganization dated as of May 21,
1998 by and between RailWorks Corporation, Wildcats
Alpha-Keystone Company, Alpha-Keystone Engineering, Inc. and
the stockholders named therein
10.3 -- Agreement and Plan of Reorganization dated as of May 21,
1998 by and between RailWorks Corporation, Bulldog Comtrak
Company, Comtrak Construction, Inc. and the stockholders
named therein
10.4 -- Agreement and Plan of Reorganization dated as of May 21,
1998 by and between RailWorks Corporation, Cardinal Annex
Railroad Builders Company, Annex Railroad Builders, Inc. and
the stockholders named therein
10.5 -- Agreement and Plan of Reorganization dated as of May 21,
1998 by and between RailWorks Corporation, Huskies Condon
Brothers Company, Condon Brothers Inc. and the stockholders
named therein
10.6 -- Agreement and Plan of Reorganization dated as of May 21,
1998 by and between RailWorks Corporation, Commodores
Concrete Company, CPI Concrete Products, Inc. and the
stockholders named therein
10.7 -- Agreement and Plan of Reorganization dated as of May 21,
1998 by and between RailWorks Corporation, Nittany Lions
McGinley Company, HP McGinley Inc. and the stockholders
named therein
10.8 -- Agreement and Plan of Reorganization dated as of May 21,
1998 by and between RailWorks Corporation, Owls Kennedy
Railroad Builders Company, Kennedy Railroad Builders, Inc.
and the stockholders named therein
10.9 -- Agreement and Plan of Reorganization dated as of May 21,
1998 by and between RailWorks Corporation, Red Storm
Comstock Company, Inc., L.K. Comstock & Company, Inc. and
the stockholders named therein
</TABLE>
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<PAGE> 227
<TABLE>
<CAPTION>
EXHIBIT
NUMBER NUMBER DESCRIPTION
- ------- ------------------
<C> <C> <S>
10.10 -- Agreement and Plan of Reorganization dated as of May 21,
1998 by and between RailWorks Corporation, Sycamores Midwest
Construction Company, Midwest Construction Services, Inc.
and the stockholders named therein
10.11 -- Agreement and Plan of Reorganization dated as of May 21,
1998 by and between RailWorks Corporation, Bears Merit
Company, Merit Railroad Contractors, Inc. and the
stockholders named therein
10.12 -- Agreement and Plan of Reorganization dated as of May 21,
1998 by and between RailWorks Corporation, Hoosier Mize
Company, Mize Construction Company and the stockholders
named therein
10.13 -- Agreement and Plan of Reorganization dated as of May 21,
1998 by and between RailWorks Corporation, Husky New England
Railroad Construction Company, New England Railroad
Construction Company Inc. and the stockholders named therein
10.14 -- Agreement and Plan of Reorganization dated as of May 21,
1998 by and between RailWorks Corporation, Wolverines
Northern Rail Services Company, Northern Rail Service and
Supply Company, Inc. and the stockholders named therein.
10.15 -- Agreement and Plan of Reorganization dated as of May 21,
1998 by and between RailWorks Corporation, Big Orange
Minnesota Company, Minnesota Railroad Service Company and
the stockholders named therein
10.16 -- Agreement and Plan of Reorganization dated as of May 21,
1998 by and between RailWorks Corporation, Buckeye Railcorp,
Inc., Railcorp Inc. and the stockholders named therein
10.17 -- Agreement and Plan of Reorganization dated as of May 21,
1998 by and between RailWorks Corporation, Runnin' Rebels
Railroad Service Company, Railroad Service, Inc. and the
stockholders named therein
10.18 -- Agreement and Plan of Reorganization dated as of May 21,
1998 by and between RailWorks Corporation, Crusader Railroad
Specialties Company, Railroad Specialties, Inc. and the
stockholders named therein
10.19 -- Agreement and Plan of Reorganization dated as of May 21,
1998 by and between RailWorks Corporation, Screaming Eagle
Wood Preserving Company, Southern Indiana Wood Preserving
Company, Inc. and the stockholders named therein
10.20 -- Agreement and Plan of Reorganization dated as of May 21,
1998 by and between RailWorks Corporation, Fighting
Irish-U.S. Railway Supply Company, U.S. Railway Supply, Inc.
and the stockholders named therein
10.21 -- Agreement and Plan of Reorganization dated as of May 21,
1998 by and between RailWorks Corporation, Spartans
Trackworks Company, U.S. Trackworks, Inc. and the
stockholders named therein
10.22 -- Agreement and Plan of Reorganization dated as of May 21,
1998 by and between RailWorks Corporation, Mustang Smith
Construction Company, Wm. A. Smith Construction Co., Inc.
and the stockholders named therein
10.23 -- Agreement and Plan of Reorganization dated as of May 21,
1998 by and between RailWorks Corporation, Longhorn Smith
Rerailing Company, Wm. A. Smith Rerailing Services, Inc. and
the stockholders named therein
10.24 -- Employment Agreement dated as of May 21, 1998 between
Michael R. Azarela, the Founding Companies and the Company
10.25 -- Employment Agreement dated as of May 21, 1998 between John
G. Larkin, the Founding Companies and the Company
10.26 -- Employment Agreement dated as of May 21, 1998 between Harold
C. Kropp, Jr., the Founding Companies and the Company
10.27 -- Employment Agreement dated as of May 21, 1998 between John
Kennedy, the Founding Companies and the Company
</TABLE>
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<PAGE> 228
<TABLE>
<CAPTION>
EXHIBIT
NUMBER NUMBER DESCRIPTION
- ------- ------------------
<C> <C> <S>
10.28 -- Form of Employment Agreement between each Founding Company
and Founding Company Officer
10.29 -- 1998 Incentive Stock Plan
10.30* -- 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.
10.31 -- Stock Purchase Agreement dated April 3, 1997 between
Comstock Group, Inc. and LKC Acquisition Corp., as amended
10.32 -- Contingent Promissory Note dated April 3, 1997 made by L.K.
Comstock & Company, Inc. to the order of Spie Enertrans S.A.
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)
24.2 -- Powers of Attorney of new directors
27.1* -- Financial data schedule (for SEC filing purposes only)
99.1* -- Consent of persons named to be directors
</TABLE>
- ---------------
* Previously filed.
** 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 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
II-4
<PAGE> 229
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-5
<PAGE> 230
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Atlanta, State of Georgia, on June 30,
1998.
RAILWORKS CORPORATION
By: /s/ MICHAEL R. AZARELA
------------------------------------
Michael R. Azarela
Executive Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons in the capacities indicated on June 30,
1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
* 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)
* Vice President, Chief Operating Officer and
- ----------------------------------------------------- Director
John Kennedy
* Vice President and Chief Accounting Officer
- ----------------------------------------------------- (Principal Accounting Officer)
Harold C. Kropp, Jr.
* Director
- -----------------------------------------------------
Ronald W. Drucker
* Director
- -----------------------------------------------------
R.C. Matney
*By: /s/ MICHAEL R. AZARELA
------------------------------------------------
Michael R. Azarela
Attorney-in-fact
</TABLE>
II-6
<PAGE> 1
Exhibit 10.1
RAILWORKS CORPORATION
UNIFORM PROVISIONS
FOR THE
ACQUISITION
OF
FOUNDING COMPANIES
WORDS AND TERMS USED IN THESE UNIFORM PROVISIONS WHICH ARE DEFINED IN THE
AGREEMENT AND PLAN OF REORGANIZATION AMONG RAILWORKS CORPORATION, [RAILWORKS
SUB], THE COMPANY NAMED HEREIN AND THE STOCKHOLDERS NAMED THEREIN (CALLED
THEREIN AND HEREIN "THIS AGREEMENT") TO WHICH THESE UNIFORM PROVISIONS ARE
ATTACHED AS ANNEX 1 ARE USED HEREIN AS DEFINED THEREIN.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I ADDITIONAL DEFINITIONS......................................................................1
Section 1.02. Additional Defined Terms..................................................................1
Section 1.03. Other Definitional Provisions............................................................13
Section 1.04. Captions.................................................................................14
ARTICLE II [Intentionally Omitted]....................................................................14
ARTICLE III REPRESENTATIONS AND WARRANTIES OF EACH
STOCKHOLDER................................................................................14
Section 3.02. Ownership and Status of Company Capital Stock............................................14
Section 3.03. Power of the Stockholder; Approval of the Merger.........................................14
Section 3.04. No Conflicts or Litigation...............................................................15
Section 3.05. [Intentionally omitted]..................................................................15
Section 3.06. Preemptive and Other Rights; Waiver......................................................15
Section 3.07. Control of Related Businesses............................................................15
Section 3.08. Representation by Counsel................................................................16
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS...................................................16
Section 4.02. Qualification............................................................................16
Section 4.03. Authorization; Enforceability; Absence of Conflicts;
Required Consents........................................................................16
Section 4.04. Charter Documents and Records; No Violation..............................................17
Section 4.05. No Defaults..............................................................................17
Section 4.06. Company Subsidiaries.....................................................................18
Section 4.07. Capital Stock of the Company and the Company Subsidiaries................................18
Section 4.08. Transactions in Capital Stock............................................................18
Section 4.09. [Intentionally omitted.].................................................................19
Section 4.10. Predecessor Status; Etc..................................................................19
Section 4.11. Related Party Agreements.................................................................19
Section 4.12. Litigation...............................................................................19
Section 4.13. Financial Statements; Disclosure.........................................................19
Section 4.14. Compliance with Laws.....................................................................20
Section 4.15. Certain Environmental Matters............................................................21
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 4.16. Liabilities and Obligations..............................................................22
Section 4.17. Receivables..............................................................................22
Section 4.18. Owned and Leased Real Properties.........................................................23
Section 4.19. Owned and Leased Property, Plant and Equipment...........................................24
Section 4.20. Proprietary Rights.......................................................................24
Section 4.21. Title to Other Properties................................................................24
Section 4.22. Commitments..............................................................................25
Section 4.23. Capital Expenditures.....................................................................26
Section 4.24. Inventories..............................................................................26
Section 4.25. Insurance................................................................................27
Section 4.26. Employee Matters.........................................................................27
Section 4.27. Compliance with ERISA, Etc...............................................................30
Section 4.28. Taxes....................................................................................33
Section 4.29. Government Contracts.....................................................................34
Section 4.30. Absence of Changes.......................................................................34
Section 4.31. Bank Relations; Powers of Attorney.......................................................35
Section 4.32. Relations with Governments, Etc..........................................................36
Section 4.33. Product Quality, Warranty Claims, Product Liability......................................36
Section 4.34. Electrical Trade Unions..................................................................36
Section 4.35. RW Corporate Expenses....................................................................36
ARTICLE V REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO ............................................36
Section 5.02. Organization; Power......................................................................36
Section 5.03. Authorization; Enforceability; Absence of Conflicts;
Required Consents.....................................................................37
Section 5.04. Charter Documents and Records; No Violation..............................................38
Section 5.05. No Defaults..............................................................................38
Section 5.06. Subsidiaries.............................................................................38
Section 5.07. Capital Stock of RW and Newco............................................................38
Section 5.08. Liabilities..............................................................................39
Section 5.09. Compliance with Laws; No Litigation......................................................39
Section 5.10. Private Placement Memorandum.............................................................39
Section 5.11. Disclosure...............................................................................40
Section 5.12. Commitments..............................................................................40
Section 5.13. Proprietary Rights.......................................................................41
Section 5.14. Insurance................................................................................41
Section 5.15. Due Diligence............................................................................41
Section 5.16. Registration Statement...................................................................41
Section 5.17. Registration Rights Agreements...........................................................42
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME .................................................42
Section 6.02. Access and Cooperation; Due Diligence....................................................42
Section 6.03. Conduct of Business Pending Closing......................................................43
Section 6.04. Prohibited Activities....................................................................43
Section 6.05. No Shop; Release of Directors............................................................45
Section 6.06. Notice to Bargaining Agents..............................................................45
Section 6.07. Notification of Certain Matters..........................................................46
Section 6.08. Supplemental Information.................................................................46
Section 6.09. Cooperation in Connection with the IPO...................................................47
Section 6.10. Additional Financial Statements..........................................................47
Section 6.11. Termination of Plans.....................................................................47
Section 6.12. Disposition of Unwanted Assets...........................................................48
Section 6.13. HSR Act Matters..........................................................................48
Section 6.14. Conduct of Business by RW Pending Closing................................................48
Section 6.15. RW Corporate Expenses....................................................................48
ARTICLE VII THE CLOSING AND CONDITIONS TO DELIVERY AND
CONSUMMATION...............................................................................49
Section 7.01. Conditions to the Obligations of Each Party..............................................50
Section 7.02. Conditions to the Obligations of the Company and the Stockholders........................51
Section 7.03. Conditions to the Obligations of RW and Newco............................................51
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME.....................................................53
Section 8.02. Disclosure...............................................................................53
Section 8.03. Preparation and Filing of Tax Returns....................................................53
Section 8.04. Directors................................................................................54
Section 8.05. Executive Council........................................................................54
Section 8.06. Removal of Guaranties....................................................................54
Section 8.07. Reports Under the Exchange Act...........................................................54
Section 8.08. Electrical Unions........................................................................54
Section 8.09. IPO Deliveries...........................................................................55
Section 8.10. Market Capitalization....................................................................55
Section 8.11. Accuracy of Registration Statement.......................................................55
ARTICLE IX INDEMNIFICATION............................................................................55
Section 9.02. Survival of Representations and Warranties...............................................55
Section 9.03. Indemnification of RW Indemnified Parties................................................56
Section 9.04. Indemnification of Stockholder Indemnified Parties.......................................57
Section 9.05. Conditions of Indemnification............................................................57
Section 9.06. Remedies Not Exclusive...................................................................60
Section 9.07. Limitations on Indemnification...........................................................60
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
ARTICLE X [Intentionally Omitted]....................................................................61
ARTICLE XI GENERAL PROVISIONS.........................................................................61
Section 11.01. Treatment of Confidential Information...................................................61
Section 11.02. Exhibits and Schedules..................................................................62
</TABLE>
EXHIBITS
Exhibit E - Form of Escrow Agreement
Exhibit F - Form of General Release
Exhibit G - Form of RW Officers' Certificate
Exhibit H - Form of RW Legal Opinion
Exhibit I - Form of Company Officers' Certificate
Exhibit J - Form of Company Legal Opinion
Exhibit K - Form of Withholding Certificate
iv
<PAGE> 6
ARTICLE I
ADDITIONAL DEFINITIONS
Section 1.02. Additional Defined Terms. As used in this Agreement, the
following terms have the meanings assigned to them below:
"Acquisition Proposal" has the meaning specified in Section 6.05.
"Affiliate" means, as to any specified Person, any other Person that,
directly or indirectly through one or more intermediaries or otherwise,
controls, is controlled by or is under common control with the specified Person.
As used in this definition, "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of a Person (whether through ownership of Capital Stock of that Person,
by contract or otherwise).
"Arthur Anderson" means Arthur Anderson LLP, certified public
accountants.
"Business Day" means a day in the city of New York, New York on which
banks are open for business.
"Capital Lease" means a lease of (or other agreement conveying the
right to use) real or personal property that is required to be classified and
accounted for as a capital lease under GAAP as in effect on the date of this
Agreement.
"Capital Stock" means, with respect to: (a) any corporation, any share,
or any depositary receipt or other certificate representing any share, of an
equity ownership interest in that corporation; and (b) any other Entity, any
share, membership or other percentage interest, unit of participation or other
equivalent (however designated) of an equity interest in that Entity.
"Cash Compensation" means, as applied to any employee, nonemployee
director or officer of, or any natural person who performs consulting or other
independent contractor services for, the Company or any Company Subsidiary, the
wages, salaries, bonuses (discretionary and formula), fees and other cash
compensation paid or payable by the Company and each Company Subsidiary to that
employee or other natural person.
"CERCLA" means the Comprehensive Environmental Response, Conservation,
and Liability Act of 1980, as amended, 42 USC ss.9601, et seq.
"Certificate of Merger" means the articles or certificate of merger
respecting the Merger which contains the information required by the laws of the
Company's Organization State to effect the Merger.
"Charter Documents" means, with respect to any Entity at any time, in
each case as amended, modified and supplemented at that time, the articles or
certificate of formation, incorporation or organization (or the equivalent
organizational documents) of that Entity, (b) the bylaws or limited
<PAGE> 7
liability company agreement or regulations (or the equivalent governing
documents) of that Entity and (c) each document setting forth the designation,
amount and relative rights, limitations and preferences of any class or series
of that Entity's Capital Stock or of any rights in respect of that Entity's
Capital Stock.
"Claim Notice" has the meaning specified in Section 9.05.
"Closing" means the consummation of the transactions contemplated by
this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Commitment" has the meaning specified in Section 4.22.
"Company Employment Agreement" means at any time any (a) agreement to
which the Company or any Company Subsidiary is a party which then relates to the
direct or indirect employment or engagement, or arises from the past employment
or engagement, of any natural person by the Company or any Company Subsidiary,
whether as an employee, a nonemployee officer or director, a consultant or other
independent contractor, a sales representative or a distributor of any kind,
including any employee leasing or service agreement and any noncompetition
agreement, and (b) agreement between the Company or any Company Subsidiary and
any Person which arises from the sale of a business by that Person to the
Company or any Company Subsidiary and limits that Person's competition with the
Company or any Company Subsidiary.
"Company ERISA Benefit Plan" has the meaning specified in Section 4.26.
"Company ERISA Pension Plan" has the meaning specified in Section 4.26.
"Company Subsidiary" means at any time any Entity that is a Subsidiary
of the Company at that time.
"Comstock" means Comstock Holdings, Inc., a New York corporation and
one of the Founding Companies.
"Confidential Information" means, with respect to any Person, all trade
secrets and other confidential, nonpublic and/or proprietary information of that
Person, including information derived from reports, investigations, research,
work in progress, codes, marketing and sales programs, capital expenditure
projects, cost summaries, pricing formulae, contract analyses, financial
information, projections, confidential filings with any Governmental Authority
and all other confidential, nonpublic concepts, methods of doing business,
ideas, materials or information prepared or performed for, by or on behalf of
that Person.
"Current Balance Sheet" has the meaning specified in Section 1.01.
2
<PAGE> 8
"Current Balance Sheet Date" has the meaning specified in Section 1.01.
"Current Date" means any day during the 20-day period ending on the
Delivery Date.
"Damage" to any specified Person means any cost, damage (including any
consequential, exemplary, punitive or treble damage) or expense (including
reasonable fees and actual disbursements by attorneys, consultants, experts or
other Representatives and Litigation costs) to, any fine of or penalty on or any
liability (including loss of earnings or profits) of any other nature of that
Person.
"Damage Claim" means, as asserted (a) against any specified Person, any
claim, demand or Litigation made or pending against that Person for Damages to
any other Person, or (b) by the specified Person, any claim or demand of the
specified Person against any other Person for Damages to the specified Person.
"Delivery" has the meaning specified in Section 7.01.
"Delivery Date" has the meaning specified in Section 7.01.
"DGCL" means the General Corporation Law of the State of Delaware.
"Derivative Securities" of a specified Entity means any Capital Stock
or debt security or other Indebtedness of the specified Entity or any other
Person which is convertible into or exchangeable for, or any option, warrant or
other right to acquire, (a) any unissued Capital Stock of the specified Entity
or (b) any Capital Stock of the specified Entity which has been issued and is
being held by the Entity directly or indirectly as treasury Capital Stock.
"Effective Time" has the meaning specified in Section 2.02.
"Election Period" has the meaning specified in Section 9.05.
"Employee Policies and Procedures" means at any time all employee
manuals and all material policies, procedures and work-related rules that apply
at that time to any employee, nonemployee director or officer of, or any other
natural person performing consulting or other independent contractor services
for, the Company or any Company Subsidiary.
"Entity" means any sole proprietorship, corporation, partnership of any
kind having a separate legal status, limited liability company, business trust,
unincorporated organization or association, mutual company, joint stock company
or joint venture.
"Environmental Laws" means any and all Government Requirements related
to the protection of human health and the environment, including, without
limitation, Government Requirements, such as CERCLA and RCRA, which prohibit,
restrict or create liability for releases or potential
3
<PAGE> 9
releases of Hazardous Materials or any other pollutants, contaminants, chemicals
or industrial, toxic or other regulated substances or wastes, or petroleum or
petroleum products. For the purpose of this definition, Government Requirements
shall include all obligations of the Company to obtain and comply with permits
for conduct of the business and shall include but not be limited to, the
obligations of the Company with respect to manufacture, processing,
distribution, use, treatment, storage, disposal, recycling, removal, transport
or handling of Hazardous Materials. For the purpose of this definition,
"release" shall mean any "spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing into
the environment (including the abandonment or discarding of barrels, containers,
and other closed receptacles) of Hazardous Materials.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means, with respect to the Company or any Company
Subsidiary at any time, any other Person, including an Affiliate of the Company
or any Company Subsidiary, that is, or at any time within six years of that time
was, a member of any ERISA Group of which the Company or any Company Subsidiary
is or was a member at the same time.
"ERISA Affiliate Pension Plan" has the meaning specified in
Section 4.26.
"ERISA Employee Benefit Plan" means any "employee benefit plan" as
defined in Section 3(3) of ERISA and includes any ERISA Pension Benefit Plan.
"ERISA Group" means any "group of organizations" within the meaning of
Section 414(b), (c), (m) or (o) of the Code or any "controlled group" as defined
in Section 4001(a)(14) of ERISA.
"ERISA Pension Benefit Plan" means any "employee pension benefit plan,"
as defined in Section 3(2) of ERISA subject to either Title IV of ERISA or the
minimum funding standards under Section 412 of the Code (excluding any
Multiemployer Plan).
"Escrow Agreement" means the escrow agreement to be executed and
delivered at the Closing by RW, the Stockholders and the Escrow Agent in the
form attached hereto as Exhibit E, with the blanks appropriately filled.
"Escrow Agent" means First Union National Bank, or such other entity
that is designated as such prior to the IPO Closing Date.
"Exchange Act" means the Securities Exchange Act of 1934.
"Final Prospectus" means the prospectus included in the Registration
Statement at the time it becomes effective, except that if the prospectus first
furnished to the Underwriter after the Registration Statement becomes effective
for use in connection with the IPO differs from the prospectus included in the
Registration Statement at the time it becomes effective (whether or not
4
<PAGE> 10
that prospectus so furnished is required to be filed with the SEC pursuant to
Rule 424(b) promulgated under the Securities Act), the prospectus so furnished
is the "Final Prospectus."
"Financial Statements" means the Initial Financial Statements and the
other financial statements of the Company and the Company Subsidiaries, if any,
delivered to RW pursuant to Section 6.10 prior to the Effective Time.
"GAAP" means generally accepted accounting principles and practices in
the United States as in effect from time to time which have been or are applied
on a basis consistent with the most recent audited Financial Statements
delivered to RW prior to the Effective Time.
"General Release" means the general release of the Company and the
Company Subsidiaries to be executed at or before and delivered to RW and the
Company at the Delivery Date, effective as of the Effective Time, by each
Stockholder in the form of Exhibit F with the blanks appropriately filled.
"Governmental Approval" means at any time any authorization, consent,
approval, permit, franchise, certificate, license, implementing order or
exemption of, or registration or filing with, any Governmental Authority,
including any certification or licensing of a natural person to engage in a
profession or trade or a specific regulated activity, at that time.
"Governmental Authority" means (a) any national, state, county,
municipal or other government, domestic or foreign, or any agency, board,
bureau, commission, court, department or other instrumentality of any such
government, or (b) any Person having the authority under any applicable
Governmental Requirement to assess and collect Taxes for its own account.
"Governmental Requirement" means at any time (a) any law, statute,
code, ordinance, order, rule, regulation, judgment, decree, injunction, writ,
edict, award, authorization or other requirement of any Governmental Authority
in effect at that time or (b) any obligation included in any certificate,
certification, franchise, permit or license issued by any Governmental Authority
or resulting from binding arbitration, including any requirement under common
law, at that time.
"Guaranty" means, for any specified Person, without duplication, any
liability, contingent or otherwise, of that Person guaranteeing or otherwise
becoming liable for any obligation of any other Person (the "primary obligor")
in any manner, whether directly or indirectly, and including any liability of
the specified Person, direct or indirect, (a) to purchase or pay (or advance or
supply funds for the purchase or payment of) that obligation or to purchase (or
to advance or supply funds for the purchase of) any security for the payment of
that obligation, (b) to purchase property, securities or services for the
purpose of assuring the owner of that obligation of its payment or (c) to
maintain working capital, equity capital or other financial statement condition
or liquidity of the primary obligor so as to enable the primary obligor to pay
that obligation; provided, that the term "Guaranty" does not include
endorsements for collection or deposit in the ordinary course of the endorser's
business.
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"Hazardous Materials" has the meaning specified in Section 4.15.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976.
"Immediate Family Member" of a Stockholder means at any time: (a) if
that Stockholder is a natural person, any child or grandchild (by blood or legal
adoption) or spouse of that Stockholder at that time, or any child of that
spouse; and (b) if that Stockholder is an Entity whose ultimate beneficial owner
is a natural person, or a natural person and his spouse, any child or grandchild
(by blood or legal adoption) or spouse at that time (if not then an ultimate
beneficial owner of that Entity), or any child of that spouse, of the ultimate
beneficial owner or owners.
"Indebtedness" of any Person means, without duplication, (a) any
liability of that Person (i) for borrowed money or arising out of any extension
of credit to or for the account of that Person (including reimbursement or
payment obligations with respect to surety bonds, letters of credit, banker's
acceptances and similar instruments), for the deferred purchase price of
property or services or arising under conditional sale or other title retention
agreements, other than trade payables arising in the ordinary course of
business, (ii) evidenced by notes, bonds, debentures or similar instruments,
(iii) in respect of Capital Leases or (iv) in respect of Interest Rate
Protection Agreements, (b) any liability secured by any Lien upon any property
or assets of that Person (or upon any revenues, income or profits of that Person
therefrom), whether or not that Person has assumed that liability or otherwise
become liable for the payment thereof or (c) any liability of others of the type
described in the preceding clause (a) or (b) in respect of which that Person has
incurred, assumed or acquired a liability by means of a Guaranty.
"Indemnity Notice" has the meaning specified in Section 9.05.
"Indemnified Party" has the meaning specified in Section 9.05.
"Indemnifying Party" has the meaning specified in Section 9.05.
"Information" means written information, including (a) data,
certificates, reports and statements (excluding Financial Statements) and (b)
summaries of unwritten agreements, arrangements, contracts, plans, policies,
programs or practices or of unwritten amendments or modifications of,
supplements to or waivers under any of the foregoing documents.
"Interest Rate Protection Agreement" means, for any Person, an interest
rate swap, cap or collar agreement or similar arrangement providing for the
transfer or mitigation of interest rate risks of that Person either generally or
under specific contingencies between that Person and any other Person.
"IPO" means the first time after the date of this Agreement a
registration statement filed under the Securities Act with respect to a primary
offering by RW of shares of RW Common Stock (other than a registration statement
with respect to shares being offered pursuant to a Company
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<PAGE> 12
ERISA Benefit Plan or any Other Compensation Plan) is declared effective under
the Securities Act and the shares registered by that registration statement are
issued and sold by RW (otherwise than pursuant to the exercise by the
Underwriter of any over-allotment option).
"IPO Closing Date" means the date on which RW first receives payment
for the shares of RW Common Stock it sells to the Underwriter in the IPO.
"IPO Price" means the price per share of RW Common Stock which is set
forth as the "price to public" on the cover page of the Final Prospectus.
"IPO Pricing Date" means the date, if any, on which RW and the
Underwriter execute the Underwriting Agreement and agree to the price per share
of RW Common Stock at which the Underwriter, subject to the terms and conditions
of the Underwriting Agreement, will purchase newly issued shares of RW Common
Stock from RW on the IPO Closing Date.
"IRS" means the Internal Revenue Service.
"Licenses" has the meaning specified in Section 4.14.
"Lien" means, with respect to any property or asset of any Person (or
any revenues, income or profits of that Person therefrom) (in each case whether
the same is consensual or nonconsensual or arises by contract, operation of law,
legal process or otherwise), (a) any mortgage, lien, security interest, pledge,
attachment, levy or other charge or encumbrance of any kind thereupon or in
respect thereof or (b) any other arrangement under which the same is
transferred, sequestered or otherwise identified with the intention of
subjecting the same to, or making the same available for, the payment or
performance of any liability in priority to the payment of the ordinary,
unsecured creditors of that Person, including any "adverse claim" (as defined in
Section 8-302(b) of each applicable Uniform Commercial Code) in the case of any
Capital Stock. For purposes of this Agreement, a Person shall be deemed to own
subject to a Lien any asset that it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, Capital
Lease or other title retention agreement relating to that asset.
"Litigation" means any action, case, proceeding, claim, grievance, suit
or investigation or other proceeding conducted by or pending before any
Governmental Authority or any arbitration proceeding.
"Material" means, as applied to any Entity, material to the business,
operations, property or assets, liabilities, financial condition or results of
operations of that Entity and its Subsidiaries considered as a whole.
"Material Adverse Effect" means, with respect to the consequences of
any fact or circumstance (including the occurrence or non-occurrence of any
event) to the Company and the Company Subsidiaries considered as a whole (or
after the Effective Time the Surviving Corporation
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<PAGE> 13
and the Company Subsidiaries considered as a whole), that such fact or
circumstance has caused, is causing or will cause, directly, indirectly or
consequentially, singly or in the aggregate with other facts and circumstances,
any Damages in excess of the Threshold Amount.
"Material Agreement" of an Entity means any contract or agreement (a)
to which that Entity or any of its Subsidiaries is a party, or by which that
Entity or any of its Subsidiaries is bound or to which any property or assets of
that Entity or any of its Subsidiaries is subject and (b) which is Material to
that Entity.
"Minimum Cash Amount" has the meaning specified in Section 7.02.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA, Section 414(f) of the Code or Section 3(37) of ERISA.
"Newco Common Stock" means the common stock, par value $.01 per share,
of Newco.
"Organization State" means, as applied to (a) any corporation, its
state or other jurisdiction of incorporation, (b) any limited liability company
or limited partnership, the state or other jurisdiction under whose laws it is
organized and existing in that legal form, and (c) any other Entity, the state
or other jurisdiction whose laws govern that Entity's internal affairs.
"Other Agreements" has the meaning specified in the Preliminary
Statement in this Agreement.
"Other Compensation Plan" means any compensation arrangement, plan,
policy, practice or program established, maintained or sponsored by the Company
or any Company Subsidiary, or to which the Company or any Company Subsidiary
contributes, on behalf of any of its employees, nonemployee directors or
officers or other natural persons performing consulting or other independent
contractor services for the Company or any Company Subsidiary, (a) including all
ERISA Employee Benefit Plans and such arrangements, plans, policies, practices
or programs providing for severance pay, deferred compensation, incentive, bonus
or performance awards or the actual or phantom ownership of any Capital Stock or
Derivative Securities of the Company or any Company Subsidiary, but (b)
excluding all Company ERISA Pension Plans and Company Employment Agreements.
"Other Financing Sources" has the meaning specified in Section 7.02.
"Other Transaction Documents" means the Other Agreements and the other
written agreements, documents, instruments and certificates at any time executed
pursuant to or in connection with the Other Agreements (other than the
Transaction Documents and the Underwriting Agreement), all as amended, modified
or supplemented from time to time.
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"OSHA" means the Occupational Health and Safety Act.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Investments" means at the time of purchase or other
acquisition by the Company or any Company Subsidiary (a) obligations issued or
guaranteed by the United States of America with a remaining maturity not
exceeding one year, (b) commercial paper with maturities of not more than 270
days and a published rating of not less than A-1 by S&P or P-1 by Moody's and
(c) certificates of deposit and bankers' acceptances having maturities of not
more than one year of any commercial bank or trust company if (A) that bank or
trust company has a combined capital and surplus of at least $500,000,000 and
(B) its unsecured long-term debt obligations, or those of a holding company of
which it is a subsidiary, are rated not less than A- by S&P or A3 by Moody's.
"Permitted Liens" means, as applied to the property or assets of any
Person (or any revenues, income or profits of that Person therefrom): (a) Liens
for Taxes if the same are not at the time due and delinquent; (b) Liens of
carriers, warehousemen, mechanics, laborers and materialmen for sums not yet
due; (c) Liens incurred in the ordinary course of that Person's business in
connection with workmen's compensation, unemployment insurance and other social
security legislation (other than pursuant to ERISA or Section 412(n) of the
Code); (d) Liens incurred in the ordinary course of that Person's business in
connection with deposit accounts or to secure the performance of bids, tenders,
trade contracts, statutory obligations, surety and appeal bonds, performance and
return-of-money bonds and other obligations of like nature; (e) easements,
rights-of-way, reservations, restrictions and other similar encumbrances
incurred in the ordinary course of that Person's business or existing on
property and not materially interfering with the ordinary conduct of that
Person's business or the use of that property; (f) defects or irregularities in
that Person's title to its real properties which do not materially (i) diminish
the value of the surface estate or (ii) interfere with the ordinary conduct of
that Person's business or the use of any of such properties; (g) defects or
irregularities in that Person's title to its personal properties which do not
materially (i) diminish the value of such properties or (ii) prevent the
ordinary business use of such properties; (h) any interest or title of a lessor
of assets being leased by any Person pursuant to any Capital Lease disclosed in
Schedule 4.19 or any lease that, pursuant to GAAP, would be accounted for as an
operating lease; and (i) Liens securing purchase money Indebtedness disclosed in
Schedule 4.18 or 4.19 so long as such Liens do not attach to any property or
assets other than the properties or assets purchased with the proceeds of such
Indebtedness.
"Person" means any natural person, Entity, estate, trust, union or
employee organization or Governmental Authority or, for the purpose of the
definition of "ERISA Affiliate," any trade or business.
"Plan" has the meaning specified in Section 4.27.
"Primary Stockholders" shall mean those Stockholders listed on Exhibit
A.
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"Private Placement Memorandum" means the RW Private Placement
Memorandum dated as of May 18, 1998 relating to the offer of RW Common Stock in
connection with the Merger.
"Professional Codes" means any and all Governmental Requirements
relating to the licensing or other regulation of the Business.
"Prohibited Transaction" means any transaction that is prohibited under
Section 4975 of the Code or Section 406 of ERISA and not exempt under Section
4975 of the Code or Section 408 of ERISA.
"Property, Plant and Equipment" means at any time any property that
then would be included and classified as property, plant and equipment (but
excluding any real property) on a consolidated balance sheet prepared in
accordance with GAAP of the Company and the Entity.
"Proprietary Rights" means (a) patents, applications for patents and
patent rights, (b) in each case, whether registered, unregistered or under
pending registration, trademark rights, tradenames, trade name rights, corporate
names, business names, trade styles or dress, service marks and logos and other
trade designations and copyrights and (c), in the case of the Company or any
Company Subsidiary, all agreements relating to the technology, know-how or
processes used in any business of the Company or any Company Subsidiary.
"Purchaser Representative" has the meaning set forth in Rule 501(h) of
the Securities Act.
"Qualified Plans" has the meaning specified in Section 4.27.
"RCRA" means the Resource Conservation and Recovery Act of 1976.
"Registration Statement" means the registration statement, including
(a) each preliminary prospectus included therein prior to the date on which that
registration statement is declared effective under the Securities Act (including
any prospectus filed with the SEC pursuant to Rule 424(b) promulgated under the
Securities Act), (b) the Final Prospectus and (c) any amendments thereof and all
supplements and exhibits thereto, filed by RW with the SEC to register shares of
RW Common Stock under the Securities Act for public offering and sale in the
IPO.
"Related Party Agreement" means any contract or other agreement,
written or oral, (a) to which the Company or any Company Subsidiary is a party
or is bound or by which any property of the Company or any Company Subsidiary is
bound or may be subject and (b) (i) to which any Stockholder or any of that
Stockholder's Related Persons or Affiliates also is a party, (ii) of which any
Stockholder or any of that Stockholder's Related Persons or Affiliates is a
beneficiary or (iii) as to which any transaction contemplated thereby properly
would be characterized (without regard to the amount involved) as a related
party transaction for purposes of applying the disclosure requirements of GAAP
or the SEC applicable to the Registration Statement.
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"Related Person" of a Stockholder means: (a) if that Stockholder is a
natural person, (i) any Immediate Family Member of that Stockholder, (ii) any
Estate of that Stockholder or any Immediate Family Member of that Stockholder,
(iii) the trustee of any inter vivos or testamentary trust of which all the
beneficiaries are Related Persons of that Stockholder and (iv) any Entity the
entire equity interest in which is owned by any one or more of that Stockholder
and Related Persons of that Stockholder; and (b) if that Stockholder is an
Entity, Estate or trust, (i) any Person who owns an equity interest in that
Stockholder on the date hereof, (ii) any Person who would be a Related Person
under clause (a) of this definition of a natural person who is an ultimate
beneficial owner of that Stockholder or (iii) any other Entity the entire equity
interest in which is owned by any one or more of that Stockholder and Related
Persons of that Stockholder. As used in this definition, "Estate" means, as to
any natural person who has died or been adjudicated mentally incompetent by a
court of competent jurisdiction, (i) that person's estate or (ii) the
administrator, conservator, executor, guardian or representative of that estate.
"Representatives" means, with respect to any Person, the directors,
officers, employees, Affiliates, accountants (including independent certified
public accountants), advisors, attorneys, consultants or other agents of that
Person, or any other representatives of that Person or of any of those
directors, officers, employees, Affiliates, accountants (including independent
certified public accountants), advisors, attorneys, consultants or other agents.
"Reportable Event" means, with respect to any Company ERISA Pension
Plan or ERISA Affiliate Pension Plan, (a) the occurrence of any of the events
set forth in Section 4043(b) or (c) (other than a Reportable Event as to which
the provision of 30 days' notice to the PBGC is waived under applicable
regulations), 4062(e) or 4063(a) of ERISA with respect to that plan, (b) any
event requiring the Company or any ERISA Affiliate to provide security to that
plan under Section 401(a)(29) of the Code or (c) any failure to make a payment
required by Section 412(m) of the Code with respect to that plan.
"Restricted Payment" means, with respect to any Entity at any time, any
of the following effected by that Entity: (a) any declaration or payment of any
dividend or other distribution, direct or indirect, on account of any Capital
Stock of that Entity or any Affiliate of that Entity or (b) any direct or
indirect redemption, retirement, purchase or other acquisition for value of, or
any direct or indirect purchase, payment or sinking fund or similar deposit for
the redemption, retirement, purchase or other acquisition for value of, or to
obtain the surrender of, any then outstanding Capital Stock of that Entity or
any Affiliate of that Entity or any then outstanding warrants, options or other
rights to acquire or subscribe for or purchase unissued or treasury Capital
Stock of that Entity or any Affiliate of that Entity.
"Returns" means the returns, reports or statements (including any
information returns) any Governmental Requirement requires to be filed for
purposes of any Tax.
"RW Common Stock" means the common stock, par value $0.01 per share, of
RW.
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"RW Indemnified Party" means RW and its Affiliates and each of their
respective officers, directors, employees, agents and counsel; provided,
however, that no Person who indemnifies RW Indemnified Parties in this Agreement
in his capacity as a Stockholder will be an RW Indemnified Party for purposes of
this Agreement, notwithstanding that the Person is an RW Indemnified Party for
purposes of one or more of the Other Agreements.
"RW Indemnified Loss" has the meaning specified in Section 9.03.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933.
"S&P" means Standard and Poor's Rating Group.
"Stockholder Indemnified Party" means (a) each Stockholder and each of
that Stockholder's Affiliates (other than the Company or, following the
Effective Time, the Surviving Corporation or RW or any of its Subsidiaries, if
the Stockholder is an Affiliate of RW), and each of their respective officers,
directors, employees, agents and counsel and (b) prior to the Effective Time,
the Company and each of its officers, directors, employees, agents and counsel
who are not Stockholder Indemnified Parties within the meaning of clause (a) of
this definition.
"Stockholder Indemnified Loss" has the meaning specified in
Section 9.04.
"Subsidiary" of any specified Person at any time, means any entity a
majority of the Capital Stock of which is at that time owned or controlled,
directly or indirectly, by the specified Person.
"Supplemental Information" has the meaning specified in Section 6.08.
"Tax" or "Taxes" means all net or gross income, gross receipts, net
proceeds, sales, use, ad valorem, value added, franchise, bank shares,
withholding, payroll, employment, excise, property, deed, stamp, alternative or
add-on minimum, environmental or other taxes, assessments, duties, fees, levies
or other governmental charges or assessments of any nature whatever imposed by
any Governmental Requirement, whether disputed or not, together with any
interest, penalties, additions to tax or additional amounts with respect
thereto.
"Taxing Authority" means any Governmental Authority having or
purporting to exercise jurisdiction with respect to any Tax.
"Termination Event" means, with respect to any Company ERISA Pension
Plan or ERISA Affiliate Pension Plan, (a) any Reportable Event with respect to
that plan which is likely to result in the termination of that plan, (b) the
termination of, or the filing of a notice of intent to terminate, that plan or
the treatment of any amendment to that plan as a termination under Section
4041(c) of
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<PAGE> 18
ERISA or (c) the institution of proceedings to terminate, or the appointment of
a trustee to administer, that plan under Section 4042 of ERISA.
"Third Party Claim" has the meaning specified in Section 9.05.
"Transaction Document" means this Agreement, the Certificates of
Merger, the General Releases and the other written agreements, documents,
instruments and certificates executed pursuant to or in connection with this
Agreement (other than the Other Transaction Documents and the Underwriting
Agreement), including those specified in Article VII to be delivered at or
before the Closing, all as amended, modified or supplemented from time to time.
"Underwriter" means collectively (a) the investment banking firms that
prospectively may enter into the Underwriting Agreement and (b) from and after
the IPO Pricing Date, the investment banking firms that are parties to the
Underwriting Agreement.
"Underwriting Agreement" has the meaning specified in Section 7.02.
"Welfare Plan" means an "employee welfare benefit plan" as defined in
Section 3(1) of ERISA.
"Wholly Owned Subsidiary" means any corporation or other Entity all of
whose outstanding Capital Stock on a fully diluted basis is owned and
controlled, directly or indirectly through another Wholly Owned Subsidiary, by
the Company.
Section 1.03. Other Definitional Provisions. (a) Except as otherwise
specified herein, all references herein to any Governmental Requirement defined
or referred to herein, including the Code, CERCLA, ERISA, the Exchange Act,
RCRA, OSHA and the Securities Act, shall be deemed references to that
Governmental Requirement or any successor Governmental Requirement, as the same
may have been amended or supplemented from time to time, and any rules or
regulations promulgated thereunder.
(b) When used in this Agreement, the words "herein," "hereof" and
"hereunder" and words of similar import shall refer to this Agreement as a whole
and not to any provision of this Agreement, and the words "Article," "Section,"
"Annex," "Addendum," and "Exhibit" refer to Articles and Sections of, and
Annexes, Addendums, Schedules and Exhibits to, this Agreement unless otherwise
specified.
(c) Whenever the context so requires, the singular number includes the
plural and vice versa, and a reference to one gender includes the other gender
and the neuter.
(d) The word "including" (and, with correlative meaning, the word
"include") means including, without limiting the generality of any description
preceding such word, and the words "shall" and "will" are used interchangeably
and have the same meaning.
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Section 1.04. Captions. Captions to Articles, Sections and subsections
of, and Annexes, Addendums, Schedules and Exhibits to, this Agreement or any
other Transaction Document are included for convenience of reference only, and
such captions shall not constitute a part of this Agreement or any other
Transaction Document for any other purpose or in any way affect the meaning or
construction of any provision of this Agreement or any other Transaction
Document.
ARTICLE II
[Intentionally Omitted]
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.02. Ownership and Status of Company Capital Stock. The
Stockholder is the record and beneficial owner (or, if the Stockholder is a
trust or the estate of a deceased natural person, the legal owner) of the number
of shares of Company Capital Stock set forth, by each class, and by each series
in each class, thereof, opposite the Stockholder's name in Schedule 3.02, free
and clear of all Liens, except for the Liens accurately set forth in Schedule
3.02, all of which will be released at or before the Effective Time.
Section 3.03. Power of the Stockholder; Approval of the Merger.
(a) The Stockholder has the full power, legal capacity and authority to
execute and deliver this Agreement and each other Transaction Document to which
the Stockholder is a party and to perform the Stockholder's obligations in this
Agreement and in all other Transaction Documents to which the Stockholder is a
party. This Agreement constitutes, and each such other Transaction Document,
when executed in the Stockholder's individual capacity and delivered by the
Stockholder, will constitute, the legal, valid and binding obligation of the
Stockholder, enforceable against the Stockholder in accordance with its terms,
except as that enforceability may be (i) limited by any applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and (ii) subject to general principles of equity
(regardless of whether that enforceability is considered in a proceeding in
equity or at law). If the Stockholder is an Entity, the Stockholder has
obtained, in accordance with all applicable Governmental Requirements and its
Charter Documents, all approvals of, and taken all actions necessary for the
authorization, execution, delivery and performance by the Stockholder of, this
Agreement and the other Transaction Documents to which the Stockholder is a
party. If the Stockholder is acting otherwise than in his individual capacity
(whether as an executor or a guardian or in any other fiduciary or
representative capacity), all actions on the part of the Stockholder and all
other Persons (including any court) necessary for the authorization, execution,
delivery and performance by the Stockholder of this Agreement and the other
Transaction Documents to which the Stockholder is a party have been duly taken.
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(b) The Stockholder, acting in each capacity in which he is entitled,
by reason of the Company's Charter Documents or the Governmental Requirements of
the Company's Organization State or for any other reason, to vote to approve or
disapprove the consummation of the Merger, has voted all the shares of Company
Capital Stock owned by him and entitled to a vote or votes on that matter, in
any one or more of the manners prescribed or permitted by the Company's Charter
Documents or the Governmental Requirements of the Company's Organization State,
whichever are controlling, to approve this Agreement and the consummation of the
Merger in accordance with the terms and conditions set forth herein and the
other transactions contemplated hereby.
Section 3.04. No Conflicts or Litigation. The execution, delivery and
performance in accordance with their respective terms by the Stockholder of this
Agreement and the other Transaction Documents to which the Stockholder is a
party do not and will not (a) violate or conflict with any Governmental
Requirement, (b) breach or constitute a default under any agreement or
instrument to which the Stockholder is a party or by which the Stockholder or
any of the shares of Company Capital Stock owned by the Stockholder is bound,
the result of which would be to prohibit or interfere with the consummation of
the transactions contemplated by this Agreement, (c) result in the creation or
imposition of, or afford any Person the right to obtain, any Lien upon any of
the shares of Company Capital Stock owned by the Stockholder (or upon any
revenues, income or profits of the Stockholder therefrom) or (d) if the
Stockholder is an Entity, violate the Stockholder's Charter Documents. No
Litigation is pending or, to the knowledge of the Stockholder, threatened to
which the Stockholder is or may become a party which (a) questions or involves
the validity or enforceability of any of the Stockholder's obligations under any
Transaction Document or (b) seeks (or reasonably may be expected to seek) (i) to
prevent or delay the consummation by the Stockholder of the transactions
contemplated by this Agreement to be consummated by the Stockholder or (ii)
damages in connection with any consummation by the Stockholder of the
transactions contemplated by this Agreement.
Section 3.05. [Intentionally omitted].
Section 3.06. Preemptive and Other Rights; Waiver. Except for the right
of the Stockholder to receive shares of RW Common Stock as a result of the
Merger or to acquire RW Common Stock pursuant to any written option granted by
RW to the Stockholder or written agreement between RW and the Stockholder, the
Stockholder either (a) does not own or otherwise have any statutory or
contractual preemptive or other right of any kind (including any right of first
offer or refusal) to acquire any shares of Company Capital Stock or RW Common
Stock or (b) hereby irrevocably waives each right of that type the Stockholder
does own or otherwise has.
Section 3.07. Control of Related Businesses. Except as set forth in
Schedule 3.07, the Stockholder is not, alone or with one or more other Persons,
the controlling Affiliate of any Entity, business or trade (other than the
Company and the Company Subsidiaries, if the Stockholder is an Affiliate of the
Company) that (a) is engaged in any line of business which is the same as or
similar to the Business in which the Company or any Company Subsidiary is
engaged or (b) is, or has within the three-year period ending on the date of
this Agreement, engaged in any transaction with the
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<PAGE> 21
Company or any Company Subsidiary, except for transactions in the ordinary
course of business of the Company or that Company Subsidiary.
Section 3.08. Representation by Counsel. Each Stockholder has been
represented by independent counsel of such Stockholder's own choosing; the
Stockholder has had the full right and opportunity to consult with such
Stockholder's respective attorneys and other advisors and has availed itself of
this right and opportunity; such Stockholder has carefully read and fully
understands this Agreement in its entirety and has had it fully explained to it
by such counsel; such Stockholder is fully aware of the contents hereof and the
meaning, intent and legal effect thereof; and such Stockholder is competent to
execute this Agreement and has executed this Agreement free from coercion,
duress or undue influence. The Stockholder and such Stockholder's counsel
cooperated in the drafting and preparation of this Agreement and the documents
referred to herein. Accordingly, any rule of law or any legal decision that
would require interpretation of any ambiguities in this Agreement against the
party that drafted it is of no application and is hereby expressly waived. The
provisions of this Agreement shall be interpreted in a reasonable manner to
effect the intentions of the parties and this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS
Section 4.02. Qualification. Schedule 4.02 accurately lists all the
jurisdictions in which each of the Company and the Company Subsidiaries is
authorized or qualified to own or lease and to operate its properties or to
carry on its business as now conducted, and neither the Company nor any Company
Subsidiary owns, leases or operates properties or carries on its business in any
jurisdiction not listed thereon which is Material to the Company.
Section 4.03. Authorization; Enforceability; Absence of Conflicts;
Required Consents.
(a) The execution, delivery and performance by the Company of this
Agreement and each other Transaction Document to which it is a party, and the
effectuation of the Merger and the other transactions contemplated hereby and
thereby, are within its corporate or other power under its Charter Documents and
the applicable Governmental Requirements of its Organization State and have been
duly authorized by all proceedings, including actions permitted to be taken in
lieu of proceedings, required under its Charter Documents and those Governmental
Requirements.
(b) This Agreement has been, and each of the other Transaction
Documents to which the Company is a party, when executed and delivered to RW
(or, in the case of the Certificates of Merger, the applicable Governmental
Authorities) will have been, duly executed and delivered by the Company and is,
or when so executed and delivered will be, the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except
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as that enforceability may be (i) limited by any applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and (ii) subject to general principles of equity
(regardless of whether that enforceability is considered in a proceeding in
equity or at law).
(c) The execution, delivery and performance in accordance with their
respective terms by the Company of the Transaction Documents to which it is a
party have not and will not (i) violate, breach or constitute a default under
(A) the Charter Documents of any of the Company and the Company Subsidiaries,
(B) any Governmental Requirement applicable to any of the Company and the
Company Subsidiaries or (C) any Material Agreement of the Company, (ii) result
in the acceleration or mandatory prepayment of any Indebtedness, or any Guaranty
not constituting Indebtedness, of any of the Company and the Company
Subsidiaries or afford any holder of any of that Indebtedness, or any
beneficiary of any of those Guaranties, the right to require any of the Company
and the Company Subsidiaries to redeem, purchase or otherwise acquire, reacquire
or repay any of that Indebtedness, or to perform any of those Guaranties, (iii)
cause or result in the imposition of, or afford any Person the right to obtain,
any Lien upon any property or assets of any of the Company and the Company
Subsidiaries (or upon revenues, income or profits of any of the Company and the
Company Subsidiaries therefrom) or (iv) except as set forth in Schedule 4.03,
result in the revocation, cancellation, suspension or material modification,
individually or in the aggregate, of any Governmental Approval possessed by any
of the Company and the Company Subsidiaries at the date hereof and necessary for
the ownership or lease or the operation of its properties or the carrying on of
its business as now conducted, including any necessary Governmental Approval
under each applicable Environmental Law and Professional Code.
(d) Except for (i) the filing of the Certificates of Merger with the
applicable Governmental Authorities, (ii) filings of the Registration Statement
under the Securities Act and the SEC order declaring the Registration Statement
effective under the Securities Act and (iii) as may be required by the HSR Act
or the applicable state securities or blue sky laws, no Governmental Approvals
are required to be obtained, and no reports or notices to or filings with any
Governmental Authority are required to be made for the execution, delivery or
performance by the Company of the Transaction Documents to which it is a party,
the enforcement against the Company of its obligations thereunder or the
effectuation of the Merger and the other transactions contemplated thereby.
Section 4.04. Charter Documents and Records; No Violation. The Company
has caused true, complete and correct copies of the Charter Documents, each as
in effect on the date hereof, and the minute books and similar corporate or
other Entity records of each of the Company and the Company Subsidiaries to be
delivered or otherwise made available to RW. No breach or violation of any
Charter Document of any of the Company and the Company Subsidiaries has occurred
and is continuing.
Section 4.05. No Defaults. No condition or state of facts exists, or,
with the giving of notice or the lapse of time or both, would exist, which (a)
entitles any holder of any outstanding
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Indebtedness, or any Guaranty not constituting Indebtedness, of any of the
Company and the Company Subsidiaries, or a representative of that holder, to
accelerate the maturity, or require a mandatory prepayment, of that Indebtedness
or Guaranty, or affords that holder or its representative, or any beneficiary of
that Guaranty, the right to require any of the Company and the Company
Subsidiaries to redeem, purchase or otherwise acquire, reacquire or repay any of
that Indebtedness, or to perform that Guaranty in whole or in part, (b) entitles
any Person to obtain any Lien (other than a Permitted Lien) upon any properties
or assets of any of the Company and the Company Subsidiaries (or upon revenues,
income or profits of any of the Company and the Company Subsidiaries therefrom)
or (c) constitutes a violation or breach of, or a default under, any Material
Agreement of the Company by any of the Company and the Company Subsidiaries.
Section 4.06. Company Subsidiaries. Schedule 4.06 sets forth the form
of organization, legal name, each assumed name and Organization State of each
Company Subsidiary. Except as disclosed in Schedule 4.06, each Company
Subsidiary is a Wholly Owned Subsidiary. In the case of any Company Subsidiary
that is not a Wholly Owned Subsidiary, Schedule 4.06 accurately sets forth, by
each class and each series within each class, the number of outstanding shares
of Capital Stock of the Company Subsidiary, (a) the Company's aggregate direct
and indirect ownership of those shares and (b) the name and address of record
and percentage ownership of those shares of each holder of record thereof other
than the Company or a Company Subsidiary. No Lien exists on any outstanding
share of Capital Stock of any Company Subsidiary which is owned directly or
indirectly by the Company other than (a) the Liens, if any, described in
Schedule 4.06, all of which will be released at or before the Effective Time,
and (b) Permitted Liens. Except as accurately set forth in Schedule 4.06, the
Company does not own, of record or beneficially, directly or indirectly through
any Person, and does not control, directly or indirectly through any Person or
otherwise, any Capital Stock or Derivative Securities of any Entity other than a
Company Subsidiary.
Section 4.07. Capital Stock of the Company and the Company
Subsidiaries. All the issued and outstanding shares of Capital Stock of each of
the Company and the Company Subsidiaries (a) have been duly authorized and
validly issued in accordance with the applicable Governmental Requirements of
their issuer's Organization State and Charter Documents and (b) are fully paid
and nonassessable. Neither the Company nor any Company Subsidiary has issued or
sold any shares of its outstanding Capital Stock in breach or violation of (a)
any applicable statutory or contractual preemptive rights, or any other rights
of any kind (including any rights of first offer or refusal), of any Person or
(b) the terms of any of its Derivative Securities which then were outstanding.
No Person has, otherwise than solely by reason of that Person's right, if any,
to vote shares of the Capital Stock of the Company or any Company Subsidiary it
holds (to the extent those shares afford the holder thereof any voting rights)
any right to vote on any matter with the holders of Capital Stock of the Company
or any Company Subsidiary.
Section 4.08. Transactions in Capital Stock. Except as set forth in
Schedule 4.08: (a) the Company has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire or reacquire any of its equity securities
or any interests therein or to pay any dividend or make any distribution in
respect thereof; and (b) no transaction has been effected, and no action has
been taken
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in contemplation of the transactions described in this Agreement, respecting the
equity ownership of either the Company or any Company Subsidiary.
Section 4.09. [Intentionally omitted.]
Section 4.10. Predecessor Status; Etc. To the knowledge of the Company
and the Primary Stockholders, Schedule 4.10 accurately lists all the legal and
assumed names of all predecessor companies for the past five years of the
Company, including the names of any Entities from which the Company previously
acquired material assets within such period. Except as disclosed in Schedule
4.10, the Company has not been a Subsidiary or division of another corporation
or a part of an acquisition that later was rescinded within such period.
Section 4.11. Related Party Agreements. Except as set forth in Schedule
4.11, each Related Party Agreement in effect on the date hereof will have been
terminated as of the IPO Closing Date, and no Related Party Agreement will exist
then or thereafter to and including the Effective Time.
Section 4.12. Litigation. Except as disclosed in Schedule 4.12, no
Litigation is pending or, to the knowledge of the Company or any Stockholder,
threatened to which the Company or any Company Subsidiary is or may become a
party.
Section 4.13. Financial Statements; Disclosure.
(a) Financial Statements.
(i) The Financial Statements (including in each case the
related schedules and notes) delivered to RW present fairly, in all
Material respects, the consolidated financial position of the Company
and the Company Subsidiaries at the respective dates of the balance
sheets included therein and the consolidated results of their
operations and their consolidated cash flows and stockholders' or other
owners' equity for the respective periods set forth therein and have
been prepared in accordance with GAAP. As of the date of any balance
sheet included in those Financial Statements, neither the Company nor
any Company Subsidiary then had any outstanding Indebtedness to any
Person or any liabilities of any kind (including contingent
obligations, tax assessments or unusual forward or long-term
commitments), or any unrealized or anticipated loss, which in the
aggregate then were Material to the Company and required to be
reflected in those Financial Statements or in the notes related thereto
in accordance with GAAP which were not so reflected.
(ii) Since the Current Balance Sheet Date, no change has
occurred in the business, operations, properties or assets,
liabilities, condition (financial or other) or results of operations of
the Company or any Company Subsidiary that could reasonably be
expected, either alone or together with all other such changes, to have
a Material Adverse Effect on the Company.
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(b) Disclosure.
(i) As of the date hereof, all Information that has been
made available to RW by or on behalf of the Company prior to the date
of this Agreement in connection with the transactions contemplated
hereby is, taken together, true and correct in all Material respects
(other than financial budgets and projections) and does not contain any
untrue statement of a Material fact or omit to state a Material fact
necessary in order to make the statements contained therein not
materially misleading in light of the circumstances under which those
statements were made.
(ii) All Information that is made available after the
date hereof from time to time prior to the Effective Time to RW by or
on behalf of the Company in connection with or pursuant to this
Agreement, any other Transaction Document or the transactions
contemplated hereby or thereby will be, when made available and taken
together, true and correct in all Material respects (other than
financial budgets and projections) and will not contain any untrue
statement of a Material fact or omit to state a Material fact necessary
in order to make the statements contained therein not materially
misleading in light of the circumstances under which those statements
are made.
(iii) All financial budgets and projections that have been
or are hereafter from time to time prepared by the Company or any of
its Representatives and made available prior to the Effective Time to
RW pursuant to or in connection with this Agreement, any other
Transaction Document or the transactions contemplated hereby or thereby
have been and will be prepared and furnished to RW in good faith and
were and will be based on facts and assumptions that are believed by
the management of the Company to be reasonable in light of the then
current and foreseeable business conditions of the Company and the
Company Subsidiaries and represented and will represent that
management's good faith estimate of the consolidated projected
financial performance of the Company and the Company Subsidiaries based
on the information available to the officers of the Company at the time
so furnished.
Section 4.14. Compliance with Laws. To the knowledge of the Company and
the Primary Stockholders, except as disclosed in Schedule 4.14, each of the
Company and Company Subsidiaries has all authorizations, approvals, licenses,
permits and orders of and from all governmental and regulatory officers and
bodies necessary to carry on the business of the Company and the Company
Subsidiaries as it is currently being conducted, to own or hold under lease the
properties and assets they own or hold under lease and to perform all of their
respective obligations under the agreements to which any of them is a party
(collectively, the "Licenses"). To the knowledge of the Company and the Primary
Stockholders, each of the Company and the Company Subsidiaries is (and has been
during the past five years) in compliance in all Material respects with all
applicable laws, regulations and administrative orders (including, without
limitation, laws relating to employment of labor or use or occupancy of
properties or any part thereof) of any country, state or municipality or of any
subdivision thereof to which it is subject. Schedule 4.14 sets forth a true,
correct and complete list
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of all Licenses of the Company and the Company Subsidiaries. The Company has
previously delivered to RW all reports and filings made or filed by the Company
or any Company Subsidiary during the past five years pursuant to OSHA.
Section 4.15. Certain Environmental Matters. Except as disclosed in
Schedule 4.15:
(a) To the knowledge of the Company and the Primary
Stockholders, each of the Company and the Company Subsidiaries possesses, and is
in compliance in all Material respects with, all permits, licenses and
government authorizations and has filed all notices that are required under
local, state and federal laws and regulations relating to protection of the
environment, pollution control, product registration and Hazardous Materials,
and each of the Company and the Company Subsidiaries is in compliance in all
Material respects with all applicable limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in those laws or contained in any law, regulation, code, plan, order,
decree, judgment, notice, permit or demand letter issued, entered, promulgated
or approved thereunder;
(b) Neither the Company nor any Company Subsidiary has
received notice of actual or threatened liability under CERCLA or any similar
state or local statute or ordinance from any governmental agency or any third
party and, to the knowledge of the Company and the Primary Stockholders, there
are no facts or circumstances which could form the basis for the assertion of
any claim against the Company or any Company Subsidiary under any Environmental
Laws or any similar local, state or foreign law with respect to any on-site or
off-site location;
(c) Neither the Company nor any Company Subsidiary has
entered into or, agreed to or intends to enter into any consent decree or order,
or is subject to any judgment, decree or judicial or administrative order
relating to compliance with, or the cleanup of Hazardous Materials under, any
applicable Environmental Laws;
(d) Neither the Company nor any Company Subsidiary has
been subject to any administrative or judicial proceeding pursuant to,
applicable Environmental Laws either now or any time during the past five years;
(e) To the knowledge of the Company and the Primary
Stockholders, neither the Company nor any Company Subsidiary is subject to any
claim, obligation, liability, loss, damage or expense of whatever kind or
nature, contingent or otherwise, incurred or imposed or based upon any provision
of any Environmental Law and arising out of any act or omission of the Company
or such Company Subsidiary, its employees, agents or representatives or arising
out of the ownership, use, control or operation by the Company or such Company
Subsidiary of any plant, facility, site, area or property (including, without
limitation, any plant, facility, site, area or property currently or previously
owned or leased by the Company or such Company Subsidiary) from which any
Hazardous Materials were released into the environment (the term "release"
meaning any spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, dumping or disposing into the
environment, by Seller or any third party, and the term "environment" meaning
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any surface or ground water, drinking water supply, soil, surface or subsurface
strata or medium, or the ambient air);
(f) The Company has heretofore provided RW with true,
correct and complete copies of all files of the Company and the Company
Subsidiaries relating to environmental matters (or an opportunity to review such
files), and Schedule 4.14(f) sets forth the amount of all fines, penalties or
assessments paid within the last five years by the Company and the Company
Subsidiaries with respect to environmental matters, including the date of
payment and the basis for the assertions of liability; and
(g) None of the real properties owned or leased by the
Company or any of the Company Subsidiaries, or any of the improvements or
equipment thereon contain any asbestos, PCBs or underground storage tanks.
As used herein, the term "Hazardous Materials" means any waste,
pollutant, hazardous substance, toxic, ignitable, reactive or corrosive
substance, hazardous waste, special waste, industrial substance, by-product,
process intermediate product or waste, petroleum or petroleum-derived substance
or waste, chemical liquids or solids, liquid or gaseous products, or any
constituent of any such substance or waste, the use, handling, disposal, cleanup
or remediation of which by the Company or any Company Subsidiary is governed by
or subject to any applicable law, rule or regulation of any governmental or
regulatory authority.
Section 4.16. Liabilities and Obligations. Schedule 4.16 lists all
present liabilities, of every kind, character and description, including
purchase orders, whether accrued, absolute, fixed, contingent or otherwise, of
each of the Company and the Company Subsidiaries which (a) (i) exceed or
reasonably could be expected to exceed $10,000 (except with respect to Comstock
this amount shall be $100,000) and (ii) (A) had been incurred prior to the
Current Balance Sheet Date, but are not reflected on the Current Balance Sheet,
or (B) were incurred after the Current Balance Sheet otherwise than in the
ordinary course of business, and consistent with the past practice, of that
Entity. Schedule 4.16 also lists and describes, for each of the Company and the
Company Subsidiaries: (a) each of its outstanding secured and unsecured
Guaranties not constituting its Indebtedness and, for each of those Guaranties,
whether any Stockholder or Related Person or Affiliate of any Stockholder is a
Person whose obligation is covered by that Guaranty, and (b) for each of the
items listed under clause (a) of this sentence, (i) if that item is secured by
any property or asset of the Company or any Company Subsidiary, the nature of
that security, and (ii) if that item is covered in whole or in part by a
Guaranty of any Stockholder or any Related Person or Affiliate of any
Stockholder, the name of the guarantor.
Section 4.17. Receivables. Except as set forth in Schedule 4.17, all
the accounts and notes or other advances receivable of the Company and the
Company Subsidiaries reflected on the Current Balance Sheet were collected, or
are, in the good faith belief of the Company's management, collectible, in the
respective amounts so reflected, net of the reserves, if any, reflected in the
Current
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Balance Sheet. A list of such receivables and of the Company's Retainages, will
be provided to RW at least 10 days prior to the IPO Closing Date and will be
updated as of the IPO Closing Date.
Section 4.18. Owned and Leased Real Properties.
(a) Schedule 4.18 lists and describes in all material respects: (i) all
real properties owned by any of the Company and the Company Subsidiaries and,
for each of those properties, the address thereof, the type and square footage
of each structure located thereon and the use thereof in the business of the
Company and the Company Subsidiaries; (ii) all real properties of which any of
the Company and the Company Subsidiaries is the lessee and, for each of those
properties, the address thereof, the type and square footage of each structure
located thereon the Company or a Company Subsidiary is leasing and the
expiration date of its lease and the use thereof in the business of the Company
and the Company Subsidiaries; and (iii) in the case of each real property listed
as being owned, whether it was previously owned, and in the case of each real
property listed as being leased, whether it is presently owned, by any
Stockholder or any of his Related Persons or Affiliates (other than the Company
and the Company Subsidiaries, if the Stockholder is an Affiliate of the
Company).
(b) The Company has provided RW with true, complete and correct copies
of all title reports and title insurance policies owned or in the possession of
any of the Company and the Company Subsidiaries and relating to any of the real
properties listed as being owned in Schedule 4.18. Except as set forth in
Schedule 4.18 or those reports and policies, and except for Permitted Liens, the
Company or a Company Subsidiary owns in fee, and has good, valid and marketable
title to, free and clear of all Liens, each property listed in that Section as
being owned.
(c) The Company has provided RW with true, correct and complete copies
of all leases under which the Company or a Company Subsidiary is leasing each of
the properties listed in Schedule 4.18 as being leased and, except as set forth
in Schedule 4.18, (i) each of those leases is, to the knowledge of the Company,
valid and binding on the lessor party thereto, and (ii) the lessee party thereto
has not sublet any of the leased space to any Person other than the Company or a
Company Subsidiary.
(d) The fixed assets of each of the Company and the Company
Subsidiaries are affixed only to one or more of the real properties listed in
Schedule 4.18 and, except as set forth in Schedule 4.18, are maintained in
working order and adequate for the purposes for which they presently are being
used or held for use, ordinary wear and tear excepted.
(e) The Company has accurately disclosed in all Material respects in
writing to RW all plans or projects involving the opening of new operations, the
expansion of any existing operations or the acquisition of any real property or
existing business, with respect to which management of the Company or any
Company Subsidiary has made any expenditure in the two-year period prior to the
date of the Agreement in excess of $25,000, or which if pursued by the Company
or any Company Subsidiary would require additional capital expenditures in
excess of $25,000.
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Section 4.19. Owned and Leased Property, Plant and Equipment.
(a) The Company has provided RW with a list, accurate and complete in
all material respects, of the Property, Plant and Equipment owned and leased by
any of the Company and the Company Subsidiaries, which list states, in the case
of each of those properties listed as being owned, whether it was previously
owned, and in the case of each of those properties listed as being leased,
whether it is presently owned, by any Stockholder or any of his Related Persons
or Affiliates (other than the Company and the Company Subsidiaries, if the
Stockholder is an Affiliate of the Company).
(b) Except as set forth in Schedule 4.19 and except for Permitted
Liens, the Company or a Company Subsidiary has good, valid and marketable title
to, free and clear of all Liens, each property listed in that Schedule as being
owned.
(c) The Company has provided RW with true, correct and complete copies
of all leases under which the Company or a Company Subsidiary is leasing each of
the properties listed as being leased on the list provided to RW in accordance
with Section 4.19(a) and all leases referred to in Section 4.21 and, except as
accurately set forth in Schedule 4.19, (i) each of those leases is, to the
knowledge of the Company, valid and binding on the lessor party thereto, and
(ii) the lessee party thereto has not sublet any of the leased property to any
Person other than the Company or a Company Subsidiary.
(d) Except as set forth in Schedule 4.19, all the Property, Plant and
Equipment listed therein are in good working order and condition, ordinary wear
and tear excepted, and adequate for the purposes for which they presently are
being used or held for use.
Section 4.20. Proprietary Rights. Except as set forth in Schedule
4.20(a), each of the Company and the Company Subsidiaries owns or has the legal
right to use all Proprietary Rights that are necessary to the conduct of its
business as now conducted, in each case free of any claims or infringements
known to the Company or any Stockholder. Schedule 4.20 lists these Proprietary
Rights and (b) indicates those owned by the Company or any Company Subsidiary
and, for those not listed as so owned, the agreement or other arrangement
pursuant to which they are possessed. Except as set forth in Schedule 4.20, (a)
no consent of any Person will be required for the use of any of these
Proprietary Rights by RW or any Subsidiary of RW following the Effective Time
and (b) no governmental registration of any of these Proprietary Rights has
lapsed or expired or, to the knowledge of the Company and the Primary
Stockholders, been canceled, abandoned, opposed or the subject of any
reexamination request.
Section 4.21. Title to Other Properties. In each case, free and clear
of all Liens except for Permitted Liens and as set forth in Schedule 4.21, each
of the Company and the Company Subsidiaries has good and valid title to, or
holds under a lease valid and binding on the lessor party thereto, all its
tangible personal properties and assets (other than Property, Plant and
Equipment) that individually is or in the aggregate are Material to the Company.
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Section 4.22. Commitments.
(a) Except as set forth in Schedule 4.22(a), the Company has provided
RW with a complete, accurate list of each of the following (each a "Company
Commitment") to which any of the Company and the Company Subsidiaries is a party
or by which any of its properties is bound and which presently remains executory
in whole or in any part:
(i) each partnership, joint venture or cost-sharing
agreement;
(ii) each guaranty or suretyship, indemnification or
contribution agreement or performance bond;
(iii) each instrument, agreement or other obligation
evidencing or relating to Indebtedness of any of the Company and the
Company Subsidiaries or to money lent or to be lent to another Person;
(iv) each contract to purchase or sell real property;
(v) each agreement, other than purchase orders or
similar commitments made in the ordinary course of business, with
dealers or sales or commission agents, public relations or advertising
agencies, accountants or attorneys (other than in connection with this
Agreement and the transactions contemplated hereby) involving total
payments under any one such agreement within any 12-month period in
excess of $10,000 (except with respect to Comstock this amount shall be
$100,000) and which is not terminable without penalty and on no more
than 30 days' prior notice;
(vi) each Related Party Agreement involving total
payments within any 12-month period in excess of $10,000 and which is
not terminable without penalty on no more than 30 days' prior notice;
(vii) each agreement, other than purchase orders or
similar commitments made in the ordinary course of business, for the
acquisition or provision of services, supplies, equipment, inventory,
fixtures or other property involving more than $10,000 (except with
respect to Comstock this amount shall be $100,000) in the aggregate;
(viii) each contract containing any noncompetition
agreement, covenant or undertaking;
(ix) each agreement providing for the purchase from a
supplier of all or substantially all the requirements of the Company or
any Company Subsidiary of a particular product or service; or
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(x) each other agreement or commitment not made in the
ordinary course of business or that is Material to the Company.
True, correct and complete copies of all written, Material Company
Commitments, and true, correct and complete written descriptions of all oral
Company Commitments, have heretofore been delivered or made available to RW.
Except as described in Schedule 4.22(a): (i) there are no existing or asserted
defaults, events of default or events, occurrences, acts or omissions that, with
the giving of notice or lapse of time or both, would constitute defaults or
events of default under any Company Commitment Material to the Company by any of
the Company and the Company Subsidiaries or, to the knowledge of the Company,
any other party thereto; and (ii) no penalties have been incurred, nor are
amendments pending, with respect to the Company Commitments Material to the
Company. The Company Commitments are in full force and effect and are valid and
enforceable obligations of the Company or the Company Subsidiaries parties
thereto and, to the knowledge of the Company, the other parties thereto in
accordance with their respective terms, and no defenses, off-sets or
counterclaims have been asserted or, to the knowledge of the Company, may be
made by any party thereto (other than by the Company or a Company Subsidiary),
nor has the Company or a Company Subsidiary, as the case may be, waived any
rights thereunder, except as described in Schedule 4.22 (a).
(b) Except as disclosed in Schedule 4.22(b) or contemplated hereby or
by any other Transaction Document to which the Company or any Company Subsidiary
or Stockholder is a party: (i) neither the Company nor any Company Subsidiary or
Stockholder has received notice of any plan or intention of any other party to
any Company Commitment to exercise any right to cancel or terminate any Company
Commitment, and neither the Company nor any Company Subsidiary or Stockholder
knows of any condition or state of facts which would justify the exercise of
such a right; and (ii) neither the Company nor any Company Subsidiary or
Stockholder currently contemplates, or has reason to believe any other Person
currently contemplates, any amendment or change to any Company Commitment.
Section 4.23. Capital Expenditures. Schedule 4.23 sets forth the total
amount of capital expenditures currently budgeted to be incurred by the Company
and the Company Subsidiaries during the balance of the Company's current fiscal
year. Except as set forth in Schedule 4.23, to the knowledge of the Company and
the Primary Stockholders, no condition or state of facts exists which would be
reasonably likely to cause the total capital expenditures of the Company and the
Company Subsidiaries which will be required to replace worn-out Property, Plant
and Equipment in any of the Company's two fiscal years following that current
fiscal year to exceed by a material amount the amount currently budgeted for
capital expenditures of that type by the Company and the Company Subsidiaries
for that current fiscal year, on an annualized basis.
Section 4.24. Inventories. Except as set forth in Schedule 4.24: (a)
all inventories, net of reserves determined in accordance with GAAP, of each of
the Company and the Company Subsidiaries which are classified as such on the
Current Balance Sheet are, to the knowledge of the Company and the Primary
Stockholders, merchantable and salable or usable in the ordinary course
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of business of the Company and the Company Subsidiaries; (b) the inventories
reflected in the Financial Statements, as at the Current Balance Sheet Date, (i)
were reasonable in relation to the then existing circumstances of the Company
and the Company Subsidiaries on a consolidated basis and classified as current
assets in accordance with GAAP and (ii) were consistent with their past
practices; and (c) neither the Company nor any Company Subsidiary depends on any
single vendor for its inventories the loss of which could have a Material
Adverse Effect on the Company or ever has sustained a difficulty Material to the
Company in obtaining its inventories.
Section 4.25. Insurance. Except as set forth in Schedule 4.25: (a) the
Company has provided RW with: (i) a list accurate as of the Current Balance
Sheet Date of all insurance policies then carried by each of the Company and the
Company Subsidiaries; (ii) a list of all insurance loss runs and worker's
compensation claims received for the most recently ended three policy years; and
(iii) true, complete and correct copies of all insurance policies carried by
each of the Company and the Company Subsidiaries which are in effect, all of
which (A) have been issued by insurers licensed to do business in the state in
which the insured properties are located and (B) currently are, and are expected
to remain without interruption through the IPO Closing Date, in full force and
effect; (b) no insurance carried by the Company or any Company Subsidiary has
been canceled by the insurer during the past five years, and neither the Company
nor any Company Subsidiary has ever been denied coverage; and (c) neither the
Company nor any Company Subsidiary or Stockholder has received any notice or
other communication from any issuer of any such insurance policy of any material
increase in any deductibles, retained amounts or the premiums payable
thereunder, and, to the knowledge of the Company and the Stockholders, no such
increase in deductibles, retainages or premiums is threatened.
Section 4.26. Employee Matters.
(a) Cash Compensation. Schedule 4.26(a) contains an accurate, complete
written list of the names, titles and rates of annual Cash Compensation, at the
Current Balance Sheet Date and at the date hereof (and the portions thereof
attributable to salary or the equivalent, fixed bonuses, discretionary bonuses
and other Cash Compensation, respectively) of all employees (including all
employees who are officers or directors), nonemployee officers, nonemployee
directors and consultants and independent contractors of each of the Company and
the Company Subsidiaries earning in excess of $50,000 per annum.
(b) Employment Agreements. Schedule 4.26(b) lists all Company
Employment Agreements remaining executory in whole or in part on the date
hereof, and the Company has provided RW with true, complete and correct copies
of all those Company Employment Agreements. Neither the Company nor any Company
Subsidiary is a party to any Material, oral Company Employment Agreement.
(c) Other Compensation Plans. Schedule 4.26(c) lists all Other
Compensation Plans either remaining executory at the date hereof or to become
effective after the date hereof. The Company has provided RW with a true,
correct and complete copy of each of those Other
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Compensation Plans that is in writing and an accurate description of each of
those Other Compensation Plans that is not written. Except as set forth in
Schedule 4.26(c), each of the Other Compensation Plans, including each that is a
Welfare Plan, may be unilaterally amended or terminated by the Company or any
Company Subsidiary without liability to any of them, except as to benefits
accrued thereunder prior to that amendment or termination.
(d) ERISA Benefit Plans. Schedule 4.26(d) (i) lists (A) each ERISA
Pension Benefit Plan (1) the funding requirements of which (under Section 301 of
ERISA or Section 412 of the Code) are, or at any time during the six-year period
ending on the date hereof (the "Period") were, in whole or in part, directly or
indirectly, the responsibility of the Company or any Company Subsidiary or (2)
respecting which the Company or any Company Subsidiary is, or at any time during
the Period was, a "contributing sponsor" or an "employer" as defined in Sections
4001(a)(13) and 3(5), respectively, of ERISA (each plan described in this clause
(A) being a "Company ERISA Pension Plan"), (B) each other ERISA Pension Benefit
Plan respecting which an ERISA Affiliate is, or at any time during the Period
was, such a "contributing sponsor" or "employer" (each plan described in this
clause (B) being an "ERISA Affiliate Pension Plan") and (C) each other ERISA
Employee Benefit Plan (other than a Welfare Plan or a plan described in (A) or
(B) above) that is being, or at any time during the Period was, sponsored,
maintained or contributed to by the Company or any Company Subsidiary (each plan
described in this clause (C) and each Company ERISA Pension Plan being a
"Company ERISA Benefit Plan"), (ii) states the termination date of each Company
ERISA Benefit Plan and ERISA Affiliate Pension Plan that has been terminated
during the Period and (iii) identifies for each ERISA Affiliate Pension Plan the
relevant ERISA Affiliates. The Company has provided RW with (i) true, complete
and correct copies of (A) each Company ERISA Benefit Plan, (B) each trust
agreement related thereto and (C) all amendments to each Company ERISA Benefit
Plan and trust agreement. Except as set forth in Schedule 4.26(d), (i) neither
the Company nor any Company Subsidiary is, or at any time during the Period was,
a member of any ERISA Group that currently includes, or included when the
Company or a Company Subsidiary was a member, among its members any Person other
than the Company and the Company Subsidiaries and (ii) no Person is an ERISA
Affiliate (other than the Company or any Company Subsidiary in the case of any
other Company Subsidiary or any Company Subsidiary in the case of the Company,
if the Company and the Company Subsidiaries comprise an ERISA Group).
(e) Employee Policies and Procedures. Schedule 4.26(e) lists all
Employee Policies and Procedures. The Company has provided RW with a copy of all
written Employee Policies and Procedures and a written description of all
material unwritten Employee Policies and Procedures.
(f) Unwritten Amendments. Except as described in Schedule 4.26(f), no
material unwritten amendments have been made, whether by oral communication,
pattern of conduct or otherwise, with respect to any of the Company Employment
Agreements, Other Compensation Plans or Employee Policies and Procedures.
(g) Employment Law Compliance. To the knowledge of the Company and the
Primary Stockholders, each of the Company and the Company Subsidiaries has been
and is in
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compliance in all Material respects with all applicable Governmental
Requirements respecting employment and employment practices, terms and
conditions of employment and wages and hours, and neither the Company nor any
Company Subsidiary is liable for any arrears of wages or penalties for failure
to comply with any of the foregoing. Neither the Company nor any Company
Subsidiary has practiced or discriminated on the basis of race, color, religion,
sex, national origin, age, veteran status, disability or handicap in its
employment conditions or practices.
Except as set forth in Schedule 4.26(g) of this agreement, (1) no claim
for unpaid wages or overtime or for child labor or record keeping violations has
been filed, threatened, or is pending under the Fair Labor Standards Act,
Davis-Bacon Act, Walsh-Healey Act, or Service Contract Act or any other Federal,
state, local or foreign law, regulation, or ordinance; (2) no discrimination
and/or retaliation claim has been filed, threatened, or is pending against the
Company under the 1866 or 1964 Civil Rights Acts, the Equal Pay Act, the Age
Discrimination in Employment Act, as amended, the Americans with Disabilities
Act, the Family and Medical Leave Act, the Fair Labor Standards Act, the
Employee Retirement Security Act or any other Federal law or any comparable
state fair employment practices act or foreign law regulating discrimination in
the workplace; (3) if the Company is a Federal or State contractor obligated to
develop and maintain an affirmative action plan, no discrimination claim, show
cause notice, conciliation proceeding, sanctions or debarment proceeding has
been filed, threatened, or is pending with Office of Federal Contract Compliance
Programs ("OFCCP") or any other Federal agency or any comparable State or
foreign agency or court and no desk audit or on-site review is in progress; (4)
no citation has been issued by the Occupational Health and Safety Administration
against the Company and no notice of contest or OSHA administrative enforcement
proceeding involving the Company has been filed or is pending; (5) no workers'
compensation or retaliation claim has been filed, threatened, or is pending
against the Company; (6) no citation of the Company has occurred and no
enforcement proceeding has been initiated or is pending under Federal or foreign
immigration law; and/or (7) the Company has not taken any action which would
constitute a "Mass Layoff" or "Plant Closing" within the meaning of the Worker
Adjustment and Retraining Notification ("WARN") Act or otherwise trigger notice
requirements or liability under any local or state plant closing notice law;
and, to the extent any liability should arise between the date of this Agreement
and the Closing as a result of employment actions by the Company, the Company
will be solely responsible financially therefor.
(h) Labor Compliance. Except as set forth in Schedule 4.26(h) of this
Agreement, (1) employees of the Company have not been and are not represented by
a union, labor organization or collective bargaining unit which was either
National Labor Relations Board ("NLRB") or National Mediation Board ("NMB")
certified or voluntarily recognized or recognized under foreign law; (2) the
Company has not been and is not a signatory to a collective bargaining agreement
with any union, labor organization or collective bargaining unit; (3) no
representation election petition has been filed by employees of the Company or
is pending with the NLRB or NMB and no union organizing campaign involving
employees of the Company has occurred, is threatened, or is in progress; (4) no
NLRB unfair labor practice charges or Litigation alleging such claims have been
filed or, to the knowledge of the Company and the Primary Stockholders,
threatened and/or are presently pending against the Company or any labor
organization representing its employees; (5) no
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grievance or arbitration demand (or "minor dispute"), whether or not filed
pursuant to a collective bargaining agreement, has been filed or, to the
knowledge of the Company and the Primary Stockholders, threatened or is pending
against the Company; (6) no handbilling, picketing, work stoppage (sympathetic
or otherwise), or other "concerted action" involving the employees of the
Company has occurred, is, to the knowledge of the Company and the Primary
Stockholders, threatened or is in progress; and/or (7) no breach of contract
and/or denial of fair representation claim has been filed or is pending against
the Company and/or any labor organization representing its employees.
(i) No Aliens. All employees of each of the Company and the Company
Subsidiaries are citizens of, or are authorized in accordance with federal
immigration laws to be employed in, the United States.
(j) Change of Control Benefits. Except as set forth in Schedule
4.26(j), neither the Company nor any of the Company Subsidiaries is a party to
any agreement, or has established any policy, practice or program, requiring any
of them to make a payment or provide any other form of compensation or benefit
or vesting rights to any person performing services for the Company or any of
the Company Subsidiaries that would not be payable or provided in the absence of
this Agreement or the consummation of the transactions contemplated by this
Agreement, including any parachute payment under Section 280G of the Code.
(k) Retirees. Neither the Company nor any of the Company Subsidiaries
has any obligation or commitment to provide medical, dental or life insurance
benefits to or on behalf of any of its employees following termination of
employment or to any of its former employees who have terminated employment
except as may be required pursuant to the continuation of coverage provisions of
Section 4980B of the Code and the applicable parallel provisions of ERISA.
(q) The Company has provided RW with a copy of the Company's policy for
providing leaves of absence under the Family and Medical Leave Act ("FMLA") and
has identified (i) each employee who is eligible to request FMLA leave; (ii) the
amount of FMLA leave utilized by each such employee during the current leave
year; (iii) each employee who is on FMLA leave at the IPO Closing Date and his
or her job title and description, salary and benefits; (iv) each employee who
has requested FMLA leave to begin after the IPO Closing Date; a description of
the leave requested; and (v) a copy of all notices provided to such employee
regarding that leave.
Section 4.27. Compliance with ERISA, Etc.
(a) Compliance. Each of the Company ERISA Benefit Plans and Other
Compensation Plans (each, a "Plan") and each ERISA Affiliate Pension Plan (i) is
and has at all times been in substantial compliance with all applicable
provisions of the Code and ERISA, as well as with all other applicable
Governmental Requirements, and (ii) is and has been administered, operated and
managed in accordance with its governing documents.
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(b) Qualification. All Plans that are intended to qualify under Section
401(a) of the Code (the "Qualified Plans") are so qualified and the current form
of each such Plan has been determined by the IRS to be so qualified (or
application for a determination letter on the current form of the Plan either
has been timely submitted to the IRS or the remedial amendment period with
respect to any plan provision that has not been considered by the IRS will not
expire within 120 days after the Effective Time). The Company has provided RW
with true, complete and correct copies of the most current plan determination
letters, most recent actuarial valuation reports, if any, most recent Form 5500,
or, as applicable, Form 5500-C/R, filed with respect to each such Qualified Plan
and most recent trustee or custodian report. To the extent that any Qualified
Plans have not been amended to comply with applicable Governmental Requirements,
the remedial amendment period permitting retroactive amendment of these
Qualified Plans has not expired and will not expire within 120 days after the
Effective Time. All reports and other documents required to be filed with any
governmental agency or distributed to plan participants or beneficiaries
(including annual reports, summary annual reports, actuarial reports, PBGC-1
Forms, audits or Returns) have been timely filed or distributed.
(c) No Prohibited Transactions, Etc. None of the Stockholders, any Plan
or the Company or any Company Subsidiary has engaged in any Prohibited
Transaction. No Plan and no ERISA Affiliate Pension Plan has incurred an
accumulated funding deficiency, as defined in Section 412(a) of the Code and
Section 302(a) of ERISA, and no circumstances exist pursuant to which the
Company or any Company Subsidiary could have any direct or indirect liability
whatsoever (including being subject to any statutory Lien to secure payment of
any such liability), to the PBGC under Title IV of ERISA or to the IRS for any
excise tax or penalty with respect to any Plan or ERISA Affiliate Pension Plan.
Further:
(i) there have been no terminations, partial
terminations or discontinuances of contributions to any Qualified Plan
without a determination by the IRS that such action does not adversely
affect the tax-qualified status of that plan;
(ii) no Termination Event has occurred;
(iii) no Reportable Event has occurred that was not
properly reported;
(iv) the valuation of assets of any Company ERISA Pension
Plan and any ERISA Affiliate Pension Plan, as of the Effective Time,
shall equal or exceed the actuarial present value of all "benefit
liabilities" (within the meaning of Section 4001(a)(16) of ERISA) under
that plan in accordance with the assumptions contained in the
Regulations of the PBGC governing the funding of terminated defined
benefit plans;
(v) with respect to "group health plans" under Section
4980B of the Code or Section 607(l) or 609 of ERISA and related
regulations (relating to the benefit continuation rights imposed by
"COBRA" or qualified medical child support orders), the Company, each
Company Subsidiary and the Stockholders have complied (and at the
Effective Time will
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have complied) in all material respects with all reporting, disclosure,
notice, election and other benefit continuation and coverage
requirements imposed thereunder as and when applicable to those plans,
and neither the Company nor any Company Subsidiary has incurred (or
will incur) any direct or indirect liability or is (or will be) subject
to any loss, assessment, excise tax penalty, loss of federal income tax
deduction or other sanction, arising on account of or in respect of any
direct or indirect failure by any Person, at any time prior to the
Effective Time, to comply with any such federal or state benefit
continuation or coverage requirement, which is capable of being
assessed or asserted before or after the Effective Time directly or
indirectly against the Company, any Company Subsidiary, any
Stockholder, the Surviving Corporation or RW with respect to any group
health plan;
(vi) the Financial Statements as of the Current Balance
Sheet Date properly reflect the approximate total pension, medical and
other benefit (or will incur) liability for all Plans, and no material
funding changes or irregularities are reflected thereon which would
cause those Financial Statements to be not representative of prior
periods; and
(vii) neither the Company nor any Company Subsidiary has
incurred (or will incur) liability under Section 4062 of ERISA.
(d) Multiemployer Plans. Except as set forth in Schedule 4.27(d),
neither the Company nor any Company Subsidiary, and no ERISA Affiliate of any of
them, is, or at any time during the six-year period ended on the date hereof
was, obligated to contribute to a Multiemployer Plan. Neither the Company nor
any Company Subsidiary, and no ERISA Affiliate of any of them, has made a
complete or partial withdrawal from a Multiemployer Plan so as to incur
withdrawal liability as defined in Section 4201 of ERISA.
(e) Claims and Litigation. Except as accurately set forth in Schedule
4.27(e), no Litigation or claims (other than routine claims for benefits) are
pending or, to the knowledge of the Company, threatened against, or with respect
to, any of the Plans or with respect to any fiduciary, administrator or sponsor
thereof (in their capacities as such), or any party-in-interest thereof.
(f) Excise Taxes, Damages and Penalties. No act, omission or
transaction has occurred that would result in the imposition on the Company or
any Company Subsidiary of (i) breach of fiduciary duty liability damages under
Section 409 of ERISA, (ii) a civil penalty assessed pursuant to subsection (c),
(i) or (l) of Section 502 of ERISA or (iii) any excise tax under applicable
provisions of the Code with respect to any Plan.
(g) VEBA Welfare Trust. Any trust funding a Plan, which is intended to
be exempt from federal income taxation pursuant to Section 501(c)(9) of the
Code, satisfies the requirements of that section and has received a favorable
opinion letter from the IRS regarding that exempt status and has not, since
receipt of the most recent favorable opinion letter, been amended or operated in
a way that would adversely affect that exempt status.
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Section 4.28. Taxes.
(a) Each of the following representations and warranties in this
Section 4.28 is qualified to the extent set forth in Schedule 4.28.
(b) (i) All Returns required to be filed with respect to any Tax for
which any of the Company and the Company Subsidiaries is liable have been duly
and timely filed with the appropriate Taxing Authority, (ii) each Tax shown to
be payable on each such Return has been paid, and (iii) each Tax payable by the
Company or a Company Subsidiary by assessment has been timely paid in the amount
assessed and adequate reserves have been established on the consolidated books
of the Company and the Company Subsidiaries for all Taxes for which any of the
Company and the Company Subsidiaries is liable, but the payment of which is not
yet due. Neither the Company nor any Company Subsidiary is, or ever has been,
liable for any Tax payable by reason of the income or property of a Person other
than the Company or a Company Subsidiary. Each of the Company and the Company
Subsidiaries has timely filed true, correct and complete declarations of
estimated Tax in each jurisdiction in which any such declaration is required to
be filed by it. No Liens for Taxes exist upon the assets of the Company or any
Company Subsidiary except Liens for Taxes which are not yet due. Neither the
Company nor any Company Subsidiary is, or ever has been, subject to Tax in any
jurisdiction outside of the United States. No Litigation with respect to any Tax
for which the Company or any Company Subsidiary is asserted to be liable is
pending or, to the knowledge of the Company or any Stockholder, threatened and
no basis which the Company or any Stockholder believes to be valid exists on
which any claim for any such Tax can be asserted against the Company or any
Company Subsidiary. There are no requests for rulings or determinations in
respect of any taxes pending between the Company or any Company Subsidiary and
any Taxing Authority. No extension of any period during which any Tax may be
assessed or collected and for which the Company or any Company Subsidiary is or
may be liable has been granted to any Taxing Authority. Neither the Company nor
any Company Subsidiary is or has been a party to any tax allocation or sharing
agreement. All amounts required to be withheld by any of the Company and the
Company Subsidiaries and paid to governmental agencies for income, social
security, unemployment insurance, sales, excise, use and other Taxes have been
collected or withheld and paid to the proper Taxing Authority. The Company and
each Company Subsidiary have made all deposits required by law to be made with
respect to employees' withholding and other employment taxes.
(c) Neither the Company nor any Stockholder is a "foreign person," as
that term is referred to in Section 1445(f)(3) of the Code.
(d) The Company has not filed a consent pursuant to Section 341(f) of
the Code or any comparable provision of any other tax statute and has not agreed
to have Section 341(f)(2) of the Code or any comparable provision of any other
tax statute apply to any disposition of an asset. The Company has not made, is
not obligated to make and is not a party to any agreement that could require it
to make any payment that is not deductible under Section 280G of the Code. No
asset of the Company or of any Company Subsidiary is subject to any provision of
applicable law which eliminates or reduces the allowance for depreciation or
amortization in respect of that asset below
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the allowance generally available to an asset of its type. No accounting method
changes of the Company or of any Company Subsidiary exist or are proposed or
threatened which could give rise to an adjustment under Section 481 of the Code.
Section 4.29. Government Contracts. Except as set forth in Schedule
4.29, neither the Company nor any Company Subsidiary is a party to any
governmental contract subject to price redetermination or renegotiation.
Section 4.30. Absence of Changes. Since the Current Balance Sheet Date,
except as set forth in Schedule 4.30, none of the following has occurred with
respect to the Company or any Company Subsidiary:
(a) any circumstance, condition, event or state of facts (either singly
or in the aggregate), other than conditions generally affecting the railroad
construction and maintenance businesses, which has caused, is causing or will
cause a Material Adverse Effect on the Company;
(b) any change in its authorized Capital Stock or in any of its
outstanding Capital Stock or Derivative Securities;
(c) any Restricted Payment, except any declaration or payment of
dividends by any Company Subsidiary solely to the Company;
(d) any increase in, or any commitment or promise to increase, the
rates of Cash Compensation as of the date hereof, or the amounts or other
benefits paid or payable under any Company ERISA Pension Plan or Other
Compensation Plan, except for ordinary and customary bonuses and salary
increases for employees (other than the Stockholders or their Immediate Family
Members) at the times and in the amounts consistent with its past practice;
(e) any work interruptions, labor grievances or claims filed, or any
similar event or condition of any character, that will have a Material Adverse
Effect on the Surviving Corporation following the Effective Time;
(f) any distribution, sale or transfer of, or any Company Commitment to
distribute, sell or transfer, any of its assets or properties of any kind which
singly is or in the aggregate are Material to the Company, other than
distributions, sales or transfers in the ordinary course of its business and
consistent with its past practices to Persons other than the Stockholders and
their Immediate Family Members and Affiliates;
(g) any cancellation, or agreement to cancel, any Indebtedness,
obligation or other liability owing to it, including any Indebtedness,
obligation or other liability of any Stockholder or any Related Person or
Affiliate thereof, provided that it may negotiate and adjust bills in the course
of good faith disputes with customers in a manner consistent with past practice,
if all those adjustments are included in the Supplemental Information provided
RW pursuant to Section 6.08;
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(h) any plan, agreement or arrangement granting any preferential rights
to purchase or acquire any interest in any of its assets, property or rights or
requiring consent of any Person to the transfer and assignment of any such
assets, property or rights;
(i) any purchase or acquisition of, or agreement, plan or arrangement
to purchase or acquire, any property, rights or assets outside of the ordinary
course of its business consistent with its past practices;
(j) any waiver of any of its rights or claims that singly is or in the
aggregate are Material to the Company;
(k) any transaction by it outside the ordinary course of its business
or not consistent with its past practices;
(l) any incurrence by it of any Indebtedness or any Guaranty not
constituting its Indebtedness, or any Company Commitment to incur any
Indebtedness or any such Guaranty;
(m) any investment in the Capital Stock, Derivative Securities or
Indebtedness of any Person other than a Permitted Investment;
(n) except in accordance with the Company's consolidated capital
expenditure budget for the Company's current fiscal year, any capital
expenditure or series of related capital expenditures by the Company and the
Company Subsidiaries collectively in excess of $25,000 (except with respect to
Comstock such amount shall be $250,000), or commitments by the Company and the
Company Subsidiaries to make capital expenditures totaling in excess of $25,000
(except with respect to Comstock such amount shall be $250,000); or
(o) any cancellation or termination of a Material Agreement of the
Company.
Section 4.31. Bank Relations; Powers of Attorney. The Company has
provided RW with an accurate, complete written statement setting forth:
(a) the name of each financial institution in which the Company or any
Company Subsidiary has borrowing or investment arrangements, deposit or checking
accounts or safe deposit boxes;
(b) the types of those arrangements and accounts, including, as
applicable, names in which accounts or boxes are held, the account or box
numbers and the name of each Person authorized to draw thereon or have access
thereto; and
(c) the name of each Person holding a general or special power of
attorney from the Company or any Company Subsidiary and a description of the
terms of each such power.
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Section 4.32. Relations with Governments, Etc. Neither the Company nor
any Company Subsidiary has made, offered or agreed to offer anything of value to
any governmental official, political party or candidate for government office
which would cause the Company or any Company Subsidiary to be in violation of
the Foreign Corrupt Practices Act of 1977 or any Governmental Requirement to a
similar effect.
Section 4.33. Product Quality, Warranty Claims, Product Liability.
Except as set forth on Schedule 4.33 and except as may be fully covered by the
Retainages, all products and services sold, rented, leased, provided or
delivered by the Company and the Company Subsidiaries to customers on or prior
to the IPO Closing Date conform or will conform to applicable contractual
commitments, express and implied warranties, product and service specifications
and quality standards, and, to the knowledge of the Company and the Primary
Stockholders, the Company has no liability for any damages in connection
therewith. No product or service sold, leased, rented, provided or delivered by
the Company and the Company Subsidiaries to customers on or prior to the IPO
Closing Date is subject to any guaranty, warranty or other indemnity beyond the
applicable standard terms and conditions of sale, rent or lease, including those
contained in the contract covering the provision of such services and products.
Except as set forth on Schedule 4.33, to the knowledge of the Company and the
Primary Stockholders the Company and the Company Subsidiaries have no liability
not fully covered by insurance arising out of any injury to a person or property
as a result of the ownership, possession, provision or use of any equipment,
product or service sold, rented, leased, provided or delivered by the Company or
any Company Subsidiary on or prior to the IPO Closing Date.
Section 4.34. Electrical Trade Unions. Except as set forth in Section
8.08, (1) employees of the Company have been and are not represented by a union,
labor organization or collective bargaining unit which performs work in the
electrical trade which was either National Labor Relations Board ("NLRB") or
National Mediation Board ("NMB") certified or voluntarily recognized under
federal law; (2) the Company has not been and is not a signatory to a collective
bargaining agreement with any union, labor organization or collective bargaining
unit which performs work in the electrical trade; and (3) no representation
election petition has been filed by employees of the Company or is pending with
the NLRB or NMB and no union organizing campaign involving employees of the
Company has occurred, is threatened, or is in progress with a union which
performs work in the electrical trade.
Section 4.35. RW Corporate Expenses. The Company has contributed to,
and hereby agrees to continue to contribute to, the interim monthly corporate
budget of RW (which budget shall be equal to $33,000 per month until the IPO
Closing Date).
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO
Section 5.02. Organization; Power. RW is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and each of RW and Newco has all
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requisite corporate power and authority under the laws of its Organization State
and its Charter Documents to own or lease and to operate its properties
presently and following the Effective Time and to carry on its business as now
conducted and as proposed to be conducted following the Effective Time. Neither
RW nor Newco has engaged in any operations since its organization other than in
connection with their formation and capitalization and the transactions
contemplated by this Agreement and the Other Agreements.
Section 5.03. Authorization; Enforceability; Absence of Conflicts;
Required Consents.
(a) The execution, delivery and performance by each of RW and Newco of
this Agreement and each other Transaction Document to which it is a party, and
the effectuation of the Merger and the other transactions contemplated hereby
and thereby, are within its corporate power under its Charter Documents and the
applicable Governmental Requirements of its Organization State and have been
duly authorized by all proceedings, including actions permitted to be taken in
lieu of proceedings, required under its Charter Documents and the applicable
Governmental Requirements of its Organization State.
(b) This Agreement has been, and each of the other Transaction
Documents to which either of RW or Newco is a party, when executed and delivered
to the other parties thereto (or, in the case of the Certificates of Merger, the
applicable Governmental Authorities), will have been, duly executed and
delivered by it and is, or when so executed and delivered will be, its legal,
valid and binding obligation, enforceable against it in accordance with its
terms, except as that enforceability may be (i) limited by any applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and (ii) subject to general
principles of equity (regardless of whether that enforceability is considered in
a proceeding in equity or at law).
(c) The execution, delivery and performance in accordance with their
respective terms by each of RW and Newco of the Transaction Documents to which
it is a party have not and will not (i) violate, breach or constitute a default
under (A) the Charter Documents of RW or Newco, (B) any Governmental Requirement
applicable to RW or Newco or (C) any Material Agreement of RW or Newco, (ii)
result in the acceleration or mandatory prepayment of any Indebtedness, or any
Guaranty not constituting Indebtedness, of RW or Newco or afford any holder of
any of that Indebtedness, or any beneficiary of any of those Guaranties, the
right to require RW or Newco to redeem, purchase or otherwise acquire, reacquire
or repay any of that Indebtedness, or to perform any of those Guaranties, (iii)
cause or result in the imposition of, or afford any Person the right to obtain,
any Lien upon any property or assets of RW or Newco (or upon any revenues,
income or profits of either RW or Newco therefrom) or (iv) result in the
revocation, cancellation, suspension or material modification, individually or
in the aggregate, of any Governmental Approval possessed by RW or Newco at the
date hereof and necessary for the ownership or lease and the operation of its
properties or the carrying on of its business as now conducted, including any
necessary Governmental Approval under each applicable Environmental Law and
Professional Code.
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(d) Except for (i) the filing of the Certificates of Merger with the
applicable Governmental Authorities, (ii) filings of the Registration Statement
under the Securities Act and the SEC order declaring the Registration Statement
effective under the Securities Act and (iii) as may be required by the HSR Act
or the applicable state securities or blue sky laws, no Governmental Approvals
are required to be obtained, and no reports or notices to or filings with any
Governmental Authority are required to be made for the execution, delivery or
performance by RW or Newco of the Transaction Documents to which it is a party,
the enforcement against RW or Newco, as the case may be, of its obligations
thereunder or the effectuation of the Merger and the other transactions
contemplated thereby.
Section 5.04. Charter Documents and Records; No Violation. RW has
caused true, complete and correct copies of the Charter Documents, each as in
effect on the date hereof, and the minute books and similar corporate or other
Entity records of each of RW and Newco to be delivered or otherwise made
available to the Company of each of RW and Newco. No breach or violation of any
Charter Document of either RW or Newco has occurred and is continuing.
Section 5.05. No Defaults. No condition or state of facts exists, or,
with the giving of notice or the lapse of time or both, would exist, which (a)
entitles any holder of any outstanding Indebtedness, or any Guaranty not
constituting Indebtedness, of RW or Newco, or a representative of that holder,
to accelerate the maturity, or require a mandatory prepayment, of that
Indebtedness or Guaranty, or affords that holder or its representative, or any
beneficiary of that Guaranty, the right to require RW or Newco to redeem,
purchase or otherwise acquire, reacquire or repay any of that Indebtedness, or
to perform that Guaranty in whole or in part, (b) entitles any Person to obtain
any Lien (other than a Permitted Lien) upon any properties or assets of RW or
Newco (or upon revenues, income or profits of RW or Newco or (c) constitutes a
violation or breach of, or a default under, any Material Agreement of RW or
Newco.
Section 5.06. Subsidiaries. Immediately prior to the IPO Closing Date,
(a) RW will have no Subsidiaries other than Newco, each Entity defined as
"Newco" in each of the Other Agreements and each Subsidiary of any such Entity,
(b) Newco will have no Subsidiaries except for Subsidiaries of the Company and
(c) neither RW nor Newco will own, of record or beneficially, directly or
indirectly through any Person or otherwise (except pursuant hereto or to the
Other Agreements), any Capital Stock or Derivative Securities of any Entity not
described in this Section 5.06 as a Subsidiary of RW (in the case of RW) or any
Entity (in the case of Newco).
Section 5.07. Capital Stock of RW and Newco.
(a) Immediately prior to the Effective Time, (i) the authorized Capital
Stock of RW will be comprised of (A) 100,000,000 shares of RW Common Stock and
(B) 10,000,000 shares of preferred stock, $.01 par value per share, (ii) before
giving effect to the Merger and the merger or other acquisition transactions
contemplated by the Other Agreements, (A) the number of shares of RW Common
Stock then issued and outstanding will be as set forth in the Registration
Statement when it becomes effective under the Securities Act, (B) no shares of
the RW preferred stock then
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will be issued or outstanding (and RW has no current intention to issue any
shares of preferred stock) and (C) RW will have reserved for issuance pursuant
to Other Compensation Plans or the exercise of Derivative Securities the number
of shares of RW Common Stock set forth in the Registration Statement when it
becomes effective under the Securities Act.
(b) The authorized Capital Stock of Newco is comprised of 100 shares of
Newco Common Stock, all of which shares are issued, outstanding and owned, of
record and beneficially, by RW.
(c) All shares of RW Common Stock and Newco Common Stock outstanding
immediately prior to the Effective Time, and all shares of RW Common Stock to be
issued pursuant to Sections 2.04 and 2.05, when issued, (i) will have been duly
authorized and validly issued in accordance with the DGCL and their issuer's
Charter Documents and (ii) will be fully paid and nonassessable. None of the
shares of RW Common Stock to be issued pursuant to Section 2.04 will, when
issued, have been issued in breach or violation of (i) any applicable statutory
or contractual preemptive rights, or any other rights of any kind (including any
rights of first offer or refusal), of any Person or (ii) the terms of any of its
Derivative Securities then outstanding.
Section 5.08. Liabilities. Except as disclosed in the Private Placement
Memorandum, neither RW nor Newco has any Material liabilities of any kind other
than those incurred in connection with this Agreement and the Other Agreements
and the transactions contemplated hereby and thereby.
Section 5.09. Compliance with Laws; No Litigation. To the knowledge of
RW, each of RW and Newco is in compliance with all Governmental Requirements
applicable to it. No Litigation is pending or, to the knowledge of RW,
threatened to which RW or Newco is or may become a party which (a) questions or
involves the validity or enforceability of any obligation of RW or Newco under
any Transaction Document, (b) seeks (or reasonably may be expected to seek) (i)
to prevent or delay consummation by RW or Newco of the transactions contemplated
by this Agreement to be consummated by RW or Newco, as the case may be, or (ii)
damages from RW or Newco in connection with any such consummation.
Section 5.10. Private Placement Memorandum. At the date hereof, the
Private Placement Memorandum (other than the historical financial statements,
including the notes thereto, of the Founding Companies (other than the Company),
information regarding the number of shares to be sold in the IPO and the price
of such shares and the historical information contained therein respecting the
Company and the Stockholders, to which this Section 5.10 does not apply) does
not contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements contained therein not materially
misleading in the light of the circumstances under which those statements are
made.
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Section 5.11. Disclosure.
(a) As of the date hereof, all information that has been made available
to the Company by RW or RW's independent public accountant or legal counsel
prior to the date of this Agreement in connection with the transactions
contemplated hereby is, taken together, true and correct in all Material
respects (other than financial budgets and projections) and, to the knowledge of
RW, does not contain any untrue statement of a Material fact or omit to state a
Material fact necessary in order to make the statements contained therein not
materially misleading in light of the circumstances under which those statements
were made.
(b) All Information that is made available after the date hereof from
time to time prior to the Effective Time to the Company by RW or RW's
independent public accountant or legal counsel in connection with or pursuant to
this Agreement, any other Transaction Document or the transactions contemplated
hereby or thereby will be, when made available and taken together, true and
correct in all Material respects (other than financial budgets and projections)
and, to the knowledge of RW, does not contain any untrue statement of a Material
fact or omit to state a Material fact necessary in order to make the statements
contained therein not materially misleading in light of the circumstances under
which those statements were made.
(c) All financial budgets and projections that have been or are
hereafter from time to time prepared by RW or any of its Representatives and
made available prior to the Effective Time to the Company pursuant to or in
connection with this Agreement, any other Transaction Document or the
transactions contemplated hereby or thereby have been and will be prepared and
furnished to the Company in good faith and were and will be based on facts and
assumptions that are believed by management of RW to be reasonable in light of
the then current and foreseeable business conditions of RW and represented and
will represent management's good faith estimate of the consolidated projected
financial performance of RW based on the information available at the time so
furnished.
Section 5.12. Commitments. RW has provided the Company with complete
and accurate copies of each of the following to which RW is a party or by which
any of its properties is bound and which presently remains executory in whole or
in any part:
(a) each Material contract, agreement or other instrument relating to
RW's ownership or rental of any real property;
(b) each Material contract, agreement or other instrument relating to
RW's ownership or lease of Property, Plant and Equipment;
(c) a list of all Proprietary Rights which RW owns or has the legal
right to use and a copy of each Material contract, agreement or other instrument
relating thereto;
(d) each contract, agreement, plan or other instrument relating to the
employment of any Person by RW;
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(e) each contract, agreement, plan or other instrument relating to
insurance;
(f) each contract, agreement, plan or other instrument governed by
ERISA;
(g) all written Employee Policies and Procedures;
(h) each contract, agreement, plan or other instrument that would take
effect upon the change in control of RW;
(i) each other agreement, contract or other instrument that is Material
to RW;
(j) a written description of each oral contract, agreement or other
instrument that, if written, would be provided to the Company in accordance with
this Section 5.11; and
(k) a copy of each Material written contract, agreement, or other
instrument to which RW is a party that is executed prior to the IPO Closing
Date.
Section 5.13. Proprietary Rights. RW has, or will have as of the IPO
Closing Date, all Proprietary Rights necessary to carry on the businesses in
which it is or will be engaged following the Merger.
Section 5.14. Insurance. RW has, or will have as of the IPO Closing
Date, all insurance of every kind necessary to carry on the businesses in which
it is or will be engaged following the Merger.
Section 5.15. Due Diligence. RW and its duly authorized representatives
have been afforded access to the offices, files and books of account of the
Company (with the exception of the Company's customer lists) for the purpose of
conducting an investigation of the Company's financial condition, status,
liabilities and other matters relating to the Company's business. Nothing has
come to the attention of RW or its duly authorized representatives during the
course of their due diligence or otherwise to indicate that: (i) representations
and warranties made by the Company and the Stockholders herein are false or
incorrect in any Material respect, and (ii) the representations and warranties
made in the Other Agreements by the "Company" and/or "Stockholders" as each is
defined in the Other Agreements are false or incorrect in any Material respect.
Section 5.16. Registration Statement. To the knowledge of RW, there
exist no facts or circumstances that would Materially inhibit or delay the
preparation and filing of a Registration Statement with the SEC under the
Securities Act in connection with the IPO.
Section 5.17. Registration Rights Agreements. Except as set forth in
certain executive employment agreements, RW is not a party to any agreement
pursuant to which it has agreed to register shares of RW's Capital Stock.
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ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.02. Access and Cooperation; Due Diligence.
(a) From the date hereof and until the IPO Closing Date, the Company
will (i) afford to the Representatives of RW and each Other Founding Company
reasonable access upon prior notice and during regular business hours to all the
key employees, sites, properties, books and records of each of the Company and
the Company Subsidiaries, (ii) provide RW with such additional financial and
operating data and other information relating to the business and properties of
each of the Company and the Company Subsidiaries as RW or any Other Founding
Company may from time to time reasonably request and (iii) cooperate with RW and
each Other Founding Company and their respective Representatives in the
preparation of any documents or other material which may be required in
connection with any Transaction Documents or any Other Transaction Documents.
Each Stockholder and the Company will treat all Confidential Information
obtained by them in connection with the negotiation and performance of this
Agreement or the due diligence investigations conducted with respect to each
Other Founding Company as confidential in accordance with the provisions of
Section 11.01. In addition, RW will cause each Other Founding Company to enter
into a provision similar to this Section 6.02 in order to require each Other
Founding Company (i) to afford to the Representatives of the Company and the
other Founding Companies reasonable access, upon prior notice and during
business hours, to all the key employees, sites, properties, books and records
of each Other Founding Company, (ii) provide the Company and the other Founding
Companies with such additional financial and operating data and other
information relating to the business and properties of each Other Founding
Company as the Company may from time to time reasonably request and (iii) to
keep confidential any Confidential Information respecting any of the Company and
the Company Subsidiaries obtained by that Other Founding Company.
(b) Each of the parties hereto will use its best efforts to secure, as
soon as practicable after the date hereof, all approvals or consents of third
Persons as may be necessary to consummate the transactions contemplated hereby.
(c) From the date hereof and until the IPO Closing Date, RW and Newco
will (i) afford to the Representatives of the Company and the Stockholders
access to all sites, properties, books and records of RW and Newco, (ii) provide
the Company with such additional financial and operating data and other
information relating to the business and properties of RW and Newco as the
Company or any Stockholder may from time to time reasonably request and (iii)
cooperate with the Company and the Stockholders and their respective
Representatives in the preparation of any documents or other material which may
be required in connection with any Transaction Documents.
(d) If this Agreement is terminated pursuant to Section 12.01, RW
promptly will return all written Confidential Information of the Company it then
possesses to the Company and will use commercially reasonable efforts to cause
each Other Founding Company to do the same.
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Section 6.03. Conduct of Business Pending Closing. From the date hereof
and until the Effective Time, the Company will, and will cause each Company
Subsidiary to, except as and only to the extent set forth in Schedule 6.03:
(a) carry on its businesses in substantially the same manner as it has
heretofore and not introduce any material new method of management, operation or
accounting;
(b) maintain its properties and facilities, including those held under
leases, in as good working order and condition as at present, ordinary wear and
tear excepted;
(c) perform all its obligations under agreements relating to or
affecting its assets, properties and other rights;
(d) keep in full force and effect without interruption all its present
insurance policies or other comparable insurance coverage;
(e) use reasonable commercial efforts to (i) maintain and preserve its
business organization intact, (ii) retain its present employees and (iii)
maintain its relationships with suppliers, customers and others having business
relations with it;
(f) comply with all applicable Governmental Requirements; and
(g) except as required or expressly permitted by this Agreement,
maintain the instruments and agreements governing its outstanding Indebtedness
and leases on their present terms and not enter into new or amended Indebtedness
or lease instruments or agreements involving amounts over $10,000 in any case or
$100,000 in the aggregate (except with respect to Comstock this amount shall be
$25,000 in any case or $250,000 in the aggregate), without the prior written
consent of RW (which consent will not be unreasonably withheld), provided
however, that the Company may continue to make borrowings and repayments under
its existing credit facility consistent with past practice.
Section 6.04. Prohibited Activities. From the date hereof and until the
Effective Time, except as set forth on Schedule 6.04, without the prior written
consent of RW or unless as required or expressly permitted by this Agreement,
the Company will not, and will not permit any Company Subsidiary to:
(a) make any change in its Charter Documents;
(b) issue any of its Capital Stock or issue or otherwise create any of
its Derivative Securities;
(c) make any Restricted Payment;
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(d) make any investments (other than Permitted Investments) in the
Capital Stock, Derivative Securities or Indebtedness of any Person;
(e) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditures in a single transaction or a
series of related transactions involving an aggregate amount of more than
$25,000 otherwise than in the ordinary course of its business and consistent
with its past practice;
(f) increase or commit or promise to increase the Cash Compensation
payable or to become payable to any officer, director, stockholder, employee or
agent, consultant or independent contractor of any of the Company and the
Company Subsidiaries or make any discretionary bonus or management fee payment
to any such Person, except bonuses or salary increases to employees (other than
the Stockholders or their Immediate Family Members) at the times and in the
amounts consistent with its past practice;
(g) create, assume or permit to be created or imposed any Liens (other
than Permitted Liens) upon any of its assets or properties, whether now owned or
hereafter acquired, except for purchase money Liens incurred in connection with
the acquisition of equipment with an aggregate cost not in excess of $10,000
(except with respect to Comstock this amount shall be $100,000) and necessary or
desirable for the conduct of the business of any of the Company and the Company
Subsidiaries;
(h) (i) adopt, establish, amend or terminate any ERISA Employee
Benefit Plan, or any Other Compensation Plan or Employee Policies and Procedures
or
(ii) take any discretionary action, or omit to take any
contractually required action, if that action or omission could either (A)
deplete the assets of any ERISA Employee Benefit Plan or any Other Compensation
Plan or (B) increase the liabilities or obligations under any such plan;
(i) sell, assign, lease or otherwise transfer or dispose of any of its
owned or leased property or equipment otherwise than in the ordinary course of
its business and consistent with its past practice;
(j) negotiate for the acquisition of any business or the start-up of
any new business;
(k) merge, consolidate or effect a share exchange with, or agree to
merge, consolidate or effect a share exchange with, any other Entity;
(l) waive any of its material rights or claims, provided that it may
negotiate and adjust bills in the course of good faith disputes with customers
in a manner consistent with past practice, but such adjustments will not be
deemed to be included in Schedule 4.17 unless specifically listed in the
Supplemental Information;
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(m) commit a material breach of or amend or terminate any Material
Agreement of the Company or any of its Governmental Approvals; or
(n) enter into any other transaction (i) outside the ordinary course of
its business and consistent with its past practice or (ii) prohibited hereby.
Section 6.05. No Shop; Release of Directors.
(a) Each of the Company and the Stockholders agrees that, from the date
hereof and until the first to occur of the Effective Time or the termination of
this Agreement in accordance with Article XII, neither the Company nor any
Stockholder, nor any of their respective officers and directors shall, and the
Company and each Stockholder will direct and use their best efforts to cause
each of their respective Representatives not to, initiate, solicit or encourage,
directly or indirectly, any inquiries or the making or implementation of any
proposal or offer (including any proposal or offer to the Stockholders) with
respect to a merger, acquisition, consolidation or similar transaction
involving, or any purchase of all or any significant portion of the assets or
any equity securities of, the Company (any such proposal or offer being an
"Acquisition Proposal") or engage in any activities, discussions or negotiations
concerning, or provide any Confidential Information respecting, the Company, any
Other Founding Company or RW to, or have any discussions with, any Person
relating to an Acquisition Proposal or otherwise facilitate any effort or
attempt to make or implement an Acquisition Proposal. The Company and each
Stockholder will: (i) immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any Persons conducted heretofore
with respect to any of the foregoing, and each will take the steps necessary to
inform the Persons referred to in the first sentence of this Section 6.05(a) of
the obligations undertaken in this Section 6.05(a); and (ii) notify RW
immediately if any such inquiries or proposals are received by, any such
information is requested from or any such discussions or negotiations are sought
to be initiated or continued with the Company or any Stockholder.
(b) Each of the Company and the Stockholders hereby (i) waives every
right, if any, the Governmental Requirements of the Company's Organization State
afford the Company or Stockholders to require the Company's directors (or their
equivalents if the Company is not a corporation), in the exercise of their
fiduciary duties in their capacity as such, to engage in any of the activities
prohibited by this Section 6.05 and (ii) releases each such person from any and
all liability he might otherwise have to the Company or any Stockholders but for
this release.
Section 6.06. Notice to Bargaining Agents. Prior to the IPO Closing
Date, the Company will (a) satisfy any requirement for notice of the
transactions contemplated by this Agreement under applicable collective
bargaining agreements and (b) provide RW with proof that any required notice has
been sent.
Section 6.07. Notification of Certain Matters. The Stockholders and the
Company shall give prompt notice to RW of (a) the existence or occurrence of
each condition or state of facts which will or reasonably could be expected to
cause any representation or warranty of the Company or any
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Stockholder contained herein to be untrue or incorrect in any Material respect
at or prior to the Delivery Date or on the IPO Closing Date and (b) any material
failure of any Stockholder or the Company to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by that Person
hereunder, provided that no such notice shall be required until RW shall give
notice to the Company and the Stockholders of the Delivery Date, with respect to
the occurrence in the ordinary course of business and consistent with past
practice of the Company or any Company Subsidiary, as the case may be, of any
condition or state of facts which would cause any information set forth in
Schedules 4.16, 4.17, 4.18, 4.19 and 4.21 to be incorrect. RW shall give prompt
notice to the Company of (a) the existence or occurrence of each condition or
state of facts which will or reasonably could be expected to cause any
representation or warranty of RW or Newco contained herein to be untrue or
incorrect in any Material respect at or prior to the Delivery Date or on the IPO
Closing Date and (b) any material failure of RW or Newco to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder. The delivery of any notice pursuant to this Section 6.07 shall not
be deemed to (a) modify the representations or warranties herein of the party
delivering that notice, or any other party, which modification may be made only
pursuant to Section 6.08, (b) modify the conditions set forth in Article VII or
(c) limit or otherwise affect the remedies available hereunder to the party
receiving that notice.
Section 6.08. Supplemental Information. Each of the Company and the
Stockholders, on the one hand, and RW, on the other, agrees that, with respect
to the representations and warranties of that party contained in this Agreement,
that party will have the continuing obligation (except to the extent otherwise
provided in Section 6.07) until the Delivery Date to provide the other promptly
with such additional supplemental Information (collectively, the "Supplemental
Information"), in the form of (a) amendments to then existing Schedules or (b)
additional Schedules, as would be necessary, in the light of the circumstances,
conditions, events and states of facts then known to the Company or any
Stockholder, or RW, as the case may be, to make each of those representations
and warranties true and correct as of the Delivery Date and on the IPO Closing
Date. For purposes only of determining whether the conditions to the obligations
of each party hereto have been satisfied, and not for any purpose under Article
IX, the Schedules as of the Delivery Date and on the IPO Closing Date shall be
deemed to be the Schedules as of the date hereof, as amended or supplemented by
the Supplemental Information provided to RW, on the one hand, and the Company
and the Stockholders, on the other, prior to the Delivery Date pursuant to this
Section 6.08; provided, however, that if the Supplemental Information so
provided discloses the existence of circumstances, conditions, events or states
of facts which, in any combination thereof, (a) have had a Material Adverse
Effect on the Company or RW or (b) are having or will have a Material Adverse
Effect on the Company, the Surviving Corporation or RW, as the case may be, the
other party will be entitled either (i) to terminate this Agreement or (ii) to
treat as Indemnified Losses for all purposes of Article IX (which treatment will
not prejudice the right of RW or any Stockholder, as the case may be, under
Article IX to contest Damage Claims made by the other in respect of those
Indemnified Losses) all Damages to the Company or the Surviving Corporation or
RW, as the case may be, which are attributable to the circumstances, conditions,
events and states of facts first disclosed herein after the date hereof in the
Supplemental Information. RW will provide the Company with copies of the
Registration
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Statement, including all pre- and post-effective amendments thereto, promptly
after the filing thereof with the SEC under the Securities Act.
Section 6.09. Cooperation in Connection with the IPO. The Company and
the Stockholders will (a) provide RW and the Underwriter with all the
Information concerning the Company or any of the Stockholders which is
reasonably requested by RW and the Underwriter from time to time in connection
with effecting the IPO and (b) cooperate with RW and the Underwriter and their
respective Representatives in the preparation and amendment of the Registration
Statement (including the Financial Statements) and in responding to the comments
of the SEC staff, if any, with respect thereto. The Company and each Stockholder
agree promptly to (a) advise RW if, at any time during the period in which a
prospectus relating to the IPO is required to be delivered under the Securities
Act, any information contained in the then current Registration Statement
prospectus concerning the Company or the Stockholders becomes incorrect or
incomplete in any material respect and (b) provide RW with the information
needed to correct or complete that information.
Section 6.10. Additional Financial Statements. The Company will furnish
to RW:
(a) as soon as available and in any event within 30 days after the end
of each of the Company's fiscal quarters which ends prior to the IPO Pricing
Date, an unaudited consolidated balance sheet of the Company and the Company
Subsidiaries as of the end of that fiscal quarter and the related consolidated
statements of income or operations, cash flows and stockholders' or other
owners' equity for that fiscal quarter and for the period of the Company's
fiscal year ended with that quarter, in each case (i) setting forth in
comparative form the figures for the corresponding portion of the Company's
previous fiscal year and (ii) prepared in accordance with GAAP applied on basis
consistent (A) throughout the periods indicated (excepting footnotes) and (B)
with the basis on which the Initial Financial Statements including the Current
Balance Sheet were prepared; and
(b) if requested by RW in connection with any amendment of the
Registration Statement and promptly following any such request, such summary
consolidated operating or other financial information of the Company and the
Company Subsidiaries as of the end of either the first or second fiscal month in
any of the Company's fiscal quarters as RW may request.
Section 6.11. Termination of Plans. If requested by RW, the Company
will, or will cause the applicable Company Subsidiary to, if permitted by all
applicable Governmental Requirements to do so, terminate each Plan identified by
RW as a "Plan To Be Terminated" prior to the Effective Time.
Section 6.12. Disposition of Unwanted Assets. At or prior to the
Delivery Date, the Company will make all arrangements and take all such actions
as are necessary and satisfactory to RW to dispose, prior to the Effective Time,
of those assets of it or of one or more of the Company Subsidiaries which are
listed in Schedule 6.12.
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Section 6.13. HSR Act Matters. If RW shall determine that filings
pursuant to and under the HSR Act are necessary or appropriate in connection
with the effectuation of the Merger or the consummation of the acquisitions
contemplated by the Other Agreements, and advises the Company in writing of that
determination, the Company promptly will compile and file under the HSR Act such
information respecting it as the HSR Act requires of an Entity to be acquired,
and the expiration or termination of the applicable waiting period and any
extension thereof under the HSR Act shall be deemed a condition precedent set
forth in Section 7.01(a)(ii).
Section 6.14. Conduct of Business by RW Pending Closing. From the date
hereof and until the Effective Time, RW will not, without prior written consent
of the Company, which consent will not be unreasonably withheld:
(a) make any change in its Charter Documents;
(b) issue any of its Capital Stock, enter into an
agreement for the issuance of any of its Capital Stock (except
in connection with the IPO) or issue or otherwise create any
of its Derivative Securities;
(c) make any Restricted Payment;
(d) make any investments in the Capital Stock,
Derivative Securities or Indebtedness or any Person; or
(e) increase or commit or promise to increase the
Cash Compensation payable to any officer; director,
stockholder, employee or agent, consultant or independent
contractor of RW or make any discretionary bonus or management
fee payment to any such Person.
Section 6.15. RW Corporate Expenses. The Company agrees to continue to
contribute to the interim monthly corporate budget of RW (which budget shall be
equal to $33,000 per month until the IPO Closing Date) on a pro rata basis.
ARTICLE VII
THE CLOSING AND CONDITIONS TO DELIVERY AND CONSUMMATION
Section 7.01. Conditions to the Obligations of Each Party.
(a) The obligation of each party hereto to take the actions
contemplated to be taken by that party at the Delivery Date is subject to the
satisfaction of each of the following conditions on or before the date of the
Delivery Date:
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(i) No Litigation. No Litigation shall be pending on the
date of the Closing to restrain, prohibit or otherwise interfere with,
or to obtain material damages or other relief from RW or the Surviving
Corporation in connection with, the consummation of the Merger or the
IPO;
(ii) Governmental Approvals. All Governmental Approvals,
including those required under the HSR Act (other than the acceptance
for filing of the Certificates of Merger) required to be obtained by
any of the Company, RW and Newco in connection with the consummation of
the Merger and the IPO shall have been obtained; and
(iii) The Registration Statement.
(A) The Registration Statement, as amended to cover
the offering, issuance and sale by RW of such number of shares
of RW Common Stock at the IPO Price (which need not be set
forth in the Registration Statement when it becomes effective
under the Securities Act) as shall yield aggregate cash
proceeds to RW from that sale (net of the Underwriter's
discount or commissions) in at least the amount (the "Minimum
Cash Amount") that is sufficient, when added to the funds, if
any, available from other sources (if any, and as set forth in
the Registration Statement when it becomes effective under the
Securities Act) (the "Other Financing Sources") to enable RW
to pay or otherwise deliver on the IPO Closing Date (1) the
total cash portion of the Merger Consideration then to be
delivered pursuant to Section 2.04, (2) the total cash portion
of the Merger or other acquisition consideration then to be
delivered pursuant to the Other Agreements as a result of the
consummation of the Merger or other acquisition transactions
contemplated thereby and (3) the total amount of Indebtedness
of the Founding Companies and RW which the Registration
Statement discloses at the time it becomes effective under the
Securities Act will be repaid on the IPO Closing Date with
proceeds received by RW from the IPO and the Other Financing
Sources, shall have been declared effective under the
Securities Act by the SEC;
(B) no stop order suspending the effectiveness of the
Registration Statement shall have been issued by the SEC, and
the SEC shall not have initiated or threatened to initiate
Litigation for that purpose; and
(C) the Underwriter shall have agreed in writing (the
"Underwriting Agreement," which term includes the related
pricing agreement, if any) to purchase from RW on a firm
commitment basis for resale to the public initially at the IPO
Price, subject to the conditions set forth in the Underwriting
Agreement, such number of shares of RW Common Stock covered by
the Registration Statement as, when multiplied by the price
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per share of RW Common Stock to be paid by the Underwriter to
RW pursuant to the Underwriting Agreement, shall equal at
least the Minimum Cash Amount.
(iv) Additional Approval. Any consent of Spie Group, Inc., as
successor by merger to Comstock Group, Inc. ("CGI"), required to be
obtained pursuant to that certain Indemnity and Cooperation Agreement
dated as of April 3, 1997 by and among Spie Enertrans S.A., CGI, L.K.
Comstock & Company, Inc. and LKC Acquisition Corp. shall have been
obtained, provided that Comstock shall use its best efforts to obtain
any such required consent.
(b) The obligation of each party hereto with respect to the actions to
be taken on the IPO Closing Date is subject to the satisfaction on that date of
each of the following conditions:
(i) No Litigation. No Litigation shall be pending on the IPO
Closing Date to restrain, prohibit or otherwise interfere with, or to
obtain material damages or other relief from RW or the Surviving
Corporation in connection with, the consummation of the Merger or the
IPO;
(ii) Governmental Approvals. All Governmental Approvals
required to be obtained by the Company, RW and Newco in connection with
the consummation of the Merger and the IPO shall have been obtained;
(iii) Closing of the IPO. RW shall have issued and sold shares
of RW Common Stock to the Underwriter in accordance with the
Underwriting Agreement for initial resale at the IPO Price.
Section 7.02. Conditions to the Obligations of the Company and the
Stockholders. The obligations of the Company and each Stockholder with respect
to actions to be taken by them at or before the Delivery Date and the actions to
be taken on the IPO Closing Date are subject to the satisfaction, or the written
waiver by the Company on behalf of itself and each Stockholder pursuant to
Section 11.05 on or before the Delivery Date of, in addition to the conditions
specified in Section 7.02 (a) or 7.02 (b), as applicable, (i) all the conditions
set forth in Section 7.01(b), if any, and (ii) all the following conditions:
(a) Representations and Warranties. All the representations and
warranties of RW and Newco in Article V (as supplemented as provided herein)
shall be true and correct as of the IPO Closing Date as though made at that
time;
(b) Delivery of Documents. RW shall have delivered to the Company:
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(i) an RW officer's certificate respecting the
representations and warranties of RW and Newco in Article V and
compliance with the covenants of RW and Newco in Article VI and in the
form attached hereto as Exhibit G;
(ii) opinions dated the IPO Closing Date and addressed to
the Company and the Stockholders from Counsel for RW and Newco
substantially in the form attached hereto as Exhibit H;
(iii) a certificate of the secretary or any assistant
secretary of RW in the form thereof (without attachments thereto)
attached as an exhibit to the Closing Memorandum and respecting, and to
which is attached, (a) the Charter Documents of RW and Newco (certified
by the Secretary of State of the State of Delaware in the case of the
certificates of incorporation included therein); (b) the resolutions of
the boards of directors of RW and Newco respecting the Transaction
Documents and the transactions contemplated thereby; (c) a certificate
respecting the incumbency and true signatures of the RW and Newco
officers who execute the Transaction Documents on behalf of RW and
Newco, respectively; (d) a specimen certificate evidencing shares of RW
Common Stock; (e) the prospectus included in the Registration Statement
when it became effective; and (f) a facsimile copy of the Underwriting
Agreement as executed and delivered by RW and the Underwriter;
(iv) Employment Agreements with those individuals listed
on Exhibit A hereto shall have been duly executed and delivered by each
such Stockholder, the Company and RW;
(v) the Escrow Agreement duly executed and delivered by
RW;
(vi) a certificate, dated as of a Current Date, duly
issued by the Secretary of State of the State of Delaware, showing RW
to be in good standing and authorized to do business in that State; and
(vii) (a) the duly executed agreement of IPO Development
Company stating that it shall not engage in any roll-up or similar
transaction of any kind with respect to Persons involved in any
industry related to the Business or the roadway construction business
and (b) releasing RW, the Company, the Stockholders and each Other
Founding Company from obligations arising prior to the date of this
Agreement.
Section 7.03. Conditions to the Obligations of RW and Newco.
(a) The obligations of RW and Newco with respect to actions to be taken
by them at or before the Delivery Date are subject to the satisfaction on or
before the Delivery Date of, in addition to the conditions specified in Section
7.02 (a), (i) all the conditions set forth in Section 7.01(c), if any, and (ii)
all the following conditions:
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(i) Representations and Warranties. All the
representations and warranties of the Stockholders and the Company in
Articles III and IV (as supplemented as provided herein) shall be true
and correct as of the Closing as though made at that time;
(ii) Delivery of Documents. The Stockholders and the
Company shall have delivered to RW:
(A) a Company officer's certificate, signed by a
Responsible Officer, respecting the representations and
warranties of the Stockholders and the Company in Articles
III and IV and compliance with the covenants of the
Stockholders and the Company in Article VI and in the form
attached hereto as Exhibit I;
(B) opinions dated the IPO Closing Date and addressed
to RW from Counsel for the Company and the Stockholders
substantially in the form attached hereto as Exhibit J;
(C) a certificate of the secretary or any assistant
secretary of the Company in the form thereof (without
attachments thereto) attached as an exhibit to the Closing
Memorandum and respecting, and to which is attached, (a)
the Charter Documents of the Company; (b) the resolutions
of the board of directors of the Company respecting the
Transaction Documents and the transactions contemplated
thereby; and (c) a certificate respecting the incumbency
and true signatures of the Responsible Officers who
execute the Transaction Documents on behalf of the
Company;
(D) from each Stockholder, a General Release duly
executed and delivered by that Stockholder;
(E) the Escrow Agreement duly executed and delivered
by each Stockholder;
(F) from each Stockholder, an executed certificate to
the effect that no withholding is required under Section
1445 of the Code, in the form of Exhibit K, with the
blanks appropriate filled;
(G) for each of the Company and the Company
Subsidiaries, a certificate, dated as of a Current Date,
duly issued by the appropriate Governmental Authorities in
its Organization State and, unless waived by RW, in each
other jurisdiction listed for it in Schedule 4.02, showing
it to be in good standing and authorized to do business in
its Organization State and those other jurisdictions and
that all state franchise and/or income tax returns and
taxes due by it in its
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Organization State and those other jurisdictions for all periods
prior to the Closing have been filed and paid; and
(H) a Noncompetition Agreement executed by AllTrack, Inc. in a
form reasonably acceptable to the Board of Directors of RW.
(b) The obligations of RW and Newco with respect to the actions to be
taken on the IPO Closing Date are subject to the satisfaction on that date of
(i) all the conditions set forth in Section 7.01(d), if any, and (ii) the
condition that all the representations and warranties of the Stockholders and
the Company in Articles III and IV (as supplemented as provided herein) shall be
true and correct as of the IPO Closing Date as though made on that date.
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.02. Disclosure. If, subsequent to the IPO Pricing Date and
prior to the 25th day after the date of the Final Prospectus, any Stockholder
becomes aware of any fact or circumstance which would change (or, if after the
Effective Time, would have changed) a representation or warranty of the Company
or any Stockholder in this Agreement or would affect any document delivered
pursuant hereto in any Material respect, that Stockholder will promptly give
notice of that fact or circumstance to RW.
Section 8.03. Preparation and Filing of Tax Returns. (a) After the
Effective Time, the Stockholders of each Founding Company that has elected to be
treated as a Subchapter S corporation shall prepare at their sole cost and
expense, all short year federal, state, county, local and foreign tax returns
required by law for the Company for the period beginning with the first day of
the Company's fiscal year in which the IPO Closing occurs and ending with the
IPO Closing Date. Each such return shall be prepared in a financially
responsible and conservative manner and shall be delivered to RW together with
all necessary supporting schedules within 90 days following the IPO Closing Date
for its approval. RW shall cause such returns to be signed and timely filed with
the appropriate authorities.
(b) Each party hereto will, and will cause its Affiliates to, provide
to each of the other parties hereto such cooperation and information as any of
them reasonably may request in filing any Return, amended Return or claim for
refund, determining a liability for Taxes or a right to refund of Taxes or in
conducting any audit or other proceeding in respect of Taxes. This cooperation
and information shall include providing copies of all relevant portions of the
relevant Returns, together with such accompanying schedules and work papers,
documents relating to rulings or other determinations by Taxing Authorities and
records concerning the ownership and Tax bases of property as are relevant which
a party possesses. Each party will make its employees, if any, reasonably
available on a mutually convenient basis at its cost to provide an explanation
of any documents or information so provided. Subject to the preceding sentence,
each party required to file
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Returns pursuant to this Agreement shall bear all costs attributable to the
preparation and filing of those Returns.
Section 8.04. Directors. Immediately following the Effective Time, each
of RW and the Stockholders will use commercially reasonable efforts to cause
Scott D. Brace, Steve Goggin, John Kennedy and Lambertus L. Tameling to be
elected to the Board of Directors of RW. The Board of Directors of RW shall
consist of a maximum of nine members and shall be divided into three classes of
directors, the first of which shall serve for an initial one-year term, the
second of which shall serve for an initial two-year term and the third of which
shall serve for an initial three-year term. Mr. Kennedy shall initially be
elected for a one-year term, Messrs. Goggin and Tameling shall initially be
elected for two-year terms and Mr. Brace shall initially be elected for a
three-year term. Following the initial term, all directors of RW shall serve for
three-year terms.
Section 8.05. Executive Council. As of the Closing Date, the Board of
Directors of RW shall cause an Executive Council to be formed which shall
consist of the Chief Operating Officer of RW and the President of each Founding
Company, including the Company. The Executive Council, together with the Chief
Executive Officer of RW, shall have the right to select four individuals to
serve initially on the Board of Directors of RW (the "Executive Council
Nominees"). Upon the termination, removal or resignation of an Executive Council
Nominee for any reason, the Executive Council shall have the right to recommend
to the Board of Directors of RW a new Executive Council Nominee to fill such
vacancy.
Section 8.06. Removal of Guaranties. At or within 60 days following the
Effective Time, RW will cause the Stockholder Guaranties listed on Schedule 8.06
to be terminated, all of which are for the benefit of the Company.
Section 8.07. Reports Under the Exchange Act. RW shall use commercially
reasonable efforts to make all required filings under the Exchange Act on a
timely basis as may be necessary to permit the Stockholders to avail themselves
of the provisions of Rule 144 promulgated under the Securities Act at such time
as Rule 144 shall become available to the Stockholders.
Section 8.08. Electrical Unions. From and after the Effective Time,
each Founding Company shall, and RW agrees to use commercially reasonable
efforts to cause each Founding Company to, use only electrical workers
represented by the International Brotherhood of Electrical Workers ("IBEW") or
by unions with affiliate agreements with the IBEW for work of the kind within
the jurisdiction of the IBEW in that trade in those locations in which
sufficient IBEW workers are available.
Section 8.09. IPO Deliveries. The Company will deliver to the
Underwriter on the IPO Closing Date such certificates and other documents
reasonably required pursuant to the Underwriting Agreement.
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Section 8.10. Market Capitalization. RW shall notify the Stockholders
of all of the Founding Companies promptly if, at any time, RW believes that the
market capitalization of RW immediately following consummation of the IPO and
the Combination will be less than $215 million. If after receipt of such notice
the Stockholders determine that upon such occurrence they would terminate this
Agreement pursuant to Section 12.01(a)(vi), they shall give prompt notice of
such determination, in writing to RW, provided, however, that such notice shall
not be effective if received after 9:00 a.m. on the IPO Pricing Date.
Section 8.11. Accuracy of Registration Statement. RW shall provide to
each Stockholder (a) a copy of the registration statement that is initially
filed with the SEC (the "Initial Registration Statement"), (b) a copy of the
preliminary prospectus and (c) a copy of the Registration Statement (which shall
be identical with respect to information about the Company in all material
respects to the Registration Statement that is declared effective by the SEC)
prior to the SEC's declaring the Registration Statement effective. Following
receipt of each of the Initial Registration Statement and the Preliminary
Prospectus, each Primary Stockholder shall deliver a written representation to
RW that the information relating to the Company that is contained in such
document is true and complete in all material respects and, to the extent that
it cannot make such representation, such Primary Stockholder will provide RW
with written information necessary to update such document so that it can make
such representation.
ARTICLE IX
INDEMNIFICATION
Section 9.02. Survival of Representations and Warranties. All the
provisions of this Agreement will survive the Delivery Date and the Effective
Time indefinitely notwithstanding any investigation at any time made by or on
behalf of any party hereto or the provision of any Supplemental Information
pursuant to Section 6.08, provided that the representations and warranties set
forth in Articles IV, V and VI and in any certificate delivered in connection
herewith with respect to any of those representations and warranties will
terminate and expire on the second anniversary of the date of this Agreement,
except as follows: (a) the representations and warranties of the Stockholders
which relate expressly or by necessary implication to Taxes, ERISA or other
employment or labor matters or the Governmental Requirements referred to in
clause (iii) of Section 9.03(a) will survive until the expiration of the
applicable statutes of limitations (including all periods of extension and
tolling); (b) the representations and warranties of the Stockholders which
relate expressly or by necessary implication to the environment or Environmental
Laws will survive for a period of five years from the Effective Time; and (c)
the representations and warranties of the Company will terminate and expire at
the Effective Time. After a representation and warranty has terminated and
expired, no indemnification will or may be sought pursuant to this Article IX on
the basis of that representation and warranty by any Person who would have been
entitled pursuant to this Article IX to indemnification on the basis of that
representation and warranty prior to its termination and expiration, provided
that, in the case of each representation and warranty that will terminate and
expire as provided in this Section 9.02, no claim presented in writing for
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indemnification pursuant to this Article IX on the basis of that representation
and warranty prior to its termination and expiration will be affected in any way
by that termination and expiration.
Section 9.03. Indemnification of RW Indemnified Parties.
(a) Subject to the applicable provisions of Sections 9.02 and 9.07, the
Primary Stockholders covenant and agree that they, jointly and severally, will
indemnify each RW Indemnified Party against, and hold each RW Indemnified Party
harmless from and in respect of, all Damage Claims that arise from, are based
on, arise out of or are attributable to (i) any breach of the representations
and warranties of the Stockholders or the Company set forth herein (other than
in Article III) or in certificates delivered in connection herewith (other than
in respect of certificates relating only to the representations and warranties
in Article III); (ii) the nonfulfillment of any covenant or agreement on the
part of the Stockholders or the Company under this Agreement (other than Article
X); (iii) any provision of any Environmental Law and (A) any act or omission of
the Company or any Company Subsidiary or their respective employees, agents or
representatives or (B) the ownership, use, control or operation on or prior to
the Closing of any facility, site, area or property used in the business of the
Company or any Company Subsidiary (whether currently or previously owned or
leased by the Company or a Company Subsidiary), including, without limitation,
Damage Claims arising from any release of Hazardous Materials or off-site
shipment of any Hazardous Materials at or from any such facility, site, area or
property; or (iv) any liability under the Securities Act, the Exchange Act or
other applicable Governmental Requirement which arises out of or is based on (A)
any untrue statement or alleged untrue statement of a material fact relating to
the Company and the Company Subsidiaries, or any of them, which is (1) contained
in any preliminary prospectus relating to the IPO, the Registration Statement or
any prospectus forming a part thereof, or any amendment thereof or supplement
thereto (each, an "IPO Document"), and (2) provided to RW or its counsel in
writing by the Company or the Stockholders or (B) any omission or alleged
omission to state therein a material fact relating to the Company and the
Company Subsidiaries, or any of them, required to be stated therein or necessary
to make the statements therein not misleading, and not provided to RW or its
counsel by the Company or the Stockholders after a written request therefor
(each such Damage Claim and each Damage Claim described in Section 9.03(b) being
an "RW Indemnified Loss"); provided, however, that no Stockholder shall be
obligated to indemnify any RW Indemnified Party against any RW Indemnified Loss
to the extent that such untrue statement (or alleged untrue statement) was made
in, or such omission (or alleged omission) occurred in, any preliminary
prospectus and the Stockholder timely provided, in writing, corrected or the
necessary additional information to RW and its counsel for inclusion in the
Final Prospectus.
(b) Each Stockholder, severally and not jointly with any other Person,
covenants and agrees that he will indemnify each RW Indemnified Party against,
and hold each RW Indemnified Party harmless from and in respect of, all Damage
Claims that arise from, are based on or relate or otherwise are attributable to
(i) any breach of the representations and warranties of that Stockholder solely
as to that Stockholder set forth in Article III or in certificates delivered by
that Stockholder and relating to those representations and warranties, (ii) the
nonfulfillment of any several, and not joint and several, agreement on the part
of that Stockholder under Article X of this Agreement or (iii)
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any liability under the Securities Act, the Exchange Act or other applicable
Governmental Requirement which arises out of or is based on (A) any untrue
statement or alleged untrue statement of a material fact relating solely to that
Stockholder which is (1) contained in any IPO Document, and (2) provided to RW
or its counsel by that Stockholder (as represented by the Company pursuant to
Section 8.11), or (B) any omission or alleged omission to state therein a
material fact relating solely to that Stockholder required to be stated therein
or necessary to make the statements therein not misleading, and not provided to
RW or its counsel by that Stockholder (as represented by the Company pursuant to
Section 8.11); provided, however, that no Stockholder shall be obligated to
indemnify any RW Indemnified Party against any RW Indemnified Loss to the extent
that such untrue statement (or alleged untrue statement) was made in, or such
omission (or alleged omission) occurred in, any preliminary prospectus and the
Stockholder timely provided, in writing, corrected or the necessary additional
information to RW and its counsel for inclusion in the Final Prospectus.
Section 9.04. Indemnification of Stockholder Indemnified Parties. RW
covenants and agrees that it will indemnify each Stockholder Indemnified Party
against, and hold each Stockholder Indemnified Party harmless from and in
respect of, all Damage Claims that arise from, are based on or are attributable
to (i) any breach by RW or Newco of their representations and warranties set
forth herein or in their certificates delivered to the Company or the
Stockholders in connection herewith, (ii) the nonfulfillment of any covenant or
agreement on the part of RW or Newco under this Agreement (each such Damage
Claim being a "Stockholder Indemnified Loss"); or (iii) any liability under the
Securities Act, the Exchange Act or other applicable Governmental Requirement
which arises out of or is based on (A) any untrue statement or alleged untrue
statement of a material fact relating to RW, Newco or any of the Other Founding
Companies contained in any IPO Document, or (B) any omission or alleged omission
to state therein a material fact relating to RW, Newco or any of the Other
Founding Companies, or any of them, required to be stated therein or necessary
to make the statements therein not misleading in the light of the circumstances
under which they were made.
Section 9.05. Conditions of Indemnification.
(a) All claims for indemnification under this Agreement shall be
asserted and resolved as follows in this Section 9.05. The provisions of Article
IX shall be the sole manner by which the Indemnified Party shall assert any
claim against the Indemnifying Party that does not involve a Third Party Claim,
including without limitation any claim for breach of this Agreement.
(b) A party claiming indemnification under this Agreement (an
"Indemnified Party") shall promptly (i) notify the party from whom
indemnification is sought (the "Indemnifying Party") of any third-party claim or
claims asserted against the Indemnified Party ("Third Party Claim") that could
give rise to a right of indemnification under this Agreement and (ii) transmit
to the Indemnifying Party a written notice ("Claim Notice") describing in
reasonable detail the nature of the Third Party Claim, a copy of all papers
served with respect to that claim (if any), an estimate of the amount of damages
attributable to the Third Party Claim to the extent feasible (which estimate
shall not be conclusive of the final amount of such claim) and the basis for the
Indemnified Party's request for indemnification under this Agreement. Except as
set forth in Section 9.02, the failure to
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promptly deliver a Claim Notice shall not relieve the Indemnifying Party of its
obligations to the Indemnified Party with respect to the related Third Party
Claim except to the extent that the resulting delay is materially prejudicial to
the defense of that claim. Within 15 days after receipt of any Claim Notice (the
"Election Period"), the Indemnifying Party shall notify the Indemnified Party
(i) whether the Indemnifying Party disputes its potential liability to the
Indemnified Party under this Article IX with respect to that Third Party Claim
and (ii) if the Indemnifying Party does not dispute its potential liability to
the Indemnified Party with respect to that Third Party Claim, whether the
Indemnifying Party desires, at the sole cost and expense of the Indemnifying
Party, to defend the Indemnified Party against that Third Party Claim.
(c) If the Indemnifying Party does not dispute its potential liability
to the Indemnified Party and notifies the Indemnified Party within the Election
Period that the Indemnifying Party elects to assume the defense of the Third
Party Claim, then the Indemnifying Party shall have the right to defend, at its
sole cost and expense, that Third Party Claim by all appropriate proceedings,
which proceedings shall be prosecuted diligently by the Indemnifying Party to a
final conclusion or settled at the discretion of the Indemnifying Party in
accordance with this Section 9.05(c) and the Indemnified Party will furnish the
Indemnifying Party with all information in its possession with respect to that
Third Party Claim and otherwise cooperate with the Indemnifying Party in the
defense of that Third Party Claim; provided, however, that the Indemnifying
Party shall not enter into any settlement with respect to any Third Party Claim
that purports to limit the activities of, or otherwise restrict in any way, any
Indemnified Party or any Affiliate of any Indemnified Party without the prior
consent of that Indemnified Party (which consent may be withheld in the sole
discretion of that Indemnified Party). The Indemnified Party is hereby
authorized, at the sole cost and expense of the Indemnifying Party, to file,
during the Election Period, any motion, answer or other pleadings that the
Indemnified Party shall deem necessary or appropriate to protect its interests
or those of the Indemnifying Party. The Indemnified Party may participate in,
but not control, any defense or settlement of any Third Party Claim controlled
by the Indemnifying Party pursuant to this Section 9.05(c) and will bear its own
costs and expenses with respect to that participation; provided, however, that
if the named parties to any such action (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party, and the
Indemnified Party has been advised by counsel that there may be one or more
legal defenses available to it which are different from or additional to those
available to the Indemnifying Party, then the Indemnified Party may employ
separate counsel at the expense of the Indemnifying Party (provided that such
expenses are reasonable), and, on its written notification of that employment,
the Indemnifying Party shall not have the right to assume or continue the
defense of such action on behalf of the Indemnified Party.
(d) If the Indemnifying Party (i) within the Election Period (A)
disputes its potential liability to the Indemnified Party under this Article IX,
(B) elects not to defend the Indemnified Party pursuant to Section 9.05(c) or
(C) fails to notify the Indemnified Party that the Indemnifying Party elects to
defend the Indemnified Party pursuant to Section 9.05(c) or (ii) elects to
defend the Indemnified Party pursuant to Section 9.05(c) but fails diligently
and promptly to prosecute or settle the Third Party Claim, then the Indemnified
Party shall have the right to defend, at the sole cost and expense of the
Indemnifying Party (provided that such expenses are reasonable) (if the
Indemnified
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Party is entitled to indemnification hereunder), the Third Party Claim by all
appropriate proceedings, which proceedings shall be promptly and vigorously
prosecuted by the Indemnified Party to a final conclusion or settled. The
Indemnified Party shall have full control of such defense and proceedings.
Notwithstanding the foregoing, if the Indemnifying Party has delivered a written
notice to the Indemnified Party to the effect that the Indemnifying Party
disputes its potential liability to the Indemnified Party under this Article IX
and if such dispute is resolved in favor of the Indemnifying Party, the
Indemnifying Party shall not be required to bear the costs and expenses of the
Indemnified Party's defense pursuant to this Section 9.05 or of the Indemnifying
Party's participation therein at the Indemnified Party's request, and the
Indemnified Party shall reimburse the Indemnifying Party in full for all
reasonable costs and expenses of such litigation. The Indemnifying Party may
participate in, but not control, any defense or settlement controlled by the
Indemnified Party pursuant to this Section 9.05(d), and the Indemnifying Party
shall bear its own costs and expenses with respect to such participation.
(e) In the event any Indemnified Party should have a claim against any
Indemnifying Party hereunder that does not involve a Third Party Claim, the
Indemnified Party shall transmit to the Indemnifying Party a written notice (the
"Indemnity Notice") describing in reasonable detail the nature of the claim, an
estimate of the amount of Damages attributable to that claim to the extent
feasible (which estimate shall not be conclusive of the final amount of such
claim) and the basis of the Indemnified Party's request for indemnification
under this Agreement. If the Indemnifying Party does not notify the Indemnified
Party within 15 days from its receipt of the Indemnity Notice that the
Indemnifying Party disputes such claim, the claim specified by the Indemnified
Party in the Indemnity Notice shall be deemed a liability of the Indemnifying
Party hereunder. If the Indemnifying Party has timely disputed the validity of
such claim, as provided above, such dispute shall be resolved by arbitration in
accordance with Section 11.15 if the parties do not reach a settlement of such
dispute within 30 days after notice of a dispute is given.
(f) Payments of all amounts owing by an Indemnifying Party pursuant to
this Article IX relating to a Third Party Claim shall be made within 30 days
after the latest of (i) the settlement of that Third Party Claim, (ii) the
expiration of the period for appeal of a final adjudication of that Third Party
Claim or (iii) the expiration of the period for appeal of a final adjudication
of the Indemnifying Party's liability to the Indemnified Party under this
Agreement. Payments of all amounts owing by an Indemnifying Party pursuant to
Section 9.05(e) shall be made within 30 days after the later of (i) the
expiration of the 30-day Indemnity Notice period or (ii) the expiration of the
period for appeal of a final adjudication of the Indemnifying Party's liability
to the Indemnified Party under this Agreement.
(g) Subject to the terms of the Escrow Agreement, any and all claims
owed by the Company to an RW Indemnified Party shall be satisfied first by the
transfer by the Escrow Agent to RW to shares of RW Common Stock of each
Stockholder then held in escrow and any and all claims owed by any Stockholder
to an RW Indemnified Party shall be satisfied first by the transfer by the
Escrow Agent to RW of shares of RW Common Stock of such Stockholder then held in
escrow. In the event that a Stockholder at any time or from time to time wants
to replace any such
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escrowed shares of RW Common Stock with cash, such Stockholder may do so by
replacing any one share of RW Common Stock with an amount of cash equal to the
IPO Price. In the event that (i) any payments are not made in a timely manner
pursuant to this section or (ii) the amounts remaining in escrow are
insufficient to satisfy such claims, RW shall have the right to withhold any
amounts otherwise due to the stockholders in order to satisfy such payment
obligation. No claims shall be paid pursuant to this Section 9.05(g) until there
has been a final adjudication with respect to the amount of any such claims.
(h) In the event that a dispute shall arise between the parties in
connection with the validity of any claim made pursuant to this Article IX, the
parties shall attempt to negotiate among themselves in good faith to resolve the
dispute consensually. If the dispute cannot be resolved informally with 30 days,
either party shall have the right (a) to notify the other that it will apply to
have the dispute resolved by an arbitrator appointed in accordance with the
Commercial Rules of the American Arbitration Association and (b) to request that
a hearing be held to resolve the controversy within 30 days after the filing of
said application or as soon thereafter as reasonably practicable. The decision
of the arbitrator shall be binding upon the parties, and judgment on any award
rendered may be entered in any court of competent jurisdiction. The costs of
arbitration shall be divided equally between the parties thereto, unless the
arbitrator shall determine otherwise.
Section 9.06. Remedies Not Exclusive. The remedies provided in this
Agreement shall not be exclusive of any other rights or remedies available to
one party against the other, either at law or in equity.
Section 9.07. Limitations on Indemnification.
(a) Notwithstanding the provisions of Section 9.03(a), neither the
Company nor any of the Stockholders shall be required to indemnify or hold
harmless any of the RW Indemnified Parties on account of any RW Indemnified Loss
under Section 9.03(a) unless the liability of the Company and the Stockholders
in respect of that RW Indemnified Loss, when aggregated with the liability of
the Company and the Stockholders in respect of all RW Indemnified Losses under
Section 9.03(a), exceeds, and only to the extent the aggregate amount of all
those RW Indemnified Losses does exceed, the Threshold Amount. In no event shall
(i) the aggregate joint and several liability of the Company and the
Stockholders under this Agreement, including Section 9.03(a), exceed the
Transaction Value or (ii) the aggregate liability of each Stockholder under this
Agreement, including Sections 9.03(a) and 9.03(b), exceed the value (as of the
IPO Closing Date) of the Merger Consideration received by such Stockholder. For
purposes of determining the amount of RW Indemnified Losses, no effect will be
given to any resulting Tax benefit to any RW Indemnified Party.
(b) Notwithstanding the provisions of Section 9.04, RW shall not be
required to indemnify or hold harmless any of the Stockholder Indemnified
Parties on account of any Stockholder Indemnified Loss unless the liability of
RW in respect of that Stockholder Indemnified Loss, when aggregated with the
liability of RW in respect of all Stockholder Indemnified Losses,
60
<PAGE> 66
exceeds, and only to the extent the aggregate amount of all those Stockholder
Indemnified Losses does exceed, the Threshold Amount. In no event shall RW be
liable under this Agreement, including Section 9.04, for any amount in excess of
the Transaction Value, provided, however, that the Threshold Amount shall not
apply to any claim made in connection with a failure to comply with Section
8.06. For purposes of determining the amount of Stockholder Indemnified Losses,
no effect will be given to any resulting Tax benefit to any Stockholder
Indemnified Party.
ARTICLE X
[Intentionally Ommitted]
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. Treatment of Confidential Information.
(a) Each of RW, the Company and the Stockholders, severally and not
jointly with any other Person, acknowledges that it has or may have had in the
past, currently has and in the future may have access to Confidential
Information of the Company and the Company Subsidiaries, the Other Founding
Companies and their Subsidiaries and RW and its Subsidiaries. Each of RW, the
Company and the Stockholders, severally and not jointly with any other Person,
agrees that it will keep confidential all such Confidential Information
furnished to it and, except with the specific prior written consent of RW will
not disclose such Confidential Information to any Person except (a)
Representatives of RW, (b) its own Representatives, provided that these
Representatives (other than counsel) agree to the confidentiality provisions of
this Section 11.01; and provided, further, that Confidential Information shall
not include (i) such information which becomes known to the public generally
through no fault of any Stockholder, (ii) information required to be disclosed
by law or the order of any governmental authority under color of law, provided,
that prior to disclosing any information pursuant to this clause (ii), each
Stockholder shall, if possible, give prior written notice thereof to RW and
provide RW with the opportunity to contest such disclosure, (iii) the disclosing
party reasonably believes that such disclosure is required in connection with
the defense of a lawsuit against the disclosing party or (iv) information RW
determines it needs to disclose pursuant to the Securities Act or the Exchange
Act. Nothing herein shall be construed as prohibiting RW from pursuing any other
available remedy for such breach or threatened breach, including the recovery of
damages.
(b) Because of the difficulty of measuring economic losses as a result
of the breach of the foregoing covenants in Section 11.01(a), and because of the
immediate and irreparable damage that would be caused to RW for which it would
have no other adequate remedy, each of the Company and the Stockholders agrees
that RW may enforce the provisions of Section 11.01(a) by injunctions and
restraining orders against each of them who breaches any of those provisions.
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<PAGE> 67
(c) The obligations of RW set forth in Section 6.02(d) are incorporated
in this Section 11.01 by this reference.
(d) The obligations of the parties under this Section 11.01 shall
survive the termination of this Agreement.
Section 11.02. Exhibits and Schedules. With respect to disclosure set
forth on the Exhibits and Schedules to this Agreement that are exceptions to the
representations and warranties set forth in Articles III, IV and V of this
Agreement, disclosure contained in any Exhibit or Schedule shall be deemed
disclosure on all applicable Exhibits and Schedules.
* * * * *
62
<PAGE> 68
EXHIBIT D
MERGER CONSIDERATION
(I) Merger Consideration. The Merger Consideration that the
Stockholders shall receive, in the aggregate, shall equal the Cash Company
Consideration (as hereinafter defined) plus the Stock Company Consideration (as
hereinafter defined).
(A) Cash Company Consideration. The Cash Company Consideration
shall equal (i) the Transaction Value multiplied by (ii) a percentage (the
"Earnings Percentage"), which is set forth below for the Founding Companies
multiplied by (iii) 33% (the "Cash Company Consideration"). With respect to
Comstock only, the Cash Company Consideration shall be paid by delivery of a
promissory note, which shall be repaid by RW on the IPO Closing Date with the
proceeds of the IPO.
(B) Stock Company Consideration. The Stock Company
Consideration shall consist of Company Net Worth Stock and Company Pool Stock
(collectively, the "Stock Company Consideration"), as adjusted pursuant to
Section IV of this Exhibit D. The Company Net Worth Stock shall be that number
of shares of RW Common Stock determined by dividing (i) Defined Net Worth by the
IPO Price. The Company Pool Stock shall be that number of shares of RW Common
Stock determined by (i) multiplying the Pool Stock by (ii) the Earnings
Percentage and dividing the result by the IPO Price. The Pool Stock shall be
that number of shares of RW Common Stock equal to (i) the Transaction Value
minus (ii) the aggregate Cash Company Consideration delivered to the
Stockholders of all of the Founding Companies at the IPO Closing Date minus
(iii) the value of the aggregate Defined Net Worth of all of the Founding
Companies. A portion of the Stock Company Consideration may be sold in
accordance with Section III of this Exhibit D.
(II) Stockholder Consideration.
(A) All Accredited Investors. If all of the Stockholders are
"accredited investors" as defined in Rule 501(a) promulgated under the
Securities Act, (A) the portion of the Cash Company Consideration which each
Stockholder shall be entitled to receive shall equal (i) the Cash Company
Consideration divided by (ii) the number of shares of Company Common Stock
issued and outstanding immediately prior to the Effective Time multiplied by
(iii) the total number of shares of Company Common Stock held by the Stockholder
immediately prior to the Effective Time as set forth on Schedule 3.02 and (B)
the number of shares of RW Common Stock to which each Stockholder shall be
entitled shall equal (i) (A) the Stock Company Consideration minus (B) the
Company Indebtedness divided by the IPO Price, divided by (ii) the number of
shares of Company Common Stock issued and outstanding immediately prior to the
Effective Time multiplied by (iii) the total number of shares of Company Common
Stock held by the Stockholder immediately prior to the Effective Time as set
forth on Schedule 3.02.
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<PAGE> 69
(B) Nonaccredited Investors. If the Company has investors that
fail to qualify as "accredited investors" as defined in Rule 501(a) promulgated
under the Securities Act (the "Nonaccredited Stockholders"), (A) the portion of
the Cash Company Consideration which each Nonaccredited Stockholder shall be
entitled to receive shall equal (i) the Merger Consideration less the Company
Indebtedness divided by (ii) the number of shares of Company Common Stock issued
and outstanding immediately prior to the Effective Time multiplied by the
aggregate number of shares of Company Common Stock held by the Nonaccredited
Stockholder immediately prior to the Effective Time as set forth on Schedule
3.02 and (B) the Nonaccredited Stockholder shall not be entitled to receive any
Stock Company Consideration. In connection with the IPO, such Nonaccredited
Stockholders will be offered an opportunity to buy shares of RW Common Stock at
the IPO Price. In addition, (A) the portion of the Cash Company Consideration
which each remaining Stockholder (the "Accredited Stockholders") shall be
entitled to receive shall equal (i) the Cash Company Consideration less the
aggregate amount of the Merger Consideration paid to the Nonaccredited
Stockholders (the "Remaining Cash Consideration") divided by (ii) the number of
shares of Company Common Stock issued to the Accredited Stockholders and
outstanding immediately prior to the Effective Time multiplied by (iii) the
total number of shares of Company Common Stock held by the Accredited
Stockholder immediately prior to the Effective Time as set forth on Schedule
3.02 and (B) the number of shares of Common Sock which each Accredited
Stockholder shall be entitled to receive shall equal (i)(A) the Stock Company
Consideration minus (B) the Company Indebtedness divided by the IPO Price,
divided by (ii) the number of shares of Company Common Stock issued to the
Accredited Stockholders and outstanding immediately prior to the Effective Time
multiplied by (iii) the total number of shares of Company Common Stock held by
the Accredited Stockholder immediately prior to the Effective Time as set forth
on Schedule 3.02 divided by (iv) the IPO Price.
(III) Overallotment Option. Each Stockholder agrees to (A) sell up to
15% of the shares of RW Common Stock to be received by it pursuant to this
Agreement, in accordance with the terms of the Underwriting Agreement, to the
extent that the overallotment option is exercised by the Underwriter pursuant to
the terms of the Underwriting Agreement and (B) to execute the Underwriting
Agreement on or prior to the IPO Pricing Date. The net proceeds of such sale
shall be paid to each Stockholder in the same proprtion as the Pool Stock
allocated to each such Stockholder.
(IV) Adjustment. On the first anniversary of the IPO Closing Date (the
"Adjustment Date"), the Merger Consideration otherwise payable in accordance
with this Exhibit D shall be adjusted as follows
(A) Determination. Within 10 days after the Adjustment Date,
RW shall notify the Founding Companies (the "Retainages Notice") of the amount
of any Retainages that RW reasonably expects to be uncollectible due to a
dispute which arose in connection with a breach of the relevant customer
contract prior to the IPO Closing Date (the "Uncollectible Retainages"). As soon
as practicable after the Adjustment Date and subject to Section (IV)(B)
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<PAGE> 70
below, the Stockholders will transfer to the Escrow Agent the number of shares
of RW Common Stock equal to (A) the value of any Company Accounts Receivable
that remain unpaid as of the Adjustment Date divided by the IPO Price, in each
case in the same proportion as the amount of Pool Stock allocated to such
Stockholder and (B) the value of the Uncollectible Retainages divided by the IPO
Price. Such shares shall become additional shares of Pool Stock (the "Additional
Pool Stock") and each Founding Company shall receive a number of shares of
Additional Pool Stock equal to (i) the Additional Pool Stock multiplied by (ii)
the Earnings Percentage. The number of shares of RW Common Stock to be
transferred to each Stockholder shall be based on the pro rata ratio of the
number of shares of RW Common Stock received by each Stockholder on the IPO
Closing Date to the aggregate number of shares of RW Common Stock received by
all of the Stockholders on the IPO Closing Date.
(B) Dispute Mechanism. In the event that any Founding Company
disagrees with the determination of the Uncollectible Retainages of any Founding
Company, the disagreeing party shall transmit to RW within 15 days of receipt of
the Retainages Notice a written notice (the "Retainages Response") describing in
reasonable detail the Retainages of such Founding Company that it believes to be
uncollectible and the basis of such party's belief. If a Founding Company has
timely sent a Retainages Response, Arthur Andersen or, if not Arthur Andersen,
RW's accountant shall determine the amount of the Uncollectible Retainages,
which determination shall be binding on RW and the Founding Companies.
(V) Earnings Percentage. The Earnings Percentage for each of the
Founding Companies is as follows:
<TABLE>
<CAPTION>
Name of Founding Company Earnings Percentage
- ------------------------ -------------------
<S> <C>
Annex Railroad Builders, Inc.................................... 6.746%
Mize Construction Company....................................... 0.577
Railroad Specialties, Inc....................................... 0.821
U.S. Railway Supply, Inc........................................ 1.248
Comtrak Construction, Inc....................................... 1.459
Condon Brothers, Inc............................................ 4.664
HP McGinley, Inc................................................ 7.413
Kennedy Railroad Builders, Inc.................................. 4.124
Alpha-Keystone Engineering, Inc................................. 0.470
Merit Railroad Contractors, Inc................................. 3.262
Midwest Construction Services, Inc.............................. 4.285
New England Railroad Construction Co............................ 5.217
Comstock Holdings Inc........................................... 38.341
Railroad Service, Inc........................................... 5.243
Minnesota Railroad Service, Inc................................. 0.458
Southern Indiana Wood Preserving Co............................. 5.229
U.S. Trackworks, Inc............................................ 1.853
Northern Rail Service & Supply Co............................... 0.316
W.A. Smith Construction Co., Inc................................ 2.198
W.A. Smith Rerailing Services, Inc.............................. 0.234
CPI Concrete Products, Inc...................................... 5.843
</TABLE>
D-3
<PAGE> 1
EXHIBIT 10.2
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 21, 1998
BY AND BETWEEN
RAILWORKS CORPORATION,
WILDCATS ALPHA-KEYSTONE COMPANY,
ALPHA-KEYSTONE ENGINEERING, INC.
AND
THE STOCKHOLDERS NAMED HEREIN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS...................................................................................1
Section 1.01. Certain Defined Terms.................................................1
ARTICLE II THE MERGER AND RELATED MATTERS................................................................4
Section 2.01. Certificate of Merger.................................................4
Section 2.02. The Effective Time....................................................4
Section 2.03. Certain Effects of the Merger.........................................4
Section 2.04. Effect of the Merger on Capital Stock.................................5
Section 2.05. Delivery, Exchange and Payment........................................6
Section 2.06. Merger Consideration Calculation......................................7
Section 2.07. Fractional Shares.....................................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
EACH STOCKHOLDER .............................................................................8
Section 3.01. By Each Stockholder...................................................8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS......................................................9
Section 4.01. By the Company and Each Primary Stockholder...........................9
ARTICLE V REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO................................................9
Section 5.01. By RW and Newco.......................................................9
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME ...................................................10
Section 6.01. Of Each Party........................................................10
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION.................................................................................10
Section 7.01. The Closing and Certain Conditions...................................10
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME.......................................................12
Section 8.01. Of Each Party Other than the Company.................................12
ARTICLE IX INDEMNIFICATION..............................................................................12
Section 9.01. Indemnification Rights and Obligations...............................12
ARTICLE X [Intentionally Omitted]......................................................................12
ARTICLE XI GENERAL PROVISIONS...........................................................................12
Section 11.01. Treatment of Confidential Information................................12
Section 11.02. Restrictions on Transfer of RW Common Stock..........................12
Section 11.03. Brokers and Agents...................................................14
Section 11.04. Assignment; No Third Party Beneficiaries.............................14
Section 11.05. Entire Agreement; Amendment; Waivers.................................15
Section 11.06. Counterparts.........................................................15
Section 11.07. Expenses.............................................................15
Section 11.08. Notices..............................................................15
Section 11.09. Governing Law........................................................16
Section 11.10. Exercise of Rights and Remedies......................................16
Section 11.11. Time.................................................................16
Section 11.12. Reformation and Severability.........................................17
Section 11.13. Remedies Cumulative..................................................17
Section 11.14. Respecting the IPO...................................................17
ARTICLE XII TERMINATION..................................................................................17
Section 12.01. Termination of this Agreement........................................17
Section 12.02. Liabilities in Event of Termination..................................18
EXHIBITS
Exhibit A - List of Primary Stockholders
Exhibit B - Form of Employment Agreement
Exhibit C - IPO Cost Liability Sharing Agreement
Exhibit D - Merger Consideration
</TABLE>
-ii-
<PAGE> 4
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as
of May 21, 1998, by and among RailWorks Corporation, a Delaware corporation
("RW"), Wildcats Alpha-Keystone Company, a Pennsylvania corporation and a wholly
owned subsidiary of RW("Newco"), Alpha-Keystone Engineering, Inc., a
Pennsylvania corporation (the "Company"), and the persons listed on the
signature pages hereof under the caption "Stockholders" (collectively, the
"Stockholders," and each of those persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(a) Newco will merge into the Company on the terms and subject to the
conditions set forth herein (that merger being the "Merger");
(b) RW will acquire the stock of all or some of the entities listed in
the accompanying Addendum 1 (each an "Other Founding Company" and, collectively
with the Company, the "Founding Companies") pursuant to agreements that are (i)
similar in all material respects to this Agreement and (ii) entered into among
those entities and their equity owners, RW and subsidiaries of RW (collectively,
the "Other Agreements"); and
(c) RW shall at such time as specified herein and if certain conditions
are met, effect a public offering of shares of its common stock and issue and
sell those shares.
The respective boards of directors of RW, Newco and the Company have
approved and adopted this Agreement to effect a transaction subject to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Certain Defined Terms. As used in this Agreement and in
the related Addendums, Annexes, Schedules and Exhibits, the following terms have
the meanings assigned to them below in this Section 1.01. Capitalized terms used
in this Agreement and not defined below in this Section 1.01 have the meanings
assigned to them in the Preliminary Statement or Article I of the Uniform
Provisions (the text of which Article hereby is incorporated herein by this
reference), as the case may be.
<PAGE> 5
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement and all attached Schedules, Addendums,
Annexes and Exhibits, as each of the same may be amended, modified or
supplemented from time to time pursuant to the provisions hereof or thereof.
"Applicable Corporate Code" means the laws of the Organization State of
the Company that govern corporations incorporated in such state.
"Closing Date Balance Sheet" of the Company means a balance sheet of
the Company as at the IPO Closing Date which is prepared on a basis consistent
with the basis on which the Current Balance Sheet was prepared.
"Closing Memorandum" means the form of closing memorandum to be
prepared by RW for the Closing under this Agreement in which are included the
forms of certificates of officers, the opinions of counsel and certain other
documents to be delivered at the Closing as provided in Article VII.
"Company Accounts Receivable" shall mean the accounts and notes or
other advances receivable of the Company and the Company Subsidiaries, excluding
any Retainages, as of the IPO Closing Date.
"Company Common Stock" means the common stock, no par value, of the
Company.
"Company Indebtedness" means the indebtedness of the Company, as of the
IPO Closing Date (including, with respect to CPI Concrete Products, Inc., the
value of the Cash Company Consideration to be received by its Employee Stock
Ownership Plan), that the Company has elected to repay (or repurchase, as the
case may be) with a portion of the RW Common Stock to be received as part of the
Merger Consideration. At least five days prior to the Delivery Date, the Company
will deliver to RW a schedule of the aggregate principal amount of the Company
Indebtedness, certified by the President of the Company, that will be
outstanding on the IPO Closing Date, and RW will repay such Company Indebtedness
on the IPO Closing Date. To the extent that the actual amount of Company
Indebtedness exceeds the amount shown on such schedule, such excess shall be
repaid by the Stockholders on or prior to the IPO Closing Date.
"Counsel for RW and Newco" means King & Spalding.
"Counsel for the Company and the Stockholders" means such counsel as
shall be designated by the Company in writing on or prior to the Delivery Date.
"Current Balance Sheet" means the balance sheet of the Company as at
March 31, 1998 which is included in the Initial Financial Statements.
-2-
<PAGE> 6
"Current Balance Sheet Date" means December 31, 1997.
"Defined Net Worth" as of the IPO Closing Date shall mean (i) the total
assets of the Company, as set forth on the balance sheet of the Company as of
such date, except that (A) expenses of the Company directly attributable to the
IPO and/or the transactions contemplated by this Agreement, including but not
limited to, costs incurred pursuant to the HSR Act, shall be added back to the
assets of the company and (B) the value of inventory, machinery, equipment and
real estate shall be determined pursuant to Section 2.06(a), less (ii) the total
liabilities of the Company, as set forth on the balance sheet of the Company as
of such date, excluding the Company Indebtedness. Notwithstanding the foregoing,
in the case of Comstock, Comstock's contractual obligation to Spie Group, Inc.,
as successor to Comstock Group, Inc., shall not be deemed to be a liability for
purposes of determining Defined Net Worth.
"Delivery" or "Delivery Date" shall have the meaning set forth in
Section 7.01.
"Earnings Percentage" shall have the meaning set forth in Exhibit D.
"Employment Agreement" means each of the Employment Agreements entered
into as of the Closing Date between RW and each of the Stockholders set forth on
Exhibit A hereto, a form of which is attached hereto as Exhibit B.
"fair market value" means that value at which goods and/or services
would be exchanged between a willing buyer and willing seller in a transaction
entered into at arms length with each party having relevant facts of all aspects
of the transaction.
"Initial Financial Statements" means (a) the balance sheets of the
Company as at December 31, 1997 and March 31, 1998 and the related reviewed
statements of operations and retained earnings for each of the Company's two
fiscal years in the period ended December 31, 1997, and (b) the Current Balance
Sheet and the related statement of income for the Company's fiscal year ended
December 31, 1997, which the Company has delivered to RW prior to the date
hereof.
"IPO Closing Date" means the date on which RW first receives payment
for the shares of RW Common Stock it sells to the Underwriter in the IPO.
"Merger Consideration" has the meaning specified in Section 2.04.
"Newco" means Wildcats Alpha-Keystone Company, a Pennsylvania
corporation.
"Responsible Officer" means the President, Chief Executive Officer or
any Vice President of the Company.
-3-
<PAGE> 7
"Retainages" means the portion of progress payments due to a Company
for contracting projects that is withheld by a customer of such Company until
completion of a project, pursuant to the terms of a contract with such customer,
as security for the completion of the project.
"RW" means RailWorks Corporation, a Delaware corporation.
"Scheduled Related Party Agreements" means the agreements described in
Schedule 4.11.
"Surviving Corporation" means the Person to be designated in the
Certificate of Merger as the surviving corporation of the Merger.
"Threshold Amount" means 2.0% of the Merger Consideration.
"Transaction Value" means the (i)(A) the total number of shares of RW
outstanding immediately upon the closing of the IPO and the transactions
contemplated by this Agreement and the Other Agreements multiplied by (B) the
IPO Price multiplied by (C) 92% minus (ii) actual expenses of RW incurred with
respect to the IPO, an estimate of which will be set forth in Item 13 of Part II
of the Registration Statement minus (iii) the underwriting discounts and
commissions paid to the Underwriter pursuant to the IPO minus (iv) the proceeds
received by RW in connection with any shares of RW Common Stock sold by RW to
finance the working capital needs of RW, which shares shall not exceed 5% of the
number of shares to be sold in the IPO.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions of RW for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. Certificate of Merger. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the Delivery Date to the Department
of State of the State of Pennsylvania.
Section 2.02. The Effective Time. The effective time of the Merger (the
"Effective Time") will be the time on the IPO Closing Date as specified in the
Certificate of Merger or, if the Certificate of Merger does not specify another
time, 8:00 a.m., eastern daylight standard time, on the IPO Closing Date.
Section 2.03. Certain Effects of the Merger. At and as of the Effective
Time, (a) Newco will be merged with and into the Company in accordance with the
provisions of the Pennsylvania Business Corporation Law, (b) Newco will cease to
exist as a separate legal entity, (c) the articles
-4-
<PAGE> 8
of incorporation of the Company will be amended to change its authorized capital
stock to 100 shares, par value $0.01 per share, of Common Stock, (d) the Company
will be the Surviving Corporation and, as such, will, all with the effect
provided by the Pennsylvania Business Corporation Law, (i) possess all the
properties and rights, and be subject to all the restrictions and duties, of the
Company and Newco and (ii) be governed by the laws of the State of Pennsylvania,
(e) the Charter Documents of the Company then in effect (after giving effect to
the amendment of the Company's articles of incorporation specified in clause (c)
of this sentence) will become and thereafter remain (until changed in accordance
with (i) applicable law (in the case of the articles of incorporation) or (ii)
their terms (in the case of the bylaws)) the Charter Documents of the Surviving
Corporation, (f) the initial board of directors of the Surviving Corporation
will be the Chief Executive Officer of RW and the other persons named in
Schedule 2.03, and those persons will hold the office of director of the
Surviving Corporation subject to the provisions of the applicable laws of the
State of Pennsylvania and the Charter Documents of the Surviving Corporation,
and (g) the initial officers of the Surviving Corporation will be as set forth
in Schedule 2.03, and each of those persons will serve in each office specified
for that person in Schedule 2.03, subject to the provisions of the Charter
Documents of the Surviving Corporation, until that person's successor is duly
elected to, and, if necessary, qualified for, that office.
Section 2.04. Effect of the Merger on Capital Stock. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the right to
receive, subject to the provisions of Section 2.05 and Exhibit D, without
interest, on surrender of the certificate evidencing those shares, the amount of
cash and the number of whole and fractional shares of RW Common Stock set forth
or determined as provided in Exhibit D (the "Merger Consideration"), (ii) cease
to be outstanding and to exist and (iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to exist
and (ii) be canceled and retired; and
(c) each share of Newco Common Stock issued and outstanding immediately
prior to the Effective Time will be converted into one share of Common Stock, no
par value, of the Surviving Corporation, and the shares of Common Stock of the
Surviving Corporation issued on that conversion will constitute all the issued
and outstanding shares of Capital Stock of the Surviving Corporation. Each
holder of a certificate representing shares of Company Common Stock immediately
prior to the Effective Time will, as of the Effective Time and thereafter, cease
to have any rights respecting those shares other than the right to receive,
subject to the provisions of Section 2.05, without interest, the Merger
Consideration and the additional cash, if any, owing with respect to those
shares as provided in Section 2.07.
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Section 2.05. Delivery, Exchange and Payment.
(a) At or after the Effective Time: (i) each Stockholder, as the holder
of certificates representing shares of Company Common Stock, will, on surrender
of those certificates to RW (or any agent that may be appointed by RW for
purposes of this Section 2.05), receive, subject to the provisions of this
Article II and the Escrow Agreement, such Stockholder's share of the Merger
Consideration pursuant to Section 2.04 and Exhibit D; and (ii) until any
certificate representing Company Common Stock has been surrendered and replaced
pursuant to this Section 2.05, that certificate will, for all purposes, be
deemed to evidence ownership of the number of whole shares of RW Common Stock
included in the Merger Consideration payable in respect of that certificate
pursuant to Section 2.04. The Escrow Agreement will provide that the shares of
RW Common Stock issued to the Stockholders as a part of the Merger Consideration
together with duly executed stock powers in blank, shall be placed in escrow to
be held subject to the terms of the Escrow Agreement and further subject to
Exhibit D and Section 11.02. The escrow shall consist solely of shares of RW
Common Stock that shall be issued at the Effective Time to the Stockholders of
the Founding Companies and delivered, at the Closing, to the Escrow Agent. All
shares of RW Common Stock issuable in the Merger will be deemed for all purposes
to have been issued by RW at the Effective Time.
(b) Each Stockholder will deliver to RW (or any agent that may be
appointed by RW for purposes of this Section 2.05) on or before the Delivery
Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Stockholder, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Stockholder's expense, affixed and canceled.
Each Stockholder shall cure any deficiencies in the endorsement of the
certificates or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Stockholder.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to RW Common Stock and payable to
the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of RW Common Stock have been issued in the Merger until
those certificates are surrendered as provided herein, but (i) on that surrender
RW will cause to be paid, to the Person in whose name the certificates
representing such shares of RW Common Stock shall then be issued, the amount of
dividends or other distributions previously paid with respect to such whole
shares of RW Common Stock with a record date, or which have accrued, subsequent
to the Effective Time, but prior to surrender, and the amount of any cash
payable to such Person for and in lieu of fractional shares pursuant to Section
2.07 and (ii) at the appropriate payment date or as soon as practicable
thereafter, RW will cause to be paid to that Person the amount of dividends or
other distributions with a record date, or which have been accrued, subsequent
to the Effective Time, but which are not payable until a date subsequent to
surrender, which are payable with respect to such whole shares of RW Common
Stock, subject in all cases to any applicable
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escheat laws. No interest will be payable with respect to the payment of such
dividends or other distributions or cash for and in lieu of fractional shares on
surrender of outstanding certificates.
(d) Each Stockholder hereby authorizes and directs RW to deliver 3.5%
of the Cash Company Consideration and 3.5% of the Stock Company Consideration
owed to such Stockholder pursuant to this Agreement (before deposit of the
shares of RW Common Stock into escrow) to IPO Development Company in payment of
fees owed to IPO Development Company by such Stockholder.
Section 2.06. Merger Consideration Calculation.
(a) No later than fifteen (15) days following the IPO Closing Date, the
Company shall provide to the Chief Accounting Officer of RW (the "CAO") a
determination of the fair market value (as defined) of its inventory, machinery,
equipment and real estate (the "Valued Assets") as of the IPO Closing Date.
Within seven (7) days of such date, the CAO shall distribute to every Founding
Company the value of the Valued Assets of every Founding Company. The Company
shall have seven (7) days from the date of the distribution of such valuation to
dispute the value of the Valued Assets of any Founding Company by providing
written notice of such dispute to the CAO. If the CAO is unable to resolve any
such dispute, the dispute shall be resolved by binding arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
which arbitration shall be resolved no later than thirty (30) days from
selection of the arbitrator. The arbitrator shall be selected by the CAO.
(b) Arthur Andersen or, if not Arthur Andersen, the Company's
accountant, shall cause to be prepared and delivered to RW and the Company a
calculation as of the IPO Closing Date of the Defined Net Worth of the Company
(the "Balance Sheet Calculation"). The Balance Sheet Calculation shall be final
and binding on the Company and the Other Founding Companies absent fraud,
manifest error or gross negligence.
(c) The Balance Sheet Calculation shall include a report of Arthur
Andersen or, if not Arthur Andersen, the Company's accountant, stating that it
has been prepared in a manner consistent with the accounting policies and
procedures used in preparation of the balance sheets in the Initial Financial
Statements, except as provided in the definition of "Defined Net Worth"
contained herein. The Stockholders shall give Arthur Andersen and other
appropriate personnel such assistance and access to the assets and books and
records of the Company as Arthur Andersen shall reasonably request during normal
business hours in order to enable them to prepare the Balance Sheet Calculation.
The Surviving Corporation shall be responsible for the fees and expenses of
Arthur Andersen or, if not Arthur Andersen the Company's accountant.
Section 2.07. Fractional Shares. Notwithstanding any other provision
herein, no fractional shares of RW Common Stock will be issued. All shares of RW
Common Stock shall be aggregated, and any Stockholder entitled hereunder, after
such aggregation, to receive a fractional share of RW Common Stock but for this
Section 2.07 will be entitled hereunder to receive a cash payment for and
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in lieu thereof in the amount (rounded to the nearest whole cent) equal to that
Stockholder's fractional interest in a share of RW Common Stock multiplied by
the IPO Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01. By Each Stockholder. The Stockholders severally represent
and warrant to, and agree with, RW that all the following representations and
warranties in this Article III are as of the date of this Agreement, and will
be, as amended or supplemented pursuant to Section 6.08, on the IPO Closing
Date, true and correct:
(a) (i) each Stockholder will acquire the shares of RW Common Stock to
be issued pursuant to Article II to the Stockholder solely for the Stockholder's
account, for investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection with
any distribution;
(ii) no Stockholder is a party to any agreement or other
arrangement for the disposition of any shares of RW Common Stock other
than this Agreement; (iii) except as set forth on Schedule 3.01(a)(ii)
each Stockholder is an "accredited investor" as defined in Rule 501(a)
promulgated under the Securities Act; (iv) each Stockholder (A) is able
to bear the economic risk of an investment in the RW Common Stock
acquired pursuant to this Agreement, (B) can afford to sustain a total
loss of that investment, (C) has such knowledge and experience in
financial and business matters that he or she is capable of evaluating
the merits and risks of the proposed investment in the RW Common Stock,
(D) has had an adequate opportunity to ask questions and receive
answers from the officers of RW concerning any and all matters relating
to the transactions contemplated hereby, including the background and
experience of the current and proposed officers and directors of RW,
the plans for the operations of the business of RW, the business,
operations and financial condition of the Other Founding Companies and
any plans of RW for additional acquisitions, and (E) has asked all
questions of the nature described in preceding clause (D) that such
Stockholder thought to ask, and all those questions have been answered
to his or her satisfaction;
(b) the representations and warranties contained in Article III of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to; and
(c) (i) the terms and conditions of any agreements between any
Stockholder or an Affiliate of any Stockholder, on the one hand, and the Company
on the other hand, included in the Scheduled Related Party Agreements will have
been amended effective as of the IPO Closing Date to be no less favorable to the
Company than the Company reasonably could have expected to obtain in an
arms-length transaction with a Person other than an Affiliate of the Company and
(ii) the
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rentals or other payments provided for in such agreements then will not exceed
fair market rentals of the property being leased or fair market value of the sum
or product being provided and such amounts shall have been previously approved
in writing by the Chief Financial Officer of RW.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS
Section 4.01. By the Company and Each Primary Stockholder. The Company
and each Primary Stockholder jointly and severally represent and warrant to, and
agree with, RW that all the following representations and warranties in this
Article IV are as of the date of this Agreement, and will be, as amended or
supplemented pursuant to Section 6.08, on the Delivery Date and the IPO Closing
Date, true and correct:
(a) the Organization State of the Company is the State of Pennsylvania,
and the Company (i) is a corporation duly organized, validly existing and in
good standing under the laws of that State, (ii) has all requisite corporate
power and authority under those laws and its Charter Documents to own or lease
and to operate its properties and to carry on its business as now conducted and
(iii) is duly qualified and in good standing as a foreign corporation in all
jurisdictions (other than the State of Pennsylvania) in which it owns or leases
property or in which the carrying on of its business as now conducted so
requires except where the failure to be so qualified, singly or in the
aggregate, would not have a Material Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is comprised of
100,000 shares of Company Common Stock, of which 50,000 have been issued and are
now outstanding and no shares are held by the Company as treasury shares, and
(ii) there are no Derivative Securities of the Company; and
(c) the representations and warranties contained in Article IV of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO
Section 5.01. By RW and Newco. RW and Newco jointly and severally
represent and warrant to the Company and each Stockholder that all the following
representations and warranties in this Article V are as of the date of this
Agreement, and will be on the IPO Closing Date, true and correct:
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(a) Newco is a corporation duly organized, validly existing and in good
standing under the laws of the State of Pennsylvania;
(b) except as disclosed in the Private Placement Memorandum, no
Derivative Securities of Newco are outstanding;
(c) Newco has been organized for the sole purpose of participating in
the Merger and has not, and will not, engage in any activities other than those
necessary to effectuate the Merger;
(d) except for shares of RW Common Stock to be publicly sold in the IPO
and as disclosed in the Private Placement Memorandum or preliminary prospectus,
neither RW nor Newco is a party to any agreement or other arrangement for the
disposition of any shares of RW Common Stock; and
(e) the representations and warranties contained in Article V of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01. Of Each Party. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01. The Closing and Certain Conditions.
(a) The Closing. On or before the IPO Pricing Date, the parties hereto
will take all actions necessary to (i) effect the Merger (including, as
permitted by the Applicable Corporate Code, (A) the execution of a Certificate
of Merger (1) meeting the requirements of the Applicable Corporate Code and (2)
providing that the Merger will become effective on the IPO Closing Date and (B)
the delivery of that Certificate of Merger with a filing service that will file
such Certificate of Merger with the Department of State of the State of
Pennsylvania) upon notification of the closing of the IPO (provided that
Comstock's Certificate of Merger shall be filed immediately prior to the closing
of the IPO), (ii) verify the existence and ownership of the certificates
evidencing the Company Common Stock to be exchanged for the Merger Consideration
pursuant to Section 2.05 and (iii) satisfy the document delivery requirements to
which the obligations of the parties to effect the Merger and the other
transactions contemplated hereby are conditioned by the provisions of this
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Article VII (all those actions collectively being the "Delivery"). The Delivery
will take place at the offices of King & Spalding, 191 Peachtree Street,
Atlanta, Georgia at 10:00 a.m., Atlanta time on the IPO Pricing Date, or at such
later time on the IPO Pricing Date as RW shall specify by written notice to the
President of the Company (the "Delivery Date"). The actions taken at the
Delivery will not include the completion of either the Merger or the delivery of
the Company Common Stock or the Merger Consideration pursuant to Section 2.05.
On the IPO Closing Date, the Certificate of Merger will be filed and will become
effective pursuant to Section 2.02, and all transactions contemplated by this
Agreement to be closed or completed on or before the IPO Closing Date, including
the surrender of the Company Common Stock in exchange for the Merger
Consideration (including a certified check or checks in an amount equal to the
cash portion of the Merger Consideration) will be closed or completed, as the
case may be. During the period from the Delivery Date to the IPO Closing Date,
this Agreement may be terminated by the parties only pursuant to Section
12.01(b)(i).
(b) Certain Conditions to the Obligations of the Company and the
Stockholders. The obligations of the Company and the Stockholders with respect
to the actions to be taken by them at or before the Delivery Date are subject to
the satisfaction on or before the Delivery Date, or waiver by them pursuant to
Section 11.05, of all the conditions set forth in Sections 7.01 and 7.02(a). The
obligations of the Stockholders with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of the following
conditions: (if required by such Stockholder) (i) the Employment Agreement then
shall be in full force and effect; and (ii) all the conditions set forth in
Sections 7.01 and 7.02(b).
(c) Certain Conditions to the Obligations of RW and Newco. The
obligations of RW and Newco with respect to actions to be taken by them at or
before the Delivery Date are subject to the satisfaction on or before the date
of the Delivery Date, or waiver by them pursuant to Section 11.05, of the
following conditions: (i) the Company shall have delivered to RW a copy of the
articles of incorporation, as amended to the Delivery Date and certified by the
Secretary of State of the State of Pennsylvania as of a Current Date, of the
Company; and (ii) all the conditions set forth in Sections 7.01 and 7.03(a). The
obligations of RW and Newco with respect to the actions to be taken on the IPO
Closing Date are subject to the satisfaction on that date of the following
conditions: (i) the Employment Agreements then shall be in full force and
effect; and (ii) all the conditions set forth in Sections 7.01 and 7.03(b).
(d) Uniform Provisions. The text of Article VII of the Uniform
Provisions hereby is incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01. Of Each Party Other than the Company. From and after the
Effective Time, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Company) will
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comply with each covenant for which provision is made in Article VIII of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) to be performed or observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01. Indemnification Rights and Obligations. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. Any provision contained in Article IX of the Uniform Provisions to
the contrary notwithstanding, the indemnification obligations of the
Stockholders pursuant to this Agreement shall be joint and several.
ARTICLE X
[Intentionally Ommitted]
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. Treatment of Confidential Information. Each party hereto
will comply with each covenant for which provision is made in Section 11.01 of
the Uniform Provisions (the text of which Section hereby is incorporated herein
by this reference) to be performed or observed by that party.
Section 11.02. Restrictions on Transfer of RW Common Stock.
(a) Except for transfers to employees of the Company that are approved
in writing by the Board of Directors of RW (or a committee designated by the
Board of Directors of RW) prior to such transfer, during the one year period
ending on the first anniversary of the IPO Closing Date (the "Restricted
Period"), no Stockholder voluntarily will: (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
RW Common Stock received by any Stockholder in the Merger or (B) any interest in
(including any option to buy or sell) any of those shares of RW Common Stock, in
whole or in part, and RW will have no obligation to, and shall not, treat any
such attempted transfer as effective for any purpose; or (ii) engage in any
transaction, whether or not with respect to any shares of RW Common Stock or any
interest therein, the intent or effect of which is to reduce the risk of owning
the shares of RW Common Stock acquired pursuant to Section 2.04 (including, for
example engaging in put, call, short-sale, straddle or similar market
transactions); provided, however, that this Section 11.02 shall not restrict any
transfer of RW Common Stock acquired by a Stockholder pursuant to Section 2.04
to any of that Stockholder's Related Persons who agree in writing to be bound by
the provisions of Section 11.01
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and this Section 11.02. The certificates evidencing the RW Common Stock
delivered to each Stockholder pursuant to Section 2.05 will bear a legend
substantially in the form set forth below and containing such other information
as RW may deem necessary or appropriate:
"EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER
PARTIES THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE
REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF
ANY OF THOSE SHARES, DURING THE ONE-YEAR PERIOD ENDING ON __________ [DATE THAT
IS THE FIRST ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED PERIOD"). ON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE."
(b) From the first anniversary of the IPO Closing Date to the fourth
anniversary of the IPO Closing Date, the Stockholders agree to sell shares of RW
Common Stock acquired pursuant to this Agreement only in accordance with the
procedures set forth in this Section 11.02(b). Every quarter during such period,
every Stockholder will be permitted to sell, in the aggregate, up to 8% of the
aggregate number of shares of Common Stock received by such Stockholder pursuant
to this Agreement (the "Quarterly Block Trade Shares") in either a block trade
or a registered public offering, at the option of RW. If a Stockholder does not
sell all of his or her Quarterly Block Trade Shares in any given quarter, such
Stockholder may sell such Quarterly Block Trade Shares pursuant to this Section
11.02(b) in any later quarter, provided, however, that in no event may a
Stockholder sell more than 20% of the shares of Common Stock received by such
Stockholder pursuant to this Agreement in any one quarter. Any Stockholder that
wishes to sell shares of RW Common Stock pursuant to such selling opportunity
must give notice to RW and the Executive Council no later than fourteen days
prior to the commencement of the fiscal quarter of RW during which such
Stockholder wants to sell such shares. Notwithstanding anything set forth in
this Section 11.02(b), RW may elect to make available to the Stockholders (i)
additional opportunities to sell shares of RW Common Stock and/or (ii) the
opportunity to sell an amount in excess of such amount during any particular
quarter. The Company may modify or waive this Section 11.02(b) at its sole
discretion at any time following written notice to the Stockholders, provided
that no such modification or waiver may reduce the number of selling
opportunities or the maximum number of shares of RW Common Stock that may be
sold by any Stockholder during any selling opportunity.
(c) Each Stockholder, severally and not jointly with any other Person,
(i) acknowledges that the shares of RW Common Stock to be delivered to that
Stockholder pursuant to Section 2.04 have not been and will not be registered
under the Securities Act and therefore may not be resold by that Stockholder
without compliance with the Securities Act and (ii) covenants that none of the
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shares of RW Common Stock issued to that Stockholder pursuant to Section 2.04
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable provisions of
the Securities Act and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of RW Common
Stock issued pursuant to Section 2.04 will bear the following legend in addition
to the legend prescribed by Section 11.02(a):
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, HAVE
BEEN ISSUED PURSUANT TO ONE OR MORE EXEMPTIONS THERETO, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED OR DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED."
In addition, certificates evidencing shares of RW Common Stock issued pursuant
to Section 2.04 to each Stockholder will bear any legend required by the
securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03. Brokers and Agents. Except for IPO Development Company,
each of the Stockholders jointly and severally, on the one hand, and RW, on the
other, represents and warrants to the other that such Person has not directly or
indirectly employed or become obligated to pay any broker, finder or similar
agent in connection with the transactions contemplated hereby and agree, without
regard to the Threshold Amount limitations set forth in Article IX, to indemnify
the other against all Damage Claims arising out of claims for any and all fees
and commissions of brokers or similar agents employed or promised payment by
such Person.
Section 11.04. Assignment; No Third Party Beneficiaries. This Agreement
and the rights of the parties hereunder may not be assigned (except by operation
of law) and shall be binding on and inure to the benefit of the parties hereto,
the successors of RW, and the heirs and legal representatives of the
Stockholders (and, in the case of any trust, the successor trustees of that
trust). Neither this Agreement nor any other Transaction Document is intended,
or shall be construed, deemed or interpreted, to confer on any Person not a
party hereto or thereto any rights or remedies hereunder or thereunder, except
as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise provided
expressly herein or therein.
Section 11.05. Entire Agreement; Amendment; Waivers. Except with
respect to Section 11.07 hereof, this Agreement and the documents delivered
pursuant hereto constitute the entire agreement and understanding among the
Stockholders, the Company, Newco and RW and supersede all prior agreements and
understandings, both written and oral, relating to the subject matter of this
Agreement. This Agreement may be amended, modified or supplemented, and any
right hereunder may be waived, if, but only if, that amendment, modification,
supplement or waiver is in writing and
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signed by each of the Stockholders, the Company and RW. The waiver of any of the
terms and conditions hereof shall not be construed or interpreted as, or deemed
to be, a waiver of any other term or condition hereof.
Section 11.06. Counterparts. This Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
Section 11.07. Expenses. If the transactions contemplated hereby (i)
are consummated, RW will pay the fees, expenses and disbursements of RW and
Newco and their Representatives which are incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all costs
and expenses incurred in the performance of and compliance with all conditions
to be performed by RW and Newco under this Agreement, including the costs of
preparing the Registration Statement, (collectively, the "RW Expenses") and (ii)
if the transactions contemplated hereby are not consummated, the RW Expenses
shall be paid by the Founding Companies subject to the provisions of the IPO
Cost Liability Sharing Agreement attached hereto as Exhibit C and incorporated
herein by reference (b) the Stockholders will pay from personal funds, and not
from funds of the Company or any Company Subsidiary, all sales, use, transfer
and other similar taxes and fees (collectively, "Transfer Taxes") incurred in
connection with the transactions contemplated hereby and (c) the Company will
pay the fees, expenses and disbursements of Counsel for the Company and the
Stockholders incurred in connection with the subject matter of this Agreement
and the Registration Statement on or before the IPO Closing Date. The
Stockholders will file all necessary documentation and Returns with respect to
all Transfer Taxes. In addition, each Stockholder acknowledges that he, and not
the Company or RW or the Surviving Corporation, will pay all Taxes due upon
receipt of the consideration payable to that Stockholder pursuant to Article II.
Section 11.08. Notices. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received
(a) if personally delivered or if delivered by telex, telegram,
facsimile or courier service, when actually received by the party to whom notice
is sent or
(b) if delivered by mail (whether actually received or not), at the
close of business on the third Business Day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
(i) if to RW or Newco, addressed to it at:
RailWorks Corporation
403 Somerset Road
Baltimore, Maryland 21210
Attn: Chief Executive Officer
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with copies (which shall not constitute notice for purposes
of this Agreement) to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attn: Jeffrey M. Stein
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
Alpha-Keystone Engineering, Inc.
4910 Simpson Ferry Rcl.
Mechanicsburg, Pennsylvania 17055
Attn: Fulton Kennedy
with copies (which shall not constitute notice for purposes
of this Agreement) to Counsel for the Company and the
Stockholders at the address designated by the Company
Section 11.09. Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF DELAWARE
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10. Exercise of Rights and Remedies. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11. Time. Time is of the essence in the performance of this
Agreement in all respects.
Section 11.12. Reformation and Severability. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this
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Agreement, and in either case the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
Section 11.13. Remedies Cumulative. No right, remedy or election given
by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14. Respecting the IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither RW or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that RW will use its reasonable best efforts to
cause the Registration Statement to become effective prior to August 14, 1998)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to RW or the
IPO.
ARTICLE XII
TERMINATION
Section 12.01. Termination of this Agreement.
(a) This Agreement may be terminated at any time prior to the Delivery
Date solely:
(i) by the mutual written consent of RW and the Company;
(ii) by the Stockholders or the Company, on the one hand,
or by RW, on the other hand, if the events contemplated by this
Agreement to take place at the Delivery Date shall not have taken place
by September 4, 1998, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the
case of the Stockholders and the Company, any of them) seeking to
terminate this Agreement to perform or adhere to any agreement required
hereby to be performed or adhered to by it prior to or at the Delivery
Date or thereafter on the IPO Closing Date;
(iii) by the Stockholders or the Company, on the one hand,
or by RW, on the other hand, if a material breach or default shall be
made by the other party (or in the case of the Stockholders and the
Company, any of them) in the observance or in the due and timely
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<PAGE> 21
performance of any of the covenants, agreements or conditions contained
in Article VI or Section 11.01;
(iv) by the Stockholders or the Company, on the one hand,
or RW, on the other, if it is entitled to do so as provided in Section
6.08;
(v) by the Stockholders prior to the filing of the
Registration Statement if the Registration Statement is not filed by
June 15, 1998;
(vi) by RW or the Stockholders prior to 9:00 a.m. on the
IPO Pricing Date (as set forth in Section 8.10) if the value of RW at
the IPO Pricing Date (as calculated by multiplying the price per share
at which the RW common stock is to be sold in the IPO by the number of
shares of common stock to be outstanding after the Closing of the IPO)
shall be less than $215 million;
(vii) by the Stockholders if the Registration Statement has
not been declared effective by the Securities and Exchange Commission
by August 14, 1998;
(viii) by the Stockholders if John G. Larkin is no longer
serving as Chairman of the Board of Directors and Chief Executive
Officer prior to the Closing; or
(ix) by the stockholders of CPI Concrete Products, Inc.
if its Employee Stock Ownership Plan does not approve the merger prior
to the Delivery Date.
(b) This Agreement may be terminated after the Delivery Date solely:
(i) by RW or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the IPO Pricing Date and prior
to the consummation of the IPO; or
(ii) automatically and without action on the part of any
party hereto if the IPO is not consummated within 15 New York City
business days after the Delivery Date.
(c) If this Agreement is terminated pursuant to this Section 12.01, the
Merger will be deemed for all purposes to have been abandoned and of no force or
effect.
Section 12.02. Liabilities in Event of Termination. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Sections
11.03 or 11.07 and (b) to the extent that such liability is based on the breach
by that party of any of its representations, warranties or covenants set forth
in this Agreement.
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<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
RAILWORKS CORPORATION
By: /s/ John G. Larkin
-------------------------------------
John G. Larkin
Chief Executive Officer
WILDCATS ALPHA-KEYSTONE
COMPANY
By: /s/ John G. Larkin
-------------------------------------
John G. Larkin
President
ALPHA-KEYSTONE ENGINEERING, INC.
By: /s/ Authorized Signature
-------------------------------------
Name:
Title:
STOCKHOLDERS:
/s/ John Kennedy
----------------------------------------
John Kennedy
/s/ Fulton Kennedy
----------------------------------------
Fulton Kennedy
/s/ Steve Yanek
----------------------------------------
Steve Yanek
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<PAGE> 23
/s/ Mike Logan
----------------------------------------
Mike Logan
/s/ Jack Kennedy
----------------------------------------
Jack Kennedy
/s/ Mike Kennedy
----------------------------------------
Mike Kennedy
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<PAGE> 24
ADDENDUM 1
OTHER FOUNDING COMPANIES
A. Words and terms used in this Addendum which are defined in the
captioned Agreement to which this is an Addendum are used herein as therein
defined.
B. The Founding Companies are:
Alpha - Keystone Engineering, Inc.
Annex Railroad Builders, Inc.
Comtrak Construction, Inc.
Comstock Holdings Inc.
Condon Brothers, Inc.
CPI Concrete Products
HP McGinley, Inc.
Kennedy Railroad Builders, Inc.
Merit Railroad Contractors, Inc.
Midwest Construction Services, Inc.
Minnesota Railroad Services, Inc.
Mize Construction Co.
New England Railroad Construction Co., Inc.
Northern Rail Service & Supply Company, Inc.
Railcorp, Inc.
Railroad Service, Inc.
Railroad Specialities, Inc,
Southern Indiana Wood Preserving Co.
U.S. Railway Supply, Inc,
U.S. Trackworks, Inc.
W.A. Smith Construction Co., Inc.
W.A Smith Rerailing Co., Inc.
<PAGE> 1
EXHIBIT 10.3
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 21, 1998
BY AND BETWEEN
RAILWORKS CORPORATION,
BULLDOG COMTRAK COMPANY,
COMTRAK CONSTRUCTION, INC.
AND
THE STOCKHOLDERS NAMED HEREIN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS...................................................................................1
Section 1.01. Certain Defined Terms.................................................1
ARTICLE II THE MERGER AND RELATED MATTERS................................................................4
Section 2.01. Certificate of Merger.................................................4
Section 2.02. The Effective Time....................................................4
Section 2.03. Certain Effects of the Merger.........................................4
Section 2.04. Effect of the Merger on Capital Stock.................................5
Section 2.05. Delivery, Exchange and Payment........................................6
Section 2.06. Merger Consideration Calculation......................................7
Section 2.07. Fractional Shares.....................................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
EACH STOCKHOLDER .............................................................................8
Section 3.01. By Each Stockholder...................................................8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS......................................................9
Section 4.01. By the Company and Each Primary Stockholder...........................9
ARTICLE V REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO................................................9
Section 5.01. By RW and Newco.......................................................9
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME ...................................................10
Section 6.01. Of Each Party........................................................10
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION.................................................................................10
Section 7.01. The Closing and Certain Conditions...................................10
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME.......................................................12
Section 8.01. Of Each Party Other than the Company.................................12
ARTICLE IX INDEMNIFICATION..............................................................................12
Section 9.01. Indemnification Rights and Obligations...............................12
ARTICLE X [Intentionally Ommitted].....................................................................12
ARTICLE XI GENERAL PROVISIONS...........................................................................12
Section 11.01. Treatment of Confidential Information................................12
Section 11.02. Restrictions on Transfer of RW Common Stock..........................12
Section 11.03. Brokers and Agents...................................................14
Section 11.04. Assignment; No Third Party Beneficiaries.............................14
Section 11.05. Entire Agreement; Amendment; Waivers.................................15
Section 11.06. Counterparts.........................................................15
Section 11.07. Expenses.............................................................15
Section 11.08. Notices..............................................................15
Section 11.09. Governing Law........................................................16
Section 11.10. Exercise of Rights and Remedies......................................16
Section 11.11. Time.................................................................16
Section 11.12. Reformation and Severability.........................................17
Section 11.13. Remedies Cumulative..................................................17
Section 11.14. Respecting the IPO...................................................17
ARTICLE XII TERMINATION..................................................................................17
Section 12.01. Termination of this Agreement........................................17
Section 12.02. Liabilities in Event of Termination..................................18
</TABLE>
EXHIBITS
Exhibit A - List of Primary Stockholders
Exhibit B - Form of Employment Agreement
Exhibit C - IPO Cost Liability Sharing Agreement
Exhibit D - Merger Consideration
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<PAGE> 4
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as
of May 21, 1998, by and among RailWorks Corporation, a Delaware corporation
("RW"), Bulldog Comtrak Company, a Georgia corporation and a wholly owned
subsidiary of RW("Newco"), Comtrak Construction, Inc., a Georgia corporation
(the "Company"), and the persons listed on the signature pages hereof under the
caption "Stockholders" (collectively, the "Stockholders," and each of those
persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(a) Newco will merge into the Company on the terms and subject to the
conditions set forth herein (that merger being the "Merger");
(b) RW will acquire the stock of all or some of the entities listed in
the accompanying Addendum 1 (each an "Other Founding Company" and, collectively
with the Company, the "Founding Companies") pursuant to agreements that are (i)
similar in all material respects to this Agreement and (ii) entered into among
those entities and their equity owners, RW and subsidiaries of RW (collectively,
the "Other Agreements"); and
(c) RW shall at such time as specified herein and if certain conditions
are met, effect a public offering of shares of its common stock and issue and
sell those shares.
The respective boards of directors of RW, Newco and the Company have
approved and adopted this Agreement to effect a transaction subject to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Certain Defined Terms. As used in this Agreement and in
the related Addendums, Annexes, Schedules and Exhibits, the following terms have
the meanings assigned to them below in this Section 1.01. Capitalized terms used
in this Agreement and not defined below in this Section 1.01 have the meanings
assigned to them in the Preliminary Statement or Article I of the Uniform
Provisions (the text of which Article hereby is incorporated herein by this
reference), as the case may be.
<PAGE> 5
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement and all attached Schedules, Addendums,
Annexes and Exhibits, as each of the same may be amended, modified or
supplemented from time to time pursuant to the provisions hereof or thereof.
"Applicable Corporate Code" means the laws of the Organization State of
the Company that govern corporations incorporated in such state.
"Closing Date Balance Sheet" of the Company means a balance sheet of
the Company as at the IPO Closing Date which is prepared on a basis consistent
with the basis on which the Current Balance Sheet was prepared.
"Closing Memorandum" means the form of closing memorandum to be
prepared by RW for the Closing under this Agreement in which are included the
forms of certificates of officers, the opinions of counsel and certain other
documents to be delivered at the Closing as provided in Article VII.
"Company Accounts Receivable" shall mean the accounts and notes or
other advances receivable of the Company and the Company Subsidiaries, excluding
any Retainages, as of the IPO Closing Date.
"Company Common Stock" means the common stock, no par value, of the
Company.
"Company Indebtedness" means the indebtedness of the Company, as of the
IPO Closing Date (including, with respect to CPI Concrete Products, Inc., the
value of the Cash Company Consideration to be received by its Employee Stock
Ownership Plan), that the Company has elected to repay (or repurchase, as the
case may be) with a portion of the RW Common Stock to be received as part of the
Merger Consideration. At least five days prior to the Delivery Date, the Company
will deliver to RW a schedule of the aggregate principal amount of the Company
Indebtedness, certified by the President of the Company, that will be
outstanding on the IPO Closing Date, and RW will repay such Company Indebtedness
on the IPO Closing Date. To the extent that the actual amount of Company
Indebtedness exceeds the amount shown on such schedule, such excess shall be
repaid by the Stockholders on or prior to the IPO Closing Date.
"Counsel for RW and Newco" means King & Spalding.
"Counsel for the Company and the Stockholders" means such counsel as
shall be designated by the Company in writing on or prior to the Delivery Date.
"Current Balance Sheet" means the balance sheet of the Company as at
March 31, 1998 which is included in the Initial Financial Statements.
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<PAGE> 6
"Current Balance Sheet Date" means December 31, 1997.
"Defined Net Worth" as of the IPO Closing Date shall mean (i) the total
assets of the Company, as set forth on the balance sheet of the Company as of
such date, except that (A) expenses of the Company directly attributable to the
IPO and/or the transactions contemplated by this Agreement, including but not
limited to, costs incurred pursuant to the HSR Act, shall be added back to the
assets of the company and (B) the value of inventory, machinery, equipment and
real estate shall be determined pursuant to Section 2.06(a), less (ii) the total
liabilities of the Company, as set forth on the balance sheet of the Company as
of such date, excluding the Company Indebtedness. Notwithstanding the foregoing,
in the case of Comstock, Comstock's contractual obligation to Spie Group, Inc.,
as successor to Comstock Group, Inc., shall not be deemed to be a liability for
purposes of determining Defined Net Worth.
"Delivery" or "Delivery Date" shall have the meaning set forth in
Section 7.01.
"Earnings Percentage" shall have the meaning set forth in Exhibit D.
"Employment Agreement" means each of the Employment Agreements entered
into as of the Closing Date between RW and each of the Stockholders set forth on
Exhibit A hereto, a form of which is attached hereto as Exhibit B.
"fair market value" means that value at which goods and/or services
would be exchanged between a willing buyer and willing seller in a transaction
entered into at arms length with each party having relevant facts of all aspects
of the transaction.
"Initial Financial Statements" means (a) the balance sheets of the
Company as at December 31, 1997 and March 31, 1998 and the related reviewed
statements of operations and retained earnings for each of the Company's two
fiscal years in the period ended December 31, 1997, and (b) the Current Balance
Sheet and the related statement of income for the Company's fiscal year ended
December 31, 1997, which the Company has delivered to RW prior to the date
hereof.
"IPO Closing Date" means the date on which RW first receives payment
for the shares of RW Common Stock it sells to the Underwriter in the IPO.
"Merger Consideration" has the meaning specified in Section 2.04.
"Newco" means Bulldog Comtrak Company, a Georgia corporation.
"Responsible Officer" means the President, Chief Executive Officer or
any Vice President of the Company.
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<PAGE> 7
"Retainages" means the portion of progress payments due to a Company
for contracting projects that is withheld by a customer of such Company until
completion of a project, pursuant to the terms of a contract with such customer,
as security for the completion of the project.
"RW" means RailWorks Corporation, a Delaware corporation.
"Scheduled Related Party Agreements" means the agreements described in
Schedule 4.11.
"Surviving Corporation" means the Person to be designated in the
Certificate of Merger as the surviving corporation of the Merger.
"Threshold Amount" means 2.0% of the Merger Consideration.
"Transaction Value" means the (i)(A) the total number of shares of RW
outstanding immediately upon the closing of the IPO and the transactions
contemplated by this Agreement and the Other Agreements multiplied by (B) the
IPO Price multiplied by (C) 92% minus (ii) actual expenses of RW incurred with
respect to the IPO, an estimate of which will be set forth in Item 13 of Part II
of the Registration Statement minus (iii) the underwriting discounts and
commissions paid to the Underwriter pursuant to the IPO minus (iv) the proceeds
received by RW in connection with any shares of RW Common Stock sold by RW to
finance the working capital needs of RW, which shares shall not exceed 5% of the
number of shares to be sold in the IPO.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions of RW for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. Certificate of Merger. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the Delivery Date to the Department
of State of the State of Georgia.
Section 2.02. The Effective Time. The effective time of the Merger (the
"Effective Time") will be the time on the IPO Closing Date as specified in the
Certificate of Merger or, if the Certificate of Merger does not specify another
time, 8:00 a.m., eastern daylight standard time, on the IPO Closing Date.
Section 2.03. Certain Effects of the Merger. At and as of the Effective
Time, (a) Newco will be merged with and into the Company in accordance with the
provisions of the Georgia Business Corporation Code, (b) Newco will cease to
exist as a separate legal entity, (c) the articles
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<PAGE> 8
of incorporation of the Company will be amended to change its authorized capital
stock to 100 shares, par value $0.01 per share, of Common Stock, (d) the Company
will be the Surviving Corporation and, as such, will, all with the effect
provided by the Geogia Business Corporation Code, (i) possess all the properties
and rights, and be subject to all the restrictions and duties, of the Company
and Newco and (ii) be governed by the laws of the State of Georgia, (e) the
Charter Documents of the Company then in effect (after giving effect to the
amendment of the Company's articles of incorporation specified in clause (c) of
this sentence) will become and thereafter remain (until changed in accordance
with (i) applicable law (in the case of the articles of incorporation) or (ii)
their terms (in the case of the bylaws)) the Charter Documents of the Surviving
Corporation, (f) the initial board of directors of the Surviving Corporation
will be the Chief Executive Officer of RW and the other persons named in
Schedule 2.03, and those persons will hold the office of director of the
Surviving Corporation subject to the provisions of the applicable laws of the
State of Georgia and the Charter Documents of the Surviving Corporation, and (g)
the initial officers of the Surviving Corporation will be as set forth in
Schedule 2.03, and each of those persons will serve in each office specified for
that person in Schedule 2.03, subject to the provisions of the Charter Documents
of the Surviving Corporation, until that person's successor is duly elected to,
and, if necessary, qualified for, that office.
Section 2.04. Effect of the Merger on Capital Stock. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the right to
receive, subject to the provisions of Section 2.05 and Exhibit D, without
interest, on surrender of the certificate evidencing those shares, the amount of
cash and the number of whole and fractional shares of RW Common Stock set forth
or determined as provided in Exhibit D (the "Merger Consideration"), (ii) cease
to be outstanding and to exist and (iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to exist
and (ii) be canceled and retired; and
(c) each share of Newco Common Stock issued and outstanding immediately
prior to the Effective Time will be converted into one share of Common Stock, no
par value, of the Surviving Corporation, and the shares of Common Stock of the
Surviving Corporation issued on that conversion will constitute all the issued
and outstanding shares of Capital Stock of the Surviving Corporation. Each
holder of a certificate representing shares of Company Common Stock immediately
prior to the Effective Time will, as of the Effective Time and thereafter, cease
to have any rights respecting those shares other than the right to receive,
subject to the provisions of Section 2.05, without interest, the Merger
Consideration and the additional cash, if any, owing with respect to those
shares as provided in Section 2.07.
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<PAGE> 9
Section 2.05. Delivery, Exchange and Payment.
(a) At or after the Effective Time: (i) each Stockholder, as the holder
of certificates representing shares of Company Common Stock, will, on surrender
of those certificates to RW (or any agent that may be appointed by RW for
purposes of this Section 2.05), receive, subject to the provisions of this
Article II and the Escrow Agreement, such Stockholder's share of the Merger
Consideration pursuant to Section 2.04 and Exhibit D; and (ii) until any
certificate representing Company Common Stock has been surrendered and replaced
pursuant to this Section 2.05, that certificate will, for all purposes, be
deemed to evidence ownership of the number of whole shares of RW Common Stock
included in the Merger Consideration payable in respect of that certificate
pursuant to Section 2.04. The Escrow Agreement will provide that the shares of
RW Common Stock issued to the Stockholders as a part of the Merger Consideration
together with duly executed stock powers in blank, shall be placed in escrow to
be held subject to the terms of the Escrow Agreement and further subject to
Exhibit D and Section 11.02. The escrow shall consist solely of shares of RW
Common Stock that shall be issued at the Effective Time to the Stockholders of
the Founding Companies and delivered, at the Closing, to the Escrow Agent. All
shares of RW Common Stock issuable in the Merger will be deemed for all purposes
to have been issued by RW at the Effective Time.
(b) Each Stockholder will deliver to RW (or any agent that may be
appointed by RW for purposes of this Section 2.05) on or before the Delivery
Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Stockholder, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Stockholder's expense, affixed and canceled.
Each Stockholder shall cure any deficiencies in the endorsement of the
certificates or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Stockholder.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to RW Common Stock and payable to
the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of RW Common Stock have been issued in the Merger until
those certificates are surrendered as provided herein, but (i) on that surrender
RW will cause to be paid, to the Person in whose name the certificates
representing such shares of RW Common Stock shall then be issued, the amount of
dividends or other distributions previously paid with respect to such whole
shares of RW Common Stock with a record date, or which have accrued, subsequent
to the Effective Time, but prior to surrender, and the amount of any cash
payable to such Person for and in lieu of fractional shares pursuant to Section
2.07 and (ii) at the appropriate payment date or as soon as practicable
thereafter, RW will cause to be paid to that Person the amount of dividends or
other distributions with a record date, or which have been accrued, subsequent
to the Effective Time, but which are not payable until a date subsequent to
surrender, which are payable with respect to such whole shares of RW Common
Stock, subject in all cases to any applicable
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<PAGE> 10
escheat laws. No interest will be payable with respect to the payment of such
dividends or other distributions or cash for and in lieu of fractional shares on
surrender of outstanding certificates.
(d) Each Stockholder hereby authorizes and directs RW to deliver 3.5%
of the Cash Company Consideration and 3.5% of the Stock Company Consideration
owed to such Stockholder pursuant to this Agreement (before deposit of the
shares of RW Common Stock into escrow) to IPO Development Company in payment of
fees owed to IPO Development Company by such Stockholder.
Section 2.06. Merger Consideration Calculation.
(a) No later than fifteen (15) days following the IPO Closing Date, the
Company shall provide to the Chief Accounting Officer of RW (the "CAO") a
determination of the fair market value (as defined) of its inventory, machinery,
equipment and real estate (the "Valued Assets") as of the IPO Closing Date.
Within seven (7) days of such date, the CAO shall distribute to every Founding
Company the value of the Valued Assets of every Founding Company. The Company
shall have seven (7) days from the date of the distribution of such valuation to
dispute the value of the Valued Assets of any Founding Company by providing
written notice of such dispute to the CAO. If the CAO is unable to resolve any
such dispute, the dispute shall be resolved by binding arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
which arbitration shall be resolved no later than thirty (30) days from
selection of the arbitrator. The arbitrator shall be selected by the CAO.
(b) Arthur Andersen or, if not Arthur Andersen, the Company's
accountant, shall cause to be prepared and delivered to RW and the Company a
calculation as of the IPO Closing Date of the Defined Net Worth of the Company
(the "Balance Sheet Calculation"). The Balance Sheet Calculation shall be final
and binding on the Company and the Other Founding Companies absent fraud,
manifest error or gross negligence.
(c) The Balance Sheet Calculation shall include a report of Arthur
Andersen or, if not Arthur Andersen, the Company's accountant, stating that it
has been prepared in a manner consistent with the accounting policies and
procedures used in preparation of the balance sheets in the Initial Financial
Statements, except as provided in the definition of "Defined Net Worth"
contained herein. The Stockholders shall give Arthur Andersen and other
appropriate personnel such assistance and access to the assets and books and
records of the Company as Arthur Andersen shall reasonably request during normal
business hours in order to enable them to prepare the Balance Sheet Calculation.
The Surviving Corporation shall be responsible for the fees and expenses of
Arthur Andersen or, if not Arthur Andersen the Company's accountant.
Section 2.07. Fractional Shares. Notwithstanding any other provision
herein, no fractional shares of RW Common Stock will be issued. All shares of RW
Common Stock shall be aggregated, and any Stockholder entitled hereunder, after
such aggregation, to receive a fractional share of RW Common Stock but for this
Section 2.07 will be entitled hereunder to receive a cash payment for and
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<PAGE> 11
in lieu thereof in the amount (rounded to the nearest whole cent) equal to that
Stockholder's fractional interest in a share of RW Common Stock multiplied by
the IPO Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01. By Each Stockholder. The Stockholders severally represent
and warrant to, and agree with, RW that all the following representations and
warranties in this Article III are as of the date of this Agreement, and will
be, as amended or supplemented pursuant to Section 6.08, on the IPO Closing
Date, true and correct:
(a) (i) each Stockholder will acquire the shares of RW Common Stock to
be issued pursuant to Article II to the Stockholder solely for the Stockholder's
account, for investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection with
any distribution;
(ii) no Stockholder is a party to any agreement or other
arrangement for the disposition of any shares of RW Common Stock other
than this Agreement; (iii) except as set forth on Schedule 3.01(a)(ii)
each Stockholder is an "accredited investor" as defined in Rule 501(a)
promulgated under the Securities Act; (iv) each Stockholder (A) is able
to bear the economic risk of an investment in the RW Common Stock
acquired pursuant to this Agreement, (B) can afford to sustain a total
loss of that investment, (C) has such knowledge and experience in
financial and business matters that he or she is capable of evaluating
the merits and risks of the proposed investment in the RW Common Stock,
(D) has had an adequate opportunity to ask questions and receive
answers from the officers of RW concerning any and all matters relating
to the transactions contemplated hereby, including the background and
experience of the current and proposed officers and directors of RW,
the plans for the operations of the business of RW, the business,
operations and financial condition of the Other Founding Companies and
any plans of RW for additional acquisitions, and (E) has asked all
questions of the nature described in preceding clause (D) that such
Stockholder thought to ask, and all those questions have been answered
to his or her satisfaction;
(b) the representations and warranties contained in Article III of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to; and
(c) (i) the terms and conditions of any agreements between any
Stockholder or an Affiliate of any Stockholder, on the one hand, and the Company
on the other hand, included in the Scheduled Related Party Agreements will have
been amended effective as of the IPO Closing Date to be no less favorable to the
Company than the Company reasonably could have expected to obtain in an
arms-length transaction with a Person other than an Affiliate of the Company and
(ii) the
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<PAGE> 12
rentals or other payments provided for in such agreements then will not exceed
fair market rentals of the property being leased or fair market value of the sum
or product being provided and such amounts shall have been previously approved
in writing by the Chief Financial Officer of RW.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS
Section 4.01. By the Company and Each Primary Stockholder. The Company
and each Primary Stockholder jointly and severally represent and warrant to, and
agree with, RW that all the following representations and warranties in this
Article IV are as of the date of this Agreement, and will be, as amended or
supplemented pursuant to Section 6.08, on the Delivery Date and the IPO Closing
Date, true and correct:
(a) the Organization State of the Company is the State of Georgia, and
the Company (i) is a corporation duly organized, validly existing and in good
standing under the laws of that State, (ii) has all requisite corporate power
and authority under those laws and its Charter Documents to own or lease and to
operate its properties and to carry on its business as now conducted and (iii)
is duly qualified and in good standing as a foreign corporation in all
jurisdictions (other than the State of Georgia) in which it owns or leases
property or in which the carrying on of its business as now conducted so
requires except where the failure to be so qualified, singly or in the
aggregate, would not have a Material Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is comprised of
10,000 shares of Company Common Stock, of which 500 shares have been issued and
are now outstanding and no shares are held by the Company as treasury shares,
and (ii) there are no Derivative Securities of the Company; and
(c) the representations and warranties contained in Article IV of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO
Section 5.01. By RW and Newco. RW and Newco jointly and severally
represent and warrant to the Company and each Stockholder that all the following
representations and warranties in this Article V are as of the date of this
Agreement, and will be on the IPO Closing Date, true and correct:
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<PAGE> 13
(a) Newco is a corporation duly organized, validly existing and in good
standing under the laws of the State of Georgia;
(b) except as disclosed in the Private Placement Memorandum, no
Derivative Securities of Newco are outstanding;
(c) Newco has been organized for the sole purpose of participating in
the Merger and has not, and will not, engage in any activities other than those
necessary to effectuate the Merger;
(d) except for shares of RW Common Stock to be publicly sold in the IPO
and as disclosed in the Private Placement Memorandum or preliminary prospectus,
neither RW nor Newco is a party to any agreement or other arrangement for the
disposition of any shares of RW Common Stock; and
(e) the representations and warranties contained in Article V of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01. Of Each Party. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01. The Closing and Certain Conditions.
(a) The Closing. On or before the IPO Pricing Date, the parties hereto
will take all actions necessary to (i) effect the Merger (including, as
permitted by the Applicable Corporate Code, (A) the execution of a Certificate
of Merger (1) meeting the requirements of the Applicable Corporate Code and (2)
providing that the Merger will become effective on the IPO Closing Date and (B)
the delivery of that Certificate of Merger with a filing service that will file
such Certificate of Merger with the Department of State of the State of Georgia)
upon notification of the closing of the IPO (provided that Comstock's
Certificate of Merger shall be filed immediately prior to the closing of the
IPO), (ii) verify the existence and ownership of the certificates evidencing the
Company Common Stock to be exchanged for the Merger Consideration pursuant to
Section 2.05 and (iii) satisfy the document delivery requirements to which the
obligations of the parties to effect the Merger and the other transactions
contemplated hereby are conditioned by the provisions of this
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<PAGE> 14
Article VII (all those actions collectively being the "Delivery"). The Delivery
will take place at the offices of King & Spalding, 191 Peachtree Street,
Atlanta, Georgia at 10:00 a.m., Atlanta time on the IPO Pricing Date, or at such
later time on the IPO Pricing Date as RW shall specify by written notice to the
President of the Company (the "Delivery Date"). The actions taken at the
Delivery will not include the completion of either the Merger or the delivery of
the Company Common Stock or the Merger Consideration pursuant to Section 2.05.
On the IPO Closing Date, the Certificate of Merger will be filed and will become
effective pursuant to Section 2.02, and all transactions contemplated by this
Agreement to be closed or completed on or before the IPO Closing Date, including
the surrender of the Company Common Stock in exchange for the Merger
Consideration (including a certified check or checks in an amount equal to the
cash portion of the Merger Consideration) will be closed or completed, as the
case may be. During the period from the Delivery Date to the IPO Closing Date,
this Agreement may be terminated by the parties only pursuant to Section
12.01(b)(i).
(b) Certain Conditions to the Obligations of the Company and the
Stockholders. The obligations of the Company and the Stockholders with respect
to the actions to be taken by them at or before the Delivery Date are subject to
the satisfaction on or before the Delivery Date, or waiver by them pursuant to
Section 11.05, of all the conditions set forth in Sections 7.01 and 7.02(a). The
obligations of the Stockholders with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of the following
conditions: (if required by such Stockholder) (i) the Employment Agreement then
shall be in full force and effect; and (ii) all the conditions set forth in
Sections 7.01 and 7.02(b).
(c) Certain Conditions to the Obligations of RW and Newco. The
obligations of RW and Newco with respect to actions to be taken by them at or
before the Delivery Date are subject to the satisfaction on or before the date
of the Delivery Date, or waiver by them pursuant to Section 11.05, of the
following conditions: (i) the Company shall have delivered to RW a copy of the
articles of incorporation, as amended to the Delivery Date and certified by the
Secretary of State of the State of Georgia as of a Current Date, of the Company;
and (ii) all the conditions set forth in Sections 7.01 and 7.03(a). The
obligations of RW and Newco with respect to the actions to be taken on the IPO
Closing Date are subject to the satisfaction on that date of the following
conditions: (i) the Employment Agreements then shall be in full force and
effect; and (ii) all the conditions set forth in Sections 7.01 and 7.03(b).
(d) Uniform Provisions. The text of Article VII of the Uniform
Provisions hereby is incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01. Of Each Party Other than the Company. From and after the
Effective Time, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Company) will
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<PAGE> 15
comply with each covenant for which provision is made in Article VIII of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) to be performed or observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01. Indemnification Rights and Obligations. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. Any provision contained in Article IX of the Uniform Provisions to
the contrary notwithstanding, the indemnification obligations of the
Stockholders pursuant to this Agreement shall be joint and several.
ARTICLE X
[Intentionally Ommitted]
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. Treatment of Confidential Information. Each party hereto
will comply with each covenant for which provision is made in Section 11.01 of
the Uniform Provisions (the text of which Section hereby is incorporated herein
by this reference) to be performed or observed by that party.
Section 11.02. Restrictions on Transfer of RW Common Stock.
(a) Except for transfers to employees of the Company that are approved
in writing by the Board of Directors of RW (or a committee designated by the
Board of Directors of RW) prior to such transfer, during the one year period
ending on the first anniversary of the IPO Closing Date (the "Restricted
Period"), no Stockholder voluntarily will: (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
RW Common Stock received by any Stockholder in the Merger or (B) any interest in
(including any option to buy or sell) any of those shares of RW Common Stock, in
whole or in part, and RW will have no obligation to, and shall not, treat any
such attempted transfer as effective for any purpose; or (ii) engage in any
transaction, whether or not with respect to any shares of RW Common Stock or any
interest therein, the intent or effect of which is to reduce the risk of owning
the shares of RW Common Stock acquired pursuant to Section 2.04 (including, for
example engaging in put, call, short-sale, straddle or similar market
transactions); provided, however, that this Section 11.02 shall not restrict any
transfer of RW Common Stock acquired by a Stockholder pursuant to Section 2.04
to any of that Stockholder's Related Persons who agree in writing to be bound by
the provisions of Section 11.01
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<PAGE> 16
and this Section 11.02. The certificates evidencing the RW Common Stock
delivered to each Stockholder pursuant to Section 2.05 will bear a legend
substantially in the form set forth below and containing such other information
as RW may deem necessary or appropriate:
"EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER
PARTIES THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE
REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF
ANY OF THOSE SHARES, DURING THE ONE-YEAR PERIOD ENDING ON __________ [DATE THAT
IS THE FIRST ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED PERIOD"). ON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE."
(b) From the first anniversary of the IPO Closing Date to the fourth
anniversary of the IPO Closing Date, the Stockholders agree to sell shares of RW
Common Stock acquired pursuant to this Agreement only in accordance with the
procedures set forth in this Section 11.02(b). Every quarter during such period,
every Stockholder will be permitted to sell, in the aggregate, up to 8% of the
aggregate number of shares of Common Stock received by such Stockholder pursuant
to this Agreement (the "Quarterly Block Trade Shares") in either a block trade
or a registered public offering, at the option of RW. If a Stockholder does not
sell all of his or her Quarterly Block Trade Shares in any given quarter, such
Stockholder may sell such Quarterly Block Trade Shares pursuant to this Section
11.02(b) in any later quarter, provided, however, that in no event may a
Stockholder sell more than 20% of the shares of Common Stock received by such
Stockholder pursuant to this Agreement in any one quarter. Any Stockholder that
wishes to sell shares of RW Common Stock pursuant to such selling opportunity
must give notice to RW and the Executive Council no later than fourteen days
prior to the commencement of the fiscal quarter of RW during which such
Stockholder wants to sell such shares. Notwithstanding anything set forth in
this Section 11.02(b), RW may elect to make available to the Stockholders (i)
additional opportunities to sell shares of RW Common Stock and/or (ii) the
opportunity to sell an amount in excess of such amount during any particular
quarter. The Company may modify or waive this Section 11.02(b) at its sole
discretion at any time following written notice to the Stockholders, provided
that no such modification or waiver may reduce the number of selling
opportunities or the maximum number of shares of RW Common Stock that may be
sold by any Stockholder during any selling opportunity.
(c) Each Stockholder, severally and not jointly with any other Person,
(i) acknowledges that the shares of RW Common Stock to be delivered to that
Stockholder pursuant to Section 2.04 have not been and will not be registered
under the Securities Act and therefore may not be resold by that Stockholder
without compliance with the Securities Act and (ii) covenants that none of the
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<PAGE> 17
shares of RW Common Stock issued to that Stockholder pursuant to Section 2.04
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable provisions of
the Securities Act and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of RW Common
Stock issued pursuant to Section 2.04 will bear the following legend in addition
to the legend prescribed by Section 11.02(a):
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, HAVE
BEEN ISSUED PURSUANT TO ONE OR MORE EXEMPTIONS THERETO, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED OR DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED."
In addition, certificates evidencing shares of RW Common Stock issued pursuant
to Section 2.04 to each Stockholder will bear any legend required by the
securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03. Brokers and Agents. Except for IPO Development Company,
each of the Stockholders jointly and severally, on the one hand, and RW, on the
other, represents and warrants to the other that such Person has not directly or
indirectly employed or become obligated to pay any broker, finder or similar
agent in connection with the transactions contemplated hereby and agree, without
regard to the Threshold Amount limitations set forth in Article IX, to indemnify
the other against all Damage Claims arising out of claims for any and all fees
and commissions of brokers or similar agents employed or promised payment by
such Person.
Section 11.04. Assignment; No Third Party Beneficiaries. This Agreement
and the rights of the parties hereunder may not be assigned (except by operation
of law) and shall be binding on and inure to the benefit of the parties hereto,
the successors of RW, and the heirs and legal representatives of the
Stockholders (and, in the case of any trust, the successor trustees of that
trust). Neither this Agreement nor any other Transaction Document is intended,
or shall be construed, deemed or interpreted, to confer on any Person not a
party hereto or thereto any rights or remedies hereunder or thereunder, except
as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise provided
expressly herein or therein.
Section 11.05. Entire Agreement; Amendment; Waivers. Except with
respect to Section 11.07 hereof, this Agreement and the documents delivered
pursuant hereto constitute the entire agreement and understanding among the
Stockholders, the Company, Newco and RW and supersede all prior agreements and
understandings, both written and oral, relating to the subject matter of this
Agreement. This Agreement may be amended, modified or supplemented, and any
right hereunder may be waived, if, but only if, that amendment, modification,
supplement or waiver is in writing and
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<PAGE> 18
signed by each of the Stockholders, the Company and RW. The waiver of any of the
terms and conditions hereof shall not be construed or interpreted as, or deemed
to be, a waiver of any other term or condition hereof.
Section 11.06. Counterparts. This Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
Section 11.07. Expenses. If the transactions contemplated hereby (i)
are consummated, RW will pay the fees, expenses and disbursements of RW and
Newco and their Representatives which are incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all costs
and expenses incurred in the performance of and compliance with all conditions
to be performed by RW and Newco under this Agreement, including the costs of
preparing the Registration Statement, (collectively, the "RW Expenses") and (ii)
if the transactions contemplated hereby are not consummated, the RW Expenses
shall be paid by the Founding Companies subject to the provisions of the IPO
Cost Liability Sharing Agreement attached hereto as Exhibit C and incorporated
herein by reference (b) the Stockholders will pay from personal funds, and not
from funds of the Company or any Company Subsidiary, all sales, use, transfer
and other similar taxes and fees (collectively, "Transfer Taxes") incurred in
connection with the transactions contemplated hereby and (c) the Company will
pay the fees, expenses and disbursements of Counsel for the Company and the
Stockholders incurred in connection with the subject matter of this Agreement
and the Registration Statement on or before the IPO Closing Date. The
Stockholders will file all necessary documentation and Returns with respect to
all Transfer Taxes. In addition, each Stockholder acknowledges that he, and not
the Company or RW or the Surviving Corporation, will pay all Taxes due upon
receipt of the consideration payable to that Stockholder pursuant to Article II.
Section 11.08. Notices. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received
(a) if personally delivered or if delivered by telex, telegram,
facsimile or courier service, when actually received by the party to whom notice
is sent or
(b) if delivered by mail (whether actually received or not), at the
close of business on the third Business Day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
(i) if to RW or Newco, addressed to it at:
RailWorks Corporation
403 Somerset Road
Baltimore, Maryland 21210
Attn: Chief Executive Officer
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<PAGE> 19
with copies (which shall not constitute notice for purposes
of this Agreement) to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attn: Jeffrey M. Stein
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
Comtrak Construction, Inc.
6760 Highway 9 North
Alpharetta, Georgia 30201
Attn: John H. Lapp
with copies (which shall not constitute notice for purposes
of this Agreement) to Counsel for the Company and the
Stockholders at the address designated by the Company
Section 11.09. Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF DELAWARE
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10. Exercise of Rights and Remedies. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11. Time. Time is of the essence in the performance of this
Agreement in all respects.
Section 11.12. Reformation and Severability. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this
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<PAGE> 20
Agreement, and in either case the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
Section 11.13. Remedies Cumulative. No right, remedy or election given
by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14. Respecting the IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither RW or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that RW will use its reasonable best efforts to
cause the Registration Statement to become effective prior to August 14, 1998)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to RW or the
IPO.
ARTICLE XII
TERMINATION
Section 12.01. Termination of this Agreement.
(a) This Agreement may be terminated at any time prior to the Delivery
Date solely:
(i) by the mutual written consent of RW and the Company;
(ii) by the Stockholders or the Company, on the one hand, or
by RW, on the other hand, if the events contemplated by this Agreement
to take place at the Delivery Date shall not have taken place by
September 4, 1998, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the
case of the Stockholders and the Company, any of them) seeking to
terminate this Agreement to perform or adhere to any agreement required
hereby to be performed or adhered to by it prior to or at the Delivery
Date or thereafter on the IPO Closing Date;
(iii) by the Stockholders or the Company, on the one hand,
or by RW, on the other hand, if a material breach or default shall be
made by the other party (or in the case of the Stockholders and the
Company, any of them) in the observance or in the due and timely
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<PAGE> 21
performance of any of the covenants, agreements or conditions contained
in Article VI or Section 11.01;
(iv) by the Stockholders or the Company, on the one hand, or RW,
on the other, if it is entitled to do so as provided in Section 6.08;
(v) by the Stockholders prior to the filing of the Registration
Statement if the Registration Statement is not filed by June 15, 1998;
(vi) by RW or the Stockholders prior to 9:00 a.m. on the IPO
Pricing Date (as set forth in Section 8.10) if the value of RW at the
IPO Pricing Date (as calculated by multiplying the price per share at
which the RW common stock is to be sold in the IPO by the number of
shares of common stock to be outstanding after the Closing of the IPO)
shall be less than $215 million;
(vii) by the Stockholders if the Registration Statement has not
been declared effective by the Securities and Exchange Commission by
August 14, 1998;
(viii) by the Stockholders if John G. Larkin is no longer serving
as Chairman of the Board of Directors and Chief Executive Officer prior
to the Closing; or
(ix) by the stockholders of CPI Concrete Products, Inc. if its
Employee Stock Ownership Plan does not approve the merger prior to the
Delivery Date.
(b) This Agreement may be terminated after the Delivery Date solely:
(i) by RW or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the IPO Pricing Date and prior
to the consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City business
days after the Delivery Date.
(c) If this Agreement is terminated pursuant to this Section 12.01, the
Merger will be deemed for all purposes to have been abandoned and of no force or
effect.
Section 12.02. Liabilities in Event of Termination. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Sections
11.03 or 11.07 and (b) to the extent that such liability is based on the breach
by that party of any of its representations, warranties or covenants set forth
in this Agreement.
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<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
RAILWORKS CORPORATION
By: /s/ John G. Larkin
------------------------------------------
John G. Larkin
Chief Executive Officer
BULLDOG COMTRACK COMPANY
By: /s/ John G. Larkin
------------------------------------------
John G. Larkin
President
COMTRACK CONSTRUCTION, INC.
By: /s/ Authorized Signature
------------------------------------------
Name:
Title:
STOCKHOLDERS:
/s/ John H. Lapp
---------------------------------------------
John H. Lapp
/s/ Eileen Lapp
---------------------------------------------
Eileen Lapp
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<PAGE> 23
ADDENDUM 1
OTHER FOUNDING COMPANIES
A. Words and terms used in this Addendum which are defined in
the captioned Agreement to which this is an Addendum are used herein as therein
defined.
B. The Founding Companies are:
Alpha - Keystone Engineering, Inc.
Annex Railroad Builders, Inc.
Comtrak Construction, Inc.
Comstock Holdings Inc.
Condon Brothers, Inc.
CPI Concrete Products
HP McGinley, Inc.
Kennedy Railroad Builders, Inc.
Merit Railroad Contractors, Inc.
Midwest Construction Services, Inc.
Minnesota Railroad Services, Inc.
Mize Construction Co.
New England Railroad Construction Co., Inc.
Northern Rail Service & Supply Company, Inc.
Railcorp, Inc.
Railroad Service, Inc.
Railroad Specialities, Inc,
Southern Indiana Wood Preserving Co.
U.S. Railway Supply, Inc,
U.S. Trackworks, Inc.
W.A. Smith Construction Co., Inc.
W.A Smith Rerailing Co., Inc.
<PAGE> 1
EXHIBIT 10.4
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 21, 1998
BY AND BETWEEN
RAILWORKS CORPORATION,
CARDINAL ANNEX RAILROAD BUILDERS COMPANY,
ANNEX RAILROAD BUILDERS, INC.
AND
THE STOCKHOLDERS NAMED HEREIN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS...................................................................................1
Section 1.01. Certain Defined Terms.................................................1
ARTICLE II THE MERGER AND RELATED MATTERS................................................................4
Section 2.01. Certificate of Merger.................................................4
Section 2.02. The Effective Time....................................................4
Section 2.03. Certain Effects of the Merger.........................................4
Section 2.04. Effect of the Merger on Capital Stock.................................5
Section 2.05. Delivery, Exchange and Payment........................................6
Section 2.06. Merger Consideration Calculation......................................7
Section 2.07. Fractional Shares.....................................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
EACH STOCKHOLDER .............................................................................8
Section 3.01. By Each Stockholder...................................................8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS......................................................9
Section 4.01. By the Company and Each Primary Stockholder...........................9
ARTICLE V REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO................................................9
Section 5.01. By RW and Newco.......................................................9
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME ...................................................10
Section 6.01. Of Each Party........................................................10
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION.................................................................................10
Section 7.01. The Closing and Certain Conditions...................................10
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME.......................................................12
Section 8.01. Of Each Party Other than the Company.................................12
ARTICLE IX INDEMNIFICATION..............................................................................12
Section 9.01. Indemnification Rights and Obligations...............................12
ARTICLE X [Intentionally Ommitted].....................................................................12
ARTICLE XI GENERAL PROVISIONS...........................................................................12
Section 11.01. Treatment of Confidential Information................................12
Section 11.02. Restrictions on Transfer of RW Common Stock..........................12
Section 11.03. Brokers and Agents...................................................14
Section 11.04. Assignment; No Third Party Beneficiaries.............................14
Section 11.05. Entire Agreement; Amendment; Waivers.................................15
Section 11.06. Counterparts.........................................................15
Section 11.07. Expenses.............................................................15
Section 11.08. Notices..............................................................15
Section 11.09. Governing Law........................................................16
Section 11.10. Exercise of Rights and Remedies......................................16
Section 11.11. Time.................................................................16
Section 11.12. Reformation and Severability.........................................17
Section 11.13. Remedies Cumulative..................................................17
Section 11.14. Respecting the IPO...................................................17
ARTICLE XII TERMINATION..................................................................................17
Section 12.01. Termination of this Agreement........................................17
Section 12.02. Liabilities in Event of Termination..................................18
</TABLE>
EXHIBITS
Exhibit A - List of Primary Stockholders
Exhibit B - Form of Employment Agreement
Exhibit C - IPO Cost Liability Sharing Agreement
Exhibit D - Merger Consideration
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as
of May 21, 1998, by and among RailWorks Corporation, a Delaware corporation
("RW"), Cardinals Annex Railroad Builders Company, an Indiana corporation and a
wholly owned subsidiary of RW("Newco"), Annex Railroad Builders, Inc., an
Indiana corporation (the "Company"), and the persons listed on the signature
pages hereof under the caption "Stockholders" (collectively, the "Stockholders,"
and each of those persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(a) Newco will merge into the Company on the terms and subject to the
conditions set forth herein (that merger being the "Merger");
(b) RW will acquire the stock of all or some of the entities listed in
the accompanying Addendum 1 (each an "Other Founding Company" and, collectively
with the Company, the "Founding Companies") pursuant to agreements that are (i)
similar in all material respects to this Agreement and (ii) entered into among
those entities and their equity owners, RW and subsidiaries of RW (collectively,
the "Other Agreements"); and
(c) RW shall at such time as specified herein and if certain conditions
are met, effect a public offering of shares of its common stock and issue and
sell those shares.
The respective boards of directors of RW, Newco and the Company have
approved and adopted this Agreement to effect a transaction subject to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Certain Defined Terms. As used in this Agreement and in
the related Addendums, Annexes, Schedules and Exhibits, the following terms have
the meanings assigned to them below in this Section 1.01. Capitalized terms used
in this Agreement and not defined below in this Section 1.01 have the meanings
assigned to them in the Preliminary Statement or Article I of the Uniform
Provisions (the text of which Article hereby is incorporated herein by this
reference), as the case may be.
<PAGE> 5
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement and all attached Schedules, Addendums,
Annexes and Exhibits, as each of the same may be amended, modified or
supplemented from time to time pursuant to the provisions hereof or thereof.
"Applicable Corporate Code" means the laws of the Organization State of
the Company that govern corporations incorporated in such state.
"Closing Date Balance Sheet" of the Company means a balance sheet of
the Company as at the IPO Closing Date which is prepared on a basis consistent
with the basis on which the Current Balance Sheet was prepared.
"Closing Memorandum" means the form of closing memorandum to be
prepared by RW for the Closing under this Agreement in which are included the
forms of certificates of officers, the opinions of counsel and certain other
documents to be delivered at the Closing as provided in Article VII.
"Company Accounts Receivable" shall mean the accounts and notes or
other advances receivable of the Company and the Company Subsidiaries, excluding
any Retainages, as of the IPO Closing Date.
"Company Common Stock" means the common stock, no par value, of the
Company.
"Company Indebtedness" means the indebtedness of the Company, as of the
IPO Closing Date (including, with respect to CPI Concrete Products, Inc., the
value of the Cash Company Consideration to be received by its Employee Stock
Ownership Plan), that the Company has elected to repay (or repurchase, as the
case may be) with a portion of the RW Common Stock to be received as part of the
Merger Consideration. At least five days prior to the Delivery Date, the Company
will deliver to RW a schedule of the aggregate principal amount of the Company
Indebtedness, certified by the President of the Company, that will be
outstanding on the IPO Closing Date, and RW will repay such Company Indebtedness
on the IPO Closing Date. To the extent that the actual amount of Company
Indebtedness exceeds the amount shown on such schedule, such excess shall be
repaid by the Stockholders on or prior to the IPO Closing Date.
"Counsel for RW and Newco" means King & Spalding.
"Counsel for the Company and the Stockholders" means such counsel as
shall be designated by the Company in writing on or prior to the Delivery Date.
"Current Balance Sheet" means the balance sheet of the Company as at
March 31, 1998 which is included in the Initial Financial Statements.
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"Current Balance Sheet Date" means December 31, 1997.
"Defined Net Worth" as of the IPO Closing Date shall mean (i) the total
assets of the Company, as set forth on the balance sheet of the Company as of
such date, except that (A) expenses of the Company directly attributable to the
IPO and/or the transactions contemplated by this Agreement, including but not
limited to, costs incurred pursuant to the HSR Act, shall be added back to the
assets of the company and (B) the value of inventory, machinery, equipment and
real estate shall be determined pursuant to Section 2.06(a), less (ii) the total
liabilities of the Company, as set forth on the balance sheet of the Company as
of such date, excluding the Company Indebtedness. Notwithstanding the foregoing,
in the case of Comstock, Comstock's contractual obligation to Spie Group, Inc.,
as successor to Comstock Group, Inc., shall not be deemed to be a liability for
purposes of determining Defined Net Worth.
"Delivery" or "Delivery Date" shall have the meaning set forth in
Section 7.01.
"Earnings Percentage" shall have the meaning set forth in Exhibit D.
"Employment Agreement" means each of the Employment Agreements entered
into as of the Closing Date between RW and each of the Stockholders set forth on
Exhibit A hereto, a form of which is attached hereto as Exhibit B.
"fair market value" means that value at which goods and/or services
would be exchanged between a willing buyer and willing seller in a transaction
entered into at arms length with each party having relevant facts of all aspects
of the transaction.
"Initial Financial Statements" means (a) the balance sheets of the
Company as at December 31, 1997 and March 31, 1998 and the related reviewed
statements of operations and retained earnings for each of the Company's two
fiscal years in the period ended December 31, 1997, and (b) the Current Balance
Sheet and the related statement of income for the Company's fiscal year ended
December 31, 1997, which the Company has delivered to RW prior to the date
hereof.
"IPO Closing Date" means the date on which RW first receives payment
for the shares of RW Common Stock it sells to the Underwriter in the IPO.
"Merger Consideration" has the meaning specified in Section 2.04.
"Newco" means Cardinals Annex Railroad Builders Company, an Indiana
corporation.
"Responsible Officer" means the President, Chief Executive Officer or
any Vice President of the Company.
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<PAGE> 7
"Retainages" means the portion of progress payments due to a Company
for contracting projects that is withheld by a customer of such Company until
completion of a project, pursuant to the terms of a contract with such customer,
as security for the completion of the project.
"RW" means RailWorks Corporation, a Delaware corporation.
"Scheduled Related Party Agreements" means the agreements described in
Schedule 4.11.
"Surviving Corporation" means the Person to be designated in the
Certificate of Merger as the surviving corporation of the Merger.
"Threshold Amount" means 2.0% of the Merger Consideration.
"Transaction Value" means the (i)(A) the total number of shares of RW
outstanding immediately upon the closing of the IPO and the transactions
contemplated by this Agreement and the Other Agreements multiplied by (B) the
IPO Price multiplied by (C) 92% minus (ii) actual expenses of RW incurred with
respect to the IPO, an estimate of which will be set forth in Item 13 of Part II
of the Registration Statement minus (iii) the underwriting discounts and
commissions paid to the Underwriter pursuant to the IPO minus (iv) the proceeds
received by RW in connection with any shares of RW Common Stock sold by RW to
finance the working capital needs of RW, which shares shall not exceed 5% of the
number of shares to be sold in the IPO.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions of RW for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. Certificate of Merger. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the Delivery Date to the Department
of State of the State of Indiana.
Section 2.02. The Effective Time. The effective time of the Merger (the
"Effective Time") will be the time on the IPO Closing Date as specified in the
Certificate of Merger or, if the Certificate of Merger does not specify another
time, 8:00 a.m., eastern daylight standard time, on the IPO Closing Date.
Section 2.03. Certain Effects of the Merger. At and as of the Effective
Time, (a) Newco will be merged with and into the Company in accordance with the
provisions of the Indiana Business Corporation Law, (b) Newco will cease to
exist as a separate legal entity, (c) the articles of
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<PAGE> 8
incorporation of the Company will be amended to change its authorized capital
stock to 100 shares, par value $0.01 per share, of Common Stock, (d) the Company
will be the Surviving Corporation and, as such, will, all with the effect
provided by the Indiana Business Corporation Law, (i) possess all the properties
and rights, and be subject to all the restrictions and duties, of the Company
and Newco and (ii) be governed by the laws of the State of Indiana, (e) the
Charter Documents of the Company then in effect (after giving effect to the
amendment of the Company's articles of incorporation specified in clause (c) of
this sentence) will become and thereafter remain (until changed in accordance
with (i) applicable law (in the case of the articles of incorporation) or (ii)
their terms (in the case of the bylaws)) the Charter Documents of the Surviving
Corporation, (f) the initial board of directors of the Surviving Corporation
will be the Chief Executive Officer of RW and the other persons named in
Schedule 2.03, and those persons will hold the office of director of the
Surviving Corporation subject to the provisions of the applicable laws of the
State of Indiana and the Charter Documents of the Surviving Corporation, and (g)
the initial officers of the Surviving Corporation will be as set forth in
Schedule 2.03, and each of those persons will serve in each office specified for
that person in Schedule 2.03, subject to the provisions of the Charter Documents
of the Surviving Corporation, until that person's successor is duly elected to,
and, if necessary, qualified for, that office.
Section 2.04. Effect of the Merger on Capital Stock. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the right to
receive, subject to the provisions of Section 2.05 and Exhibit D, without
interest, on surrender of the certificate evidencing those shares, the amount of
cash and the number of whole and fractional shares of RW Common Stock set forth
or determined as provided in Exhibit D (the "Merger Consideration"), (ii) cease
to be outstanding and to exist and (iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to exist
and (ii) be canceled and retired; and
(c) each share of Newco Common Stock issued and outstanding immediately
prior to the Effective Time will be converted into one share of Common Stock, no
par value, of the Surviving Corporation, and the shares of Common Stock of the
Surviving Corporation issued on that conversion will constitute all the issued
and outstanding shares of Capital Stock of the Surviving Corporation. Each
holder of a certificate representing shares of Company Common Stock immediately
prior to the Effective Time will, as of the Effective Time and thereafter, cease
to have any rights respecting those shares other than the right to receive,
subject to the provisions of Section 2.05, without interest, the Merger
Consideration and the additional cash, if any, owing with respect to those
shares as provided in Section 2.07.
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Section 2.05. Delivery, Exchange and Payment.
(a) At or after the Effective Time: (i) each Stockholder, as the holder
of certificates representing shares of Company Common Stock, will, on surrender
of those certificates to RW (or any agent that may be appointed by RW for
purposes of this Section 2.05), receive, subject to the provisions of this
Article II and the Escrow Agreement, such Stockholder's share of the Merger
Consideration pursuant to Section 2.04 and Exhibit D; and (ii) until any
certificate representing Company Common Stock has been surrendered and replaced
pursuant to this Section 2.05, that certificate will, for all purposes, be
deemed to evidence ownership of the number of whole shares of RW Common Stock
included in the Merger Consideration payable in respect of that certificate
pursuant to Section 2.04. The Escrow Agreement will provide that the shares of
RW Common Stock issued to the Stockholders as a part of the Merger Consideration
together with duly executed stock powers in blank, shall be placed in escrow to
be held subject to the terms of the Escrow Agreement and further subject to
Exhibit D and Section 11.02. The escrow shall consist solely of shares of RW
Common Stock that shall be issued at the Effective Time to the Stockholders of
the Founding Companies and delivered, at the Closing, to the Escrow Agent. All
shares of RW Common Stock issuable in the Merger will be deemed for all purposes
to have been issued by RW at the Effective Time.
(b) Each Stockholder will deliver to RW (or any agent that may be
appointed by RW for purposes of this Section 2.05) on or before the Delivery
Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Stockholder, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Stockholder's expense, affixed and canceled.
Each Stockholder shall cure any deficiencies in the endorsement of the
certificates or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Stockholder.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to RW Common Stock and payable to
the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of RW Common Stock have been issued in the Merger until
those certificates are surrendered as provided herein, but (i) on that surrender
RW will cause to be paid, to the Person in whose name the certificates
representing such shares of RW Common Stock shall then be issued, the amount of
dividends or other distributions previously paid with respect to such whole
shares of RW Common Stock with a record date, or which have accrued, subsequent
to the Effective Time, but prior to surrender, and the amount of any cash
payable to such Person for and in lieu of fractional shares pursuant to Section
2.07 and (ii) at the appropriate payment date or as soon as practicable
thereafter, RW will cause to be paid to that Person the amount of dividends or
other distributions with a record date, or which have been accrued, subsequent
to the Effective Time, but which are not payable until a date subsequent to
surrender, which are payable with respect to such whole shares of RW Common
Stock, subject in all cases to any applicable
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<PAGE> 10
escheat laws. No interest will be payable with respect to the payment of such
dividends or other distributions or cash for and in lieu of fractional shares on
surrender of outstanding certificates.
(d) Each Stockholder hereby authorizes and directs RW to deliver 3.5%
of the Cash Company Consideration and 3.5% of the Stock Company Consideration
owed to such Stockholder pursuant to this Agreement (before deposit of the
shares of RW Common Stock into escrow) to IPO Development Company in payment of
fees owed to IPO Development Company by such Stockholder.
Section 2.06. Merger Consideration Calculation.
(a) No later than fifteen (15) days following the IPO Closing Date, the
Company shall provide to the Chief Accounting Officer of RW (the "CAO") a
determination of the fair market value (as defined) of its inventory, machinery,
equipment and real estate (the "Valued Assets") as of the IPO Closing Date.
Within seven (7) days of such date, the CAO shall distribute to every Founding
Company the value of the Valued Assets of every Founding Company. The Company
shall have seven (7) days from the date of the distribution of such valuation to
dispute the value of the Valued Assets of any Founding Company by providing
written notice of such dispute to the CAO. If the CAO is unable to resolve any
such dispute, the dispute shall be resolved by binding arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
which arbitration shall be resolved no later than thirty (30) days from
selection of the arbitrator. The arbitrator shall be selected by the CAO.
(b) Arthur Andersen or, if not Arthur Andersen, the Company's
accountant, shall cause to be prepared and delivered to RW and the Company a
calculation as of the IPO Closing Date of the Defined Net Worth of the Company
(the "Balance Sheet Calculation"). The Balance Sheet Calculation shall be final
and binding on the Company and the Other Founding Companies absent fraud,
manifest error or gross negligence.
(c) The Balance Sheet Calculation shall include a report of Arthur
Andersen or, if not Arthur Andersen, the Company's accountant, stating that it
has been prepared in a manner consistent with the accounting policies and
procedures used in preparation of the balance sheets in the Initial Financial
Statements, except as provided in the definition of "Defined Net Worth"
contained herein. The Stockholders shall give Arthur Andersen and other
appropriate personnel such assistance and access to the assets and books and
records of the Company as Arthur Andersen shall reasonably request during normal
business hours in order to enable them to prepare the Balance Sheet Calculation.
The Surviving Corporation shall be responsible for the fees and expenses of
Arthur Andersen or, if not Arthur Andersen the Company's accountant.
Section 2.07. Fractional Shares. Notwithstanding any other provision
herein, no fractional shares of RW Common Stock will be issued. All shares of RW
Common Stock shall be aggregated, and any Stockholder entitled hereunder, after
such aggregation, to receive a fractional share of RW Common Stock but for this
Section 2.07 will be entitled hereunder to receive a cash payment for and
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<PAGE> 11
in lieu thereof in the amount (rounded to the nearest whole cent) equal to that
Stockholder's fractional interest in a share of RW Common Stock multiplied by
the IPO Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01. By Each Stockholder. The Stockholders severally represent
and warrant to, and agree with, RW that all the following representations and
warranties in this Article III are as of the date of this Agreement, and will
be, as amended or supplemented pursuant to Section 6.08, on the IPO Closing
Date, true and correct:
(a) (i) each Stockholder will acquire the shares of RW Common Stock to
be issued pursuant to Article II to the Stockholder solely for the Stockholder's
account, for investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection with
any distribution;
(ii) no Stockholder is a party to any agreement or other
arrangement for the disposition of any shares of RW Common Stock other
than this Agreement; (iii) except as set forth on Schedule 3.01(a)(ii)
each Stockholder is an "accredited investor" as defined in Rule 501(a)
promulgated under the Securities Act; (iv) each Stockholder (A) is able
to bear the economic risk of an investment in the RW Common Stock
acquired pursuant to this Agreement, (B) can afford to sustain a total
loss of that investment, (C) has such knowledge and experience in
financial and business matters that he or she is capable of evaluating
the merits and risks of the proposed investment in the RW Common Stock,
(D) has had an adequate opportunity to ask questions and receive
answers from the officers of RW concerning any and all matters relating
to the transactions contemplated hereby, including the background and
experience of the current and proposed officers and directors of RW,
the plans for the operations of the business of RW, the business,
operations and financial condition of the Other Founding Companies and
any plans of RW for additional acquisitions, and (E) has asked all
questions of the nature described in preceding clause (D) that such
Stockholder thought to ask, and all those questions have been answered
to his or her satisfaction;
(b) the representations and warranties contained in Article III of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to; and
(c) (i) the terms and conditions of any agreements between any
Stockholder or an Affiliate of any Stockholder, on the one hand, and the Company
on the other hand, included in the Scheduled Related Party Agreements will have
been amended effective as of the IPO Closing Date to be no less favorable to the
Company than the Company reasonably could have expected to obtain in an
arms-length transaction with a Person other than an Affiliate of the Company and
(ii) the
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rentals or other payments provided for in such agreements then will not exceed
fair market rentals of the property being leased or fair market value of the sum
or product being provided and such amounts shall have been previously approved
in writing by the Chief Financial Officer of RW.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS
Section 4.01. By the Company and Each Primary Stockholder. The Company
and each Primary Stockholder jointly and severally represent and warrant to, and
agree with, RW that all the following representations and warranties in this
Article IV are as of the date of this Agreement, and will be, as amended or
supplemented pursuant to Section 6.08, on the Delivery Date and the IPO Closing
Date, true and correct:
(a) the Organization State of the Company is the State of Indiana, and
the Company (i) is a corporation duly organized, validly existing and in good
standing under the laws of that State, (ii) has all requisite corporate power
and authority under those laws and its Charter Documents to own or lease and to
operate its properties and to carry on its business as now conducted and (iii)
is duly qualified and in good standing as a foreign corporation in all
jurisdictions (other than the State of Indiana) in which it owns or leases
property or in which the carrying on of its business as now conducted so
requires except where the failure to be so qualified, singly or in the
aggregate, would not have a Material Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is comprised of
5,000 shares of Company Common Stock, of which 5,000 shares have been issued and
are now outstanding and no shares are held by the Company as treasury shares,
and (ii) there are no Derivative Securities of the Company; and
(c) the representations and warranties contained in Article IV of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO
Section 5.01. By RW and Newco. RW and Newco jointly and severally
represent and warrant to the Company and each Stockholder that all the following
representations and warranties in this Article V are as of the date of this
Agreement, and will be on the IPO Closing Date, true and correct:
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(a) Newco is a corporation duly organized, validly existing and in good
standing under the laws of the State of Indiana;
(b) except as disclosed in the Private Placement Memorandum, no
Derivative Securities of Newco are outstanding;
(c) Newco has been organized for the sole purpose of participating in
the Merger and has not, and will not, engage in any activities other than those
necessary to effectuate the Merger;
(d) except for shares of RW Common Stock to be publicly sold in the IPO
and as disclosed in the Private Placement Memorandum or preliminary prospectus,
neither RW nor Newco is a party to any agreement or other arrangement for the
disposition of any shares of RW Common Stock; and
(e) the representations and warranties contained in Article V of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01. Of Each Party. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01. The Closing and Certain Conditions.
(a) The Closing. On or before the IPO Pricing Date, the parties hereto
will take all actions necessary to (i) effect the Merger (including, as
permitted by the Applicable Corporate Code, (A) the execution of a Certificate
of Merger (1) meeting the requirements of the Applicable Corporate Code and (2)
providing that the Merger will become effective on the IPO Closing Date and (B)
the delivery of that Certificate of Merger with a filing service that will file
such Certificate of Merger with the Department of State of the State of Indiana)
upon notification of the closing of the IPO (provided that Comstock's
Certificate of Merger shall be filed immediately prior to the closing of the
IPO), (ii) verify the existence and ownership of the certificates evidencing the
Company Common Stock to be exchanged for the Merger Consideration pursuant to
Section 2.05 and (iii) satisfy the document delivery requirements to which the
obligations of the parties to effect the Merger and the other transactions
contemplated hereby are conditioned by the provisions of this
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Article VII (all those actions collectively being the "Delivery"). The Delivery
will take place at the offices of King & Spalding, 191 Peachtree Street,
Atlanta, Georgia at 10:00 a.m., Atlanta time on the IPO Pricing Date, or at such
later time on the IPO Pricing Date as RW shall specify by written notice to the
President of the Company (the "Delivery Date"). The actions taken at the
Delivery will not include the completion of either the Merger or the delivery of
the Company Common Stock or the Merger Consideration pursuant to Section 2.05.
On the IPO Closing Date, the Certificate of Merger will be filed and will become
effective pursuant to Section 2.02, and all transactions contemplated by this
Agreement to be closed or completed on or before the IPO Closing Date, including
the surrender of the Company Common Stock in exchange for the Merger
Consideration (including a certified check or checks in an amount equal to the
cash portion of the Merger Consideration) will be closed or completed, as the
case may be. During the period from the Delivery Date to the IPO Closing Date,
this Agreement may be terminated by the parties only pursuant to Section
12.01(b)(i).
(b) Certain Conditions to the Obligations of the Company and the
Stockholders. The obligations of the Company and the Stockholders with respect
to the actions to be taken by them at or before the Delivery Date are subject to
the satisfaction on or before the Delivery Date, or waiver by them pursuant to
Section 11.05, of all the conditions set forth in Sections 7.01 and 7.02(a). The
obligations of the Stockholders with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of the following
conditions: (if required by such Stockholder) (i) the Employment Agreement then
shall be in full force and effect; and (ii) all the conditions set forth in
Sections 7.01 and 7.02(b).
(c) Certain Conditions to the Obligations of RW and Newco. The
obligations of RW and Newco with respect to actions to be taken by them at or
before the Delivery Date are subject to the satisfaction on or before the date
of the Delivery Date, or waiver by them pursuant to Section 11.05, of the
following conditions: (i) the Company shall have delivered to RW a copy of the
articles of incorporation, as amended to the Delivery Date and certified by the
Secretary of State of the State of Indiana as of a Current Date, of the Company;
and (ii) all the conditions set forth in Sections 7.01 and 7.03(a). The
obligations of RW and Newco with respect to the actions to be taken on the IPO
Closing Date are subject to the satisfaction on that date of the following
conditions: (i) the Employment Agreements then shall be in full force and
effect; and (ii) all the conditions set forth in Sections 7.01 and 7.03(b).
(d) Uniform Provisions. The text of Article VII of the Uniform
Provisions hereby is incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01. Of Each Party Other than the Company. From and after the
Effective Time, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Company) will
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<PAGE> 15
comply with each covenant for which provision is made in Article VIII of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) to be performed or observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01. Indemnification Rights and Obligations. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. Any provision contained in Article IX of the Uniform Provisions to
the contrary notwithstanding, the indemnification obligations of the
Stockholders pursuant to this Agreement shall be joint and several.
ARTICLE X
[Intentionally Ommitted]
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. Treatment of Confidential Information. Each party hereto
will comply with each covenant for which provision is made in Section 11.01 of
the Uniform Provisions (the text of which Section hereby is incorporated herein
by this reference) to be performed or observed by that party.
Section 11.02. Restrictions on Transfer of RW Common Stock.
(a) Except for transfers to employees of the Company that are approved
in writing by the Board of Directors of RW (or a committee designated by the
Board of Directors of RW) prior to such transfer, during the one year period
ending on the first anniversary of the IPO Closing Date (the "Restricted
Period"), no Stockholder voluntarily will: (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
RW Common Stock received by any Stockholder in the Merger or (B) any interest in
(including any option to buy or sell) any of those shares of RW Common Stock, in
whole or in part, and RW will have no obligation to, and shall not, treat any
such attempted transfer as effective for any purpose; or (ii) engage in any
transaction, whether or not with respect to any shares of RW Common Stock or any
interest therein, the intent or effect of which is to reduce the risk of owning
the shares of RW Common Stock acquired pursuant to Section 2.04 (including, for
example engaging in put, call, short-sale, straddle or similar market
transactions); provided, however, that this Section 11.02 shall not restrict any
transfer of RW Common Stock acquired by a Stockholder pursuant to Section 2.04
to any of that Stockholder's Related Persons who agree in writing to be bound by
the provisions of Section 11.01
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<PAGE> 16
and this Section 11.02. The certificates evidencing the RW Common Stock
delivered to each Stockholder pursuant to Section 2.05 will bear a legend
substantially in the form set forth below and containing such other information
as RW may deem necessary or appropriate:
"EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER
PARTIES THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE
REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF
ANY OF THOSE SHARES, DURING THE ONE-YEAR PERIOD ENDING ON __________ [DATE THAT
IS THE FIRST ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED PERIOD"). ON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE."
(b) From the first anniversary of the IPO Closing Date to the fourth
anniversary of the IPO Closing Date, the Stockholders agree to sell shares of RW
Common Stock acquired pursuant to this Agreement only in accordance with the
procedures set forth in this Section 11.02(b). Every quarter during such period,
every Stockholder will be permitted to sell, in the aggregate, up to 8% of the
aggregate number of shares of Common Stock received by such Stockholder pursuant
to this Agreement (the "Quarterly Block Trade Shares") in either a block trade
or a registered public offering, at the option of RW. If a Stockholder does not
sell all of his or her Quarterly Block Trade Shares in any given quarter, such
Stockholder may sell such Quarterly Block Trade Shares pursuant to this Section
11.02(b) in any later quarter, provided, however, that in no event may a
Stockholder sell more than 20% of the shares of Common Stock received by such
Stockholder pursuant to this Agreement in any one quarter. Any Stockholder that
wishes to sell shares of RW Common Stock pursuant to such selling opportunity
must give notice to RW and the Executive Council no later than fourteen days
prior to the commencement of the fiscal quarter of RW during which such
Stockholder wants to sell such shares. Notwithstanding anything set forth in
this Section 11.02(b), RW may elect to make available to the Stockholders (i)
additional opportunities to sell shares of RW Common Stock and/or (ii) the
opportunity to sell an amount in excess of such amount during any particular
quarter. The Company may modify or waive this Section 11.02(b) at its sole
discretion at any time following written notice to the Stockholders, provided
that no such modification or waiver may reduce the number of selling
opportunities or the maximum number of shares of RW Common Stock that may be
sold by any Stockholder during any selling opportunity.
(c) Each Stockholder, severally and not jointly with any other Person,
(i) acknowledges that the shares of RW Common Stock to be delivered to that
Stockholder pursuant to Section 2.04 have not been and will not be registered
under the Securities Act and therefore may not be resold by that Stockholder
without compliance with the Securities Act and (ii) covenants that none of the
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<PAGE> 17
shares of RW Common Stock issued to that Stockholder pursuant to Section 2.04
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable provisions of
the Securities Act and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of RW Common
Stock issued pursuant to Section 2.04 will bear the following legend in addition
to the legend prescribed by Section 11.02(a):
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, HAVE
BEEN ISSUED PURSUANT TO ONE OR MORE EXEMPTIONS THERETO, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED OR DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED."
In addition, certificates evidencing shares of RW Common Stock issued pursuant
to Section 2.04 to each Stockholder will bear any legend required by the
securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03. Brokers and Agents. Except for IPO Development Company,
each of the Stockholders jointly and severally, on the one hand, and RW, on the
other, represents and warrants to the other that such Person has not directly or
indirectly employed or become obligated to pay any broker, finder or similar
agent in connection with the transactions contemplated hereby and agree, without
regard to the Threshold Amount limitations set forth in Article IX, to indemnify
the other against all Damage Claims arising out of claims for any and all fees
and commissions of brokers or similar agents employed or promised payment by
such Person.
Section 11.04. Assignment; No Third Party Beneficiaries. This Agreement
and the rights of the parties hereunder may not be assigned (except by operation
of law) and shall be binding on and inure to the benefit of the parties hereto,
the successors of RW, and the heirs and legal representatives of the
Stockholders (and, in the case of any trust, the successor trustees of that
trust). Neither this Agreement nor any other Transaction Document is intended,
or shall be construed, deemed or interpreted, to confer on any Person not a
party hereto or thereto any rights or remedies hereunder or thereunder, except
as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise provided
expressly herein or therein.
Section 11.05. Entire Agreement; Amendment; Waivers. Except with
respect to Section 11.07 hereof, this Agreement and the documents delivered
pursuant hereto constitute the entire agreement and understanding among the
Stockholders, the Company, Newco and RW and supersede all prior agreements and
understandings, both written and oral, relating to the subject matter of this
Agreement. This Agreement may be amended, modified or supplemented, and any
right hereunder may be waived, if, but only if, that amendment, modification,
supplement or waiver is in writing and
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<PAGE> 18
signed by each of the Stockholders, the Company and RW. The waiver of any of the
terms and conditions hereof shall not be construed or interpreted as, or deemed
to be, a waiver of any other term or condition hereof.
Section 11.06. Counterparts. This Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
Section 11.07. Expenses. If the transactions contemplated hereby (i)
are consummated, RW will pay the fees, expenses and disbursements of RW and
Newco and their Representatives which are incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all costs
and expenses incurred in the performance of and compliance with all conditions
to be performed by RW and Newco under this Agreement, including the costs of
preparing the Registration Statement, (collectively, the "RW Expenses") and (ii)
if the transactions contemplated hereby are not consummated, the RW Expenses
shall be paid by the Founding Companies subject to the provisions of the IPO
Cost Liability Sharing Agreement attached hereto as Exhibit C and incorporated
herein by reference (b) the Stockholders will pay from personal funds, and not
from funds of the Company or any Company Subsidiary, all sales, use, transfer
and other similar taxes and fees (collectively, "Transfer Taxes") incurred in
connection with the transactions contemplated hereby and (c) the Company will
pay the fees, expenses and disbursements of Counsel for the Company and the
Stockholders incurred in connection with the subject matter of this Agreement
and the Registration Statement on or before the IPO Closing Date. The
Stockholders will file all necessary documentation and Returns with respect to
all Transfer Taxes. In addition, each Stockholder acknowledges that he, and not
the Company or RW or the Surviving Corporation, will pay all Taxes due upon
receipt of the consideration payable to that Stockholder pursuant to Article II.
Section 11.08. Notices. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received
(a) if personally delivered or if delivered by telex, telegram,
facsimile or courier service, when actually received by the party to whom notice
is sent or
(b) if delivered by mail (whether actually received or not), at the
close of business on the third Business Day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
(i) if to RW or Newco, addressed to it at:
RailWorks Corporation
403 Somerset Road
Baltimore, Maryland 21210
Attn: Chief Executive Officer
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<PAGE> 19
with copies (which shall not constitute notice for purposes
of this Agreement) to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attn: Jeffrey M. Stein
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
Annex Railroad Builders, Inc.
2400 Ritter Avenue
Indianapolis, Indiana 46218
Attn: Ronald E. Brown
with copies (which shall not constitute notice for purposes
of this Agreement) to Counsel for the Company and the
Stockholders at the address designated by the Company
Section 11.09. Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF DELAWARE
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10. Exercise of Rights and Remedies. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11. Time. Time is of the essence in the performance of this
Agreement in all respects.
Section 11.12. Reformation and Severability. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this
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<PAGE> 20
Agreement, and in either case the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
Section 11.13. Remedies Cumulative. No right, remedy or election given
by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14. Respecting the IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither RW or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that RW will use its reasonable best efforts to
cause the Registration Statement to become effective prior to August 14, 1998)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to RW or the
IPO.
ARTICLE XII
TERMINATION
Section 12.01. Termination of this Agreement.
(a) This Agreement may be terminated at any time prior to the Delivery
Date solely:
(i) by the mutual written consent of RW and the Company;
(ii) by the Stockholders or the Company, on the one hand, or
by RW, on the other hand, if the events contemplated by this Agreement
to take place at the Delivery Date shall not have taken place by
September 4, 1998, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the
case of the Stockholders and the Company, any of them) seeking to
terminate this Agreement to perform or adhere to any agreement required
hereby to be performed or adhered to by it prior to or at the Delivery
Date or thereafter on the IPO Closing Date;
(iii) by the Stockholders or the Company, on the one hand,
or by RW, on the other hand, if a material breach or default shall be
made by the other party (or in the case of the Stockholders and the
Company, any of them) in the observance or in the due and timely
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<PAGE> 21
performance of any of the covenants, agreements or conditions contained
in Article VI or Section 11.01;
(iv) by the Stockholders or the Company, on the one hand, or
RW, on the other, if it is entitled to do so as provided in Section
6.08;
(v) by the Stockholders prior to the filing of the Registration
Statement if the Registration Statement is not filed by June 15, 1998;
(vi) by RW or the Stockholders prior to 9:00 a.m. on the IPO
Pricing Date (as set forth in Section 8.10) if the value of RW at the
IPO Pricing Date (as calculated by multiplying the price per share at
which the RW common stock is to be sold in the IPO by the number of
shares of common stock to be outstanding after the Closing of the IPO)
shall be less than $215 million;
(vii) by the Stockholders if the Registration Statement has not
been declared effective by the Securities and Exchange Commission by
August 14, 1998;
(viii) by the Stockholders if John G. Larkin is no longer serving
as Chairman of the Board of Directors and Chief Executive Officer prior
to the Closing; or
(ix) by the stockholders of CPI Concrete Products, Inc. if its
Employee Stock Ownership Plan does not approve the merger prior to the
Delivery Date.
(b) This Agreement may be terminated after the Delivery Date solely:
(i) by RW or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the IPO Pricing Date and prior
to the consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City business
days after the Delivery Date.
(c) If this Agreement is terminated pursuant to this Section 12.01, the
Merger will be deemed for all purposes to have been abandoned and of no force or
effect.
Section 12.02. Liabilities in Event of Termination. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Sections
11.03 or 11.07 and (b) to the extent that such liability is based on the breach
by that party of any of its representations, warranties or covenants set forth
in this Agreement.
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<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
RAILWORKS CORPORATION
By: /s/ John G. Larkin
--------------------------------------------
John G. Larkin
Chief Executive Officer
CARDINALS ANNEX RAILROAD BUILDER
COMPANY
By: /s/ John G. Larkin
--------------------------------------------
John G. Larkin
President
ANNEX RAILROAD BUILDERS, INC.
By: /s/ Authorized Signature
--------------------------------------------
Name:
Title:
STOCKHOLDERS:
/s/ Ronald E. Brown
-----------------------------------------------
Ronald E. Brown
/s/ Mark A. Brown
-----------------------------------------------
Mark A. Brown
/s/ James D. Lawyer
-----------------------------------------------
James D. Lawyer
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<PAGE> 23
ADDENDUM 1
OTHER FOUNDING COMPANIES
A. Words and terms used in this Addendum which are defined in
the captioned Agreement to which this is an Addendum are used herein as therein
defined.
B. The Founding Companies are:
Alpha - Keystone Engineering, Inc.
Annex Railroad Builders, Inc.
Comtrak Construction, Inc.
Comstock Holdings Inc.
Condon Brothers, Inc.
CPI Concrete Products
HP McGinley, Inc.
Kennedy Railroad Builders, Inc.
Merit Railroad Contractors, Inc.
Midwest Construction Services, Inc.
Minnesota Railroad Services, Inc.
Mize Construction Co.
New England Railroad Construction Co., Inc.
Northern Rail Service & Supply Company, Inc.
Railcorp, Inc.
Railroad Service, Inc.
Railroad Specialities, Inc,
Southern Indiana Wood Preserving Co.
U.S. Railway Supply, Inc,
U.S. Trackworks, Inc.
W.A. Smith Construction Co., Inc.
W.A Smith Rerailing Co., Inc.
<PAGE> 1
EXHIBIT 10.5
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 21, 1998
BY AND BETWEEN
RAILWORKS CORPORATION,
HUSKIES CONDON BROTHERS COMPANY,
CONDON BROTHERS INC.
AND
THE STOCKHOLDERS NAMED HEREIN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS.....................................................1
Section 1.01. Certain Defined Terms...........................1
ARTICLE II THE MERGER AND RELATED MATTERS..................................4
Section 2.01. Certificate of Merger...........................4
Section 2.02. The Effective Time..............................4
Section 2.03. Certain Effects of the Merger...................4
Section 2.04. Effect of the Merger on Capital Stock...........5
Section 2.05. Delivery, Exchange and Payment..................6
Section 2.06. Merger Consideration Calculation................7
Section 2.07. Fractional Shares...............................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
EACH STOCKHOLDER................................................8
Section 3.01. By Each Stockholder.............................8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS........................9
Section 4.01. By the Company and Each Primary Stockholder.....9
ARTICLE V REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO..................9
Section 5.01. By RW and Newco.................................9
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME......................10
Section 6.01. Of Each Party..................................10
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION...................................................10
Section 7.01. The Closing and Certain Conditions.............10
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME.........................12
Section 8.01. Of Each Party Other than the Company...........12
ARTICLE IX INDEMNIFICATION................................................12
Section 9.01. Indemnification Rights and Obligations.........12
ARTICLE X [Intentionally Omitted]........................................12
ARTICLE XI GENERAL PROVISIONS.............................................12
Section 11.01. Treatment of Confidential Information..........12
Section 11.02. Restrictions on Transfer of RW Common Stock....12
Section 11.03. Brokers and Agents.............................14
Section 11.04. Assignment; No Third Party Beneficiaries.......14
Section 11.05. Entire Agreement; Amendment; Waivers...........15
Section 11.06. Counterparts...................................15
Section 11.07. Expenses.......................................15
Section 11.08. Notices........................................15
Section 11.09. Governing Law..................................16
Section 11.10. Exercise of Rights and Remedies................16
Section 11.11. Time...........................................16
Section 11.12. Reformation and Severability...................17
Section 11.13. Remedies Cumulative............................17
Section 11.14. Respecting the IPO.............................17
ARTICLE XII TERMINATION....................................................17
Section 12.01. Termination of this Agreement..................17
Section 12.02. Liabilities in Event of Termination............18
</TABLE>
EXHIBITS
Exhibit A - List of Primary Stockholders
Exhibit B - Form of Employment Agreement
Exhibit C - IPO Cost Liability Sharing Agreement
Exhibit D - Merger Consideration
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<PAGE> 4
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
as of May 21, 1998, by and among RailWorks Corporation, a Delaware corporation
("RW"), Huskies Condon Brothers Company, a Washington corporation and a wholly
owned subsidiary of RW("Newco"), Condon Brothers Inc., a Washington corporation
(the "Company"), and the persons listed on the signature pages hereof under the
caption "Stockholders" (collectively, the "Stockholders," and each of those
persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(a) Newco will merge into the Company on the terms and subject to the
conditions set forth herein (that merger being the "Merger");
(b) RW will acquire the stock of all or some of the entities listed in
the accompanying Addendum 1 (each an "Other Founding Company" and, collectively
with the Company, the "Founding Companies") pursuant to agreements that are (i)
similar in all material respects to this Agreement and (ii) entered into among
those entities and their equity owners, RW and subsidiaries of RW
(collectively, the "Other Agreements"); and
(c) RW shall at such time as specified herein and if certain
conditions are met, effect a public offering of shares of its common stock and
issue and sell those shares.
The respective boards of directors of RW, Newco and the Company have
approved and adopted this Agreement to effect a transaction subject to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Certain Defined Terms . As used in this Agreement and in
the related Addendums, Annexes, Schedules and Exhibits, the following terms
have the meanings assigned to them below in this Section 1.01. Capitalized
terms used in this Agreement and not defined below in this Section 1.01 have
the meanings assigned to them in the Preliminary Statement or Article I of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference), as the case may be.
<PAGE> 5
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement and all attached Schedules,
Addendums, Annexes and Exhibits, as each of the same may be amended, modified
or supplemented from time to time pursuant to the provisions hereof or thereof.
"Applicable Corporate Code" means the laws of the Organization State
of the Company that govern corporations incorporated in such state.
"Closing Date Balance Sheet" of the Company means a balance sheet of
the Company as at the IPO Closing Date which is prepared on a basis consistent
with the basis on which the Current Balance Sheet was prepared.
"Closing Memorandum" means the form of closing memorandum to be
prepared by RW for the Closing under this Agreement in which are included the
forms of certificates of officers, the opinions of counsel and certain other
documents to be delivered at the Closing as provided in Article VII.
"Company Accounts Receivable" shall mean the accounts and notes or
other advances receivable of the Company and the Company Subsidiaries,
excluding any Retainages, as of the IPO Closing Date.
"Company Common Stock" means the common stock, $.05 par value, of the
Company.
"Company Indebtedness" means the indebtedness of the Company, as of
the IPO Closing Date (including, with respect to CPI Concrete Products, Inc.,
the value of the Cash Company Consideration to be received by its Employee
Stock Ownership Plan), that the Company has elected to repay (or repurchase, as
the case may be) with a portion of the RW Common Stock to be received as part
of the Merger Consideration. At least five days prior to the Delivery Date, the
Company will deliver to RW a schedule of the aggregate principal amount of the
Company Indebtedness, certified by the President of the Company, that will be
outstanding on the IPO Closing Date, and RW will repay such Company
Indebtedness on the IPO Closing Date. To the extent that the actual amount of
Company Indebtedness exceeds the amount shown on such schedule, such excess
shall be repaid by the Stockholders on or prior to the IPO Closing Date.
"Counsel for RW and Newco" means King & Spalding.
"Counsel for the Company and the Stockholders" means such counsel as
shall be designated by the Company in writing on or prior to the Delivery Date.
"Current Balance Sheet" means the balance sheet of the Company as at
March 31, 1998 which is included in the Initial Financial Statements.
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<PAGE> 6
"Current Balance Sheet Date" means December 31, 1997.
"Defined Net Worth" as of the IPO Closing Date shall mean (i) the
total assets of the Company, as set forth on the balance sheet of the Company
as of such date, except that (A) expenses of the Company directly attributable
to the IPO and/or the transactions contemplated by this Agreement, including
but not limited to, costs incurred pursuant to the HSR Act, shall be added back
to the assets of the company and (B) the value of inventory, machinery,
equipment and real estate shall be determined pursuant to Section 2.06(a), less
(ii) the total liabilities of the Company, as set forth on the balance sheet of
the Company as of such date, excluding the Company Indebtedness.
Notwithstanding the foregoing, in the case of Comstock, Comstock's contractual
obligation to Spie Group, Inc., as successor to Comstock Group, Inc., shall not
be deemed to be a liability for purposes of determining Defined Net Worth.
"Delivery" or "Delivery Date" shall have the meaning set forth in
Section 7.01.
"Earnings Percentage" shall have the meaning set forth in Exhibit D.
"Employment Agreement" means each of the Employment Agreements entered
into as of the Closing Date between RW and each of the Stockholders set forth
on Exhibit A hereto, a form of which is attached hereto as Exhibit B.
"fair market value" means that value at which goods and/or services
would be exchanged between a willing buyer and willing seller in a transaction
entered into at arms length with each party having relevant facts of all
aspects of the transaction.
"Initial Financial Statements" means (a) the balance sheets of the
Company as at December 31, 1997 and March 31, 1998 and the related reviewed
statements of operations and retained earnings for each of the Company's two
fiscal years in the period ended December 31, 1997, and (b) the Current Balance
Sheet and the related statement of income for the Company's fiscal year ended
December 31, 1997, which the Company has delivered to RW prior to the date
hereof.
"IPO Closing Date" means the date on which RW first receives payment
for the shares of RW Common Stock it sells to the Underwriter in the IPO.
"Merger Consideration" has the meaning specified in Section 2.04.
"Newco" means Huskies Condon Brothers Company, a Washington
corporation.
"Responsible Officer" means the President, Chief Executive Officer or
any Vice President of the Company.
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"Retainages" means the portion of progress payments due to a Company
for contracting projects that is withheld by a customer of such Company until
completion of a project, pursuant to the terms of a contract with such
customer, as security for the completion of the project.
"RW" means RailWorks Corporation, a Delaware corporation.
"Scheduled Related Party Agreements" means the agreements described in
Schedule 4.11.
"Surviving Corporation" means the Person to be designated in the
Certificate of Merger as the surviving corporation of the Merger.
"Threshold Amount" means 2.0% of the Merger Consideration.
"Transaction Value" means the (i)(A) the total number of shares of RW
outstanding immediately upon the closing of the IPO and the transactions
contemplated by this Agreement and the Other Agreements multiplied by (B) the
IPO Price multiplied by (C) 92% minus (ii) actual expenses of RW incurred with
respect to the IPO, an estimate of which will be set forth in Item 13 of Part
II of the Registration Statement minus (iii) the underwriting discounts and
commissions paid to the Underwriter pursuant to the IPO minus (iv) the proceeds
received by RW in connection with any shares of RW Common Stock sold by RW to
finance the working capital needs of RW, which shares shall not exceed 5% of
the number of shares to be sold in the IPO.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions of RW for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. Certificate of Merger . Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the Delivery Date to the Department
of State of the State of Washington.
Section 2.02. The Effective Time . The effective time of the Merger
(the "Effective Time") will be the time on the IPO Closing Date as specified in
the Certificate of Merger or, if the Certificate of Merger does not specify
another time, 8:00 a.m., eastern daylight standard time, on the IPO Closing
Date.
Section 2.03. Certain Effects of the Merger . At and as of the
Effective Time, (a) Newco will be merged with and into the Company in
accordance with the provisions of the Washington Business Corporation Act, (b)
Newco will cease to exist as a separate legal entity, (c) the articles of
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incorporation of the Company will be amended to change its authorized capital
stock to 100 shares, par value $0.01 per share, of Common Stock, (d) the
Company will be the Surviving Corporation and, as such, will, all with the
effect provided by the Washington Business Corporation Act, (i) possess all the
properties and rights, and be subject to all the restrictions and duties, of
the Company and Newco and (ii) be governed by the laws of the State of
Washington, (e) the Charter Documents of the Company then in effect (after
giving effect to the amendment of the Company's articles of incorporation
specified in clause (c) of this sentence) will become and thereafter remain
(until changed in accordance with (i) applicable law (in the case of the
articles of incorporation) or (ii) their terms (in the case of the bylaws)) the
Charter Documents of the Surviving Corporation, (f) the initial board of
directors of the Surviving Corporation will be the Chief Executive Officer of
RW and the other persons named in Schedule 2.03, and those persons will hold
the office of director of the Surviving Corporation subject to the provisions
of the applicable laws of the State of Washington and the Charter Documents of
the Surviving Corporation, and (g) the initial officers of the Surviving
Corporation will be as set forth in Schedule 2.03, and each of those persons
will serve in each office specified for that person in Schedule 2.03, subject
to the provisions of the Charter Documents of the Surviving Corporation, until
that person's successor is duly elected to, and, if necessary, qualified for,
that office.
Section 2.04. Effect of the Merger on Capital Stock. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the right to
receive, subject to the provisions of Section 2.05 and Exhibit D, without
interest, on surrender of the certificate evidencing those shares, the amount
of cash and the number of whole and fractional shares of RW Common Stock set
forth or determined as provided in Exhibit D (the "Merger Consideration"), (ii)
cease to be outstanding and to exist and (iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to exist
and (ii) be canceled and retired; and
(c) each share of Newco Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into one share of
Common Stock, $.05 par value, of the Surviving Corporation, and the shares of
Common Stock of the Surviving Corporation issued on that conversion will
constitute all the issued and outstanding shares of Capital Stock of the
Surviving Corporation. Each holder of a certificate representing shares of
Company Common Stock immediately prior to the Effective Time will, as of the
Effective Time and thereafter, cease to have any rights respecting those shares
other than the right to receive, subject to the provisions of Section 2.05,
without interest, the Merger Consideration and the additional cash, if any,
owing with respect to those shares as provided in Section 2.07.
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Section 2.5. Delivery, Exchange and Payment.
(a) At or after the Effective Time: (i) each Stockholder, as the
holder of certificates representing shares of Company Common Stock, will, on
surrender of those certificates to RW (or any agent that may be appointed by RW
for purposes of this Section 2.05), receive, subject to the provisions of this
Article II and the Escrow Agreement, such Stockholder's share of the Merger
Consideration pursuant to Section 2.04 and Exhibit D; and (ii) until any
certificate representing Company Common Stock has been surrendered and replaced
pursuant to this Section 2.05, that certificate will, for all purposes, be
deemed to evidence ownership of the number of whole shares of RW Common Stock
included in the Merger Consideration payable in respect of that certificate
pursuant to Section 2.04. The Escrow Agreement will provide that the shares of
RW Common Stock issued to the Stockholders as a part of the Merger
Consideration together with duly executed stock powers in blank, shall be
placed in escrow to be held subject to the terms of the Escrow Agreement and
further subject to Exhibit D and Section 11.02. The escrow shall consist solely
of shares of RW Common Stock that shall be issued at the Effective Time to the
Stockholders of the Founding Companies and delivered, at the Closing, to the
Escrow Agent. All shares of RW Common Stock issuable in the Merger will be
deemed for all purposes to have been issued by RW at the Effective Time.
(b) Each Stockholder will deliver to RW (or any agent that may be
appointed by RW for purposes of this Section 2.05) on or before the Delivery
Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Stockholder, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Stockholder's expense, affixed and canceled.
Each Stockholder shall cure any deficiencies in the endorsement of the
certificates or other documents of conveyance respecting, or in the stock
powers accompanying, the certificates representing Company Common Stock
delivered by that Stockholder.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to RW Common Stock and payable to
the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of RW Common Stock have been issued in the Merger until
those certificates are surrendered as provided herein, but (i) on that
surrender RW will cause to be paid, to the Person in whose name the
certificates representing such shares of RW Common Stock shall then be issued,
the amount of dividends or other distributions previously paid with respect to
such whole shares of RW Common Stock with a record date, or which have accrued,
subsequent to the Effective Time, but prior to surrender, and the amount of any
cash payable to such Person for and in lieu of fractional shares pursuant to
Section 2.07 and (ii) at the appropriate payment date or as soon as practicable
thereafter, RW will cause to be paid to that Person the amount of dividends or
other distributions with a record date, or which have been accrued, subsequent
to the Effective Time, but which are not payable until a date subsequent to
surrender, which are payable with respect to such whole shares of RW Common
Stock, subject in all cases to any applicable
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escheat laws. No interest will be payable with respect to the payment of such
dividends or other distributions or cash for and in lieu of fractional shares on
surrender of outstanding certificates.
(d) Each Stockholder hereby authorizes and directs RW to deliver 3.5%
of the Cash Company Consideration and 3.5% of the Stock Company Consideration
owed to such Stockholder pursuant to this Agreement (before deposit of the
shares of RW Common Stock into escrow) to IPO Development Company in payment of
fees owed to IPO Development Company by such Stockholder.
Section 2.06. Merger Consideration Calculation.
(a) No later than fifteen (15) days following the IPO Closing Date,
the Company shall provide to the Chief Accounting Officer of RW (the "CAO") a
determination of the fair market value (as defined) of its inventory,
machinery, equipment and real estate (the "Valued Assets") as of the IPO
Closing Date. Within seven (7) days of such date, the CAO shall distribute to
every Founding Company the value of the Valued Assets of every Founding
Company. The Company shall have seven (7) days from the date of the
distribution of such valuation to dispute the value of the Valued Assets of any
Founding Company by providing written notice of such dispute to the CAO. If the
CAO is unable to resolve any such dispute, the dispute shall be resolved by
binding arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, which arbitration shall be resolved no later
than thirty (30) days from selection of the arbitrator. The arbitrator shall be
selected by the CAO.
(b) Arthur Andersen or, if not Arthur Andersen, the Company's
accountant, shall cause to be prepared and delivered to RW and the Company a
calculation as of the IPO Closing Date of the Defined Net Worth of the Company
(the "Balance Sheet Calculation"). The Balance Sheet Calculation shall be final
and binding on the Company and the Other Founding Companies absent fraud,
manifest error or gross negligence.
(c) The Balance Sheet Calculation shall include a report of Arthur
Andersen or, if not Arthur Andersen, the Company's accountant, stating that it
has been prepared in a manner consistent with the accounting policies and
procedures used in preparation of the balance sheets in the Initial Financial
Statements, except as provided in the definition of "Defined Net Worth"
contained herein. The Stockholders shall give Arthur Andersen and other
appropriate personnel such assistance and access to the assets and books and
records of the Company as Arthur Andersen shall reasonably request during
normal business hours in order to enable them to prepare the Balance Sheet
Calculation. The Surviving Corporation shall be responsible for the fees and
expenses of Arthur Andersen or, if not Arthur Andersen the Company's
accountant.
Section 2.07. Fractional Shares . Notwithstanding any other provision
herein, no fractional shares of RW Common Stock will be issued. All shares of
RW Common Stock shall be aggregated, and any Stockholder entitled hereunder,
after such aggregation, to receive a fractional share of RW Common Stock but
for this Section 2.07 will be entitled hereunder to receive a cash payment for
and
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in lieu thereof in the amount (rounded to the nearest whole cent) equal to
that Stockholder's fractional interest in a share of RW Common Stock multiplied
by the IPO Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01. By Each Stockholder. The Stockholders severally represent
and warrant to, and agree with, RW that all the following representations and
warranties in this Article III are as of the date of this Agreement, and will
be, as amended or supplemented pursuant to Section 6.08, on the IPO Closing
Date, true and correct:
(a) (i) each Stockholder will acquire the shares of RW Common Stock to
be issued pursuant to Article II to the Stockholder solely for the
Stockholder's account, for investment purposes only and with no current
intention or plan to distribute, sell or otherwise dispose of any of those
shares in connection with any distribution;
(ii) no Stockholder is a party to any agreement or other
arrangement for the disposition of any shares of RW Common Stock other
than this Agreement; (iii) except as set forth on Schedule 3.01(a)(ii)
each Stockholder is an "accredited investor" as defined in Rule 501(a)
promulgated under the Securities Act; (iv) each Stockholder (A) is
able to bear the economic risk of an investment in the RW Common Stock
acquired pursuant to this Agreement, (B) can afford to sustain a total
loss of that investment, (C) has such knowledge and experience in
financial and business matters that he or she is capable of evaluating
the merits and risks of the proposed investment in the RW Common
Stock, (D) has had an adequate opportunity to ask questions and
receive answers from the officers of RW concerning any and all matters
relating to the transactions contemplated hereby, including the
background and experience of the current and proposed officers and
directors of RW, the plans for the operations of the business of RW,
the business, operations and financial condition of the Other Founding
Companies and any plans of RW for additional acquisitions, and (E) has
asked all questions of the nature described in preceding clause (D)
that such Stockholder thought to ask, and all those questions have
been answered to his or her satisfaction;
(b) the representations and warranties contained in Article III of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to; and
(c) (i) the terms and conditions of any agreements between any
Stockholder or an Affiliate of any Stockholder, on the one hand, and the
Company on the other hand, included in the Scheduled Related Party Agreements
will have been amended effective as of the IPO Closing Date to be no less
favorable to the Company than the Company reasonably could have expected to
obtain in an arms-length transaction with a Person other than an Affiliate of
the Company and (ii) the
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rentals or other payments provided for in such agreements then will not exceed
fair market rentals of the property being leased or fair market value of the
sum or product being provided and such amounts shall have been previously
approved in writing by the Chief Financial Officer of RW.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS
Section 4.01. By the Company and Each Primary Stockholder. The Company
and each Primary Stockholder jointly and severally represent and warrant to, and
agree with, RW that all the following representations and warranties in this
Article IV are as of the date of this Agreement, and will be, as amended or
supplemented pursuant to Section 6.08, on the Delivery Date and the IPO Closing
Date, true and correct:
(a) the Organization State of the Company is the State of Washington,
and the Company (i) is a corporation duly organized, validly existing and in
good standing under the laws of that State, (ii) has all requisite corporate
power and authority under those laws and its Charter Documents to own or lease
and to operate its properties and to carry on its business as now conducted and
(iii) is duly qualified and in good standing as a foreign corporation in all
jurisdictions (other than the State of Washington) in which it owns or leases
property or in which the carrying on of its business as now conducted so
requires except where the failure to be so qualified, singly or in the
aggregate, would not have a Material Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is comprised of
1,000,000 shares of Company Common Stock, of which 580,000 shares have been
issued and are now outstanding and no shares are held by the Company as
treasury shares, and (ii) there are no Derivative Securities of the Company;
(c) the Company has elected to be treated as an S corporation within
the meaning of the Code, as amended; and
(d) the representations and warranties contained in Article IV of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO
Section 5.01. By RW and Newco. RW and Newco jointly and severally
represent and warrant to the Company and each Stockholder that all the following
representations and warranties
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in this Article V are as of the date of this Agreement, and will be on the IPO
Closing Date, true and correct:
(a) Newco is a corporation duly organized, validly existing and in
good standing under the laws of the State of Washington;
(b) except as disclosed in the Private Placement Memorandum, no
Derivative Securities of Newco are outstanding;
(c) Newco has been organized for the sole purpose of participating in
the Merger and has not, and will not, engage in any activities other than those
necessary to effectuate the Merger;
(d) except for shares of RW Common Stock to be publicly sold in the
IPO and as disclosed in the Private Placement Memorandum or preliminary
prospectus, neither RW nor Newco is a party to any agreement or other
arrangement for the disposition of any shares of RW Common Stock; and
(e) the representations and warranties contained in Article V of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01. Of Each Party . Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01. The Closing and Certain Conditions.
(a) The Closing. On or before the IPO Pricing Date, the parties hereto
will take all actions necessary to (i) effect the Merger (including, as
permitted by the Applicable Corporate Code, (A) the execution of a Certificate
of Merger (1) meeting the requirements of the Applicable Corporate Code and (2)
providing that the Merger will become effective on the IPO Closing Date and (B)
the delivery of that Certificate of Merger with a filing service that will file
such Certificate of Merger with the Department of State of the State of
Washington) upon notification of the closing of the IPO (provided that
Comstock's Certificate of Merger shall be filed immediately prior to the
closing of the IPO), (ii) verify the existence and ownership of the
certificates evidencing the
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Company Common Stock to be exchanged for the Merger Consideration pursuant to
Section 2.05 and (iii) satisfy the document delivery requirements to which the
obligations of the parties to effect the Merger and the other transactions
contemplated hereby are conditioned by the provisions of this Article VII (all
those actions collectively being the "Delivery"). The Delivery will take place
at the offices of King & Spalding, 191 Peachtree Street, Atlanta, Georgia at
10:00 a.m., Atlanta time on the IPO Pricing Date, or at such later time on the
IPO Pricing Date as RW shall specify by written notice to the President of the
Company (the "Delivery Date"). The actions taken at the Delivery will not
include the completion of either the Merger or the delivery of the Company
Common Stock or the Merger Consideration pursuant to Section 2.05. On the IPO
Closing Date, the Certificate of Merger will be filed and will become effective
pursuant to Section 2.02, and all transactions contemplated by this Agreement
to be closed or completed on or before the IPO Closing Date, including the
surrender of the Company Common Stock in exchange for the Merger Consideration
(including a certified check or checks in an amount equal to the cash portion
of the Merger Consideration) will be closed or completed, as the case may be.
During the period from the Delivery Date to the IPO Closing Date, this
Agreement may be terminated by the parties only pursuant to Section
12.01(b)(i).
(b) Certain Conditions to the Obligations of the Company and the
Stockholders. The obligations of the Company and the Stockholders with respect
to the actions to be taken by them at or before the Delivery Date are subject
to the satisfaction on or before the Delivery Date, or waiver by them pursuant
to Section 11.05, of all the conditions set forth in Sections 7.01 and 7.02(a).
The obligations of the Stockholders with respect to the actions to be taken on
the IPO Closing Date are subject to the satisfaction on that date of the
following conditions: (if required by such Stockholder) (i) the Employment
Agreement then shall be in full force and effect; and (ii) all the conditions
set forth in Sections 7.01 and 7.02(b).
(c) Certain Conditions to the Obligations of RW and Newco. The
obligations of RW and Newco with respect to actions to be taken by them at or
before the Delivery Date are subject to the satisfaction on or before the date
of the Delivery Date, or waiver by them pursuant to Section 11.05, of the
following conditions: (i) the Company shall have delivered to RW a copy of the
articles of incorporation, as amended to the Delivery Date and certified by the
Secretary of State of the State of Washington as of a Current Date, of the
Company; and (ii) all the conditions set forth in Sections 7.01 and 7.03(a).
The obligations of RW and Newco with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of the following
conditions: (i) the Employment Agreements then shall be in full force and
effect; and (ii) all the conditions set forth in Sections 7.01 and 7.03(b).
(d) Uniform Provisions. The text of Article VII of the Uniform
Provisions hereby is incorporated herein by this reference.
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ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01. Of Each Party Other than the Company. From and after the
Effective Time, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Company) will comply with each covenant for which
provision is made in Article VIII of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) to be performed or
observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01. Indemnification Rights and Obligations. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. Any provision contained in Article IX of the Uniform Provisions to
the contrary notwithstanding, the indemnification obligations of the
Stockholders pursuant to this Agreement shall be joint and several.
ARTICLE X
[Intentionally Omitted]
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. Treatment of Confidential Information. Each party hereto
will comply with each covenant for which provision is made in Section 11.01 of
the Uniform Provisions (the text of which Section hereby is incorporated herein
by this reference) to be performed or observed by that party.
Section 11.02. Restrictions on Transfer of RW Common Stock.
(a) Except for transfers to employees of the Company that are approved
in writing by the Board of Directors of RW (or a committee designated by the
Board of Directors of RW) prior to such transfer, during the one year period
ending on the first anniversary of the IPO Closing Date (the "Restricted
Period"), no Stockholder voluntarily will: (i) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint or otherwise dispose of (A) any
shares of RW Common Stock received by any Stockholder in the Merger or (B) any
interest in (including any option to buy or sell) any of those shares of RW
Common Stock, in whole or in part, and RW will have no obligation to, and shall
not, treat any such attempted transfer as effective for any purpose; or (ii)
engage in any
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transaction, whether or not with respect to any shares of RW Common Stock or
any interest therein, the intent or effect of which is to reduce the risk of
owning the shares of RW Common Stock acquired pursuant to Section 2.04
(including, for example engaging in put, call, short-sale, straddle or similar
market transactions); provided, however, that this Section 11.02 shall not
restrict any transfer of RW Common Stock acquired by a Stockholder pursuant to
Section 2.04 to any of that Stockholder's Related Persons who agree in writing
to be bound by the provisions of Section 11.01 and this Section 11.02. The
certificates evidencing the RW Common Stock delivered to each Stockholder
pursuant to Section 2.05 will bear a legend substantially in the form set forth
below and containing such other information as RW may deem necessary or
appropriate:
"EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER
PARTIES THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE
REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION
OF ANY OF THOSE SHARES, DURING THE ONE-YEAR PERIOD ENDING ON __________ [DATE
THAT IS THE FIRST ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED
PERIOD"). ON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER
AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE
TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE."
(b) From the first anniversary of the IPO Closing Date to the fourth
anniversary of the IPO Closing Date, the Stockholders agree to sell shares of
RW Common Stock acquired pursuant to this Agreement only in accordance with the
procedures set forth in this Section 11.02(b). Every quarter during such
period, every Stockholder will be permitted to sell, in the aggregate, up to 8%
of the aggregate number of shares of Common Stock received by such Stockholder
pursuant to this Agreement (the "Quarterly Block Trade Shares") in either a
block trade or a registered public offering, at the option of RW. If a
Stockholder does not sell all of his or her Quarterly Block Trade Shares in any
given quarter, such Stockholder may sell such Quarterly Block Trade Shares
pursuant to this Section 11.02(b) in any later quarter, provided, however, that
in no event may a Stockholder sell more than 20% of the shares of Common Stock
received by such Stockholder pursuant to this Agreement in any one quarter. Any
Stockholder that wishes to sell shares of RW Common Stock pursuant to such
selling opportunity must give notice to RW and the Executive Council no later
than fourteen days prior to the commencement of the fiscal quarter of RW during
which such Stockholder wants to sell such shares. Notwithstanding anything set
forth in this Section 11.02(b), RW may elect to make available to the
Stockholders (i) additional opportunities to sell shares of RW Common Stock
and/or (ii) the opportunity to sell an amount in excess of such amount during
any particular quarter. The Company may modify or waive this Section 11.02(b)
at its sole discretion at any time following written notice to the
Stockholders, provided that no such modification or waiver may
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reduce the number of selling opportunities or the maximum number of shares of
RW Common Stock that may be sold by any Stockholder during any selling
opportunity.
(c) Each Stockholder, severally and not jointly with any other Person,
(i) acknowledges that the shares of RW Common Stock to be delivered to that
Stockholder pursuant to Section 2.04 have not been and will not be registered
under the Securities Act and therefore may not be resold by that Stockholder
without compliance with the Securities Act and (ii) covenants that none of the
shares of RW Common Stock issued to that Stockholder pursuant to Section 2.04
will be offered, sold, assigned, pledged, hypothecated, transferred or
otherwise disposed of except after full compliance with all the applicable
provisions of the Securities Act and the rules and regulations of the SEC and
applicable state securities laws and regulations. All certificates evidencing
shares of RW Common Stock issued pursuant to Section 2.04 will bear the
following legend in addition to the legend prescribed by Section 11.02(a):
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS,
HAVE BEEN ISSUED PURSUANT TO ONE OR MORE EXEMPTIONS THERETO, AND MAY NOT BE
SOLD OR OTHERWISE TRANSFERRED, ASSIGNED OR DISPOSED OF UNLESS AND UNTIL
REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS,
UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
In addition, certificates evidencing shares of RW Common Stock issued pursuant
to Section 2.04 to each Stockholder will bear any legend required by the
securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03. Brokers and Agents . Except for IPO Development Company,
each of the Stockholders jointly and severally, on the one hand, and RW, on the
other, represents and warrants to the other that such Person has not directly
or indirectly employed or become obligated to pay any broker, finder or similar
agent in connection with the transactions contemplated hereby and agree,
without regard to the Threshold Amount limitations set forth in Article IX, to
indemnify the other against all Damage Claims arising out of claims for any and
all fees and commissions of brokers or similar agents employed or promised
payment by such Person.
Section 11.04. Assignment; No Third Party Beneficiaries . This
Agreement and the rights of the parties hereunder may not be assigned (except
by operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of RW, and the heirs and legal representatives
of the Stockholders (and, in the case of any trust, the successor trustees of
that trust). Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies hereunder or thereunder,
except as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise
provided expressly herein or therein.
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<PAGE> 18
Section 11.05. Entire Agreement; Amendment; Waivers. Except with
respect to Section 11.07 hereof, this Agreement and the documents delivered
pursuant hereto constitute the entire agreement and understanding among the
Stockholders, the Company, Newco and RW and supersede all prior agreements and
understandings, both written and oral, relating to the subject matter of this
Agreement. This Agreement may be amended, modified or supplemented, and any
right hereunder may be waived, if, but only if, that amendment, modification,
supplement or waiver is in writing and signed by each of the Stockholders, the
Company and RW. The waiver of any of the terms and conditions hereof shall not
be construed or interpreted as, or deemed to be, a waiver of any other term or
condition hereof.
Section 11.06. Counterparts. This Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
Section 11.07. Expenses. If the transactions contemplated hereby (i)
are consummated, RW will pay the fees, expenses and disbursements of RW and
Newco and their Representatives which are incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all costs
and expenses incurred in the performance of and compliance with all conditions
to be performed by RW and Newco under this Agreement, including the costs of
preparing the Registration Statement, (collectively, the "RW Expenses") and (ii)
if the transactions contemplated hereby are not consummated, the RW Expenses
shall be paid by the Founding Companies subject to the provisions of the IPO
Cost Liability Sharing Agreement attached hereto as Exhibit C and incorporated
herein by reference (b) the Stockholders will pay from personal funds, and not
from funds of the Company or any Company Subsidiary, all sales, use, transfer
and other similar taxes and fees (collectively, "Transfer Taxes") incurred in
connection with the transactions contemplated hereby and (c) the Company will
pay the fees, expenses and disbursements of Counsel for the Company and the
Stockholders incurred in connection with the subject matter of this Agreement
and the Registration Statement on or before the IPO Closing Date. The
Stockholders will file all necessary documentation and Returns with respect to
all Transfer Taxes. In addition, each Stockholder acknowledges that he, and not
the Company or RW or the Surviving Corporation, will pay all Taxes due upon
receipt of the consideration payable to that Stockholder pursuant to Article II.
Section 11.08. Notices. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received
(a) if personally delivered or if delivered by telex, telegram,
facsimile or courier service, when actually received by the party to whom
notice is sent or
(b) if delivered by mail (whether actually received or not), at the
close of business on the third Business Day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all
other parties in accordance herewith):
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<PAGE> 19
(i) if to RW or Newco, addressed to it at:
RailWorks Corporation
403 Somerset Road
Baltimore, Maryland 21210
Attn: Chief Executive Officer
with copies (which shall not constitute notice for purposes
of this Agreement) to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attn: Jeffrey M. Stein
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
Condon Brothers Inc.
2526 S. Hayford Road
Spokane, Washington 92224
Attn: Mark Condon
with copies (which shall not constitute notice for purposes
of this Agreement) to Counsel for the Company and the
Stockholders at the address designated by the Company
Section 11.09. Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF DELAWARE
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10. Exercise of Rights and Remedies. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11. Time. Time is of the essence in the performance of this
Agreement in all respects.
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<PAGE> 20
Section 11.12. Reformation and Severability. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13. Remedies Cumulative. No right, remedy or election given
by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14. Respecting the IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither RW or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that RW will use its reasonable best efforts to
cause the Registration Statement to become effective prior to August 14, 1998)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to RW or the
IPO.
ARTICLE XII
TERMINATION
Section 12.01 Termination of this Agreement.
(a) This Agreement may be terminated at any time prior to the Delivery
Date solely:
(i) by the mutual written consent of RW and the Company;
(ii) by the Stockholders or the Company, on the one hand, or
by RW, on the other hand, if the events contemplated by this Agreement
to take place at the Delivery Date shall not have taken place by
September 4, 1998, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the
case of the Stockholders and the Company, any of them) seeking to
terminate this Agreement to perform or adhere to any agreement
required hereby to be performed or adhered to by it prior to or at the
Delivery Date or thereafter on the IPO Closing Date;
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<PAGE> 21
(iii) by the Stockholders or the Company, on the one hand, or
by RW, on the other hand, if a material breach or default shall be
made by the other party (or in the case of the Stockholders and the
Company, any of them) in the observance or in the due and timely
performance of any of the covenants, agreements or conditions
contained in Article VI or Section 11.01;
(iv) by the Stockholders or the Company, on the one hand, or
RW, on the other, if it is entitled to do so as provided in Section
6.08;
(v) by the Stockholders prior to the filing of the
Registration Statement if the Registration Statement is not filed by
June 15, 1998;
(vi) by RW or the Stockholders prior to 9:00 a.m. on the IPO
Pricing Date (as set forth in Section 8.10) if the value of RW at the
IPO Pricing Date (as calculated by multiplying the price per share at
which the RW common stock is to be sold in the IPO by the number of
shares of common stock to be outstanding after the Closing of the IPO)
shall be less than $215 million;
(vii) by the Stockholders if the Registration Statement has
not been declared effective by the Securities and Exchange Commission
by August 14, 1998;
(viii) by the Stockholders if John G. Larkin is no longer
serving as Chairman of the Board of Directors and Chief Executive
Officer prior to the Closing; or
(ix) by the stockholders of CPI Concrete Products, Inc. if
its Employee Stock Ownership Plan does not approve the merger prior to
the Delivery Date.
(b) This Agreement may be terminated after the Delivery Date solely:
(i) by RW or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the IPO Pricing Date and prior
to the consummation of the IPO; or
(ii) automatically and without action on the part of any
party hereto if the IPO is not consummated within 15 New York City
business days after the Delivery Date.
(c) If this Agreement is terminated pursuant to this Section 12.01,
the Merger will be deemed for all purposes to have been abandoned and of no
force or effect.
Section 12.02. Liabilities in Event of Termination . If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Sections
11.03 or 11.07 and (b) to the extent that such liability is based on the breach
by that party of any of its representations, warranties or covenants set forth
in this Agreement.
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<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
RAILWORKS CORPORATION
By: /s/ John G. Larkin
-------------------------------------
John G. Larkin
Chief Executive Officer
HUSKIES CONDON BROTHERS COMPANY
By: /s/ John G. Larkin
-------------------------------------
John G. Larkin
President
CONDON BROTHERS INC.
By: /s/ Authorized Signature
-------------------------------------
Name:
Title:
STOCKHOLDERS:
/s/ Mark Condon
----------------------------------------
Mark Condon
/s/ John J. Condon
----------------------------------------
John J. Condon
/s/ John J. Condon, Jr.
----------------------------------------
John J. Condon, Jr.
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<PAGE> 23
/s/ Robert Condon
----------------------------------------
Robert Condon
/s/ Larry Condon
----------------------------------------
Larry Condon
/s/ Theodore Condon
----------------------------------------
Theodore Condon
/s/ David Condon
----------------------------------------
David Condon
----------------------------------------
Name:
----------------------------------------
Name:
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<PAGE> 24
ADDENDUM 1
OTHER FOUNDING COMPANIES
A. Words and terms used in this Addendum which are defined in the
captioned Agreement to which this is an Addendum are used herein as therein
defined.
B. The Founding Companies are:
Alpha - Keystone Engineering, Inc.
Annex Railroad Builders, Inc.
Comtrak Construction, Inc.
Comstock Holdings Inc.
Condon Brothers, Inc.
CPI Concrete Products
HP McGinley, Inc.
Kennedy Railroad Builders, Inc.
Merit Railroad Contractors, Inc.
Midwest Construction Services, Inc.
Minnesota Railroad Services, Inc.
Mize Construction Co.
New England Railroad Construction Co., Inc.
Northern Rail Service & Supply Company, Inc.
Railcorp, Inc.
Railroad Service, Inc.
Railroad Specialities, Inc,
Southern Indiana Wood Preserving Co.
U.S. Railway Supply, Inc,
U.S. Trackworks, Inc.
W.A. Smith Construction Co., Inc.
W.A Smith Rerailing Co., Inc.
<PAGE> 1
EXHIBIT 10.6
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 21, 1998
BY AND BETWEEN
RAILWORKS CORPORATION,
COMMODORES CONCRETE COMPANY,
CPI CONCRETE PRODUCTS, INC.
AND
THE STOCKHOLDERS NAMED HEREIN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.01. Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II THE MERGER AND RELATED MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.01. Certificate of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.02. The Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.03. Certain Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.04. Effect of the Merger on Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.05. Delivery, Exchange and Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.06. Merger Consideration Calculation. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.07. Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
EACH STOCKHOLDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.01. By Each Stockholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.01. By the Company and Each Primary Stockholder . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE V REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 5.01. By RW and Newco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 6.01. Of Each Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 7.01. The Closing and Certain Conditions . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 8.01. Of Each Party Other than the Company . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE IX INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 9.01. Indemnification Rights and Obligations . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE X [Intentionally Ommitted] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE XI GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 11.01. Treatment of Confidential Information . . . . . . . . . . . . . . . . . . 12
Section 11.02. Restrictions on Transfer of RW Common Stock . . . . . . . . . . . . . . . 12
Section 11.03. Brokers and Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 11.04. Assignment; No Third Party Beneficiaries . . . . . . . . . . . . . . . . . 14
Section 11.05. Entire Agreement; Amendment; Waivers . . . . . . . . . . . . . . . . . . . 15
Section 11.06. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 11.07. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 11.08. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 11.09. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 11.10. Exercise of Rights and Remedies . . . . . . . . . . . . . . . . . . . . . 16
Section 11.11. Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 11.12. Reformation and Severability . . . . . . . . . . . . . . . . . . . . . . . 17
Section 11.13. Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 11.14. Respecting the IPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE XII TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 12.01. Termination of this Agreement . . . . . . . . . . . . . . . . . . . . . . 17
Section 12.02. Liabilities in Event of Termination . . . . . . . . . . . . . . . . . . . 18
EXHIBITS
- --------
Exhibit A - List of Primary Stockholders
Exhibit B - Form of Employment Agreement
Exhibit C - IPO Cost Liability Sharing Agreement
Exhibit D - Merger Consideration
</TABLE>
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<PAGE> 4
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
as of May 21, 1998, by and among RailWorks Corporation, a Delaware corporation
("RW"), Commodores Concrete Company, a Tennessee corporation and a wholly owned
subsidiary of RW("Newco"), CPI Concrete Products, Inc., a Tennessee corporation
(the "Company"), and the persons listed on the signature pages hereof under the
caption "Stockholders" (collectively, the "Stockholders," and each of those
persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(a) Newco will merge into the Company on the terms and subject
to the conditions set forth herein (that merger being the "Merger");
(b) RW will acquire the stock of all or some of the entities
listed in the accompanying Addendum 1 (each an "Other Founding Company" and,
collectively with the Company, the "Founding Companies") pursuant to agreements
that are (i) similar in all material respects to this Agreement and (ii)
entered into among those entities and their equity owners, RW and subsidiaries
of RW (collectively, the "Other Agreements"); and
(c) RW shall at such time as specified herein and if certain
conditions are met, effect a public offering of shares of its common stock and
issue and sell those shares.
The respective boards of directors of RW, Newco and the Company have
approved and adopted this Agreement to effect a transaction subject to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 Certain Defined Terms. As used in this Agreement and
in the related Addendums, Annexes, Schedules and Exhibits, the following terms
have the meanings assigned to them below in this Section 1.01. Capitalized
terms used in this Agreement and not defined below in this Section 1.01 have
the meanings assigned to them in the Preliminary Statement or Article I of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference), as the case may be.
<PAGE> 5
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement and all attached Schedules,
Addendums, Annexes and Exhibits, as each of the same may be amended, modified
or supplemented from time to time pursuant to the provisions hereof or thereof.
"Applicable Corporate Code" means the laws of the Organization State
of the Company that govern corporations incorporated in such state.
"Closing Date Balance Sheet" of the Company means a balance sheet of
the Company as at the IPO Closing Date which is prepared on a basis consistent
with the basis on which the Current Balance Sheet was prepared.
"Closing Memorandum" means the form of closing memorandum to be
prepared by RW for the Closing under this Agreement in which are included the
forms of certificates of officers, the opinions of counsel and certain other
documents to be delivered at the Closing as provided in Article VII.
"Company Accounts Receivable" shall mean the accounts and notes or
other advances receivable of the Company and the Company Subsidiaries,
excluding any Retainages, as of the IPO Closing Date.
"Company Common Stock" means the common stock, no par value, of the
Company.
"Company Indebtedness" means the indebtedness of the Company, as of
the IPO Closing Date (including, with respect to CPI Concrete Products, Inc.,
the value of the Cash Company Consideration to be received by its Employee
Stock Ownership Plan), that the Company has elected to repay (or repurchase,
as the case may be) with a portion of the RW Common Stock to be received as
part of the Merger Consideration. At least five days prior to the Delivery
Date, the Company will deliver to RW a schedule of the aggregate principal
amount of the Company Indebtedness, certified by the President of the Company,
that will be outstanding on the IPO Closing Date, and RW will repay such
Company Indebtedness on the IPO Closing Date. To the extent that the actual
amount of Company Indebtedness exceeds the amount shown on such schedule, such
excess shall be repaid by the Stockholders on or prior to the IPO Closing Date.
"Counsel for RW and Newco" means King & Spalding.
"Counsel for the Company and the Stockholders" means such counsel as
shall be designated by the Company in writing on or prior to the Delivery Date.
"Current Balance Sheet" means the balance sheet of the Company as at
March 31, 1998 which is included in the Initial Financial Statements.
-2-
<PAGE> 6
"Current Balance Sheet Date" means December 31, 1997.
"Defined Net Worth" as of the IPO Closing Date shall mean (i) the
total assets of the Company, as set forth on the balance sheet of the Company
as of such date, except that (A) expenses of the Company directly attributable
to the IPO and/or the transactions contemplated by this Agreement, including
but not limited to, costs incurred pursuant to the HSR Act, shall be added back
to the assets of the company and (B) the value of inventory, machinery,
equipment and real estate shall be determined pursuant to Section 2.06(a),
less (ii) the total liabilities of the Company, as set forth on the balance
sheet of the Company as of such date, excluding the Company Indebtedness.
Notwithstanding the foregoing, in the case of Comstock, Comstock's contractual
obligation to Spie Group, Inc., as successor to Comstock Group, Inc., shall not
be deemed to be a liability for purposes of determining Defined Net Worth.
"Delivery" or "Delivery Date" shall have the meaning set forth in
Section 7.01.
"Earnings Percentage" shall have the meaning set forth in Exhibit D.
"Employment Agreement" means each of the Employment Agreements
entered into as of the Closing Date between RW and each of the Stockholders set
forth on Exhibit A hereto, a form of which is attached hereto as Exhibit B.
"Fair market value" means that value at which goods and/or services
would be exchanged between a willing buyer and willing seller in a transaction
entered into at arms length with each party having relevant facts of all
aspects of the transaction.
"Initial Financial Statements" means (a) the balance sheets of the
Company as at December 31, 1997 and March 31, 1998 and the related reviewed
statements of operations and retained earnings for each of the Company's two
fiscal years in the period ended December 31, 1997, and (b) the Current Balance
Sheet and the related statement of income for the Company's fiscal year ended
December 31, 1997, which the Company has delivered to RW prior to the date
hereof.
"IPO Closing Date" means the date on which RW first receives payment
for the shares of RW Common Stock it sells to the Underwriter in the IPO.
"Merger Consideration" has the meaning specified in Section 2.04.
"Newco" means Commodores Concrete Company, a Tennessee corporation.
"Responsible Officer" means the President, Chief Executive Officer or
any Vice President of the Company.
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<PAGE> 7
"Retainages" means the portion of progress payments due to a Company
for contracting projects that is withheld by a customer of such Company until
completion of a project, pursuant to the terms of a contract with such
customer, as security for the completion of the project.
"RW" means RailWorks Corporation, a Delaware corporation.
"Scheduled Related Party Agreements" means the agreements described in
Schedule 4.11.
"Surviving Corporation" means the Person to be designated in the
Certificate of Merger as the surviving corporation of the Merger.
"Threshold Amount" means 2.0% of the Merger Consideration.
"Transaction Value" means the (i)(A) the total number of shares of RW
outstanding immediately upon the closing of the IPO and the transactions
contemplated by this Agreement and the Other Agreements multiplied by (B) the
IPO Price multiplied by (C) 92% minus (ii) actual expenses of RW incurred with
respect to the IPO, an estimate of which will be set forth in Item 13 of Part
II of the Registration Statement minus (iii) the underwriting discounts and
commissions paid to the Underwriter pursuant to the IPO minus (iv) the proceeds
received by RW in connection with any shares of RW Common Stock sold by RW to
finance the working capital needs of RW, which shares shall not exceed 5% of
the number of shares to be sold in the IPO.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions of RW for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01 Certificate of Merger. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the Delivery Date to the Department
of State of the State of Tennessee.
Section 2.02 The Effective Time. The effective time of the Merger
(the "Effective Time") will be the time on the IPO Closing Date as specified in
the Certificate of Merger or, if the Certificate of Merger does not specify
another time, 8:00 a.m., eastern daylight standard time, on the IPO Closing
Date.
Section 2.03 Certain Effects of the Merger. At and as of the
Effective Time, (a) Newco will be merged with and into the Company in
accordance with the provisions of the Tennessee Business Corporation Act, (b)
Newco will cease to exist as a separate legal entity, (c) the articles of
-4-
<PAGE> 8
incorporation of the Company will be amended to change its authorized capital
stock to 100 shares, par value $0.01 per share, of Common Stock, (d) the
Company will be the Surviving Corporation and, as such, will, all with the
effect provided by the Tennessee Business Corporation Act, (i) possess all the
properties and rights, and be subject to all the restrictions and duties, of
the Company and Newco and (ii) be governed by the laws of the State of
Tennessee, (e) the Charter Documents of the Company then in effect (after
giving effect to the amendment of the Company's articles of incorporation
specified in clause (c) of this sentence) will become and thereafter remain
(until changed in accordance with (i) applicable law (in the case of the
articles of incorporation) or (ii) their terms (in the case of the bylaws)) the
Charter Documents of the Surviving Corporation, (f) the initial board of
directors of the Surviving Corporation will be the Chief Executive Officer of
RW and the other persons named in Schedule 2.03, and those persons will hold
the office of director of the Surviving Corporation subject to the provisions
of the applicable laws of the State of Tennessee and the Charter Documents of
the Surviving Corporation, and (g) the initial officers of the Surviving
Corporation will be as set forth in Schedule 2.03, and each of those persons
will serve in each office specified for that person in Schedule 2.03, subject
to the provisions of the Charter Documents of the Surviving Corporation, until
that person's successor is duly elected to, and, if necessary, qualified for,
that office.
Section 2.04 Effect of the Merger on Capital Stock. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the right to
receive, subject to the provisions of Section 2.05 and Exhibit D, without
interest, on surrender of the certificate evidencing those shares, the amount
of cash and the number of whole and fractional shares of RW Common Stock set
forth or determined as provided in Exhibit D (the "Merger Consideration"), (ii)
cease to be outstanding and to exist and (iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of
the Company or any Company Subsidiary will (i) cease to be outstanding and to
exist and (ii) be canceled and retired; and
(c) each share of Newco Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into one share of
Common Stock, no par value, of the Surviving Corporation, and the shares of
Common Stock of the Surviving Corporation issued on that conversion will
constitute all the issued and outstanding shares of Capital Stock of the
Surviving Corporation. Each holder of a certificate representing shares of
Company Common Stock immediately prior to the Effective Time will, as of the
Effective Time and thereafter, cease to have any rights respecting those shares
other than the right to receive, subject to the provisions of Section 2.05,
without interest, the Merger Consideration and the additional cash, if any,
owing with respect to those shares as provided in Section 2.07.
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Section 2.05 Delivery, Exchange and Payment.
(a) At or after the Effective Time: (i) each Stockholder, as
the holder of certificates representing shares of Company Common Stock, will,
on surrender of those certificates to RW (or any agent that may be appointed by
RW for purposes of this Section 2.05), receive, subject to the provisions of
this Article II and the Escrow Agreement, such Stockholder's share of the
Merger Consideration pursuant to Section 2.04 and Exhibit D; and (ii) until any
certificate representing Company Common Stock has been surrendered and replaced
pursuant to this Section 2.05, that certificate will, for all purposes, be
deemed to evidence ownership of the number of whole shares of RW Common Stock
included in the Merger Consideration payable in respect of that certificate
pursuant to Section 2.04. The Escrow Agreement will provide that the shares of
RW Common Stock issued to the Stockholders as a part of the Merger
Consideration together with duly executed stock powers in blank, shall be
placed in escrow to be held subject to the terms of the Escrow Agreement and
further subject to Exhibit D and Section 11.02. The escrow shall consist
solely of shares of RW Common Stock that shall be issued at the Effective Time
to the Stockholders of the Founding Companies and delivered, at the Closing, to
the Escrow Agent. All shares of RW Common Stock issuable in the Merger will be
deemed for all purposes to have been issued by RW at the Effective Time.
(b) Each Stockholder will deliver to RW (or any agent that may
be appointed by RW for purposes of this Section 2.05) on or before the Delivery
Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Stockholder, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Stockholder's expense, affixed and canceled.
Each Stockholder shall cure any deficiencies in the endorsement of the
certificates or other documents of conveyance respecting, or in the stock
powers accompanying, the certificates representing Company Common Stock
delivered by that Stockholder.
(c) No dividends (or interest) or other distributions declared
or earned after the Effective Time with respect to RW Common Stock and payable
to the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of RW Common Stock have been issued in the Merger until
those certificates are surrendered as provided herein, but (i) on that
surrender RW will cause to be paid, to the Person in whose name the
certificates representing such shares of RW Common Stock shall then be issued,
the amount of dividends or other distributions previously paid with respect to
such whole shares of RW Common Stock with a record date, or which have accrued,
subsequent to the Effective Time, but prior to surrender, and the amount of any
cash payable to such Person for and in lieu of fractional shares pursuant to
Section 2.07 and (ii) at the appropriate payment date or as soon as practicable
thereafter, RW will cause to be paid to that Person the amount of dividends or
other distributions with a record date, or which have been accrued, subsequent
to the Effective Time, but which are not payable until a date subsequent to
surrender, which are payable with respect to such whole shares of RW Common
Stock, subject in all cases to any applicable
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escheat laws. No interest will be payable with respect to the payment of such
dividends or other distributions or cash for and in lieu of fractional shares
on surrender of outstanding certificates.
(d) Each Stockholder hereby authorizes and directs RW to deliver
3.5% of the Cash Company Consideration and 3.5% of the Stock Company
Consideration owed to such Stockholder pursuant to this Agreement (before
deposit of the shares of RW Common Stock into escrow) to IPO Development
Company in payment of fees owed to IPO Development Company by such Stockholder.
Section 2.1. Merger Consideration Calculation.
(a) No later than fifteen (15) days following the IPO Closing
Date, the Company shall provide to the Chief Accounting Officer of RW (the
"CAO") a determination of the fair market value (as defined) of its inventory,
machinery, equipment and real estate (the "Valued Assets") as of the IPO
Closing Date. Within seven (7) days of such date, the CAO shall distribute to
every Founding Company the value of the Valued Assets of every Founding
Company. The Company shall have seven (7) days from the date of the
distribution of such valuation to dispute the value of the Valued Assets of any
Founding Company by providing written notice of such dispute to the CAO. If
the CAO is unable to resolve any such dispute, the dispute shall be resolved by
binding arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, which arbitration shall be resolved no later
than thirty (30) days from selection of the arbitrator. The arbitrator shall
be selected by the CAO.
(b) Arthur Andersen or, if not Arthur Andersen, the Company's
accountant, shall cause to be prepared and delivered to RW and the Company a
calculation as of the IPO Closing Date of the Defined Net Worth of the Company
(the "Balance Sheet Calculation"). The Balance Sheet Calculation shall be
final and binding on the Company and the Other Founding Companies absent fraud,
manifest error or gross negligence.
(c) The Balance Sheet Calculation shall include a report of
Arthur Andersen or, if not Arthur Andersen, the Company's accountant, stating
that it has been prepared in a manner consistent with the accounting policies
and procedures used in preparation of the balance sheets in the Initial
Financial Statements, except as provided in the definition of "Defined Net
Worth" contained herein. The Stockholders shall give Arthur Andersen and other
appropriate personnel such assistance and access to the assets and books and
records of the Company as Arthur Andersen shall reasonably request during
normal business hours in order to enable them to prepare the Balance Sheet
Calculation. The Surviving Corporation shall be responsible for the fees and
expenses of Arthur Andersen or, if not Arthur Andersen the Company's
accountant.
Section 2.07 Fractional Shares. Notwithstanding any other
provision herein, no fractional shares of RW Common Stock will be issued. All
shares of RW Common Stock shall be aggregated, and any Stockholder entitled
hereunder, after such aggregation, to receive a fractional share of RW Common
Stock but for this Section 2.07 will be entitled hereunder to receive a cash
payment for and
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in lieu thereof in the amount (rounded to the nearest whole cent) equal to that
Stockholder's fractional interest in a share of RW Common Stock multiplied by
the IPO Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01 By Each Stockholder. The Stockholders severally
represent and warrant to, and agree with, RW that all the following
representations and warranties in this Article III are as of the date of this
Agreement, and will be, as amended or supplemented pursuant to Section 6.08, on
the IPO Closing Date, true and correct:
(a) (i) each Stockholder will acquire the shares of RW Common
Stock to be issued pursuant to Article II to the Stockholder solely for the
Stockholder's account, for investment purposes only and with no current
intention or plan to distribute, sell or otherwise dispose of any of those
shares in connection with any distribution;
(ii) no Stockholder is a party to any agreement or other
arrangement for the disposition of any shares of RW Common Stock other
than this Agreement; (iii) except as set forth on Schedule
3.01(a)(ii) each Stockholder is an "accredited investor" as defined in
Rule 501(a) promulgated under the Securities Act; (iv) each
Stockholder (A) is able to bear the economic risk of an investment in
the RW Common Stock acquired pursuant to this Agreement, (B) can
afford to sustain a total loss of that investment, (C) has such
knowledge and experience in financial and business matters that he or
she is capable of evaluating the merits and risks of the
proposed investment in the RW Common Stock, (D) has had an adequate
opportunity to ask questions and receive answers from the officers of
RW concerning any and all matters relating to the transactions
contemplated hereby, including the background and experience of the
current and proposed officers and directors of RW, the plans for the
operations of the business of RW, the business, operations and
financial condition of the Other Founding Companies and any plans of
RW for additional acquisitions, and (E) has asked all questions of the
nature described in preceding clause (D) that such Stockholder thought
to ask, and all those questions have been answered to his or her
satisfaction;
(b) the representations and warranties contained in Article III
of the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set forth in
that Article hereby are agreed to; and
(c) (i) the terms and conditions of any agreements between
any Stockholder or an Affiliate of any Stockholder, on the one hand, and the
Company on the other hand, included in the Scheduled Related Party Agreements
will have been amended effective as of the IPO Closing Date to be no less
favorable to the Company than the Company reasonably could have expected to
obtain in an arms-length transaction with a Person other than an Affiliate of
the Company and (ii) the
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<PAGE> 12
rentals or other payments provided for in such agreements then will not exceed
fair market rentals of the property being leased or fair market value of the
sum or product being provided and such amounts shall have been previously
approved in writing by the Chief Financial Officer of RW.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS
Section 4.01 By the Company and Each Primary Stockholder. The
Company and each Primary Stockholder jointly and severally represent and
warrant to, and agree with, RW that all the following representations and
warranties in this Article IV are as of the date of this Agreement, and will
be, as amended or supplemented pursuant to Section 6.08, on the Delivery Date
and the IPO Closing Date, true and correct:
(a) the Organization State of the Company is the State of
Tennessee, and the Company (i) is a corporation duly organized, validly
existing and in good standing under the laws of that State, (ii) has all
requisite corporate power and authority under those laws and its Charter
Documents to own or lease and to operate its properties and to carry on its
business as now conducted and (iii) is duly qualified and in good standing as a
foreign corporation in all jurisdictions (other than the State of Tennessee) in
which it owns or leases property or in which the carrying on of its business as
now conducted so requires except where the failure to be so qualified, singly
or in the aggregate, would not have a Material Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is
comprised of 30,000 shares of Company Common Stock, of which 1,000 shares have
been issued and are now outstanding and no shares are held by the Company as
treasury shares, and (ii) there are no Derivative Securities of the Company;
(c) the Company has elected to be treated as an S corporation
within the meaning of the Code, as amended; and
(d) the representations and warranties contained in Article IV
of the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set forth in
that Article hereby are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO
Section 5.01 By RW and Newco. RW and Newco jointly and severally
represent and warrant to the Company and each Stockholder that all the
following representations and warranties
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in this Article V are as of the date of this Agreement, and will be on the IPO
Closing Date, true and correct:
(a) Newco is a corporation duly organized, validly existing and
in good standing under the laws of the State of Tennessee;
(b) except as disclosed in the Private Placement Memorandum, no
Derivative Securities of Newco are outstanding;
(c) Newco has been organized for the sole purpose of
participating in the Merger and has not, and will not, engage in any activities
other than those necessary to effectuate the Merger;
(d) except for shares of RW Common Stock to be publicly sold in
the IPO and as disclosed in the Private Placement Memorandum or preliminary
prospectus, neither RW nor Newco is a party to any agreement or other
arrangement for the disposition of any shares of RW Common Stock; and
(e) the representations and warranties contained in Article V of
the Uniform Provisions (the text of which Article hereby is incorporated herein
by this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01 Of Each Party. Until the Effective Time, subject to
the waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01 The Closing and Certain Conditions.
(a) The Closing. On or before the IPO Pricing Date, the parties
hereto will take all actions necessary to (i) effect the Merger (including, as
permitted by the Applicable Corporate Code, (A) the execution of a Certificate
of Merger (1) meeting the requirements of the Applicable Corporate Code and (2)
providing that the Merger will become effective on the IPO Closing Date and (B)
the delivery of that Certificate of Merger with a filing service that will file
such Certificate of Merger with the Department of State of the State of
Tennessee) upon notification of the closing of the IPO (provided that
Comstock's Certificate of Merger shall be filed immediately prior to the
closing of the IPO), (ii) verify the existence and ownership of the
certificates evidencing the
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Company Common stock to be exchanged for the Merger Consideration pursuant to
Section 2.05 and (iii) satisfy the document delivery requirements to which the
obligations of the parties to effect the Merger and the other transactions
contemplated hereby are conditioned by the provisions of this Article VII (all
those actions collectively being the "Delivery"). The Delivery will take place
at the offices of King & Spalding, 191 Peachtree Street, Atlanta, Georgia at
10:00 a.m., Atlanta time on the IPO Pricing Date, or at such later time on the
IPO Pricing Date as RW shall specify by written notice to the President of the
Company (the "Delivery Date"). The actions taken at the Delivery will not
include the completion of either the Merger or the delivery of the Company
Common Stock or the Merger Consideration pursuant to Section 2.05. On the IPO
Closing Date, the Certificate of Merger will be filed and will become effective
pursuant to Section 2.02, and all transactions contemplated by this Agreement
to be closed or completed on or before the IPO Closing Date, including the
surrender of the Company Common Stock in exchange for the Merger Consideration
(including a certified check or checks in an amount equal to the cash portion
of the Merger Consideration) will be closed or completed, as the case may be.
During the period from the Delivery Date to the IPO Closing Date, this
Agreement may be terminated by the parties only pursuant to Section
12.01(b)(i).
(b) Certain Conditions to the Obligations of the Company and the
Stockholders. The obligations of the Company and the Stockholders with respect
to the actions to be taken by them at or before the Delivery Date are subject
to the satisfaction on or before the Delivery Date, or waiver by them pursuant
to Section 11.05, of all the conditions set forth in Sections 7.01 and 7.02(a).
The obligations of the Stockholders with respect to the actions to be taken on
the IPO Closing Date are subject to the satisfaction on that date of the
following conditions: (if required by such Stockholder) (i) the Employment
Agreement then shall be in full force and effect; and (ii) all the conditions
set forth in Sections 7.01 and 7.02(b).
(c) Certain Conditions to the Obligations of RW and Newco. The
obligations of RW and Newco with respect to actions to be taken by them at or
before the Delivery Date are subject to the satisfaction on or before the date
of the Delivery Date, or waiver by them pursuant to Section 11.05, of the
following conditions: (i) the Company shall have delivered to RW a copy of the
articles of incorporation, as amended to the Delivery Date and certified by the
Secretary of State of the State of Tennessee as of a Current Date, of the
Company; and (ii) all the conditions set forth in Sections 7.01 and 7.03(a).
The obligations of RW and Newco with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of the following
conditions: (i) the Employment Agreements then shall be in full force and
effect; and (ii) all the conditions set forth in Sections 7.01 and 7.03(b).
(d) Uniform Provisions. The text of Article VII of the Uniform
Provisions hereby is incorporated herein by this reference.
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ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01 Of Each Party Other than the Company. From and after
the Effective Time, subject to the waiver provisions of Section 11.05, each
party hereto (other than the Company) will comply with each covenant for which
provision is made in Article VIII of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) to be performed or
observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01 Indemnification Rights and Obligations. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. Any provision contained in Article IX of the Uniform Provisions to
the contrary notwithstanding, the indemnification obligations of the
Stockholders pursuant to this Agreement shall be joint and several.
ARTICLE X
[Intentionally Ommitted]
ARTICLE XI
GENERAL PROVISIONS
Section 11.01 Treatment of Confidential Information. Each party
hereto will comply with each covenant for which provision is made in Section
11.01 of the Uniform Provisions (the text of which Section hereby is
incorporated herein by this reference) to be performed or observed by that
party.
Section 11.02 Restrictions on Transfer of RW Common Stock.
(a) Except for transfers to employees of the Company that are
approved in writing by the Board of Directors of RW (or a committee designated
by the Board of Directors of RW) prior to such transfer, during the one year
period ending on the first anniversary of the IPO Closing Date (the "Restricted
Period"), no Stockholder voluntarily will: (i) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint or otherwise dispose of (A) any
shares of RW Common Stock received by any Stockholder in the Merger or (B) any
interest in (including any option to buy or sell) any of those shares of RW
Common Stock, in whole or in part, and RW will have no obligation to, and shall
not, treat any such attempted transfer as effective for any purpose; or (ii)
engage in any
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transaction, whether or not with respect to any shares of RW Common Stock or
any interest therein, the intent or effect of which is to reduce the risk of
owning the shares of RW Common Stock acquired pursuant to Section 2.04
(including, for example engaging in put, call, short-sale, straddle or similar
market transactions); provided, however, that this Section 11.02 shall not
restrict any transfer of RW Common Stock acquired by a Stockholder pursuant to
Section 2.04 to any of that Stockholder's Related Persons who agree in writing
to be bound by the provisions of Section 11.01 and this Section 11.02. The
certificates evidencing the RW Common Stock delivered to each Stockholder
pursuant to Section 2.05 will bear a legend substantially in the form set forth
below and containing such other information as RW may deem necessary or
appropriate:
"EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER
PARTIES THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE
REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION
OF ANY OF THOSE SHARES, DURING THE ONE-YEAR PERIOD ENDING ON __________ [DATE
THAT IS THE FIRST ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED
PERIOD"). ON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER
AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE
TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE."
(b) From the first anniversary of the IPO Closing Date to the
fourth anniversary of the IPO Closing Date, the Stockholders agree to sell
shares of RW Common Stock acquired pursuant to this Agreement only in
accordance with the procedures set forth in this Section 11.02(b). Every
quarter during such period, every Stockholder will be permitted to sell, in the
aggregate, up to 8% of the aggregate number of shares of Common Stock received
by such Stockholder pursuant to this Agreement (the "Quarterly Block Trade
Shares") in either a block trade or a registered public offering, at the option
of RW. If a Stockholder does not sell all of his or her Quarterly Block Trade
Shares in any given quarter, such Stockholder may sell such Quarterly Block
Trade Shares pursuant to this Section 11.02(b) in any later quarter, provided,
however, that in no event may a Stockholder sell more than 20% of the shares of
Common Stock received by such Stockholder pursuant to this Agreement in any one
quarter. Any Stockholder that wishes to sell shares of RW Common Stock
pursuant to such selling opportunity must give notice to RW and the Executive
Council no later than fourteen days prior to the commencement of the fiscal
quarter of RW during which such Stockholder wants to sell such shares.
Notwithstanding anything set forth in this Section 11.02(b), RW may elect to
make available to the Stockholders (i) additional opportunities to sell shares
of RW Common Stock and/or (ii) the opportunity to sell an amount in excess of
such amount during any particular quarter. The Company may modify or waive
this Section 11.02(b) at its sole discretion at any time following written
notice to the Stockholders, provided that no such modification or waiver may
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reduce the number of selling opportunities or the maximum number of shares of
RW Common Stock that may be sold by any Stockholder during any selling
opportunity.
(c) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of RW Common Stock to be delivered to
that Stockholder pursuant to Section 2.04 have not been and will not be
registered under the Securities Act and therefore may not be resold by that
Stockholder without compliance with the Securities Act and (ii) covenants that
none of the shares of RW Common Stock issued to that Stockholder pursuant to
Section 2.04 will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all the
applicable provisions of the Securities Act and the rules and regulations of
the SEC and applicable state securities laws and regulations. All certificates
evidencing shares of RW Common Stock issued pursuant to Section 2.04 will bear
the following legend in addition to the legend prescribed by Section 11.02(a):
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS,
HAVE BEEN ISSUED PURSUANT TO ONE OR MORE EXEMPTIONS THERETO, AND MAY NOT BE
SOLD OR OTHERWISE TRANSFERRED, ASSIGNED OR DISPOSED OF UNLESS AND UNTIL
REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS,
UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED."
In addition, certificates evidencing shares of RW Common Stock issued pursuant
to Section 2.04 to each Stockholder will bear any legend required by the
securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03 Brokers and Agents. Except for IPO Development
Company, each of the Stockholders jointly and severally, on the one hand, and
RW, on the other, represents and warrants to the other that such Person has not
directly or indirectly employed or become obligated to pay any broker, finder
or similar agent in connection with the transactions contemplated hereby and
agree, without regard to the Threshold Amount limitations set forth in Article
IX, to indemnify the other against all Damage Claims arising out of claims for
any and all fees and commissions of brokers or similar agents employed or
promised payment by such Person.
Section 11.04 Assignment; No Third Party Beneficiaries. This
Agreement and the rights of the parties hereunder may not be assigned (except
by operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of RW, and the heirs and legal representatives
of the Stockholders (and, in the case of any trust, the successor trustees of
that trust). Neither this Agreement nor any other Transaction Document is
intended, or shall be construed, deemed or interpreted, to confer on any Person
not a party hereto or thereto any rights or remedies hereunder or thereunder,
except as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise
provided expressly herein or therein.
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Section 11.05 Entire Agreement; Amendment; Waivers. Except with
respect to Section 11.07 hereof, this Agreement and the documents delivered
pursuant hereto constitute the entire agreement and understanding among the
Stockholders, the Company, Newco and RW and supersede all prior agreements and
understandings, both written and oral, relating to the subject matter of this
Agreement. This Agreement may be amended, modified or supplemented, and any
right hereunder may be waived, if, but only if, that amendment, modification,
supplement or waiver is in writing and signed by each of the Stockholders, the
Company and RW. The waiver of any of the terms and conditions hereof shall not
be construed or interpreted as, or deemed to be, a waiver of any other term or
condition hereof.
Section 11.06 Counterparts. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
Section 11.07 Expenses. If the transactions contemplated hereby
(i) are consummated, RW will pay the fees, expenses and disbursements of RW and
Newco and their Representatives which are incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all
costs and expenses incurred in the performance of and compliance with all
conditions to be performed by RW and Newco under this Agreement, including the
costs of preparing the Registration Statement, (collectively, the "RW
Expenses") and (ii) if the transactions contemplated hereby are not
consummated, the RW Expenses shall be paid by the Founding Companies subject to
the provisions of the IPO Cost Liability Sharing Agreement attached hereto as
Exhibit C and incorporated herein by reference (b) the Stockholders will pay
from personal funds, and not from funds of the Company or any Company
Subsidiary, all sales, use, transfer and other similar taxes and fees
(collectively, "Transfer Taxes") incurred in connection with the transactions
contemplated hereby and (c) the Company will pay the fees, expenses and
disbursements of Counsel for the Company and the Stockholders incurred in
connection with the subject matter of this Agreement and the Registration
Statement on or before the IPO Closing Date. The Stockholders will file all
necessary documentation and Returns with respect to all Transfer Taxes. In
addition, each Stockholder acknowledges that he, and not the Company or RW or
the Surviving Corporation, will pay all Taxes due upon receipt of the
consideration payable to that Stockholder pursuant to Article II.
Section 11.08 Notices. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received
(a) if personally delivered or if delivered by telex, telegram,
facsimile or courier service, when actually received by the party to whom
notice is sent or
(b) if delivered by mail (whether actually received or not), at
the close of business on the third Business Day next following the day when
placed in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all
other parties in accordance herewith):
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(i) if to RW or Newco, addressed to it at:
RailWorks Corporation
403 Somerset Road
Baltimore, Maryland 21210
Attn: Chief Executive Officer
with copies (which shall not constitute notice for purposes
of this Agreement) to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attn: Jeffrey M. Stein
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
Merit Railroad Contractors, Inc.
4301 Bridgetown Industrial Drive
Bridgeton, Missouri 63044-1204
Attn: Steve C. Goggin
with copies (which shall not constitute notice for purposes
of this Agreement) to Counsel for the Company and the
Stockholders at the address designated by the Company
Section 11.09 Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF DELAWARE
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10 Exercise of Rights and Remedies. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11 Time. Time is of the essence in the performance of
this Agreement in all respects.
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Section 11.12 Reformation and Severability. If any provision of
this Agreement is invalid, illegal or unenforceable, that provision shall, to
the extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13 Remedies Cumulative. No right, remedy or election
given by any term of this Agreement shall be deemed exclusive, but each shall
be cumulative with all other rights, remedies and elections available at law or
in equity.
Section 11.14 Respecting the IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or
implied, oral or written, exists at the date hereof that the Registration
Statement will become effective or that the IPO will occur at a particular
price or within a particular range of prices or occur at all; (b) neither RW or
any of its Representatives nor any prospective underwriters in the IPO will
have any liability to the Company, the Stockholders or any of their respective
Affiliates or associates for any failure of (i) the Registration Statement to
become effective (provided, however, that RW will use its reasonable best
efforts to cause the Registration Statement to become effective prior to August
14, 1998) or (ii) the IPO to occur at a particular price or within a particular
range of prices or to occur at all; and (c) the decision of Stockholders to
enter into this Agreement, or to vote in favor of or consent to the Merger, has
been or will be made independent of, and without reliance on, any statements,
opinions or other communications of, or due diligence investigations that have
been or will be made or performed by, any prospective underwriter relative to
RW or the IPO.
ARTICLE XII
TERMINATION
Section 12.1. Termination of this Agreement.
(a) This Agreement may be terminated at any time prior to the
Delivery Date solely:
(i) by the mutual written consent of RW and the Company;
(ii) by the Stockholders or the Company, on the one hand,
or by RW, on the other hand, if the events contemplated by this
Agreement to take place at the Delivery Date shall not have taken
place by September 4, 1998, unless the failure of such transactions to
be consummated results from the willful failure of the party (or in
the case of the Stockholders and the Company, any of them) seeking to
terminate this Agreement to perform or adhere to any agreement
required hereby to be performed or adhered to by it prior to or at
the Delivery Date or thereafter on the IPO Closing Date;
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<PAGE> 21
(iii) by the Stockholders or the Company, on the one hand,
or by RW, on the other hand, if a material breach or default shall be
made by the other party (or in the case of the Stockholders and the
Company, any of them) in the observance or in the due and timely
performance of any of the covenants, agreements or conditions
contained in Article VI or Section 11.01;
(iv) by the Stockholders or the Company, on the one hand,
or RW, on the other, if it is entitled to do so as provided in
Section 6.08;
(v) by the Stockholders prior to the filing of the
Registration Statement if the Registration Statement is not filed by
June 15, 1998;
(vi) by RW or the Stockholders prior to 9:00 a.m. on the
IPO Pricing Date (as set forth in Section 8.10) if the value of RW at
the IPO Pricing Date (as calculated by multiplying the price per share
at which the RW common stock is to be sold in the IPO by the number of
shares of common stock to be outstanding after the Closing of the IPO)
shall be less than $215 million;
(vii) by the Stockholders if the Registration Statement has
not been declared effective by the Securities and Exchange Commission
by August 14, 1998;
(viii) by the Stockholders if John G. Larkin is no longer
serving as Chairman of the Board of Directors and Chief Executive
Officer prior to the Closing; or
(ix) by the stockholders of CPI Concrete Products, Inc. if
its Employee Stock Ownership Plan does not approve the merger prior to
the Delivery Date.
(b) This Agreement may be terminated after the Delivery Date
solely:
(i) by RW or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the IPO Pricing Date and prior
to the consummation of the IPO; or
(ii) automatically and without action on the part of any
party hereto if the IPO is not consummated within 15 New York City
business days after the Delivery Date.
(c) If this Agreement is terminated pursuant to this Section
12.01, the Merger will be deemed for all purposes to have been abandoned and of
no force or effect.
Section 12.02 Liabilities in Event of Termination. If this
Agreement is terminated pursuant to Section 12.01, there shall be no liability
or obligation on the part of any party hereto except (a) as provided in
Sections 11.03 or 11.07 and (b) to the extent that such liability is based on
the breach by that party of any of its representations, warranties or covenants
set forth in this Agreement.
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<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
RAILWORKS CORPORATION
By: /s/ John G. Larkin
----------------------------------------
John G. Larkin
Chief Executive Officer
BEARS MERIT COMPANY
By: /s/ John G. Larkin
----------------------------------------
John G. Larkin
President
MERIT RAILROAD CONTRACTORS, INC.
By: /s/ Authorized Signature
----------------------------------------
Name:
Title:
STOCKHOLDERS:
/s/ Steve C. Goggin
--------------------------------------------
Steve C. Goggin
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<PAGE> 23
ADDENDUM 1
OTHER FOUNDING COMPANIES
A. Words and terms used in this Addendum which are defined in
the captioned Agreement to which this is an Addendum are used herein as therein
defined.
B. The Founding Companies are:
Alpha - Keystone Engineering, Inc.
Annex Railroad Builders, Inc.
Comtrak Construction, Inc.
Comstock Holdings Inc.
Condon Brothers, Inc.
CPI Concrete Products
HP McGinley, Inc.
Kennedy Railroad Builders, Inc.
Merit Railroad Contractors, Inc.
Midwest Construction Services, Inc.
Minnesota Railroad Services, Inc.
Mize Construction Co.
New England Railroad Construction Co., Inc.
Northern Rail Service & Supply Company, Inc.
Railcorp, Inc.
Railroad Service, Inc.
Railroad Specialities, Inc,
Southern Indiana Wood Preserving Co.
U.S. Railway Supply, Inc,
U.S. Trackworks, Inc.
W.A. Smith Construction Co., Inc.
W.A Smith Rerailing Co., Inc.
<PAGE> 1
EXHIBIT 10.7
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 21, 1998
BY AND BETWEEN
RAILWORKS CORPORATION,
NITTANY LIONS MCGINLEY COMPANY,
HP MCGINLEY INC.
AND
THE STOCKHOLDERS NAMED HEREIN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS.................................................................1
Section 1.01. Certain Defined Terms.................................1
ARTICLE II THE MERGER AND RELATED MATTERS..............................................4
Section 2.01. Certificate of Merger.................................4
Section 2.02. The Effective Time....................................4
Section 2.03. Certain Effects of the Merger.........................4
Section 2.04. Effect of the Merger on Capital Stock.................5
Section 2.05. Delivery, Exchange and Payment........................6
Section 2.06. Merger Consideration Calculation......................7
Section 2.07. Fractional Shares.....................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER .........................8
Section 3.01. By Each Stockholder...................................8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE PRIMARY STOCKHOLDERS....................................................9
Section 4.01. By the Company and Each Primary Stockholder...........9
ARTICLE V REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO..............................9
Section 5.01. By RW and Newco.......................................9
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME .................................10
Section 6.01. Of Each Party........................................10
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION.....................10
Section 7.01. The Closing and Certain Conditions...................10
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME.....................................12
Section 8.01. Of Each Party Other than the Company.................12
ARTICLE IX INDEMNIFICATION............................................................12
Section 9.01. Indemnification Rights and Obligations...............12
ARTICLE X [Intentionally Ommitted]...................................................12
ARTICLE XI GENERAL PROVISIONS.........................................................12
Section 11.01. Treatment of Confidential Information................12
Section 11.02. Restrictions on Transfer of RW Common Stock..........12
Section 11.03. Brokers and Agents...................................14
Section 11.04. Assignment; No Third Party Beneficiaries.............14
Section 11.05. Entire Agreement; Amendment; Waivers.................15
Section 11.06. Counterparts.........................................15
Section 11.07. Expenses.............................................15
Section 11.08. Notices..............................................15
Section 11.09. Governing Law........................................16
Section 11.10. Exercise of Rights and Remedies......................16
Section 11.11. Time.................................................16
Section 11.12. Reformation and Severability.........................17
Section 11.13. Remedies Cumulative..................................17
Section 11.14. Respecting the IPO...................................17
ARTICLE XII TERMINATION................................................................17
Section 12.01. Termination of this Agreement........................17
Section 12.02. Liabilities in Event of Termination..................18
</TABLE>
EXHIBITS
- --------
Exhibit A - List of Primary Stockholders
Exhibit B - Form of Employment Agreement
Exhibit C - IPO Cost Liability Sharing Agreement
Exhibit D - Merger Consideration
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<PAGE> 4
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as
of May 21, 1998, by and among RailWorks Corporation, a Delaware corporation
("RW"), Nittany Lions McGinley Company, a Pennsylvania corporation and a wholly
owned subsidiary of RW("Newco"), HP McGinley Inc., a Pennsylvania corporation
(the "Company"), and the persons listed on the signature pages hereof under the
caption "Stockholders" (collectively, the "Stockholders," and each of those
persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(a) Newco will merge into the Company on the terms and subject to
the conditions set forth herein (that merger being the "Merger");
(b) RW will acquire the stock of all or some of the entities
listed in the accompanying Addendum 1 (each an "Other Founding Company" and,
collectively with the Company, the "Founding Companies") pursuant to agreements
that are (i) similar in all material respects to this Agreement and (ii) entered
into among those entities and their equity owners, RW and subsidiaries of RW
(collectively, the "Other Agreements"); and
(c) RW shall at such time as specified herein and if certain
conditions are met, effect a public offering of shares of its common stock and
issue and sell those shares.
The respective boards of directors of RW, Newco and the Company have
approved and adopted this Agreement to effect a transaction subject to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Certain Defined Terms. As used in this Agreement and in
the related Addendums, Annexes, Schedules and Exhibits, the following terms have
the meanings assigned to them below in this Section 1.01. Capitalized terms used
in this Agreement and not defined below in this Section 1.01 have the meanings
assigned to them in the Preliminary Statement or Article I of the Uniform
Provisions (the text of which Article hereby is incorporated herein by this
reference), as the case may be.
<PAGE> 5
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement and all attached Schedules, Addendums,
Annexes and Exhibits, as each of the same may be amended, modified or
supplemented from time to time pursuant to the provisions hereof or thereof.
"Applicable Corporate Code" means the laws of the Organization State of
the Company that govern corporations incorporated in such state.
"Closing Date Balance Sheet" of the Company means a balance sheet of
the Company as at the IPO Closing Date which is prepared on a basis consistent
with the basis on which the Current Balance Sheet was prepared.
"Closing Memorandum" means the form of closing memorandum to be
prepared by RW for the Closing under this Agreement in which are included the
forms of certificates of officers, the opinions of counsel and certain other
documents to be delivered at the Closing as provided in Article VII.
"Company Accounts Receivable" shall mean the accounts and notes or
other advances receivable of the Company and the Company Subsidiaries, excluding
any Retainages, as of the IPO Closing Date.
"Company Common Stock" means the common stock, par value $1.00 per
share, of the Company.
"Company Indebtedness" means the indebtedness of the Company, as of the
IPO Closing Date (including, with respect to CPI Concrete Products, Inc., the
value of the Cash Company Consideration to be received by its Employee Stock
Ownership Plan), that the Company has elected to repay (or repurchase, as the
case may be) with a portion of the RW Common Stock to be received as part of the
Merger Consideration. At least five days prior to the Delivery Date, the Company
will deliver to RW a schedule of the aggregate principal amount of the Company
Indebtedness, certified by the President of the Company, that will be
outstanding on the IPO Closing Date, and RW will repay such Company Indebtedness
on the IPO Closing Date. To the extent that the actual amount of Company
Indebtedness exceeds the amount shown on such schedule, such excess shall be
repaid by the Stockholders on or prior to the IPO Closing Date.
"Counsel for RW and Newco" means King & Spalding.
"Counsel for the Company and the Stockholders" means such counsel as
shall be designated by the Company in writing on or prior to the Delivery Date.
"Current Balance Sheet" means the balance sheet of the Company as at
March 31, 1998 which is included in the Initial Financial Statements.
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<PAGE> 6
"Current Balance Sheet Date" means December 31, 1997.
"Defined Net Worth" as of the IPO Closing Date shall mean (i) the total
assets of the Company, as set forth on the balance sheet of the Company as of
such date, except that (A) expenses of the Company directly attributable to the
IPO and/or the transactions contemplated by this Agreement, including but not
limited to, costs incurred pursuant to the HSR Act, shall be added back to the
assets of the company and (B) the value of inventory, machinery, equipment and
real estate shall be determined pursuant to Section 2.06(a), less (ii) the total
liabilities of the Company, as set forth on the balance sheet of the Company as
of such date, excluding the Company Indebtedness. Notwithstanding the foregoing,
in the case of Comstock, Comstock's contractual obligation to Spie Group, Inc.,
as successor to Comstock Group, Inc., shall not be deemed to be a liability for
purposes of determining Defined Net Worth.
"Delivery" or "Delivery Date" shall have the meaning set forth in
Section 7.01.
"Earnings Percentage" shall have the meaning set forth in Exhibit D.
"Employment Agreement" means each of the Employment Agreements entered
into as of the Closing Date between RW and each of the Stockholders set forth on
Exhibit A hereto, a form of which is attached hereto as Exhibit B.
"fair market value" means that value at which goods and/or services
would be exchanged between a willing buyer and willing seller in a transaction
entered into at arms length with each party having relevant facts of all aspects
of the transaction.
"Initial Financial Statements" means (a) the balance sheets of the
Company as at December 31, 1997 and March 31, 1998 and the related reviewed
statements of operations and retained earnings for each of the Company's two
fiscal years in the period ended December 31, 1997, and (b) the Current Balance
Sheet and the related statement of income for the Company's fiscal year ended
December 31, 1997, which the Company has delivered to RW prior to the date
hereof.
"IPO Closing Date" means the date on which RW first receives payment
for the shares of RW Common Stock it sells to the Underwriter in the IPO.
"Merger Consideration" has the meaning specified in Section 2.04.
"Newco" means Nittany Lions McGinley Company, a Pennsylvania
corporation.
"Responsible Officer" means the President, Chief Executive Officer or
any Vice President of the Company.
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<PAGE> 7
"Retainages" means the portion of progress payments due to a Company
for contracting projects that is withheld by a customer of such Company until
completion of a project, pursuant to the terms of a contract with such customer,
as security for the completion of the project.
"RW" means RailWorks Corporation, a Delaware corporation.
"Scheduled Related Party Agreements" means the agreements described in
Schedule 4.11.
"Surviving Corporation" means the Person to be designated in the
Certificate of Merger as the surviving corporation of the Merger.
"Threshold Amount" means 2.0% of the Merger Consideration.
"Transaction Value" means the (i)(A) the total number of shares of RW
outstanding immediately upon the closing of the IPO and the transactions
contemplated by this Agreement and the Other Agreements multiplied by (B) the
IPO Price multiplied by (C) 92% minus (ii) actual expenses of RW incurred with
respect to the IPO, an estimate of which will be set forth in Item 13 of Part II
of the Registration Statement minus (iii) the underwriting discounts and
commissions paid to the Underwriter pursuant to the IPO minus (iv) the proceeds
received by RW in connection with any shares of RW Common Stock sold by RW to
finance the working capital needs of RW, which shares shall not exceed 5% of the
number of shares to be sold in the IPO.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions of RW for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. Certificate of Merger. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the Delivery Date to the Department
of State of the State of Pennsylvania.
Section 2.02. The Effective Time. The effective time of the Merger (the
"Effective Time") will be the time on the IPO Closing Date as specified in the
Certificate of Merger or, if the Certificate of Merger does not specify another
time, 8:00 a.m., eastern daylight standard time, on the IPO Closing Date.
Section 2.03. Certain Effects of the Merger. At and as of the Effective
Time, (a) Newco will be merged with and into the Company in accordance with the
provisions of the Pennsylvania Business Corporation Law, (b) Newco will cease to
exist as a separate legal entity, (c) the articles
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<PAGE> 8
of incorporation of the Company will be amended to change its authorized capital
stock to 100 shares, par value $0.01 per share, of Common Stock, (d) the Company
will be the Surviving Corporation and, as such, will, all with the effect
provided by the Pennsylvania Business Corporation Law, (i) possess all the
properties and rights, and be subject to all the restrictions and duties, of the
Company and Newco and (ii) be governed by the laws of the State of Pennsylvania,
(e) the Charter Documents of the Company then in effect (after giving effect to
the amendment of the Company's articles of incorporation specified in clause (c)
of this sentence) will become and thereafter remain (until changed in accordance
with (i) applicable law (in the case of the articles of incorporation) or (ii)
their terms (in the case of the bylaws)) the Charter Documents of the Surviving
Corporation, (f) the initial board of directors of the Surviving Corporation
will be the Chief Executive Officer of RW and the other persons named in
Schedule 2.03, and those persons will hold the office of director of the
Surviving Corporation subject to the provisions of the applicable laws of the
State of Pennsylvania and the Charter Documents of the Surviving Corporation,
and (g) the initial officers of the Surviving Corporation will be as set forth
in Schedule 2.03, and each of those persons will serve in each office specified
for that person in Schedule 2.03, subject to the provisions of the Charter
Documents of the Surviving Corporation, until that person's successor is duly
elected to, and, if necessary, qualified for, that office.
Section 2.04. Effect of the Merger on Capital Stock. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the right to
receive, subject to the provisions of Section 2.05 and Exhibit D, without
interest, on surrender of the certificate evidencing those shares, the amount of
cash and the number of whole and fractional shares of RW Common Stock set forth
or determined as provided in Exhibit D (the "Merger Consideration"), (ii) cease
to be outstanding and to exist and (iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to exist
and (ii) be canceled and retired; and
(c) each share of Newco Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into one share of
Common Stock, $1.00 par value, of the Surviving Corporation, and the shares of
Common Stock of the Surviving Corporation issued on that conversion will
constitute all the issued and outstanding shares of Capital Stock of the
Surviving Corporation. Each holder of a certificate representing shares of
Company Common Stock immediately prior to the Effective Time will, as of the
Effective Time and thereafter, cease to have any rights respecting those shares
other than the right to receive, subject to the provisions of Section 2.05,
without interest, the Merger Consideration and the additional cash, if any,
owing with respect to those shares as provided in Section 2.07.
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<PAGE> 9
Section 2.05. Delivery, Exchange and Payment.
(a) At or after the Effective Time: (i) each Stockholder, as the
holder of certificates representing shares of Company Common Stock, will, on
surrender of those certificates to RW (or any agent that may be appointed by RW
for purposes of this Section 2.05), receive, subject to the provisions of this
Article II and the Escrow Agreement, such Stockholder's share of the Merger
Consideration pursuant to Section 2.04 and Exhibit D; and (ii) until any
certificate representing Company Common Stock has been surrendered and replaced
pursuant to this Section 2.05, that certificate will, for all purposes, be
deemed to evidence ownership of the number of whole shares of RW Common Stock
included in the Merger Consideration payable in respect of that certificate
pursuant to Section 2.04. The Escrow Agreement will provide that the shares of
RW Common Stock issued to the Stockholders as a part of the Merger Consideration
together with duly executed stock powers in blank, shall be placed in escrow to
be held subject to the terms of the Escrow Agreement and further subject to
Exhibit D and Section 11.02. The escrow shall consist solely of shares of RW
Common Stock that shall be issued at the Effective Time to the Stockholders of
the Founding Companies and delivered, at the Closing, to the Escrow Agent. All
shares of RW Common Stock issuable in the Merger will be deemed for all purposes
to have been issued by RW at the Effective Time.
(b) Each Stockholder will deliver to RW (or any agent that may be
appointed by RW for purposes of this Section 2.05) on or before the Delivery
Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Stockholder, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Stockholder's expense, affixed and canceled.
Each Stockholder shall cure any deficiencies in the endorsement of the
certificates or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Stockholder.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to RW Common Stock and payable to
the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of RW Common Stock have been issued in the Merger until
those certificates are surrendered as provided herein, but (i) on that surrender
RW will cause to be paid, to the Person in whose name the certificates
representing such shares of RW Common Stock shall then be issued, the amount of
dividends or other distributions previously paid with respect to such whole
shares of RW Common Stock with a record date, or which have accrued, subsequent
to the Effective Time, but prior to surrender, and the amount of any cash
payable to such Person for and in lieu of fractional shares pursuant to Section
2.07 and (ii) at the appropriate payment date or as soon as practicable
thereafter, RW will cause to be paid to that Person the amount of dividends or
other distributions with a record date, or which have been accrued, subsequent
to the Effective Time, but which are not payable until a date subsequent to
surrender, which are payable with respect to such whole shares of RW Common
Stock, subject in all cases to any applicable
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<PAGE> 10
escheat laws. No interest will be payable with respect to the payment of such
dividends or other distributions or cash for and in lieu of fractional shares on
surrender of outstanding certificates.
(d) Each Stockholder hereby authorizes and directs RW to deliver
3.5% of the Cash Company Consideration and 3.5% of the Stock Company
Consideration owed to such Stockholder pursuant to this Agreement (before
deposit of the shares of RW Common Stock into escrow) to IPO Development Company
in payment of fees owed to IPO Development Company by such Stockholder.
Section 2.06. Merger Consideration Calculation.
(a) No later than fifteen (15) days following the IPO Closing
Date, the Company shall provide to the Chief Accounting Officer of RW (the
"CAO") a determination of the fair market value (as defined) of its inventory,
machinery, equipment and real estate (the "Valued Assets") as of the IPO Closing
Date. Within seven (7) days of such date, the CAO shall distribute to every
Founding Company the value of the Valued Assets of every Founding Company. The
Company shall have seven (7) days from the date of the distribution of such
valuation to dispute the value of the Valued Assets of any Founding Company by
providing written notice of such dispute to the CAO. If the CAO is unable to
resolve any such dispute, the dispute shall be resolved by binding arbitration
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association, which arbitration shall be resolved no later than thirty (30) days
from selection of the arbitrator. The arbitrator shall be selected by the CAO.
(b) Arthur Andersen or, if not Arthur Andersen, the Company's
accountant, shall cause to be prepared and delivered to RW and the Company a
calculation as of the IPO Closing Date of the Defined Net Worth of the Company
(the "Balance Sheet Calculation"). The Balance Sheet Calculation shall be final
and binding on the Company and the Other Founding Companies absent fraud,
manifest error or gross negligence.
(c) The Balance Sheet Calculation shall include a report of Arthur
Andersen or, if not Arthur Andersen, the Company's accountant, stating that it
has been prepared in a manner consistent with the accounting policies and
procedures used in preparation of the balance sheets in the Initial Financial
Statements, except as provided in the definition of "Defined Net Worth"
contained herein. The Stockholders shall give Arthur Andersen and other
appropriate personnel such assistance and access to the assets and books and
records of the Company as Arthur Andersen shall reasonably request during normal
business hours in order to enable them to prepare the Balance Sheet Calculation.
The Surviving Corporation shall be responsible for the fees and expenses of
Arthur Andersen or, if not Arthur Andersen the Company's accountant.
Section 2.07. Fractional Shares. Notwithstanding any other provision
herein, no fractional shares of RW Common Stock will be issued. All shares of RW
Common Stock shall be aggregated, and any Stockholder entitled hereunder, after
such aggregation, to receive a fractional share of RW Common Stock but for this
Section 2.07 will be entitled hereunder to receive a cash payment for and
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<PAGE> 11
in lieu thereof in the amount (rounded to the nearest whole cent) equal to that
Stockholder's fractional interest in a share of RW Common Stock multiplied by
the IPO Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01. By Each Stockholder. The Stockholders severally represent
and warrant to, and agree with, RW that all the following representations and
warranties in this Article III are as of the date of this Agreement, and will
be, as amended or supplemented pursuant to Section 6.08, on the IPO Closing
Date, true and correct:
(a) (i) each Stockholder will acquire the shares of RW Common
Stock to be issued pursuant to Article II to the Stockholder solely for the
Stockholder's account, for investment purposes only and with no current
intention or plan to distribute, sell or otherwise dispose of any of those
shares in connection with any distribution;
(ii) no Stockholder is a party to any agreement or other
arrangement for the disposition of any shares of RW Common Stock other
than this Agreement; (iii) except as set forth on Schedule 3.01(a)(ii)
each Stockholder is an "accredited investor" as defined in Rule 501(a)
promulgated under the Securities Act; (iv) each Stockholder (A) is able
to bear the economic risk of an investment in the RW Common Stock
acquired pursuant to this Agreement, (B) can afford to sustain a total
loss of that investment, (C) has such knowledge and experience in
financial and business matters that he or she is capable of evaluating
the merits and risks of the proposed investment in the RW Common Stock,
(D) has had an adequate opportunity to ask questions and receive
answers from the officers of RW concerning any and all matters relating
to the transactions contemplated hereby, including the background and
experience of the current and proposed officers and directors of RW,
the plans for the operations of the business of RW, the business,
operations and financial condition of the Other Founding Companies and
any plans of RW for additional acquisitions, and (E) has asked all
questions of the nature described in preceding clause (D) that such
Stockholder thought to ask, and all those questions have been answered
to his or her satisfaction;
(b) the representations and warranties contained in Article III of
the Uniform Provisions (the text of which Article hereby is incorporated herein
by this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to; and
(c) (i) the terms and conditions of any agreements between
any Stockholder or an Affiliate of any Stockholder, on the one hand, and the
Company on the other hand, included in the Scheduled Related Party Agreements
will have been amended effective as of the IPO Closing Date to be no less
favorable to the Company than the Company reasonably could have expected to
obtain in an arms-length transaction with a Person other than an Affiliate of
the Company and (ii) the
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<PAGE> 12
rentals or other payments provided for in such agreements then will not exceed
fair market rentals of the property being leased or fair market value of the sum
or product being provided and such amounts shall have been previously approved
in writing by the Chief Financial Officer of RW.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS
Section 4.01. By the Company and Each Primary Stockholder. The Company
and each Primary Stockholder jointly and severally represent and warrant to, and
agree with, RW that all the following representations and warranties in this
Article IV are as of the date of this Agreement, and will be, as amended or
supplemented pursuant to Section 6.08, on the Delivery Date and the IPO Closing
Date, true and correct:
(a) the Organization State of the Company is the State of
Pennsylvania, and the Company (i) is a corporation duly organized, validly
existing and in good standing under the laws of that State, (ii) has all
requisite corporate power and authority under those laws and its Charter
Documents to own or lease and to operate its properties and to carry on its
business as now conducted and (iii) is duly qualified and in good standing as a
foreign corporation in all jurisdictions (other than the State of Pennsylvania)
in which it owns or leases property or in which the carrying on of its business
as now conducted so requires except where the failure to be so qualified, singly
or in the aggregate, would not have a Material Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is comprised
of 10,000 shares of Company Common Stock, of which 1,000 have been issued and
are now outstanding and no shares are held by the Company as treasury shares,
and (ii) there are no Derivative Securities of the Company; and
(c) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated herein
by this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO
Section 5.01. By RW and Newco. RW and Newco jointly and severally
represent and warrant to the Company and each Stockholder that all the following
representations and warranties in this Article V are as of the date of this
Agreement, and will be on the IPO Closing Date, true and correct:
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<PAGE> 13
(a) Newco is a corporation duly organized, validly existing and in
good standing under the laws of the State of Pennsylvania;
(b) except as disclosed in the Private Placement Memorandum, no
Derivative Securities of Newco are outstanding;
(c) Newco has been organized for the sole purpose of participating
in the Merger and has not, and will not, engage in any activities other than
those necessary to effectuate the Merger;
(d) except for shares of RW Common Stock to be publicly sold in
the IPO and as disclosed in the Private Placement Memorandum or preliminary
prospectus, neither RW nor Newco is a party to any agreement or other
arrangement for the disposition of any shares of RW Common Stock; and
(e) the representations and warranties contained in Article V of
the Uniform Provisions (the text of which Article hereby is incorporated herein
by this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01. Of Each Party. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01. The Closing and Certain Conditions.
(a) The Closing. On or before the IPO Pricing Date, the parties
hereto will take all actions necessary to (i) effect the Merger (including, as
permitted by the Applicable Corporate Code, (A) the execution of a Certificate
of Merger (1) meeting the requirements of the Applicable Corporate Code and (2)
providing that the Merger will become effective on the IPO Closing Date and (B)
the delivery of that Certificate of Merger with a filing service that will file
such Certificate of Merger with the Department of State of the State of
Pennsylvania) upon notification of the closing of the IPO (provided that
Comstock's Certificate of Merger shall be filed immediately prior to the closing
of the IPO), (ii) verify the existence and ownership of the certificates
evidencing the Company Common Stock to be exchanged for the Merger Consideration
pursuant to Section 2.05 and (iii) satisfy the document delivery requirements to
which the obligations of the parties to effect the Merger and the other
transactions contemplated hereby are conditioned by the provisions of this
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<PAGE> 14
Article VII (all those actions collectively being the "Delivery"). The Delivery
will take place at the offices of King & Spalding, 191 Peachtree Street,
Atlanta, Georgia at 10:00 a.m., Atlanta time on the IPO Pricing Date, or at such
later time on the IPO Pricing Date as RW shall specify by written notice to the
President of the Company (the "Delivery Date"). The actions taken at the
Delivery will not include the completion of either the Merger or the delivery of
the Company Common Stock or the Merger Consideration pursuant to Section 2.05.
On the IPO Closing Date, the Certificate of Merger will be filed and will become
effective pursuant to Section 2.02, and all transactions contemplated by this
Agreement to be closed or completed on or before the IPO Closing Date, including
the surrender of the Company Common Stock in exchange for the Merger
Consideration (including a certified check or checks in an amount equal to the
cash portion of the Merger Consideration) will be closed or completed, as the
case may be. During the period from the Delivery Date to the IPO Closing Date,
this Agreement may be terminated by the parties only pursuant to Section
12.01(b)(i).
(b) Certain Conditions to the Obligations of the Company and the
Stockholders. The obligations of the Company and the Stockholders with respect
to the actions to be taken by them at or before the Delivery Date are subject to
the satisfaction on or before the Delivery Date, or waiver by them pursuant to
Section 11.05, of all the conditions set forth in Sections 7.01 and 7.02(a). The
obligations of the Stockholders with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of the following
conditions: (if required by such Stockholder) (i) the Employment Agreement then
shall be in full force and effect; and (ii) all the conditions set forth in
Sections 7.01 and 7.02(b).
(c) Certain Conditions to the Obligations of RW and Newco. The
obligations of RW and Newco with respect to actions to be taken by them at or
before the Delivery Date are subject to the satisfaction on or before the date
of the Delivery Date, or waiver by them pursuant to Section 11.05, of the
following conditions: (i) the Company shall have delivered to RW a copy of the
articles of incorporation, as amended to the Delivery Date and certified by the
Secretary of State of the State of Pennsylvania as of a Current Date, of the
Company; and (ii) all the conditions set forth in Sections 7.01 and 7.03(a). The
obligations of RW and Newco with respect to the actions to be taken on the IPO
Closing Date are subject to the satisfaction on that date of the following
conditions: (i) the Employment Agreements then shall be in full force and
effect; and (ii) all the conditions set forth in Sections 7.01 and 7.03(b).
(d) Uniform Provisions. The text of Article VII of the Uniform
Provisions hereby is incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01. Of Each Party Other than the Company. From and after the
Effective Time, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Company) will
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<PAGE> 15
comply with each covenant for which provision is made in Article VIII of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) to be performed or observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01. Indemnification Rights and Obligations. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. Any provision contained in Article IX of the Uniform Provisions to
the contrary notwithstanding, the indemnification obligations of the
Stockholders pursuant to this Agreement shall be joint and several.
ARTICLE X
[Intentionally Ommitted]
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. Treatment of Confidential Information. Each party hereto
will comply with each covenant for which provision is made in Section 11.01 of
the Uniform Provisions (the text of which Section hereby is incorporated herein
by this reference) to be performed or observed by that party.
Section 11.02. Restrictions on Transfer of RW Common Stock.
(a) Except for transfers to employees of the Company that are
approved in writing by the Board of Directors of RW (or a committee designated
by the Board of Directors of RW) prior to such transfer, during the one year
period ending on the first anniversary of the IPO Closing Date (the "Restricted
Period"), no Stockholder voluntarily will: (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
RW Common Stock received by any Stockholder in the Merger or (B) any interest in
(including any option to buy or sell) any of those shares of RW Common Stock, in
whole or in part, and RW will have no obligation to, and shall not, treat any
such attempted transfer as effective for any purpose; or (ii) engage in any
transaction, whether or not with respect to any shares of RW Common Stock or any
interest therein, the intent or effect of which is to reduce the risk of owning
the shares of RW Common Stock acquired pursuant to Section 2.04 (including, for
example engaging in put, call, short-sale, straddle or similar market
transactions); provided, however, that this Section 11.02 shall not restrict any
transfer of RW Common Stock acquired by a Stockholder pursuant to Section 2.04
to any of that Stockholder's Related Persons who agree in writing to be bound by
the provisions of Section 11.01
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<PAGE> 16
and this Section 11.02. The certificates evidencing the RW Common Stock
delivered to each Stockholder pursuant to Section 2.05 will bear a legend
substantially in the form set forth below and containing such other information
as RW may deem necessary or appropriate:
"EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER
PARTIES THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE
REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF
ANY OF THOSE SHARES, DURING THE ONE-YEAR PERIOD ENDING ON __________ [DATE THAT
IS THE FIRST ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED PERIOD"). ON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE."
(b) From the first anniversary of the IPO Closing Date to the
fourth anniversary of the IPO Closing Date, the Stockholders agree to sell
shares of RW Common Stock acquired pursuant to this Agreement only in accordance
with the procedures set forth in this Section 11.02(b). Every quarter during
such period, every Stockholder will be permitted to sell, in the aggregate, up
to 8% of the aggregate number of shares of Common Stock received by such
Stockholder pursuant to this Agreement (the "Quarterly Block Trade Shares") in
either a block trade or a registered public offering, at the option of RW. If a
Stockholder does not sell all of his or her Quarterly Block Trade Shares in any
given quarter, such Stockholder may sell such Quarterly Block Trade Shares
pursuant to this Section 11.02(b) in any later quarter, provided, however, that
in no event may a Stockholder sell more than 20% of the shares of Common Stock
received by such Stockholder pursuant to this Agreement in any one quarter. Any
Stockholder that wishes to sell shares of RW Common Stock pursuant to such
selling opportunity must give notice to RW and the Executive Council no later
than fourteen days prior to the commencement of the fiscal quarter of RW during
which such Stockholder wants to sell such shares. Notwithstanding anything set
forth in this Section 11.02(b), RW may elect to make available to the
Stockholders (i) additional opportunities to sell shares of RW Common Stock
and/or (ii) the opportunity to sell an amount in excess of such amount during
any particular quarter. The Company may modify or waive this Section 11.02(b) at
its sole discretion at any time following written notice to the Stockholders,
provided that no such modification or waiver may reduce the number of selling
opportunities or the maximum number of shares of RW Common Stock that may be
sold by any Stockholder during any selling opportunity.
(c) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of RW Common Stock to be delivered to
that Stockholder pursuant to Section 2.04 have not been and will not be
registered under the Securities Act and therefore may not be resold by that
Stockholder without compliance with the Securities Act and (ii) covenants that
none of the
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<PAGE> 17
shares of RW Common Stock issued to that Stockholder pursuant to Section 2.04
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable provisions of
the Securities Act and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of RW Common
Stock issued pursuant to Section 2.04 will bear the following legend in addition
to the legend prescribed by Section 11.02(a):
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, HAVE
BEEN ISSUED PURSUANT TO ONE OR MORE EXEMPTIONS THERETO, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED OR DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED."
In addition, certificates evidencing shares of RW Common Stock issued pursuant
to Section 2.04 to each Stockholder will bear any legend required by the
securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03. Brokers and Agents. Except for IPO Development Company,
each of the Stockholders jointly and severally, on the one hand, and RW, on the
other, represents and warrants to the other that such Person has not directly or
indirectly employed or become obligated to pay any broker, finder or similar
agent in connection with the transactions contemplated hereby and agree, without
regard to the Threshold Amount limitations set forth in Article IX, to indemnify
the other against all Damage Claims arising out of claims for any and all fees
and commissions of brokers or similar agents employed or promised payment by
such Person.
Section 11.04. Assignment; No Third Party Beneficiaries. This Agreement
and the rights of the parties hereunder may not be assigned (except by operation
of law) and shall be binding on and inure to the benefit of the parties hereto,
the successors of RW, and the heirs and legal representatives of the
Stockholders (and, in the case of any trust, the successor trustees of that
trust). Neither this Agreement nor any other Transaction Document is intended,
or shall be construed, deemed or interpreted, to confer on any Person not a
party hereto or thereto any rights or remedies hereunder or thereunder, except
as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise provided
expressly herein or therein.
Section 11.05. Entire Agreement; Amendment; Waivers. Except with
respect to Section 11.07 hereof, this Agreement and the documents delivered
pursuant hereto constitute the entire agreement and understanding among the
Stockholders, the Company, Newco and RW and supersede all prior agreements and
understandings, both written and oral, relating to the subject matter of this
Agreement. This Agreement may be amended, modified or supplemented, and any
right hereunder may be waived, if, but only if, that amendment, modification,
supplement or waiver is in writing and
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<PAGE> 18
signed by each of the Stockholders, the Company and RW. The waiver of any of the
terms and conditions hereof shall not be construed or interpreted as, or deemed
to be, a waiver of any other term or condition hereof.
Section 11.06. Counterparts. This Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
Section 11.07. Expenses. If the transactions contemplated hereby (i)
are consummated, RW will pay the fees, expenses and disbursements of RW and
Newco and their Representatives which are incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all costs
and expenses incurred in the performance of and compliance with all conditions
to be performed by RW and Newco under this Agreement, including the costs of
preparing the Registration Statement, (collectively, the "RW Expenses") and (ii)
if the transactions contemplated hereby are not consummated, the RW Expenses
shall be paid by the Founding Companies subject to the provisions of the IPO
Cost Liability Sharing Agreement attached hereto as Exhibit C and incorporated
herein by reference (b) the Stockholders will pay from personal funds, and not
from funds of the Company or any Company Subsidiary, all sales, use, transfer
and other similar taxes and fees (collectively, "Transfer Taxes") incurred in
connection with the transactions contemplated hereby and (c) the Company will
pay the fees, expenses and disbursements of Counsel for the Company and the
Stockholders incurred in connection with the subject matter of this Agreement
and the Registration Statement on or before the IPO Closing Date. The
Stockholders will file all necessary documentation and Returns with respect to
all Transfer Taxes. In addition, each Stockholder acknowledges that he, and not
the Company or RW or the Surviving Corporation, will pay all Taxes due upon
receipt of the consideration payable to that Stockholder pursuant to Article II.
Section 11.08. Notices. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received
(a) if personally delivered or if delivered by telex, telegram,
facsimile or courier service, when actually received by the party to whom notice
is sent or
(b) if delivered by mail (whether actually received or not), at
the close of business on the third Business Day next following the day when
placed in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
(i) if to RW or Newco, addressed to it at:
RailWorks Corporation
403 Somerset Road
Baltimore, Maryland 21210
Attn: Chief Executive Officer
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<PAGE> 19
with copies (which shall not constitute notice for purposes of
this Agreement) to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attn: Jeffrey M. Stein
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
HP McGinley Inc.
Route 235
P.O. Box 251
McAlisterville, Pennsylvania 17049
Attn: David H. McGinley
with copies (which shall not constitute notice for purposes of
this Agreement) to Counsel for the Company and the
Stockholders at the address designated by the Company
Section 11.09. Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF DELAWARE
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10. Exercise of Rights and Remedies. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11. Time. Time is of the essence in the performance of this
Agreement in all respects.
Section 11.12. Reformation and Severability. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this
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<PAGE> 20
Agreement, and in either case the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
Section 11.13. Remedies Cumulative. No right, remedy or election given
by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14. Respecting the IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither RW or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that RW will use its reasonable best efforts to
cause the Registration Statement to become effective prior to August 14, 1998)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to RW or the
IPO.
ARTICLE XII
TERMINATION
Section 12.01. Termination of this Agreement.
(a) This Agreement may be terminated at any time prior to the
Delivery Date solely:
(i) by the mutual written consent of RW and the Company;
(ii) by the Stockholders or the Company, on the one hand,
or by RW, on the other hand, if the events contemplated by this
Agreement to take place at the Delivery Date shall not have taken place
by September 4, 1998, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the
case of the Stockholders and the Company, any of them) seeking to
terminate this Agreement to perform or adhere to any agreement required
hereby to be performed or adhered to by it prior to or at the Delivery
Date or thereafter on the IPO Closing Date;
(iii) by the Stockholders or the Company, on the one hand,
or by RW, on the other hand, if a material breach or default shall be
made by the other party (or in the case of the Stockholders and the
Company, any of them) in the observance or in the due and timely
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<PAGE> 21
performance of any of the covenants, agreements or conditions contained
in Article VI or Section 11.01;
(iv) by the Stockholders or the Company, on the one hand,
or RW, on the other, if it is entitled to do so as provided in Section
6.08;
(v) by the Stockholders prior to the filing of the
Registration Statement if the Registration Statement is not filed by
June 15, 1998;
(vi) by RW or the Stockholders prior to 9:00 a.m. on the
IPO Pricing Date (as set forth in Section 8.10) if the value of RW at
the IPO Pricing Date (as calculated by multiplying the price per share
at which the RW common stock is to be sold in the IPO by the number of
shares of common stock to be outstanding after the Closing of the IPO)
shall be less than $215 million;
(vii) by the Stockholders if the Registration Statement has
not been declared effective by the Securities and Exchange Commission
by August 14, 1998;
(viii) by the Stockholders if John G. Larkin is no longer
serving as Chairman of the Board of Directors and Chief Executive
Officer prior to the Closing; or
(ix) by the stockholders of CPI Concrete Products, Inc. if
its Employee Stock Ownership Plan does not approve the merger prior to
the Delivery Date.
(b) This Agreement may be terminated after the Delivery Date
solely:
(i) by RW or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the IPO Pricing Date and prior
to the consummation of the IPO; or
(ii) automatically and without action on the part of any
party hereto if the IPO is not consummated within 15 New York City
business days after the Delivery Date.
(c) If this Agreement is terminated pursuant to this Section
12.01, the Merger will be deemed for all purposes to have been abandoned and of
no force or effect.
Section 12.02. Liabilities in Event of Termination. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Sections
11.03 or 11.07 and (b) to the extent that such liability is based on the breach
by that party of any of its representations, warranties or covenants set forth
in this Agreement.
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<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
RAILWORKS CORPORATION
By: /s/ John G. Larkin
----------------------------------------
John G. Larkin
Chief Executive Officer
NITTANY LIONS MCGINLEY COMPANY
By: /s/ John G. Larkin
----------------------------------------
John G. Larkin
President
HP MCGINLEY, INC.
By: /s/ Authorized Signature
----------------------------------------
Name:
Title:
STOCKHOLDERS:
/s/ David H. McGinley
--------------------------------------------
David H. McGinley
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<PAGE> 23
ADDENDUM 1
OTHER FOUNDING COMPANIES
A. Words and terms used in this Addendum which are defined in the
captioned Agreement to which this is an Addendum are used herein as therein
defined.
B. The Founding Companies are:
Alpha - Keystone Engineering, Inc.
Annex Railroad Builders, Inc.
Comtrak Construction, Inc.
Comstock Holdings Inc.
Condon Brothers, Inc.
CPI Concrete Products
HP McGinley, Inc.
Kennedy Railroad Builders, Inc.
Merit Railroad Contractors, Inc.
Midwest Construction Services, Inc.
Minnesota Railroad Services, Inc.
Mize Construction Co.
New England Railroad Construction Co., Inc.
Northern Rail Service & Supply Company, Inc.
Railcorp, Inc.
Railroad Service, Inc.
Railroad Specialities, Inc,
Southern Indiana Wood Preserving Co.
U.S. Railway Supply, Inc,
U.S. Trackworks, Inc.
W.A. Smith Construction Co., Inc.
W.A Smith Rerailing Co., Inc.
<PAGE> 1
EXHIBIT 10.8
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 21, 1998
BY AND BETWEEN
RAILWORKS CORPORATION,
OWLS KENNEDY RAILROAD BUILDERS COMPANY,
KENNEDY RAILROAD BUILDERS, INC.
AND
THE STOCKHOLDERS NAMED HEREIN
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TABLE OF CONTENTS
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ARTICLE I DEFINITIONS.................................................................1
Section 1.01. Certain Defined Terms.................................1
ARTICLE II THE MERGER AND RELATED MATTERS..............................................4
Section 2.01. Certificate of Merger.................................4
Section 2.02. The Effective Time....................................4
Section 2.03. Certain Effects of the Merger.........................4
Section 2.04. Effect of the Merger on Capital Stock.................5
Section 2.05. Delivery, Exchange and Payment........................6
Section 2.06. Merger Consideration Calculation......................7
Section 2.07. Fractional Shares.....................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER .........................8
Section 3.01. By Each Stockholder...................................8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE PRIMARY STOCKHOLDERS....................................................9
Section 4.01. By the Company and Each Primary Stockholder...........9
ARTICLE V REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO..............................9
Section 5.01. By RW and Newco.......................................9
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME .................................10
Section 6.01. Of Each Party........................................10
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION.....................10
Section 7.01. The Closing and Certain Conditions...................10
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ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME.....................................12
Section 8.01. Of Each Party Other than the Company.................12
ARTICLE IX INDEMNIFICATION............................................................12
Section 9.01. Indemnification Rights and Obligations...............12
ARTICLE X [Intentionally Ommitted]...................................................12
ARTICLE XI GENERAL PROVISIONS.........................................................12
Section 11.01. Treatment of Confidential Information................12
Section 11.02. Restrictions on Transfer of RW Common Stock..........12
Section 11.03. Brokers and Agents...................................14
Section 11.04. Assignment; No Third Party Beneficiaries.............14
Section 11.05. Entire Agreement; Amendment; Waivers.................15
Section 11.06. Counterparts.........................................15
Section 11.07. Expenses.............................................15
Section 11.08. Notices..............................................15
Section 11.09. Governing Law........................................16
Section 11.10. Exercise of Rights and Remedies......................16
Section 11.11. Time.................................................16
Section 11.12. Reformation and Severability.........................17
Section 11.13. Remedies Cumulative..................................17
Section 11.14. Respecting the IPO...................................17
ARTICLE XII TERMINATION................................................................17
Section 12.01. Termination of this Agreement........................17
Section 12.02. Liabilities in Event of Termination..................18
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EXHIBITS
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Exhibit A - List of Primary Stockholders
Exhibit B - Form of Employment Agreement
Exhibit C - IPO Cost Liability Sharing Agreement
Exhibit D - Merger Consideration
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as
of May 21, 1998, by and among RailWorks Corporation, a Delaware corporation
("RW"), Owls Kennedy Railroad Builders Company, a Pennsylvania corporation and a
wholly owned subsidiary of RW("Newco"), Kennedy Railroad Builders, Inc., a
Pennsylvania corporation (the "Company"), and the persons listed on the
signature pages hereof under the caption "Stockholders" (collectively, the
"Stockholders," and each of those persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(a) Newco will merge into the Company on the terms and subject to
the conditions set forth herein (that merger being the "Merger");
(b) RW will acquire the stock of all or some of the entities
listed in the accompanying Addendum 1 (each an "Other Founding Company" and,
collectively with the Company, the "Founding Companies") pursuant to agreements
that are (i) similar in all material respects to this Agreement and (ii) entered
into among those entities and their equity owners, RW and subsidiaries of RW
(collectively, the "Other Agreements"); and
(c) RW shall at such time as specified herein and if certain
conditions are met, effect a public offering of shares of its common stock and
issue and sell those shares.
The respective boards of directors of RW, Newco and the Company have
approved and adopted this Agreement to effect a transaction subject to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Certain Defined Terms. As used in this Agreement and in
the related Addendums, Annexes, Schedules and Exhibits, the following terms have
the meanings assigned to them below in this Section 1.01. Capitalized terms used
in this Agreement and not defined below in this Section 1.01 have the meanings
assigned to them in the Preliminary Statement or Article I of the Uniform
Provisions (the text of which Article hereby is incorporated herein by this
reference), as the case may be.
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"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement and all attached Schedules, Addendums,
Annexes and Exhibits, as each of the same may be amended, modified or
supplemented from time to time pursuant to the provisions hereof or thereof.
"Applicable Corporate Code" means the laws of the Organization State of
the Company that govern corporations incorporated in such state.
"Closing Date Balance Sheet" of the Company means a balance sheet of
the Company as at the IPO Closing Date which is prepared on a basis consistent
with the basis on which the Current Balance Sheet was prepared.
"Closing Memorandum" means the form of closing memorandum to be
prepared by RW for the Closing under this Agreement in which are included the
forms of certificates of officers, the opinions of counsel and certain other
documents to be delivered at the Closing as provided in Article VII.
"Company Accounts Receivable" shall mean the accounts and notes or
other advances receivable of the Company and the Company Subsidiaries, excluding
any Retainages, as of the IPO Closing Date.
"Company Common Stock" means the common stock, par value $1.00 per
share, of the Company.
"Company Indebtedness" means the indebtedness of the Company, as of the
IPO Closing Date (including, with respect to CPI Concrete Products, Inc., the
value of the Cash Company Consideration to be received by its Employee Stock
Ownership Plan), that the Company has elected to repay (or repurchase, as the
case may be) with a portion of the RW Common Stock to be received as part of the
Merger Consideration. At least five days prior to the Delivery Date, the Company
will deliver to RW a schedule of the aggregate principal amount of the Company
Indebtedness, certified by the President of the Company, that will be
outstanding on the IPO Closing Date, and RW will repay such Company Indebtedness
on the IPO Closing Date. To the extent that the actual amount of Company
Indebtedness exceeds the amount shown on such schedule, such excess shall be
repaid by the Stockholders on or prior to the IPO Closing Date.
"Counsel for RW and Newco" means King & Spalding.
"Counsel for the Company and the Stockholders" means such counsel as
shall be designated by the Company in writing on or prior to the Delivery Date.
"Current Balance Sheet" means the balance sheet of the Company as at
March 31, 1998 which is included in the Initial Financial Statements.
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"Current Balance Sheet Date" means December 31, 1997.
"Defined Net Worth" as of the IPO Closing Date shall mean (i) the total
assets of the Company, as set forth on the balance sheet of the Company as of
such date, except that (A) expenses of the Company directly attributable to the
IPO and/or the transactions contemplated by this Agreement, including but not
limited to, costs incurred pursuant to the HSR Act, shall be added back to the
assets of the company and (B) the value of inventory, machinery, equipment and
real estate shall be determined pursuant to Section 2.06(a), less (ii) the total
liabilities of the Company, as set forth on the balance sheet of the Company as
of such date, excluding the Company Indebtedness. Notwithstanding the foregoing,
in the case of Comstock, Comstock's contractual obligation to Spie Group, Inc.,
as successor to Comstock Group, Inc., shall not be deemed to be a liability for
purposes of determining Defined Net Worth.
"Delivery" or "Delivery Date" shall have the meaning set forth in
Section 7.01.
"Earnings Percentage" shall have the meaning set forth in Exhibit D.
"Employment Agreement" means each of the Employment Agreements entered
into as of the Closing Date between RW and each of the Stockholders set forth on
Exhibit A hereto, a form of which is attached hereto as Exhibit B.
"fair market value" means that value at which goods and/or services
would be exchanged between a willing buyer and willing seller in a transaction
entered into at arms length with each party having relevant facts of all aspects
of the transaction.
"Initial Financial Statements" means (a) the balance sheets of the
Company as at December 31, 1997 and March 31, 1998 and the related reviewed
statements of operations and retained earnings for each of the Company's two
fiscal years in the period ended December 31, 1997, and (b) the Current Balance
Sheet and the related statement of income for the Company's fiscal year ended
December 31, 1997, which the Company has delivered to RW prior to the date
hereof.
"IPO Closing Date" means the date on which RW first receives payment
for the shares of RW Common Stock it sells to the Underwriter in the IPO.
"Merger Consideration" has the meaning specified in Section 2.04.
"Newco" means Owls Kennedy Railroad Builders Company, a Pennsylvania
corporation.
"Responsible Officer" means the President, Chief Executive Officer or
any Vice President of the Company.
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"Retainages" means the portion of progress payments due to a Company
for contracting projects that is withheld by a customer of such Company until
completion of a project, pursuant to the terms of a contract with such customer,
as security for the completion of the project.
"RW" means RailWorks Corporation, a Delaware corporation.
"Scheduled Related Party Agreements" means the agreements described in
Schedule 4.11.
"Surviving Corporation" means the Person to be designated in the
Certificate of Merger as the surviving corporation of the Merger.
"Threshold Amount" means 2.0% of the Merger Consideration.
"Transaction Value" means the (i)(A) the total number of shares of RW
outstanding immediately upon the closing of the IPO and the transactions
contemplated by this Agreement and the Other Agreements multiplied by (B) the
IPO Price multiplied by (C) 92% minus (ii) actual expenses of RW incurred with
respect to the IPO, an estimate of which will be set forth in Item 13 of Part II
of the Registration Statement minus (iii) the underwriting discounts and
commissions paid to the Underwriter pursuant to the IPO minus (iv) the proceeds
received by RW in connection with any shares of RW Common Stock sold by RW to
finance the working capital needs of RW, which shares shall not exceed 5% of the
number of shares to be sold in the IPO.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions of RW for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. Certificate of Merger. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the Delivery Date to the Department
of State of the State of Pennsylvania.
Section 2.02. The Effective Time. The effective time of the Merger (the
"Effective Time") will be the time on the IPO Closing Date as specified in the
Certificate of Merger or, if the Certificate of Merger does not specify another
time, 8:00 a.m., eastern daylight standard time, on the IPO Closing Date.
Section 2.03. Certain Effects of the Merger. At and as of the Effective
Time, (a) Newco will be merged with and into the Company in accordance with the
provisions of the Pennsylvania Business Corporation Law, (b) Newco will cease to
exist as a separate legal entity, (c) the articles
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of incorporation of the Company will be amended to change its authorized capital
stock to 100 shares, par value $0.01 per share, of Common Stock, (d) the Company
will be the Surviving Corporation and, as such, will, all with the effect
provided by the Pennsylvania Business Corporation Law, (i) possess all the
properties and rights, and be subject to all the restrictions and duties, of the
Company and Newco and (ii) be governed by the laws of the State of Pennsylvania,
(e) the Charter Documents of the Company then in effect (after giving effect to
the amendment of the Company's articles of incorporation specified in clause (c)
of this sentence) will become and thereafter remain (until changed in accordance
with (i) applicable law (in the case of the articles of incorporation) or (ii)
their terms (in the case of the bylaws)) the Charter Documents of the Surviving
Corporation, (f) the initial board of directors of the Surviving Corporation
will be the Chief Executive Officer of RW and the other persons named in
Schedule 2.03, and those persons will hold the office of director of the
Surviving Corporation subject to the provisions of the applicable laws of the
State of Pennsylvania and the Charter Documents of the Surviving Corporation,
and (g) the initial officers of the Surviving Corporation will be as set forth
in Schedule 2.03, and each of those persons will serve in each office specified
for that person in Schedule 2.03, subject to the provisions of the Charter
Documents of the Surviving Corporation, until that person's successor is duly
elected to, and, if necessary, qualified for, that office.
Section 2.04. Effect of the Merger on Capital Stock. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the right to
receive, subject to the provisions of Section 2.05 and Exhibit D, without
interest, on surrender of the certificate evidencing those shares, the amount of
cash and the number of whole and fractional shares of RW Common Stock set forth
or determined as provided in Exhibit D (the "Merger Consideration"), (ii) cease
to be outstanding and to exist and (iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to exist
and (ii) be canceled and retired; and
(c) each share of Newco Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into one share of
Common Stock, $1.00 par value, of the Surviving Corporation, and the shares of
Common Stock of the Surviving Corporation issued on that conversion will
constitute all the issued and outstanding shares of Capital Stock of the
Surviving Corporation. Each holder of a certificate representing shares of
Company Common Stock immediately prior to the Effective Time will, as of the
Effective Time and thereafter, cease to have any rights respecting those shares
other than the right to receive, subject to the provisions of Section 2.05,
without interest, the Merger Consideration and the additional cash, if any,
owing with respect to those shares as provided in Section 2.07.
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Section 2.05. Delivery, Exchange and Payment.
(a) At or after the Effective Time: (i) each Stockholder, as the
holder of certificates representing shares of Company Common Stock, will, on
surrender of those certificates to RW (or any agent that may be appointed by RW
for purposes of this Section 2.05), receive, subject to the provisions of this
Article II and the Escrow Agreement, such Stockholder's share of the Merger
Consideration pursuant to Section 2.04 and Exhibit D; and (ii) until any
certificate representing Company Common Stock has been surrendered and replaced
pursuant to this Section 2.05, that certificate will, for all purposes, be
deemed to evidence ownership of the number of whole shares of RW Common Stock
included in the Merger Consideration payable in respect of that certificate
pursuant to Section 2.04. The Escrow Agreement will provide that the shares of
RW Common Stock issued to the Stockholders as a part of the Merger Consideration
together with duly executed stock powers in blank, shall be placed in escrow to
be held subject to the terms of the Escrow Agreement and further subject to
Exhibit D and Section 11.02. The escrow shall consist solely of shares of RW
Common Stock that shall be issued at the Effective Time to the Stockholders of
the Founding Companies and delivered, at the Closing, to the Escrow Agent. All
shares of RW Common Stock issuable in the Merger will be deemed for all purposes
to have been issued by RW at the Effective Time.
(b) Each Stockholder will deliver to RW (or any agent that may be
appointed by RW for purposes of this Section 2.05) on or before the Delivery
Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Stockholder, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Stockholder's expense, affixed and canceled.
Each Stockholder shall cure any deficiencies in the endorsement of the
certificates or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Stockholder.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to RW Common Stock and payable to
the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of RW Common Stock have been issued in the Merger until
those certificates are surrendered as provided herein, but (i) on that surrender
RW will cause to be paid, to the Person in whose name the certificates
representing such shares of RW Common Stock shall then be issued, the amount of
dividends or other distributions previously paid with respect to such whole
shares of RW Common Stock with a record date, or which have accrued, subsequent
to the Effective Time, but prior to surrender, and the amount of any cash
payable to such Person for and in lieu of fractional shares pursuant to Section
2.07 and (ii) at the appropriate payment date or as soon as practicable
thereafter, RW will cause to be paid to that Person the amount of dividends or
other distributions with a record date, or which have been accrued, subsequent
to the Effective Time, but which are not payable until a date subsequent to
surrender, which are payable with respect to such whole shares of RW Common
Stock, subject in all cases to any applicable
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escheat laws. No interest will be payable with respect to the payment of such
dividends or other distributions or cash for and in lieu of fractional shares on
surrender of outstanding certificates.
(d) Each Stockholder hereby authorizes and directs RW to deliver
3.5% of the Cash Company Consideration and 3.5% of the Stock Company
Consideration owed to such Stockholder pursuant to this Agreement (before
deposit of the shares of RW Common Stock into escrow) to IPO Development Company
in payment of fees owed to IPO Development Company by such Stockholder.
Section 2.06. Merger Consideration Calculation.
(a) No later than fifteen (15) days following the IPO Closing
Date, the Company shall provide to the Chief Accounting Officer of RW (the
"CAO") a determination of the fair market value (as defined) of its inventory,
machinery, equipment and real estate (the "Valued Assets") as of the IPO Closing
Date. Within seven (7) days of such date, the CAO shall distribute to every
Founding Company the value of the Valued Assets of every Founding Company. The
Company shall have seven (7) days from the date of the distribution of such
valuation to dispute the value of the Valued Assets of any Founding Company by
providing written notice of such dispute to the CAO. If the CAO is unable to
resolve any such dispute, the dispute shall be resolved by binding arbitration
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association, which arbitration shall be resolved no later than thirty (30) days
from selection of the arbitrator. The arbitrator shall be selected by the CAO.
(b) Arthur Andersen or, if not Arthur Andersen, the Company's
accountant, shall cause to be prepared and delivered to RW and the Company a
calculation as of the IPO Closing Date of the Defined Net Worth of the Company
(the "Balance Sheet Calculation"). The Balance Sheet Calculation shall be final
and binding on the Company and the Other Founding Companies absent fraud,
manifest error or gross negligence.
(c) The Balance Sheet Calculation shall include a report of Arthur
Andersen or, if not Arthur Andersen, the Company's accountant, stating that it
has been prepared in a manner consistent with the accounting policies and
procedures used in preparation of the balance sheets in the Initial Financial
Statements, except as provided in the definition of "Defined Net Worth"
contained herein. The Stockholders shall give Arthur Andersen and other
appropriate personnel such assistance and access to the assets and books and
records of the Company as Arthur Andersen shall reasonably request during normal
business hours in order to enable them to prepare the Balance Sheet Calculation.
The Surviving Corporation shall be responsible for the fees and expenses of
Arthur Andersen or, if not Arthur Andersen the Company's accountant.
Section 2.07. Fractional Shares. Notwithstanding any other provision
herein, no fractional shares of RW Common Stock will be issued. All shares of RW
Common Stock shall be aggregated, and any Stockholder entitled hereunder, after
such aggregation, to receive a fractional share of RW Common Stock but for this
Section 2.07 will be entitled hereunder to receive a cash payment for and
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in lieu thereof in the amount (rounded to the nearest whole cent) equal to that
Stockholder's fractional interest in a share of RW Common Stock multiplied by
the IPO Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01. By Each Stockholder. The Stockholders severally represent
and warrant to, and agree with, RW that all the following representations and
warranties in this Article III are as of the date of this Agreement, and will
be, as amended or supplemented pursuant to Section 6.08, on the IPO Closing
Date, true and correct:
(a) (i) each Stockholder will acquire the shares of RW Common
Stock to be issued pursuant to Article II to the Stockholder solely for the
Stockholder's account, for investment purposes only and with no current
intention or plan to distribute, sell or otherwise dispose of any of those
shares in connection with any distribution;
(ii) no Stockholder is a party to any agreement or other
arrangement for the disposition of any shares of RW Common Stock other
than this Agreement; (iii) except as set forth on Schedule 3.01(a)(ii)
each Stockholder is an "accredited investor" as defined in Rule 501(a)
promulgated under the Securities Act; (iv) each Stockholder (A) is able
to bear the economic risk of an investment in the RW Common Stock
acquired pursuant to this Agreement, (B) can afford to sustain a total
loss of that investment, (C) has such knowledge and experience in
financial and business matters that he or she is capable of evaluating
the merits and risks of the proposed investment in the RW Common Stock,
(D) has had an adequate opportunity to ask questions and receive
answers from the officers of RW concerning any and all matters relating
to the transactions contemplated hereby, including the background and
experience of the current and proposed officers and directors of RW,
the plans for the operations of the business of RW, the business,
operations and financial condition of the Other Founding Companies and
any plans of RW for additional acquisitions, and (E) has asked all
questions of the nature described in preceding clause (D) that such
Stockholder thought to ask, and all those questions have been answered
to his or her satisfaction;
(b) the representations and warranties contained in Article III of
the Uniform Provisions (the text of which Article hereby is incorporated herein
by this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to; and
(c) (i) the terms and conditions of any agreements between
any Stockholder or an Affiliate of any Stockholder, on the one hand, and the
Company on the other hand, included in the Scheduled Related Party Agreements
will have been amended effective as of the IPO Closing Date to be no less
favorable to the Company than the Company reasonably could have expected to
obtain in an arms-length transaction with a Person other than an Affiliate of
the Company and (ii) the
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rentals or other payments provided for in such agreements then will not exceed
fair market rentals of the property being leased or fair market value of the sum
or product being provided and such amounts shall have been previously approved
in writing by the Chief Financial Officer of RW.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS
Section 4.01. By the Company and Each Primary Stockholder. The Company
and each Primary Stockholder jointly and severally represent and warrant to, and
agree with, RW that all the following representations and warranties in this
Article IV are as of the date of this Agreement, and will be, as amended or
supplemented pursuant to Section 6.08, on the Delivery Date and the IPO Closing
Date, true and correct:
(a) the Organization State of the Company is the State of
Pennsylvania, and the Company (i) is a corporation duly organized, validly
existing and in good standing under the laws of that State, (ii) has all
requisite corporate power and authority under those laws and its Charter
Documents to own or lease and to operate its properties and to carry on its
business as now conducted and (iii) is duly qualified and in good standing as a
foreign corporation in all jurisdictions (other than the State of Pennsylvania)
in which it owns or leases property or in which the carrying on of its business
as now conducted so requires except where the failure to be so qualified, singly
or in the aggregate, would not have a Material Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is comprised
of 30,000 shares of Company Common Stock, of which 18,000 have been issued and
are now outstanding and no shares are held by the Company as treasury shares,
and (ii) there are no Derivative Securities of the Company; and
(c) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated herein
by this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO
Section 5.01. By RW and Newco. RW and Newco jointly and severally
represent and warrant to the Company and each Stockholder that all the following
representations and warranties in this Article V are as of the date of this
Agreement, and will be on the IPO Closing Date, true and correct:
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(a) Newco is a corporation duly organized, validly existing and in
good standing under the laws of the State of Pennsylvania;
(b) except as disclosed in the Private Placement Memorandum, no
Derivative Securities of Newco are outstanding;
(c) Newco has been organized for the sole purpose of participating
in the Merger and has not, and will not, engage in any activities other than
those necessary to effectuate the Merger;
(d) except for shares of RW Common Stock to be publicly sold in
the IPO and as disclosed in the Private Placement Memorandum or preliminary
prospectus, neither RW nor Newco is a party to any agreement or other
arrangement for the disposition of any shares of RW Common Stock; and
(e) the representations and warranties contained in Article V of
the Uniform Provisions (the text of which Article hereby is incorporated herein
by this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01. Of Each Party. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01. The Closing and Certain Conditions.
(a) The Closing. On or before the IPO Pricing Date, the parties
hereto will take all actions necessary to (i) effect the Merger (including, as
permitted by the Applicable Corporate Code, (A) the execution of a Certificate
of Merger (1) meeting the requirements of the Applicable Corporate Code and (2)
providing that the Merger will become effective on the IPO Closing Date and (B)
the delivery of that Certificate of Merger with a filing service that will file
such Certificate of Merger with the Department of State of the State of
Pennsylvania) upon notification of the closing of the IPO (provided that
Comstock's Certificate of Merger shall be filed immediately prior to the closing
of the IPO), (ii) verify the existence and ownership of the certificates
evidencing the Company Common Stock to be exchanged for the Merger Consideration
pursuant to Section 2.05 and (iii) satisfy the document delivery requirements to
which the obligations of the parties to effect the Merger and the other
transactions contemplated hereby are conditioned by the provisions of this
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Article VII (all those actions collectively being the "Delivery"). The Delivery
will take place at the offices of King & Spalding, 191 Peachtree Street,
Atlanta, Georgia at 10:00 a.m., Atlanta time on the IPO Pricing Date, or at such
later time on the IPO Pricing Date as RW shall specify by written notice to the
President of the Company (the "Delivery Date"). The actions taken at the
Delivery will not include the completion of either the Merger or the delivery of
the Company Common Stock or the Merger Consideration pursuant to Section 2.05.
On the IPO Closing Date, the Certificate of Merger will be filed and will become
effective pursuant to Section 2.02, and all transactions contemplated by this
Agreement to be closed or completed on or before the IPO Closing Date, including
the surrender of the Company Common Stock in exchange for the Merger
Consideration (including a certified check or checks in an amount equal to the
cash portion of the Merger Consideration) will be closed or completed, as the
case may be. During the period from the Delivery Date to the IPO Closing Date,
this Agreement may be terminated by the parties only pursuant to Section
12.01(b)(i).
(b) Certain Conditions to the Obligations of the Company and the
Stockholders. The obligations of the Company and the Stockholders with respect
to the actions to be taken by them at or before the Delivery Date are subject to
the satisfaction on or before the Delivery Date, or waiver by them pursuant to
Section 11.05, of all the conditions set forth in Sections 7.01 and 7.02(a). The
obligations of the Stockholders with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of the following
conditions: (if required by such Stockholder) (i) the Employment Agreement then
shall be in full force and effect; and (ii) all the conditions set forth in
Sections 7.01 and 7.02(b).
(c) Certain Conditions to the Obligations of RW and Newco. The
obligations of RW and Newco with respect to actions to be taken by them at or
before the Delivery Date are subject to the satisfaction on or before the date
of the Delivery Date, or waiver by them pursuant to Section 11.05, of the
following conditions: (i) the Company shall have delivered to RW a copy of the
articles of incorporation, as amended to the Delivery Date and certified by the
Secretary of State of the State of Pennsylvania as of a Current Date, of the
Company; and (ii) all the conditions set forth in Sections 7.01 and 7.03(a). The
obligations of RW and Newco with respect to the actions to be taken on the IPO
Closing Date are subject to the satisfaction on that date of the following
conditions: (i) the Employment Agreements then shall be in full force and
effect; and (ii) all the conditions set forth in Sections 7.01 and 7.03(b).
(d) Uniform Provisions. The text of Article VII of the Uniform
Provisions hereby is incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01. Of Each Party Other than the Company. From and after the
Effective Time, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Company) will
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<PAGE> 15
comply with each covenant for which provision is made in Article VIII of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) to be performed or observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01. Indemnification Rights and Obligations. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. Any provision contained in Article IX of the Uniform Provisions to
the contrary notwithstanding, the indemnification obligations of the
Stockholders pursuant to this Agreement shall be joint and several.
ARTICLE X
[Intentionally Ommitted]
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. Treatment of Confidential Information. Each party hereto
will comply with each covenant for which provision is made in Section 11.01 of
the Uniform Provisions (the text of which Section hereby is incorporated herein
by this reference) to be performed or observed by that party.
Section 11.02. Restrictions on Transfer of RW Common Stock.
(a) Except for transfers to employees of the Company that are
approved in writing by the Board of Directors of RW (or a committee designated
by the Board of Directors of RW) prior to such transfer, during the one year
period ending on the first anniversary of the IPO Closing Date (the "Restricted
Period"), no Stockholder voluntarily will: (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
RW Common Stock received by any Stockholder in the Merger or (B) any interest in
(including any option to buy or sell) any of those shares of RW Common Stock, in
whole or in part, and RW will have no obligation to, and shall not, treat any
such attempted transfer as effective for any purpose; or (ii) engage in any
transaction, whether or not with respect to any shares of RW Common Stock or any
interest therein, the intent or effect of which is to reduce the risk of owning
the shares of RW Common Stock acquired pursuant to Section 2.04 (including, for
example engaging in put, call, short-sale, straddle or similar market
transactions); provided, however, that this Section 11.02 shall not restrict any
transfer of RW Common Stock acquired by a Stockholder pursuant to Section 2.04
to any of that Stockholder's Related Persons who agree in writing to be bound by
the provisions of Section 11.01
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<PAGE> 16
and this Section 11.02. The certificates evidencing the RW Common Stock
delivered to each Stockholder pursuant to Section 2.05 will bear a legend
substantially in the form set forth below and containing such other information
as RW may deem necessary or appropriate:
"EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER
PARTIES THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE
REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF
ANY OF THOSE SHARES, DURING THE ONE-YEAR PERIOD ENDING ON __________ [DATE THAT
IS THE FIRST ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED PERIOD"). ON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE."
(b) From the first anniversary of the IPO Closing Date to the
fourth anniversary of the IPO Closing Date, the Stockholders agree to sell
shares of RW Common Stock acquired pursuant to this Agreement only in accordance
with the procedures set forth in this Section 11.02(b). Every quarter during
such period, every Stockholder will be permitted to sell, in the aggregate, up
to 8% of the aggregate number of shares of Common Stock received by such
Stockholder pursuant to this Agreement (the "Quarterly Block Trade Shares") in
either a block trade or a registered public offering, at the option of RW. If a
Stockholder does not sell all of his or her Quarterly Block Trade Shares in any
given quarter, such Stockholder may sell such Quarterly Block Trade Shares
pursuant to this Section 11.02(b) in any later quarter, provided, however, that
in no event may a Stockholder sell more than 20% of the shares of Common Stock
received by such Stockholder pursuant to this Agreement in any one quarter. Any
Stockholder that wishes to sell shares of RW Common Stock pursuant to such
selling opportunity must give notice to RW and the Executive Council no later
than fourteen days prior to the commencement of the fiscal quarter of RW during
which such Stockholder wants to sell such shares. Notwithstanding anything set
forth in this Section 11.02(b), RW may elect to make available to the
Stockholders (i) additional opportunities to sell shares of RW Common Stock
and/or (ii) the opportunity to sell an amount in excess of such amount during
any particular quarter. The Company may modify or waive this Section 11.02(b) at
its sole discretion at any time following written notice to the Stockholders,
provided that no such modification or waiver may reduce the number of selling
opportunities or the maximum number of shares of RW Common Stock that may be
sold by any Stockholder during any selling opportunity.
(c) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of RW Common Stock to be delivered to
that Stockholder pursuant to Section 2.04 have not been and will not be
registered under the Securities Act and therefore may not be resold by that
Stockholder without compliance with the Securities Act and (ii) covenants that
none of the
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<PAGE> 17
shares of RW Common Stock issued to that Stockholder pursuant to Section 2.04
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable provisions of
the Securities Act and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of RW Common
Stock issued pursuant to Section 2.04 will bear the following legend in addition
to the legend prescribed by Section 11.02(a):
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, HAVE
BEEN ISSUED PURSUANT TO ONE OR MORE EXEMPTIONS THERETO, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED OR DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED."
In addition, certificates evidencing shares of RW Common Stock issued pursuant
to Section 2.04 to each Stockholder will bear any legend required by the
securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03. Brokers and Agents. Except for IPO Development Company,
each of the Stockholders jointly and severally, on the one hand, and RW, on the
other, represents and warrants to the other that such Person has not directly or
indirectly employed or become obligated to pay any broker, finder or similar
agent in connection with the transactions contemplated hereby and agree, without
regard to the Threshold Amount limitations set forth in Article IX, to indemnify
the other against all Damage Claims arising out of claims for any and all fees
and commissions of brokers or similar agents employed or promised payment by
such Person.
Section 11.04. Assignment; No Third Party Beneficiaries. This Agreement
and the rights of the parties hereunder may not be assigned (except by operation
of law) and shall be binding on and inure to the benefit of the parties hereto,
the successors of RW, and the heirs and legal representatives of the
Stockholders (and, in the case of any trust, the successor trustees of that
trust). Neither this Agreement nor any other Transaction Document is intended,
or shall be construed, deemed or interpreted, to confer on any Person not a
party hereto or thereto any rights or remedies hereunder or thereunder, except
as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise provided
expressly herein or therein.
Section 11.05. Entire Agreement; Amendment; Waivers. Except with
respect to Section 11.07 hereof, this Agreement and the documents delivered
pursuant hereto constitute the entire agreement and understanding among the
Stockholders, the Company, Newco and RW and supersede all prior agreements and
understandings, both written and oral, relating to the subject matter of this
Agreement. This Agreement may be amended, modified or supplemented, and any
right hereunder may be waived, if, but only if, that amendment, modification,
supplement or waiver is in writing and
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<PAGE> 18
signed by each of the Stockholders, the Company and RW. The waiver of any of the
terms and conditions hereof shall not be construed or interpreted as, or deemed
to be, a waiver of any other term or condition hereof.
Section 11.06. Counterparts. This Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
Section 11.07. Expenses. If the transactions contemplated hereby (i)
are consummated, RW will pay the fees, expenses and disbursements of RW and
Newco and their Representatives which are incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all costs
and expenses incurred in the performance of and compliance with all conditions
to be performed by RW and Newco under this Agreement, including the costs of
preparing the Registration Statement, (collectively, the "RW Expenses") and (ii)
if the transactions contemplated hereby are not consummated, the RW Expenses
shall be paid by the Founding Companies subject to the provisions of the IPO
Cost Liability Sharing Agreement attached hereto as Exhibit C and incorporated
herein by reference (b) the Stockholders will pay from personal funds, and not
from funds of the Company or any Company Subsidiary, all sales, use, transfer
and other similar taxes and fees (collectively, "Transfer Taxes") incurred in
connection with the transactions contemplated hereby and (c) the Company will
pay the fees, expenses and disbursements of Counsel for the Company and the
Stockholders incurred in connection with the subject matter of this Agreement
and the Registration Statement on or before the IPO Closing Date. The
Stockholders will file all necessary documentation and Returns with respect to
all Transfer Taxes. In addition, each Stockholder acknowledges that he, and not
the Company or RW or the Surviving Corporation, will pay all Taxes due upon
receipt of the consideration payable to that Stockholder pursuant to Article II.
Section 11.08. Notices. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received
(a) if personally delivered or if delivered by telex, telegram,
facsimile or courier service, when actually received by the party to whom notice
is sent or
(b) if delivered by mail (whether actually received or not), at
the close of business on the third Business Day next following the day when
placed in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
(i) if to RW or Newco, addressed to it at:
RailWorks Corporation
403 Somerset Road
Baltimore, Maryland 21210
Attn: Chief Executive Officer
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<PAGE> 19
with copies (which shall not constitute notice for purposes of
this Agreement) to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attn: Jeffrey M. Stein
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
Kennedy Railroad Builders, Inc.
501 West Main Street
Shiremanstown, Pennsylvania 17011
Attn: Fulton Kennedy
with copies (which shall not constitute notice for purposes of
this Agreement) to Counsel for the Company and the
Stockholders at the address designated by the Company
Section 11.09. Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF DELAWARE
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10. Exercise of Rights and Remedies. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11. Time. Time is of the essence in the performance of this
Agreement in all respects.
Section 11.12. Reformation and Severability. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this
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<PAGE> 20
Agreement, and in either case the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
Section 11.13. Remedies Cumulative. No right, remedy or election given
by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14. Respecting the IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither RW or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that RW will use its reasonable best efforts to
cause the Registration Statement to become effective prior to August 14, 1998)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to RW or the
IPO.
ARTICLE XII
TERMINATION
Section 12.01. Termination of this Agreement.
(a) This Agreement may be terminated at any time prior to the
Delivery Date solely:
(i) by the mutual written consent of RW and the Company;
(ii) by the Stockholders or the Company, on the one hand,
or by RW, on the other hand, if the events contemplated by this
Agreement to take place at the Delivery Date shall not have taken place
by September 4, 1998, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the
case of the Stockholders and the Company, any of them) seeking to
terminate this Agreement to perform or adhere to any agreement required
hereby to be performed or adhered to by it prior to or at the Delivery
Date or thereafter on the IPO Closing Date;
(iii) by the Stockholders or the Company, on the one hand,
or by RW, on the other hand, if a material breach or default shall be
made by the other party (or in the case of the Stockholders and the
Company, any of them) in the observance or in the due and timely
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<PAGE> 21
performance of any of the covenants, agreements or conditions contained
in Article VI or Section 11.01;
(iv) by the Stockholders or the Company, on the one hand,
or RW, on the other, if it is entitled to do so as provided in Section
6.08;
(v) by the Stockholders prior to the filing of the
Registration Statement if the Registration Statement is not filed by
June 15, 1998;
(vi) by RW or the Stockholders prior to 9:00 a.m. on the
IPO Pricing Date (as set forth in Section 8.10) if the value of RW at
the IPO Pricing Date (as calculated by multiplying the price per share
at which the RW common stock is to be sold in the IPO by the number of
shares of common stock to be outstanding after the Closing of the IPO)
shall be less than $215 million;
(vii) by the Stockholders if the Registration Statement has
not been declared effective by the Securities and Exchange Commission
by August 14, 1998;
(viii) by the Stockholders if John G. Larkin is no longer
serving as Chairman of the Board of Directors and Chief Executive
Officer prior to the Closing; or
(ix) by the stockholders of CPI Concrete Products, Inc. if
its Employee Stock Ownership Plan does not approve the merger prior to
the Delivery Date.
(b) This Agreement may be terminated after the Delivery Date
solely:
(i) by RW or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the IPO Pricing Date and prior
to the consummation of the IPO; or
(ii) automatically and without action on the part of any
party hereto if the IPO is not consummated within 15 New York City
business days after the Delivery Date.
(c) If this Agreement is terminated pursuant to this Section
12.01, the Merger will be deemed for all purposes to have been abandoned and of
no force or effect.
Section 12.02. Liabilities in Event of Termination. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Sections
11.03 or 11.07 and (b) to the extent that such liability is based on the breach
by that party of any of its representations, warranties or covenants set forth
in this Agreement.
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<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
RAILWORKS CORPORATION
By: /s/
----------------------------------------
John G. Larkin
Chief Executive Officer
OWLS KENNEDY RAILROAD BUILDERS COMPANY
By: /s/ John G. Larkin
----------------------------------------
John G. Larkin
President
KENNEDY RAILROAD BUILDERS
By: /s/
----------------------------------------
Name:
Title:
STOCKHOLDERS:
/s/ John Kennedy
--------------------------------------------
John Kennedy
/s/ Fulton Kennedy
--------------------------------------------
Fulton Kennedy
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<PAGE> 23
ADDENDUM 1
OTHER FOUNDING COMPANIES
A. Words and terms used in this Addendum which are defined in the
captioned Agreement to which this is an Addendum are used herein as therein
defined.
B. The Founding Companies are:
Alpha - Keystone Engineering, Inc.
Annex Railroad Builders, Inc.
Comtrak Construction, Inc.
Comstock Holdings Inc.
Condon Brothers, Inc.
CPI Concrete Products
HP McGinley, Inc.
Kennedy Railroad Builders, Inc.
Merit Railroad Contractors, Inc.
Midwest Construction Services, Inc.
Minnesota Railroad Services, Inc.
Mize Construction Co.
New England Railroad Construction Co., Inc.
Northern Rail Service & Supply Company, Inc.
Railcorp, Inc.
Railroad Service, Inc.
Railroad Specialities, Inc,
Southern Indiana Wood Preserving Co.
U.S. Railway Supply, Inc,
U.S. Trackworks, Inc.
W.A. Smith Construction Co., Inc.
W.A Smith Rerailing Co., Inc.
<PAGE> 1
EXHIBIT 10.9
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 21, 1998
BY AND BETWEEN
RAILWORKS CORPORATION,
RED STORM COMSTOCK COMPANY, INC.,
L.K. COMSTOCK & COMPANY, INC.
AND
THE STOCKHOLDERS NAMED HEREIN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS...................................................................................1
Section 1.01. Certain Defined Terms.................................................1
ARTICLE II THE MERGER AND RELATED MATTERS................................................................4
Section 2.01. Certificate of Merger.................................................4
Section 2.02. The Effective Time....................................................4
Section 2.03. Certain Effects of the Merger.........................................4
Section 2.04. Effect of the Merger on Capital Stock.................................5
Section 2.05. Delivery, Exchange and Payment........................................6
Section 2.06. Merger Consideration Calculation......................................7
Section 2.07. Fractional Shares.....................................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
EACH STOCKHOLDER .............................................................................8
Section 3.01. By Each Stockholder...................................................8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS......................................................9
Section 4.01. By the Company and Each Primary Stockholder...........................9
ARTICLE V REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO................................................9
Section 5.01. By RW and Newco.......................................................9
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME ...................................................10
Section 6.01. Of Each Party........................................................10
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION.................................................................................10
Section 7.01. The Closing and Certain Conditions...................................10
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME.......................................................12
Section 8.01. Of Each Party Other than the Company.................................12
ARTICLE IX INDEMNIFICATION..............................................................................12
Section 9.01. Indemnification Rights and Obligations...............................12
ARTICLE X [Intentionally Ommitted].....................................................................12
ARTICLE XI GENERAL PROVISIONS...........................................................................12
Section 11.01. Treatment of Confidential Information................................12
Section 11.02. Restrictions on Transfer of RW Common Stock..........................12
Section 11.03. Brokers and Agents...................................................14
Section 11.04. Assignment; No Third Party Beneficiaries.............................14
Section 11.05. Entire Agreement; Amendment; Waivers.................................15
Section 11.06. Counterparts.........................................................15
Section 11.07. Expenses.............................................................15
Section 11.08. Notices..............................................................15
Section 11.09. Governing Law........................................................16
Section 11.10. Exercise of Rights and Remedies......................................16
Section 11.11. Time.................................................................16
Section 11.12. Reformation and Severability.........................................17
Section 11.13. Remedies Cumulative..................................................17
Section 11.14. Respecting the IPO...................................................17
ARTICLE XII TERMINATION..................................................................................17
Section 12.01. Termination of this Agreement........................................17
Section 12.02. Liabilities in Event of Termination..................................18
EXHIBITS
Exhibit A - List of Primary Stockholders
Exhibit B - Form of Employment Agreement
Exhibit C - IPO Cost Liability Sharing Agreement
Exhibit D - Merger Consideration
</TABLE>
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<PAGE> 4
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as
of May 21, 1998, by and among RailWorks Corporation, a Delaware corporation
("RW"), Red Storm Comstock Company, Inc., a New York corporation and a wholly
owned subsidiary of RW("Newco"), Comstock Holdings Inc., a New York corporation
(the "Company"), and the persons listed on the signature pages hereof under the
caption "Stockholders" (collectively, the "Stockholders," and each of those
persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(a) Newco will merge into the Company on the terms and subject to the
conditions set forth herein (that merger being the "Merger");
(b) RW will acquire the stock of all or some of the entities listed in
the accompanying Addendum 1 (each an "Other Founding Company" and, collectively
with the Company, the "Founding Companies") pursuant to agreements that are (i)
similar in all material respects to this Agreement and (ii) entered into among
those entities and their equity owners, RW and subsidiaries of RW (collectively,
the "Other Agreements"); and
(c) RW shall at such time as specified herein and if certain conditions
are met, effect a public offering of shares of its common stock and issue and
sell those shares.
The respective boards of directors of RW, Newco and the Company have
approved and adopted this Agreement to effect a transaction subject to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Certain Defined Terms. As used in this Agreement and in
the related Addendums, Annexes, Schedules and Exhibits, the following terms have
the meanings assigned to them below in this Section 1.01. Capitalized terms used
in this Agreement and not defined below in this Section 1.01 have the meanings
assigned to them in the Preliminary Statement or Article I of the Uniform
Provisions (the text of which Article hereby is incorporated herein by this
reference), as the case may be.
<PAGE> 5
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement and all attached Schedules, Addendums,
Annexes and Exhibits, as each of the same may be amended, modified or
supplemented from time to time pursuant to the provisions hereof or thereof.
"Applicable Corporate Code" means the laws of the Organization State of
the Company that govern corporations incorporated in such state.
"Closing Date Balance Sheet" of the Company means a balance sheet of
the Company as at the IPO Closing Date which is prepared on a basis consistent
with the basis on which the Current Balance Sheet was prepared.
"Closing Memorandum" means the form of closing memorandum to be
prepared by RW for the Closing under this Agreement in which are included the
forms of certificates of officers, the opinions of counsel and certain other
documents to be delivered at the Closing as provided in Article VII.
"Company Accounts Receivable" shall mean the accounts and notes or
other advances receivable of the Company and the Company Subsidiaries, excluding
any Retainages, as of the IPO Closing Date.
"Company Common Stock" means the common stock, par value $0.01 per
share, of the Company.
"Company Indebtedness" means the indebtedness of the Company, as of the
IPO Closing Date (including, with respect to CPI Concrete Products, Inc., the
value of the Cash Company Consideration to be received by its Employee Stock
Ownership Plan), that the Company has elected to repay (or repurchase, as the
case may be) with a portion of the RW Common Stock to be received as part of the
Merger Consideration. At least five days prior to the Delivery Date, the Company
will deliver to RW a schedule of the aggregate principal amount of the Company
Indebtedness, certified by the President of the Company, that will be
outstanding on the IPO Closing Date, and RW will repay such Company Indebtedness
on the IPO Closing Date. To the extent that the actual amount of Company
Indebtedness exceeds the amount shown on such schedule, such excess shall be
repaid by the Stockholders on or prior to the IPO Closing Date.
"Counsel for RW and Newco" means King & Spalding.
"Counsel for the Company and the Stockholders" means such counsel as
shall be designated by the Company in writing on or prior to the Delivery Date.
"Current Balance Sheet" means the balance sheet of the Company as at
March 31, 1998 which is included in the Initial Financial Statements.
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<PAGE> 6
"Current Balance Sheet Date" means December 31, 1997.
"Defined Net Worth" as of the IPO Closing Date shall mean (i) the total
assets of the Company, as set forth on the balance sheet of the Company as of
such date, except that (A) expenses of the Company directly attributable to the
IPO and/or the transactions contemplated by this Agreement, including but not
limited to, costs incurred pursuant to the HSR Act, shall be added back to the
assets of the company and (B) the value of inventory, machinery, equipment and
real estate shall be determined pursuant to Section 2.06(a), less (ii) the total
liabilities of the Company, as set forth on the balance sheet of the Company as
of such date, excluding the Company Indebtedness. Notwithstanding the foregoing,
in the case of Comstock, Comstock's contractual obligation to Spie Group, Inc.,
as successor to Comstock Group, Inc., shall not be deemed to be a liability for
purposes of determining Defined Net Worth.
"Delivery" or "Delivery Date" shall have the meaning set forth in
Section 7.01.
"Earnings Percentage" shall have the meaning set forth in Exhibit D.
"Employment Agreement" means each of the Employment Agreements entered
into as of the Closing Date between RW and each of the Stockholders set forth on
Exhibit A hereto, a form of which is attached hereto as Exhibit B.
"fair market value" means that value at which goods and/or services
would be exchanged between a willing buyer and willing seller in a transaction
entered into at arms length with each party having relevant facts of all aspects
of the transaction.
"Initial Financial Statements" means (a) the balance sheets of the
Company as at December 31, 1997 and March 31, 1998 and the related reviewed
statements of operations and retained earnings for each of the Company's two
fiscal years in the period ended December 31, 1997, and (b) the Current Balance
Sheet and the related statement of income for the Company's fiscal year ended
December 31, 1997, which the Company has delivered to RW prior to the date
hereof.
"IPO Closing Date" means the date on which RW first receives payment
for the shares of RW Common Stock it sells to the Underwriter in the IPO.
"Merger Consideration" has the meaning specified in Section 2.04.
"Newco" means Red Storm Comstock Company, Inc., a New York corporation.
"Responsible Officer" means the President, Chief Executive Officer or
any Vice President of the Company.
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"Retainages" means the portion of progress payments due to a Company
for contracting projects that is withheld by a customer of such Company until
completion of a project, pursuant to the terms of a contract with such customer,
as security for the completion of the project.
"RW" means RailWorks Corporation, a Delaware corporation.
"Scheduled Related Party Agreements" means the agreements described in
Schedule 4.11.
"Surviving Corporation" means the Person to be designated in the
Certificate of Merger as the surviving corporation of the Merger.
"Threshold Amount" means 2.0% of the Merger Consideration.
"Transaction Value" means the (i)(A) the total number of shares of RW
outstanding immediately upon the closing of the IPO and the transactions
contemplated by this Agreement and the Other Agreements multiplied by (B) the
IPO Price multiplied by (C) 92% minus (ii) actual expenses of RW incurred with
respect to the IPO, an estimate of which will be set forth in Item 13 of Part II
of the Registration Statement minus (iii) the underwriting discounts and
commissions paid to the Underwriter pursuant to the IPO minus (iv) the proceeds
received by RW in connection with any shares of RW Common Stock sold by RW to
finance the working capital needs of RW, which shares shall not exceed 5% of the
number of shares to be sold in the IPO.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions of RW for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. Certificate of Merger. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the Delivery Date to the Department
of State of the State of New York.
Section 2.02. The Effective Time. The effective time of the Merger (the
"Effective Time") will be the time on the IPO Closing Date as specified in the
Certificate of Merger or, if the Certificate of Merger does not specify another
time, 8:00 a.m., eastern daylight standard time, on the IPO Closing Date.
Section 2.03. Certain Effects of the Merger. At and as of the Effective
Time, (a) Newco will be merged with and into the Company in accordance with the
provisions of the New York Business Corporation Law, (b) Newco will cease to
exist as a separate legal entity, (c) the articles
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of incorporation of the Company will be amended to change its authorized capital
stock to 100 shares, par value $0.01 per share, of Common Stock, (d) the Company
will be the Surviving Corporation and, as such, will, all with the effect
provided by the New York Business Corporation Law, (i) possess all the
properties and rights, and be subject to all the restrictions and duties, of the
Company and Newco and (ii) be governed by the laws of the State of New York, (e)
the Charter Documents of the Company then in effect (after giving effect to the
amendment of the Company's articles of incorporation specified in clause (c) of
this sentence) will become and thereafter remain (until changed in accordance
with (i) applicable law (in the case of the articles of incorporation) or (ii)
their terms (in the case of the bylaws)) the Charter Documents of the Surviving
Corporation, (f) the initial board of directors of the Surviving Corporation
will be the Chief Executive Officer of RW and the other persons named in
Schedule 2.03, and those persons will hold the office of director of the
Surviving Corporation subject to the provisions of the applicable laws of the
State of New York and the Charter Documents of the Surviving Corporation, and
(g) the initial officers of the Surviving Corporation will be as set forth in
Schedule 2.03, and each of those persons will serve in each office specified for
that person in Schedule 2.03, subject to the provisions of the Charter Documents
of the Surviving Corporation, until that person's successor is duly elected to,
and, if necessary, qualified for, that office.
Section 2.04. Effect of the Merger on Capital Stock. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the right to
receive, subject to the provisions of Section 2.05 and Exhibit D, without
interest, on surrender of the certificate evidencing those shares, the amount of
cash and the number of whole and fractional shares of RW Common Stock set forth
or determined as provided in Exhibit D (the "Merger Consideration"), (ii) cease
to be outstanding and to exist and (iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to exist
and (ii) be canceled and retired; and
(c) each share of Newco Common Stock issued and outstanding immediately
prior to the Effective Time will be converted into one share of Common Stock,
$.01 par value, of the Surviving Corporation, and the shares of Common Stock of
the Surviving Corporation issued on that conversion will constitute all the
issued and outstanding shares of Capital Stock of the Surviving Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, subject to the provisions of Section 2.05, without interest,
the Merger Consideration and the additional cash, if any, owing with respect to
those shares as provided in Section 2.07.
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Section 2.05. Delivery, Exchange and Payment.
(a) At or after the Effective Time: (i) each Stockholder, as the holder
of certificates representing shares of Company Common Stock, will, on surrender
of those certificates to RW (or any agent that may be appointed by RW for
purposes of this Section 2.05), receive, subject to the provisions of this
Article II and the Escrow Agreement, such Stockholder's share of the Merger
Consideration pursuant to Section 2.04 and Exhibit D; and (ii) until any
certificate representing Company Common Stock has been surrendered and replaced
pursuant to this Section 2.05, that certificate will, for all purposes, be
deemed to evidence ownership of the number of whole shares of RW Common Stock
included in the Merger Consideration payable in respect of that certificate
pursuant to Section 2.04. The Escrow Agreement will provide that the shares of
RW Common Stock issued to the Stockholders as a part of the Merger Consideration
together with duly executed stock powers in blank, shall be placed in escrow to
be held subject to the terms of the Escrow Agreement and further subject to
Exhibit D and Section 11.02. The escrow shall consist solely of shares of RW
Common Stock that shall be issued at the Effective Time to the Stockholders of
the Founding Companies and delivered, at the Closing, to the Escrow Agent. All
shares of RW Common Stock issuable in the Merger will be deemed for all purposes
to have been issued by RW at the Effective Time.
(b) Each Stockholder will deliver to RW (or any agent that may be
appointed by RW for purposes of this Section 2.05) on or before the Delivery
Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Stockholder, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Stockholder's expense, affixed and canceled.
Each Stockholder shall cure any deficiencies in the endorsement of the
certificates or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Stockholder.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to RW Common Stock and payable to
the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of RW Common Stock have been issued in the Merger until
those certificates are surrendered as provided herein, but (i) on that surrender
RW will cause to be paid, to the Person in whose name the certificates
representing such shares of RW Common Stock shall then be issued, the amount of
dividends or other distributions previously paid with respect to such whole
shares of RW Common Stock with a record date, or which have accrued, subsequent
to the Effective Time, but prior to surrender, and the amount of any cash
payable to such Person for and in lieu of fractional shares pursuant to Section
2.07 and (ii) at the appropriate payment date or as soon as practicable
thereafter, RW will cause to be paid to that Person the amount of dividends or
other distributions with a record date, or which have been accrued, subsequent
to the Effective Time, but which are not payable until a date subsequent to
surrender, which are payable with respect to such whole shares of RW Common
Stock, subject in all cases to any applicable
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escheat laws. No interest will be payable with respect to the payment of such
dividends or other distributions or cash for and in lieu of fractional shares on
surrender of outstanding certificates.
(d) Each Stockholder hereby authorizes and directs RW to deliver 3.5%
of the Cash Company Consideration and 3.5% of the Stock Company Consideration
owed to such Stockholder pursuant to this Agreement (before deposit of the
shares of RW Common Stock into escrow) to IPO Development Company in payment of
fees owed to IPO Development Company by such Stockholder.
Section 2.06. Merger Consideration Calculation.
(a) No later than fifteen (15) days following the IPO Closing Date, the
Company shall provide to the Chief Accounting Officer of RW (the "CAO") a
determination of the fair market value (as defined) of its inventory, machinery,
equipment and real estate (the "Valued Assets") as of the IPO Closing Date.
Within seven (7) days of such date, the CAO shall distribute to every Founding
Company the value of the Valued Assets of every Founding Company. The Company
shall have seven (7) days from the date of the distribution of such valuation to
dispute the value of the Valued Assets of any Founding Company by providing
written notice of such dispute to the CAO. If the CAO is unable to resolve any
such dispute, the dispute shall be resolved by binding arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
which arbitration shall be resolved no later than thirty (30) days from
selection of the arbitrator. The arbitrator shall be selected by the CAO.
(b) Arthur Andersen or, if not Arthur Andersen, the Company's
accountant, shall cause to be prepared and delivered to RW and the Company a
calculation as of the IPO Closing Date of the Defined Net Worth of the Company
(the "Balance Sheet Calculation"). The Balance Sheet Calculation shall be final
and binding on the Company and the Other Founding Companies absent fraud,
manifest error or gross negligence.
(c) The Balance Sheet Calculation shall include a report of Arthur
Andersen or, if not Arthur Andersen, the Company's accountant, stating that it
has been prepared in a manner consistent with the accounting policies and
procedures used in preparation of the balance sheets in the Initial Financial
Statements, except as provided in the definition of "Defined Net Worth"
contained herein. The Stockholders shall give Arthur Andersen and other
appropriate personnel such assistance and access to the assets and books and
records of the Company as Arthur Andersen shall reasonably request during normal
business hours in order to enable them to prepare the Balance Sheet Calculation.
The Surviving Corporation shall be responsible for the fees and expenses of
Arthur Andersen or, if not Arthur Andersen the Company's accountant.
Section 2.07. Fractional Shares. Notwithstanding any other provision
herein, no fractional shares of RW Common Stock will be issued. All shares of RW
Common Stock shall be aggregated, and any Stockholder entitled hereunder, after
such aggregation, to receive a fractional share of RW Common Stock but for this
Section 2.07 will be entitled hereunder to receive a cash payment for and
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in lieu thereof in the amount (rounded to the nearest whole cent) equal to that
Stockholder's fractional interest in a share of RW Common Stock multiplied by
the IPO Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01. By Each Stockholder. The Stockholders severally represent
and warrant to, and agree with, RW that all the following representations and
warranties in this Article III are as of the date of this Agreement, and will
be, as amended or supplemented pursuant to Section 6.08, on the IPO Closing
Date, true and correct:
(a) (i) each Stockholder will acquire the shares of RW Common
Stock to be issued pursuant to Article II to the Stockholder solely for the
Stockholder's account, for investment purposes only and with no current
intention or plan to distribute, sell or otherwise dispose of any of those
shares in connection with any distribution;
(ii) no Stockholder is a party to any agreement or other
arrangement for the disposition of any shares of RW Common Stock other
than this Agreement; (iii) except as set forth on Schedule 3.01(a)(ii)
each Stockholder is an "accredited investor" as defined in Rule 501(a)
promulgated under the Securities Act; (iv) each Stockholder (A) is able
to bear the economic risk of an investment in the RW Common Stock
acquired pursuant to this Agreement, (B) can afford to sustain a total
loss of that investment, (C) has such knowledge and experience in
financial and business matters that he or she is capable of evaluating
the merits and risks of the proposed investment in the RW Common Stock,
(D) has had an adequate opportunity to ask questions and receive
answers from the officers of RW concerning any and all matters relating
to the transactions contemplated hereby, including the background and
experience of the current and proposed officers and directors of RW,
the plans for the operations of the business of RW, the business,
operations and financial condition of the Other Founding Companies and
any plans of RW for additional acquisitions, and (E) has asked all
questions of the nature described in preceding clause (D) that such
Stockholder thought to ask, and all those questions have been answered
to his or her satisfaction;
(b) the representations and warranties contained in Article III of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to; and
(c) (i) the terms and conditions of any agreements between any
Stockholder or an Affiliate of any Stockholder, on the one hand, and the Company
on the other hand, included in the Scheduled Related Party Agreements will have
been amended effective as of the IPO Closing Date to be no less favorable to the
Company than the Company reasonably could have expected to obtain in an
arms-length transaction with a Person other than an Affiliate of the Company and
(ii) the
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rentals or other payments provided for in such agreements then will not exceed
fair market rentals of the property being leased or fair market value of the sum
or product being provided and such amounts shall have been previously approved
in writing by the Chief Financial Officer of RW.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS
Section 4.01. By the Company and Each Primary Stockholder. The Company
and each Primary Stockholder jointly and severally represent and warrant to, and
agree with, RW that all the following representations and warranties in this
Article IV are as of the date of this Agreement, and will be, as amended or
supplemented pursuant to Section 6.08, on the Delivery Date and the IPO Closing
Date, true and correct:
(a) the Organization State of the Company is the State of New York, and
the Company (i) is a corporation duly organized, validly existing and in good
standing under the laws of that State, (ii) has all requisite corporate power
and authority under those laws and its Charter Documents to own or lease and to
operate its properties and to carry on its business as now conducted and (iii)
is duly qualified and in good standing as a foreign corporation in all
jurisdictions (other than the State of New York) in which it owns or leases
property or in which the carrying on of its business as now conducted so
requires except where the failure to be so qualified, singly or in the
aggregate, would not have a Material Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is comprised of
150,000 shares of Company Common Stock, of which 111,500 shares have been issued
and are now outstanding and no shares are held by the Company as treasury
shares, and (ii) there are no Derivative Securities of the Company; and
(c) the representations and warranties contained in Article IV of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO
Section 5.01. By RW and Newco. RW and Newco jointly and severally
represent and warrant to the Company and each Stockholder that all the following
representations and warranties in this Article V are as of the date of this
Agreement, and will be on the IPO Closing Date, true and correct:
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(a) Newco is a corporation duly organized, validly existing and in good
standing under the laws of the State of New York;
(b) except as disclosed in the Private Placement Memorandum, no
Derivative Securities of Newco are outstanding;
(c) Newco has been organized for the sole purpose of participating in
the Merger and has not, and will not, engage in any activities other than those
necessary to effectuate the Merger;
(d) except for shares of RW Common Stock to be publicly sold in the IPO
and as disclosed in the Private Placement Memorandum or preliminary prospectus,
neither RW nor Newco is a party to any agreement or other arrangement for the
disposition of any shares of RW Common Stock; and
(e) the representations and warranties contained in Article V of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01. Of Each Party. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01. The Closing and Certain Conditions.
(a) The Closing. On or before the IPO Pricing Date, the parties hereto
will take all actions necessary to (i) effect the Merger (including, as
permitted by the Applicable Corporate Code, (A) the execution of a Certificate
of Merger (1) meeting the requirements of the Applicable Corporate Code and (2)
providing that the Merger will become effective on the IPO Closing Date and (B)
the delivery of that Certificate of Merger with a filing service that will file
such Certificate of Merger with the Department of State of the State of New
York) upon notification of the closing of the IPO (provided that Comstock's
Certificate of Merger shall be filed immediately prior to the closing of the
IPO), (ii) verify the existence and ownership of the certificates evidencing the
Company Common Stock to be exchanged for the Merger Consideration pursuant to
Section 2.05 and (iii) satisfy the document delivery requirements to which the
obligations of the parties to effect the Merger and the other transactions
contemplated hereby are conditioned by the provisions of this
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Article VII (all those actions collectively being the "Delivery"). The Delivery
will take place at the offices of King & Spalding, 191 Peachtree Street,
Atlanta, Georgia at 10:00 a.m., Atlanta time on the IPO Pricing Date, or at such
later time on the IPO Pricing Date as RW shall specify by written notice to the
President of the Company (the "Delivery Date"). The actions taken at the
Delivery will not include the completion of either the Merger or the delivery of
the Company Common Stock or the Merger Consideration pursuant to Section 2.05.
On the IPO Closing Date, the Certificate of Merger will be filed and will become
effective pursuant to Section 2.02, and all transactions contemplated by this
Agreement to be closed or completed on or before the IPO Closing Date, including
the surrender of the Company Common Stock in exchange for the Merger
Consideration (including a certified check or checks in an amount equal to the
cash portion of the Merger Consideration) will be closed or completed, as the
case may be. During the period from the Delivery Date to the IPO Closing Date,
this Agreement may be terminated by the parties only pursuant to Section
12.01(b)(i).
(b) Certain Conditions to the Obligations of the Company and the
Stockholders. The obligations of the Company and the Stockholders with respect
to the actions to be taken by them at or before the Delivery Date are subject to
the satisfaction on or before the Delivery Date, or waiver by them pursuant to
Section 11.05, of all the conditions set forth in Sections 7.01 and 7.02(a). The
obligations of the Stockholders with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of the following
conditions: (if required by such Stockholder) (i) the Employment Agreement then
shall be in full force and effect; and (ii) all the conditions set forth in
Sections 7.01 and 7.02(b).
(c) Certain Conditions to the Obligations of RW and Newco. The
obligations of RW and Newco with respect to actions to be taken by them at or
before the Delivery Date are subject to the satisfaction on or before the date
of the Delivery Date, or waiver by them pursuant to Section 11.05, of the
following conditions: (i) the Company shall have delivered to RW a copy of the
articles of incorporation, as amended to the Delivery Date and certified by the
Secretary of State of the State of New York as of a Current Date, of the
Company; and (ii) all the conditions set forth in Sections 7.01 and 7.03(a). The
obligations of RW and Newco with respect to the actions to be taken on the IPO
Closing Date are subject to the satisfaction on that date of the following
conditions: (i) the Employment Agreements then shall be in full force and
effect; and (ii) all the conditions set forth in Sections 7.01 and 7.03(b).
(d) Uniform Provisions. The text of Article VII of the Uniform
Provisions hereby is incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01. Of Each Party Other than the Company. From and after the
Effective Time, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Company) will
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comply with each covenant for which provision is made in Article VIII of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) to be performed or observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01. Indemnification Rights and Obligations. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. Any provision contained in Article IX of the Uniform Provisions to
the contrary notwithstanding, the indemnification obligations of the
Stockholders pursuant to this Agreement shall be joint and several.
ARTICLE X
[Intentionally Ommitted]
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. Treatment of Confidential Information. Each party hereto
will comply with each covenant for which provision is made in Section 11.01 of
the Uniform Provisions (the text of which Section hereby is incorporated herein
by this reference) to be performed or observed by that party.
Section 11.02. Restrictions on Transfer of RW Common Stock.
(a) Except for transfers to employees of the Company that are approved
in writing by the Board of Directors of RW (or a committee designated by the
Board of Directors of RW) prior to such transfer, during the one year period
ending on the first anniversary of the IPO Closing Date (the "Restricted
Period"), no Stockholder voluntarily will: (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
RW Common Stock received by any Stockholder in the Merger or (B) any interest in
(including any option to buy or sell) any of those shares of RW Common Stock, in
whole or in part, and RW will have no obligation to, and shall not, treat any
such attempted transfer as effective for any purpose; or (ii) engage in any
transaction, whether or not with respect to any shares of RW Common Stock or any
interest therein, the intent or effect of which is to reduce the risk of owning
the shares of RW Common Stock acquired pursuant to Section 2.04 (including, for
example engaging in put, call, short-sale, straddle or similar market
transactions); provided, however, that this Section 11.02 shall not restrict any
transfer of RW Common Stock acquired by a Stockholder pursuant to Section 2.04
to any of that Stockholder's Related Persons who agree in writing to be bound by
the provisions of Section 11.01
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and this Section 11.02. The certificates evidencing the RW Common Stock
delivered to each Stockholder pursuant to Section 2.05 will bear a legend
substantially in the form set forth below and containing such other information
as RW may deem necessary or appropriate:
"EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER
PARTIES THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE
REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF
ANY OF THOSE SHARES, DURING THE ONE-YEAR PERIOD ENDING ON __________ [DATE THAT
IS THE FIRST ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED PERIOD"). ON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE."
(b) From the first anniversary of the IPO Closing Date to the fourth
anniversary of the IPO Closing Date, the Stockholders agree to sell shares of RW
Common Stock acquired pursuant to this Agreement only in accordance with the
procedures set forth in this Section 11.02(b). Every quarter during such period,
every Stockholder will be permitted to sell, in the aggregate, up to 8% of the
aggregate number of shares of Common Stock received by such Stockholder pursuant
to this Agreement (the "Quarterly Block Trade Shares") in either a block trade
or a registered public offering, at the option of RW. If a Stockholder does not
sell all of his or her Quarterly Block Trade Shares in any given quarter, such
Stockholder may sell such Quarterly Block Trade Shares pursuant to this Section
11.02(b) in any later quarter, provided, however, that in no event may a
Stockholder sell more than 20% of the shares of Common Stock received by such
Stockholder pursuant to this Agreement in any one quarter. Any Stockholder that
wishes to sell shares of RW Common Stock pursuant to such selling opportunity
must give notice to RW and the Executive Council no later than fourteen days
prior to the commencement of the fiscal quarter of RW during which such
Stockholder wants to sell such shares. Notwithstanding anything set forth in
this Section 11.02(b), RW may elect to make available to the Stockholders (i)
additional opportunities to sell shares of RW Common Stock and/or (ii) the
opportunity to sell an amount in excess of such amount during any particular
quarter. The Company may modify or waive this Section 11.02(b) at its sole
discretion at any time following written notice to the Stockholders, provided
that no such modification or waiver may reduce the number of selling
opportunities or the maximum number of shares of RW Common Stock that may be
sold by any Stockholder during any selling opportunity.
(c) Each Stockholder, severally and not jointly with any other Person,
(i) acknowledges that the shares of RW Common Stock to be delivered to that
Stockholder pursuant to Section 2.04 have not been and will not be registered
under the Securities Act and therefore may not be resold by that Stockholder
without compliance with the Securities Act and (ii) covenants that none of the
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shares of RW Common Stock issued to that Stockholder pursuant to Section 2.04
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable provisions of
the Securities Act and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of RW Common
Stock issued pursuant to Section 2.04 will bear the following legend in addition
to the legend prescribed by Section 11.02(a):
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, HAVE
BEEN ISSUED PURSUANT TO ONE OR MORE EXEMPTIONS THERETO, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED OR DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED."
In addition, certificates evidencing shares of RW Common Stock issued pursuant
to Section 2.04 to each Stockholder will bear any legend required by the
securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03. Brokers and Agents. Except for IPO Development Company,
each of the Stockholders jointly and severally, on the one hand, and RW, on the
other, represents and warrants to the other that such Person has not directly or
indirectly employed or become obligated to pay any broker, finder or similar
agent in connection with the transactions contemplated hereby and agree, without
regard to the Threshold Amount limitations set forth in Article IX, to indemnify
the other against all Damage Claims arising out of claims for any and all fees
and commissions of brokers or similar agents employed or promised payment by
such Person.
Section 11.04. Assignment; No Third Party Beneficiaries. This Agreement
and the rights of the parties hereunder may not be assigned (except by operation
of law) and shall be binding on and inure to the benefit of the parties hereto,
the successors of RW, and the heirs and legal representatives of the
Stockholders (and, in the case of any trust, the successor trustees of that
trust). Neither this Agreement nor any other Transaction Document is intended,
or shall be construed, deemed or interpreted, to confer on any Person not a
party hereto or thereto any rights or remedies hereunder or thereunder, except
as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise provided
expressly herein or therein.
Section 11.05. Entire Agreement; Amendment; Waivers. Except with
respect to Section 11.07 hereof, this Agreement and the documents delivered
pursuant hereto constitute the entire agreement and understanding among the
Stockholders, the Company, Newco and RW and supersede all prior agreements and
understandings, both written and oral, relating to the subject matter of this
Agreement. This Agreement may be amended, modified or supplemented, and any
right hereunder may be waived, if, but only if, that amendment, modification,
supplement or waiver is in writing and
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<PAGE> 18
signed by each of the Stockholders, the Company and RW. The waiver of any of the
terms and conditions hereof shall not be construed or interpreted as, or deemed
to be, a waiver of any other term or condition hereof.
Section 11.06. Counterparts. This Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
Section 11.07. Expenses. If the transactions contemplated hereby (i)
are consummated, RW will pay the fees, expenses and disbursements of RW and
Newco and their Representatives which are incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all costs
and expenses incurred in the performance of and compliance with all conditions
to be performed by RW and Newco under this Agreement, including the costs of
preparing the Registration Statement, (collectively, the "RW Expenses") and (ii)
if the transactions contemplated hereby are not consummated, the RW Expenses
shall be paid by the Founding Companies subject to the provisions of the IPO
Cost Liability Sharing Agreement attached hereto as Exhibit C and incorporated
herein by reference (b) the Stockholders will pay from personal funds, and not
from funds of the Company or any Company Subsidiary, all sales, use, transfer
and other similar taxes and fees (collectively, "Transfer Taxes") incurred in
connection with the transactions contemplated hereby and (c) the Company will
pay the fees, expenses and disbursements of Counsel for the Company and the
Stockholders incurred in connection with the subject matter of this Agreement
and the Registration Statement on or before the IPO Closing Date. The
Stockholders will file all necessary documentation and Returns with respect to
all Transfer Taxes. In addition, each Stockholder acknowledges that he, and not
the Company or RW or the Surviving Corporation, will pay all Taxes due upon
receipt of the consideration payable to that Stockholder pursuant to Article II.
Section 11.08. Notices. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received
(a) if personally delivered or if delivered by telex, telegram,
facsimile or courier service, when actually received by the party to whom notice
is sent or
(b) if delivered by mail (whether actually received or not), at the
close of business on the third Business Day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
(i) if to RW or Newco, addressed to it at:
RailWorks Corporation
403 Somerset Road
Baltimore, Maryland 21210
Attn: Chief Executive Officer
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<PAGE> 19
with copies (which shall not constitute notice for purposes
of this Agreement) to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attn: Jeffrey M. Stein
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
L.K. Comstock & Company, Inc.
One North Lexington Avenue
White Plains, New York 10601
Attn: Michael Azarela
with copies (which shall not constitute notice for purposes
of this Agreement) to Counsel for the Company and the
Stockholders at the address designated by the Company
Section 11.09. Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF DELAWARE
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10. Exercise of Rights and Remedies. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11. Time. Time is of the essence in the performance of this
Agreement in all respects.
Section 11.12. Reformation and Severability. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this
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<PAGE> 20
Agreement, and in either case the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
Section 11.13. Remedies Cumulative. No right, remedy or election given
by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14. Respecting the IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither RW or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that RW will use its reasonable best efforts to
cause the Registration Statement to become effective prior to August 14, 1998)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to RW or the
IPO.
ARTICLE XII
TERMINATION
Section 12.01. Termination of this Agreement.
(a) This Agreement may be terminated at any time prior to the Delivery
Date solely:
(i) by the mutual written consent of RW and the Company;
(ii) by the Stockholders or the Company, on the one hand,
or by RW, on the other hand, if the events contemplated by this
Agreement to take place at the Delivery Date shall not have taken place
by September 4, 1998, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the
case of the Stockholders and the Company, any of them) seeking to
terminate this Agreement to perform or adhere to any agreement required
hereby to be performed or adhered to by it prior to or at the Delivery
Date or thereafter on the IPO Closing Date;
(iii) by the Stockholders or the Company, on the one hand,
or by RW, on the other hand, if a material breach or default shall be
made by the other party (or in the case of the Stockholders and the
Company, any of them) in the observance or in the due and timely
-17-
<PAGE> 21
performance of any of the covenants, agreements or conditions contained
in Article VI or Section 11.01;
(iv) by the Stockholders or the Company, on the one hand,
or RW, on the other, if it is entitled to do so as provided in Section
6.08;
(v) by the Stockholders prior to the filing of the
Registration Statement if the Registration Statement is not filed by
June 15, 1998;
(vi) by RW or the Stockholders prior to 9:00 a.m. on the
IPO Pricing Date (as set forth in Section 8.10) if the value of RW at
the IPO Pricing Date (as calculated by multiplying the price per share
at which the RW common stock is to be sold in the IPO by the number of
shares of common stock to be outstanding after the Closing of the IPO)
shall be less than $215 million;
(vii) by the Stockholders if the Registration Statement has
not been declared effective by the Securities and Exchange Commission
by August 14, 1998;
(viii) by the Stockholders if John G. Larkin is no longer
serving as Chairman of the Board of Directors and Chief Executive
Officer prior to the Closing; or
(ix) by the stockholders of CPI Concrete Products, Inc. if
its Employee Stock Ownership Plan does not approve the merger prior to
the Delivery Date.
(b) This Agreement may be terminated after the Delivery Date solely:
(i) by RW or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the IPO Pricing Date and prior
to the consummation of the IPO; or
(ii) automatically and without action on the part of any
party hereto if the IPO is not consummated within 15 New York City
business days after the Delivery Date.
(c) If this Agreement is terminated pursuant to this Section 12.01, the
Merger will be deemed for all purposes to have been abandoned and of no force or
effect.
Section 12.02. Liabilities in Event of Termination. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Sections
11.03 or 11.07 and (b) to the extent that such liability is based on the breach
by that party of any of its representations, warranties or covenants set forth
in this Agreement.
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<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
RAILWORKS CORPORATION
By: /s/ John G. Larkin
----------------------------------
John G. Larkin
Chief Executive Officer
RED STORM COMSTOCK COMPANY, INC.
By: /s/ John G. Larkin
----------------------------------
John G. Larkin
President
COMSTOCK HOLDINGS INC.
By: /s/ Authorized Signature
----------------------------------
Name:
Title:
STOCKHOLDERS:
/s/ Michael R. Azarela
--------------------------------------
Michael R. Azarela
/s/ Peter Alan Pasch
--------------------------------------
Peter Alan Pasch
/s/ Michael Cahn
--------------------------------------
Michael Cahn
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<PAGE> 23
/s/ Keith George
-------------------------------------
Keith George
/s/ Nicholas Pantelides
--------------------------------------
Nicholas Pantelides
/s/ Lex Passman
--------------------------------------
Lex Passman
/s/ Michael Rothschild
--------------------------------------
Michael Rothschild
/s/ William Beck
--------------------------------------
William Beck
/s/ Gene Cellini
--------------------------------------
Gene Cellini
/s/ Gary Guild
--------------------------------------
Gary Guild
/s/ Robert Herchenfeld
--------------------------------------
Robert Herchenfeld
/s/ Frank Leonhartsberger
--------------------------------------
Frank Leonhartsberger
/s/ John Nuzzo
--------------------------------------
John Nuzzo
/s/ Douglas Orcutt
--------------------------------------
Douglas Orcutt
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<PAGE> 24
/s/ Nat Pappagallo
--------------------------------------
Nat Pappagallo
/s/ John Barra
--------------------------------------
John Barra
/s/ Donald Carey
--------------------------------------
Donald Carey
/s/ Robert Hickey
--------------------------------------
Robert Hickey
/s/ Larry Krantz
--------------------------------------
Larry Krantz
/s/ Joseph Maikisch
--------------------------------------
Joseph Maikisch
/s/ Paul Makris
--------------------------------------
Paul Makris
/s/ Daniel Zury
--------------------------------------
Daniel Zury
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<PAGE> 25
ADDENDUM 1
OTHER FOUNDING COMPANIES
A. Words and terms used in this Addendum which are defined in
the captioned Agreement to which this is an Addendum are used herein as therein
defined.
B. The Founding Companies are:
Alpha - Keystone Engineering, Inc.
Annex Railroad Builders, Inc.
Comtrak Construction, Inc.
Comstock Holdings Inc.
Condon Brothers, Inc.
CPI Concrete Products
HP McGinley, Inc.
Kennedy Railroad Builders, Inc.
Merit Railroad Contractors, Inc.
Midwest Construction Services, Inc.
Minnesota Railroad Services, Inc.
Mize Construction Co.
New England Railroad Construction Co., Inc.
Northern Rail Service & Supply Company, Inc.
Railcorp, Inc.
Railroad Service, Inc.
Railroad Specialities, Inc,
Southern Indiana Wood Preserving Co.
U.S. Railway Supply, Inc,
U.S. Trackworks, Inc.
W.A. Smith Construction Co., Inc.
W.A Smith Rerailing Co., Inc.
<PAGE> 1
EXHIBIT 10.10
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 21, 1998
BY AND BETWEEN
RAILWORKS CORPORATION,
SYCAMORES MIDWEST CONSTRUCTION COMPANY,
MIDWEST CONSTRUCTION SERVICES, INC.
AND
THE STOCKHOLDERS NAMED HEREIN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS...................................................................................1
Section 1.01. Certain Defined Terms.................................................1
ARTICLE II THE MERGER AND RELATED MATTERS................................................................4
Section 2.01. Certificate of Merger.................................................4
Section 2.02. The Effective Time....................................................4
Section 2.03. Certain Effects of the Merger.........................................4
Section 2.04. Effect of the Merger on Capital Stock.................................5
Section 2.05. Delivery, Exchange and Payment........................................6
Section 2.06. Merger Consideration Calculation......................................7
Section 2.07. Fractional Shares.....................................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
EACH STOCKHOLDER .............................................................................8
Section 3.01. By Each Stockholder...................................................8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS......................................................9
Section 4.01. By the Company and Each Primary Stockholder...........................9
ARTICLE V REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO................................................9
Section 5.01. By RW and Newco.......................................................9
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME ...................................................10
Section 6.01. Of Each Party........................................................10
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION.................................................................................10
Section 7.01. The Closing and Certain Conditions...................................10
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME.......................................................12
Section 8.01. Of Each Party Other than the Company.................................12
ARTICLE IX INDEMNIFICATION..............................................................................12
Section 9.01. Indemnification Rights and Obligations...............................12
ARTICLE X [Intentionally Ommitted].....................................................................12
ARTICLE XI GENERAL PROVISIONS...........................................................................12
Section 11.01. Treatment of Confidential Information................................12
Section 11.02. Restrictions on Transfer of RW Common Stock..........................12
Section 11.03. Brokers and Agents...................................................14
Section 11.04. Assignment; No Third Party Beneficiaries.............................14
Section 11.05. Entire Agreement; Amendment; Waivers.................................15
Section 11.06. Counterparts.........................................................15
Section 11.07. Expenses.............................................................15
Section 11.08. Notices..............................................................15
Section 11.09. Governing Law........................................................16
Section 11.10. Exercise of Rights and Remedies......................................16
Section 11.11. Time.................................................................16
Section 11.12. Reformation and Severability.........................................17
Section 11.13. Remedies Cumulative..................................................17
Section 11.14. Respecting the IPO...................................................17
ARTICLE XII TERMINATION..................................................................................17
Section 12.01. Termination of this Agreement........................................17
Section 12.02. Liabilities in Event of Termination..................................18
EXHIBITS
Exhibit A - List of Primary Stockholders
Exhibit B - Form of Employment Agreement
Exhibit C - IPO Cost Liability Sharing Agreement
Exhibit D - Merger Consideration
</TABLE>
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<PAGE> 4
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as
of May 21, 1998, by and among RailWorks Corporation, a Delaware corporation
("RW"), Sycamores Midwest Construction Company, an Indiana corporation and a
wholly owned subsidiary of RW("Newco"), Midwest Construction Services, Inc., an
Indiana corporation (the "Company"), and the persons listed on the signature
pages hereof under the caption "Stockholders" (collectively, the "Stockholders,"
and each of those persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(a) Newco will merge into the Company on the terms and subject to the
conditions set forth herein (that merger being the "Merger");
(b) RW will acquire the stock of all or some of the entities listed in
the accompanying Addendum 1 (each an "Other Founding Company" and, collectively
with the Company, the "Founding Companies") pursuant to agreements that are (i)
similar in all material respects to this Agreement and (ii) entered into among
those entities and their equity owners, RW and subsidiaries of RW (collectively,
the "Other Agreements"); and
(c) RW shall at such time as specified herein and if certain conditions
are met, effect a public offering of shares of its common stock and issue and
sell those shares.
The respective boards of directors of RW, Newco and the Company have
approved and adopted this Agreement to effect a transaction subject to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Certain Defined Terms. As used in this Agreement and in
the related Addendums, Annexes, Schedules and Exhibits, the following terms have
the meanings assigned to them below in this Section 1.01. Capitalized terms used
in this Agreement and not defined below in this Section 1.01 have the meanings
assigned to them in the Preliminary Statement or Article I of the Uniform
Provisions (the text of which Article hereby is incorporated herein by this
reference), as the case may be.
<PAGE> 5
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement and all attached Schedules, Addendums,
Annexes and Exhibits, as each of the same may be amended, modified or
supplemented from time to time pursuant to the provisions hereof or thereof.
"Applicable Corporate Code" means the laws of the Organization State of
the Company that govern corporations incorporated in such state.
"Closing Date Balance Sheet" of the Company means a balance sheet of
the Company as at the IPO Closing Date which is prepared on a basis consistent
with the basis on which the Current Balance Sheet was prepared.
"Closing Memorandum" means the form of closing memorandum to be
prepared by RW for the Closing under this Agreement in which are included the
forms of certificates of officers, the opinions of counsel and certain other
documents to be delivered at the Closing as provided in Article VII.
"Company Accounts Receivable" shall mean the accounts and notes or
other advances receivable of the Company and the Company Subsidiaries, excluding
any Retainages, as of the IPO Closing Date.
"Company Common Stock" means the common stock, no par value, of the
Company.
"Company Indebtedness" means the indebtedness of the Company, as of the
IPO Closing Date (including, with respect to CPI Concrete Products, Inc., the
value of the Cash Company Consideration to be received by its Employee Stock
Ownership Plan), that the Company has elected to repay (or repurchase, as the
case may be) with a portion of the RW Common Stock to be received as part of the
Merger Consideration. At least five days prior to the Delivery Date, the Company
will deliver to RW a schedule of the aggregate principal amount of the Company
Indebtedness, certified by the President of the Company, that will be
outstanding on the IPO Closing Date, and RW will repay such Company Indebtedness
on the IPO Closing Date. To the extent that the actual amount of Company
Indebtedness exceeds the amount shown on such schedule, such excess shall be
repaid by the Stockholders on or prior to the IPO Closing Date.
"Counsel for RW and Newco" means King & Spalding.
"Counsel for the Company and the Stockholders" means such counsel as
shall be designated by the Company in writing on or prior to the Delivery Date.
"Current Balance Sheet" means the balance sheet of the Company as at
March 31, 1998 which is included in the Initial Financial Statements.
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<PAGE> 6
"Current Balance Sheet Date" means December 31, 1997.
"Defined Net Worth" as of the IPO Closing Date shall mean (i) the total
assets of the Company, as set forth on the balance sheet of the Company as of
such date, except that (A) expenses of the Company directly attributable to the
IPO and/or the transactions contemplated by this Agreement, including but not
limited to, costs incurred pursuant to the HSR Act, shall be added back to the
assets of the company and (B) the value of inventory, machinery, equipment and
real estate shall be determined pursuant to Section 2.06(a), less (ii) the total
liabilities of the Company, as set forth on the balance sheet of the Company as
of such date, excluding the Company Indebtedness. Notwithstanding the foregoing,
in the case of Comstock, Comstock's contractual obligation to Spie Group, Inc.,
as successor to Comstock Group, Inc., shall not be deemed to be a liability for
purposes of determining Defined Net Worth.
"Delivery" or "Delivery Date" shall have the meaning set forth in
Section 7.01.
"Earnings Percentage" shall have the meaning set forth in Exhibit D.
"Employment Agreement" means each of the Employment Agreements entered
into as of the Closing Date between RW and each of the Stockholders set forth on
Exhibit A hereto, a form of which is attached hereto as Exhibit B.
"fair market value" means that value at which goods and/or services
would be exchanged between a willing buyer and willing seller in a transaction
entered into at arms length with each party having relevant facts of all aspects
of the transaction.
"Initial Financial Statements" means (a) the balance sheets of the
Company as at December 31, 1997 and March 31, 1998 and the related reviewed
statements of operations and retained earnings for each of the Company's two
fiscal years in the period ended December 31, 1997, and (b) the Current Balance
Sheet and the related statement of income for the Company's fiscal year ended
December 31, 1997, which the Company has delivered to RW prior to the date
hereof.
"IPO Closing Date" means the date on which RW first receives payment
for the shares of RW Common Stock it sells to the Underwriter in the IPO.
"Merger Consideration" has the meaning specified in Section 2.04.
"Newco" means Sycamores Midwest Construction Company, an Indiana
corporation.
"Responsible Officer" means the President, Chief Executive Officer or
any Vice President of the Company.
-3-
<PAGE> 7
"Retainages" means the portion of progress payments due to a Company
for contracting projects that is withheld by a customer of such Company until
completion of a project, pursuant to the terms of a contract with such customer,
as security for the completion of the project.
"RW" means RailWorks Corporation, a Delaware corporation.
"Scheduled Related Party Agreements" means the agreements described in
Schedule 4.11.
"Surviving Corporation" means the Person to be designated in the
Certificate of Merger as the surviving corporation of the Merger.
"Threshold Amount" means 2.0% of the Merger Consideration.
"Transaction Value" means the (i)(A) the total number of shares of RW
outstanding immediately upon the closing of the IPO and the transactions
contemplated by this Agreement and the Other Agreements multiplied by (B) the
IPO Price multiplied by (C) 92% minus (ii) actual expenses of RW incurred with
respect to the IPO, an estimate of which will be set forth in Item 13 of Part II
of the Registration Statement minus (iii) the underwriting discounts and
commissions paid to the Underwriter pursuant to the IPO minus (iv) the proceeds
received by RW in connection with any shares of RW Common Stock sold by RW to
finance the working capital needs of RW, which shares shall not exceed 5% of the
number of shares to be sold in the IPO.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions of RW for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. Certificate of Merger. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the Delivery Date to the Department
of State of the State of Indiana.
Section 2.02. The Effective Time. The effective time of the Merger (the
"Effective Time") will be the time on the IPO Closing Date as specified in the
Certificate of Merger or, if the Certificate of Merger does not specify another
time, 8:00 a.m., eastern daylight standard time, on the IPO Closing Date.
Section 2.03. Certain Effects of the Merger. At and as of the Effective
Time, (a) Newco will be merged with and into the Company in accordance with the
provisions of the Indiana Business Corporation Law, (b) Newco will cease to
exist as a separate legal entity, (c)
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<PAGE> 8
the articles of incorporation of the Company will be amended to change its
authorized capital stock to 100 shares, par value $0.01 per share, of Common
Stock, (d) the Company will be the Surviving Corporation and, as such, will, all
with the effect provided by the Indiana Business Corporation Law, (i) possess
all the properties and rights, and be subject to all the restrictions and
duties, of the Company and Newco and (ii) be governed by the laws of the State
of Indiana, (e) the Charter Documents of the Company then in effect (after
giving effect to the amendment of the Company's articles of incorporation
specified in clause (c) of this sentence) will become and thereafter remain
(until changed in accordance with (i) applicable law (in the case of the
articles of incorporation) or (ii) their terms (in the case of the bylaws)) the
Charter Documents of the Surviving Corporation, (f) the initial board of
directors of the Surviving Corporation will be the Chief Executive Officer of RW
and the other persons named in Schedule 2.03, and those persons will hold the
office of director of the Surviving Corporation subject to the provisions of the
applicable laws of the State of Indiana and the Charter Documents of the
Surviving Corporation, and (g) the initial officers of the Surviving Corporation
will be as set forth in Schedule 2.03, and each of those persons will serve in
each office specified for that person in Schedule 2.03, subject to the
provisions of the Charter Documents of the Surviving Corporation, until that
person's successor is duly elected to, and, if necessary, qualified for, that
office.
Section 2.04. Effect of the Merger on Capital Stock. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the right to
receive, subject to the provisions of Section 2.05 and Exhibit D, without
interest, on surrender of the certificate evidencing those shares, the amount of
cash and the number of whole and fractional shares of RW Common Stock set forth
or determined as provided in Exhibit D (the "Merger Consideration"), (ii) cease
to be outstanding and to exist and (iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to exist
and (ii) be canceled and retired; and
(c) each share of Newco Common Stock issued and outstanding immediately
prior to the Effective Time will be converted into one share of Common Stock, no
par value, of the Surviving Corporation, and the shares of Common Stock of the
Surviving Corporation issued on that conversion will constitute all the issued
and outstanding shares of Capital Stock of the Surviving Corporation. Each
holder of a certificate representing shares of Company Common Stock immediately
prior to the Effective Time will, as of the Effective Time and thereafter, cease
to have any rights respecting those shares other than the right to receive,
subject to the provisions of Section 2.05, without interest, the Merger
Consideration and the additional cash, if any, owing with respect to those
shares as provided in Section 2.07.
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Section 2.05. Delivery, Exchange and Payment.
(a) At or after the Effective Time: (i) each Stockholder, as the holder
of certificates representing shares of Company Common Stock, will, on surrender
of those certificates to RW (or any agent that may be appointed by RW for
purposes of this Section 2.05), receive, subject to the provisions of this
Article II and the Escrow Agreement, such Stockholder's share of the Merger
Consideration pursuant to Section 2.04 and Exhibit D; and (ii) until any
certificate representing Company Common Stock has been surrendered and replaced
pursuant to this Section 2.05, that certificate will, for all purposes, be
deemed to evidence ownership of the number of whole shares of RW Common Stock
included in the Merger Consideration payable in respect of that certificate
pursuant to Section 2.04. The Escrow Agreement will provide that the shares of
RW Common Stock issued to the Stockholders as a part of the Merger Consideration
together with duly executed stock powers in blank, shall be placed in escrow to
be held subject to the terms of the Escrow Agreement and further subject to
Exhibit D and Section 11.02. The escrow shall consist solely of shares of RW
Common Stock that shall be issued at the Effective Time to the Stockholders of
the Founding Companies and delivered, at the Closing, to the Escrow Agent. All
shares of RW Common Stock issuable in the Merger will be deemed for all purposes
to have been issued by RW at the Effective Time.
(b) Each Stockholder will deliver to RW (or any agent that may be
appointed by RW for purposes of this Section 2.05) on or before the Delivery
Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Stockholder, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Stockholder's expense, affixed and canceled.
Each Stockholder shall cure any deficiencies in the endorsement of the
certificates or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Stockholder.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to RW Common Stock and payable to
the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of RW Common Stock have been issued in the Merger until
those certificates are surrendered as provided herein, but (i) on that surrender
RW will cause to be paid, to the Person in whose name the certificates
representing such shares of RW Common Stock shall then be issued, the amount of
dividends or other distributions previously paid with respect to such whole
shares of RW Common Stock with a record date, or which have accrued, subsequent
to the Effective Time, but prior to surrender, and the amount of any cash
payable to such Person for and in lieu of fractional shares pursuant to Section
2.07 and (ii) at the appropriate payment date or as soon as practicable
thereafter, RW will cause to be paid to that Person the amount of dividends or
other distributions with a record date, or which have been accrued, subsequent
to the Effective Time, but which are not payable until a date subsequent to
surrender, which are payable with respect to such whole shares of RW Common
Stock, subject in all cases to any applicable
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escheat laws. No interest will be payable with respect to the payment of such
dividends or other distributions or cash for and in lieu of fractional shares on
surrender of outstanding certificates.
(d) Each Stockholder hereby authorizes and directs RW to deliver 3.5%
of the Cash Company Consideration and 3.5% of the Stock Company Consideration
owed to such Stockholder pursuant to this Agreement (before deposit of the
shares of RW Common Stock into escrow) to IPO Development Company in payment of
fees owed to IPO Development Company by such Stockholder.
Section 2.06. Merger Consideration Calculation.
(a) No later than fifteen (15) days following the IPO Closing Date, the
Company shall provide to the Chief Accounting Officer of RW (the "CAO") a
determination of the fair market value (as defined) of its inventory, machinery,
equipment and real estate (the "Valued Assets") as of the IPO Closing Date.
Within seven (7) days of such date, the CAO shall distribute to every Founding
Company the value of the Valued Assets of every Founding Company. The Company
shall have seven (7) days from the date of the distribution of such valuation to
dispute the value of the Valued Assets of any Founding Company by providing
written notice of such dispute to the CAO. If the CAO is unable to resolve any
such dispute, the dispute shall be resolved by binding arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
which arbitration shall be resolved no later than thirty (30) days from
selection of the arbitrator. The arbitrator shall be selected by the CAO.
(b) Arthur Andersen or, if not Arthur Andersen, the Company's
accountant, shall cause to be prepared and delivered to RW and the Company a
calculation as of the IPO Closing Date of the Defined Net Worth of the Company
(the "Balance Sheet Calculation"). The Balance Sheet Calculation shall be final
and binding on the Company and the Other Founding Companies absent fraud,
manifest error or gross negligence.
(c) The Balance Sheet Calculation shall include a report of Arthur
Andersen or, if not Arthur Andersen, the Company's accountant, stating that it
has been prepared in a manner consistent with the accounting policies and
procedures used in preparation of the balance sheets in the Initial Financial
Statements, except as provided in the definition of "Defined Net Worth"
contained herein. The Stockholders shall give Arthur Andersen and other
appropriate personnel such assistance and access to the assets and books and
records of the Company as Arthur Andersen shall reasonably request during normal
business hours in order to enable them to prepare the Balance Sheet Calculation.
The Surviving Corporation shall be responsible for the fees and expenses of
Arthur Andersen or, if not Arthur Andersen the Company's accountant.
Section 2.07. Fractional Shares. Notwithstanding any other provision
herein, no fractional shares of RW Common Stock will be issued. All shares of RW
Common Stock shall be aggregated, and any Stockholder entitled hereunder, after
such aggregation, to receive a fractional share of RW Common Stock but for this
Section 2.07 will be entitled hereunder to receive a cash payment for and
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in lieu thereof in the amount (rounded to the nearest whole cent) equal to that
Stockholder's fractional interest in a share of RW Common Stock multiplied by
the IPO Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01. By Each Stockholder. The Stockholders severally represent
and warrant to, and agree with, RW that all the following representations and
warranties in this Article III are as of the date of this Agreement, and will
be, as amended or supplemented pursuant to Section 6.08, on the IPO Closing
Date, true and correct:
(a) (i) each Stockholder will acquire the shares of RW Common
Stock to be issued pursuant to Article II to the Stockholder solely for the
Stockholder's account, for investment purposes only and with no current
intention or plan to distribute, sell or otherwise dispose of any of those
shares in connection with any distribution;
(ii) no Stockholder is a party to any agreement or other
arrangement for the disposition of any shares of RW Common Stock other
than this Agreement; (iii) except as set forth on Schedule 3.01(a)(ii)
each Stockholder is an "accredited investor" as defined in Rule 501(a)
promulgated under the Securities Act; (iv) each Stockholder (A) is able
to bear the economic risk of an investment in the RW Common Stock
acquired pursuant to this Agreement, (B) can afford to sustain a total
loss of that investment, (C) has such knowledge and experience in
financial and business matters that he or she is capable of evaluating
the merits and risks of the proposed investment in the RW Common Stock,
(D) has had an adequate opportunity to ask questions and receive
answers from the officers of RW concerning any and all matters relating
to the transactions contemplated hereby, including the background and
experience of the current and proposed officers and directors of RW,
the plans for the operations of the business of RW, the business,
operations and financial condition of the Other Founding Companies and
any plans of RW for additional acquisitions, and (E) has asked all
questions of the nature described in preceding clause (D) that such
Stockholder thought to ask, and all those questions have been answered
to his or her satisfaction;
(b) the representations and warranties contained in Article III of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to; and
(c) (i) the terms and conditions of any agreements between any
Stockholder or an Affiliate of any Stockholder, on the one hand, and the Company
on the other hand, included in the Scheduled Related Party Agreements will have
been amended effective as of the IPO Closing Date to be no less favorable to the
Company than the Company reasonably could have expected to obtain in an
arms-length transaction with a Person other than an Affiliate of the Company and
(ii) the
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rentals or other payments provided for in such agreements then will not exceed
fair market rentals of the property being leased or fair market value of the sum
or product being provided and such amounts shall have been previously approved
in writing by the Chief Financial Officer of RW.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS
Section 4.01. By the Company and Each Primary Stockholder. The Company
and each Primary Stockholder jointly and severally represent and warrant to, and
agree with, RW that all the following representations and warranties in this
Article IV are as of the date of this Agreement, and will be, as amended or
supplemented pursuant to Section 6.08, on the Delivery Date and the IPO Closing
Date, true and correct:
(a) the Organization State of the Company is the State of Indiana, and
the Company (i) is a corporation duly organized, validly existing and in good
standing under the laws of that State, (ii) has all requisite corporate power
and authority under those laws and its Charter Documents to own or lease and to
operate its properties and to carry on its business as now conducted and (iii)
is duly qualified and in good standing as a foreign corporation in all
jurisdictions (other than the State of Indiana) in which it owns or leases
property or in which the carrying on of its business as now conducted so
requires except where the failure to be so qualified, singly or in the
aggregate, would not have a Material Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is comprised of
1,000 shares of Company Common Stock, of which 1,000 have been issued and are
now outstanding and no shares are held by the Company as treasury shares, and
(ii) there are no Derivative Securities of the Company;
(c) the Company has elected to be treated as an S corporation within
the meaning of the Code, as amended; and
(d) the representations and warranties contained in Article IV of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO
Section 5.01. By RW and Newco. RW and Newco jointly and severally
represent and warrant to the Company and each Stockholder that all the following
representations and warranties
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in this Article V are as of the date of this Agreement, and will be on the IPO
Closing Date, true and correct:
(a) Newco is a corporation duly organized, validly existing and in good
standing under the laws of the State of Indiana;
(b) except as disclosed in the Private Placement Memorandum, no
Derivative Securities of Newco are outstanding;
(c) Newco has been organized for the sole purpose of participating in
the Merger and has not, and will not, engage in any activities other than those
necessary to effectuate the Merger;
(d) except for shares of RW Common Stock to be publicly sold in the IPO
and as disclosed in the Private Placement Memorandum or preliminary prospectus,
neither RW nor Newco is a party to any agreement or other arrangement for the
disposition of any shares of RW Common Stock; and
(e) the representations and warranties contained in Article V of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01. Of Each Party. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01. The Closing and Certain Conditions.
(a) The Closing. On or before the IPO Pricing Date, the parties hereto
will take all actions necessary to (i) effect the Merger (including, as
permitted by the Applicable Corporate Code, (A) the execution of a Certificate
of Merger (1) meeting the requirements of the Applicable Corporate Code and (2)
providing that the Merger will become effective on the IPO Closing Date and (B)
the delivery of that Certificate of Merger with a filing service that will file
such Certificate of Merger with the Department of State of the State of Indiana)
upon notification of the closing of the IPO (provided that Comstock's
Certificate of Merger shall be filed immediately prior to the closing of the
IPO), (ii) verify the existence and ownership of the certificates evidencing the
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Company Common Stock to be exchanged for the Merger Consideration pursuant to
Section 2.05 and (iii) satisfy the document delivery requirements to which the
obligations of the parties to effect the Merger and the other transactions
contemplated hereby are conditioned by the provisions of this Article VII (all
those actions collectively being the "Delivery"). The Delivery will take place
at the offices of King & Spalding, 191 Peachtree Street, Atlanta, Georgia at
10:00 a.m., Atlanta time on the IPO Pricing Date, or at such later time on the
IPO Pricing Date as RW shall specify by written notice to the President of the
Company (the "Delivery Date"). The actions taken at the Delivery will not
include the completion of either the Merger or the delivery of the Company
Common Stock or the Merger Consideration pursuant to Section 2.05. On the IPO
Closing Date, the Certificate of Merger will be filed and will become effective
pursuant to Section 2.02, and all transactions contemplated by this Agreement to
be closed or completed on or before the IPO Closing Date, including the
surrender of the Company Common Stock in exchange for the Merger Consideration
(including a certified check or checks in an amount equal to the cash portion of
the Merger Consideration) will be closed or completed, as the case may be.
During the period from the Delivery Date to the IPO Closing Date, this Agreement
may be terminated by the parties only pursuant to Section 12.01(b)(i).
(b) Certain Conditions to the Obligations of the Company and the
Stockholders. The obligations of the Company and the Stockholders with respect
to the actions to be taken by them at or before the Delivery Date are subject to
the satisfaction on or before the Delivery Date, or waiver by them pursuant to
Section 11.05, of all the conditions set forth in Sections 7.01 and 7.02(a). The
obligations of the Stockholders with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of the following
conditions: (if required by such Stockholder) (i) the Employment Agreement then
shall be in full force and effect; and (ii) all the conditions set forth in
Sections 7.01 and 7.02(b).
(c) Certain Conditions to the Obligations of RW and Newco. The
obligations of RW and Newco with respect to actions to be taken by them at or
before the Delivery Date are subject to the satisfaction on or before the date
of the Delivery Date, or waiver by them pursuant to Section 11.05, of the
following conditions: (i) the Company shall have delivered to RW a copy of the
articles of incorporation, as amended to the Delivery Date and certified by the
Secretary of State of the State of Indiana as of a Current Date, of the Company;
and (ii) all the conditions set forth in Sections 7.01 and 7.03(a). The
obligations of RW and Newco with respect to the actions to be taken on the IPO
Closing Date are subject to the satisfaction on that date of the following
conditions: (i) the Employment Agreements then shall be in full force and
effect; and (ii) all the conditions set forth in Sections 7.01 and 7.03(b).
(d) Uniform Provisions. The text of Article VII of the Uniform
Provisions hereby is incorporated herein by this reference.
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ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01. Of Each Party Other than the Company. From and after the
Effective Time, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Company) will comply with each covenant for which
provision is made in Article VIII of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) to be performed or
observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01. Indemnification Rights and Obligations. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. Any provision contained in Article IX of the Uniform Provisions to
the contrary notwithstanding, the indemnification obligations of the
Stockholders pursuant to this Agreement shall be joint and several.
ARTICLE X
[Intentionally Ommitted]
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. Treatment of Confidential Information. Each party hereto
will comply with each covenant for which provision is made in Section 11.01 of
the Uniform Provisions (the text of which Section hereby is incorporated herein
by this reference) to be performed or observed by that party.
Section 11.02. Restrictions on Transfer of RW Common Stock.
(a) Except for transfers to employees of the Company that are approved
in writing by the Board of Directors of RW (or a committee designated by the
Board of Directors of RW) prior to such transfer, during the one year period
ending on the first anniversary of the IPO Closing Date (the "Restricted
Period"), no Stockholder voluntarily will: (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
RW Common Stock received by any Stockholder in the Merger or (B) any interest in
(including any option to buy or sell) any of those shares of RW Common Stock, in
whole or in part, and RW will have no obligation to, and shall not, treat any
such attempted transfer as effective for any purpose; or (ii) engage in any
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transaction, whether or not with respect to any shares of RW Common Stock or any
interest therein, the intent or effect of which is to reduce the risk of owning
the shares of RW Common Stock acquired pursuant to Section 2.04 (including, for
example engaging in put, call, short-sale, straddle or similar market
transactions); provided, however, that this Section 11.02 shall not restrict any
transfer of RW Common Stock acquired by a Stockholder pursuant to Section 2.04
to any of that Stockholder's Related Persons who agree in writing to be bound by
the provisions of Section 11.01 and this Section 11.02. The certificates
evidencing the RW Common Stock delivered to each Stockholder pursuant to Section
2.05 will bear a legend substantially in the form set forth below and containing
such other information as RW may deem necessary or appropriate:
"EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER
PARTIES THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE
REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF
ANY OF THOSE SHARES, DURING THE ONE-YEAR PERIOD ENDING ON __________ [DATE THAT
IS THE FIRST ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED PERIOD"). ON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE."
(b) From the first anniversary of the IPO Closing Date to the fourth
anniversary of the IPO Closing Date, the Stockholders agree to sell shares of RW
Common Stock acquired pursuant to this Agreement only in accordance with the
procedures set forth in this Section 11.02(b). Every quarter during such period,
every Stockholder will be permitted to sell, in the aggregate, up to 8% of the
aggregate number of shares of Common Stock received by such Stockholder pursuant
to this Agreement (the "Quarterly Block Trade Shares") in either a block trade
or a registered public offering, at the option of RW. If a Stockholder does not
sell all of his or her Quarterly Block Trade Shares in any given quarter, such
Stockholder may sell such Quarterly Block Trade Shares pursuant to this Section
11.02(b) in any later quarter, provided, however, that in no event may a
Stockholder sell more than 20% of the shares of Common Stock received by such
Stockholder pursuant to this Agreement in any one quarter. Any Stockholder that
wishes to sell shares of RW Common Stock pursuant to such selling opportunity
must give notice to RW and the Executive Council no later than fourteen days
prior to the commencement of the fiscal quarter of RW during which such
Stockholder wants to sell such shares. Notwithstanding anything set forth in
this Section 11.02(b), RW may elect to make available to the Stockholders (i)
additional opportunities to sell shares of RW Common Stock and/or (ii) the
opportunity to sell an amount in excess of such amount during any particular
quarter. The Company may modify or waive this Section 11.02(b) at its sole
discretion at any time following written notice to the Stockholders, provided
that no such modification or waiver may
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reduce the number of selling opportunities or the maximum number of shares of RW
Common Stock that may be sold by any Stockholder during any selling opportunity.
(c) Each Stockholder, severally and not jointly with any other Person,
(i) acknowledges that the shares of RW Common Stock to be delivered to that
Stockholder pursuant to Section 2.04 have not been and will not be registered
under the Securities Act and therefore may not be resold by that Stockholder
without compliance with the Securities Act and (ii) covenants that none of the
shares of RW Common Stock issued to that Stockholder pursuant to Section 2.04
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable provisions of
the Securities Act and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of RW Common
Stock issued pursuant to Section 2.04 will bear the following legend in addition
to the legend prescribed by Section 11.02(a):
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, HAVE
BEEN ISSUED PURSUANT TO ONE OR MORE EXEMPTIONS THERETO, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED OR DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED."
In addition, certificates evidencing shares of RW Common Stock issued pursuant
to Section 2.04 to each Stockholder will bear any legend required by the
securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03. Brokers and Agents. Except for IPO Development Company,
each of the Stockholders jointly and severally, on the one hand, and RW, on the
other, represents and warrants to the other that such Person has not directly or
indirectly employed or become obligated to pay any broker, finder or similar
agent in connection with the transactions contemplated hereby and agree, without
regard to the Threshold Amount limitations set forth in Article IX, to indemnify
the other against all Damage Claims arising out of claims for any and all fees
and commissions of brokers or similar agents employed or promised payment by
such Person.
Section 11.04. Assignment; No Third Party Beneficiaries. This Agreement
and the rights of the parties hereunder may not be assigned (except by operation
of law) and shall be binding on and inure to the benefit of the parties hereto,
the successors of RW, and the heirs and legal representatives of the
Stockholders (and, in the case of any trust, the successor trustees of that
trust). Neither this Agreement nor any other Transaction Document is intended,
or shall be construed, deemed or interpreted, to confer on any Person not a
party hereto or thereto any rights or remedies hereunder or thereunder, except
as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise provided
expressly herein or therein.
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Section 11.05. Entire Agreement; Amendment; Waivers. Except with
respect to Section 11.07 hereof, this Agreement and the documents delivered
pursuant hereto constitute the entire agreement and understanding among the
Stockholders, the Company, Newco and RW and supersede all prior agreements and
understandings, both written and oral, relating to the subject matter of this
Agreement. This Agreement may be amended, modified or supplemented, and any
right hereunder may be waived, if, but only if, that amendment, modification,
supplement or waiver is in writing and signed by each of the Stockholders, the
Company and RW. The waiver of any of the terms and conditions hereof shall not
be construed or interpreted as, or deemed to be, a waiver of any other term or
condition hereof.
Section 11.06. Counterparts. This Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
Section 11.07. Expenses. If the transactions contemplated hereby (i)
are consummated, RW will pay the fees, expenses and disbursements of RW and
Newco and their Representatives which are incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all costs
and expenses incurred in the performance of and compliance with all conditions
to be performed by RW and Newco under this Agreement, including the costs of
preparing the Registration Statement, (collectively, the "RW Expenses") and (ii)
if the transactions contemplated hereby are not consummated, the RW Expenses
shall be paid by the Founding Companies subject to the provisions of the IPO
Cost Liability Sharing Agreement attached hereto as Exhibit C and incorporated
herein by reference (b) the Stockholders will pay from personal funds, and not
from funds of the Company or any Company Subsidiary, all sales, use, transfer
and other similar taxes and fees (collectively, "Transfer Taxes") incurred in
connection with the transactions contemplated hereby and (c) the Company will
pay the fees, expenses and disbursements of Counsel for the Company and the
Stockholders incurred in connection with the subject matter of this Agreement
and the Registration Statement on or before the IPO Closing Date. The
Stockholders will file all necessary documentation and Returns with respect to
all Transfer Taxes. In addition, each Stockholder acknowledges that he, and not
the Company or RW or the Surviving Corporation, will pay all Taxes due upon
receipt of the consideration payable to that Stockholder pursuant to Article II.
Section 11.08. Notices. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received
(a) if personally delivered or if delivered by telex, telegram,
facsimile or courier service, when actually received by the party to whom notice
is sent or
(b) if delivered by mail (whether actually received or not), at the
close of business on the third Business Day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
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(i) if to RW or Newco, addressed to it at:
RailWorks Corporation
403 Somerset Road
Baltimore, Maryland 21210
Attn: Chief Executive Officer
with copies (which shall not constitute notice for purposes
of this Agreement) to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attn: Jeffrey M. Stein
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
Midwest Construction Services, Inc.
8470 Colorado Street
Merriville, Indiana 46410
Attn: Harry Lucaitis
with copies (which shall not constitute notice for purposes
of this Agreement) to Counsel for the Company and the
Stockholders at the address designated by the Company
Section 11.09. Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF DELAWARE
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10. Exercise of Rights and Remedies. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11. Time. Time is of the essence in the performance of this
Agreement in all respects.
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Section 11.12. Reformation and Severability. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13. Remedies Cumulative. No right, remedy or election given
by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14. Respecting the IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither RW or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that RW will use its reasonable best efforts to
cause the Registration Statement to become effective prior to August 14, 1998)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to RW or the
IPO.
ARTICLE XII
TERMINATION
Section 12.01. Termination of this Agreement.
(a) This Agreement may be terminated at any time prior to the Delivery
Date solely:
(i) by the mutual written consent of RW and the Company;
(ii) by the Stockholders or the Company, on the one hand, or
by RW, on the other hand, if the events contemplated by this Agreement
to take place at the Delivery Date shall not have taken place by
September 4, 1998, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the
case of the Stockholders and the Company, any of them) seeking to
terminate this Agreement to perform or adhere to any agreement required
hereby to be performed or adhered to by it prior to or at the Delivery
Date or thereafter on the IPO Closing Date;
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<PAGE> 21
(iii) by the Stockholders or the Company, on the one hand,
or by RW, on the other hand, if a material breach or default shall be
made by the other party (or in the case of the Stockholders and the
Company, any of them) in the observance or in the due and timely
performance of any of the covenants, agreements or conditions contained
in Article VI or Section 11.01;
(iv) by the Stockholders or the Company, on the one hand,
or RW, on the other, if it is entitled to do so as provided in Section
6.08;
(v) by the Stockholders prior to the filing of the
Registration Statement if the Registration Statement is not filed by
June 15, 1998;
(vi) by RW or the Stockholders prior to 9:00 a.m. on the
IPO Pricing Date (as set forth in Section 8.10) if the value of RW at
the IPO Pricing Date (as calculated by multiplying the price per share
at which the RW common stock is to be sold in the IPO by the number of
shares of common stock to be outstanding after the Closing of the IPO)
shall be less than $215 million;
(vii) by the Stockholders if the Registration Statement has
not been declared effective by the Securities and Exchange Commission
by August 14, 1998;
(viii) by the Stockholders if John G. Larkin is no longer
serving as Chairman of the Board of Directors and Chief Executive
Officer prior to the Closing; or
(ix) by the stockholders of CPI Concrete Products, Inc. if
its Employee Stock Ownership Plan does not approve the merger prior to
the Delivery Date.
(b) This Agreement may be terminated after the Delivery Date solely:
(i) by RW or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the IPO Pricing Date and prior
to the consummation of the IPO; or
(ii) automatically and without action on the part of any
party hereto if the IPO is not consummated within 15 New York City
business days after the Delivery Date.
(c) If this Agreement is terminated pursuant to this Section 12.01, the
Merger will be deemed for all purposes to have been abandoned and of no force or
effect.
Section 12.02. Liabilities in Event of Termination. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Sections
11.03 or 11.07 and (b) to the extent that such liability is based on the breach
by that party of any of its representations, warranties or covenants set forth
in this Agreement.
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<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
RAILWORKS CORPORATION
By: /s/ John G. Larkin
-----------------------------------
John G. Larkin
Chief Executive Officer
SYCAMORES MIDWEST CONSTRUCTION
COMPANY
By: /s/ John G. Larkin
-----------------------------------
John G. Larkin
President
MIDWEST CONSTRUCTION SERVICES, INC.
By: /s/ Authorized Signature
-----------------------------------
Name:
Title:
STOCKHOLDERS:
/s/ Harry Lucaitis
---------------------------------------
Harry Lucaitis
/s/ William Lucaitis
---------------------------------------
William Lucaitis
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<PAGE> 23
ADDENDUM 1
OTHER FOUNDING COMPANIES
A. Words and terms used in this Addendum which are defined in
the captioned Agreement to which this is an Addendum are used herein as therein
defined.
B. The Founding Companies are:
Alpha - Keystone Engineering, Inc.
Annex Railroad Builders, Inc.
Comtrak Construction, Inc.
Comstock Holdings Inc.
Condon Brothers, Inc.
CPI Concrete Products
HP McGinley, Inc.
Kennedy Railroad Builders, Inc.
Merit Railroad Contractors, Inc.
Midwest Construction Services, Inc.
Minnesota Railroad Services, Inc.
Mize Construction Co.
New England Railroad Construction Co., Inc.
Northern Rail Service & Supply Company, Inc.
Railcorp, Inc.
Railroad Service, Inc.
Railroad Specialities, Inc,
Southern Indiana Wood Preserving Co.
U.S. Railway Supply, Inc,
U.S. Trackworks, Inc.
W.A. Smith Construction Co., Inc.
W.A. Smith Rerailing Co., Inc.
<PAGE> 1
EXHIBIT 10.11
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 21, 1998
BY AND BETWEEN
RAILWORKS CORPORATION,
BEARS MERIT COMPANY,
MERIT RAILROAD CONTRACTORS, INC.
AND
THE STOCKHOLDERS NAMED HEREIN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS...................................................................................1
Section 1.01. Certain Defined Terms.................................................1
ARTICLE II THE MERGER AND RELATED MATTERS................................................................4
Section 2.01. Certificate of Merger.................................................4
Section 2.02. The Effective Time....................................................4
Section 2.03. Certain Effects of the Merger.........................................4
Section 2.04. Effect of the Merger on Capital Stock.................................5
Section 2.05. Delivery, Exchange and Payment........................................6
Section 2.06. Merger Consideration Calculation......................................7
Section 2.07. Fractional Shares.....................................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
EACH STOCKHOLDER .............................................................................8
Section 3.01. By Each Stockholder...................................................8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS......................................................9
Section 4.01. By the Company and Each Primary Stockholder...........................9
ARTICLE V REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO................................................9
Section 5.01. By RW and Newco.......................................................9
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME ...................................................10
Section 6.01. Of Each Party........................................................10
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION.................................................................................10
Section 7.01. The Closing and Certain Conditions...................................10
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME.......................................................12
Section 8.01. Of Each Party Other than the Company.................................12
ARTICLE IX INDEMNIFICATION..............................................................................12
Section 9.01. Indemnification Rights and Obligations...............................12
ARTICLE X [Intentionally Ommitted].....................................................................12
ARTICLE XI GENERAL PROVISIONS...........................................................................12
Section 11.01. Treatment of Confidential Information................................12
Section 11.02. Restrictions on Transfer of RW Common Stock..........................12
Section 11.03. Brokers and Agents...................................................14
Section 11.04. Assignment; No Third Party Beneficiaries.............................14
Section 11.05. Entire Agreement; Amendment; Waivers.................................15
Section 11.06. Counterparts.........................................................15
Section 11.07. Expenses.............................................................15
Section 11.08. Notices..............................................................15
Section 11.09. Governing Law........................................................16
Section 11.10. Exercise of Rights and Remedies......................................16
Section 11.11. Time.................................................................16
Section 11.12. Reformation and Severability.........................................17
Section 11.13. Remedies Cumulative..................................................17
Section 11.14. Respecting the IPO...................................................17
ARTICLE XII TERMINATION..................................................................................17
Section 12.01. Termination of this Agreement........................................17
Section 12.02. Liabilities in Event of Termination..................................18
EXHIBITS
Exhibit A - List of Primary Stockholders
Exhibit B - Form of Employment Agreement
Exhibit C - IPO Cost Liability Sharing Agreement
Exhibit D - Merger Consideration
</TABLE>
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<PAGE> 4
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as
of May 21, 1998, by and among RailWorks Corporation, a Delaware corporation
("RW"), Bears Merit Company, a Missouri corporation and a wholly owned
subsidiary of RW("Newco"), Merit Railroad Contractors, Inc., a Missouri
corporation (the "Company"), and the persons listed on the signature pages
hereof under the caption "Stockholders" (collectively, the "Stockholders," and
each of those persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(a) Newco will merge into the Company on the terms and subject to the
conditions set forth herein (that merger being the "Merger");
(b) RW will acquire the stock of all or some of the entities listed in
the accompanying Addendum 1 (each an "Other Founding Company" and, collectively
with the Company, the "Founding Companies") pursuant to agreements that are (i)
similar in all material respects to this Agreement and (ii) entered into among
those entities and their equity owners, RW and subsidiaries of RW (collectively,
the "Other Agreements"); and
(c) RW shall at such time as specified herein and if certain conditions
are met, effect a public offering of shares of its common stock and issue and
sell those shares.
The respective boards of directors of RW, Newco and the Company have
approved and adopted this Agreement to effect a transaction subject to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Certain Defined Terms. As used in this Agreement and in
the related Addendums, Annexes, Schedules and Exhibits, the following terms have
the meanings assigned to them below in this Section 1.01. Capitalized terms used
in this Agreement and not defined below in this Section 1.01 have the meanings
assigned to them in the Preliminary Statement or Article I of the Uniform
Provisions (the text of which Article hereby is incorporated herein by this
reference), as the case may be.
<PAGE> 5
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement and all attached Schedules, Addendums,
Annexes and Exhibits, as each of the same may be amended, modified or
supplemented from time to time pursuant to the provisions hereof or thereof.
"Applicable Corporate Code" means the laws of the Organization State of
the Company that govern corporations incorporated in such state.
"Closing Date Balance Sheet" of the Company means a balance sheet of
the Company as at the IPO Closing Date which is prepared on a basis consistent
with the basis on which the Current Balance Sheet was prepared.
"Closing Memorandum" means the form of closing memorandum to be
prepared by RW for the Closing under this Agreement in which are included the
forms of certificates of officers, the opinions of counsel and certain other
documents to be delivered at the Closing as provided in Article VII.
"Company Accounts Receivable" shall mean the accounts and notes or
other advances receivable of the Company and the Company Subsidiaries, excluding
any Retainages, as of the IPO Closing Date.
"Company Common Stock" means the common stock, par value $1.00 per
share, of the Company.
"Company Indebtedness" means the indebtedness of the Company, as of the
IPO Closing Date (including, with respect to CPI Concrete Products, Inc., the
value of the Cash Company Consideration to be received by its Employee Stock
Ownership Plan), that the Company has elected to repay (or repurchase, as the
case may be) with a portion of the RW Common Stock to be received as part of the
Merger Consideration. At least five days prior to the Delivery Date, the Company
will deliver to RW a schedule of the aggregate principal amount of the Company
Indebtedness, certified by the President of the Company, that will be
outstanding on the IPO Closing Date, and RW will repay such Company Indebtedness
on the IPO Closing Date. To the extent that the actual amount of Company
Indebtedness exceeds the amount shown on such schedule, such excess shall be
repaid by the Stockholders on or prior to the IPO Closing Date.
"Counsel for RW and Newco" means King & Spalding.
"Counsel for the Company and the Stockholders" means such counsel as
shall be designated by the Company in writing on or prior to the Delivery Date.
"Current Balance Sheet" means the balance sheet of the Company as at
March 31, 1998 which is included in the Initial Financial Statements.
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<PAGE> 6
"Current Balance Sheet Date" means December 31, 1997.
"Defined Net Worth" as of the IPO Closing Date shall mean (i) the total
assets of the Company, as set forth on the balance sheet of the Company as of
such date, except that (A) expenses of the Company directly attributable to the
IPO and/or the transactions contemplated by this Agreement, including but not
limited to, costs incurred pursuant to the HSR Act, shall be added back to the
assets of the company and (B) the value of inventory, machinery, equipment and
real estate shall be determined pursuant to Section 2.06(a), less (ii) the total
liabilities of the Company, as set forth on the balance sheet of the Company as
of such date, excluding the Company Indebtedness. Notwithstanding the foregoing,
in the case of Comstock, Comstock's contractual obligation to Spie Group, Inc.,
as successor to Comstock Group, Inc., shall not be deemed to be a liability for
purposes of determining Defined Net Worth.
"Delivery" or "Delivery Date" shall have the meaning set forth in
Section 7.01.
"Earnings Percentage" shall have the meaning set forth in Exhibit D.
"Employment Agreement" means each of the Employment Agreements entered
into as of the Closing Date between RW and each of the Stockholders set forth on
Exhibit A hereto, a form of which is attached hereto as Exhibit B.
"fair market value" means that value at which goods and/or services
would be exchanged between a willing buyer and willing seller in a transaction
entered into at arms length with each party having relevant facts of all aspects
of the transaction.
"Initial Financial Statements" means (a) the balance sheets of the
Company as at December 31, 1997 and March 31, 1998 and the related reviewed
statements of operations and retained earnings for each of the Company's two
fiscal years in the period ended December 31, 1997, and (b) the Current Balance
Sheet and the related statement of income for the Company's fiscal year ended
December 31, 1997, which the Company has delivered to RW prior to the date
hereof.
"IPO Closing Date" means the date on which RW first receives payment
for the shares of RW Common Stock it sells to the Underwriter in the IPO.
"Merger Consideration" has the meaning specified in Section 2.04.
"Newco" means Bears Merit Company, a Missouri corporation.
"Responsible Officer" means the President, Chief Executive Officer or
any Vice President of the Company.
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<PAGE> 7
"Retainages" means the portion of progress payments due to a Company
for contracting projects that is withheld by a customer of such Company until
completion of a project, pursuant to the terms of a contract with such customer,
as security for the completion of the project.
"RW" means RailWorks Corporation, a Delaware corporation.
"Scheduled Related Party Agreements" means the agreements described in
Schedule 4.11.
"Surviving Corporation" means the Person to be designated in the
Certificate of Merger as the surviving corporation of the Merger.
"Threshold Amount" means 2.0% of the Merger Consideration.
"Transaction Value" means the (i)(A) the total number of shares of RW
outstanding immediately upon the closing of the IPO and the transactions
contemplated by this Agreement and the Other Agreements multiplied by (B) the
IPO Price multiplied by (C) 92% minus (ii) actual expenses of RW incurred with
respect to the IPO, an estimate of which will be set forth in Item 13 of Part II
of the Registration Statement minus (iii) the underwriting discounts and
commissions paid to the Underwriter pursuant to the IPO minus (iv) the proceeds
received by RW in connection with any shares of RW Common Stock sold by RW to
finance the working capital needs of RW, which shares shall not exceed 5% of the
number of shares to be sold in the IPO.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions of RW for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. Certificate of Merger. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the Delivery Date to the Department
of State of the State of Missouri.
Section 2.02. The Effective Time. The effective time of the Merger (the
"Effective Time") will be the time on the IPO Closing Date as specified in the
Certificate of Merger or, if the Certificate of Merger does not specify another
time, 8:00 a.m., eastern daylight standard time, on the IPO Closing Date.
Section 2.03. Certain Effects of the Merger. At and as of the Effective
Time, (a) Newco will be merged with and into the Company in accordance with the
provisions of The General and Business Corporation Law of Missouri, (b) Newco
will cease to exist as a separate legal entity, (c) the articles of
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<PAGE> 8
incorporation of the Company will be amended to change its authorized capital
stock to 100 shares, par value $0.01 per share, of Common Stock, (d) the Company
will be the Surviving Corporation and, as such, will, all with the effect
provided by The General and Business Corporation Law of Missouri, (i) possess
all the properties and rights, and be subject to all the restrictions and
duties, of the Company and Newco and (ii) be governed by the laws of the State
of Missouri, (e) the Charter Documents of the Company then in effect (after
giving effect to the amendment of the Company's articles of incorporation
specified in clause (c) of this sentence) will become and thereafter remain
(until changed in accordance with (i) applicable law (in the case of the
articles of incorporation) or (ii) their terms (in the case of the bylaws)) the
Charter Documents of the Surviving Corporation, (f) the initial board of
directors of the Surviving Corporation will be the Chief Executive Officer of RW
and the other persons named in Schedule 2.03, and those persons will hold the
office of director of the Surviving Corporation subject to the provisions of the
applicable laws of the State of Missouri and the Charter Documents of the
Surviving Corporation, and (g) the initial officers of the Surviving Corporation
will be as set forth in Schedule 2.03, and each of those persons will serve in
each office specified for that person in Schedule 2.03, subject to the
provisions of the Charter Documents of the Surviving Corporation, until that
person's successor is duly elected to, and, if necessary, qualified for, that
office.
Section 2.04. Effect of the Merger on Capital Stock. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the right to
receive, subject to the provisions of Section 2.05 and Exhibit D, without
interest, on surrender of the certificate evidencing those shares, the amount of
cash and the number of whole and fractional shares of RW Common Stock set forth
or determined as provided in Exhibit D (the "Merger Consideration"), (ii) cease
to be outstanding and to exist and (iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to exist
and (ii) be canceled and retired; and
(c) each share of Newco Common Stock issued and outstanding immediately
prior to the Effective Time will be converted into one share of Common Stock,
$1.00 par value, of the Surviving Corporation, and the shares of Common Stock of
the Surviving Corporation issued on that conversion will constitute all the
issued and outstanding shares of Capital Stock of the Surviving Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, subject to the provisions of Section 2.05, without interest,
the Merger Consideration and the additional cash, if any, owing with respect to
those shares as provided in Section 2.07.
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<PAGE> 9
Section 2.05. Delivery, Exchange and Payment.
(a) At or after the Effective Time: (i) each Stockholder, as the holder
of certificates representing shares of Company Common Stock, will, on surrender
of those certificates to RW (or any agent that may be appointed by RW for
purposes of this Section 2.05), receive, subject to the provisions of this
Article II and the Escrow Agreement, such Stockholder's share of the Merger
Consideration pursuant to Section 2.04 and Exhibit D; and (ii) until any
certificate representing Company Common Stock has been surrendered and replaced
pursuant to this Section 2.05, that certificate will, for all purposes, be
deemed to evidence ownership of the number of whole shares of RW Common Stock
included in the Merger Consideration payable in respect of that certificate
pursuant to Section 2.04. The Escrow Agreement will provide that the shares of
RW Common Stock issued to the Stockholders as a part of the Merger Consideration
together with duly executed stock powers in blank, shall be placed in escrow to
be held subject to the terms of the Escrow Agreement and further subject to
Exhibit D and Section 11.02. The escrow shall consist solely of shares of RW
Common Stock that shall be issued at the Effective Time to the Stockholders of
the Founding Companies and delivered, at the Closing, to the Escrow Agent. All
shares of RW Common Stock issuable in the Merger will be deemed for all purposes
to have been issued by RW at the Effective Time.
(b) Each Stockholder will deliver to RW (or any agent that may be
appointed by RW for purposes of this Section 2.05) on or before the Delivery
Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Stockholder, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Stockholder's expense, affixed and canceled.
Each Stockholder shall cure any deficiencies in the endorsement of the
certificates or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Stockholder.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to RW Common Stock and payable to
the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of RW Common Stock have been issued in the Merger until
those certificates are surrendered as provided herein, but (i) on that surrender
RW will cause to be paid, to the Person in whose name the certificates
representing such shares of RW Common Stock shall then be issued, the amount of
dividends or other distributions previously paid with respect to such whole
shares of RW Common Stock with a record date, or which have accrued, subsequent
to the Effective Time, but prior to surrender, and the amount of any cash
payable to such Person for and in lieu of fractional shares pursuant to Section
2.07 and (ii) at the appropriate payment date or as soon as practicable
thereafter, RW will cause to be paid to that Person the amount of dividends or
other distributions with a record date, or which have been accrued, subsequent
to the Effective Time, but which are not payable until a date subsequent to
surrender, which are payable with respect to such whole shares of RW Common
Stock, subject in all cases to any applicable
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<PAGE> 10
escheat laws. No interest will be payable with respect to the payment of such
dividends or other distributions or cash for and in lieu of fractional shares on
surrender of outstanding certificates.
(d) Each Stockholder hereby authorizes and directs RW to deliver 3.5%
of the Cash Company Consideration and 3.5% of the Stock Company Consideration
owed to such Stockholder pursuant to this Agreement (before deposit of the
shares of RW Common Stock into escrow) to IPO Development Company in payment of
fees owed to IPO Development Company by such Stockholder.
Section 2.06. Merger Consideration Calculation.
(a) No later than fifteen (15) days following the IPO Closing Date, the
Company shall provide to the Chief Accounting Officer of RW (the "CAO") a
determination of the fair market value (as defined) of its inventory, machinery,
equipment and real estate (the "Valued Assets") as of the IPO Closing Date.
Within seven (7) days of such date, the CAO shall distribute to every Founding
Company the value of the Valued Assets of every Founding Company. The Company
shall have seven (7) days from the date of the distribution of such valuation to
dispute the value of the Valued Assets of any Founding Company by providing
written notice of such dispute to the CAO. If the CAO is unable to resolve any
such dispute, the dispute shall be resolved by binding arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
which arbitration shall be resolved no later than thirty (30) days from
selection of the arbitrator. The arbitrator shall be selected by the CAO.
(b) Arthur Andersen or, if not Arthur Andersen, the Company's
accountant, shall cause to be prepared and delivered to RW and the Company a
calculation as of the IPO Closing Date of the Defined Net Worth of the Company
(the "Balance Sheet Calculation"). The Balance Sheet Calculation shall be final
and binding on the Company and the Other Founding Companies absent fraud,
manifest error or gross negligence.
(c) The Balance Sheet Calculation shall include a report of Arthur
Andersen or, if not Arthur Andersen, the Company's accountant, stating that it
has been prepared in a manner consistent with the accounting policies and
procedures used in preparation of the balance sheets in the Initial Financial
Statements, except as provided in the definition of "Defined Net Worth"
contained herein. The Stockholders shall give Arthur Andersen and other
appropriate personnel such assistance and access to the assets and books and
records of the Company as Arthur Andersen shall reasonably request during normal
business hours in order to enable them to prepare the Balance Sheet Calculation.
The Surviving Corporation shall be responsible for the fees and expenses of
Arthur Andersen or, if not Arthur Andersen the Company's accountant.
Section 2.07. Fractional Shares. Notwithstanding any other provision
herein, no fractional shares of RW Common Stock will be issued. All shares of RW
Common Stock shall be aggregated, and any Stockholder entitled hereunder, after
such aggregation, to receive a fractional share of RW Common Stock but for this
Section 2.07 will be entitled hereunder to receive a cash payment for and
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<PAGE> 11
in lieu thereof in the amount (rounded to the nearest whole cent) equal to that
Stockholder's fractional interest in a share of RW Common Stock multiplied by
the IPO Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01. By Each Stockholder. The Stockholders severally represent
and warrant to, and agree with, RW that all the following representations and
warranties in this Article III are as of the date of this Agreement, and will
be, as amended or supplemented pursuant to Section 6.08, on the IPO Closing
Date, true and correct:
(a) (i) each Stockholder will acquire the shares of RW Common
Stock to be issued pursuant to Article II to the Stockholder solely for the
Stockholder's account, for investment purposes only and with no current
intention or plan to distribute, sell or otherwise dispose of any of those
shares in connection with any distribution;
(ii) no Stockholder is a party to any agreement or other
arrangement for the disposition of any shares of RW Common Stock other
than this Agreement; (iii) except as set forth on Schedule 3.01(a)(ii)
each Stockholder is an "accredited investor" as defined in Rule 501(a)
promulgated under the Securities Act; (iv) each Stockholder (A) is able
to bear the economic risk of an investment in the RW Common Stock
acquired pursuant to this Agreement, (B) can afford to sustain a total
loss of that investment, (C) has such knowledge and experience in
financial and business matters that he or she is capable of evaluating
the merits and risks of the proposed investment in the RW Common Stock,
(D) has had an adequate opportunity to ask questions and receive
answers from the officers of RW concerning any and all matters relating
to the transactions contemplated hereby, including the background and
experience of the current and proposed officers and directors of RW,
the plans for the operations of the business of RW, the business,
operations and financial condition of the Other Founding Companies and
any plans of RW for additional acquisitions, and (E) has asked all
questions of the nature described in preceding clause (D) that such
Stockholder thought to ask, and all those questions have been answered
to his or her satisfaction;
(b) the representations and warranties contained in Article III of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to; and
(c) (i) the terms and conditions of any agreements between any
Stockholder or an Affiliate of any Stockholder, on the one hand, and the Company
on the other hand, included in the Scheduled Related Party Agreements will have
been amended effective as of the IPO Closing Date to be no less favorable to the
Company than the Company reasonably could have expected to obtain in an
arms-length transaction with a Person other than an Affiliate of the Company and
(ii) the
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<PAGE> 12
rentals or other payments provided for in such agreements then will not exceed
fair market rentals of the property being leased or fair market value of the sum
or product being provided and such amounts shall have been previously approved
in writing by the Chief Financial Officer of RW.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS
Section 4.01. By the Company and Each Primary Stockholder. The Company
and each Primary Stockholder jointly and severally represent and warrant to, and
agree with, RW that all the following representations and warranties in this
Article IV are as of the date of this Agreement, and will be, as amended or
supplemented pursuant to Section 6.08, on the Delivery Date and the IPO Closing
Date, true and correct:
(a) the Organization State of the Company is the State of Missouri, and
the Company (i) is a corporation duly organized, validly existing and in good
standing under the laws of that State, (ii) has all requisite corporate power
and authority under those laws and its Charter Documents to own or lease and to
operate its properties and to carry on its business as now conducted and (iii)
is duly qualified and in good standing as a foreign corporation in all
jurisdictions (other than the State of Missouri) in which it owns or leases
property or in which the carrying on of its business as now conducted so
requires except where the failure to be so qualified, singly or in the
aggregate, would not have a Material Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is comprised of
30,000 shares of Company Common Stock, of which 1,000 shares have been issued
and are now outstanding and no shares are held by the Company as treasury
shares, and (ii) there are no Derivative Securities of the Company;
(c) the Company has elected to be treated as an S corporation within
the meaning of the Code, as amended; and
(d) the representations and warranties contained in Article IV of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO
Section 5.01. By RW and Newco. RW and Newco jointly and severally
represent and warrant to the Company and each Stockholder that all the following
representations and warranties
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<PAGE> 13
in this Article V are as of the date of this Agreement, and will be on the IPO
Closing Date, true and correct:
(a) Newco is a corporation duly organized, validly existing and in good
standing under the laws of the State of Missouri;
(b) except as disclosed in the Private Placement Memorandum, no
Derivative Securities of Newco are outstanding;
(c) Newco has been organized for the sole purpose of participating in
the Merger and has not, and will not, engage in any activities other than those
necessary to effectuate the Merger;
(d) except for shares of RW Common Stock to be publicly sold in the IPO
and as disclosed in the Private Placement Memorandum or preliminary prospectus,
neither RW nor Newco is a party to any agreement or other arrangement for the
disposition of any shares of RW Common Stock; and
(e) the representations and warranties contained in Article V of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01. Of Each Party. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01. The Closing and Certain Conditions.
(a) The Closing. On or before the IPO Pricing Date, the parties hereto
will take all actions necessary to (i) effect the Merger (including, as
permitted by the Applicable Corporate Code, (A) the execution of a Certificate
of Merger (1) meeting the requirements of the Applicable Corporate Code and (2)
providing that the Merger will become effective on the IPO Closing Date and (B)
the delivery of that Certificate of Merger with a filing service that will file
such Certificate of Merger with the Department of State of the State of
Missouri) upon notification of the closing of the IPO (provided that Comstock's
Certificate of Merger shall be filed immediately prior to the closing of the
IPO), (ii) verify the existence and ownership of the certificates evidencing the
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<PAGE> 14
Company Common Stock to be exchanged for the Merger Consideration pursuant to
Section 2.05 and (iii) satisfy the document delivery requirements to which the
obligations of the parties to effect the Merger and the other transactions
contemplated hereby are conditioned by the provisions of this Article VII (all
those actions collectively being the "Delivery"). The Delivery will take place
at the offices of King & Spalding, 191 Peachtree Street, Atlanta, Georgia at
10:00 a.m., Atlanta time on the IPO Pricing Date, or at such later time on the
IPO Pricing Date as RW shall specify by written notice to the President of the
Company (the "Delivery Date"). The actions taken at the Delivery will not
include the completion of either the Merger or the delivery of the Company
Common Stock or the Merger Consideration pursuant to Section 2.05. On the IPO
Closing Date, the Certificate of Merger will be filed and will become effective
pursuant to Section 2.02, and all transactions contemplated by this Agreement to
be closed or completed on or before the IPO Closing Date, including the
surrender of the Company Common Stock in exchange for the Merger Consideration
(including a certified check or checks in an amount equal to the cash portion of
the Merger Consideration) will be closed or completed, as the case may be.
During the period from the Delivery Date to the IPO Closing Date, this Agreement
may be terminated by the parties only pursuant to Section 12.01(b)(i).
(b) Certain Conditions to the Obligations of the Company and the
Stockholders. The obligations of the Company and the Stockholders with respect
to the actions to be taken by them at or before the Delivery Date are subject to
the satisfaction on or before the Delivery Date, or waiver by them pursuant to
Section 11.05, of all the conditions set forth in Sections 7.01 and 7.02(a). The
obligations of the Stockholders with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of the following
conditions: (if required by such Stockholder) (i) the Employment Agreement then
shall be in full force and effect; and (ii) all the conditions set forth in
Sections 7.01 and 7.02(b).
(c) Certain Conditions to the Obligations of RW and Newco. The
obligations of RW and Newco with respect to actions to be taken by them at or
before the Delivery Date are subject to the satisfaction on or before the date
of the Delivery Date, or waiver by them pursuant to Section 11.05, of the
following conditions: (i) the Company shall have delivered to RW a copy of the
articles of incorporation, as amended to the Delivery Date and certified by the
Secretary of State of the State of Missouri as of a Current Date, of the
Company; and (ii) all the conditions set forth in Sections 7.01 and 7.03(a). The
obligations of RW and Newco with respect to the actions to be taken on the IPO
Closing Date are subject to the satisfaction on that date of the following
conditions: (i) the Employment Agreements then shall be in full force and
effect; and (ii) all the conditions set forth in Sections 7.01 and 7.03(b).
(d) Uniform Provisions. The text of Article VII of the Uniform
Provisions hereby is incorporated herein by this reference.
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<PAGE> 15
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01. Of Each Party Other than the Company. From and after the
Effective Time, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Company) will comply with each covenant for which
provision is made in Article VIII of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) to be performed or
observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01. Indemnification Rights and Obligations. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. Any provision contained in Article IX of the Uniform Provisions to
the contrary notwithstanding, the indemnification obligations of the
Stockholders pursuant to this Agreement shall be joint and several.
ARTICLE X
[Intentionally Ommitted]
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. Treatment of Confidential Information. Each party hereto
will comply with each covenant for which provision is made in Section 11.01 of
the Uniform Provisions (the text of which Section hereby is incorporated herein
by this reference) to be performed or observed by that party.
Section 11.02. Restrictions on Transfer of RW Common Stock.
(a) Except for transfers to employees of the Company that are approved
in writing by the Board of Directors of RW (or a committee designated by the
Board of Directors of RW) prior to such transfer, during the one year period
ending on the first anniversary of the IPO Closing Date (the "Restricted
Period"), no Stockholder voluntarily will: (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
RW Common Stock received by any Stockholder in the Merger or (B) any interest in
(including any option to buy or sell) any of those shares of RW Common Stock, in
whole or in part, and RW will have no obligation to, and shall not, treat any
such attempted transfer as effective for any purpose; or (ii) engage in any
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<PAGE> 16
transaction, whether or not with respect to any shares of RW Common Stock or any
interest therein, the intent or effect of which is to reduce the risk of owning
the shares of RW Common Stock acquired pursuant to Section 2.04 (including, for
example engaging in put, call, short-sale, straddle or similar market
transactions); provided, however, that this Section 11.02 shall not restrict any
transfer of RW Common Stock acquired by a Stockholder pursuant to Section 2.04
to any of that Stockholder's Related Persons who agree in writing to be bound by
the provisions of Section 11.01 and this Section 11.02. The certificates
evidencing the RW Common Stock delivered to each Stockholder pursuant to Section
2.05 will bear a legend substantially in the form set forth below and containing
such other information as RW may deem necessary or appropriate:
"EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER
PARTIES THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE
REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF
ANY OF THOSE SHARES, DURING THE ONE-YEAR PERIOD ENDING ON __________ [DATE THAT
IS THE FIRST ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED PERIOD"). ON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE."
(b) From the first anniversary of the IPO Closing Date to the fourth
anniversary of the IPO Closing Date, the Stockholders agree to sell shares of RW
Common Stock acquired pursuant to this Agreement only in accordance with the
procedures set forth in this Section 11.02(b). Every quarter during such period,
every Stockholder will be permitted to sell, in the aggregate, up to 8% of the
aggregate number of shares of Common Stock received by such Stockholder pursuant
to this Agreement (the "Quarterly Block Trade Shares") in either a block trade
or a registered public offering, at the option of RW. If a Stockholder does not
sell all of his or her Quarterly Block Trade Shares in any given quarter, such
Stockholder may sell such Quarterly Block Trade Shares pursuant to this Section
11.02(b) in any later quarter, provided, however, that in no event may a
Stockholder sell more than 20% of the shares of Common Stock received by such
Stockholder pursuant to this Agreement in any one quarter. Any Stockholder that
wishes to sell shares of RW Common Stock pursuant to such selling opportunity
must give notice to RW and the Executive Council no later than fourteen days
prior to the commencement of the fiscal quarter of RW during which such
Stockholder wants to sell such shares. Notwithstanding anything set forth in
this Section 11.02(b), RW may elect to make available to the Stockholders (i)
additional opportunities to sell shares of RW Common Stock and/or (ii) the
opportunity to sell an amount in excess of such amount during any particular
quarter. The Company may modify or waive this Section 11.02(b) at its sole
discretion at any time following written notice to the Stockholders, provided
that no such modification or waiver may
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<PAGE> 17
reduce the number of selling opportunities or the maximum number of shares of RW
Common Stock that may be sold by any Stockholder during any selling opportunity.
(c) Each Stockholder, severally and not jointly with any other Person,
(i) acknowledges that the shares of RW Common Stock to be delivered to that
Stockholder pursuant to Section 2.04 have not been and will not be registered
under the Securities Act and therefore may not be resold by that Stockholder
without compliance with the Securities Act and (ii) covenants that none of the
shares of RW Common Stock issued to that Stockholder pursuant to Section 2.04
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable provisions of
the Securities Act and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of RW Common
Stock issued pursuant to Section 2.04 will bear the following legend in addition
to the legend prescribed by Section 11.02(a):
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, HAVE
BEEN ISSUED PURSUANT TO ONE OR MORE EXEMPTIONS THERETO, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED OR DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED."
In addition, certificates evidencing shares of RW Common Stock issued pursuant
to Section 2.04 to each Stockholder will bear any legend required by the
securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03. Brokers and Agents. Except for IPO Development Company,
each of the Stockholders jointly and severally, on the one hand, and RW, on the
other, represents and warrants to the other that such Person has not directly or
indirectly employed or become obligated to pay any broker, finder or similar
agent in connection with the transactions contemplated hereby and agree, without
regard to the Threshold Amount limitations set forth in Article IX, to indemnify
the other against all Damage Claims arising out of claims for any and all fees
and commissions of brokers or similar agents employed or promised payment by
such Person.
Section 11.04. Assignment; No Third Party Beneficiaries. This Agreement
and the rights of the parties hereunder may not be assigned (except by operation
of law) and shall be binding on and inure to the benefit of the parties hereto,
the successors of RW, and the heirs and legal representatives of the
Stockholders (and, in the case of any trust, the successor trustees of that
trust). Neither this Agreement nor any other Transaction Document is intended,
or shall be construed, deemed or interpreted, to confer on any Person not a
party hereto or thereto any rights or remedies hereunder or thereunder, except
as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise provided
expressly herein or therein.
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<PAGE> 18
Section 11.05. Entire Agreement; Amendment; Waivers. Except with
respect to Section 11.07 hereof, this Agreement and the documents delivered
pursuant hereto constitute the entire agreement and understanding among the
Stockholders, the Company, Newco and RW and supersede all prior agreements and
understandings, both written and oral, relating to the subject matter of this
Agreement. This Agreement may be amended, modified or supplemented, and any
right hereunder may be waived, if, but only if, that amendment, modification,
supplement or waiver is in writing and signed by each of the Stockholders, the
Company and RW. The waiver of any of the terms and conditions hereof shall not
be construed or interpreted as, or deemed to be, a waiver of any other term or
condition hereof.
Section 11.06. Counterparts. This Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
Section 11.07. Expenses. If the transactions contemplated hereby (i)
are consummated, RW will pay the fees, expenses and disbursements of RW and
Newco and their Representatives which are incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all costs
and expenses incurred in the performance of and compliance with all conditions
to be performed by RW and Newco under this Agreement, including the costs of
preparing the Registration Statement, (collectively, the "RW Expenses") and (ii)
if the transactions contemplated hereby are not consummated, the RW Expenses
shall be paid by the Founding Companies subject to the provisions of the IPO
Cost Liability Sharing Agreement attached hereto as Exhibit C and incorporated
herein by reference (b) the Stockholders will pay from personal funds, and not
from funds of the Company or any Company Subsidiary, all sales, use, transfer
and other similar taxes and fees (collectively, "Transfer Taxes") incurred in
connection with the transactions contemplated hereby and (c) the Company will
pay the fees, expenses and disbursements of Counsel for the Company and the
Stockholders incurred in connection with the subject matter of this Agreement
and the Registration Statement on or before the IPO Closing Date. The
Stockholders will file all necessary documentation and Returns with respect to
all Transfer Taxes. In addition, each Stockholder acknowledges that he, and not
the Company or RW or the Surviving Corporation, will pay all Taxes due upon
receipt of the consideration payable to that Stockholder pursuant to Article II.
Section 11.08. Notices. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received
(a) if personally delivered or if delivered by telex, telegram,
facsimile or courier service, when actually received by the party to whom notice
is sent or
(b) if delivered by mail (whether actually received or not), at the
close of business on the third Business Day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
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<PAGE> 19
(i) if to RW or Newco, addressed to it at:
RailWorks Corporation
403 Somerset Road
Baltimore, Maryland 21210
Attn: Chief Executive Officer
with copies (which shall not constitute notice for purposes
of this Agreement) to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attn: Jeffrey M. Stein
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
Merit Railroad Contractors, Inc.
4301 Bridgetown Industrial Drive
Bridgeton, Missouri 63044-1204
Attn: Steve C. Goggin
with copies (which shall not constitute notice for purposes
of this Agreement) to Counsel for the Company and the
Stockholders at the address designated by the Company
Section 11.09. Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF DELAWARE
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10. Exercise of Rights and Remedies. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11. Time. Time is of the essence in the performance of this
Agreement in all respects.
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<PAGE> 20
Section 11.12. Reformation and Severability. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13. Remedies Cumulative. No right, remedy or election given
by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14. Respecting the IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither RW or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that RW will use its reasonable best efforts to
cause the Registration Statement to become effective prior to August 14, 1998)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to RW or the
IPO.
ARTICLE XII
TERMINATION
Section 12.01. Termination of this Agreement.
(a) This Agreement may be terminated at any time prior to the Delivery
Date solely:
(i) by the mutual written consent of RW and the Company;
(ii) by the Stockholders or the Company, on the one hand,
or by RW, on the other hand, if the events contemplated by this
Agreement to take place at the Delivery Date shall not have taken place
by September 4, 1998, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the
case of the Stockholders and the Company, any of them) seeking to
terminate this Agreement to perform or adhere to any agreement required
hereby to be performed or adhered to by it prior to or at the Delivery
Date or thereafter on the IPO Closing Date;
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<PAGE> 21
(iii) by the Stockholders or the Company, on the one hand,
or by RW, on the other hand, if a material breach or default shall be
made by the other party (or in the case of the Stockholders and the
Company, any of them) in the observance or in the due and timely
performance of any of the covenants, agreements or conditions contained
in Article VI or Section 11.01;
(iv) by the Stockholders or the Company, on the one hand,
or RW, on the other, if it is entitled to do so as provided in Section
6.08;
(v) by the Stockholders prior to the filing of the
Registration Statement if the Registration Statement is not filed by
June 15, 1998;
(vi) by RW or the Stockholders prior to 9:00 a.m. on the
IPO Pricing Date (as set forth in Section 8.10) if the value of RW at
the IPO Pricing Date (as calculated by multiplying the price per share
at which the RW common stock is to be sold in the IPO by the number of
shares of common stock to be outstanding after the Closing of the IPO)
shall be less than $215 million;
(vii) by the Stockholders if the Registration Statement has
not been declared effective by the Securities and Exchange Commission
by August 14, 1998;
(viii) by the Stockholders if John G. Larkin is no longer
serving as Chairman of the Board of Directors and Chief Executive
Officer prior to the Closing; or
(ix) by the stockholders of CPI Concrete Products, Inc. if
its Employee Stock Ownership Plan does not approve the merger prior to
the Delivery Date.
(b) This Agreement may be terminated after the Delivery Date solely:
(i) by RW or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the IPO Pricing Date and prior
to the consummation of the IPO; or
(ii) automatically and without action on the part of any
party hereto if the IPO is not consummated within 15 New York City
business days after the Delivery Date.
(c) If this Agreement is terminated pursuant to this Section 12.01, the
Merger will be deemed for all purposes to have been abandoned and of no force or
effect.
Section 12.02. Liabilities in Event of Termination. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Sections
11.03 or 11.07 and (b) to the extent that such liability is based on the breach
by that party of any of its representations, warranties or covenants set forth
in this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
RAILWORKS CORPORATION
By: /s/ John G. Larkin
---------------------------------
John G. Larkin
Chief Executive Officer
BEARS MERIT COMPANY
By: /s/ John G. Larkin
---------------------------------
John G. Larkin
President
MERIT RAILROAD CONTRACTORS, INC.
By: /s/ Authorized Signature
---------------------------------
Name:
Title:
STOCKHOLDERS:
/s/ Steve C. Goggin
------------------------------------
Steve C. Goggin
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<PAGE> 23
ADDENDUM 1
OTHER FOUNDING COMPANIES
A. Words and terms used in this Addendum which are defined in
the captioned Agreement to which this is an Addendum are used herein as therein
defined.
B. The Founding Companies are:
Alpha - Keystone Engineering, Inc.
Annex Railroad Builders, Inc.
Comtrak Construction, Inc.
Comstock Holdings Inc.
Condon Brothers, Inc.
CPI Concrete Products
HP McGinley, Inc.
Kennedy Railroad Builders, Inc.
Merit Railroad Contractors, Inc.
Midwest Construction Services, Inc.
Minnesota Railroad Services, Inc.
Mize Construction Co.
New England Railroad Construction Co., Inc.
Northern Rail Service & Supply Company, Inc.
Railcorp, Inc.
Railroad Service, Inc.
Railroad Specialities, Inc,
Southern Indiana Wood Preserving Co.
U.S. Railway Supply, Inc,
U.S. Trackworks, Inc.
W.A. Smith Construction Co., Inc.
W.A Smith Rerailing Co., Inc.
<PAGE> 1
EXHIBIT 10.12
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 21, 1998
BY AND BETWEEN
RAILWORKS CORPORATION,
HOOSIER MIZE COMPANY,
MIZE CONSTRUCTION COMPANY
AND
THE STOCKHOLDERS NAMED HEREIN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
ARTICLE I DEFINITIONS...................................................................................1
Section 1.01. Certain Defined Terms.................................................1
ARTICLE II THE MERGER AND RELATED MATTERS................................................................4
Section 2.01. Certificate of Merger.................................................4
Section 2.02. The Effective Time....................................................4
Section 2.03. Certain Effects of the Merger.........................................4
Section 2.04. Effect of the Merger on Capital Stock.................................5
Section 2.05. Delivery, Exchange and Payment........................................6
Section 2.06. Merger Consideration Calculation......................................7
Section 2.07. Fractional Shares.....................................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
EACH STOCKHOLDER .............................................................................8
Section 3.01. By Each Stockholder...................................................8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS......................................................9
Section 4.01. By the Company and Each Primary Stockholder...........................9
ARTICLE V REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO................................................9
Section 5.01. By RW and Newco.......................................................9
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME ...................................................10
Section 6.01. Of Each Party........................................................10
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION.................................................................................10
Section 7.01. The Closing and Certain Conditions...................................10
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME.......................................................12
Section 8.01. Of Each Party Other than the Company.................................12
ARTICLE IX INDEMNIFICATION..............................................................................12
Section 9.01. Indemnification Rights and Obligations...............................12
ARTICLE X [Intentionally Ommitted].....................................................................12
ARTICLE XI GENERAL PROVISIONS...........................................................................12
Section 11.01. Treatment of Confidential Information................................12
Section 11.02. Restrictions on Transfer of RW Common Stock..........................12
Section 11.03. Brokers and Agents...................................................14
Section 11.04. Assignment; No Third Party Beneficiaries.............................14
Section 11.05. Entire Agreement; Amendment; Waivers.................................15
Section 11.06. Counterparts.........................................................15
Section 11.07. Expenses.............................................................15
Section 11.08. Notices..............................................................15
Section 11.09. Governing Law........................................................16
Section 11.10. Exercise of Rights and Remedies......................................16
Section 11.11. Time.................................................................16
Section 11.12. Reformation and Severability.........................................17
Section 11.13. Remedies Cumulative..................................................17
Section 11.14. Respecting the IPO...................................................17
ARTICLE XII TERMINATION..................................................................................17
Section 12.01. Termination of this Agreement........................................17
Section 12.02. Liabilities in Event of Termination..................................18
EXHIBITS
Exhibit A - List of Primary Stockholders
Exhibit B - Form of Employment Agreement
Exhibit C - IPO Cost Liability Sharing Agreement
Exhibit D - Merger Consideration
</TABLE>
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as
of May 21, 1998, by and among RailWorks Corporation, a Delaware corporation
("RW"), Hoosier Mize Company, an Indiana corporation and a wholly owned
subsidiary of RW("Newco"), Mize Construction Company, an Indiana corporation
(the "Company"), and the persons listed on the signature pages hereof under the
caption "Stockholders" (collectively, the "Stockholders," and each of those
persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(a) Newco will merge into the Company on the terms and subject to the
conditions set forth herein (that merger being the "Merger");
(b) RW will acquire the stock of all or some of the entities listed in
the accompanying Addendum 1 (each an "Other Founding Company" and, collectively
with the Company, the "Founding Companies") pursuant to agreements that are (i)
similar in all material respects to this Agreement and (ii) entered into among
those entities and their equity owners, RW and subsidiaries of RW (collectively,
the "Other Agreements"); and
(c) RW shall at such time as specified herein and if certain conditions
are met, effect a public offering of shares of its common stock and issue and
sell those shares.
The respective boards of directors of RW, Newco and the Company have
approved and adopted this Agreement to effect a transaction subject to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Certain Defined Terms. As used in this Agreement and in
the related Addendums, Annexes, Schedules and Exhibits, the following terms have
the meanings assigned to them below in this Section 1.01. Capitalized terms used
in this Agreement and not defined below in this Section 1.01 have the meanings
assigned to them in the Preliminary Statement or Article I of the Uniform
Provisions (the text of which Article hereby is incorporated herein by this
reference), as the case may be.
<PAGE> 5
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement and all attached Schedules, Addendums,
Annexes and Exhibits, as each of the same may be amended, modified or
supplemented from time to time pursuant to the provisions hereof or thereof.
"Applicable Corporate Code" means the laws of the Organization State of
the Company that govern corporations incorporated in such state.
"Closing Date Balance Sheet" of the Company means a balance sheet of
the Company as at the IPO Closing Date which is prepared on a basis consistent
with the basis on which the Current Balance Sheet was prepared.
"Closing Memorandum" means the form of closing memorandum to be
prepared by RW for the Closing under this Agreement in which are included the
forms of certificates of officers, the opinions of counsel and certain other
documents to be delivered at the Closing as provided in Article VII.
"Company Accounts Receivable" shall mean the accounts and notes or
other advances receivable of the Company and the Company Subsidiaries, excluding
any Retainages, as of the IPO Closing Date.
"Company Common Stock" means the common stock, no par value, of the
Company.
"Company Indebtedness" means the indebtedness of the Company, as of the
IPO Closing Date (including, with respect to CPI Concrete Products, Inc., the
value of the Cash Company Consideration to be received by its Employee Stock
Ownership Plan), that the Company has elected to repay (or repurchase, as the
case may be) with a portion of the RW Common Stock to be received as part of the
Merger Consideration. At least five days prior to the Delivery Date, the Company
will deliver to RW a schedule of the aggregate principal amount of the Company
Indebtedness, certified by the President of the Company, that will be
outstanding on the IPO Closing Date, and RW will repay such Company Indebtedness
on the IPO Closing Date. To the extent that the actual amount of Company
Indebtedness exceeds the amount shown on such schedule, such excess shall be
repaid by the Stockholders on or prior to the IPO Closing Date.
"Counsel for RW and Newco" means King & Spalding.
"Counsel for the Company and the Stockholders" means such counsel as
shall be designated by the Company in writing on or prior to the Delivery Date.
"Current Balance Sheet" means the balance sheet of the Company as at
March 31, 1998 which is included in the Initial Financial Statements.
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"Current Balance Sheet Date" means December 31, 1997.
"Defined Net Worth" as of the IPO Closing Date shall mean (i) the total
assets of the Company, as set forth on the balance sheet of the Company as of
such date, except that (A) expenses of the Company directly attributable to the
IPO and/or the transactions contemplated by this Agreement, including but not
limited to, costs incurred pursuant to the HSR Act, shall be added back to the
assets of the company and (B) the value of inventory, machinery, equipment and
real estate shall be determined pursuant to Section 2.06(a), less (ii) the total
liabilities of the Company, as set forth on the balance sheet of the Company as
of such date, excluding the Company Indebtedness. Notwithstanding the foregoing,
in the case of Comstock, Comstock's contractual obligation to Spie Group, Inc.,
as successor to Comstock Group, Inc., shall not be deemed to be a liability for
purposes of determining Defined Net Worth.
"Delivery" or "Delivery Date" shall have the meaning set forth in
Section 7.01.
"Earnings Percentage" shall have the meaning set forth in Exhibit D.
"Employment Agreement" means each of the Employment Agreements entered
into as of the Closing Date between RW and each of the Stockholders set forth on
Exhibit A hereto, a form of which is attached hereto as Exhibit B.
"fair market value" means that value at which goods and/or services
would be exchanged between a willing buyer and willing seller in a transaction
entered into at arms length with each party having relevant facts of all aspects
of the transaction.
"Initial Financial Statements" means (a) the balance sheets of the
Company as at December 31, 1997 and March 31, 1998 and the related reviewed
statements of operations and retained earnings for each of the Company's two
fiscal years in the period ended December 31, 1997, and (b) the Current Balance
Sheet and the related statement of income for the Company's fiscal year ended
December 31, 1997, which the Company has delivered to RW prior to the date
hereof.
"IPO Closing Date" means the date on which RW first receives payment
for the shares of RW Common Stock it sells to the Underwriter in the IPO.
"Merger Consideration" has the meaning specified in Section 2.04.
"Newco" means Hoosier Mize Company, an Indiana corporation.
"Responsible Officer" means the President, Chief Executive Officer or
any Vice President of the Company.
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"Retainages" means the portion of progress payments due to a Company
for contracting projects that is withheld by a customer of such Company until
completion of a project, pursuant to the terms of a contract with such customer,
as security for the completion of the project.
"RW" means RailWorks Corporation, a Delaware corporation.
"Scheduled Related Party Agreements" means the agreements described in
Schedule 4.11.
"Surviving Corporation" means the Person to be designated in the
Certificate of Merger as the surviving corporation of the Merger.
"Threshold Amount" means 2.0% of the Merger Consideration.
"Transaction Value" means the (i)(A) the total number of shares of RW
outstanding immediately upon the closing of the IPO and the transactions
contemplated by this Agreement and the Other Agreements multiplied by (B) the
IPO Price multiplied by (C) 92% minus (ii) actual expenses of RW incurred with
respect to the IPO, an estimate of which will be set forth in Item 13 of Part II
of the Registration Statement minus (iii) the underwriting discounts and
commissions paid to the Underwriter pursuant to the IPO minus (iv) the proceeds
received by RW in connection with any shares of RW Common Stock sold by RW to
finance the working capital needs of RW, which shares shall not exceed 5% of the
number of shares to be sold in the IPO.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions of RW for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. Certificate of Merger. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the Delivery Date to the Department
of State of the State of Indiana.
Section 2.02. The Effective Time. The effective time of the Merger (the
"Effective Time") will be the time on the IPO Closing Date as specified in the
Certificate of Merger or, if the Certificate of Merger does not specify another
time, 8:00 a.m., eastern daylight standard time, on the IPO Closing Date.
Section 2.03. Certain Effects of the Merger. At and as of the Effective
Time, (a) Newco will be merged with and into the Company in accordance with the
provisions of the Indiana Business Corporation Law, (b) Newco will cease to
exist as a separate legal entity, (c) the articles of
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<PAGE> 8
incorporation of the Company will be amended to change its authorized capital
stock to 100 shares, par value $0.01 per share, of Common Stock, (d) the Company
will be the Surviving Corporation and, as such, will, all with the effect
provided by the Indiana Business Corporation Law, (i) possess all the properties
and rights, and be subject to all the restrictions and duties, of the Company
and Newco and (ii) be governed by the laws of the State of Indiana, (e) the
Charter Documents of the Company then in effect (after giving effect to the
amendment of the Company's articles of incorporation specified in clause (c) of
this sentence) will become and thereafter remain (until changed in accordance
with (i) applicable law (in the case of the articles of incorporation) or (ii)
their terms (in the case of the bylaws)) the Charter Documents of the Surviving
Corporation, (f) the initial board of directors of the Surviving Corporation
will be the Chief Executive Officer of RW and the other persons named in
Schedule 2.03, and those persons will hold the office of director of the
Surviving Corporation subject to the provisions of the applicable laws of the
State of Indiana and the Charter Documents of the Surviving Corporation, and (g)
the initial officers of the Surviving Corporation will be as set forth in
Schedule 2.03, and each of those persons will serve in each office specified for
that person in Schedule 2.03, subject to the provisions of the Charter Documents
of the Surviving Corporation, until that person's successor is duly elected to,
and, if necessary, qualified for, that office.
Section 2.04. Effect of the Merger on Capital Stock. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the right to
receive, subject to the provisions of Section 2.05 and Exhibit D, without
interest, on surrender of the certificate evidencing those shares, the amount of
cash and the number of whole and fractional shares of RW Common Stock set forth
or determined as provided in Exhibit D (the "Merger Consideration"), (ii) cease
to be outstanding and to exist and (iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to exist
and (ii) be canceled and retired; and
(c) each share of Newco Common Stock issued and outstanding immediately
prior to the Effective Time will be converted into one share of Common Stock, no
par value, of the Surviving Corporation, and the shares of Common Stock of the
Surviving Corporation issued on that conversion will constitute all the issued
and outstanding shares of Capital Stock of the Surviving Corporation. Each
holder of a certificate representing shares of Company Common Stock immediately
prior to the Effective Time will, as of the Effective Time and thereafter, cease
to have any rights respecting those shares other than the right to receive,
subject to the provisions of Section 2.05, without interest, the Merger
Consideration and the additional cash, if any, owing with respect to those
shares as provided in Section 2.07.
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Section 2.05. Delivery, Exchange and Payment.
(a) At or after the Effective Time: (i) each Stockholder, as the holder
of certificates representing shares of Company Common Stock, will, on surrender
of those certificates to RW (or any agent that may be appointed by RW for
purposes of this Section 2.05), receive, subject to the provisions of this
Article II and the Escrow Agreement, such Stockholder's share of the Merger
Consideration pursuant to Section 2.04 and Exhibit D; and (ii) until any
certificate representing Company Common Stock has been surrendered and replaced
pursuant to this Section 2.05, that certificate will, for all purposes, be
deemed to evidence ownership of the number of whole shares of RW Common Stock
included in the Merger Consideration payable in respect of that certificate
pursuant to Section 2.04. The Escrow Agreement will provide that the shares of
RW Common Stock issued to the Stockholders as a part of the Merger Consideration
together with duly executed stock powers in blank, shall be placed in escrow to
be held subject to the terms of the Escrow Agreement and further subject to
Exhibit D and Section 11.02. The escrow shall consist solely of shares of RW
Common Stock that shall be issued at the Effective Time to the Stockholders of
the Founding Companies and delivered, at the Closing, to the Escrow Agent. All
shares of RW Common Stock issuable in the Merger will be deemed for all purposes
to have been issued by RW at the Effective Time.
(b) Each Stockholder will deliver to RW (or any agent that may be
appointed by RW for purposes of this Section 2.05) on or before the Delivery
Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Stockholder, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Stockholder's expense, affixed and canceled.
Each Stockholder shall cure any deficiencies in the endorsement of the
certificates or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Stockholder.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to RW Common Stock and payable to
the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of RW Common Stock have been issued in the Merger until
those certificates are surrendered as provided herein, but (i) on that surrender
RW will cause to be paid, to the Person in whose name the certificates
representing such shares of RW Common Stock shall then be issued, the amount of
dividends or other distributions previously paid with respect to such whole
shares of RW Common Stock with a record date, or which have accrued, subsequent
to the Effective Time, but prior to surrender, and the amount of any cash
payable to such Person for and in lieu of fractional shares pursuant to Section
2.07 and (ii) at the appropriate payment date or as soon as practicable
thereafter, RW will cause to be paid to that Person the amount of dividends or
other distributions with a record date, or which have been accrued, subsequent
to the Effective Time, but which are not payable until a date subsequent to
surrender, which are payable with respect to such whole shares of RW Common
Stock, subject in all cases to any applicable
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escheat laws. No interest will be payable with respect to the payment of such
dividends or other distributions or cash for and in lieu of fractional shares on
surrender of outstanding certificates.
(d) Each Stockholder hereby authorizes and directs RW to deliver 3.5%
of the Cash Company Consideration and 3.5% of the Stock Company Consideration
owed to such Stockholder pursuant to this Agreement (before deposit of the
shares of RW Common Stock into escrow) to IPO Development Company in payment of
fees owed to IPO Development Company by such Stockholder.
Section 2.06. Merger Consideration Calculation.
(a) No later than fifteen (15) days following the IPO Closing Date, the
Company shall provide to the Chief Accounting Officer of RW (the "CAO") a
determination of the fair market value (as defined) of its inventory, machinery,
equipment and real estate (the "Valued Assets") as of the IPO Closing Date.
Within seven (7) days of such date, the CAO shall distribute to every Founding
Company the value of the Valued Assets of every Founding Company. The Company
shall have seven (7) days from the date of the distribution of such valuation to
dispute the value of the Valued Assets of any Founding Company by providing
written notice of such dispute to the CAO. If the CAO is unable to resolve any
such dispute, the dispute shall be resolved by binding arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
which arbitration shall be resolved no later than thirty (30) days from
selection of the arbitrator. The arbitrator shall be selected by the CAO.
(b) Arthur Andersen or, if not Arthur Andersen, the Company's
accountant, shall cause to be prepared and delivered to RW and the Company a
calculation as of the IPO Closing Date of the Defined Net Worth of the Company
(the "Balance Sheet Calculation"). The Balance Sheet Calculation shall be final
and binding on the Company and the Other Founding Companies absent fraud,
manifest error or gross negligence.
(c) The Balance Sheet Calculation shall include a report of Arthur
Andersen or, if not Arthur Andersen, the Company's accountant, stating that it
has been prepared in a manner consistent with the accounting policies and
procedures used in preparation of the balance sheets in the Initial Financial
Statements, except as provided in the definition of "Defined Net Worth"
contained herein. The Stockholders shall give Arthur Andersen and other
appropriate personnel such assistance and access to the assets and books and
records of the Company as Arthur Andersen shall reasonably request during normal
business hours in order to enable them to prepare the Balance Sheet Calculation.
The Surviving Corporation shall be responsible for the fees and expenses of
Arthur Andersen or, if not Arthur Andersen the Company's accountant.
Section 2.07. Fractional Shares. Notwithstanding any other provision
herein, no fractional shares of RW Common Stock will be issued. All shares of RW
Common Stock shall be aggregated, and any Stockholder entitled hereunder, after
such aggregation, to receive a fractional share of RW Common Stock but for this
Section 2.07 will be entitled hereunder to receive a cash payment for and
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in lieu thereof in the amount (rounded to the nearest whole cent) equal to that
Stockholder's fractional interest in a share of RW Common Stock multiplied by
the IPO Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01. By Each Stockholder. The Stockholders severally represent
and warrant to, and agree with, RW that all the following representations and
warranties in this Article III are as of the date of this Agreement, and will
be, as amended or supplemented pursuant to Section 6.08, on the IPO Closing
Date, true and correct:
(a) (i) each Stockholder will acquire the shares of RW Common
Stock to be issued pursuant to Article II to the Stockholder solely for the
Stockholder's account, for investment purposes only and with no current
intention or plan to distribute, sell or otherwise dispose of any of those
shares in connection with any distribution;
(ii) no Stockholder is a party to any agreement or other
arrangement for the disposition of any shares of RW Common Stock other
than this Agreement; (iii) except as set forth on Schedule 3.01(a)(ii)
each Stockholder is an "accredited investor" as defined in Rule 501(a)
promulgated under the Securities Act; (iv) each Stockholder (A) is able
to bear the economic risk of an investment in the RW Common Stock
acquired pursuant to this Agreement, (B) can afford to sustain a total
loss of that investment, (C) has such knowledge and experience in
financial and business matters that he or she is capable of evaluating
the merits and risks of the proposed investment in the RW Common Stock,
(D) has had an adequate opportunity to ask questions and receive
answers from the officers of RW concerning any and all matters relating
to the transactions contemplated hereby, including the background and
experience of the current and proposed officers and directors of RW,
the plans for the operations of the business of RW, the business,
operations and financial condition of the Other Founding Companies and
any plans of RW for additional acquisitions, and (E) has asked all
questions of the nature described in preceding clause (D) that such
Stockholder thought to ask, and all those questions have been answered
to his or her satisfaction;
(b) the representations and warranties contained in Article III of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to; and
(c) (i) the terms and conditions of any agreements between any
Stockholder or an Affiliate of any Stockholder, on the one hand, and the Company
on the other hand, included in the Scheduled Related Party Agreements will have
been amended effective as of the IPO Closing Date to be no less favorable to the
Company than the Company reasonably could have expected to obtain in an
arms-length transaction with a Person other than an Affiliate of the Company and
(ii) the
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rentals or other payments provided for in such agreements then will not exceed
fair market rentals of the property being leased or fair market value of the sum
or product being provided and such amounts shall have been previously approved
in writing by the Chief Financial Officer of RW.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS
Section 4.01. By the Company and Each Primary Stockholder. The Company
and each Primary Stockholder jointly and severally represent and warrant to, and
agree with, RW that all the following representations and warranties in this
Article IV are as of the date of this Agreement, and will be, as amended or
supplemented pursuant to Section 6.08, on the Delivery Date and the IPO Closing
Date, true and correct:
(a) the Organization State of the Company is the State of Indiana, and
the Company (i) is a corporation duly organized, validly existing and in good
standing under the laws of that State, (ii) has all requisite corporate power
and authority under those laws and its Charter Documents to own or lease and to
operate its properties and to carry on its business as now conducted and (iii)
is duly qualified and in good standing as a foreign corporation in all
jurisdictions (other than the State of Indiana) in which it owns or leases
property or in which the carrying on of its business as now conducted so
requires except where the failure to be so qualified, singly or in the
aggregate, would not have a Material Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is comprised of
1,000 shares of Company Common Stock, of which 150 shares have been issued and
are now outstanding and no shares are held by the Company as treasury shares,
and (ii) there are no Derivative Securities of the Company;
(c) the Company has elected to be treated as an S corporation within
the meaning of the Code, as amended; and
(d) the representations and warranties contained in Article IV of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO
Section 5.01. By RW and Newco. RW and Newco jointly and severally
represent and warrant to the Company and each Stockholder that all the following
representations and warranties
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in this Article V are as of the date of this Agreement, and will be on the IPO
Closing Date, true and correct:
(a) Newco is a corporation duly organized, validly existing and in good
standing under the laws of the State of Indiana;
(b) except as disclosed in the Private Placement Memorandum, no
Derivative Securities of Newco are outstanding;
(c) Newco has been organized for the sole purpose of participating in
the Merger and has not, and will not, engage in any activities other than those
necessary to effectuate the Merger;
(d) except for shares of RW Common Stock to be publicly sold in the IPO
and as disclosed in the Private Placement Memorandum or preliminary prospectus,
neither RW nor Newco is a party to any agreement or other arrangement for the
disposition of any shares of RW Common Stock; and
(e) the representations and warranties contained in Article V of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01. Of Each Party. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01. The Closing and Certain Conditions.
(a) The Closing. On or before the IPO Pricing Date, the parties hereto
will take all actions necessary to (i) effect the Merger (including, as
permitted by the Applicable Corporate Code, (A) the execution of a Certificate
of Merger (1) meeting the requirements of the Applicable Corporate Code and (2)
providing that the Merger will become effective on the IPO Closing Date and (B)
the delivery of that Certificate of Merger with a filing service that will file
such Certificate of Merger with the Department of State of the State of Indiana)
upon notification of the closing of the IPO (provided that Comstock's
Certificate of Merger shall be filed immediately prior to the closing of the
IPO), (ii) verify the existence and ownership of the certificates evidencing the
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Company Common Stock to be exchanged for the Merger Consideration pursuant to
Section 2.05 and (iii) satisfy the document delivery requirements to which the
obligations of the parties to effect the Merger and the other transactions
contemplated hereby are conditioned by the provisions of this Article VII (all
those actions collectively being the "Delivery"). The Delivery will take place
at the offices of King & Spalding, 191 Peachtree Street, Atlanta, Georgia at
10:00 a.m., Atlanta time on the IPO Pricing Date, or at such later time on the
IPO Pricing Date as RW shall specify by written notice to the President of the
Company (the "Delivery Date"). The actions taken at the Delivery will not
include the completion of either the Merger or the delivery of the Company
Common Stock or the Merger Consideration pursuant to Section 2.05. On the IPO
Closing Date, the Certificate of Merger will be filed and will become effective
pursuant to Section 2.02, and all transactions contemplated by this Agreement to
be closed or completed on or before the IPO Closing Date, including the
surrender of the Company Common Stock in exchange for the Merger Consideration
(including a certified check or checks in an amount equal to the cash portion of
the Merger Consideration) will be closed or completed, as the case may be.
During the period from the Delivery Date to the IPO Closing Date, this Agreement
may be terminated by the parties only pursuant to Section 12.01(b)(i).
(b) Certain Conditions to the Obligations of the Company and the
Stockholders. The obligations of the Company and the Stockholders with respect
to the actions to be taken by them at or before the Delivery Date are subject to
the satisfaction on or before the Delivery Date, or waiver by them pursuant to
Section 11.05, of all the conditions set forth in Sections 7.01 and 7.02(a). The
obligations of the Stockholders with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of the following
conditions: (if required by such Stockholder) (i) the Employment Agreement then
shall be in full force and effect; and (ii) all the conditions set forth in
Sections 7.01 and 7.02(b).
(c) Certain Conditions to the Obligations of RW and Newco. The
obligations of RW and Newco with respect to actions to be taken by them at or
before the Delivery Date are subject to the satisfaction on or before the date
of the Delivery Date, or waiver by them pursuant to Section 11.05, of the
following conditions: (i) the Company shall have delivered to RW a copy of the
articles of incorporation, as amended to the Delivery Date and certified by the
Secretary of State of the State of Indiana as of a Current Date, of the Company;
and (ii) all the conditions set forth in Sections 7.01 and 7.03(a). The
obligations of RW and Newco with respect to the actions to be taken on the IPO
Closing Date are subject to the satisfaction on that date of the following
conditions: (i) the Employment Agreements then shall be in full force and
effect; and (ii) all the conditions set forth in Sections 7.01 and 7.03(b).
(d) Uniform Provisions. The text of Article VII of the Uniform
Provisions hereby is incorporated herein by this reference.
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ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01. Of Each Party Other than the Company. From and after the
Effective Time, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Company) will comply with each covenant for which
provision is made in Article VIII of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) to be performed or
observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01. Indemnification Rights and Obligations. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. Any provision contained in Article IX of the Uniform Provisions to
the contrary notwithstanding, the indemnification obligations of the
Stockholders pursuant to this Agreement shall be joint and several.
ARTICLE X
[Intentionally Ommitted]
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. Treatment of Confidential Information. Each party hereto
will comply with each covenant for which provision is made in Section 11.01 of
the Uniform Provisions (the text of which Section hereby is incorporated herein
by this reference) to be performed or observed by that party.
Section 11.02. Restrictions on Transfer of RW Common Stock.
(a) Except for transfers to employees of the Company that are approved
in writing by the Board of Directors of RW (or a committee designated by the
Board of Directors of RW) prior to such transfer, during the one year period
ending on the first anniversary of the IPO Closing Date (the "Restricted
Period"), no Stockholder voluntarily will: (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
RW Common Stock received by any Stockholder in the Merger or (B) any interest in
(including any option to buy or sell) any of those shares of RW Common Stock, in
whole or in part, and RW will have no obligation to, and shall not, treat any
such attempted transfer as effective for any purpose; or (ii) engage in any
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<PAGE> 16
transaction, whether or not with respect to any shares of RW Common Stock or any
interest therein, the intent or effect of which is to reduce the risk of owning
the shares of RW Common Stock acquired pursuant to Section 2.04 (including, for
example engaging in put, call, short-sale, straddle or similar market
transactions); provided, however, that this Section 11.02 shall not restrict any
transfer of RW Common Stock acquired by a Stockholder pursuant to Section 2.04
to any of that Stockholder's Related Persons who agree in writing to be bound by
the provisions of Section 11.01 and this Section 11.02. The certificates
evidencing the RW Common Stock delivered to each Stockholder pursuant to Section
2.05 will bear a legend substantially in the form set forth below and containing
such other information as RW may deem necessary or appropriate:
"EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER
PARTIES THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE
REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF
ANY OF THOSE SHARES, DURING THE ONE-YEAR PERIOD ENDING ON __________ [DATE THAT
IS THE FIRST ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED PERIOD"). ON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE."
(b) From the first anniversary of the IPO Closing Date to the fourth
anniversary of the IPO Closing Date, the Stockholders agree to sell shares of RW
Common Stock acquired pursuant to this Agreement only in accordance with the
procedures set forth in this Section 11.02(b). Every quarter during such period,
every Stockholder will be permitted to sell, in the aggregate, up to 8% of the
aggregate number of shares of Common Stock received by such Stockholder pursuant
to this Agreement (the "Quarterly Block Trade Shares") in either a block trade
or a registered public offering, at the option of RW. If a Stockholder does not
sell all of his or her Quarterly Block Trade Shares in any given quarter, such
Stockholder may sell such Quarterly Block Trade Shares pursuant to this Section
11.02(b) in any later quarter, provided, however, that in no event may a
Stockholder sell more than 20% of the shares of Common Stock received by such
Stockholder pursuant to this Agreement in any one quarter. Any Stockholder that
wishes to sell shares of RW Common Stock pursuant to such selling opportunity
must give notice to RW and the Executive Council no later than fourteen days
prior to the commencement of the fiscal quarter of RW during which such
Stockholder wants to sell such shares. Notwithstanding anything set forth in
this Section 11.02(b), RW may elect to make available to the Stockholders (i)
additional opportunities to sell shares of RW Common Stock and/or (ii) the
opportunity to sell an amount in excess of such amount during any particular
quarter. The Company may modify or waive this Section 11.02(b) at its sole
discretion at any time following written notice to the Stockholders, provided
that no such modification or waiver may
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<PAGE> 17
reduce the number of selling opportunities or the maximum number of shares of RW
Common Stock that may be sold by any Stockholder during any selling opportunity.
(c) Each Stockholder, severally and not jointly with any other Person,
(i) acknowledges that the shares of RW Common Stock to be delivered to that
Stockholder pursuant to Section 2.04 have not been and will not be registered
under the Securities Act and therefore may not be resold by that Stockholder
without compliance with the Securities Act and (ii) covenants that none of the
shares of RW Common Stock issued to that Stockholder pursuant to Section 2.04
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable provisions of
the Securities Act and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of RW Common
Stock issued pursuant to Section 2.04 will bear the following legend in addition
to the legend prescribed by Section 11.02(a):
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, HAVE
BEEN ISSUED PURSUANT TO ONE OR MORE EXEMPTIONS THERETO, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED OR DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED."
In addition, certificates evidencing shares of RW Common Stock issued pursuant
to Section 2.04 to each Stockholder will bear any legend required by the
securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03. Brokers and Agents. Except for IPO Development Company,
each of the Stockholders jointly and severally, on the one hand, and RW, on the
other, represents and warrants to the other that such Person has not directly or
indirectly employed or become obligated to pay any broker, finder or similar
agent in connection with the transactions contemplated hereby and agree, without
regard to the Threshold Amount limitations set forth in Article IX, to indemnify
the other against all Damage Claims arising out of claims for any and all fees
and commissions of brokers or similar agents employed or promised payment by
such Person.
Section 11.04. Assignment; No Third Party Beneficiaries. This Agreement
and the rights of the parties hereunder may not be assigned (except by operation
of law) and shall be binding on and inure to the benefit of the parties hereto,
the successors of RW, and the heirs and legal representatives of the
Stockholders (and, in the case of any trust, the successor trustees of that
trust). Neither this Agreement nor any other Transaction Document is intended,
or shall be construed, deemed or interpreted, to confer on any Person not a
party hereto or thereto any rights or remedies hereunder or thereunder, except
as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise provided
expressly herein or therein.
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<PAGE> 18
Section 11.05. Entire Agreement; Amendment; Waivers. Except with
respect to Section 11.07 hereof, this Agreement and the documents delivered
pursuant hereto constitute the entire agreement and understanding among the
Stockholders, the Company, Newco and RW and supersede all prior agreements and
understandings, both written and oral, relating to the subject matter of this
Agreement. This Agreement may be amended, modified or supplemented, and any
right hereunder may be waived, if, but only if, that amendment, modification,
supplement or waiver is in writing and signed by each of the Stockholders, the
Company and RW. The waiver of any of the terms and conditions hereof shall not
be construed or interpreted as, or deemed to be, a waiver of any other term or
condition hereof.
Section 11.06. Counterparts. This Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
Section 11.07. Expenses. If the transactions contemplated hereby (i)
are consummated, RW will pay the fees, expenses and disbursements of RW and
Newco and their Representatives which are incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all costs
and expenses incurred in the performance of and compliance with all conditions
to be performed by RW and Newco under this Agreement, including the costs of
preparing the Registration Statement, (collectively, the "RW Expenses") and (ii)
if the transactions contemplated hereby are not consummated, the RW Expenses
shall be paid by the Founding Companies subject to the provisions of the IPO
Cost Liability Sharing Agreement attached hereto as Exhibit C and incorporated
herein by reference (b) the Stockholders will pay from personal funds, and not
from funds of the Company or any Company Subsidiary, all sales, use, transfer
and other similar taxes and fees (collectively, "Transfer Taxes") incurred in
connection with the transactions contemplated hereby and (c) the Company will
pay the fees, expenses and disbursements of Counsel for the Company and the
Stockholders incurred in connection with the subject matter of this Agreement
and the Registration Statement on or before the IPO Closing Date. The
Stockholders will file all necessary documentation and Returns with respect to
all Transfer Taxes. In addition, each Stockholder acknowledges that he, and not
the Company or RW or the Surviving Corporation, will pay all Taxes due upon
receipt of the consideration payable to that Stockholder pursuant to Article II.
Section 11.08. Notices. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received
(a) if personally delivered or if delivered by telex, telegram,
facsimile or courier service, when actually received by the party to whom notice
is sent or
(b) if delivered by mail (whether actually received or not), at the
close of business on the third Business Day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
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<PAGE> 19
(i) if to RW or Newco, addressed to it at:
RailWorks Corporation
403 Somerset Road
Baltimore, Maryland 21210
Attn: Chief Executive Officer
with copies (which shall not constitute notice for purposes
of this Agreement) to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attn: Jeffrey M. Stein
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
Mize Construction Company
P.O. Box 928
Vincennes, Indiana 47591
Attn: Ronald E. Brown
with copies (which shall not constitute notice for purposes
of this Agreement) to Counsel for the Company and the
Stockholders at the address designated by the Company
Section 11.09. Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF DELAWARE
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10. Exercise of Rights and Remedies. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11. Time. Time is of the essence in the performance of this
Agreement in all respects.
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<PAGE> 20
Section 11.12. Reformation and Severability. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13. Remedies Cumulative. No right, remedy or election given
by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14. Respecting the IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither RW or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that RW will use its reasonable best efforts to
cause the Registration Statement to become effective prior to August 14, 1998)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to RW or the
IPO.
ARTICLE XII
TERMINATION
Section 12.01. Termination of this Agreement.
(a) This Agreement may be terminated at any time prior to the Delivery
Date solely:
(i) by the mutual written consent of RW and the Company;
(ii) by the Stockholders or the Company, on the one hand, or
by RW, on the other hand, if the events contemplated by this Agreement
to take place at the Delivery Date shall not have taken place by
September 4, 1998, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the
case of the Stockholders and the Company, any of them) seeking to
terminate this Agreement to perform or adhere to any agreement required
hereby to be performed or adhered to by it prior to or at the Delivery
Date or thereafter on the IPO Closing Date;
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<PAGE> 21
(iii) by the Stockholders or the Company, on the one hand,
or by RW, on the other hand, if a material breach or default shall be
made by the other party (or in the case of the Stockholders and the
Company, any of them) in the observance or in the due and timely
performance of any of the covenants, agreements or conditions contained
in Article VI or Section 11.01;
(iv) by the Stockholders or the Company, on the one hand,
or RW, on the other, if it is entitled to do so as provided in Section
6.08;
(v) by the Stockholders prior to the filing of the
Registration Statement if the Registration Statement is not filed by
June 15, 1998;
(vi) by RW or the Stockholders prior to 9:00 a.m. on the
IPO Pricing Date (as set forth in Section 8.10) if the value of RW at
the IPO Pricing Date (as calculated by multiplying the price per share
at which the RW common stock is to be sold in the IPO by the number of
shares of common stock to be outstanding after the Closing of the IPO)
shall be less than $215 million;
(vii) by the Stockholders if the Registration Statement has
not been declared effective by the Securities and Exchange Commission
by August 14, 1998;
(viii) by the Stockholders if John G. Larkin is no longer
serving as Chairman of the Board of Directors and Chief Executive
Officer prior to the Closing; or
(ix) by the stockholders of CPI Concrete Products, Inc. if
its Employee Stock Ownership Plan does not approve the merger prior to
the Delivery Date.
(b) This Agreement may be terminated after the Delivery Date solely:
(i) by RW or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the IPO Pricing Date and prior
to the consummation of the IPO; or
(ii) automatically and without action on the part of any
party hereto if the IPO is not consummated within 15 New York City
business days after the Delivery Date.
(c) If this Agreement is terminated pursuant to this Section 12.01, the
Merger will be deemed for all purposes to have been abandoned and of no force or
effect.
Section 12.02. Liabilities in Event of Termination. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Sections
11.03 or 11.07 and (b) to the extent that such liability is based on the breach
by that party of any of its representations, warranties or covenants set forth
in this Agreement.
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<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
RAILWORKS CORPORATION
By: /s/ John G. Larkin
---------------------------------
John G. Larkin
Chief Executive Officer
HOOSIER MIZE COMPANY
By: /s/ John G. Larkin
---------------------------------
John G. Larkin
President
MIZE CONSTRUCTION COMPANY
By: /s/ Authorized Signature
---------------------------------
STOCKHOLDERS:
By: /s/ Authorized Signature
---------------------------------
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<PAGE> 23
ADDENDUM 1
OTHER FOUNDING COMPANIES
A. Words and terms used in this Addendum which are defined in
the captioned Agreement to which this is an Addendum are used herein as therein
defined.
B. The Founding Companies are:
Alpha - Keystone Engineering, Inc.
Annex Railroad Builders, Inc.
Comtrak Construction, Inc.
Comstock Holdings Inc.
Condon Brothers, Inc.
CPI Concrete Products
HP McGinley, Inc.
Kennedy Railroad Builders, Inc.
Merit Railroad Contractors, Inc.
Midwest Construction Services, Inc.
Minnesota Railroad Services, Inc.
Mize Construction Co.
New England Railroad Construction Co., Inc.
Northern Rail Service & Supply Company, Inc.
Railcorp, Inc.
Railroad Service, Inc.
Railroad Specialities, Inc,
Southern Indiana Wood Preserving Co.
U.S. Railway Supply, Inc,
U.S. Trackworks, Inc.
W.A. Smith Construction Co., Inc.
W.A Smith Rerailing Co., Inc.
<PAGE> 1
EXHIBIT 10.13
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 21, 1998
BY AND BETWEEN
RAILWORKS CORPORATION,
HUSKY NEW ENGLAND RAILROAD CONSTRUCTION COMPANY,
NEW ENGLAND RAILROAD CONSTRUCTION COMPANY INC.
AND
THE STOCKHOLDERS NAMED HEREIN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS...................................................................................1
Section 1.01. Certain Defined Terms.................................................1
ARTICLE II THE MERGER AND RELATED MATTERS................................................................4
Section 2.01. Certificate of Merger.................................................4
Section 2.02. The Effective Time....................................................4
Section 2.03. Certain Effects of the Merger.........................................4
Section 2.04. Effect of the Merger on Capital Stock.................................5
Section 2.05. Delivery, Exchange and Payment........................................6
Section 2.06. Merger Consideration Calculation......................................7
Section 2.07. Fractional Shares.....................................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
EACH STOCKHOLDER .............................................................................8
Section 3.01. By Each Stockholder...................................................8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS......................................................9
Section 4.01. By the Company and Each Primary Stockholder...........................9
ARTICLE V REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO................................................9
Section 5.01. By RW and Newco.......................................................9
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME ...................................................10
Section 6.01. Of Each Party........................................................10
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION.................................................................................10
Section 7.01. The Closing and Certain Conditions...................................10
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME.......................................................12
Section 8.01. Of Each Party Other than the Company.................................12
ARTICLE IX INDEMNIFICATION..............................................................................12
Section 9.01. Indemnification Rights and Obligations...............................12
ARTICLE X [Intentionally Ommitted].....................................................................12
ARTICLE XI GENERAL PROVISIONS...........................................................................12
Section 11.01. Treatment of Confidential Information................................12
Section 11.02. Restrictions on Transfer of RW Common Stock..........................12
Section 11.03. Brokers and Agents...................................................14
Section 11.04. Assignment; No Third Party Beneficiaries.............................14
Section 11.05. Entire Agreement; Amendment; Waivers.................................15
Section 11.06. Counterparts.........................................................15
Section 11.07. Expenses.............................................................15
Section 11.08. Notices..............................................................15
Section 11.09. Governing Law........................................................16
Section 11.10. Exercise of Rights and Remedies......................................16
Section 11.11. Time.................................................................16
Section 11.12. Reformation and Severability.........................................17
Section 11.13. Remedies Cumulative..................................................17
Section 11.14. Respecting the IPO...................................................17
ARTICLE XII TERMINATION..................................................................................17
Section 12.01. Termination of this Agreement........................................17
Section 12.02. Liabilities in Event of Termination..................................18
EXHIBITS
Exhibit A - List of Primary Stockholders
Exhibit B - Form of Employment Agreement
Exhibit C - IPO Cost Liability Sharing Agreement
Exhibit D - Merger Consideration
</TABLE>
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<PAGE> 4
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as
of May 21, 1998, by and among RailWorks Corporation, a Delaware corporation
("RW"), Husky New England Railroad Construction Company, a Connecticut
corporation and a wholly owned subsidiary of RW("Newco"), New England Railroad
Construction Company Inc., a Connecticut corporation (the "Company"), and the
persons listed on the signature pages hereof under the caption "Stockholders"
(collectively, the "Stockholders," and each of those persons, individually, a
"Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(a) Newco will merge into the Company on the terms and subject to the
conditions set forth herein (that merger being the "Merger");
(b) RW will acquire the stock of all or some of the entities listed in
the accompanying Addendum 1 (each an "Other Founding Company" and, collectively
with the Company, the "Founding Companies") pursuant to agreements that are (i)
similar in all material respects to this Agreement and (ii) entered into among
those entities and their equity owners, RW and subsidiaries of RW (collectively,
the "Other Agreements"); and
(c) RW shall at such time as specified herein and if certain conditions
are met, effect a public offering of shares of its common stock and issue and
sell those shares.
The respective boards of directors of RW, Newco and the Company have
approved and adopted this Agreement to effect a transaction subject to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Certain Defined Terms. As used in this Agreement and in
the related Addendums, Annexes, Schedules and Exhibits, the following terms have
the meanings assigned to them below in this Section 1.01. Capitalized terms used
in this Agreement and not defined below in this Section 1.01 have the meanings
assigned to them in the Preliminary Statement or Article I of the Uniform
Provisions (the text of which Article hereby is incorporated herein by this
reference), as the case may be.
<PAGE> 5
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement and all attached Schedules, Addendums,
Annexes and Exhibits, as each of the same may be amended, modified or
supplemented from time to time pursuant to the provisions hereof or thereof.
"Applicable Corporate Code" means the laws of the Organization State of
the Company that govern corporations incorporated in such state.
"Closing Date Balance Sheet" of the Company means a balance sheet of
the Company as at the IPO Closing Date which is prepared on a basis consistent
with the basis on which the Current Balance Sheet was prepared.
"Closing Memorandum" means the form of closing memorandum to be
prepared by RW for the Closing under this Agreement in which are included the
forms of certificates of officers, the opinions of counsel and certain other
documents to be delivered at the Closing as provided in Article VII.
"Company Accounts Receivable" shall mean the accounts and notes or
other advances receivable of the Company and the Company Subsidiaries, excluding
any Retainages, as of the IPO Closing Date.
"Company Common Stock" means the common stock, no par value, of the
Company.
"Company Indebtedness" means the indebtedness of the Company, as of the
IPO Closing Date (including, with respect to CPI Concrete Products, Inc., the
value of the Cash Company Consideration to be received by its Employee Stock
Ownership Plan), that the Company has elected to repay (or repurchase, as the
case may be) with a portion of the RW Common Stock to be received as part of the
Merger Consideration. At least five days prior to the Delivery Date, the Company
will deliver to RW a schedule of the aggregate principal amount of the Company
Indebtedness, certified by the President of the Company, that will be
outstanding on the IPO Closing Date, and RW will repay such Company Indebtedness
on the IPO Closing Date. To the extent that the actual amount of Company
Indebtedness exceeds the amount shown on such schedule, such excess shall be
repaid by the Stockholders on or prior to the IPO Closing Date.
"Counsel for RW and Newco" means King & Spalding.
"Counsel for the Company and the Stockholders" means such counsel as
shall be designated by the Company in writing on or prior to the Delivery Date.
"Current Balance Sheet" means the balance sheet of the Company as at
March 31, 1998 which is included in the Initial Financial Statements.
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<PAGE> 6
"Current Balance Sheet Date" means December 31, 1997.
"Defined Net Worth" as of the IPO Closing Date shall mean (i) the total
assets of the Company, as set forth on the balance sheet of the Company as of
such date, except that (A) expenses of the Company directly attributable to the
IPO and/or the transactions contemplated by this Agreement, including but not
limited to, costs incurred pursuant to the HSR Act, shall be added back to the
assets of the company and (B) the value of inventory, machinery, equipment and
real estate shall be determined pursuant to Section 2.06(a), less (ii) the total
liabilities of the Company, as set forth on the balance sheet of the Company as
of such date, excluding the Company Indebtedness. Notwithstanding the foregoing,
in the case of Comstock, Comstock's contractual obligation to Spie Group, Inc.,
as successor to Comstock Group, Inc., shall not be deemed to be a liability for
purposes of determining Defined Net Worth.
"Delivery" or "Delivery Date" shall have the meaning set forth in
Section 7.01.
"Earnings Percentage" shall have the meaning set forth in Exhibit D.
"Employment Agreement" means each of the Employment Agreements entered
into as of the Closing Date between RW and each of the Stockholders set forth on
Exhibit A hereto, a form of which is attached hereto as Exhibit B.
"fair market value" means that value at which goods and/or services
would be exchanged between a willing buyer and willing seller in a transaction
entered into at arms length with each party having relevant facts of all aspects
of the transaction.
"Initial Financial Statements" means (a) the balance sheets of the
Company as at December 31, 1997 and March 31, 1998 and the related reviewed
statements of operations and retained earnings for each of the Company's two
fiscal years in the period ended December 31, 1997, and (b) the Current Balance
Sheet and the related statement of income for the Company's fiscal year ended
December 31, 1997, which the Company has delivered to RW prior to the date
hereof.
"IPO Closing Date" means the date on which RW first receives payment
for the shares of RW Common Stock it sells to the Underwriter in the IPO.
"Merger Consideration" has the meaning specified in Section 2.04.
"Newco" means Husky New England Railroad Construction Company, a
Connecticut corporation.
"Responsible Officer" means the President, Chief Executive Officer or
any Vice President of the Company.
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"Retainages" means the portion of progress payments due to a Company
for contracting projects that is withheld by a customer of such Company until
completion of a project, pursuant to the terms of a contract with such customer,
as security for the completion of the project.
"RW" means RailWorks Corporation, a Delaware corporation.
"Scheduled Related Party Agreements" means the agreements described in
Schedule 4.11.
"Surviving Corporation" means the Person to be designated in the
Certificate of Merger as the surviving corporation of the Merger.
"Threshold Amount" means 2.0% of the Merger Consideration.
"Transaction Value" means the (i)(A) the total number of shares of RW
outstanding immediately upon the closing of the IPO and the transactions
contemplated by this Agreement and the Other Agreements multiplied by (B) the
IPO Price multiplied by (C) 92% minus (ii) actual expenses of RW incurred with
respect to the IPO, an estimate of which will be set forth in Item 13 of Part II
of the Registration Statement minus (iii) the underwriting discounts and
commissions paid to the Underwriter pursuant to the IPO minus (iv) the proceeds
received by RW in connection with any shares of RW Common Stock sold by RW to
finance the working capital needs of RW, which shares shall not exceed 5% of the
number of shares to be sold in the IPO.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions of RW for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. Certificate of Merger. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the Delivery Date to the Department
of State of the State of Connecticut.
Section 2.02. The Effective Time. The effective time of the Merger (the
"Effective Time") will be the time on the IPO Closing Date as specified in the
Certificate of Merger or, if the Certificate of Merger does not specify another
time, 8:00 a.m., eastern daylight standard time, on the IPO Closing Date.
Section 2.03. Certain Effects of the Merger. At and as of the Effective
Time, (a) Newco will be merged with and into the Company in accordance with the
provisions of the Connecticut Business Corporation Act, (b) Newco will cease to
exist as a separate legal entity, (c) the articles of
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incorporation of the Company will be amended to change its authorized capital
stock to 100 shares, par value $0.01 per share, of Common Stock, (d) the Company
will be the Surviving Corporation and, as such, will, all with the effect
provided by the Connecticut Business Corporation Act, (i) possess all the
properties and rights, and be subject to all the restrictions and duties, of the
Company and Newco and (ii) be governed by the laws of the State of Connecticut,
(e) the Charter Documents of the Company then in effect (after giving effect to
the amendment of the Company's articles of incorporation specified in clause (c)
of this sentence) will become and thereafter remain (until changed in accordance
with (i) applicable law (in the case of the articles of incorporation) or (ii)
their terms (in the case of the bylaws)) the Charter Documents of the Surviving
Corporation, (f) the initial board of directors of the Surviving Corporation
will be the Chief Executive Officer of RW and the other persons named in
Schedule 2.03, and those persons will hold the office of director of the
Surviving Corporation subject to the provisions of the applicable laws of the
State of Connecticut and the Charter Documents of the Surviving Corporation, and
(g) the initial officers of the Surviving Corporation will be as set forth in
Schedule 2.03, and each of those persons will serve in each office specified for
that person in Schedule 2.03, subject to the provisions of the Charter Documents
of the Surviving Corporation, until that person's successor is duly elected to,
and, if necessary, qualified for, that office.
Section 2.04. Effect of the Merger on Capital Stock. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the right to
receive, subject to the provisions of Section 2.05 and Exhibit D, without
interest, on surrender of the certificate evidencing those shares, the amount of
cash and the number of whole and fractional shares of RW Common Stock set forth
or determined as provided in Exhibit D (the "Merger Consideration"), (ii) cease
to be outstanding and to exist and (iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to exist
and (ii) be canceled and retired; and
(c) each share of Newco Common Stock issued and outstanding immediately
prior to the Effective Time will be converted into one share of Common Stock, no
par value, of the Surviving Corporation, and the shares of Common Stock of the
Surviving Corporation issued on that conversion will constitute all the issued
and outstanding shares of Capital Stock of the Surviving Corporation. Each
holder of a certificate representing shares of Company Common Stock immediately
prior to the Effective Time will, as of the Effective Time and thereafter, cease
to have any rights respecting those shares other than the right to receive,
subject to the provisions of Section 2.05, without interest, the Merger
Consideration and the additional cash, if any, owing with respect to those
shares as provided in Section 2.07.
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Section 2.05. Delivery, Exchange and Payment.
(a) At or after the Effective Time: (i) each Stockholder, as the holder
of certificates representing shares of Company Common Stock, will, on surrender
of those certificates to RW (or any agent that may be appointed by RW for
purposes of this Section 2.05), receive, subject to the provisions of this
Article II and the Escrow Agreement, such Stockholder's share of the Merger
Consideration pursuant to Section 2.04 and Exhibit D; and (ii) until any
certificate representing Company Common Stock has been surrendered and replaced
pursuant to this Section 2.05, that certificate will, for all purposes, be
deemed to evidence ownership of the number of whole shares of RW Common Stock
included in the Merger Consideration payable in respect of that certificate
pursuant to Section 2.04. The Escrow Agreement will provide that the shares of
RW Common Stock issued to the Stockholders as a part of the Merger Consideration
together with duly executed stock powers in blank, shall be placed in escrow to
be held subject to the terms of the Escrow Agreement and further subject to
Exhibit D and Section 11.02. The escrow shall consist solely of shares of RW
Common Stock that shall be issued at the Effective Time to the Stockholders of
the Founding Companies and delivered, at the Closing, to the Escrow Agent. All
shares of RW Common Stock issuable in the Merger will be deemed for all purposes
to have been issued by RW at the Effective Time.
(b) Each Stockholder will deliver to RW (or any agent that may be
appointed by RW for purposes of this Section 2.05) on or before the Delivery
Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Stockholder, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Stockholder's expense, affixed and canceled.
Each Stockholder shall cure any deficiencies in the endorsement of the
certificates or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Stockholder.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to RW Common Stock and payable to
the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of RW Common Stock have been issued in the Merger until
those certificates are surrendered as provided herein, but (i) on that surrender
RW will cause to be paid, to the Person in whose name the certificates
representing such shares of RW Common Stock shall then be issued, the amount of
dividends or other distributions previously paid with respect to such whole
shares of RW Common Stock with a record date, or which have accrued, subsequent
to the Effective Time, but prior to surrender, and the amount of any cash
payable to such Person for and in lieu of fractional shares pursuant to Section
2.07 and (ii) at the appropriate payment date or as soon as practicable
thereafter, RW will cause to be paid to that Person the amount of dividends or
other distributions with a record date, or which have been accrued, subsequent
to the Effective Time, but which are not payable until a date subsequent to
surrender, which are payable with respect to such whole shares of RW Common
Stock, subject in all cases to any applicable
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escheat laws. No interest will be payable with respect to the payment of such
dividends or other distributions or cash for and in lieu of fractional shares on
surrender of outstanding certificates.
(d) Each Stockholder hereby authorizes and directs RW to deliver 3.5%
of the Cash Company Consideration and 3.5% of the Stock Company Consideration
owed to such Stockholder pursuant to this Agreement (before deposit of the
shares of RW Common Stock into escrow) to IPO Development Company in payment of
fees owed to IPO Development Company by such Stockholder.
Section 2.06. Merger Consideration Calculation.
(a) No later than fifteen (15) days following the IPO Closing Date, the
Company shall provide to the Chief Accounting Officer of RW (the "CAO") a
determination of the fair market value (as defined) of its inventory, machinery,
equipment and real estate (the "Valued Assets") as of the IPO Closing Date.
Within seven (7) days of such date, the CAO shall distribute to every Founding
Company the value of the Valued Assets of every Founding Company. The Company
shall have seven (7) days from the date of the distribution of such valuation to
dispute the value of the Valued Assets of any Founding Company by providing
written notice of such dispute to the CAO. If the CAO is unable to resolve any
such dispute, the dispute shall be resolved by binding arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
which arbitration shall be resolved no later than thirty (30) days from
selection of the arbitrator. The arbitrator shall be selected by the CAO.
(b) Arthur Andersen or, if not Arthur Andersen, the Company's
accountant, shall cause to be prepared and delivered to RW and the Company a
calculation as of the IPO Closing Date of the Defined Net Worth of the Company
(the "Balance Sheet Calculation"). The Balance Sheet Calculation shall be final
and binding on the Company and the Other Founding Companies absent fraud,
manifest error or gross negligence.
(c) The Balance Sheet Calculation shall include a report of Arthur
Andersen or, if not Arthur Andersen, the Company's accountant, stating that it
has been prepared in a manner consistent with the accounting policies and
procedures used in preparation of the balance sheets in the Initial Financial
Statements, except as provided in the definition of "Defined Net Worth"
contained herein. The Stockholders shall give Arthur Andersen and other
appropriate personnel such assistance and access to the assets and books and
records of the Company as Arthur Andersen shall reasonably request during normal
business hours in order to enable them to prepare the Balance Sheet Calculation.
The Surviving Corporation shall be responsible for the fees and expenses of
Arthur Andersen or, if not Arthur Andersen the Company's accountant.
Section 2.07. Fractional Shares. Notwithstanding any other provision
herein, no fractional shares of RW Common Stock will be issued. All shares of RW
Common Stock shall be aggregated, and any Stockholder entitled hereunder, after
such aggregation, to receive a fractional share of RW Common Stock but for this
Section 2.07 will be entitled hereunder to receive a cash payment for and
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in lieu thereof in the amount (rounded to the nearest whole cent) equal to that
Stockholder's fractional interest in a share of RW Common Stock multiplied by
the IPO Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01. By Each Stockholder. The Stockholders severally represent
and warrant to, and agree with, RW that all the following representations and
warranties in this Article III are as of the date of this Agreement, and will
be, as amended or supplemented pursuant to Section 6.08, on the IPO Closing
Date, true and correct:
(a) (i) each Stockholder will acquire the shares of RW Common
Stock to be issued pursuant to Article II to the Stockholder solely for the
Stockholder's account, for investment purposes only and with no current
intention or plan to distribute, sell or otherwise dispose of any of those
shares in connection with any distribution;
(ii) no Stockholder is a party to any agreement or other
arrangement for the disposition of any shares of RW Common Stock other
than this Agreement; (iii) except as set forth on Schedule 3.01(a)(ii)
each Stockholder is an "accredited investor" as defined in Rule 501(a)
promulgated under the Securities Act; (iv) each Stockholder (A) is able
to bear the economic risk of an investment in the RW Common Stock
acquired pursuant to this Agreement, (B) can afford to sustain a total
loss of that investment, (C) has such knowledge and experience in
financial and business matters that he or she is capable of evaluating
the merits and risks of the proposed investment in the RW Common Stock,
(D) has had an adequate opportunity to ask questions and receive
answers from the officers of RW concerning any and all matters relating
to the transactions contemplated hereby, including the background and
experience of the current and proposed officers and directors of RW,
the plans for the operations of the business of RW, the business,
operations and financial condition of the Other Founding Companies and
any plans of RW for additional acquisitions, and (E) has asked all
questions of the nature described in preceding clause (D) that such
Stockholder thought to ask, and all those questions have been answered
to his or her satisfaction;
(b) the representations and warranties contained in Article III of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to; and
(c) (i) the terms and conditions of any agreements between any
Stockholder or an Affiliate of any Stockholder, on the one hand, and the Company
on the other hand, included in the Scheduled Related Party Agreements will have
been amended effective as of the IPO Closing Date to be no less favorable to the
Company than the Company reasonably could have expected to obtain in an
arms-length transaction with a Person other than an Affiliate of the Company and
(ii) the
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rentals or other payments provided for in such agreements then will not exceed
fair market rentals of the property being leased or fair market value of the sum
or product being provided and such amounts shall have been previously approved
in writing by the Chief Financial Officer of RW.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS
Section 4.01. By the Company and Each Primary Stockholder. The Company
and each Primary Stockholder jointly and severally represent and warrant to, and
agree with, RW that all the following representations and warranties in this
Article IV are as of the date of this Agreement, and will be, as amended or
supplemented pursuant to Section 6.08, on the Delivery Date and the IPO Closing
Date, true and correct:
(a) the Organization State of the Company is the State of Connecticut,
and the Company (i) is a corporation duly organized, validly existing and in
good standing under the laws of that State, (ii) has all requisite corporate
power and authority under those laws and its Charter Documents to own or lease
and to operate its properties and to carry on its business as now conducted and
(iii) is duly qualified and in good standing as a foreign corporation in all
jurisdictions (other than the State of Connecticut) in which it owns or leases
property or in which the carrying on of its business as now conducted so
requires except where the failure to be so qualified, singly or in the
aggregate, would not have a Material Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is comprised of
5,000 shares of Company Common Stock, of which 1,320 have been issued and are
now outstanding and no shares are held by the Company as treasury shares, and
(ii) there are no Derivative Securities of the Company; and
(c) the representations and warranties contained in Article IV of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO
Section 5.01. By RW and Newco. RW and Newco jointly and severally
represent and warrant to the Company and each Stockholder that all the following
representations and warranties in this Article V are as of the date of this
Agreement, and will be on the IPO Closing Date, true and correct:
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(a) Newco is a corporation duly organized, validly existing and in good
standing under the laws of the State of Connecticut;
(b) except as disclosed in the Private Placement Memorandum, no
Derivative Securities of Newco are outstanding;
(c) Newco has been organized for the sole purpose of participating in
the Merger and has not, and will not, engage in any activities other than those
necessary to effectuate the Merger;
(d) except for shares of RW Common Stock to be publicly sold in the IPO
and as disclosed in the Private Placement Memorandum or preliminary prospectus,
neither RW nor Newco is a party to any agreement or other arrangement for the
disposition of any shares of RW Common Stock; and
(e) the representations and warranties contained in Article V of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01. Of Each Party. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01. The Closing and Certain Conditions.
(a) The Closing. On or before the IPO Pricing Date, the parties hereto
will take all actions necessary to (i) effect the Merger (including, as
permitted by the Applicable Corporate Code, (A) the execution of a Certificate
of Merger (1) meeting the requirements of the Applicable Corporate Code and (2)
providing that the Merger will become effective on the IPO Closing Date and (B)
the delivery of that Certificate of Merger with a filing service that will file
such Certificate of Merger with the Department of State of the State of
Connecticut) upon notification of the closing of the IPO (provided that
Comstock's Certificate of Merger shall be filed immediately prior to the closing
of the IPO), (ii) verify the existence and ownership of the certificates
evidencing the Company Common Stock to be exchanged for the Merger Consideration
pursuant to Section 2.05 and (iii) satisfy the document delivery requirements to
which the obligations of the parties to effect the Merger and the other
transactions contemplated hereby are conditioned by the provisions of this
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Article VII (all those actions collectively being the "Delivery"). The Delivery
will take place at the offices of King & Spalding, 191 Peachtree Street,
Atlanta, Georgia at 10:00 a.m., Atlanta time on the IPO Pricing Date, or at such
later time on the IPO Pricing Date as RW shall specify by written notice to the
President of the Company (the "Delivery Date"). The actions taken at the
Delivery will not include the completion of either the Merger or the delivery of
the Company Common Stock or the Merger Consideration pursuant to Section 2.05.
On the IPO Closing Date, the Certificate of Merger will be filed and will become
effective pursuant to Section 2.02, and all transactions contemplated by this
Agreement to be closed or completed on or before the IPO Closing Date, including
the surrender of the Company Common Stock in exchange for the Merger
Consideration (including a certified check or checks in an amount equal to the
cash portion of the Merger Consideration) will be closed or completed, as the
case may be. During the period from the Delivery Date to the IPO Closing Date,
this Agreement may be terminated by the parties only pursuant to Section
12.01(b)(i).
(b) Certain Conditions to the Obligations of the Company and the
Stockholders. The obligations of the Company and the Stockholders with respect
to the actions to be taken by them at or before the Delivery Date are subject to
the satisfaction on or before the Delivery Date, or waiver by them pursuant to
Section 11.05, of all the conditions set forth in Sections 7.01 and 7.02(a). The
obligations of the Stockholders with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of the following
conditions: (if required by such Stockholder) (i) the Employment Agreement then
shall be in full force and effect; and (ii) all the conditions set forth in
Sections 7.01 and 7.02(b).
(c) Certain Conditions to the Obligations of RW and Newco. The
obligations of RW and Newco with respect to actions to be taken by them at or
before the Delivery Date are subject to the satisfaction on or before the date
of the Delivery Date, or waiver by them pursuant to Section 11.05, of the
following conditions: (i) the Company shall have delivered to RW a copy of the
articles of incorporation, as amended to the Delivery Date and certified by the
Secretary of State of the State of Connecticut as of a Current Date, of the
Company; and (ii) all the conditions set forth in Sections 7.01 and 7.03(a). The
obligations of RW and Newco with respect to the actions to be taken on the IPO
Closing Date are subject to the satisfaction on that date of the following
conditions: (i) the Employment Agreements then shall be in full force and
effect; and (ii) all the conditions set forth in Sections 7.01 and 7.03(b).
(d) Uniform Provisions. The text of Article VII of the Uniform
Provisions hereby is incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01. Of Each Party Other than the Company. From and after the
Effective Time, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Company) will
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comply with each covenant for which provision is made in Article VIII of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) to be performed or observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01. Indemnification Rights and Obligations. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. Any provision contained in Article IX of the Uniform Provisions to
the contrary notwithstanding, the indemnification obligations of the
Stockholders pursuant to this Agreement shall be joint and several.
ARTICLE X
[Intentionally Ommitted]
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. Treatment of Confidential Information. Each party hereto
will comply with each covenant for which provision is made in Section 11.01 of
the Uniform Provisions (the text of which Section hereby is incorporated herein
by this reference) to be performed or observed by that party.
Section 11.02. Restrictions on Transfer of RW Common Stock.
(a) Except for transfers to employees of the Company that are approved
in writing by the Board of Directors of RW (or a committee designated by the
Board of Directors of RW) prior to such transfer, during the one year period
ending on the first anniversary of the IPO Closing Date (the "Restricted
Period"), no Stockholder voluntarily will: (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
RW Common Stock received by any Stockholder in the Merger or (B) any interest in
(including any option to buy or sell) any of those shares of RW Common Stock, in
whole or in part, and RW will have no obligation to, and shall not, treat any
such attempted transfer as effective for any purpose; or (ii) engage in any
transaction, whether or not with respect to any shares of RW Common Stock or any
interest therein, the intent or effect of which is to reduce the risk of owning
the shares of RW Common Stock acquired pursuant to Section 2.04 (including, for
example engaging in put, call, short-sale, straddle or similar market
transactions); provided, however, that this Section 11.02 shall not restrict any
transfer of RW Common Stock acquired by a Stockholder pursuant to Section 2.04
to any of that Stockholder's Related Persons who agree in writing to be bound by
the provisions of Section 11.01
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and this Section 11.02. The certificates evidencing the RW Common Stock
delivered to each Stockholder pursuant to Section 2.05 will bear a legend
substantially in the form set forth below and containing such other information
as RW may deem necessary or appropriate:
"EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER
PARTIES THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE
REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF
ANY OF THOSE SHARES, DURING THE ONE-YEAR PERIOD ENDING ON __________ [DATE THAT
IS THE FIRST ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED PERIOD"). ON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE."
(b) From the first anniversary of the IPO Closing Date to the fourth
anniversary of the IPO Closing Date, the Stockholders agree to sell shares of RW
Common Stock acquired pursuant to this Agreement only in accordance with the
procedures set forth in this Section 11.02(b). Every quarter during such period,
every Stockholder will be permitted to sell, in the aggregate, up to 8% of the
aggregate number of shares of Common Stock received by such Stockholder pursuant
to this Agreement (the "Quarterly Block Trade Shares") in either a block trade
or a registered public offering, at the option of RW. If a Stockholder does not
sell all of his or her Quarterly Block Trade Shares in any given quarter, such
Stockholder may sell such Quarterly Block Trade Shares pursuant to this Section
11.02(b) in any later quarter, provided, however, that in no event may a
Stockholder sell more than 20% of the shares of Common Stock received by such
Stockholder pursuant to this Agreement in any one quarter. Any Stockholder that
wishes to sell shares of RW Common Stock pursuant to such selling opportunity
must give notice to RW and the Executive Council no later than fourteen days
prior to the commencement of the fiscal quarter of RW during which such
Stockholder wants to sell such shares. Notwithstanding anything set forth in
this Section 11.02(b), RW may elect to make available to the Stockholders (i)
additional opportunities to sell shares of RW Common Stock and/or (ii) the
opportunity to sell an amount in excess of such amount during any particular
quarter. The Company may modify or waive this Section 11.02(b) at its sole
discretion at any time following written notice to the Stockholders, provided
that no such modification or waiver may reduce the number of selling
opportunities or the maximum number of shares of RW Common Stock that may be
sold by any Stockholder during any selling opportunity.
(c) Each Stockholder, severally and not jointly with any other Person,
(i) acknowledges that the shares of RW Common Stock to be delivered to that
Stockholder pursuant to Section 2.04 have not been and will not be registered
under the Securities Act and therefore may not be resold by that Stockholder
without compliance with the Securities Act and (ii) covenants that none of the
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shares of RW Common Stock issued to that Stockholder pursuant to Section 2.04
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable provisions of
the Securities Act and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of RW Common
Stock issued pursuant to Section 2.04 will bear the following legend in addition
to the legend prescribed by Section 11.02(a):
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, HAVE
BEEN ISSUED PURSUANT TO ONE OR MORE EXEMPTIONS THERETO, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED OR DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED."
In addition, certificates evidencing shares of RW Common Stock issued pursuant
to Section 2.04 to each Stockholder will bear any legend required by the
securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03. Brokers and Agents. Except for IPO Development Company,
each of the Stockholders jointly and severally, on the one hand, and RW, on the
other, represents and warrants to the other that such Person has not directly or
indirectly employed or become obligated to pay any broker, finder or similar
agent in connection with the transactions contemplated hereby and agree, without
regard to the Threshold Amount limitations set forth in Article IX, to indemnify
the other against all Damage Claims arising out of claims for any and all fees
and commissions of brokers or similar agents employed or promised payment by
such Person.
Section 11.04. Assignment; No Third Party Beneficiaries. This Agreement
and the rights of the parties hereunder may not be assigned (except by operation
of law) and shall be binding on and inure to the benefit of the parties hereto,
the successors of RW, and the heirs and legal representatives of the
Stockholders (and, in the case of any trust, the successor trustees of that
trust). Neither this Agreement nor any other Transaction Document is intended,
or shall be construed, deemed or interpreted, to confer on any Person not a
party hereto or thereto any rights or remedies hereunder or thereunder, except
as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise provided
expressly herein or therein.
Section 11.05. Entire Agreement; Amendment; Waivers. Except with
respect to Section 11.07 hereof, this Agreement and the documents delivered
pursuant hereto constitute the entire agreement and understanding among the
Stockholders, the Company, Newco and RW and supersede all prior agreements and
understandings, both written and oral, relating to the subject matter of this
Agreement. This Agreement may be amended, modified or supplemented, and any
right hereunder may be waived, if, but only if, that amendment, modification,
supplement or waiver is in writing and
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<PAGE> 18
signed by each of the Stockholders, the Company and RW. The waiver of any of the
terms and conditions hereof shall not be construed or interpreted as, or deemed
to be, a waiver of any other term or condition hereof.
Section 11.06. Counterparts. This Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
Section 11.07. Expenses. If the transactions contemplated hereby (i)
are consummated, RW will pay the fees, expenses and disbursements of RW and
Newco and their Representatives which are incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all costs
and expenses incurred in the performance of and compliance with all conditions
to be performed by RW and Newco under this Agreement, including the costs of
preparing the Registration Statement, (collectively, the "RW Expenses") and (ii)
if the transactions contemplated hereby are not consummated, the RW Expenses
shall be paid by the Founding Companies subject to the provisions of the IPO
Cost Liability Sharing Agreement attached hereto as Exhibit C and incorporated
herein by reference (b) the Stockholders will pay from personal funds, and not
from funds of the Company or any Company Subsidiary, all sales, use, transfer
and other similar taxes and fees (collectively, "Transfer Taxes") incurred in
connection with the transactions contemplated hereby and (c) the Company will
pay the fees, expenses and disbursements of Counsel for the Company and the
Stockholders incurred in connection with the subject matter of this Agreement
and the Registration Statement on or before the IPO Closing Date. The
Stockholders will file all necessary documentation and Returns with respect to
all Transfer Taxes. In addition, each Stockholder acknowledges that he, and not
the Company or RW or the Surviving Corporation, will pay all Taxes due upon
receipt of the consideration payable to that Stockholder pursuant to Article II.
Section 11.08. Notices. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received
(a) if personally delivered or if delivered by telex, telegram,
facsimile or courier service, when actually received by the party to whom notice
is sent or
(b) if delivered by mail (whether actually received or not), at the
close of business on the third Business Day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
(i) if to RW or Newco, addressed to it at:
RailWorks Corporation
403 Somerset Road
Baltimore, Maryland 21210
Attn: Chief Executive Officer
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<PAGE> 19
with copies (which shall not constitute notice for purposes
of this Agreement) to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attn: Jeffrey M. Stein
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
New England Railroad Construction Company Inc.
225 Knowlton Street
Bridgeport, Connecticut 06608
Attn: Anthony Julian, Jr.
with copies (which shall not constitute notice for purposes
of this Agreement) to Counsel for the Company and the
Stockholders at the address designated by the Company
Section 11.09. Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF DELAWARE
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10. Exercise of Rights and Remedies. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11. Time. Time is of the essence in the performance of this
Agreement in all respects.
Section 11.12. Reformation and Severability. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this
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<PAGE> 20
Agreement, and in either case the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
Section 11.13. Remedies Cumulative. No right, remedy or election given
by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14. Respecting the IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither RW or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that RW will use its reasonable best efforts to
cause the Registration Statement to become effective prior to August 14, 1998)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to RW or the
IPO.
ARTICLE XII
TERMINATION
Section 12.01. Termination of this Agreement.
(a) This Agreement may be terminated at any time prior to the Delivery
Date solely:
(i) by the mutual written consent of RW and the Company;
(ii) by the Stockholders or the Company, on the one hand,
or by RW, on the other hand, if the events contemplated by this
Agreement to take place at the Delivery Date shall not have taken place
by September 4, 1998, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the
case of the Stockholders and the Company, any of them) seeking to
terminate this Agreement to perform or adhere to any agreement required
hereby to be performed or adhered to by it prior to or at the Delivery
Date or thereafter on the IPO Closing Date;
(iii) by the Stockholders or the Company, on the one hand,
or by RW, on the other hand, if a material breach or default shall be
made by the other party (or in the case of the Stockholders and the
Company, any of them) in the observance or in the due and timely
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<PAGE> 21
performance of any of the covenants, agreements or conditions contained
in Article VI or Section 11.01;
(iv) by the Stockholders or the Company, on the one hand,
or RW, on the other, if it is entitled to do so as provided in Section
6.08;
(v) by the Stockholders prior to the filing of the
Registration Statement if the Registration Statement is not filed by
June 15, 1998;
(vi) by RW or the Stockholders prior to 9:00 a.m. on the
IPO Pricing Date (as set forth in Section 8.10) if the value of RW at
the IPO Pricing Date (as calculated by multiplying the price per share
at which the RW common stock is to be sold in the IPO by the number of
shares of common stock to be outstanding after the Closing of the IPO)
shall be less than $215 million;
(vii) by the Stockholders if the Registration Statement has
not been declared effective by the Securities and Exchange Commission
by August 14, 1998;
(viii) by the Stockholders if John G. Larkin is no longer
serving as Chairman of the Board of Directors and Chief Executive
Officer prior to the Closing; or
(ix) by the stockholders of CPI Concrete Products, Inc. if
its Employee Stock Ownership Plan does not approve the merger prior to
the Delivery Date.
(b) This Agreement may be terminated after the Delivery Date solely:
(i) by RW or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the IPO Pricing Date and prior
to the consummation of the IPO; or
(ii) automatically and without action on the part of any
party hereto if the IPO is not consummated within 15 New York City
business days after the Delivery Date.
(c) If this Agreement is terminated pursuant to this Section 12.01, the
Merger will be deemed for all purposes to have been abandoned and of no force or
effect.
Section 12.02. Liabilities in Event of Termination. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Sections
11.03 or 11.07 and (b) to the extent that such liability is based on the breach
by that party of any of its representations, warranties or covenants set forth
in this Agreement.
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<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
RAILWORKS CORPORATION
By: /s/ John G. Larkin
-----------------------------------
John G. Larkin
Chief Executive Officer
HUSKY NEW ENGLAND RAILROAD
CONSTRUCTION COMPANY
By: /s/ John G. Larkin
-----------------------------------
John G. Larkin
President
NEW ENGLAND RAILROAD CONSTRUCTION
COMPANY INC.
By: /s/ Authorized Signature
-----------------------------------
Name:
Title:
STOCKHOLDERS:
/s/ Anthony Julian, Jr.
----------------------------------------
Anthony Julian, Jr.
/s/ Daniel F. Julian
----------------------------------------
Daniel F. Julian
/s/ Michael A. Julian
-----------------------------------------
Michael A. Julian
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<PAGE> 23
ADDENDUM 1
OTHER FOUNDING COMPANIES
A. Words and terms used in this Addendum which are defined in
the captioned Agreement to which this is an Addendum are used herein as therein
defined.
B. The Founding Companies are:
Alpha - Keystone Engineering, Inc.
Annex Railroad Builders, Inc.
Comtrak Construction, Inc.
Comstock Holdings Inc.
Condon Brothers, Inc.
CPI Concrete Products
HP McGinley, Inc.
Kennedy Railroad Builders, Inc.
Merit Railroad Contractors, Inc.
Midwest Construction Services, Inc.
Minnesota Railroad Services, Inc.
Mize Construction Co.
New England Railroad Construction Co., Inc.
Northern Rail Service & Supply Company, Inc.
Railcorp, Inc.
Railroad Service, Inc.
Railroad Specialities, Inc,
Southern Indiana Wood Preserving Co.
U.S. Railway Supply, Inc,
U.S. Trackworks, Inc.
W.A. Smith Construction Co., Inc.
W.A Smith Rerailing Co., Inc.
<PAGE> 1
EXHIBIT 10.14
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 21, 1998
BY AND BETWEEN
RAILWORKS CORPORATION,
WOLVERINES NORTHERN RAIL SERVICES COMPANY,
NORTHERN RAIL SERVICE AND SUPPLY COMPANY, INC.
AND
THE STOCKHOLDERS NAMED HEREIN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS...................................................................................1
Section 1.01. Certain Defined Terms.................................................1
ARTICLE II THE MERGER AND RELATED MATTERS................................................................4
Section 2.01. Certificate of Merger.................................................4
Section 2.02. The Effective Time....................................................4
Section 2.03. Certain Effects of the Merger.........................................4
Section 2.04. Effect of the Merger on Capital Stock.................................5
Section 2.05. Delivery, Exchange and Payment........................................6
Section 2.06. Merger Consideration Calculation......................................7
Section 2.07. Fractional Shares.....................................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
EACH STOCKHOLDER .............................................................................8
Section 3.01. By Each Stockholder...................................................8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS......................................................9
Section 4.01. By the Company and Each Primary Stockholder...........................9
ARTICLE V REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO................................................9
Section 5.01. By RW and Newco.......................................................9
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME ...................................................10
Section 6.01. Of Each Party........................................................10
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION.................................................................................10
Section 7.01. The Closing and Certain Conditions...................................10
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME.......................................................12
Section 8.01. Of Each Party Other than the Company.................................12
ARTICLE IX INDEMNIFICATION..............................................................................12
Section 9.01. Indemnification Rights and Obligations...............................12
ARTICLE X [Intentionally Ommitted].....................................................................12
ARTICLE XI GENERAL PROVISIONS...........................................................................12
Section 11.01. Treatment of Confidential Information................................12
Section 11.02. Restrictions on Transfer of RW Common Stock..........................12
Section 11.03. Brokers and Agents...................................................14
Section 11.04. Assignment; No Third Party Beneficiaries.............................14
Section 11.05. Entire Agreement; Amendment; Waivers.................................15
Section 11.06. Counterparts.........................................................15
Section 11.07. Expenses.............................................................15
Section 11.08. Notices..............................................................15
Section 11.09. Governing Law........................................................16
Section 11.10. Exercise of Rights and Remedies......................................16
Section 11.11. Time.................................................................16
Section 11.12. Reformation and Severability.........................................17
Section 11.13. Remedies Cumulative..................................................17
Section 11.14. Respecting the IPO...................................................17
ARTICLE XII TERMINATION..................................................................................17
Section 12.01. Termination of this Agreement........................................17
Section 12.02. Liabilities in Event of Termination..................................18
EXHIBITS
Exhibit A - List of Primary Stockholders
Exhibit B - Form of Employment Agreement
Exhibit C - IPO Cost Liability Sharing Agreement
Exhibit D - Merger Consideration
</TABLE>
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<PAGE> 4
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as
of May 21, 1998, by and among RailWorks Corporation, a Delaware corporation
("RW"), Wolverines Northern Rail Service Company, a Michigan corporation and a
wholly owned subsidiary of RW("Newco"), Northern Rail Service and Supply Cmpany,
Inc., a Michigan corporation (the "Company"), and the persons listed on the
signature pages hereof under the caption "Stockholders" (collectively, the
"Stockholders," and each of those persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(a) Newco will merge into the Company on the terms and subject to the
conditions set forth herein (that merger being the "Merger");
(b) RW will acquire the stock of all or some of the entities listed in
the accompanying Addendum 1 (each an "Other Founding Company" and, collectively
with the Company, the "Founding Companies") pursuant to agreements that are (i)
similar in all material respects to this Agreement and (ii) entered into among
those entities and their equity owners, RW and subsidiaries of RW (collectively,
the "Other Agreements"); and
(c) RW shall at such time as specified herein and if certain conditions
are met, effect a public offering of shares of its common stock and issue and
sell those shares.
The respective boards of directors of RW, Newco and the Company have
approved and adopted this Agreement to effect a transaction subject to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Certain Defined Terms. As used in this Agreement and in
the related Addendums, Annexes, Schedules and Exhibits, the following terms have
the meanings assigned to them below in this Section 1.01. Capitalized terms used
in this Agreement and not defined below in this Section 1.01 have the meanings
assigned to them in the Preliminary Statement or Article I of the Uniform
Provisions (the text of which Article hereby is incorporated herein by this
reference), as the case may be.
<PAGE> 5
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement and all attached Schedules, Addendums,
Annexes and Exhibits, as each of the same may be amended, modified or
supplemented from time to time pursuant to the provisions hereof or thereof.
"Applicable Corporate Code" means the laws of the Organization State of
the Company that govern corporations incorporated in such state.
"Closing Date Balance Sheet" of the Company means a balance sheet of
the Company as at the IPO Closing Date which is prepared on a basis consistent
with the basis on which the Current Balance Sheet was prepared.
"Closing Memorandum" means the form of closing memorandum to be
prepared by RW for the Closing under this Agreement in which are included the
forms of certificates of officers, the opinions of counsel and certain other
documents to be delivered at the Closing as provided in Article VII.
"Company Accounts Receivable" shall mean the accounts and notes or
other advances receivable of the Company and the Company Subsidiaries, excluding
any Retainages, as of the IPO Closing Date.
"Company Common Stock" means the common stock, no par value, of the
Company.
"Company Indebtedness" means the indebtedness of the Company, as of the
IPO Closing Date (including, with respect to CPI Concrete Products, Inc., the
value of the Cash Company Consideration to be received by its Employee Stock
Ownership Plan), that the Company has elected to repay (or repurchase, as the
case may be) with a portion of the RW Common Stock to be received as part of the
Merger Consideration. At least five days prior to the Delivery Date, the Company
will deliver to RW a schedule of the aggregate principal amount of the Company
Indebtedness, certified by the President of the Company, that will be
outstanding on the IPO Closing Date, and RW will repay such Company Indebtedness
on the IPO Closing Date. To the extent that the actual amount of Company
Indebtedness exceeds the amount shown on such schedule, such excess shall be
repaid by the Stockholders on or prior to the IPO Closing Date.
"Counsel for RW and Newco" means King & Spalding.
"Counsel for the Company and the Stockholders" means such counsel as
shall be designated by the Company in writing on or prior to the Delivery Date.
"Current Balance Sheet" means the balance sheet of the Company as at
March 31, 1998 which is included in the Initial Financial Statements.
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<PAGE> 6
"Current Balance Sheet Date" means December 31, 1997.
"Defined Net Worth" as of the IPO Closing Date shall mean (i) the total
assets of the Company, as set forth on the balance sheet of the Company as of
such date, except that (A) expenses of the Company directly attributable to the
IPO and/or the transactions contemplated by this Agreement, including but not
limited to, costs incurred pursuant to the HSR Act, shall be added back to the
assets of the company and (B) the value of inventory, machinery, equipment and
real estate shall be determined pursuant to Section 2.06(a), less (ii) the total
liabilities of the Company, as set forth on the balance sheet of the Company as
of such date, excluding the Company Indebtedness. Notwithstanding the foregoing,
in the case of Comstock, Comstock's contractual obligation to Spie Group, Inc.,
as successor to Comstock Group, Inc., shall not be deemed to be a liability for
purposes of determining Defined Net Worth.
"Delivery" or "Delivery Date" shall have the meaning set forth in
Section 7.01.
"Earnings Percentage" shall have the meaning set forth in Exhibit D.
"Employment Agreement" means each of the Employment Agreements entered
into as of the Closing Date between RW and each of the Stockholders set forth on
Exhibit A hereto, a form of which is attached hereto as Exhibit B.
"fair market value" means that value at which goods and/or services
would be exchanged between a willing buyer and willing seller in a transaction
entered into at arms length with each party having relevant facts of all aspects
of the transaction.
"Initial Financial Statements" means (a) the balance sheets of the
Company as at December 31, 1997 and March 31, 1998 and the related reviewed
statements of operations and retained earnings for each of the Company's two
fiscal years in the period ended December 31, 1997, and (b) the Current Balance
Sheet and the related statement of income for the Company's fiscal year ended
December 31, 1997, which the Company has delivered to RW prior to the date
hereof.
"IPO Closing Date" means the date on which RW first receives payment
for the shares of RW Common Stock it sells to the Underwriter in the IPO.
"Merger Consideration" has the meaning specified in Section 2.04.
"Newco" means Wolverines Northern Rail Service Company, a Michigan
corporation.
"Responsible Officer" means the President, Chief Executive Officer or
any Vice President of the Company.
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<PAGE> 7
"Retainages" means the portion of progress payments due to a Company
for contracting projects that is withheld by a customer of such Company until
completion of a project, pursuant to the terms of a contract with such customer,
as security for the completion of the project.
"RW" means RailWorks Corporation, a Delaware corporation.
"Scheduled Related Party Agreements" means the agreements described in
Schedule 4.11.
"Surviving Corporation" means the Person to be designated in the
Certificate of Merger as the surviving corporation of the Merger.
"Threshold Amount" means 2.0% of the Merger Consideration.
"Transaction Value" means the (i)(A) the total number of shares of RW
outstanding immediately upon the closing of the IPO and the transactions
contemplated by this Agreement and the Other Agreements multiplied by (B) the
IPO Price multiplied by (C) 92% minus (ii) actual expenses of RW incurred with
respect to the IPO, an estimate of which will be set forth in Item 13 of Part II
of the Registration Statement minus (iii) the underwriting discounts and
commissions paid to the Underwriter pursuant to the IPO minus (iv) the proceeds
received by RW in connection with any shares of RW Common Stock sold by RW to
finance the working capital needs of RW, which shares shall not exceed 5% of the
number of shares to be sold in the IPO.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions of RW for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. Certificate of Merger. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the Delivery Date to the Department
of State of the State of Michigan.
Section 2.02. The Effective Time. The effective time of the Merger (the
"Effective Time") will be the time on the IPO Closing Date as specified in the
Certificate of Merger or, if the Certificate of Merger does not specify another
time, 8:00 a.m., eastern daylight standard time, on the IPO Closing Date.
Section 2.03. Certain Effects of the Merger. At and as of the Effective
Time, (a) Newco will be merged with and into the Company in accordance with the
provisions of the Michigan Business Corporation Act, (b) Newco will cease to
exist as a separate legal entity, (c) the articles of
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<PAGE> 8
incorporation of the Company will be amended to change its authorized capital
stock to 100 shares, par value $0.01 per share, of Common Stock, (d) the Company
will be the Surviving Corporation and, as such, will, all with the effect
provided by the Michigan Business Corporation Act, (i) possess all the
properties and rights, and be subject to all the restrictions and duties, of the
Company and Newco and (ii) be governed by the laws of the State of Michigan, (e)
the Charter Documents of the Company then in effect (after giving effect to the
amendment of the Company's articles of incorporation specified in clause (c) of
this sentence) will become and thereafter remain (until changed in accordance
with (i) applicable law (in the case of the articles of incorporation) or (ii)
their terms (in the case of the bylaws)) the Charter Documents of the Surviving
Corporation, (f) the initial board of directors of the Surviving Corporation
will be the Chief Executive Officer of RW and the other persons named in
Schedule 2.03, and those persons will hold the office of director of the
Surviving Corporation subject to the provisions of the applicable laws of the
State of Michigan and the Charter Documents of the Surviving Corporation, and
(g) the initial officers of the Surviving Corporation will be as set forth in
Schedule 2.03, and each of those persons will serve in each office specified for
that person in Schedule 2.03, subject to the provisions of the Charter Documents
of the Surviving Corporation, until that person's successor is duly elected to,
and, if necessary, qualified for, that office.
Section 2.04. Effect of the Merger on Capital Stock. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the right to
receive, subject to the provisions of Section 2.05 and Exhibit D, without
interest, on surrender of the certificate evidencing those shares, the amount of
cash and the number of whole and fractional shares of RW Common Stock set forth
or determined as provided in Exhibit D (the "Merger Consideration"), (ii) cease
to be outstanding and to exist and (iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to exist
and (ii) be canceled and retired; and
(c) each share of Newco Common Stock issued and outstanding immediately
prior to the Effective Time will be converted into one share of Common Stock, no
par value, of the Surviving Corporation, and the shares of Common Stock of the
Surviving Corporation issued on that conversion will constitute all the issued
and outstanding shares of Capital Stock of the Surviving Corporation. Each
holder of a certificate representing shares of Company Common Stock immediately
prior to the Effective Time will, as of the Effective Time and thereafter, cease
to have any rights respecting those shares other than the right to receive,
subject to the provisions of Section 2.05, without interest, the Merger
Consideration and the additional cash, if any, owing with respect to those
shares as provided in Section 2.07.
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<PAGE> 9
Section 2.05. Delivery, Exchange and Payment.
(a) At or after the Effective Time: (i) each Stockholder, as the holder
of certificates representing shares of Company Common Stock, will, on surrender
of those certificates to RW (or any agent that may be appointed by RW for
purposes of this Section 2.05), receive, subject to the provisions of this
Article II and the Escrow Agreement, such Stockholder's share of the Merger
Consideration pursuant to Section 2.04 and Exhibit D; and (ii) until any
certificate representing Company Common Stock has been surrendered and replaced
pursuant to this Section 2.05, that certificate will, for all purposes, be
deemed to evidence ownership of the number of whole shares of RW Common Stock
included in the Merger Consideration payable in respect of that certificate
pursuant to Section 2.04. The Escrow Agreement will provide that the shares of
RW Common Stock issued to the Stockholders as a part of the Merger Consideration
together with duly executed stock powers in blank, shall be placed in escrow to
be held subject to the terms of the Escrow Agreement and further subject to
Exhibit D and Section 11.02. The escrow shall consist solely of shares of RW
Common Stock that shall be issued at the Effective Time to the Stockholders of
the Founding Companies and delivered, at the Closing, to the Escrow Agent. All
shares of RW Common Stock issuable in the Merger will be deemed for all purposes
to have been issued by RW at the Effective Time.
(b) Each Stockholder will deliver to RW (or any agent that may be
appointed by RW for purposes of this Section 2.05) on or before the Delivery
Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Stockholder, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Stockholder's expense, affixed and canceled.
Each Stockholder shall cure any deficiencies in the endorsement of the
certificates or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Stockholder.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to RW Common Stock and payable to
the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of RW Common Stock have been issued in the Merger until
those certificates are surrendered as provided herein, but (i) on that surrender
RW will cause to be paid, to the Person in whose name the certificates
representing such shares of RW Common Stock shall then be issued, the amount of
dividends or other distributions previously paid with respect to such whole
shares of RW Common Stock with a record date, or which have accrued, subsequent
to the Effective Time, but prior to surrender, and the amount of any cash
payable to such Person for and in lieu of fractional shares pursuant to Section
2.07 and (ii) at the appropriate payment date or as soon as practicable
thereafter, RW will cause to be paid to that Person the amount of dividends or
other distributions with a record date, or which have been accrued, subsequent
to the Effective Time, but which are not payable until a date subsequent to
surrender, which are payable with respect to such whole shares of RW Common
Stock, subject in all cases to any applicable
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escheat laws. No interest will be payable with respect to the payment of such
dividends or other distributions or cash for and in lieu of fractional shares on
surrender of outstanding certificates.
(d) Each Stockholder hereby authorizes and directs RW to deliver 3.5%
of the Cash Company Consideration and 3.5% of the Stock Company Consideration
owed to such Stockholder pursuant to this Agreement (before deposit of the
shares of RW Common Stock into escrow) to IPO Development Company in payment of
fees owed to IPO Development Company by such Stockholder.
Section 2.06. Merger Consideration Calculation.
(a) No later than fifteen (15) days following the IPO Closing Date, the
Company shall provide to the Chief Accounting Officer of RW (the "CAO") a
determination of the fair market value (as defined) of its inventory, machinery,
equipment and real estate (the "Valued Assets") as of the IPO Closing Date.
Within seven (7) days of such date, the CAO shall distribute to every Founding
Company the value of the Valued Assets of every Founding Company. The Company
shall have seven (7) days from the date of the distribution of such valuation to
dispute the value of the Valued Assets of any Founding Company by providing
written notice of such dispute to the CAO. If the CAO is unable to resolve any
such dispute, the dispute shall be resolved by binding arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
which arbitration shall be resolved no later than thirty (30) days from
selection of the arbitrator. The arbitrator shall be selected by the CAO.
(b) Arthur Andersen or, if not Arthur Andersen, the Company's
accountant, shall cause to be prepared and delivered to RW and the Company a
calculation as of the IPO Closing Date of the Defined Net Worth of the Company
(the "Balance Sheet Calculation"). The Balance Sheet Calculation shall be final
and binding on the Company and the Other Founding Companies absent fraud,
manifest error or gross negligence.
(c) The Balance Sheet Calculation shall include a report of Arthur
Andersen or, if not Arthur Andersen, the Company's accountant, stating that it
has been prepared in a manner consistent with the accounting policies and
procedures used in preparation of the balance sheets in the Initial Financial
Statements, except as provided in the definition of "Defined Net Worth"
contained herein. The Stockholders shall give Arthur Andersen and other
appropriate personnel such assistance and access to the assets and books and
records of the Company as Arthur Andersen shall reasonably request during normal
business hours in order to enable them to prepare the Balance Sheet Calculation.
The Surviving Corporation shall be responsible for the fees and expenses of
Arthur Andersen or, if not Arthur Andersen the Company's accountant.
Section 2.07. Fractional Shares. Notwithstanding any other provision
herein, no fractional shares of RW Common Stock will be issued. All shares of RW
Common Stock shall be aggregated, and any Stockholder entitled hereunder, after
such aggregation, to receive a fractional share of RW Common Stock but for this
Section 2.07 will be entitled hereunder to receive a cash payment for and
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in lieu thereof in the amount (rounded to the nearest whole cent) equal to that
Stockholder's fractional interest in a share of RW Common Stock multiplied by
the IPO Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01. By Each Stockholder. The Stockholders severally represent
and warrant to, and agree with, RW that all the following representations and
warranties in this Article III are as of the date of this Agreement, and will
be, as amended or supplemented pursuant to Section 6.08, on the IPO Closing
Date, true and correct:
(a) (i) each Stockholder will acquire the shares of RW Common
Stock to be issued pursuant to Article II to the Stockholder solely for the
Stockholder's account, for investment purposes only and with no current
intention or plan to distribute, sell or otherwise dispose of any of those
shares in connection with any distribution;
(ii) no Stockholder is a party to any agreement or other
arrangement for the disposition of any shares of RW Common Stock other
than this Agreement; (iii) except as set forth on Schedule 3.01(a)(ii)
each Stockholder is an "accredited investor" as defined in Rule 501(a)
promulgated under the Securities Act; (iv) each Stockholder (A) is able
to bear the economic risk of an investment in the RW Common Stock
acquired pursuant to this Agreement, (B) can afford to sustain a total
loss of that investment, (C) has such knowledge and experience in
financial and business matters that he or she is capable of evaluating
the merits and risks of the proposed investment in the RW Common Stock,
(D) has had an adequate opportunity to ask questions and receive
answers from the officers of RW concerning any and all matters relating
to the transactions contemplated hereby, including the background and
experience of the current and proposed officers and directors of RW,
the plans for the operations of the business of RW, the business,
operations and financial condition of the Other Founding Companies and
any plans of RW for additional acquisitions, and (E) has asked all
questions of the nature described in preceding clause (D) that such
Stockholder thought to ask, and all those questions have been answered
to his or her satisfaction;
(b) the representations and warranties contained in Article III of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to; and
(c) (i) the terms and conditions of any agreements between any
Stockholder or an Affiliate of any Stockholder, on the one hand, and the Company
on the other hand, included in the Scheduled Related Party Agreements will have
been amended effective as of the IPO Closing Date to be no less favorable to the
Company than the Company reasonably could have expected to obtain in an
arms-length transaction with a Person other than an Affiliate of the Company and
(ii) the
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rentals or other payments provided for in such agreements then will not exceed
fair market rentals of the property being leased or fair market value of the sum
or product being provided and such amounts shall have been previously approved
in writing by the Chief Financial Officer of RW.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS
Section 4.01. By the Company and Each Primary Stockholder. The Company
and each Primary Stockholder jointly and severally represent and warrant to, and
agree with, RW that all the following representations and warranties in this
Article IV are as of the date of this Agreement, and will be, as amended or
supplemented pursuant to Section 6.08, on the Delivery Date and the IPO Closing
Date, true and correct:
(a) the Organization State of the Company is the State of Michigan, and
the Company (i) is a corporation duly organized, validly existing and in good
standing under the laws of that State, (ii) has all requisite corporate power
and authority under those laws and its Charter Documents to own or lease and to
operate its properties and to carry on its business as now conducted and (iii)
is duly qualified and in good standing as a foreign corporation in all
jurisdictions (other than the State of Michigan) in which it owns or leases
property or in which the carrying on of its business as now conducted so
requires except where the failure to be so qualified, singly or in the
aggregate, would not have a Material Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is comprised of
60,000 shares of Company Common Stock, of which 16,841 shares have been issued
and are now outstanding and no shares are held by the Company as treasury
shares, and (ii) there are no Derivative Securities of the Company;
(c) the Company has elected to be treated as an S corporation within
the meaning of the Code, as amended; and
(d) the representations and warranties contained in Article IV of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO
Section 5.01. By RW and Newco. RW and Newco jointly and severally
represent and warrant to the Company and each Stockholder that all the following
representations and warranties
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in this Article V are as of the date of this Agreement, and will be on the IPO
Closing Date, true and correct:
(a) Newco is a corporation duly organized, validly existing and in good
standing under the laws of the State of Michigan;
(b) except as disclosed in the Private Placement Memorandum, no
Derivative Securities of Newco are outstanding;
(c) Newco has been organized for the sole purpose of participating in
the Merger and has not, and will not, engage in any activities other than those
necessary to effectuate the Merger;
(d) except for shares of RW Common Stock to be publicly sold in the IPO
and as disclosed in the Private Placement Memorandum or preliminary prospectus,
neither RW nor Newco is a party to any agreement or other arrangement for the
disposition of any shares of RW Common Stock; and
(e) the representations and warranties contained in Article V of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01. Of Each Party. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01. The Closing and Certain Conditions.
(a) The Closing. On or before the IPO Pricing Date, the parties hereto
will take all actions necessary to (i) effect the Merger (including, as
permitted by the Applicable Corporate Code, (A) the execution of a Certificate
of Merger (1) meeting the requirements of the Applicable Corporate Code and (2)
providing that the Merger will become effective on the IPO Closing Date and (B)
the delivery of that Certificate of Merger with a filing service that will file
such Certificate of Merger with the Department of State of the State of
Michigan) upon notification of the closing of the IPO (provided that Comstock's
Certificate of Merger shall be filed immediately prior to the closing of the
IPO), (ii) verify the existence and ownership of the certificates evidencing the
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Company Common Stock to be exchanged for the Merger Consideration pursuant to
Section 2.05 and (iii) satisfy the document delivery requirements to which the
obligations of the parties to effect the Merger and the other transactions
contemplated hereby are conditioned by the provisions of this Article VII (all
those actions collectively being the "Delivery"). The Delivery will take place
at the offices of King & Spalding, 191 Peachtree Street, Atlanta, Georgia at
10:00 a.m., Atlanta time on the IPO Pricing Date, or at such later time on the
IPO Pricing Date as RW shall specify by written notice to the President of the
Company (the "Delivery Date"). The actions taken at the Delivery will not
include the completion of either the Merger or the delivery of the Company
Common Stock or the Merger Consideration pursuant to Section 2.05. On the IPO
Closing Date, the Certificate of Merger will be filed and will become effective
pursuant to Section 2.02, and all transactions contemplated by this Agreement to
be closed or completed on or before the IPO Closing Date, including the
surrender of the Company Common Stock in exchange for the Merger Consideration
(including a certified check or checks in an amount equal to the cash portion of
the Merger Consideration) will be closed or completed, as the case may be.
During the period from the Delivery Date to the IPO Closing Date, this Agreement
may be terminated by the parties only pursuant to Section 12.01(b)(i).
(b) Certain Conditions to the Obligations of the Company and the
Stockholders. The obligations of the Company and the Stockholders with respect
to the actions to be taken by them at or before the Delivery Date are subject to
the satisfaction on or before the Delivery Date, or waiver by them pursuant to
Section 11.05, of all the conditions set forth in Sections 7.01 and 7.02(a). The
obligations of the Stockholders with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of the following
conditions: (if required by such Stockholder) (i) the Employment Agreement then
shall be in full force and effect; and (ii) all the conditions set forth in
Sections 7.01 and 7.02(b).
(c) Certain Conditions to the Obligations of RW and Newco. The
obligations of RW and Newco with respect to actions to be taken by them at or
before the Delivery Date are subject to the satisfaction on or before the date
of the Delivery Date, or waiver by them pursuant to Section 11.05, of the
following conditions: (i) the Company shall have delivered to RW a copy of the
articles of incorporation, as amended to the Delivery Date and certified by the
Secretary of State of the State of Michigan as of a Current Date, of the
Company; and (ii) all the conditions set forth in Sections 7.01 and 7.03(a). The
obligations of RW and Newco with respect to the actions to be taken on the IPO
Closing Date are subject to the satisfaction on that date of the following
conditions: (i) the Employment Agreements then shall be in full force and
effect; and (ii) all the conditions set forth in Sections 7.01 and 7.03(b).
(d) Uniform Provisions. The text of Article VII of the Uniform
Provisions hereby is incorporated herein by this reference.
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ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01. Of Each Party Other than the Company. From and after the
Effective Time, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Company) will comply with each covenant for which
provision is made in Article VIII of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) to be performed or
observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01. Indemnification Rights and Obligations. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. Any provision contained in Article IX of the Uniform Provisions to
the contrary notwithstanding, the indemnification obligations of the
Stockholders pursuant to this Agreement shall be joint and several.
ARTICLE X
[Intentionally Ommitted]
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. Treatment of Confidential Information. Each party hereto
will comply with each covenant for which provision is made in Section 11.01 of
the Uniform Provisions (the text of which Section hereby is incorporated herein
by this reference) to be performed or observed by that party.
Section 11.02. Restrictions on Transfer of RW Common Stock.
(a) Except for transfers to employees of the Company that are approved
in writing by the Board of Directors of RW (or a committee designated by the
Board of Directors of RW) prior to such transfer, during the one year period
ending on the first anniversary of the IPO Closing Date (the "Restricted
Period"), no Stockholder voluntarily will: (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
RW Common Stock received by any Stockholder in the Merger or (B) any interest in
(including any option to buy or sell) any of those shares of RW Common Stock, in
whole or in part, and RW will have no obligation to, and shall not, treat any
such attempted transfer as effective for any purpose; or (ii) engage in any
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transaction, whether or not with respect to any shares of RW Common Stock or any
interest therein, the intent or effect of which is to reduce the risk of owning
the shares of RW Common Stock acquired pursuant to Section 2.04 (including, for
example engaging in put, call, short-sale, straddle or similar market
transactions); provided, however, that this Section 11.02 shall not restrict any
transfer of RW Common Stock acquired by a Stockholder pursuant to Section 2.04
to any of that Stockholder's Related Persons who agree in writing to be bound by
the provisions of Section 11.01 and this Section 11.02. The certificates
evidencing the RW Common Stock delivered to each Stockholder pursuant to Section
2.05 will bear a legend substantially in the form set forth below and containing
such other information as RW may deem necessary or appropriate:
"EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER
PARTIES THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE
REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF
ANY OF THOSE SHARES, DURING THE ONE-YEAR PERIOD ENDING ON __________ [DATE THAT
IS THE FIRST ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED PERIOD"). ON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE."
(b) From the first anniversary of the IPO Closing Date to the fourth
anniversary of the IPO Closing Date, the Stockholders agree to sell shares of RW
Common Stock acquired pursuant to this Agreement only in accordance with the
procedures set forth in this Section 11.02(b). Every quarter during such period,
every Stockholder will be permitted to sell, in the aggregate, up to 8% of the
aggregate number of shares of Common Stock received by such Stockholder pursuant
to this Agreement (the "Quarterly Block Trade Shares") in either a block trade
or a registered public offering, at the option of RW. If a Stockholder does not
sell all of his or her Quarterly Block Trade Shares in any given quarter, such
Stockholder may sell such Quarterly Block Trade Shares pursuant to this Section
11.02(b) in any later quarter, provided, however, that in no event may a
Stockholder sell more than 20% of the shares of Common Stock received by such
Stockholder pursuant to this Agreement in any one quarter. Any Stockholder that
wishes to sell shares of RW Common Stock pursuant to such selling opportunity
must give notice to RW and the Executive Council no later than fourteen days
prior to the commencement of the fiscal quarter of RW during which such
Stockholder wants to sell such shares. Notwithstanding anything set forth in
this Section 11.02(b), RW may elect to make available to the Stockholders (i)
additional opportunities to sell shares of RW Common Stock and/or (ii) the
opportunity to sell an amount in excess of such amount during any particular
quarter. The Company may modify or waive this Section 11.02(b) at its sole
discretion at any time following written notice to the Stockholders, provided
that no such modification or waiver may
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reduce the number of selling opportunities or the maximum number of shares of RW
Common Stock that may be sold by any Stockholder during any selling opportunity.
(c) Each Stockholder, severally and not jointly with any other Person,
(i) acknowledges that the shares of RW Common Stock to be delivered to that
Stockholder pursuant to Section 2.04 have not been and will not be registered
under the Securities Act and therefore may not be resold by that Stockholder
without compliance with the Securities Act and (ii) covenants that none of the
shares of RW Common Stock issued to that Stockholder pursuant to Section 2.04
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable provisions of
the Securities Act and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of RW Common
Stock issued pursuant to Section 2.04 will bear the following legend in addition
to the legend prescribed by Section 11.02(a):
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, HAVE
BEEN ISSUED PURSUANT TO ONE OR MORE EXEMPTIONS THERETO, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED OR DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED."
In addition, certificates evidencing shares of RW Common Stock issued pursuant
to Section 2.04 to each Stockholder will bear any legend required by the
securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03. Brokers and Agents. Except for IPO Development Company,
each of the Stockholders jointly and severally, on the one hand, and RW, on the
other, represents and warrants to the other that such Person has not directly or
indirectly employed or become obligated to pay any broker, finder or similar
agent in connection with the transactions contemplated hereby and agree, without
regard to the Threshold Amount limitations set forth in Article IX, to indemnify
the other against all Damage Claims arising out of claims for any and all fees
and commissions of brokers or similar agents employed or promised payment by
such Person.
Section 11.04. Assignment; No Third Party Beneficiaries. This Agreement
and the rights of the parties hereunder may not be assigned (except by operation
of law) and shall be binding on and inure to the benefit of the parties hereto,
the successors of RW, and the heirs and legal representatives of the
Stockholders (and, in the case of any trust, the successor trustees of that
trust). Neither this Agreement nor any other Transaction Document is intended,
or shall be construed, deemed or interpreted, to confer on any Person not a
party hereto or thereto any rights or remedies hereunder or thereunder, except
as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise provided
expressly herein or therein.
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Section 11.05. Entire Agreement; Amendment; Waivers. Except with
respect to Section 11.07 hereof, this Agreement and the documents delivered
pursuant hereto constitute the entire agreement and understanding among the
Stockholders, the Company, Newco and RW and supersede all prior agreements and
understandings, both written and oral, relating to the subject matter of this
Agreement. This Agreement may be amended, modified or supplemented, and any
right hereunder may be waived, if, but only if, that amendment, modification,
supplement or waiver is in writing and signed by each of the Stockholders, the
Company and RW. The waiver of any of the terms and conditions hereof shall not
be construed or interpreted as, or deemed to be, a waiver of any other term or
condition hereof.
Section 11.06. Counterparts. This Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
Section 11.07. Expenses. If the transactions contemplated hereby (i)
are consummated, RW will pay the fees, expenses and disbursements of RW and
Newco and their Representatives which are incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all costs
and expenses incurred in the performance of and compliance with all conditions
to be performed by RW and Newco under this Agreement, including the costs of
preparing the Registration Statement, (collectively, the "RW Expenses") and (ii)
if the transactions contemplated hereby are not consummated, the RW Expenses
shall be paid by the Founding Companies subject to the provisions of the IPO
Cost Liability Sharing Agreement attached hereto as Exhibit C and incorporated
herein by reference (b) the Stockholders will pay from personal funds, and not
from funds of the Company or any Company Subsidiary, all sales, use, transfer
and other similar taxes and fees (collectively, "Transfer Taxes") incurred in
connection with the transactions contemplated hereby and (c) the Company will
pay the fees, expenses and disbursements of Counsel for the Company and the
Stockholders incurred in connection with the subject matter of this Agreement
and the Registration Statement on or before the IPO Closing Date. The
Stockholders will file all necessary documentation and Returns with respect to
all Transfer Taxes. In addition, each Stockholder acknowledges that he, and not
the Company or RW or the Surviving Corporation, will pay all Taxes due upon
receipt of the consideration payable to that Stockholder pursuant to Article II.
Section 11.08. Notices. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received
(a) if personally delivered or if delivered by telex, telegram,
facsimile or courier service, when actually received by the party to whom notice
is sent or
(b) if delivered by mail (whether actually received or not), at the
close of business on the third Business Day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
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(i) if to RW or Newco, addressed to it at:
RailWorks Corporation
403 Somerset Road
Baltimore, Maryland 21210
Attn: Chief Executive Officer
with copies (which shall not constitute notice for purposes
of this Agreement) to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attn: Jeffrey M. Stein
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
Northern Rail Service and Supply Company, Inc.
1165 142nd Avenue
Wayland, Michigan 49348
Attn: Lambertus L. Tameling
with copies (which shall not constitute notice for purposes
of this Agreement) to Counsel for the Company and the
Stockholders at the address designated by the Company
Section 11.09. Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF DELAWARE
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10. Exercise of Rights and Remedies. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11. Time. Time is of the essence in the performance of this
Agreement in all respects.
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Section 11.12. Reformation and Severability. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13. Remedies Cumulative. No right, remedy or election given
by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14. Respecting the IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither RW or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that RW will use its reasonable best efforts to
cause the Registration Statement to become effective prior to August 14, 1998)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to RW or the
IPO.
ARTICLE XII
TERMINATION
Section 12.01. Termination of this Agreement.
(a) This Agreement may be terminated at any time prior to the Delivery
Date solely:
(i) by the mutual written consent of RW and the Company;
(ii) by the Stockholders or the Company, on the one hand, or
by RW, on the other hand, if the events contemplated by this Agreement
to take place at the Delivery Date shall not have taken place by
September 4, 1998, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the
case of the Stockholders and the Company, any of them) seeking to
terminate this Agreement to perform or adhere to any agreement required
hereby to be performed or adhered to by it prior to or at the Delivery
Date or thereafter on the IPO Closing Date;
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(iii) by the Stockholders or the Company, on the one hand,
or by RW, on the other hand, if a material breach or default shall be
made by the other party (or in the case of the Stockholders and the
Company, any of them) in the observance or in the performance of any
of the covenants, agreements or conditions contained in Article VI or
Section 11.01;
(iv) by the Stockholders or the Company, on the one hand,
or RW, on the other, if it is entitled to do so as provided in Section
6.08;
(v) by the Stockholders prior to the filing of the
Registration Statement if the Registration Statement is not filed by
June 15, 1998;
(vi) by RW or the Stockholders prior to 9:00 a.m. on the
IPO Pricing Date (as set forth in Section 8.10) if the value of RW at
the IPO Pricing Date (as calculated by multiplying the price per share
at which the RW common stock is to be sold in the IPO by the number of
shares of common stock to be outstanding after the Closing of the IPO)
shall be less than $215 million;
(vii) by the Stockholders if the Registration Statement has
not been declared effective by the Securities and Exchange Commission
by August 14, 1998;
(viii) by the Stockholders if John G. Larkin is no longer
serving as Chairman of the Board of Directors and Chief Executive
Officer prior to the Closing; or
(ix) by the stockholders of CPI Concrete Products, Inc. if
its Employee Stock Ownership Plan does not approve the merger prior to
the Delivery Date.
(b) This Agreement may be terminated after the Delivery Date solely:
(i) by RW or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the IPO Pricing Date and prior
to the consummation of the IPO; or
(ii) automatically and without action on the part of any
party hereto if the IPO is not consummated within 15 New York City
business days after the Delivery Date.
(c) If this Agreement is terminated pursuant to this Section 12.01, the
Merger will be deemed for all purposes to have been abandoned and of no force or
effect.
Section 12.02. Liabilities in Event of Termination. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Sections
11.03 or 11.07 and (b) to the extent that such liability is based on the breach
by that party of any of its representations, warranties or covenants set forth
in this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
RAILWORKS CORPORATION
By: /s/ John G. Larkin
---------------------------------
John G. Larkin
Chief Executive Officer
WOLVERINES NORTHERN RAIL SERVICE
COMPANY
By: /s/ John G. Larkin
---------------------------------
John G. Larkin
President
NORTHERN RAIL SERVICE AND SUPPLY
COMPANY, INC.
By: /s/ Authorized Signature
---------------------------------
Name:
Title:
STOCKHOLDERS:
/s/ Douglas J. Nagel
---------------------------------------
Douglas J. Nagel
/s/ Lambertus L. Tameling
---------------------------------------
Lambertus L. Tameling
/s/ Arnold D. Morren
---------------------------------------
Arnold D. Morren
/s/ Cynthia L. Morren
---------------------------------------
Cynthia L. Morren
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<PAGE> 23
ADDENDUM 1
OTHER FOUNDING COMPANIES
A. Words and terms used in this Addendum which are defined in
the captioned Agreement to which this is an Addendum are used herein as therein
defined.
B. The Founding Companies are:
Alpha - Keystone Engineering, Inc.
Annex Railroad Builders, Inc.
Comtrak Construction, Inc.
Comstock Holdings Inc.
Condon Brothers, Inc.
CPI Concrete Products
HP McGinley, Inc.
Kennedy Railroad Builders, Inc.
Merit Railroad Contractors, Inc.
Midwest Construction Services, Inc.
Minnesota Railroad Services, Inc.
Mize Construction Co.
New England Railroad Construction Co., Inc.
Northern Rail Service & Supply Company, Inc.
Railcorp, Inc.
Railroad Service, Inc.
Railroad Specialities, Inc,
Southern Indiana Wood Preserving Co.
U.S. Railway Supply, Inc,
U.S. Trackworks, Inc.
W.A. Smith Construction Co., Inc.
W.A Smith Rerailing Co., Inc.
<PAGE> 1
EXHIBIT 10.15
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 21, 1998
BY AND BETWEEN
RAILWORKS CORPORATION,
BIG ORANGE MINNESOTA COMPANY,
MINNESOTA RAILROAD SERVICE COMPANY
AND
THE STOCKHOLDERS NAMED HEREIN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS...................................................................................1
Section 1.01. Certain Defined Terms.................................................1
ARTICLE II THE MERGER AND RELATED MATTERS................................................................4
Section 2.01. Certificate of Merger.................................................4
Section 2.02. The Effective Time....................................................4
Section 2.03. Certain Effects of the Merger.........................................4
Section 2.04. Effect of the Merger on Capital Stock.................................5
Section 2.05. Delivery, Exchange and Payment........................................6
Section 2.06. Merger Consideration Calculation......................................7
Section 2.07. Fractional Shares.....................................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
EACH STOCKHOLDER .............................................................................8
Section 3.01. By Each Stockholder...................................................8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS......................................................9
Section 4.01. By the Company and Each Primary Stockholder...........................9
ARTICLE V REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO................................................9
Section 5.01. By RW and Newco.......................................................9
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME ...................................................10
Section 6.01. Of Each Party........................................................10
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION.................................................................................10
Section 7.01. The Closing and Certain Conditions...................................10
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME.......................................................12
Section 8.01. Of Each Party Other than the Company.................................12
ARTICLE IX INDEMNIFICATION..............................................................................12
Section 9.01. Indemnification Rights and Obligations...............................12
ARTICLE X [Intentionally Ommitted].....................................................................12
ARTICLE XI GENERAL PROVISIONS...........................................................................12
Section 11.01. Treatment of Confidential Information................................12
Section 11.02. Restrictions on Transfer of RW Common Stock..........................12
Section 11.03. Brokers and Agents...................................................14
Section 11.04. Assignment; No Third Party Beneficiaries.............................14
Section 11.05. Entire Agreement; Amendment; Waivers.................................15
Section 11.06. Counterparts.........................................................15
Section 11.07. Expenses.............................................................15
Section 11.08. Notices..............................................................15
Section 11.09. Governing Law........................................................16
Section 11.10. Exercise of Rights and Remedies......................................16
Section 11.11. Time.................................................................16
Section 11.12. Reformation and Severability.........................................17
Section 11.13. Remedies Cumulative..................................................17
Section 11.14. Respecting the IPO...................................................17
ARTICLE XII TERMINATION..................................................................................17
Section 12.01. Termination of this Agreement........................................17
Section 12.02. Liabilities in Event of Termination..................................18
EXHIBITS
Exhibit A - List of Primary Stockholders
Exhibit B - Form of Employment Agreement
Exhibit C - IPO Cost Liability Sharing Agreement
Exhibit D - Merger Consideration
</TABLE>
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<PAGE> 4
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as
of May 21, 1998, by and among RailWorks Corporation, a Delaware corporation
("RW"), Big Orange Minnesota Company, a Tennessee corporation and a wholly owned
subsidiary of RW("Newco"), Minnesota Railroad Service, Inc., a Tennessee
corporation (the "Company"), and the persons listed on the signature pages
hereof under the caption "Stockholders" (collectively, the "Stockholders," and
each of those persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(a) Newco will merge into the Company on the terms and subject to the
conditions set forth herein (that merger being the "Merger");
(b) RW will acquire the stock of all or some of the entities listed in
the accompanying Addendum 1 (each an "Other Founding Company" and, collectively
with the Company, the "Founding Companies") pursuant to agreements that are (i)
similar in all material respects to this Agreement and (ii) entered into among
those entities and their equity owners, RW and subsidiaries of RW (collectively,
the "Other Agreements"); and
(c) RW shall at such time as specified herein and if certain conditions
are met, effect a public offering of shares of its common stock and issue and
sell those shares.
The respective boards of directors of RW, Newco and the Company have
approved and adopted this Agreement to effect a transaction subject to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Certain Defined Terms. As used in this Agreement and in
the related Addendums, Annexes, Schedules and Exhibits, the following terms have
the meanings assigned to them below in this Section 1.01. Capitalized terms used
in this Agreement and not defined below in this Section 1.01 have the meanings
assigned to them in the Preliminary Statement or Article I of the Uniform
Provisions (the text of which Article hereby is incorporated herein by this
reference), as the case may be.
<PAGE> 5
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement and all attached Schedules, Addendums,
Annexes and Exhibits, as each of the same may be amended, modified or
supplemented from time to time pursuant to the provisions hereof or thereof.
"Applicable Corporate Code" means the laws of the Organization State of
the Company that govern corporations incorporated in such state.
"Closing Date Balance Sheet" of the Company means a balance sheet of
the Company as at the IPO Closing Date which is prepared on a basis consistent
with the basis on which the Current Balance Sheet was prepared.
"Closing Memorandum" means the form of closing memorandum to be
prepared by RW for the Closing under this Agreement in which are included the
forms of certificates of officers, the opinions of counsel and certain other
documents to be delivered at the Closing as provided in Article VII.
"Company Accounts Receivable" shall mean the accounts and notes or
other advances receivable of the Company and the Company Subsidiaries, excluding
any Retainages, as of the IPO Closing Date.
"Company Common Stock" means the common stock, no par value, of the
Company.
"Company Indebtedness" means the indebtedness of the Company, as of the
IPO Closing Date (including, with respect to CPI Concrete Products, Inc., the
value of the Cash Company Consideration to be received by its Employee Stock
Ownership Plan), that the Company has elected to repay (or repurchase, as the
case may be) with a portion of the RW Common Stock to be received as part of the
Merger Consideration. At least five days prior to the Delivery Date, the Company
will deliver to RW a schedule of the aggregate principal amount of the Company
Indebtedness, certified by the President of the Company, that will be
outstanding on the IPO Closing Date, and RW will repay such Company Indebtedness
on the IPO Closing Date. To the extent that the actual amount of Company
Indebtedness exceeds the amount shown on such schedule, such excess shall be
repaid by the Stockholders on or prior to the IPO Closing Date.
"Counsel for RW and Newco" means King & Spalding.
"Counsel for the Company and the Stockholders" means such counsel as
shall be designated by the Company in writing on or prior to the Delivery Date.
"Current Balance Sheet" means the balance sheet of the Company as at
March 31, 1998 which is included in the Initial Financial Statements.
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<PAGE> 6
"Current Balance Sheet Date" means December 31, 1997.
"Defined Net Worth" as of the IPO Closing Date shall mean (i) the total
assets of the Company, as set forth on the balance sheet of the Company as of
such date, except that (A) expenses of the Company directly attributable to the
IPO and/or the transactions contemplated by this Agreement, including but not
limited to, costs incurred pursuant to the HSR Act, shall be added back to the
assets of the company and (B) the value of inventory, machinery, equipment and
real estate shall be determined pursuant to Section 2.06(a), less (ii) the total
liabilities of the Company, as set forth on the balance sheet of the Company as
of such date, excluding the Company Indebtedness. Notwithstanding the foregoing,
in the case of Comstock, Comstock's contractual obligation to Spie Group, Inc.,
as successor to Comstock Group, Inc., shall not be deemed to be a liability for
purposes of determining Defined Net Worth.
"Delivery" or "Delivery Date" shall have the meaning set forth in
Section 7.01.
"Earnings Percentage" shall have the meaning set forth in Exhibit D.
"Employment Agreement" means each of the Employment Agreements entered
into as of the Closing Date between RW and each of the Stockholders set forth on
Exhibit A hereto, a form of which is attached hereto as Exhibit B.
"fair market value" means that value at which goods and/or services
would be exchanged between a willing buyer and willing seller in a transaction
entered into at arms length with each party having relevant facts of all aspects
of the transaction.
"Initial Financial Statements" means (a) the balance sheets of the
Company as at December 31, 1997 and March 31, 1998 and the related reviewed
statements of operations and retained earnings for each of the Company's two
fiscal years in the period ended December 31, 1997, and (b) the Current Balance
Sheet and the related statement of income for the Company's fiscal year ended
December 31, 1997, which the Company has delivered to RW prior to the date
hereof.
"IPO Closing Date" means the date on which RW first receives payment
for the shares of RW Common Stock it sells to the Underwriter in the IPO.
"Merger Consideration" has the meaning specified in Section 2.04.
"Newco" means Big Orange Minnesota Company, a Tennessee corporation.
"Responsible Officer" means the President, Chief Executive Officer or
any Vice President of the Company.
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<PAGE> 7
"Retainages" means the portion of progress payments due to a Company
for contracting projects that is withheld by a customer of such Company until
completion of a project, pursuant to the terms of a contract with such customer,
as security for the completion of the project.
"RW" means RailWorks Corporation, a Delaware corporation.
"Scheduled Related Party Agreements" means the agreements described in
Schedule 4.11.
"Surviving Corporation" means the Person to be designated in the
Certificate of Merger as the surviving corporation of the Merger.
"Threshold Amount" means 2.0% of the Merger Consideration.
"Transaction Value" means the (i)(A) the total number of shares of RW
outstanding immediately upon the closing of the IPO and the transactions
contemplated by this Agreement and the Other Agreements multiplied by (B) the
IPO Price multiplied by (C) 92% minus (ii) actual expenses of RW incurred with
respect to the IPO, an estimate of which will be set forth in Item 13 of Part II
of the Registration Statement minus (iii) the underwriting discounts and
commissions paid to the Underwriter pursuant to the IPO minus (iv) the proceeds
received by RW in connection with any shares of RW Common Stock sold by RW to
finance the working capital needs of RW, which shares shall not exceed 5% of the
number of shares to be sold in the IPO.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions of RW for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. Certificate of Merger. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the Delivery Date to the Department
of State of the State of Tennessee.
Section 2.02. The Effective Time. The effective time of the Merger (the
"Effective Time") will be the time on the IPO Closing Date as specified in the
Certificate of Merger or, if the Certificate of Merger does not specify another
time, 8:00 a.m., eastern daylight standard time, on the IPO Closing Date.
Section 2.03. Certain Effects of the Merger. At and as of the Effective
Time, (a) Newco will be merged with and into the Company in accordance with the
provisions of the Tennessee Business Corporation Act, (b) Newco will cease to
exist as a separate legal entity, (c) the articles of
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<PAGE> 8
incorporation of the Company will be amended to change its authorized capital
stock to 100 shares, par value $0.01 per share, of Common Stock, (d) the Company
will be the Surviving Corporation and, as such, will, all with the effect
provided by the Tennessee Business Corporation Act, (i) possess all the
properties and rights, and be subject to all the restrictions and duties, of the
Company and Newco and (ii) be governed by the laws of the State of Tennessee,
(e) the Charter Documents of the Company then in effect (after giving effect to
the amendment of the Company's articles of incorporation specified in clause (c)
of this sentence) will become and thereafter remain (until changed in accordance
with (i) applicable law (in the case of the articles of incorporation) or (ii)
their terms (in the case of the bylaws)) the Charter Documents of the Surviving
Corporation, (f) the initial board of directors of the Surviving Corporation
will be the Chief Executive Officer of RW and the other persons named in
Schedule 2.03, and those persons will hold the office of director of the
Surviving Corporation subject to the provisions of the applicable laws of the
State of Tennessee and the Charter Documents of the Surviving Corporation, and
(g) the initial officers of the Surviving Corporation will be as set forth in
Schedule 2.03, and each of those persons will serve in each office specified for
that person in Schedule 2.03, subject to the provisions of the Charter Documents
of the Surviving Corporation, until that person's successor is duly elected to,
and, if necessary, qualified for, that office.
Section 2.04. Effect of the Merger on Capital Stock. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the right to
receive, subject to the provisions of Section 2.05 and Exhibit D, without
interest, on surrender of the certificate evidencing those shares, the amount of
cash and the number of whole and fractional shares of RW Common Stock set forth
or determined as provided in Exhibit D (the "Merger Consideration"), (ii) cease
to be outstanding and to exist and (iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to exist
and (ii) be canceled and retired; and
(c) each share of Newco Common Stock issued and outstanding immediately
prior to the Effective Time will be converted into one share of Common Stock, no
par value, of the Surviving Corporation, and the shares of Common Stock of the
Surviving Corporation issued on that conversion will constitute all the issued
and outstanding shares of Capital Stock of the Surviving Corporation. Each
holder of a certificate representing shares of Company Common Stock immediately
prior to the Effective Time will, as of the Effective Time and thereafter, cease
to have any rights respecting those shares other than the right to receive,
subject to the provisions of Section 2.05, without interest, the Merger
Consideration and the additional cash, if any, owing with respect to those
shares as provided in Section 2.07.
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<PAGE> 9
Section 2.05. Delivery, Exchange and Payment.
(a) At or after the Effective Time: (i) each Stockholder, as the holder
of certificates representing shares of Company Common Stock, will, on surrender
of those certificates to RW (or any agent that may be appointed by RW for
purposes of this Section 2.05), receive, subject to the provisions of this
Article II and the Escrow Agreement, such Stockholder's share of the Merger
Consideration pursuant to Section 2.04 and Exhibit D; and (ii) until any
certificate representing Company Common Stock has been surrendered and replaced
pursuant to this Section 2.05, that certificate will, for all purposes, be
deemed to evidence ownership of the number of whole shares of RW Common Stock
included in the Merger Consideration payable in respect of that certificate
pursuant to Section 2.04. The Escrow Agreement will provide that the shares of
RW Common Stock issued to the Stockholders as a part of the Merger Consideration
together with duly executed stock powers in blank, shall be placed in escrow to
be held subject to the terms of the Escrow Agreement and further subject to
Exhibit D and Section 11.02. The escrow shall consist solely of shares of RW
Common Stock that shall be issued at the Effective Time to the Stockholders of
the Founding Companies and delivered, at the Closing, to the Escrow Agent. All
shares of RW Common Stock issuable in the Merger will be deemed for all purposes
to have been issued by RW at the Effective Time.
(b) Each Stockholder will deliver to RW (or any agent that may be
appointed by RW for purposes of this Section 2.05) on or before the Delivery
Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Stockholder, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Stockholder's expense, affixed and canceled.
Each Stockholder shall cure any deficiencies in the endorsement of the
certificates or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Stockholder.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to RW Common Stock and payable to
the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of RW Common Stock have been issued in the Merger until
those certificates are surrendered as provided herein, but (i) on that surrender
RW will cause to be paid, to the Person in whose name the certificates
representing such shares of RW Common Stock shall then be issued, the amount of
dividends or other distributions previously paid with respect to such whole
shares of RW Common Stock with a record date, or which have accrued, subsequent
to the Effective Time, but prior to surrender, and the amount of any cash
payable to such Person for and in lieu of fractional shares pursuant to Section
2.07 and (ii) at the appropriate payment date or as soon as practicable
thereafter, RW will cause to be paid to that Person the amount of dividends or
other distributions with a record date, or which have been accrued, subsequent
to the Effective Time, but which are not payable until a date subsequent to
surrender, which are payable with respect to such whole shares of RW Common
Stock, subject in all cases to any applicable
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<PAGE> 10
escheat laws. No interest will be payable with respect to the payment of such
dividends or other distributions or cash for and in lieu of fractional shares on
surrender of outstanding certificates.
(d) Each Stockholder hereby authorizes and directs RW to deliver 3.5%
of the Cash Company Consideration and 3.5% of the Stock Company Consideration
owed to such Stockholder pursuant to this Agreement (before deposit of the
shares of RW Common Stock into escrow) to IPO Development Company in payment of
fees owed to IPO Development Company by such Stockholder.
Section 2.06. Merger Consideration Calculation.
(a) No later than fifteen (15) days following the IPO Closing Date, the
Company shall provide to the Chief Accounting Officer of RW (the "CAO") a
determination of the fair market value (as defined) of its inventory, machinery,
equipment and real estate (the "Valued Assets") as of the IPO Closing Date.
Within seven (7) days of such date, the CAO shall distribute to every Founding
Company the value of the Valued Assets of every Founding Company. The Company
shall have seven (7) days from the date of the distribution of such valuation to
dispute the value of the Valued Assets of any Founding Company by providing
written notice of such dispute to the CAO. If the CAO is unable to resolve any
such dispute, the dispute shall be resolved by binding arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
which arbitration shall be resolved no later than thirty (30) days from
selection of the arbitrator. The arbitrator shall be selected by the CAO.
(b) Arthur Andersen or, if not Arthur Andersen, the Company's
accountant, shall cause to be prepared and delivered to RW and the Company a
calculation as of the IPO Closing Date of the Defined Net Worth of the Company
(the "Balance Sheet Calculation"). The Balance Sheet Calculation shall be final
and binding on the Company and the Other Founding Companies absent fraud,
manifest error or gross negligence.
(c) The Balance Sheet Calculation shall include a report of Arthur
Andersen or, if not Arthur Andersen, the Company's accountant, stating that it
has been prepared in a manner consistent with the accounting policies and
procedures used in preparation of the balance sheets in the Initial Financial
Statements, except as provided in the definition of "Defined Net Worth"
contained herein. The Stockholders shall give Arthur Andersen and other
appropriate personnel such assistance and access to the assets and books and
records of the Company as Arthur Andersen shall reasonably request during normal
business hours in order to enable them to prepare the Balance Sheet Calculation.
The Surviving Corporation shall be responsible for the fees and expenses of
Arthur Andersen or, if not Arthur Andersen the Company's accountant.
Section 2.07. Fractional Shares. Notwithstanding any other provision
herein, no fractional shares of RW Common Stock will be issued. All shares of RW
Common Stock shall be aggregated, and any Stockholder entitled hereunder, after
such aggregation, to receive a fractional share of RW Common Stock but for this
Section 2.07 will be entitled hereunder to receive a cash payment for and
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<PAGE> 11
in lieu thereof in the amount (rounded to the nearest whole cent) equal to that
Stockholder's fractional interest in a share of RW Common Stock multiplied by
the IPO Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01. By Each Stockholder. The Stockholders severally represent
and warrant to, and agree with, RW that all the following representations and
warranties in this Article III are as of the date of this Agreement, and will
be, as amended or supplemented pursuant to Section 6.08, on the IPO Closing
Date, true and correct:
(a) (i) each Stockholder will acquire the shares of RW Common
Stock to be issued pursuant to Article II to the Stockholder solely for the
Stockholder's account, for investment purposes only and with no current
intention or plan to distribute, sell or otherwise dispose of any of those
shares in connection with any distribution;
(ii) no Stockholder is a party to any agreement or other
arrangement for the disposition of any shares of RW Common Stock other
than this Agreement; (iii) except as set forth on Schedule 3.01(a)(ii)
each Stockholder is an "accredited investor" as defined in Rule 501(a)
promulgated under the Securities Act; (iv) each Stockholder (A) is able
to bear the economic risk of an investment in the RW Common Stock
acquired pursuant to this Agreement, (B) can afford to sustain a total
loss of that investment, (C) has such knowledge and experience in
financial and business matters that he or she is capable of evaluating
the merits and risks of the proposed investment in the RW Common Stock,
(D) has had an adequate opportunity to ask questions and receive
answers from the officers of RW concerning any and all matters relating
to the transactions contemplated hereby, including the background and
experience of the current and proposed officers and directors of RW,
the plans for the operations of the business of RW, the business,
operations and financial condition of the Other Founding Companies and
any plans of RW for additional acquisitions, and (E) has asked all
questions of the nature described in preceding clause (D) that such
Stockholder thought to ask, and all those questions have been answered
to his or her satisfaction;
(b) the representations and warranties contained in Article III of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to; and
(c) (i) the terms and conditions of any agreements between any
Stockholder or an Affiliate of any Stockholder, on the one hand, and the Company
on the other hand, included in the Scheduled Related Party Agreements will have
been amended effective as of the IPO Closing Date to be no less favorable to the
Company than the Company reasonably could have expected to obtain in an
arms-length transaction with a Person other than an Affiliate of the Company and
(ii) the
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<PAGE> 12
rentals or other payments provided for in such agreements then will not exceed
fair market rentals of the property being leased or fair market value of the sum
or product being provided and such amounts shall have been previously approved
in writing by the Chief Financial Officer of RW.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS
Section 4.01. By the Company and Each Primary Stockholder. The Company
and each Primary Stockholder jointly and severally represent and warrant to, and
agree with, RW that all the following representations and warranties in this
Article IV are as of the date of this Agreement, and will be, as amended or
supplemented pursuant to Section 6.08, on the Delivery Date and the IPO Closing
Date, true and correct:
(a) the Organization State of the Company is the State of Tennessee,
and the Company (i) is a corporation duly organized, validly existing and in
good standing under the laws of that State, (ii) has all requisite corporate
power and authority under those laws and its Charter Documents to own or lease
and to operate its properties and to carry on its business as now conducted and
(iii) is duly qualified and in good standing as a foreign corporation in all
jurisdictions (other than the State of Tennessee) in which it owns or leases
property or in which the carrying on of its business as now conducted so
requires except where the failure to be so qualified, singly or in the
aggregate, would not have a Material Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is comprised of
2,500 shares of Company Common Stock, of which 150 shares have been issued and
are now outstanding and no shares are held by the Company as treasury shares,
and (ii) there are no Derivative Securities of the Company;
(c) the Company has elected to be treated as an S corporation within
the meaning of the Code, as amended; and
(d) the representations and warranties contained in Article IV of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO
Section 5.01. By RW and Newco. RW and Newco jointly and severally
represent and warrant to the Company and each Stockholder that all the following
representations and warranties
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in this Article V are as of the date of this Agreement, and will be on the IPO
Closing Date, true and correct:
(a) Newco is a corporation duly organized, validly existing and in good
standing under the laws of the State of Tennessee;
(b) except as disclosed in the Private Placement Memorandum, no
Derivative Securities of Newco are outstanding;
(c) Newco has been organized for the sole purpose of participating in
the Merger and has not, and will not, engage in any activities other than those
necessary to effectuate the Merger;
(d) except for shares of RW Common Stock to be publicly sold in the IPO
and as disclosed in the Private Placement Memorandum or preliminary prospectus,
neither RW nor Newco is a party to any agreement or other arrangement for the
disposition of any shares of RW Common Stock; and
(e) the representations and warranties contained in Article V of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01. Of Each Party. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01. The Closing and Certain Conditions.
(a) The Closing. On or before the IPO Pricing Date, the parties hereto
will take all actions necessary to (i) effect the Merger (including, as
permitted by the Applicable Corporate Code, (A) the execution of a Certificate
of Merger (1) meeting the requirements of the Applicable Corporate Code and (2)
providing that the Merger will become effective on the IPO Closing Date and (B)
the delivery of that Certificate of Merger with a filing service that will file
such Certificate of Merger with the Department of State of the State of
Tennessee) upon notification of the closing of the IPO (provided that Comstock's
Certificate of Merger shall be filed immediately prior to the closing of the
IPO), (ii) verify the existence and ownership of the certificates evidencing the
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<PAGE> 14
Company Common Stock to be exchanged for the Merger Consideration pursuant to
Section 2.05 and (iii) satisfy the document delivery requirements to which the
obligations of the parties to effect the Merger and the other transactions
contemplated hereby are conditioned by the provisions of this Article VII (all
those actions collectively being the "Delivery"). The Delivery will take place
at the offices of King & Spalding, 191 Peachtree Street, Atlanta, Georgia at
10:00 a.m., Atlanta time on the IPO Pricing Date, or at such later time on the
IPO Pricing Date as RW shall specify by written notice to the President of the
Company (the "Delivery Date"). The actions taken at the Delivery will not
include the completion of either the Merger or the delivery of the Company
Common Stock or the Merger Consideration pursuant to Section 2.05. On the IPO
Closing Date, the Certificate of Merger will be filed and will become effective
pursuant to Section 2.02, and all transactions contemplated by this Agreement to
be closed or completed on or before the IPO Closing Date, including the
surrender of the Company Common Stock in exchange for the Merger Consideration
(including a certified check or checks in an amount equal to the cash portion of
the Merger Consideration) will be closed or completed, as the case may be.
During the period from the Delivery Date to the IPO Closing Date, this Agreement
may be terminated by the parties only pursuant to Section 12.01(b)(i).
(b) Certain Conditions to the Obligations of the Company and the
Stockholders. The obligations of the Company and the Stockholders with respect
to the actions to be taken by them at or before the Delivery Date are subject to
the satisfaction on or before the Delivery Date, or waiver by them pursuant to
Section 11.05, of all the conditions set forth in Sections 7.01 and 7.02(a). The
obligations of the Stockholders with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of the following
conditions: (if required by such Stockholder) (i) the Employment Agreement then
shall be in full force and effect; and (ii) all the conditions set forth in
Sections 7.01 and 7.02(b).
(c) Certain Conditions to the Obligations of RW and Newco. The
obligations of RW and Newco with respect to actions to be taken by them at or
before the Delivery Date are subject to the satisfaction on or before the date
of the Delivery Date, or waiver by them pursuant to Section 11.05, of the
following conditions: (i) the Company shall have delivered to RW a copy of the
articles of incorporation, as amended to the Delivery Date and certified by the
Secretary of State of the State of Tennessee as of a Current Date, of the
Company; and (ii) all the conditions set forth in Sections 7.01 and 7.03(a). The
obligations of RW and Newco with respect to the actions to be taken on the IPO
Closing Date are subject to the satisfaction on that date of the following
conditions: (i) the Employment Agreements then shall be in full force and
effect; and (ii) all the conditions set forth in Sections 7.01 and 7.03(b).
(d) Uniform Provisions. The text of Article VII of the Uniform
Provisions hereby is incorporated herein by this reference.
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<PAGE> 15
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01. Of Each Party Other than the Company. From and after the
Effective Time, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Company) will comply with each covenant for which
provision is made in Article VIII of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) to be performed or
observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01. Indemnification Rights and Obligations. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. Any provision contained in Article IX of the Uniform Provisions to
the contrary notwithstanding, the indemnification obligations of the
Stockholders pursuant to this Agreement shall be joint and several.
ARTICLE X
[Intentionally Ommitted]
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. Treatment of Confidential Information. Each party hereto
will comply with each covenant for which provision is made in Section 11.01 of
the Uniform Provisions (the text of which Section hereby is incorporated herein
by this reference) to be performed or observed by that party.
Section 11.02. Restrictions on Transfer of RW Common Stock.
(a) Except for transfers to employees of the Company that are approved
in writing by the Board of Directors of RW (or a committee designated by the
Board of Directors of RW) prior to such transfer, during the one year period
ending on the first anniversary of the IPO Closing Date (the "Restricted
Period"), no Stockholder voluntarily will: (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
RW Common Stock received by any Stockholder in the Merger or (B) any interest in
(including any option to buy or sell) any of those shares of RW Common Stock, in
whole or in part, and RW will have no obligation to, and shall not, treat any
such attempted transfer as effective for any purpose; or (ii) engage in any
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<PAGE> 16
transaction, whether or not with respect to any shares of RW Common Stock or any
interest therein, the intent or effect of which is to reduce the risk of owning
the shares of RW Common Stock acquired pursuant to Section 2.04 (including, for
example engaging in put, call, short-sale, straddle or similar market
transactions); provided, however, that this Section 11.02 shall not restrict any
transfer of RW Common Stock acquired by a Stockholder pursuant to Section 2.04
to any of that Stockholder's Related Persons who agree in writing to be bound by
the provisions of Section 11.01 and this Section 11.02. The certificates
evidencing the RW Common Stock delivered to each Stockholder pursuant to Section
2.05 will bear a legend substantially in the form set forth below and containing
such other information as RW may deem necessary or appropriate:
"EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER
PARTIES THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE
REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF
ANY OF THOSE SHARES, DURING THE ONE-YEAR PERIOD ENDING ON __________ [DATE THAT
IS THE FIRST ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED PERIOD"). ON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE."
(b) From the first anniversary of the IPO Closing Date to the fourth
anniversary of the IPO Closing Date, the Stockholders agree to sell shares of RW
Common Stock acquired pursuant to this Agreement only in accordance with the
procedures set forth in this Section 11.02(b). Every quarter during such period,
every Stockholder will be permitted to sell, in the aggregate, up to 8% of the
aggregate number of shares of Common Stock received by such Stockholder pursuant
to this Agreement (the "Quarterly Block Trade Shares") in either a block trade
or a registered public offering, at the option of RW. If a Stockholder does not
sell all of his or her Quarterly Block Trade Shares in any given quarter, such
Stockholder may sell such Quarterly Block Trade Shares pursuant to this Section
11.02(b) in any later quarter, provided, however, that in no event may a
Stockholder sell more than 20% of the shares of Common Stock received by such
Stockholder pursuant to this Agreement in any one quarter. Any Stockholder that
wishes to sell shares of RW Common Stock pursuant to such selling opportunity
must give notice to RW and the Executive Council no later than fourteen days
prior to the commencement of the fiscal quarter of RW during which such
Stockholder wants to sell such shares. Notwithstanding anything set forth in
this Section 11.02(b), RW may elect to make available to the Stockholders (i)
additional opportunities to sell shares of RW Common Stock and/or (ii) the
opportunity to sell an amount in excess of such amount during any particular
quarter. The Company may modify or waive this Section 11.02(b) at its sole
discretion at any time following written notice to the Stockholders, provided
that no such modification or waiver may
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<PAGE> 17
reduce the number of selling opportunities or the maximum number of shares of RW
Common Stock that may be sold by any Stockholder during any selling opportunity.
(c) Each Stockholder, severally and not jointly with any other Person,
(i) acknowledges that the shares of RW Common Stock to be delivered to that
Stockholder pursuant to Section 2.04 have not been and will not be registered
under the Securities Act and therefore may not be resold by that Stockholder
without compliance with the Securities Act and (ii) covenants that none of the
shares of RW Common Stock issued to that Stockholder pursuant to Section 2.04
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable provisions of
the Securities Act and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of RW Common
Stock issued pursuant to Section 2.04 will bear the following legend in addition
to the legend prescribed by Section 11.02(a):
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, HAVE
BEEN ISSUED PURSUANT TO ONE OR MORE EXEMPTIONS THERETO, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED OR DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED."
In addition, certificates evidencing shares of RW Common Stock issued pursuant
to Section 2.04 to each Stockholder will bear any legend required by the
securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03. Brokers and Agents. Except for IPO Development Company,
each of the Stockholders jointly and severally, on the one hand, and RW, on the
other, represents and warrants to the other that such Person has not directly or
indirectly employed or become obligated to pay any broker, finder or similar
agent in connection with the transactions contemplated hereby and agree, without
regard to the Threshold Amount limitations set forth in Article IX, to indemnify
the other against all Damage Claims arising out of claims for any and all fees
and commissions of brokers or similar agents employed or promised payment by
such Person.
Section 11.04. Assignment; No Third Party Beneficiaries. This Agreement
and the rights of the parties hereunder may not be assigned (except by operation
of law) and shall be binding on and inure to the benefit of the parties hereto,
the successors of RW, and the heirs and legal representatives of the
Stockholders (and, in the case of any trust, the successor trustees of that
trust). Neither this Agreement nor any other Transaction Document is intended,
or shall be construed, deemed or interpreted, to confer on any Person not a
party hereto or thereto any rights or remedies hereunder or thereunder, except
as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise provided
expressly herein or therein.
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<PAGE> 18
Section 11.05. Entire Agreement; Amendment; Waivers. Except with
respect to Section 11.07 hereof, this Agreement and the documents delivered
pursuant hereto constitute the entire agreement and understanding among the
Stockholders, the Company, Newco and RW and supersede all prior agreements and
understandings, both written and oral, relating to the subject matter of this
Agreement. This Agreement may be amended, modified or supplemented, and any
right hereunder may be waived, if, but only if, that amendment, modification,
supplement or waiver is in writing and signed by each of the Stockholders, the
Company and RW. The waiver of any of the terms and conditions hereof shall not
be construed or interpreted as, or deemed to be, a waiver of any other term or
condition hereof.
Section 11.06. Counterparts. This Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
Section 11.07. Expenses. If the transactions contemplated hereby (i)
are consummated, RW will pay the fees, expenses and disbursements of RW and
Newco and their Representatives which are incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all costs
and expenses incurred in the performance of and compliance with all conditions
to be performed by RW and Newco under this Agreement, including the costs of
preparing the Registration Statement, (collectively, the "RW Expenses") and (ii)
if the transactions contemplated hereby are not consummated, the RW Expenses
shall be paid by the Founding Companies subject to the provisions of the IPO
Cost Liability Sharing Agreement attached hereto as Exhibit C and incorporated
herein by reference (b) the Stockholders will pay from personal funds, and not
from funds of the Company or any Company Subsidiary, all sales, use, transfer
and other similar taxes and fees (collectively, "Transfer Taxes") incurred in
connection with the transactions contemplated hereby and (c) the Company will
pay the fees, expenses and disbursements of Counsel for the Company and the
Stockholders incurred in connection with the subject matter of this Agreement
and the Registration Statement on or before the IPO Closing Date. The
Stockholders will file all necessary documentation and Returns with respect to
all Transfer Taxes. In addition, each Stockholder acknowledges that he, and not
the Company or RW or the Surviving Corporation, will pay all Taxes due upon
receipt of the consideration payable to that Stockholder pursuant to Article II.
Section 11.08. Notices. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received
(a) if personally delivered or if delivered by telex, telegram,
facsimile or courier service, when actually received by the party to whom notice
is sent or
(b) if delivered by mail (whether actually received or not), at the
close of business on the third Business Day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
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<PAGE> 19
(i) if to RW or Newco, addressed to it at:
RailWorks Corporation
403 Somerset Road
Baltimore, Maryland 21210
Attn: Chief Executive Officer
with copies (which shall not constitute notice for purposes
of this Agreement) to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attn: Jeffrey M. Stein
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
Minnesota Railroad Service, Inc.
P.O. Box 108
Lakeville, Minnesota 55044
Attn: Scott D. Brace
with copies (which shall not constitute notice for purposes
of this Agreement) to Counsel for the Company and the
Stockholders at the address designated by the Company
Section 11.09. Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF DELAWARE
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10. Exercise of Rights and Remedies. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11. Time. Time is of the essence in the performance of this
Agreement in all respects.
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<PAGE> 20
Section 11.12. Reformation and Severability. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13. Remedies Cumulative. No right, remedy or election given
by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14. Respecting the IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither RW or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that RW will use its reasonable best efforts to
cause the Registration Statement to become effective prior to August 14, 1998)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to RW or the
IPO.
ARTICLE XII
TERMINATION
Section 12.01. Termination of this Agreement.
(a) This Agreement may be terminated at any time prior to the Delivery
Date solely:
(i) by the mutual written consent of RW and the Company;
(ii) by the Stockholders or the Company, on the one hand, or
by RW, on the other hand, if the events contemplated by this Agreement
to take place at the Delivery Date shall not have taken place by
September 4, 1998, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the
case of the Stockholders and the Company, any of them) seeking to
terminate this Agreement to perform or adhere to any agreement required
hereby to be performed or adhered to by it prior to or at the Delivery
Date or thereafter on the IPO Closing Date;
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<PAGE> 21
(iii) by the Stockholders or the Company, on the one hand,
or by RW, on the other hand, if a material breach or default shall be
made by the other party (or in the case of the Stockholders and the
Company, any of them) in the observance or in the due and timely
performance of any of the covenants, agreements or conditions contained
in Article VI or Section 11.01;
(iv) by the Stockholders or the Company, on the one hand,
or RW, on the other, if it is entitled to do so as provided in Section
6.08;
(v) by the Stockholders prior to the filing of the
Registration Statement if the Registration Statement is not filed by
June 15, 1998;
(vi) by RW or the Stockholders prior to 9:00 a.m. on the
IPO Pricing Date (as set forth in Section 8.10) if the value of RW at
the IPO Pricing Date (as calculated by multiplying the price per share
at which the RW common stock is to be sold in the IPO by the number of
shares of common stock to be outstanding after the Closing of the IPO)
shall be less than $215 million;
(vii) by the Stockholders if the Registration Statement has
not been declared effective by the Securities and Exchange Commission
by August 14, 1998;
(viii) by the Stockholders if John G. Larkin is no longer
serving as Chairman of the Board of Directors and Chief Executive
Officer prior to the Closing; or
(ix) by the stockholders of CPI Concrete Products, Inc. if
its Employee Stock Ownership Plan does not approve the merger prior to
the Delivery Date.
(b) This Agreement may be terminated after the Delivery Date solely:
(i) by RW or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the IPO Pricing Date and prior
to the consummation of the IPO; or
(ii) automatically and without action on the part of any
party hereto if the IPO is not consummated within 15 New York City
business days after the Delivery Date.
(c) If this Agreement is terminated pursuant to this Section 12.01, the
Merger will be deemed for all purposes to have been abandoned and of no force or
effect.
Section 12.02. Liabilities in Event of Termination. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Sections
11.03 or 11.07 and (b) to the extent that such liability is based on the breach
by that party of any of its representations, warranties or covenants set forth
in this Agreement.
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<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
RAILWORKS CORPORATION
By: /s/ John G. Larkin
------------------------------------
John G. Larkin
Chief Executive Officer
BIG ORANGE MINNESOTA COMPANY
By: /s/ John G. Larkin
------------------------------------
John G. Larkin
President
MINNESOTA RAILROAD SERVICE, INC.
By: /s/ Authorized Signature
---------------------------------------
Name:
Title:
STOCKHOLDERS:
/s/ E. Donald Matson
---------------------------------------
E. Donald Matson
/s/ Scott D. Brace
---------------------------------------
Scott D. Brace
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<PAGE> 23
ADDENDUM 1
OTHER FOUNDING COMPANIES
A. Words and terms used in this Addendum which are defined in
the captioned Agreement to which this is an Addendum are used herein as therein
defined.
B. The Founding Companies are:
Alpha - Keystone Engineering, Inc.
Annex Railroad Builders, Inc.
Comtrak Construction, Inc.
Comstock Holdings Inc.
Condon Brothers, Inc.
CPI Concrete Products
HP McGinley, Inc.
Kennedy Railroad Builders, Inc.
Merit Railroad Contractors, Inc.
Midwest Construction Services, Inc.
Minnesota Railroad Services, Inc.
Mize Construction Co.
New England Railroad Construction Co., Inc.
Northern Rail Service & Supply Company, Inc.
Railcorp, Inc.
Railroad Service, Inc.
Railroad Specialities, Inc,
Southern Indiana Wood Preserving Co.
U.S. Railway Supply, Inc,
U.S. Trackworks, Inc.
W.A. Smith Construction Co., Inc.
W.A Smith Rerailing Co., Inc.
<PAGE> 1
EXHIBIT 10.16
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 21, 1998
BY AND BETWEEN
RAILWORKS CORPORATION,
BUCKEYE RAILCORP, INC.,
RAILCORP INC.
AND
THE STOCKHOLDERS NAMED HEREIN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS...................................................................................1
Section 1.01. Certain Defined Terms.................................................1
ARTICLE II THE MERGER AND RELATED MATTERS................................................................4
Section 2.01. Certificate of Merger.................................................4
Section 2.02. The Effective Time....................................................4
Section 2.03. Certain Effects of the Merger.........................................4
Section 2.04. Effect of the Merger on Capital Stock.................................5
Section 2.05. Delivery, Exchange and Payment........................................6
Section 2.06. Merger Consideration Calculation......................................7
Section 2.07. Fractional Shares.....................................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
EACH STOCKHOLDER .............................................................................8
Section 3.01. By Each Stockholder...................................................8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS......................................................9
Section 4.01. By the Company and Each Primary Stockholder...........................9
ARTICLE V REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO................................................9
Section 5.01. By RW and Newco.......................................................9
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME ...................................................10
Section 6.01. Of Each Party........................................................10
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION.................................................................................10
Section 7.01. The Closing and Certain Conditions...................................10
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME.......................................................12
Section 8.01. Of Each Party Other than the Company.................................12
ARTICLE IX INDEMNIFICATION..............................................................................12
Section 9.01. Indemnification Rights and Obligations...............................12
ARTICLE X [Intentionally Ommitted].....................................................................12
ARTICLE XI GENERAL PROVISIONS...........................................................................12
Section 11.01. Treatment of Confidential Information................................12
Section 11.02. Restrictions on Transfer of RW Common Stock..........................12
Section 11.03. Brokers and Agents...................................................14
Section 11.04. Assignment; No Third Party Beneficiaries.............................14
Section 11.05. Entire Agreement; Amendment; Waivers.................................15
Section 11.06. Counterparts.........................................................15
Section 11.07. Expenses.............................................................15
Section 11.08. Notices..............................................................15
Section 11.09. Governing Law........................................................16
Section 11.10. Exercise of Rights and Remedies......................................16
Section 11.11. Time.................................................................16
Section 11.12. Reformation and Severability.........................................17
Section 11.13. Remedies Cumulative..................................................17
Section 11.14. Respecting the IPO...................................................17
ARTICLE XII TERMINATION..................................................................................17
Section 12.01. Termination of this Agreement........................................17
Section 12.02. Liabilities in Event of Termination..................................18
</TABLE>
EXHIBITS
Exhibit A - List of Primary Stockholders
Exhibit B - Form of Employment Agreement
Exhibit C - IPO Cost Liability Sharing Agreement
Exhibit D - Merger Consideration
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<PAGE> 4
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as
of May 21, 1998, by and among RailWorks Corporation, a Delaware corporation
("RW"), Buckeye Railcorp, Inc., an Ohio corporation and a wholly owned
subsidiary of RW("Newco"), Railcorp Inc., an Ohio corporation (the "Company"),
and the persons listed on the signature pages hereof under the caption
"Stockholders" (collectively, the "Stockholders," and each of those persons,
individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(a) Newco will merge into the Company on the terms and subject to the
conditions set forth herein (that merger being the "Merger");
(b) RW will acquire the stock of all or some of the entities listed in
the accompanying Addendum 1 (each an "Other Founding Company" and, collectively
with the Company, the "Founding Companies") pursuant to agreements that are (i)
similar in all material respects to this Agreement and (ii) entered into among
those entities and their equity owners, RW and subsidiaries of RW (collectively,
the "Other Agreements"); and
(c) RW shall at such time as specified herein and if certain conditions
are met, effect a public offering of shares of its common stock and issue and
sell those shares.
The respective boards of directors of RW, Newco and the Company have
approved and adopted this Agreement to effect a transaction subject to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Certain Defined Terms. As used in this Agreement and in
the related Addendums, Annexes, Schedules and Exhibits, the following terms have
the meanings assigned to them below in this Section 1.01. Capitalized terms used
in this Agreement and not defined below in this Section 1.01 have the meanings
assigned to them in the Preliminary Statement or Article I of the Uniform
Provisions (the text of which Article hereby is incorporated herein by this
reference), as the case may be.
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"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement and all attached Schedules, Addendums,
Annexes and Exhibits, as each of the same may be amended, modified or
supplemented from time to time pursuant to the provisions hereof or thereof.
"Applicable Corporate Code" means the laws of the Organization State of
the Company that govern corporations incorporated in such state.
"Closing Date Balance Sheet" of the Company means a balance sheet of
the Company as at the IPO Closing Date which is prepared on a basis consistent
with the basis on which the Current Balance Sheet was prepared.
"Closing Memorandum" means the form of closing memorandum to be
prepared by RW for the Closing under this Agreement in which are included the
forms of certificates of officers, the opinions of counsel and certain other
documents to be delivered at the Closing as provided in Article VII.
"Company Accounts Receivable" shall mean the accounts and notes or
other advances receivable of the Company and the Company Subsidiaries, excluding
any Retainages, as of the IPO Closing Date.
"Company Common Stock" means the common stock, no par value, of the
Company.
"Company Indebtedness" means the indebtedness of the Company, as of the
IPO Closing Date (including, with respect to CPI Concrete Products, Inc., the
value of the Cash Company Consideration to be received by its Employee Stock
Ownership Plan), that the Company has elected to repay (or repurchase, as the
case may be) with a portion of the RW Common Stock to be received as part of the
Merger Consideration. At least five days prior to the Delivery Date, the Company
will deliver to RW a schedule of the aggregate principal amount of the Company
Indebtedness, certified by the President of the Company, that will be
outstanding on the IPO Closing Date, and RW will repay such Company Indebtedness
on the IPO Closing Date. To the extent that the actual amount of Company
Indebtedness exceeds the amount shown on such schedule, such excess shall be
repaid by the Stockholders on or prior to the IPO Closing Date.
"Counsel for RW and Newco" means King & Spalding.
"Counsel for the Company and the Stockholders" means such counsel as
shall be designated by the Company in writing on or prior to the Delivery Date.
"Current Balance Sheet" means the balance sheet of the Company as at
March 31, 1998 which is included in the Initial Financial Statements.
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"Current Balance Sheet Date" means December 31, 1997.
"Defined Net Worth" as of the IPO Closing Date shall mean (i) the total
assets of the Company, as set forth on the balance sheet of the Company as of
such date, except that (A) expenses of the Company directly attributable to the
IPO and/or the transactions contemplated by this Agreement, including but not
limited to, costs incurred pursuant to the HSR Act, shall be added back to the
assets of the company and (B) the value of inventory, machinery, equipment and
real estate shall be determined pursuant to Section 2.06(a), less (ii) the total
liabilities of the Company, as set forth on the balance sheet of the Company as
of such date, excluding the Company Indebtedness. Notwithstanding the foregoing,
in the case of Comstock, Comstock's contractual obligation to Spie Group, Inc.,
as successor to Comstock Group, Inc., shall not be deemed to be a liability for
purposes of determining Defined Net Worth.
"Delivery" or "Delivery Date" shall have the meaning set forth in
Section 7.01.
"Earnings Percentage" shall have the meaning set forth in Exhibit D.
"Employment Agreement" means each of the Employment Agreements entered
into as of the Closing Date between RW and each of the Stockholders set forth on
Exhibit A hereto, a form of which is attached hereto as Exhibit B.
"fair market value" means that value at which goods and/or services
would be exchanged between a willing buyer and willing seller in a transaction
entered into at arms length with each party having relevant facts of all aspects
of the transaction.
"Initial Financial Statements" means (a) the balance sheets of the
Company as at December 31, 1997 and March 31, 1998 and the related reviewed
statements of operations and retained earnings for each of the Company's two
fiscal years in the period ended December 31, 1997, and (b) the Current Balance
Sheet and the related statement of income for the Company's fiscal year ended
December 31, 1997, which the Company has delivered to RW prior to the date
hereof.
"IPO Closing Date" means the date on which RW first receives payment
for the shares of RW Common Stock it sells to the Underwriter in the IPO.
"Merger Consideration" has the meaning specified in Section 2.04.
"Newco" means Buckeye Railcorp, Inc., an Ohio corporation.
"Responsible Officer" means the President, Chief Executive Officer or
any Vice President of the Company.
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"Retainages" means the portion of progress payments due to a Company
for contracting projects that is withheld by a customer of such Company until
completion of a project, pursuant to the terms of a contract with such customer,
as security for the completion of the project.
"RW" means RailWorks Corporation, a Delaware corporation.
"Scheduled Related Party Agreements" means the agreements described in
Schedule 4.11.
"Surviving Corporation" means the Person to be designated in the
Certificate of Merger as the surviving corporation of the Merger.
"Threshold Amount" means 2.0% of the Merger Consideration.
"Transaction Value" means the (i)(A) the total number of shares of RW
outstanding immediately upon the closing of the IPO and the transactions
contemplated by this Agreement and the Other Agreements multiplied by (B) the
IPO Price multiplied by (C) 92% minus (ii) actual expenses of RW incurred with
respect to the IPO, an estimate of which will be set forth in Item 13 of Part II
of the Registration Statement minus (iii) the underwriting discounts and
commissions paid to the Underwriter pursuant to the IPO minus (iv) the proceeds
received by RW in connection with any shares of RW Common Stock sold by RW to
finance the working capital needs of RW, which shares shall not exceed 5% of the
number of shares to be sold in the IPO.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions of RW for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. Certificate of Merger. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the Delivery Date to the Department
of State of the State of Ohio.
Section 2.02. The Effective Time. The effective time of the Merger (the
"Effective Time") will be the time on the IPO Closing Date as specified in the
Certificate of Merger or, if the Certificate of Merger does not specify another
time, 8:00 a.m., eastern daylight standard time, on the IPO Closing Date.
Section 2.03. Certain Effects of the Merger. At and as of the Effective
Time, (a) Newco will be merged with and into the Company in accordance with the
provisions of the Ohio General Corporation Law, (b) Newco will cease to exist as
a separate legal entity, (c) the articles of
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incorporation of the Company will be amended to change its authorized capital
stock to 100 shares, par value $0.01 per share, of Common Stock, (d) the Company
will be the Surviving Corporation and, as such, will, all with the effect
provided by the Ohio General Corporation Law, (i) possess all the properties and
rights, and be subject to all the restrictions and duties, of the Company and
Newco and (ii) be governed by the laws of the State of Ohio, (e) the Charter
Documents of the Company then in effect (after giving effect to the amendment of
the Company's articles of incorporation specified in clause (c) of this
sentence) will become and thereafter remain (until changed in accordance with
(i) applicable law (in the case of the articles of incorporation) or (ii) their
terms (in the case of the bylaws)) the Charter Documents of the Surviving
Corporation, (f) the initial board of directors of the Surviving Corporation
will be the Chief Executive Officer of RW and the other persons named in
Schedule 2.03, and those persons will hold the office of director of the
Surviving Corporation subject to the provisions of the applicable laws of the
State of Ohio and the Charter Documents of the Surviving Corporation, and (g)
the initial officers of the Surviving Corporation will be as set forth in
Schedule 2.03, and each of those persons will serve in each office specified for
that person in Schedule 2.03, subject to the provisions of the Charter Documents
of the Surviving Corporation, until that person's successor is duly elected to,
and, if necessary, qualified for, that office.
Section 2.04. Effect of the Merger on Capital Stock. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the right to
receive, subject to the provisions of Section 2.05 and Exhibit D, without
interest, on surrender of the certificate evidencing those shares, the amount of
cash and the number of whole and fractional shares of RW Common Stock set forth
or determined as provided in Exhibit D (the "Merger Consideration"), (ii) cease
to be outstanding and to exist and (iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to exist
and (ii) be canceled and retired; and
(c) each share of Newco Common Stock issued and outstanding immediately
prior to the Effective Time will be converted into one share of Common Stock, no
par value, of the Surviving Corporation, and the shares of Common Stock of the
Surviving Corporation issued on that conversion will constitute all the issued
and outstanding shares of Capital Stock of the Surviving Corporation. Each
holder of a certificate representing shares of Company Common Stock immediately
prior to the Effective Time will, as of the Effective Time and thereafter, cease
to have any rights respecting those shares other than the right to receive,
subject to the provisions of Section 2.05, without interest, the Merger
Consideration and the additional cash, if any, owing with respect to those
shares as provided in Section 2.07.
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Section 2.05. Delivery, Exchange and Payment.
(a) At or after the Effective Time: (i) each Stockholder, as the holder
of certificates representing shares of Company Common Stock, will, on surrender
of those certificates to RW (or any agent that may be appointed by RW for
purposes of this Section 2.05), receive, subject to the provisions of this
Article II and the Escrow Agreement, such Stockholder's share of the Merger
Consideration pursuant to Section 2.04 and Exhibit D; and (ii) until any
certificate representing Company Common Stock has been surrendered and replaced
pursuant to this Section 2.05, that certificate will, for all purposes, be
deemed to evidence ownership of the number of whole shares of RW Common Stock
included in the Merger Consideration payable in respect of that certificate
pursuant to Section 2.04. The Escrow Agreement will provide that the shares of
RW Common Stock issued to the Stockholders as a part of the Merger Consideration
together with duly executed stock powers in blank, shall be placed in escrow to
be held subject to the terms of the Escrow Agreement and further subject to
Exhibit D and Section 11.02. The escrow shall consist solely of shares of RW
Common Stock that shall be issued at the Effective Time to the Stockholders of
the Founding Companies and delivered, at the Closing, to the Escrow Agent. All
shares of RW Common Stock issuable in the Merger will be deemed for all purposes
to have been issued by RW at the Effective Time.
(b) Each Stockholder will deliver to RW (or any agent that may be
appointed by RW for purposes of this Section 2.05) on or before the Delivery
Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Stockholder, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Stockholder's expense, affixed and canceled.
Each Stockholder shall cure any deficiencies in the endorsement of the
certificates or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Stockholder.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to RW Common Stock and payable to
the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of RW Common Stock have been issued in the Merger until
those certificates are surrendered as provided herein, but (i) on that surrender
RW will cause to be paid, to the Person in whose name the certificates
representing such shares of RW Common Stock shall then be issued, the amount of
dividends or other distributions previously paid with respect to such whole
shares of RW Common Stock with a record date, or which have accrued, subsequent
to the Effective Time, but prior to surrender, and the amount of any cash
payable to such Person for and in lieu of fractional shares pursuant to Section
2.07 and (ii) at the appropriate payment date or as soon as practicable
thereafter, RW will cause to be paid to that Person the amount of dividends or
other distributions with a record date, or which have been accrued, subsequent
to the Effective Time, but which are not payable until a date subsequent to
surrender, which are payable with respect to such whole shares of RW Common
Stock, subject in all cases to any applicable
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escheat laws. No interest will be payable with respect to the payment of such
dividends or other distributions or cash for and in lieu of fractional shares on
surrender of outstanding certificates.
(d) Each Stockholder hereby authorizes and directs RW to deliver 3.5%
of the Cash Company Consideration and 3.5% of the Stock Company Consideration
owed to such Stockholder pursuant to this Agreement (before deposit of the
shares of RW Common Stock into escrow) to IPO Development Company in payment of
fees owed to IPO Development Company by such Stockholder.
Section 2.06. Merger Consideration Calculation.
(a) No later than fifteen (15) days following the IPO Closing Date, the
Company shall provide to the Chief Accounting Officer of RW (the "CAO") a
determination of the fair market value (as defined) of its inventory, machinery,
equipment and real estate (the "Valued Assets") as of the IPO Closing Date.
Within seven (7) days of such date, the CAO shall distribute to every Founding
Company the value of the Valued Assets of every Founding Company. The Company
shall have seven (7) days from the date of the distribution of such valuation to
dispute the value of the Valued Assets of any Founding Company by providing
written notice of such dispute to the CAO. If the CAO is unable to resolve any
such dispute, the dispute shall be resolved by binding arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
which arbitration shall be resolved no later than thirty (30) days from
selection of the arbitrator. The arbitrator shall be selected by the CAO.
(b) Arthur Andersen or, if not Arthur Andersen, the Company's
accountant, shall cause to be prepared and delivered to RW and the Company a
calculation as of the IPO Closing Date of the Defined Net Worth of the Company
(the "Balance Sheet Calculation"). The Balance Sheet Calculation shall be final
and binding on the Company and the Other Founding Companies absent fraud,
manifest error or gross negligence.
(c) The Balance Sheet Calculation shall include a report of Arthur
Andersen or, if not Arthur Andersen, the Company's accountant, stating that it
has been prepared in a manner consistent with the accounting policies and
procedures used in preparation of the balance sheets in the Initial Financial
Statements, except as provided in the definition of "Defined Net Worth"
contained herein. The Stockholders shall give Arthur Andersen and other
appropriate personnel such assistance and access to the assets and books and
records of the Company as Arthur Andersen shall reasonably request during normal
business hours in order to enable them to prepare the Balance Sheet Calculation.
The Surviving Corporation shall be responsible for the fees and expenses of
Arthur Andersen or, if not Arthur Andersen the Company's accountant.
Section 2.07. Fractional Shares. Notwithstanding any other provision
herein, no fractional shares of RW Common Stock will be issued. All shares of RW
Common Stock shall be aggregated, and any Stockholder entitled hereunder, after
such aggregation, to receive a fractional share of RW Common Stock but for this
Section 2.07 will be entitled hereunder to receive a cash payment for and
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in lieu thereof in the amount (rounded to the nearest whole cent) equal to that
Stockholder's fractional interest in a share of RW Common Stock multiplied by
the IPO Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01. By Each Stockholder. The Stockholders severally represent
and warrant to, and agree with, RW that all the following representations and
warranties in this Article III are as of the date of this Agreement, and will
be, as amended or supplemented pursuant to Section 6.08, on the IPO Closing
Date, true and correct:
(a) (i) each Stockholder will acquire the shares of RW Common Stock to
be issued pursuant to Article II to the Stockholder solely for the Stockholder's
account, for investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection with
any distribution;
(ii) no Stockholder is a party to any agreement or other
arrangement for the disposition of any shares of RW Common Stock other
than this Agreement; (iii) except as set forth on Schedule 3.01(a)(ii)
each Stockholder is an "accredited investor" as defined in Rule 501(a)
promulgated under the Securities Act; (iv) each Stockholder (A) is able
to bear the economic risk of an investment in the RW Common Stock
acquired pursuant to this Agreement, (B) can afford to sustain a total
loss of that investment, (C) has such knowledge and experience in
financial and business matters that he or she is capable of evaluating
the merits and risks of the proposed investment in the RW Common Stock,
(D) has had an adequate opportunity to ask questions and receive
answers from the officers of RW concerning any and all matters relating
to the transactions contemplated hereby, including the background and
experience of the current and proposed officers and directors of RW,
the plans for the operations of the business of RW, the business,
operations and financial condition of the Other Founding Companies and
any plans of RW for additional acquisitions, and (E) has asked all
questions of the nature described in preceding clause (D) that such
Stockholder thought to ask, and all those questions have been answered
to his or her satisfaction;
(b) the representations and warranties contained in Article III of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to; and
(c) (i) the terms and conditions of any agreements between any
Stockholder or an Affiliate of any Stockholder, on the one hand, and the Company
on the other hand, included in the Scheduled Related Party Agreements will have
been amended effective as of the IPO Closing Date to be no less favorable to the
Company than the Company reasonably could have expected to obtain in an
arms-length transaction with a Person other than an Affiliate of the Company and
(ii) the
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rentals or other payments provided for in such agreements then will not exceed
fair market rentals of the property being leased or fair market value of the sum
or product being provided and such amounts shall have been previously approved
in writing by the Chief Financial Officer of RW.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS
Section 4.01. By the Company and Each Primary Stockholder. The Company
and each Primary Stockholder jointly and severally represent and warrant to, and
agree with, RW that all the following representations and warranties in this
Article IV are as of the date of this Agreement, and will be, as amended or
supplemented pursuant to Section 6.08, on the Delivery Date and the IPO Closing
Date, true and correct:
(a) the Organization State of the Company is the State of Ohio, and the
Company (i) is a corporation duly organized, validly existing and in good
standing under the laws of that State, (ii) has all requisite corporate power
and authority under those laws and its Charter Documents to own or lease and to
operate its properties and to carry on its business as now conducted and (iii)
is duly qualified and in good standing as a foreign corporation in all
jurisdictions (other than the State of Ohio) in which it owns or leases property
or in which the carrying on of its business as now conducted so requires except
where the failure to be so qualified, singly or in the aggregate, would not have
a Material Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is comprised of
1,000 shares of Company Common Stock, of which 1,000 shares have been issued and
are now outstanding and no shares are held by the Company as treasury shares,
and (ii) there are no Derivative Securities of the Company; and
(c) the representations and warranties contained in Article IV of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO
Section 5.01. By RW and Newco. RW and Newco jointly and severally
represent and warrant to the Company and each Stockholder that all the following
representations and warranties in this Article V are as of the date of this
Agreement, and will be on the IPO Closing Date, true and correct:
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(a) Newco is a corporation duly organized, validly existing and in good
standing under the laws of the State of Ohio;
(b) except as disclosed in the Private Placement Memorandum, no
Derivative Securities of Newco are outstanding;
(c) Newco has been organized for the sole purpose of participating in
the Merger and has not, and will not, engage in any activities other than those
necessary to effectuate the Merger;
(d) except for shares of RW Common Stock to be publicly sold in the IPO
and as disclosed in the Private Placement Memorandum or preliminary prospectus,
neither RW nor Newco is a party to any agreement or other arrangement for the
disposition of any shares of RW Common Stock; and
(e) the representations and warranties contained in Article V of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01. Of Each Party. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01. The Closing and Certain Conditions.
(a) The Closing. On or before the IPO Pricing Date, the parties hereto
will take all actions necessary to (i) effect the Merger (including, as
permitted by the Applicable Corporate Code, (A) the execution of a Certificate
of Merger (1) meeting the requirements of the Applicable Corporate Code and (2)
providing that the Merger will become effective on the IPO Closing Date and (B)
the delivery of that Certificate of Merger with a filing service that will file
such Certificate of Merger with the Department of State of the State of Ohio)
upon notification of the closing of the IPO (provided that Comstock's
Certificate of Merger shall be filed immediately prior to the closing of the
IPO), (ii) verify the existence and ownership of the certificates evidencing the
Company Common Stock to be exchanged for the Merger Consideration pursuant to
Section 2.05 and (iii) satisfy the document delivery requirements to which the
obligations of the parties to effect the Merger and the other transactions
contemplated hereby are conditioned by the provisions of this
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Article VII (all those actions collectively being the "Delivery"). The Delivery
will take place at the offices of King & Spalding, 191 Peachtree Street,
Atlanta, Georgia at 10:00 a.m., Atlanta time on the IPO Pricing Date, or at such
later time on the IPO Pricing Date as RW shall specify by written notice to the
President of the Company (the "Delivery Date"). The actions taken at the
Delivery will not include the completion of either the Merger or the delivery of
the Company Common Stock or the Merger Consideration pursuant to Section 2.05.
On the IPO Closing Date, the Certificate of Merger will be filed and will become
effective pursuant to Section 2.02, and all transactions contemplated by this
Agreement to be closed or completed on or before the IPO Closing Date, including
the surrender of the Company Common Stock in exchange for the Merger
Consideration (including a certified check or checks in an amount equal to the
cash portion of the Merger Consideration) will be closed or completed, as the
case may be. During the period from the Delivery Date to the IPO Closing Date,
this Agreement may be terminated by the parties only pursuant to Section
12.01(b)(i).
(b) Certain Conditions to the Obligations of the Company and the
Stockholders. The obligations of the Company and the Stockholders with respect
to the actions to be taken by them at or before the Delivery Date are subject to
the satisfaction on or before the Delivery Date, or waiver by them pursuant to
Section 11.05, of all the conditions set forth in Sections 7.01 and 7.02(a). The
obligations of the Stockholders with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of the following
conditions: (if required by such Stockholder) (i) the Employment Agreement then
shall be in full force and effect; and (ii) all the conditions set forth in
Sections 7.01 and 7.02(b).
(c) Certain Conditions to the Obligations of RW and Newco. The
obligations of RW and Newco with respect to actions to be taken by them at or
before the Delivery Date are subject to the satisfaction on or before the date
of the Delivery Date, or waiver by them pursuant to Section 11.05, of the
following conditions: (i) the Company shall have delivered to RW a copy of the
articles of incorporation, as amended to the Delivery Date and certified by the
Secretary of State of the State of Ohio as of a Current Date, of the Company;
and (ii) all the conditions set forth in Sections 7.01 and 7.03(a). The
obligations of RW and Newco with respect to the actions to be taken on the IPO
Closing Date are subject to the satisfaction on that date of the following
conditions: (i) the Employment Agreements then shall be in full force and
effect; and (ii) all the conditions set forth in Sections 7.01 and 7.03(b).
(d) Uniform Provisions. The text of Article VII of the Uniform
Provisions hereby is incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01. Of Each Party Other than the Company. From and after the
Effective Time, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Company) will
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comply with each covenant for which provision is made in Article VIII of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) to be performed or observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01. Indemnification Rights and Obligations. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. Any provision contained in Article IX of the Uniform Provisions to
the contrary notwithstanding, the indemnification obligations of the
Stockholders pursuant to this Agreement shall be joint and several.
ARTICLE X
[Intentionally Ommitted]
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. Treatment of Confidential Information. Each party hereto
will comply with each covenant for which provision is made in Section 11.01 of
the Uniform Provisions (the text of which Section hereby is incorporated herein
by this reference) to be performed or observed by that party.
Section 11.02. Restrictions on Transfer of RW Common Stock.
(a) Except for transfers to employees of the Company that are approved
in writing by the Board of Directors of RW (or a committee designated by the
Board of Directors of RW) prior to such transfer, during the one year period
ending on the first anniversary of the IPO Closing Date (the "Restricted
Period"), no Stockholder voluntarily will: (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
RW Common Stock received by any Stockholder in the Merger or (B) any interest in
(including any option to buy or sell) any of those shares of RW Common Stock, in
whole or in part, and RW will have no obligation to, and shall not, treat any
such attempted transfer as effective for any purpose; or (ii) engage in any
transaction, whether or not with respect to any shares of RW Common Stock or any
interest therein, the intent or effect of which is to reduce the risk of owning
the shares of RW Common Stock acquired pursuant to Section 2.04 (including, for
example engaging in put, call, short-sale, straddle or similar market
transactions); provided, however, that this Section 11.02 shall not restrict any
transfer of RW Common Stock acquired by a Stockholder pursuant to Section 2.04
to any of that Stockholder's Related Persons who agree in writing to be bound by
the provisions of Section 11.01
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and this Section 11.02. The certificates evidencing the RW Common Stock
delivered to each Stockholder pursuant to Section 2.05 will bear a legend
substantially in the form set forth below and containing such other information
as RW may deem necessary or appropriate:
"EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER
PARTIES THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE
REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF
ANY OF THOSE SHARES, DURING THE ONE-YEAR PERIOD ENDING ON __________ [DATE THAT
IS THE FIRST ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED PERIOD"). ON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE."
(b) From the first anniversary of the IPO Closing Date to the fourth
anniversary of the IPO Closing Date, the Stockholders agree to sell shares of RW
Common Stock acquired pursuant to this Agreement only in accordance with the
procedures set forth in this Section 11.02(b). Every quarter during such period,
every Stockholder will be permitted to sell, in the aggregate, up to 8% of the
aggregate number of shares of Common Stock received by such Stockholder pursuant
to this Agreement (the "Quarterly Block Trade Shares") in either a block trade
or a registered public offering, at the option of RW. If a Stockholder does not
sell all of his or her Quarterly Block Trade Shares in any given quarter, such
Stockholder may sell such Quarterly Block Trade Shares pursuant to this Section
11.02(b) in any later quarter, provided, however, that in no event may a
Stockholder sell more than 20% of the shares of Common Stock received by such
Stockholder pursuant to this Agreement in any one quarter. Any Stockholder that
wishes to sell shares of RW Common Stock pursuant to such selling opportunity
must give notice to RW and the Executive Council no later than fourteen days
prior to the commencement of the fiscal quarter of RW during which such
Stockholder wants to sell such shares. Notwithstanding anything set forth in
this Section 11.02(b), RW may elect to make available to the Stockholders (i)
additional opportunities to sell shares of RW Common Stock and/or (ii) the
opportunity to sell an amount in excess of such amount during any particular
quarter. The Company may modify or waive this Section 11.02(b) at its sole
discretion at any time following written notice to the Stockholders, provided
that no such modification or waiver may reduce the number of selling
opportunities or the maximum number of shares of RW Common Stock that may be
sold by any Stockholder during any selling opportunity.
(c) Each Stockholder, severally and not jointly with any other Person,
(i) acknowledges that the shares of RW Common Stock to be delivered to that
Stockholder pursuant to Section 2.04 have not been and will not be registered
under the Securities Act and therefore may not be resold by that Stockholder
without compliance with the Securities Act and (ii) covenants that none of the
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<PAGE> 17
shares of RW Common Stock issued to that Stockholder pursuant to Section 2.04
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable provisions of
the Securities Act and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of RW Common
Stock issued pursuant to Section 2.04 will bear the following legend in addition
to the legend prescribed by Section 11.02(a):
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, HAVE
BEEN ISSUED PURSUANT TO ONE OR MORE EXEMPTIONS THERETO, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED OR DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED."
In addition, certificates evidencing shares of RW Common Stock issued pursuant
to Section 2.04 to each Stockholder will bear any legend required by the
securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03. Brokers and Agents. Except for IPO Development Company,
each of the Stockholders jointly and severally, on the one hand, and RW, on the
other, represents and warrants to the other that such Person has not directly or
indirectly employed or become obligated to pay any broker, finder or similar
agent in connection with the transactions contemplated hereby and agree, without
regard to the Threshold Amount limitations set forth in Article IX, to indemnify
the other against all Damage Claims arising out of claims for any and all fees
and commissions of brokers or similar agents employed or promised payment by
such Person.
Section 11.04. Assignment; No Third Party Beneficiaries. This Agreement
and the rights of the parties hereunder may not be assigned (except by operation
of law) and shall be binding on and inure to the benefit of the parties hereto,
the successors of RW, and the heirs and legal representatives of the
Stockholders (and, in the case of any trust, the successor trustees of that
trust). Neither this Agreement nor any other Transaction Document is intended,
or shall be construed, deemed or interpreted, to confer on any Person not a
party hereto or thereto any rights or remedies hereunder or thereunder, except
as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise provided
expressly herein or therein.
Section 11.05. Entire Agreement; Amendment; Waivers. Except with
respect to Section 11.07 hereof, this Agreement and the documents delivered
pursuant hereto constitute the entire agreement and understanding among the
Stockholders, the Company, Newco and RW and supersede all prior agreements and
understandings, both written and oral, relating to the subject matter of this
Agreement. This Agreement may be amended, modified or supplemented, and any
right hereunder may be waived, if, but only if, that amendment, modification,
supplement or waiver is in writing and
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<PAGE> 18
signed by each of the Stockholders, the Company and RW. The waiver of any of the
terms and conditions hereof shall not be construed or interpreted as, or deemed
to be, a waiver of any other term or condition hereof.
Section 11.06. Counterparts. This Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
Section 11.07. Expenses. If the transactions contemplated hereby (i)
are consummated, RW will pay the fees, expenses and disbursements of RW and
Newco and their Representatives which are incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all costs
and expenses incurred in the performance of and compliance with all conditions
to be performed by RW and Newco under this Agreement, including the costs of
preparing the Registration Statement, (collectively, the "RW Expenses") and (ii)
if the transactions contemplated hereby are not consummated, the RW Expenses
shall be paid by the Founding Companies subject to the provisions of the IPO
Cost Liability Sharing Agreement attached hereto as Exhibit C and incorporated
herein by reference (b) the Stockholders will pay from personal funds, and not
from funds of the Company or any Company Subsidiary, all sales, use, transfer
and other similar taxes and fees (collectively, "Transfer Taxes") incurred in
connection with the transactions contemplated hereby and (c) the Company will
pay the fees, expenses and disbursements of Counsel for the Company and the
Stockholders incurred in connection with the subject matter of this Agreement
and the Registration Statement on or before the IPO Closing Date. The
Stockholders will file all necessary documentation and Returns with respect to
all Transfer Taxes. In addition, each Stockholder acknowledges that he, and not
the Company or RW or the Surviving Corporation, will pay all Taxes due upon
receipt of the consideration payable to that Stockholder pursuant to Article II.
Section 11.08. Notices. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received
(a) if personally delivered or if delivered by telex, telegram,
facsimile or courier service, when actually received by the party to whom notice
is sent or
(b) if delivered by mail (whether actually received or not), at the
close of business on the third Business Day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
(i) if to RW or Newco, addressed to it at:
RailWorks Corporation
403 Somerset Road
Baltimore, Maryland 21210
Attn: Chief Executive Officer
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<PAGE> 19
with copies (which shall not constitute notice for purposes
of this Agreement) to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attn: Jeffrey M. Stein
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
Railcorp Inc.
1550 North Bailey Road
North Jackson, Ohio 44451
Attn: Fulton Kennedy
with copies (which shall not constitute notice for purposes
of this Agreement) to Counsel for the Company and the
Stockholders at the address designated by the Company
Section 11.09. Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF DELAWARE
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10. Exercise of Rights and Remedies. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11. Time. Time is of the essence in the performance of this
Agreement in all respects.
Section 11.12. Reformation and Severability. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this
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<PAGE> 20
Agreement, and in either case the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
Section 11.13. Remedies Cumulative. No right, remedy or election given
by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14. Respecting the IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither RW or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that RW will use its reasonable best efforts to
cause the Registration Statement to become effective prior to August 14, 1998)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to RW or the
IPO.
ARTICLE XII
TERMINATION
Section 12.01. Termination of this Agreement.
(a) This Agreement may be terminated at any time prior to the Delivery
Date solely:
(i) by the mutual written consent of RW and the Company;
(ii) by the Stockholders or the Company, on the one hand,
or by RW, on the other hand, if the events contemplated by this
Agreement to take place at the Delivery Date shall not have taken place
by September 4, 1998, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the
case of the Stockholders and the Company, any of them) seeking to
terminate this Agreement to perform or adhere to any agreement required
hereby to be performed or adhered to by it prior to or at the Delivery
Date or thereafter on the IPO Closing Date;
(iii) by the Stockholders or the Company, on the one hand,
or by RW, on the other hand, if a material breach or default shall be
made by the other party (or in the case of the Stockholders and the
Company, any of them) in the observance or in the due and timely
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<PAGE> 21
performance of any of the covenants, agreements or conditions contained
in Article VI or Section 11.01;
(iv) by the Stockholders or the Company, on the one hand,
or RW, on the other, if it is entitled to do so as provided in Section
6.08;
(v) by the Stockholders prior to the filing of the
Registration Statement if the Registration Statement is not filed by
June 15, 1998;
(vi) by RW or the Stockholders prior to 9:00 a.m. on the
IPO Pricing Date (as set forth in Section 8.10) if the value of RW at
the IPO Pricing Date (as calculated by multiplying the price per share
at which the RW common stock is to be sold in the IPO by the number of
shares of common stock to be outstanding after the Closing of the IPO)
shall be less than $215 million;
(vii) by the Stockholders if the Registration Statement has
not been declared effective by the Securities and Exchange Commission
by August 14, 1998;
(viii) by the Stockholders if John G. Larkin is no longer
serving as Chairman of the Board of Directors and Chief Executive
Officer prior to the Closing; or
(ix) by the stockholders of CPI Concrete Products, Inc. if
its Employee Stock Ownership Plan does not approve the merger prior to
the Delivery Date.
(b) This Agreement may be terminated after the Delivery Date solely:
(i) by RW or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the IPO Pricing Date and prior
to the consummation of the IPO; or
(ii) automatically and without action on the part of any
party hereto if the IPO is not consummated within 15 New York City
business days after the Delivery Date.
(c) If this Agreement is terminated pursuant to this Section 12.01, the
Merger will be deemed for all purposes to have been abandoned and of no force or
effect.
Section 12.02. Liabilities in Event of Termination. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Sections
11.03 or 11.07 and (b) to the extent that such liability is based on the breach
by that party of any of its representations, warranties or covenants set forth
in this Agreement.
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<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
RAILWORKS CORPORATION
By: /s/ John G. Larkin
-------------------------------------------
John G. Larkin
Chief Executive Officer
BUCKEYE RAILCORP, INC.
By: /s/ John G. Larkin
-------------------------------------------
John G. Larkin
President
RAILCORP, INC.
By: /s/ Authorized Signature
-------------------------------------------
Name:
Title:
STOCKHOLDERS:
/s/ John Kennedy
----------------------------------------------
John Kennedy
/s/ Fulton Kennedy
----------------------------------------------
Fulton Kennedy
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<PAGE> 23
ADDENDUM 1
OTHER FOUNDING COMPANIES
A. Words and terms used in this Addendum which are defined in
the captioned Agreement to which this is an Addendum are used herein as therein
defined.
B. The Founding Companies are:
Alpha - Keystone Engineering, Inc.
Annex Railroad Builders, Inc.
Comtrak Construction, Inc.
Comstock Holdings Inc.
Condon Brothers, Inc.
CPI Concrete Products
HP McGinley, Inc.
Kennedy Railroad Builders, Inc.
Merit Railroad Contractors, Inc.
Midwest Construction Services, Inc.
Minnesota Railroad Services, Inc.
Mize Construction Co.
New England Railroad Construction Co., Inc.
Northern Rail Service & Supply Company, Inc.
Railcorp, Inc.
Railroad Service, Inc.
Railroad Specialities, Inc,
Southern Indiana Wood Preserving Co.
U.S. Railway Supply, Inc,
U.S. Trackworks, Inc.
W.A. Smith Construction Co., Inc.
W.A Smith Rerailing Co., Inc.
<PAGE> 1
EXHIBIT 10.17
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 21, 1998
BY AND BETWEEN
RAILWORKS CORPORATION,
RUNNIN' REBELS RAILROAD SERVICE COMPANY,
RAILROAD SERVICE, INC.
AND
THE STOCKHOLDERS NAMED HEREIN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS...................................................................................1
Section 1.01. Certain Defined Terms.................................................1
ARTICLE II THE MERGER AND RELATED MATTERS................................................................4
Section 2.01. Certificate of Merger.................................................4
Section 2.02. The Effective Time....................................................4
Section 2.03. Certain Effects of the Merger.........................................4
Section 2.04. Effect of the Merger on Capital Stock.................................5
Section 2.05. Delivery, Exchange and Payment........................................6
Section 2.06. Merger Consideration Calculation......................................7
Section 2.07. Fractional Shares.....................................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
EACH STOCKHOLDER .............................................................................8
Section 3.01. By Each Stockholder...................................................8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS......................................................9
Section 4.01. By the Company and Each Primary Stockholder...........................9
ARTICLE V REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO................................................9
Section 5.01. By RW and Newco.......................................................9
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME ...................................................10
Section 6.01. Of Each Party........................................................10
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION.................................................................................10
Section 7.01. The Closing and Certain Conditions...................................10
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME.......................................................12
Section 8.01. Of Each Party Other than the Company.................................12
ARTICLE IX INDEMNIFICATION..............................................................................12
Section 9.01. Indemnification Rights and Obligations...............................12
ARTICLE X [Intentionally Ommitted].....................................................................12
ARTICLE XI GENERAL PROVISIONS...........................................................................12
Section 11.01. Treatment of Confidential Information................................12
Section 11.02. Restrictions on Transfer of RW Common Stock..........................12
Section 11.03. Brokers and Agents...................................................14
Section 11.04. Assignment; No Third Party Beneficiaries.............................14
Section 11.05. Entire Agreement; Amendment; Waivers.................................15
Section 11.06. Counterparts.........................................................15
Section 11.07. Expenses.............................................................15
Section 11.08. Notices..............................................................15
Section 11.09. Governing Law........................................................16
Section 11.10. Exercise of Rights and Remedies......................................16
Section 11.11. Time.................................................................16
Section 11.12. Reformation and Severability.........................................17
Section 11.13. Remedies Cumulative..................................................17
Section 11.14. Respecting the IPO...................................................17
ARTICLE XII TERMINATION..................................................................................17
Section 12.01. Termination of this Agreement........................................17
Section 12.02. Liabilities in Event of Termination..................................18
EXHIBITS
Exhibit A - List of Primary Stockholders
Exhibit B - Form of Employment Agreement
Exhibit C - IPO Cost Liability Sharing Agreement
Exhibit D - Merger Consideration
</TABLE>
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<PAGE> 4
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as
of May 21, 1998, by and among RailWorks Corporation, a Delaware corporation
("RW"), Runnin' Rebels Railroad Service Company, a Nevada corporation and a
wholly owned subsidiary of RW("Newco"), Railroad Service, Inc., a Nevada
corporation (the "Company"), and the persons listed on the signature pages
hereof under the caption "Stockholders" (collectively, the "Stockholders," and
each of those persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(a) Newco will merge into the Company on the terms and subject to the
conditions set forth herein (that merger being the "Merger");
(b) RW will acquire the stock of all or some of the entities listed in
the accompanying Addendum 1 (each an "Other Founding Company" and, collectively
with the Company, the "Founding Companies") pursuant to agreements that are (i)
similar in all material respects to this Agreement and (ii) entered into among
those entities and their equity owners, RW and subsidiaries of RW (collectively,
the "Other Agreements"); and
(c) RW shall at such time as specified herein and if certain conditions
are met, effect a public offering of shares of its common stock and issue and
sell those shares.
The respective boards of directors of RW, Newco and the Company have
approved and adopted this Agreement to effect a transaction subject to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Certain Defined Terms. As used in this Agreement and in
the related Addendums, Annexes, Schedules and Exhibits, the following terms have
the meanings assigned to them below in this Section 1.01. Capitalized terms used
in this Agreement and not defined below in this Section 1.01 have the meanings
assigned to them in the Preliminary Statement or Article I of the Uniform
Provisions (the text of which Article hereby is incorporated herein by this
reference), as the case may be.
<PAGE> 5
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement and all attached Schedules, Addendums,
Annexes and Exhibits, as each of the same may be amended, modified or
supplemented from time to time pursuant to the provisions hereof or thereof.
"Applicable Corporate Code" means the laws of the Organization State of
the Company that govern corporations incorporated in such state.
"Closing Date Balance Sheet" of the Company means a balance sheet of
the Company as at the IPO Closing Date which is prepared on a basis consistent
with the basis on which the Current Balance Sheet was prepared.
"Closing Memorandum" means the form of closing memorandum to be
prepared by RW for the Closing under this Agreement in which are included the
forms of certificates of officers, the opinions of counsel and certain other
documents to be delivered at the Closing as provided in Article VII.
"Company Accounts Receivable" shall mean the accounts and notes or
other advances receivable of the Company and the Company Subsidiaries, excluding
any Retainages, as of the IPO Closing Date.
"Company Common Stock" means the common stock, no par value, of the
Company.
"Company Indebtedness" means the indebtedness of the Company, as of the
IPO Closing Date (including, with respect to CPI Concrete Products, Inc., the
value of the Cash Company Consideration to be received by its Employee Stock
Ownership Plan), that the Company has elected to repay (or repurchase, as the
case may be) with a portion of the RW Common Stock to be received as part of the
Merger Consideration. At least five days prior to the Delivery Date, the Company
will deliver to RW a schedule of the aggregate principal amount of the Company
Indebtedness, certified by the President of the Company, that will be
outstanding on the IPO Closing Date, and RW will repay such Company Indebtedness
on the IPO Closing Date. To the extent that the actual amount of Company
Indebtedness exceeds the amount shown on such schedule, such excess shall be
repaid by the Stockholders on or prior to the IPO Closing Date.
"Counsel for RW and Newco" means King & Spalding.
"Counsel for the Company and the Stockholders" means such counsel as
shall be designated by the Company in writing on or prior to the Delivery Date.
"Current Balance Sheet" means the balance sheet of the Company as at
March 31, 1998 which is included in the Initial Financial Statements.
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<PAGE> 6
"Current Balance Sheet Date" means December 31, 1997.
"Defined Net Worth" as of the IPO Closing Date shall mean (i) the total
assets of the Company, as set forth on the balance sheet of the Company as of
such date, except that (A) expenses of the Company directly attributable to the
IPO and/or the transactions contemplated by this Agreement, including but not
limited to, costs incurred pursuant to the HSR Act, shall be added back to the
assets of the company and (B) the value of inventory, machinery, equipment and
real estate shall be determined pursuant to Section 2.06(a), less (ii) the total
liabilities of the Company, as set forth on the balance sheet of the Company as
of such date, excluding the Company Indebtedness. Notwithstanding the foregoing,
in the case of Comstock, Comstock's contractual obligation to Spie Group, Inc.,
as successor to Comstock Group, Inc., shall not be deemed to be a liability for
purposes of determining Defined Net Worth.
"Delivery" or "Delivery Date" shall have the meaning set forth in
Section 7.01.
"Earnings Percentage" shall have the meaning set forth in Exhibit D.
"Employment Agreement" means each of the Employment Agreements entered
into as of the Closing Date between RW and each of the Stockholders set forth on
Exhibit A hereto, a form of which is attached hereto as Exhibit B.
"fair market value" means that value at which goods and/or services
would be exchanged between a willing buyer and willing seller in a transaction
entered into at arms length with each party having relevant facts of all aspects
of the transaction.
"Initial Financial Statements" means (a) the balance sheets of the
Company as at December 31, 1997 and March 31, 1998 and the related reviewed
statements of operations and retained earnings for each of the Company's two
fiscal years in the period ended December 31, 1997, and (b) the Current Balance
Sheet and the related statement of income for the Company's fiscal year ended
December 31, 1997, which the Company has delivered to RW prior to the date
hereof.
"IPO Closing Date" means the date on which RW first receives payment
for the shares of RW Common Stock it sells to the Underwriter in the IPO.
"Merger Consideration" has the meaning specified in Section 2.04.
"Newco" means Runnin' Rebels Railroad Service Company, a Nevada
corporation.
"Responsible Officer" means the President, Chief Executive Officer or
any Vice President of the Company.
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<PAGE> 7
"Retainages" means the portion of progress payments due to a Company
for contracting projects that is withheld by a customer of such Company until
completion of a project, pursuant to the terms of a contract with such customer,
as security for the completion of the project.
"RW" means RailWorks Corporation, a Delaware corporation.
"Scheduled Related Party Agreements" means the agreements described in
Schedule 4.11.
"Surviving Corporation" means the Person to be designated in the
Certificate of Merger as the surviving corporation of the Merger.
"Threshold Amount" means 2.0% of the Merger Consideration.
"Transaction Value" means the (i)(A) the total number of shares of RW
outstanding immediately upon the closing of the IPO and the transactions
contemplated by this Agreement and the Other Agreements multiplied by (B) the
IPO Price multiplied by (C) 92% minus (ii) actual expenses of RW incurred with
respect to the IPO, an estimate of which will be set forth in Item 13 of Part II
of the Registration Statement minus (iii) the underwriting discounts and
commissions paid to the Underwriter pursuant to the IPO minus (iv) the proceeds
received by RW in connection with any shares of RW Common Stock sold by RW to
finance the working capital needs of RW, which shares shall not exceed 5% of the
number of shares to be sold in the IPO.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions of RW for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. Certificate of Merger. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the Delivery Date to the Department
of State of the State of Nevada.
Section 2.02. The Effective Time. The effective time of the Merger (the
"Effective Time") will be the time on the IPO Closing Date as specified in the
Certificate of Merger or, if the Certificate of Merger does not specify another
time, 8:00 a.m., eastern daylight standard time, on the IPO Closing Date.
Section 2.03. Certain Effects of the Merger. At and as of the Effective
Time, (a) Newco will be merged with and into the Company in accordance with the
provisions of the Nevada General Corporation Law, (b) Newco will cease to exist
as a separate legal entity, (c) the articles of
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<PAGE> 8
incorporation of the Company will be amended to change its authorized capital
stock to 100 shares, par value $0.01 per share, of Common Stock, (d) the Company
will be the Surviving Corporation and, as such, will, all with the effect
provided by the Nevada General Corporation Law, (i) possess all the properties
and rights, and be subject to all the restrictions and duties, of the Company
and Newco and (ii) be governed by the laws of the State of Nevada, (e) the
Charter Documents of the Company then in effect (after giving effect to the
amendment of the Company's articles of incorporation specified in clause (c) of
this sentence) will become and thereafter remain (until changed in accordance
with (i) applicable law (in the case of the articles of incorporation) or (ii)
their terms (in the case of the bylaws)) the Charter Documents of the Surviving
Corporation, (f) the initial board of directors of the Surviving Corporation
will be the Chief Executive Officer of RW and the other persons named in
Schedule 2.03, and those persons will hold the office of director of the
Surviving Corporation subject to the provisions of the applicable laws of the
State of Nevada and the Charter Documents of the Surviving Corporation, and (g)
the initial officers of the Surviving Corporation will be as set forth in
Schedule 2.03, and each of those persons will serve in each office specified for
that person in Schedule 2.03, subject to the provisions of the Charter Documents
of the Surviving Corporation, until that person's successor is duly elected to,
and, if necessary, qualified for, that office.
Section 2.04. Effect of the Merger on Capital Stock. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the right to
receive, subject to the provisions of Section 2.05 and Exhibit D, without
interest, on surrender of the certificate evidencing those shares, the amount of
cash and the number of whole and fractional shares of RW Common Stock set forth
or determined as provided in Exhibit D (the "Merger Consideration"), (ii) cease
to be outstanding and to exist and (iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to exist
and (ii) be canceled and retired; and
(c) each share of Newco Common Stock issued and outstanding immediately
prior to the Effective Time will be converted into one share of Common Stock, no
par value, of the Surviving Corporation, and the shares of Common Stock of the
Surviving Corporation issued on that conversion will constitute all the issued
and outstanding shares of Capital Stock of the Surviving Corporation. Each
holder of a certificate representing shares of Company Common Stock immediately
prior to the Effective Time will, as of the Effective Time and thereafter, cease
to have any rights respecting those shares other than the right to receive,
subject to the provisions of Section 2.05, without interest, the Merger
Consideration and the additional cash, if any, owing with respect to those
shares as provided in Section 2.07.
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Section 2.05. Delivery, Exchange and Payment.
(a) At or after the Effective Time: (i) each Stockholder, as the holder
of certificates representing shares of Company Common Stock, will, on surrender
of those certificates to RW (or any agent that may be appointed by RW for
purposes of this Section 2.05), receive, subject to the provisions of this
Article II and the Escrow Agreement, such Stockholder's share of the Merger
Consideration pursuant to Section 2.04 and Exhibit D; and (ii) until any
certificate representing Company Common Stock has been surrendered and replaced
pursuant to this Section 2.05, that certificate will, for all purposes, be
deemed to evidence ownership of the number of whole shares of RW Common Stock
included in the Merger Consideration payable in respect of that certificate
pursuant to Section 2.04. The Escrow Agreement will provide that the shares of
RW Common Stock issued to the Stockholders as a part of the Merger Consideration
together with duly executed stock powers in blank, shall be placed in escrow to
be held subject to the terms of the Escrow Agreement and further subject to
Exhibit D and Section 11.02. The escrow shall consist solely of shares of RW
Common Stock that shall be issued at the Effective Time to the Stockholders of
the Founding Companies and delivered, at the Closing, to the Escrow Agent. All
shares of RW Common Stock issuable in the Merger will be deemed for all purposes
to have been issued by RW at the Effective Time.
(b) Each Stockholder will deliver to RW (or any agent that may be
appointed by RW for purposes of this Section 2.05) on or before the Delivery
Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Stockholder, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Stockholder's expense, affixed and canceled.
Each Stockholder shall cure any deficiencies in the endorsement of the
certificates or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Stockholder.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to RW Common Stock and payable to
the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of RW Common Stock have been issued in the Merger until
those certificates are surrendered as provided herein, but (i) on that surrender
RW will cause to be paid, to the Person in whose name the certificates
representing such shares of RW Common Stock shall then be issued, the amount of
dividends or other distributions previously paid with respect to such whole
shares of RW Common Stock with a record date, or which have accrued, subsequent
to the Effective Time, but prior to surrender, and the amount of any cash
payable to such Person for and in lieu of fractional shares pursuant to Section
2.07 and (ii) at the appropriate payment date or as soon as practicable
thereafter, RW will cause to be paid to that Person the amount of dividends or
other distributions with a record date, or which have been accrued, subsequent
to the Effective Time, but which are not payable until a date subsequent to
surrender, which are payable with respect to such whole shares of RW Common
Stock, subject in all cases to any applicable
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escheat laws. No interest will be payable with respect to the payment of such
dividends or other distributions or cash for and in lieu of fractional shares on
surrender of outstanding certificates.
(d) Each Stockholder hereby authorizes and directs RW to deliver 3.5%
of the Cash Company Consideration and 3.5% of the Stock Company Consideration
owed to such Stockholder pursuant to this Agreement (before deposit of the
shares of RW Common Stock into escrow) to IPO Development Company in payment of
fees owed to IPO Development Company by such Stockholder.
Section 2.06. Merger Consideration Calculation.
(a) No later than fifteen (15) days following the IPO Closing Date, the
Company shall provide to the Chief Accounting Officer of RW (the "CAO") a
determination of the fair market value (as defined) of its inventory, machinery,
equipment and real estate (the "Valued Assets") as of the IPO Closing Date.
Within seven (7) days of such date, the CAO shall distribute to every Founding
Company the value of the Valued Assets of every Founding Company. The Company
shall have seven (7) days from the date of the distribution of such valuation to
dispute the value of the Valued Assets of any Founding Company by providing
written notice of such dispute to the CAO. If the CAO is unable to resolve any
such dispute, the dispute shall be resolved by binding arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
which arbitration shall be resolved no later than thirty (30) days from
selection of the arbitrator. The arbitrator shall be selected by the CAO.
(b) Arthur Andersen or, if not Arthur Andersen, the Company's
accountant, shall cause to be prepared and delivered to RW and the Company a
calculation as of the IPO Closing Date of the Defined Net Worth of the Company
(the "Balance Sheet Calculation"). The Balance Sheet Calculation shall be final
and binding on the Company and the Other Founding Companies absent fraud,
manifest error or gross negligence.
(c) The Balance Sheet Calculation shall include a report of Arthur
Andersen or, if not Arthur Andersen, the Company's accountant, stating that it
has been prepared in a manner consistent with the accounting policies and
procedures used in preparation of the balance sheets in the Initial Financial
Statements, except as provided in the definition of "Defined Net Worth"
contained herein. The Stockholders shall give Arthur Andersen and other
appropriate personnel such assistance and access to the assets and books and
records of the Company as Arthur Andersen shall reasonably request during normal
business hours in order to enable them to prepare the Balance Sheet Calculation.
The Surviving Corporation shall be responsible for the fees and expenses of
Arthur Andersen or, if not Arthur Andersen the Company's accountant.
Section 2.07. Fractional Shares. Notwithstanding any other provision
herein, no fractional shares of RW Common Stock will be issued. All shares of RW
Common Stock shall be aggregated, and any Stockholder entitled hereunder, after
such aggregation, to receive a fractional share of RW Common Stock but for this
Section 2.07 will be entitled hereunder to receive a cash payment for and
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in lieu thereof in the amount (rounded to the nearest whole cent) equal to that
Stockholder's fractional interest in a share of RW Common Stock multiplied by
the IPO Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01. By Each Stockholder. The Stockholders severally represent
and warrant to, and agree with, RW that all the following representations and
warranties in this Article III are as of the date of this Agreement, and will
be, as amended or supplemented pursuant to Section 6.08, on the IPO Closing
Date, true and correct:
(a) (i) each Stockholder will acquire the shares of RW Common Stock to
be issued pursuant to Article II to the Stockholder solely for the Stockholder's
account, for investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection with
any distribution;
(ii) no Stockholder is a party to any agreement or other
arrangement for the disposition of any shares of RW Common Stock other
than this Agreement; (iii) except as set forth on Schedule 3.01(a)(ii)
each Stockholder is an "accredited investor" as defined in Rule 501(a)
promulgated under the Securities Act; (iv) each Stockholder (A) is able
to bear the economic risk of an investment in the RW Common Stock
acquired pursuant to this Agreement, (B) can afford to sustain a total
loss of that investment, (C) has such knowledge and experience in
financial and business matters that he or she is capable of evaluating
the merits and risks of the proposed investment in the RW Common Stock,
(D) has had an adequate opportunity to ask questions and receive
answers from the officers of RW concerning any and all matters relating
to the transactions contemplated hereby, including the background and
experience of the current and proposed officers and directors of RW,
the plans for the operations of the business of RW, the business,
operations and financial condition of the Other Founding Companies and
any plans of RW for additional acquisitions, and (E) has asked all
questions of the nature described in preceding clause (D) that such
Stockholder thought to ask, and all those questions have been answered
to his or her satisfaction;
(b) the representations and warranties contained in Article III of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to; and
(c) (i) the terms and conditions of any agreements between any
Stockholder or an Affiliate of any Stockholder, on the one hand, and the Company
on the other hand, included in the Scheduled Related Party Agreements will have
been amended effective as of the IPO Closing Date to be no less favorable to the
Company than the Company reasonably could have expected to obtain in an
arms-length transaction with a Person other than an Affiliate of the Company and
(ii) the
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rentals or other payments provided for in such agreements then will not exceed
fair market rentals of the property being leased or fair market value of the sum
or product being provided and such amounts shall have been previously approved
in writing by the Chief Financial Officer of RW.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS
Section 4.01. By the Company and Each Primary Stockholder. The Company
and each Primary Stockholder jointly and severally represent and warrant to, and
agree with, RW that all the following representations and warranties in this
Article IV are as of the date of this Agreement, and will be, as amended or
supplemented pursuant to Section 6.08, on the Delivery Date and the IPO Closing
Date, true and correct:
(a) the Organization State of the Company is the State of Nevada, and
the Company (i) is a corporation duly organized, validly existing and in good
standing under the laws of that State, (ii) has all requisite corporate power
and authority under those laws and its Charter Documents to own or lease and to
operate its properties and to carry on its business as now conducted and (iii)
is duly qualified and in good standing as a foreign corporation in all
jurisdictions (other than the State of Nevada) in which it owns or leases
property or in which the carrying on of its business as now conducted so
requires except where the failure to be so qualified, singly or in the
aggregate, would not have a Material Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is comprised of
2,500 shares of Company Common Stock, of which 1,577 have been issued and are
now outstanding and no shares are held by the Company as treasury shares, and
(ii) there are no Derivative Securities of the Company;
(c) the Company has elected to be treated as an S corporation within
the meaning of the Code, as amended; and
(d) the representations and warranties contained in Article IV of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO
Section 5.01. By RW and Newco. RW and Newco jointly and severally
represent and warrant to the Company and each Stockholder that all the following
representations and warranties
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in this Article V are as of the date of this Agreement, and will be on the IPO
Closing Date, true and correct:
(a) Newco is a corporation duly organized, validly existing and in good
standing under the laws of the State of Nevada;
(b) except as disclosed in the Private Placement Memorandum, no
Derivative Securities of Newco are outstanding;
(c) Newco has been organized for the sole purpose of participating in
the Merger and has not, and will not, engage in any activities other than those
necessary to effectuate the Merger;
(d) except for shares of RW Common Stock to be publicly sold in the IPO
and as disclosed in the Private Placement Memorandum or preliminary prospectus,
neither RW nor Newco is a party to any agreement or other arrangement for the
disposition of any shares of RW Common Stock; and
(e) the representations and warranties contained in Article V of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01. Of Each Party. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01. The Closing and Certain Conditions.
(a) The Closing. On or before the IPO Pricing Date, the parties hereto
will take all actions necessary to (i) effect the Merger (including, as
permitted by the Applicable Corporate Code, (A) the execution of a Certificate
of Merger (1) meeting the requirements of the Applicable Corporate Code and (2)
providing that the Merger will become effective on the IPO Closing Date and (B)
the delivery of that Certificate of Merger with a filing service that will file
such Certificate of Merger with the Department of State of the State of Nevada)
upon notification of the closing of the IPO (provided that Comstock's
Certificate of Merger shall be filed immediately prior to the closing of the
IPO), (ii) verify the existence and ownership of the certificates evidencing the
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Company Common Stock to be exchanged for the Merger Consideration pursuant to
Section 2.05 and (iii) satisfy the document delivery requirements to which the
obligations of the parties to effect the Merger and the other transactions
contemplated hereby are conditioned by the provisions of this Article VII (all
those actions collectively being the "Delivery"). The Delivery will take place
at the offices of King & Spalding, 191 Peachtree Street, Atlanta, Georgia at
10:00 a.m., Atlanta time on the IPO Pricing Date, or at such later time on the
IPO Pricing Date as RW shall specify by written notice to the President of the
Company (the "Delivery Date"). The actions taken at the Delivery will not
include the completion of either the Merger or the delivery of the Company
Common Stock or the Merger Consideration pursuant to Section 2.05. On the IPO
Closing Date, the Certificate of Merger will be filed and will become effective
pursuant to Section 2.02, and all transactions contemplated by this Agreement to
be closed or completed on or before the IPO Closing Date, including the
surrender of the Company Common Stock in exchange for the Merger Consideration
(including a certified check or checks in an amount equal to the cash portion of
the Merger Consideration) will be closed or completed, as the case may be.
During the period from the Delivery Date to the IPO Closing Date, this Agreement
may be terminated by the parties only pursuant to Section 12.01(b)(i).
(b) Certain Conditions to the Obligations of the Company and the
Stockholders. The obligations of the Company and the Stockholders with respect
to the actions to be taken by them at or before the Delivery Date are subject to
the satisfaction on or before the Delivery Date, or waiver by them pursuant to
Section 11.05, of all the conditions set forth in Sections 7.01 and 7.02(a). The
obligations of the Stockholders with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of the following
conditions: (if required by such Stockholder) (i) the Employment Agreement then
shall be in full force and effect; and (ii) all the conditions set forth in
Sections 7.01 and 7.02(b).
(c) Certain Conditions to the Obligations of RW and Newco. The
obligations of RW and Newco with respect to actions to be taken by them at or
before the Delivery Date are subject to the satisfaction on or before the date
of the Delivery Date, or waiver by them pursuant to Section 11.05, of the
following conditions: (i) the Company shall have delivered to RW a copy of the
articles of incorporation, as amended to the Delivery Date and certified by the
Secretary of State of the State of Nevada as of a Current Date, of the Company;
and (ii) all the conditions set forth in Sections 7.01 and 7.03(a). The
obligations of RW and Newco with respect to the actions to be taken on the IPO
Closing Date are subject to the satisfaction on that date of the following
conditions: (i) the Employment Agreements then shall be in full force and
effect; and (ii) all the conditions set forth in Sections 7.01 and 7.03(b).
(d) Uniform Provisions. The text of Article VII of the Uniform
Provisions hereby is incorporated herein by this reference.
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ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01. Of Each Party Other than the Company. From and after the
Effective Time, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Company) will comply with each covenant for which
provision is made in Article VIII of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) to be performed or
observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01. Indemnification Rights and Obligations. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. Any provision contained in Article IX of the Uniform Provisions to
the contrary notwithstanding, the indemnification obligations of the
Stockholders pursuant to this Agreement shall be joint and several.
ARTICLE X
[Intentionally Ommitted]
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. Treatment of Confidential Information. Each party hereto
will comply with each covenant for which provision is made in Section 11.01 of
the Uniform Provisions (the text of which Section hereby is incorporated herein
by this reference) to be performed or observed by that party.
Section 11.02. Restrictions on Transfer of RW Common Stock.
(a) Except for transfers to employees of the Company that are approved
in writing by the Board of Directors of RW (or a committee designated by the
Board of Directors of RW) prior to such transfer, during the one year period
ending on the first anniversary of the IPO Closing Date (the "Restricted
Period"), no Stockholder voluntarily will: (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
RW Common Stock received by any Stockholder in the Merger or (B) any interest in
(including any option to buy or sell) any of those shares of RW Common Stock, in
whole or in part, and RW will have no obligation to, and shall not, treat any
such attempted transfer as effective for any purpose; or (ii) engage in any
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transaction, whether or not with respect to any shares of RW Common Stock or any
interest therein, the intent or effect of which is to reduce the risk of owning
the shares of RW Common Stock acquired pursuant to Section 2.04 (including, for
example engaging in put, call, short-sale, straddle or similar market
transactions); provided, however, that this Section 11.02 shall not restrict any
transfer of RW Common Stock acquired by a Stockholder pursuant to Section 2.04
to any of that Stockholder's Related Persons who agree in writing to be bound by
the provisions of Section 11.01 and this Section 11.02. The certificates
evidencing the RW Common Stock delivered to each Stockholder pursuant to Section
2.05 will bear a legend substantially in the form set forth below and containing
such other information as RW may deem necessary or appropriate:
"EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER
PARTIES THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE
REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF
ANY OF THOSE SHARES, DURING THE ONE-YEAR PERIOD ENDING ON __________ [DATE THAT
IS THE FIRST ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED PERIOD"). ON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE."
(b) From the first anniversary of the IPO Closing Date to the fourth
anniversary of the IPO Closing Date, the Stockholders agree to sell shares of RW
Common Stock acquired pursuant to this Agreement only in accordance with the
procedures set forth in this Section 11.02(b). Every quarter during such period,
every Stockholder will be permitted to sell, in the aggregate, up to 8% of the
aggregate number of shares of Common Stock received by such Stockholder pursuant
to this Agreement (the "Quarterly Block Trade Shares") in either a block trade
or a registered public offering, at the option of RW. If a Stockholder does not
sell all of his or her Quarterly Block Trade Shares in any given quarter, such
Stockholder may sell such Quarterly Block Trade Shares pursuant to this Section
11.02(b) in any later quarter, provided, however, that in no event may a
Stockholder sell more than 20% of the shares of Common Stock received by such
Stockholder pursuant to this Agreement in any one quarter. Any Stockholder that
wishes to sell shares of RW Common Stock pursuant to such selling opportunity
must give notice to RW and the Executive Council no later than fourteen days
prior to the commencement of the fiscal quarter of RW during which such
Stockholder wants to sell such shares. Notwithstanding anything set forth in
this Section 11.02(b), RW may elect to make available to the Stockholders (i)
additional opportunities to sell shares of RW Common Stock and/or (ii) the
opportunity to sell an amount in excess of such amount during any particular
quarter. The Company may modify or waive this Section 11.02(b) at its sole
discretion at any time following written notice to the Stockholders, provided
that no such modification or waiver may
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reduce the number of selling opportunities or the maximum number of shares of RW
Common Stock that may be sold by any Stockholder during any selling opportunity.
(c) Each Stockholder, severally and not jointly with any other Person,
(i) acknowledges that the shares of RW Common Stock to be delivered to that
Stockholder pursuant to Section 2.04 have not been and will not be registered
under the Securities Act and therefore may not be resold by that Stockholder
without compliance with the Securities Act and (ii) covenants that none of the
shares of RW Common Stock issued to that Stockholder pursuant to Section 2.04
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable provisions of
the Securities Act and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of RW Common
Stock issued pursuant to Section 2.04 will bear the following legend in addition
to the legend prescribed by Section 11.02(a):
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, HAVE
BEEN ISSUED PURSUANT TO ONE OR MORE EXEMPTIONS THERETO, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED OR DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED."
In addition, certificates evidencing shares of RW Common Stock issued pursuant
to Section 2.04 to each Stockholder will bear any legend required by the
securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03. Brokers and Agents. Except for IPO Development Company,
each of the Stockholders jointly and severally, on the one hand, and RW, on the
other, represents and warrants to the other that such Person has not directly or
indirectly employed or become obligated to pay any broker, finder or similar
agent in connection with the transactions contemplated hereby and agree, without
regard to the Threshold Amount limitations set forth in Article IX, to indemnify
the other against all Damage Claims arising out of claims for any and all fees
and commissions of brokers or similar agents employed or promised payment by
such Person.
Section 11.04. Assignment; No Third Party Beneficiaries. This Agreement
and the rights of the parties hereunder may not be assigned (except by operation
of law) and shall be binding on and inure to the benefit of the parties hereto,
the successors of RW, and the heirs and legal representatives of the
Stockholders (and, in the case of any trust, the successor trustees of that
trust). Neither this Agreement nor any other Transaction Document is intended,
or shall be construed, deemed or interpreted, to confer on any Person not a
party hereto or thereto any rights or remedies hereunder or thereunder, except
as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise provided
expressly herein or therein.
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Section 11.05. Entire Agreement; Amendment; Waivers. Except with
respect to Section 11.07 hereof, this Agreement and the documents delivered
pursuant hereto constitute the entire agreement and understanding among the
Stockholders, the Company, Newco and RW and supersede all prior agreements and
understandings, both written and oral, relating to the subject matter of this
Agreement. This Agreement may be amended, modified or supplemented, and any
right hereunder may be waived, if, but only if, that amendment, modification,
supplement or waiver is in writing and signed by each of the Stockholders, the
Company and RW. The waiver of any of the terms and conditions hereof shall not
be construed or interpreted as, or deemed to be, a waiver of any other term or
condition hereof.
Section 11.06. Counterparts. This Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
Section 11.07. Expenses. If the transactions contemplated hereby (i)
are consummated, RW will pay the fees, expenses and disbursements of RW and
Newco and their Representatives which are incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all costs
and expenses incurred in the performance of and compliance with all conditions
to be performed by RW and Newco under this Agreement, including the costs of
preparing the Registration Statement, (collectively, the "RW Expenses") and (ii)
if the transactions contemplated hereby are not consummated, the RW Expenses
shall be paid by the Founding Companies subject to the provisions of the IPO
Cost Liability Sharing Agreement attached hereto as Exhibit C and incorporated
herein by reference (b) the Stockholders will pay from personal funds, and not
from funds of the Company or any Company Subsidiary, all sales, use, transfer
and other similar taxes and fees (collectively, "Transfer Taxes") incurred in
connection with the transactions contemplated hereby and (c) the Company will
pay the fees, expenses and disbursements of Counsel for the Company and the
Stockholders incurred in connection with the subject matter of this Agreement
and the Registration Statement on or before the IPO Closing Date. The
Stockholders will file all necessary documentation and Returns with respect to
all Transfer Taxes. In addition, each Stockholder acknowledges that he, and not
the Company or RW or the Surviving Corporation, will pay all Taxes due upon
receipt of the consideration payable to that Stockholder pursuant to Article II.
Section 11.08. Notices. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received
(a) if personally delivered or if delivered by telex, telegram,
facsimile or courier service, when actually received by the party to whom notice
is sent or
(b) if delivered by mail (whether actually received or not), at the
close of business on the third Business Day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
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(i) if to RW or Newco, addressed to it at:
RailWorks Corporation
403 Somerset Road
Baltimore, Maryland 21210
Attn: Chief Executive Officer
with copies (which shall not constitute notice for purposes
of this Agreement) to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attn: Jeffrey M. Stein
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
Railroad Service, Inc.
8485 W. 210th Street
Lakeville, Minnesota 55044
Attn: Scott D. Brace
with copies (which shall not constitute notice for purposes
of this Agreement) to Counsel for the Company and the
Stockholders at the address designated by the Company
Section 11.09. Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF DELAWARE
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10. Exercise of Rights and Remedies. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11. Time. Time is of the essence in the performance of this
Agreement in all respects.
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<PAGE> 20
Section 11.12. Reformation and Severability. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13. Remedies Cumulative. No right, remedy or election given
by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14. Respecting the IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither RW or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that RW will use its reasonable best efforts to
cause the Registration Statement to become effective prior to August 14, 1998)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to RW or the
IPO.
ARTICLE XII
TERMINATION
Section 12.01. Termination of this Agreement.
(a) This Agreement may be terminated at any time prior to the Delivery
Date solely:
(i) by the mutual written consent of RW and the Company;
(ii) by the Stockholders or the Company, on the one hand, or
by RW, on the other hand, if the events contemplated by this Agreement
to take place at the Delivery Date shall not have taken place by
September 4, 1998, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the
case of the Stockholders and the Company, any of them) seeking to
terminate this Agreement to perform or adhere to any agreement required
hereby to be performed or adhered to by it prior to or at the Delivery
Date or thereafter on the IPO Closing Date;
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<PAGE> 21
(iii) by the Stockholders or the Company, on the one hand,
or by RW, on the other hand, if a material breach or default shall be
made by the other party (or in the case of the Stockholders and the
Company, any of them) in the observance or in the due and timely
performance of any of the covenants, agreements or conditions contained
in Article VI or Section 11.01;
(iv) by the Stockholders or the Company, on the one hand,
or RW, on the other, if it is entitled to do so as provided in Section
6.08;
(v) by the Stockholders prior to the filing of the
Registration Statement if the Registration Statement is not filed by
June 15, 1998;
(vi) by RW or the Stockholders prior to 9:00 a.m. on the
IPO Pricing Date (as set forth in Section 8.10) if the value of RW at
the IPO Pricing Date (as calculated by multiplying the price per share
at which the RW common stock is to be sold in the IPO by the number of
shares of common stock to be outstanding after the Closing of the IPO)
shall be less than $215 million;
(vii) by the Stockholders if the Registration Statement has
not been declared effective by the Securities and Exchange Commission
by August 14, 1998;
(viii) by the Stockholders if John G. Larkin is no longer
serving as Chairman of the Board of Directors and Chief Executive
Officer prior to the Closing; or
(ix) by the stockholders of CPI Concrete Products, Inc. if
its Employee Stock Ownership Plan does not approve the merger prior to
the Delivery Date.
(b) This Agreement may be terminated after the Delivery Date solely:
(i) by RW or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the IPO Pricing Date and prior
to the consummation of the IPO; or
(ii) automatically and without action on the part of any
party hereto if the IPO is not consummated within 15 New York City
business days after the Delivery Date.
(c) If this Agreement is terminated pursuant to this Section 12.01, the
Merger will be deemed for all purposes to have been abandoned and of no force or
effect.
Section 12.02. Liabilities in Event of Termination. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Sections
11.03 or 11.07 and (b) to the extent that such liability is based on the breach
by that party of any of its representations, warranties or covenants set forth
in this Agreement.
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<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
RAILWORKS CORPORATION
By: /s/ John G. Larkin
--------------------------------------
John G. Larkin
Chief Executive Officer
RUNNIN' REBELS RAILROAD SERVICE
COMPANY
By: /s/ John G. Larkin
--------------------------------------
John G. Larkin
President
RAILROAD SERVICE, INC.
By: /s/ Authorized Signature
--------------------------------------
Name:
Title:
STOCKHOLDERS:
/s/ E. Donald Matson
------------------------------------------
E. Donald Matson
/s/ Scott D. Brace
------------------------------------------
Scott D. Brace
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<PAGE> 23
ADDENDUM 1
OTHER FOUNDING COMPANIES
A. Words and terms used in this Addendum which are defined in
the captioned Agreement to which this is an Addendum are used herein as therein
defined.
B. The Founding Companies are:
Alpha - Keystone Engineering, Inc.
Annex Railroad Builders, Inc.
Comtrak Construction, Inc.
Comstock Holdings Inc.
Condon Brothers, Inc.
CPI Concrete Products
HP McGinley, Inc.
Kennedy Railroad Builders, Inc.
Merit Railroad Contractors, Inc.
Midwest Construction Services, Inc.
Minnesota Railroad Services, Inc.
Mize Construction Co.
New England Railroad Construction Co., Inc.
Northern Rail Service & Supply Company, Inc.
Railcorp, Inc.
Railroad Service, Inc.
Railroad Specialities, Inc,
Southern Indiana Wood Preserving Co.
U.S. Railway Supply, Inc,
U.S. Trackworks, Inc.
W.A. Smith Construction Co., Inc.
W.A. Smith Rerailing Co., Inc.
<PAGE> 1
EXHIBIT 10.18
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 21, 1998
BY AND BETWEEN
RAILWORKS CORPORATION,
CRUSADER RAILROAD SPECIALTIES COMPANY,
RAILROAD SPECIALTIES, INC.
AND
THE STOCKHOLDERS NAMED HEREIN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS.....................................................................1
Section 1.01. Certain Defined Terms...................................1
ARTICLE II THE MERGER AND RELATED MATTERS..................................................4
Section 2.01. Certificate of Merger...................................4
Section 2.02. The Effective Time......................................4
Section 2.03. Certain Effects of the Merger...........................4
Section 2.04. Effect of the Merger on Capital Stock...................5
Section 2.05. Delivery, Exchange and Payment..........................6
Section 2.06. Merger Consideration Calculation........................7
Section 2.07. Fractional Shares.......................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER .............................8
Section 3.01. By Each Stockholder.....................................8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE PRIMARY STOCKHOLDERS........................................................9
Section 4.01. By the Company and Each Primary Stockholder.............9
ARTICLE V REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO..................................9
Section 5.01. By RW and Newco.........................................9
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME .....................................10
Section 6.01. Of Each Party..........................................10
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION.........................10
Section 7.01. The Closing and Certain Conditions.....................10
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME.........................................12
Section 8.01. Of Each Party Other than the Company...................12
ARTICLE IX INDEMNIFICATION................................................................12
Section 9.01. Indemnification Rights and Obligations.................12
ARTICLE X [Intentionally Ommitted].......................................................12
ARTICLE XI GENERAL PROVISIONS.............................................................12
Section 11.01. Treatment of Confidential Information..................12
Section 11.02. Restrictions on Transfer of RW Common Stock............12
Section 11.03. Brokers and Agents.....................................14
Section 11.04. Assignment; No Third Party Beneficiaries...............14
Section 11.05. Entire Agreement; Amendment; Waivers...................15
Section 11.06. Counterparts...........................................15
Section 11.07. Expenses...............................................15
Section 11.08. Notices................................................15
Section 11.09. Governing Law..........................................16
Section 11.10. Exercise of Rights and Remedies........................16
Section 11.11. Time...................................................16
Section 11.12. Reformation and Severability...........................17
Section 11.13. Remedies Cumulative....................................17
Section 11.14. Respecting the IPO.....................................17
ARTICLE XII TERMINATION....................................................................17
Section 12.01. Termination of this Agreement..........................17
Section 12.02. Liabilities in Event of Termination....................18
</TABLE>
EXHIBITS
- --------
Exhibit A - List of Primary Stockholders
Exhibit B - Form of Employment Agreement
Exhibit C - IPO Cost Liability Sharing Agreement
Exhibit D - Merger Consideration
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<PAGE> 4
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as
of May 21, 1998, by and among RailWorks Corporation, a Delaware corporation
("RW"), Crusader Railroad Specialties Company, an Indiana corporation and a
wholly owned subsidiary of RW("Newco"), Railroad Specialties, Inc., an Indiana
corporation (the "Company"), and the persons listed on the signature pages
hereof under the caption "Stockholders" (collectively, the "Stockholders," and
each of those persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(a) Newco will merge into the Company on the terms and subject to
the conditions set forth herein (that merger being the "Merger");
(b) RW will acquire the stock of all or some of the entities
listed in the accompanying Addendum 1 (each an "Other Founding Company" and,
collectively with the Company, the "Founding Companies") pursuant to agreements
that are (i) similar in all material respects to this Agreement and (ii) entered
into among those entities and their equity owners, RW and subsidiaries of RW
(collectively, the "Other Agreements"); and
(c) RW shall at such time as specified herein and if certain
conditions are met, effect a public offering of shares of its common stock and
issue and sell those shares.
The respective boards of directors of RW, Newco and the Company have
approved and adopted this Agreement to effect a transaction subject to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Certain Defined Terms. As used in this Agreement and in
the related Addendums, Annexes, Schedules and Exhibits, the following terms have
the meanings assigned to them below in this Section 1.01. Capitalized terms used
in this Agreement and not defined below in this Section 1.01 have the meanings
assigned to them in the Preliminary Statement or Article I of the Uniform
Provisions (the text of which Article hereby is incorporated herein by this
reference), as the case may be.
<PAGE> 5
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement and all attached Schedules, Addendums,
Annexes and Exhibits, as each of the same may be amended, modified or
supplemented from time to time pursuant to the provisions hereof or thereof.
"Applicable Corporate Code" means the laws of the Organization State of
the Company that govern corporations incorporated in such state.
"Closing Date Balance Sheet" of the Company means a balance sheet of
the Company as at the IPO Closing Date which is prepared on a basis consistent
with the basis on which the Current Balance Sheet was prepared.
"Closing Memorandum" means the form of closing memorandum to be
prepared by RW for the Closing under this Agreement in which are included the
forms of certificates of officers, the opinions of counsel and certain other
documents to be delivered at the Closing as provided in Article VII.
"Company Accounts Receivable" shall mean the accounts and notes or
other advances receivable of the Company and the Company Subsidiaries, excluding
any Retainages, as of the IPO Closing Date.
"Company Common Stock" means the common stock, no par value, of the
Company.
"Company Indebtedness" means the indebtedness of the Company, as of the
IPO Closing Date (including, with respect to CPI Concrete Products, Inc., the
value of the Cash Company Consideration to be received by its Employee Stock
Ownership Plan), that the Company has elected to repay (or repurchase, as the
case may be) with a portion of the RW Common Stock to be received as part of the
Merger Consideration. At least five days prior to the Delivery Date, the Company
will deliver to RW a schedule of the aggregate principal amount of the Company
Indebtedness, certified by the President of the Company, that will be
outstanding on the IPO Closing Date, and RW will repay such Company Indebtedness
on the IPO Closing Date. To the extent that the actual amount of Company
Indebtedness exceeds the amount shown on such schedule, such excess shall be
repaid by the Stockholders on or prior to the IPO Closing Date.
"Counsel for RW and Newco" means King & Spalding.
"Counsel for the Company and the Stockholders" means such counsel as
shall be designated by the Company in writing on or prior to the Delivery Date.
"Current Balance Sheet" means the balance sheet of the Company as at
March 31, 1998 which is included in the Initial Financial Statements.
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<PAGE> 6
"Current Balance Sheet Date" means December 31, 1997.
"Defined Net Worth" as of the IPO Closing Date shall mean (i) the total
assets of the Company, as set forth on the balance sheet of the Company as of
such date, except that (A) expenses of the Company directly attributable to the
IPO and/or the transactions contemplated by this Agreement, including but not
limited to, costs incurred pursuant to the HSR Act, shall be added back to the
assets of the company and (B) the value of inventory, machinery, equipment and
real estate shall be determined pursuant to Section 2.06(a), less (ii) the total
liabilities of the Company, as set forth on the balance sheet of the Company as
of such date, excluding the Company Indebtedness. Notwithstanding the foregoing,
in the case of Comstock, Comstock's contractual obligation to Spie Group, Inc.,
as successor to Comstock Group, Inc., shall not be deemed to be a liability for
purposes of determining Defined Net Worth.
"Delivery" or "Delivery Date" shall have the meaning set forth in
Section 7.01.
"Earnings Percentage" shall have the meaning set forth in Exhibit D.
"Employment Agreement" means each of the Employment Agreements entered
into as of the Closing Date between RW and each of the Stockholders set forth on
Exhibit A hereto, a form of which is attached hereto as Exhibit B.
"fair market value" means that value at which goods and/or services
would be exchanged between a willing buyer and willing seller in a transaction
entered into at arms length with each party having relevant facts of all aspects
of the transaction.
"Initial Financial Statements" means (a) the balance sheets of the
Company as at December 31, 1997 and March 31, 1998 and the related reviewed
statements of operations and retained earnings for each of the Company's two
fiscal years in the period ended December 31, 1997, and (b) the Current Balance
Sheet and the related statement of income for the Company's fiscal year ended
December 31, 1997, which the Company has delivered to RW prior to the date
hereof.
"IPO Closing Date" means the date on which RW first receives payment
for the shares of RW Common Stock it sells to the Underwriter in the IPO.
"Merger Consideration" has the meaning specified in Section 2.04.
"Newco" means Crusader Railroad Specialties Company, an Indiana
corporation.
"Responsible Officer" means the President, Chief Executive Officer or
any Vice President of the Company.
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<PAGE> 7
"Retainages" means the portion of progress payments due to a Company
for contracting projects that is withheld by a customer of such Company until
completion of a project, pursuant to the terms of a contract with such customer,
as security for the completion of the project.
"RW" means RailWorks Corporation, a Delaware corporation.
"Scheduled Related Party Agreements" means the agreements described in
Schedule 4.11.
"Surviving Corporation" means the Person to be designated in the
Certificate of Merger as the surviving corporation of the Merger.
"Threshold Amount" means 2.0% of the Merger Consideration.
"Transaction Value" means the (i)(A) the total number of shares of RW
outstanding immediately upon the closing of the IPO and the transactions
contemplated by this Agreement and the Other Agreements multiplied by (B) the
IPO Price multiplied by (C) 92% minus (ii) actual expenses of RW incurred with
respect to the IPO, an estimate of which will be set forth in Item 13 of Part II
of the Registration Statement minus (iii) the underwriting discounts and
commissions paid to the Underwriter pursuant to the IPO minus (iv) the proceeds
received by RW in connection with any shares of RW Common Stock sold by RW to
finance the working capital needs of RW, which shares shall not exceed 5% of the
number of shares to be sold in the IPO.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions of RW for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. Certificate of Merger. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the Delivery Date to the Department
of State of the State of Indiana.
Section 2.02. The Effective Time. The effective time of the Merger (the
"Effective Time") will be the time on the IPO Closing Date as specified in the
Certificate of Merger or, if the Certificate of Merger does not specify another
time, 8:00 a.m., eastern daylight standard time, on the IPO Closing Date.
Section 2.03. Certain Effects of the Merger. At and as of the Effective
Time, (a) Newco will be merged with and into the Company in accordance with the
provisions of the Indiana Business Corporation Law, (b) Newco will cease to
exist as a separate legal entity, (c) the articles of
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<PAGE> 8
incorporation of the Company will be amended to change its authorized capital
stock to 100 shares, par value $0.01 per share, of Common Stock, (d) the Company
will be the Surviving Corporation and, as such, will, all with the effect
provided by the Indiana Business Corporation Law, (i) possess all the properties
and rights, and be subject to all the restrictions and duties, of the Company
and Newco and (ii) be governed by the laws of the State of Indiana, (e) the
Charter Documents of the Company then in effect (after giving effect to the
amendment of the Company's articles of incorporation specified in clause (c) of
this sentence) will become and thereafter remain (until changed in accordance
with (i) applicable law (in the case of the articles of incorporation) or (ii)
their terms (in the case of the bylaws)) the Charter Documents of the Surviving
Corporation, (f) the initial board of directors of the Surviving Corporation
will be the Chief Executive Officer of RW and the other persons named in
Schedule 2.03, and those persons will hold the office of director of the
Surviving Corporation subject to the provisions of the applicable laws of the
State of Indiana and the Charter Documents of the Surviving Corporation, and (g)
the initial officers of the Surviving Corporation will be as set forth in
Schedule 2.03, and each of those persons will serve in each office specified for
that person in Schedule 2.03, subject to the provisions of the Charter Documents
of the Surviving Corporation, until that person's successor is duly elected to,
and, if necessary, qualified for, that office.
Section 2.04. Effect of the Merger on Capital Stock. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the right to
receive, subject to the provisions of Section 2.05 and Exhibit D, without
interest, on surrender of the certificate evidencing those shares, the amount of
cash and the number of whole and fractional shares of RW Common Stock set forth
or determined as provided in Exhibit D (the "Merger Consideration"), (ii) cease
to be outstanding and to exist and (iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to exist
and (ii) be canceled and retired; and
(c) each share of Newco Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into one share of
Common Stock, no par value, of the Surviving Corporation, and the shares of
Common Stock of the Surviving Corporation issued on that conversion will
constitute all the issued and outstanding shares of Capital Stock of the
Surviving Corporation. Each holder of a certificate representing shares of
Company Common Stock immediately prior to the Effective Time will, as of the
Effective Time and thereafter, cease to have any rights respecting those shares
other than the right to receive, subject to the provisions of Section 2.05,
without interest, the Merger Consideration and the additional cash, if any,
owing with respect to those shares as provided in Section 2.07.
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<PAGE> 9
Section 2.05. Delivery, Exchange and Payment.
(a) At or after the Effective Time: (i) each Stockholder, as the
holder of certificates representing shares of Company Common Stock, will, on
surrender of those certificates to RW (or any agent that may be appointed by RW
for purposes of this Section 2.05), receive, subject to the provisions of this
Article II and the Escrow Agreement, such Stockholder's share of the Merger
Consideration pursuant to Section 2.04 and Exhibit D; and (ii) until any
certificate representing Company Common Stock has been surrendered and replaced
pursuant to this Section 2.05, that certificate will, for all purposes, be
deemed to evidence ownership of the number of whole shares of RW Common Stock
included in the Merger Consideration payable in respect of that certificate
pursuant to Section 2.04. The Escrow Agreement will provide that the shares of
RW Common Stock issued to the Stockholders as a part of the Merger Consideration
together with duly executed stock powers in blank, shall be placed in escrow to
be held subject to the terms of the Escrow Agreement and further subject to
Exhibit D and Section 11.02. The escrow shall consist solely of shares of RW
Common Stock that shall be issued at the Effective Time to the Stockholders of
the Founding Companies and delivered, at the Closing, to the Escrow Agent. All
shares of RW Common Stock issuable in the Merger will be deemed for all purposes
to have been issued by RW at the Effective Time.
(b) Each Stockholder will deliver to RW (or any agent that may be
appointed by RW for purposes of this Section 2.05) on or before the Delivery
Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Stockholder, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Stockholder's expense, affixed and canceled.
Each Stockholder shall cure any deficiencies in the endorsement of the
certificates or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Stockholder.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to RW Common Stock and payable to
the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of RW Common Stock have been issued in the Merger until
those certificates are surrendered as provided herein, but (i) on that surrender
RW will cause to be paid, to the Person in whose name the certificates
representing such shares of RW Common Stock shall then be issued, the amount of
dividends or other distributions previously paid with respect to such whole
shares of RW Common Stock with a record date, or which have accrued, subsequent
to the Effective Time, but prior to surrender, and the amount of any cash
payable to such Person for and in lieu of fractional shares pursuant to Section
2.07 and (ii) at the appropriate payment date or as soon as practicable
thereafter, RW will cause to be paid to that Person the amount of dividends or
other distributions with a record date, or which have been accrued, subsequent
to the Effective Time, but which are not payable until a date subsequent to
surrender, which are payable with respect to such whole shares of RW Common
Stock, subject in all cases to any applicable
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<PAGE> 10
escheat laws. No interest will be payable with respect to the payment of such
dividends or other distributions or cash for and in lieu of fractional shares on
surrender of outstanding certificates.
(d) Each Stockholder hereby authorizes and directs RW to deliver
3.5% of the Cash Company Consideration and 3.5% of the Stock Company
Consideration owed to such Stockholder pursuant to this Agreement (before
deposit of the shares of RW Common Stock into escrow) to IPO Development Company
in payment of fees owed to IPO Development Company by such Stockholder.
Section 2.06. Merger Consideration Calculation.
(a) No later than fifteen (15) days following the IPO Closing
Date, the Company shall provide to the Chief Accounting Officer of RW (the
"CAO") a determination of the fair market value (as defined) of its inventory,
machinery, equipment and real estate (the "Valued Assets") as of the IPO Closing
Date. Within seven (7) days of such date, the CAO shall distribute to every
Founding Company the value of the Valued Assets of every Founding Company. The
Company shall have seven (7) days from the date of the distribution of such
valuation to dispute the value of the Valued Assets of any Founding Company by
providing written notice of such dispute to the CAO. If the CAO is unable to
resolve any such dispute, the dispute shall be resolved by binding arbitration
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association, which arbitration shall be resolved no later than thirty (30) days
from selection of the arbitrator. The arbitrator shall be selected by the CAO.
(b) Arthur Andersen or, if not Arthur Andersen, the Company's
accountant, shall cause to be prepared and delivered to RW and the Company a
calculation as of the IPO Closing Date of the Defined Net Worth of the Company
(the "Balance Sheet Calculation"). The Balance Sheet Calculation shall be final
and binding on the Company and the Other Founding Companies absent fraud,
manifest error or gross negligence.
(c) The Balance Sheet Calculation shall include a report of Arthur
Andersen or, if not Arthur Andersen, the Company's accountant, stating that it
has been prepared in a manner consistent with the accounting policies and
procedures used in preparation of the balance sheets in the Initial Financial
Statements, except as provided in the definition of "Defined Net Worth"
contained herein. The Stockholders shall give Arthur Andersen and other
appropriate personnel such assistance and access to the assets and books and
records of the Company as Arthur Andersen shall reasonably request during normal
business hours in order to enable them to prepare the Balance Sheet Calculation.
The Surviving Corporation shall be responsible for the fees and expenses of
Arthur Andersen or, if not Arthur Andersen the Company's accountant.
Section 2.07. Fractional Shares. Notwithstanding any other provision
herein, no fractional shares of RW Common Stock will be issued. All shares of RW
Common Stock shall be aggregated, and any Stockholder entitled hereunder, after
such aggregation, to receive a fractional share of RW Common Stock but for this
Section 2.07 will be entitled hereunder to receive a cash payment for and
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<PAGE> 11
in lieu thereof in the amount (rounded to the nearest whole cent) equal to that
Stockholder's fractional interest in a share of RW Common Stock multiplied by
the IPO Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01. By Each Stockholder. The Stockholders severally represent
and warrant to, and agree with, RW that all the following representations and
warranties in this Article III are as of the date of this Agreement, and will
be, as amended or supplemented pursuant to Section 6.08, on the IPO Closing
Date, true and correct:
(a) (i) each Stockholder will acquire the shares of RW Common
Stock to be issued pursuant to Article II to the Stockholder solely for the
Stockholder's account, for investment purposes only and with no current
intention or plan to distribute, sell or otherwise dispose of any of those
shares in connection with any distribution;
(ii) no Stockholder is a party to any agreement or other
arrangement for the disposition of any shares of RW Common Stock other
than this Agreement; (iii) except as set forth on Schedule 3.01(a)(ii)
each Stockholder is an "accredited investor" as defined in Rule 501(a)
promulgated under the Securities Act; (iv) each Stockholder (A) is able
to bear the economic risk of an investment in the RW Common Stock
acquired pursuant to this Agreement, (B) can afford to sustain a total
loss of that investment, (C) has such knowledge and experience in
financial and business matters that he or she is capable of evaluating
the merits and risks of the proposed investment in the RW Common Stock,
(D) has had an adequate opportunity to ask questions and receive
answers from the officers of RW concerning any and all matters relating
to the transactions contemplated hereby, including the background and
experience of the current and proposed officers and directors of RW,
the plans for the operations of the business of RW, the business,
operations and financial condition of the Other Founding Companies and
any plans of RW for additional acquisitions, and (E) has asked all
questions of the nature described in preceding clause (D) that such
Stockholder thought to ask, and all those questions have been answered
to his or her satisfaction;
(b) the representations and warranties contained in Article III of
the Uniform Provisions (the text of which Article hereby is incorporated herein
by this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to; and
(c) (i) the terms and conditions of any agreements between
any Stockholder or an Affiliate of any Stockholder, on the one hand, and the
Company on the other hand, included in the Scheduled Related Party Agreements
will have been amended effective as of the IPO Closing Date to be no less
favorable to the Company than the Company reasonably could have expected to
obtain in an arms-length transaction with a Person other than an Affiliate of
the Company and (ii) the
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<PAGE> 12
rentals or other payments provided for in such agreements then will not exceed
fair market rentals of the property being leased or fair market value of the sum
or product being provided and such amounts shall have been previously approved
in writing by the Chief Financial Officer of RW.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS
Section 4.01. By the Company and Each Primary Stockholder. The Company
and each Primary Stockholder jointly and severally represent and warrant to, and
agree with, RW that all the following representations and warranties in this
Article IV are as of the date of this Agreement, and will be, as amended or
supplemented pursuant to Section 6.08, on the Delivery Date and the IPO Closing
Date, true and correct:
(a) the Organization State of the Company is the State of Indiana,
and the Company (i) is a corporation duly organized, validly existing and in
good standing under the laws of that State, (ii) has all requisite corporate
power and authority under those laws and its Charter Documents to own or lease
and to operate its properties and to carry on its business as now conducted and
(iii) is duly qualified and in good standing as a foreign corporation in all
jurisdictions (other than the State of Indiana) in which it owns or leases
property or in which the carrying on of its business as now conducted so
requires except where the failure to be so qualified, singly or in the
aggregate, would not have a Material Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is comprised
of 1,000 shares of Company Common Stock, of which 300 shares have been issued
and are now outstanding and no shares are held by the Company as treasury
shares, and (ii) there are no Derivative Securities of the Company;
(c) the Company has elected to be treated as an S corporation
within the meaning of the Code, as amended; and
(d) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated herein
by this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO
Section 5.01. By RW and Newco. RW and Newco jointly and severally
represent and warrant to the Company and each Stockholder that all the following
representations and warranties
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in this Article V are as of the date of this Agreement, and will be on the IPO
Closing Date, true and correct:
(a) Newco is a corporation duly organized, validly existing and in
good standing under the laws of the State of Indiana;
(b) except as disclosed in the Private Placement Memorandum, no
Derivative Securities of Newco are outstanding;
(c) Newco has been organized for the sole purpose of participating
in the Merger and has not, and will not, engage in any activities other than
those necessary to effectuate the Merger;
(d) except for shares of RW Common Stock to be publicly sold in
the IPO and as disclosed in the Private Placement Memorandum or preliminary
prospectus, neither RW nor Newco is a party to any agreement or other
arrangement for the disposition of any shares of RW Common Stock; and
(e) the representations and warranties contained in Article V of
the Uniform Provisions (the text of which Article hereby is incorporated herein
by this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01. Of Each Party. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01. The Closing and Certain Conditions.
(a) The Closing. On or before the IPO Pricing Date, the parties
hereto will take all actions necessary to (i) effect the Merger (including, as
permitted by the Applicable Corporate Code, (A) the execution of a Certificate
of Merger (1) meeting the requirements of the Applicable Corporate Code and (2)
providing that the Merger will become effective on the IPO Closing Date and (B)
the delivery of that Certificate of Merger with a filing service that will file
such Certificate of Merger with the Department of State of the State of Indiana)
upon notification of the closing of the IPO (provided that Comstock's
Certificate of Merger shall be filed immediately prior to the closing of the
IPO), (ii) verify the existence and ownership of the certificates evidencing the
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<PAGE> 14
Company Common Stock to be exchanged for the Merger Consideration pursuant to
Section 2.05 and (iii) satisfy the document delivery requirements to which the
obligations of the parties to effect the Merger and the other transactions
contemplated hereby are conditioned by the provisions of this Article VII (all
those actions collectively being the "Delivery"). The Delivery will take place
at the offices of King & Spalding, 191 Peachtree Street, Atlanta, Georgia at
10:00 a.m., Atlanta time on the IPO Pricing Date, or at such later time on the
IPO Pricing Date as RW shall specify by written notice to the President of the
Company (the "Delivery Date"). The actions taken at the Delivery will not
include the completion of either the Merger or the delivery of the Company
Common Stock or the Merger Consideration pursuant to Section 2.05. On the IPO
Closing Date, the Certificate of Merger will be filed and will become effective
pursuant to Section 2.02, and all transactions contemplated by this Agreement to
be closed or completed on or before the IPO Closing Date, including the
surrender of the Company Common Stock in exchange for the Merger Consideration
(including a certified check or checks in an amount equal to the cash portion of
the Merger Consideration) will be closed or completed, as the case may be.
During the period from the Delivery Date to the IPO Closing Date, this Agreement
may be terminated by the parties only pursuant to Section 12.01(b)(i).
(b) Certain Conditions to the Obligations of the Company and the
Stockholders. The obligations of the Company and the Stockholders with respect
to the actions to be taken by them at or before the Delivery Date are subject to
the satisfaction on or before the Delivery Date, or waiver by them pursuant to
Section 11.05, of all the conditions set forth in Sections 7.01 and 7.02(a). The
obligations of the Stockholders with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of the following
conditions: (if required by such Stockholder) (i) the Employment Agreement then
shall be in full force and effect; and (ii) all the conditions set forth in
Sections 7.01 and 7.02(b).
(c) Certain Conditions to the Obligations of RW and Newco. The
obligations of RW and Newco with respect to actions to be taken by them at or
before the Delivery Date are subject to the satisfaction on or before the date
of the Delivery Date, or waiver by them pursuant to Section 11.05, of the
following conditions: (i) the Company shall have delivered to RW a copy of the
articles of incorporation, as amended to the Delivery Date and certified by the
Secretary of State of the State of Indiana as of a Current Date, of the Company;
and (ii) all the conditions set forth in Sections 7.01 and 7.03(a). The
obligations of RW and Newco with respect to the actions to be taken on the IPO
Closing Date are subject to the satisfaction on that date of the following
conditions: (i) the Employment Agreements then shall be in full force and
effect; and (ii) all the conditions set forth in Sections 7.01 and 7.03(b).
(d) Uniform Provisions. The text of Article VII of the Uniform
Provisions hereby is incorporated herein by this reference.
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<PAGE> 15
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01. Of Each Party Other than the Company. From and after the
Effective Time, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Company) will comply with each covenant for which
provision is made in Article VIII of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) to be performed or
observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01. Indemnification Rights and Obligations. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. Any provision contained in Article IX of the Uniform Provisions to
the contrary notwithstanding, the indemnification obligations of the
Stockholders pursuant to this Agreement shall be joint and several.
ARTICLE X
[Intentionally Ommitted]
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. Treatment of Confidential Information. Each party hereto
will comply with each covenant for which provision is made in Section 11.01 of
the Uniform Provisions (the text of which Section hereby is incorporated herein
by this reference) to be performed or observed by that party.
Section 11.02. Restrictions on Transfer of RW Common Stock.
(a) Except for transfers to employees of the Company that are
approved in writing by the Board of Directors of RW (or a committee designated
by the Board of Directors of RW) prior to such transfer, during the one year
period ending on the first anniversary of the IPO Closing Date (the "Restricted
Period"), no Stockholder voluntarily will: (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
RW Common Stock received by any Stockholder in the Merger or (B) any interest in
(including any option to buy or sell) any of those shares of RW Common Stock, in
whole or in part, and RW will have no obligation to, and shall not, treat any
such attempted transfer as effective for any purpose; or (ii) engage in any
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<PAGE> 16
transaction, whether or not with respect to any shares of RW Common Stock or any
interest therein, the intent or effect of which is to reduce the risk of owning
the shares of RW Common Stock acquired pursuant to Section 2.04 (including, for
example engaging in put, call, short-sale, straddle or similar market
transactions); provided, however, that this Section 11.02 shall not restrict any
transfer of RW Common Stock acquired by a Stockholder pursuant to Section 2.04
to any of that Stockholder's Related Persons who agree in writing to be bound by
the provisions of Section 11.01 and this Section 11.02. The certificates
evidencing the RW Common Stock delivered to each Stockholder pursuant to Section
2.05 will bear a legend substantially in the form set forth below and containing
such other information as RW may deem necessary or appropriate:
"EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER
PARTIES THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE
REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF
ANY OF THOSE SHARES, DURING THE ONE-YEAR PERIOD ENDING ON __________ [DATE THAT
IS THE FIRST ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED PERIOD"). ON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE."
(b) From the first anniversary of the IPO Closing Date to the
fourth anniversary of the IPO Closing Date, the Stockholders agree to sell
shares of RW Common Stock acquired pursuant to this Agreement only in accordance
with the procedures set forth in this Section 11.02(b). Every quarter during
such period, every Stockholder will be permitted to sell, in the aggregate, up
to 8% of the aggregate number of shares of Common Stock received by such
Stockholder pursuant to this Agreement (the "Quarterly Block Trade Shares") in
either a block trade or a registered public offering, at the option of RW. If a
Stockholder does not sell all of his or her Quarterly Block Trade Shares in any
given quarter, such Stockholder may sell such Quarterly Block Trade Shares
pursuant to this Section 11.02(b) in any later quarter, provided, however, that
in no event may a Stockholder sell more than 20% of the shares of Common Stock
received by such Stockholder pursuant to this Agreement in any one quarter. Any
Stockholder that wishes to sell shares of RW Common Stock pursuant to such
selling opportunity must give notice to RW and the Executive Council no later
than fourteen days prior to the commencement of the fiscal quarter of RW during
which such Stockholder wants to sell such shares. Notwithstanding anything set
forth in this Section 11.02(b), RW may elect to make available to the
Stockholders (i) additional opportunities to sell shares of RW Common Stock
and/or (ii) the opportunity to sell an amount in excess of such amount during
any particular quarter. The Company may modify or waive this Section 11.02(b) at
its sole discretion at any time following written notice to the Stockholders,
provided that no such modification or waiver may
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<PAGE> 17
reduce the number of selling opportunities or the maximum number of shares of RW
Common Stock that may be sold by any Stockholder during any selling opportunity.
(c) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of RW Common Stock to be delivered to
that Stockholder pursuant to Section 2.04 have not been and will not be
registered under the Securities Act and therefore may not be resold by that
Stockholder without compliance with the Securities Act and (ii) covenants that
none of the shares of RW Common Stock issued to that Stockholder pursuant to
Section 2.04 will be offered, sold, assigned, pledged, hypothecated, transferred
or otherwise disposed of except after full compliance with all the applicable
provisions of the Securities Act and the rules and regulations of the SEC and
applicable state securities laws and regulations. All certificates evidencing
shares of RW Common Stock issued pursuant to Section 2.04 will bear the
following legend in addition to the legend prescribed by Section 11.02(a):
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, HAVE
BEEN ISSUED PURSUANT TO ONE OR MORE EXEMPTIONS THERETO, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED OR DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED."
In addition, certificates evidencing shares of RW Common Stock issued pursuant
to Section 2.04 to each Stockholder will bear any legend required by the
securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03. Brokers and Agents. Except for IPO Development Company,
each of the Stockholders jointly and severally, on the one hand, and RW, on the
other, represents and warrants to the other that such Person has not directly or
indirectly employed or become obligated to pay any broker, finder or similar
agent in connection with the transactions contemplated hereby and agree, without
regard to the Threshold Amount limitations set forth in Article IX, to indemnify
the other against all Damage Claims arising out of claims for any and all fees
and commissions of brokers or similar agents employed or promised payment by
such Person.
Section 11.04. Assignment; No Third Party Beneficiaries. This Agreement
and the rights of the parties hereunder may not be assigned (except by operation
of law) and shall be binding on and inure to the benefit of the parties hereto,
the successors of RW, and the heirs and legal representatives of the
Stockholders (and, in the case of any trust, the successor trustees of that
trust). Neither this Agreement nor any other Transaction Document is intended,
or shall be construed, deemed or interpreted, to confer on any Person not a
party hereto or thereto any rights or remedies hereunder or thereunder, except
as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise provided
expressly herein or therein.
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<PAGE> 18
Section 11.05. Entire Agreement; Amendment; Waivers. Except with
respect to Section 11.07 hereof, this Agreement and the documents delivered
pursuant hereto constitute the entire agreement and understanding among the
Stockholders, the Company, Newco and RW and supersede all prior agreements and
understandings, both written and oral, relating to the subject matter of this
Agreement. This Agreement may be amended, modified or supplemented, and any
right hereunder may be waived, if, but only if, that amendment, modification,
supplement or waiver is in writing and signed by each of the Stockholders, the
Company and RW. The waiver of any of the terms and conditions hereof shall not
be construed or interpreted as, or deemed to be, a waiver of any other term or
condition hereof.
Section 11.06. Counterparts. This Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
Section 11.07. Expenses. If the transactions contemplated hereby (i)
are consummated, RW will pay the fees, expenses and disbursements of RW and
Newco and their Representatives which are incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all costs
and expenses incurred in the performance of and compliance with all conditions
to be performed by RW and Newco under this Agreement, including the costs of
preparing the Registration Statement, (collectively, the "RW Expenses") and (ii)
if the transactions contemplated hereby are not consummated, the RW Expenses
shall be paid by the Founding Companies subject to the provisions of the IPO
Cost Liability Sharing Agreement attached hereto as Exhibit C and incorporated
herein by reference (b) the Stockholders will pay from personal funds, and not
from funds of the Company or any Company Subsidiary, all sales, use, transfer
and other similar taxes and fees (collectively, "Transfer Taxes") incurred in
connection with the transactions contemplated hereby and (c) the Company will
pay the fees, expenses and disbursements of Counsel for the Company and the
Stockholders incurred in connection with the subject matter of this Agreement
and the Registration Statement on or before the IPO Closing Date. The
Stockholders will file all necessary documentation and Returns with respect to
all Transfer Taxes. In addition, each Stockholder acknowledges that he, and not
the Company or RW or the Surviving Corporation, will pay all Taxes due upon
receipt of the consideration payable to that Stockholder pursuant to Article II.
Section 11.08. Notices. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received
(a) if personally delivered or if delivered by telex, telegram,
facsimile or courier service, when actually received by the party to whom notice
is sent or
(b) if delivered by mail (whether actually received or not), at
the close of business on the third Business Day next following the day when
placed in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
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(i) if to RW or Newco, addressed to it at:
RailWorks Corporation
403 Somerset Road
Baltimore, Maryland 21210
Attn: Chief Executive Officer
with copies (which shall not constitute notice for purposes of
this Agreement) to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attn: Jeffrey M. Stein
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
Railroad Specialties, Inc.
P.O. Box 19368
Indianapolis, Indiana 46219
Attn: Ronald E. Brown
with copies (which shall not constitute notice for purposes of
this Agreement) to Counsel for the Company and the
Stockholders at the address designated by the Company
Section 11.09. Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF DELAWARE
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10. Exercise of Rights and Remedies. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11. Time. Time is of the essence in the performance of this
Agreement in all respects.
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Section 11.12. Reformation and Severability. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13. Remedies Cumulative. No right, remedy or election given
by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14. Respecting the IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither RW or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that RW will use its reasonable best efforts to
cause the Registration Statement to become effective prior to August 14, 1998)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to RW or the
IPO.
ARTICLE XII
TERMINATION
Section 12.01. Termination of this Agreement.
(a) This Agreement may be terminated at any time prior to the
Delivery Date solely:
(i) by the mutual written consent of RW and the Company;
(ii) by the Stockholders or the Company, on the one hand,
or by RW, on the other hand, if the events contemplated by this
Agreement to take place at the Delivery Date shall not have taken place
by September 4, 1998, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the
case of the Stockholders and the Company, any of them) seeking to
terminate this Agreement to perform or adhere to any agreement required
hereby to be performed or adhered to by it prior to or at the Delivery
Date or thereafter on the IPO Closing Date;
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<PAGE> 21
(iii) by the Stockholders or the Company, on the one hand,
or by RW, on the other hand, if a material breach or default shall be
made by the other party (or in the case of the Stockholders and the
Company, any of them) in the observance or in the due and timely
performance of any of the covenants, agreements or conditions contained
in Article VI or Section 11.01;
(iv) by the Stockholders or the Company, on the one hand,
or RW, on the other, if it is entitled to do so as provided in Section
6.08;
(v) by the Stockholders prior to the filing of the
Registration Statement if the Registration Statement is not filed by
June 15, 1998;
(vi) by RW or the Stockholders prior to 9:00 a.m. on the
IPO Pricing Date (as set forth in Section 8.10) if the value of RW at
the IPO Pricing Date (as calculated by multiplying the price per share
at which the RW common stock is to be sold in the IPO by the number of
shares of common stock to be outstanding after the Closing of the IPO)
shall be less than $215 million;
(vii) by the Stockholders if the Registration Statement has
not been declared effective by the Securities and Exchange Commission
by August 14, 1998;
(viii) by the Stockholders if John G. Larkin is no longer
serving as Chairman of the Board of Directors and Chief Executive
Officer prior to the Closing; or
(ix) by the stockholders of CPI Concrete Products, Inc. if
its Employee Stock Ownership Plan does not approve the merger prior to
the Delivery Date.
(b) This Agreement may be terminated after the Delivery Date
solely:
(i) by RW or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the IPO Pricing Date and prior
to the consummation of the IPO; or
(ii) automatically and without action on the part of any
party hereto if the IPO is not consummated within 15 New York City
business days after the Delivery Date.
(c) If this Agreement is terminated pursuant to this Section
12.01, the Merger will be deemed for all purposes to have been abandoned and of
no force or effect.
Section 12.02. Liabilities in Event of Termination. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Sections
11.03 or 11.07 and (b) to the extent that such liability is based on the breach
by that party of any of its representations, warranties or covenants set forth
in this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
RAILWORKS CORPORATION
By: /s/ John G. Larkin
----------------------------------------
John G. Larkin
Chief Executive Officer
CRUSADER RAILROAD SPECIALTIES COMPANY
By: /s/ John G. Larkin
----------------------------------------
John G. Larkin
President
RAILROAD SPECIALTIES, INC.
By: /s/ Authorized Signature
----------------------------------------
Name:
Title:
STOCKHOLDERS:
/s/ Ronald E. Brown
--------------------------------------------
Ronald E. Brown
/s/ Julie M. Brown
--------------------------------------------
Julie M. Brown
/s/ Rebecca S. Lawyer
--------------------------------------------
Rebecca S. Lawyer
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<PAGE> 23
ADDENDUM 1
OTHER FOUNDING COMPANIES
A. Words and terms used in this Addendum which are defined in the
captioned Agreement to which this is an Addendum are used herein as therein
defined.
B. The Founding Companies are:
Alpha - Keystone Engineering, Inc.
Annex Railroad Builders, Inc.
Comtrak Construction, Inc.
Comstock Holdings Inc.
Condon Brothers, Inc.
CPI Concrete Products
HP McGinley, Inc.
Kennedy Railroad Builders, Inc.
Merit Railroad Contractors, Inc.
Midwest Construction Services, Inc.
Minnesota Railroad Services, Inc.
Mize Construction Co.
New England Railroad Construction Co., Inc.
Northern Rail Service & Supply Company, Inc.
Railcorp, Inc.
Railroad Service, Inc.
Railroad Specialities, Inc,
Southern Indiana Wood Preserving Co.
U.S. Railway Supply, Inc,
U.S. Trackworks, Inc.
W.A. Smith Construction Co., Inc.
W.A Smith Rerailing Co., Inc.
<PAGE> 1
EXHIBIT 10.19
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 21, 1998
BY AND BETWEEN
RAILWORKS CORPORATION,
SCREAMING EAGLE WOOD PRESERVING COMPANY,
SOUTHERN INDIANA WOOD PRESERVING COMPANY, INC.
AND
THE STOCKHOLDERS NAMED HEREIN
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TABLE OF CONTENTS
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ARTICLE I DEFINITIONS...................................................................................1
Section 1.01. Certain Defined Terms.................................................1
ARTICLE II THE MERGER AND RELATED MATTERS................................................................4
Section 2.01. Certificate of Merger.................................................4
Section 2.02. The Effective Time....................................................4
Section 2.03. Certain Effects of the Merger.........................................4
Section 2.04. Effect of the Merger on Capital Stock.................................5
Section 2.05. Delivery, Exchange and Payment........................................6
Section 2.06. Merger Consideration Calculation......................................7
Section 2.07. Fractional Shares.....................................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
EACH STOCKHOLDER .............................................................................8
Section 3.01. By Each Stockholder...................................................8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS......................................................9
Section 4.01. By the Company and Each Primary Stockholder...........................9
ARTICLE V REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO................................................9
Section 5.01. By RW and Newco.......................................................9
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME ...................................................10
Section 6.01. Of Each Party........................................................10
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION.................................................................................10
Section 7.01. The Closing and Certain Conditions...................................10
</TABLE>
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<TABLE>
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ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME.......................................................12
Section 8.01. Of Each Party Other than the Company.................................12
ARTICLE IX INDEMNIFICATION..............................................................................12
Section 9.01. Indemnification Rights and Obligations...............................12
ARTICLE X [Intentionally Ommitted].....................................................................12
ARTICLE XI GENERAL PROVISIONS...........................................................................12
Section 11.01. Treatment of Confidential Information................................12
Section 11.02. Restrictions on Transfer of RW Common Stock..........................12
Section 11.03. Brokers and Agents...................................................14
Section 11.04. Assignment; No Third Party Beneficiaries.............................14
Section 11.05. Entire Agreement; Amendment; Waivers.................................15
Section 11.06. Counterparts.........................................................15
Section 11.07. Expenses.............................................................15
Section 11.08. Notices..............................................................15
Section 11.09. Governing Law........................................................16
Section 11.10. Exercise of Rights and Remedies......................................16
Section 11.11. Time.................................................................16
Section 11.12. Reformation and Severability.........................................17
Section 11.13. Remedies Cumulative..................................................17
Section 11.14. Respecting the IPO...................................................17
ARTICLE XII TERMINATION..................................................................................17
Section 12.01. Termination of this Agreement........................................17
Section 12.02. Liabilities in Event of Termination..................................18
</TABLE>
EXHIBITS
Exhibit A - List of Primary Stockholders
Exhibit B - Form of Employment Agreement
Exhibit C - IPO Cost Liability Sharing Agreement
Exhibit D - Merger Consideration
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as
of May 21, 1998, by and among RailWorks Corporation, a Delaware corporation
("RW"), Screaming Eagle Wood Preserving Company, an Indiana corporation and a
wholly owned subsidiary of RW("Newco"), Southern Indiana Wood Preserving
Company, Inc., an Indiana corporation (the "Company"), and the persons listed on
the signature pages hereof under the caption "Stockholders" (collectively, the
"Stockholders," and each of those persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(a) Newco will merge into the Company on the terms and subject to the
conditions set forth herein (that merger being the "Merger");
(b) RW will acquire the stock of all or some of the entities listed in
the accompanying Addendum 1 (each an "Other Founding Company" and, collectively
with the Company, the "Founding Companies") pursuant to agreements that are (i)
similar in all material respects to this Agreement and (ii) entered into among
those entities and their equity owners, RW and subsidiaries of RW (collectively,
the "Other Agreements"); and
(c) RW shall at such time as specified herein and if certain conditions
are met, effect a public offering of shares of its common stock and issue and
sell those shares.
The respective boards of directors of RW, Newco and the Company have
approved and adopted this Agreement to effect a transaction subject to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Certain Defined Terms. As used in this Agreement and in
the related Addendums, Annexes, Schedules and Exhibits, the following terms have
the meanings assigned to them below in this Section 1.01. Capitalized terms used
in this Agreement and not defined below in this Section 1.01 have the meanings
assigned to them in the Preliminary Statement or Article I of the Uniform
Provisions (the text of which Article hereby is incorporated herein by this
reference), as the case may be.
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"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement and all attached Schedules, Addendums,
Annexes and Exhibits, as each of the same may be amended, modified or
supplemented from time to time pursuant to the provisions hereof or thereof.
"Applicable Corporate Code" means the laws of the Organization State of
the Company that govern corporations incorporated in such state.
"Closing Date Balance Sheet" of the Company means a balance sheet of
the Company as at the IPO Closing Date which is prepared on a basis consistent
with the basis on which the Current Balance Sheet was prepared.
"Closing Memorandum" means the form of closing memorandum to be
prepared by RW for the Closing under this Agreement in which are included the
forms of certificates of officers, the opinions of counsel and certain other
documents to be delivered at the Closing as provided in Article VII.
"Company Accounts Receivable" shall mean the accounts and notes or
other advances receivable of the Company and the Company Subsidiaries, excluding
any Retainages, as of the IPO Closing Date.
"Company Common Stock" means the common stock, no par value, of the
Company.
"Company Indebtedness" means the indebtedness of the Company, as of the
IPO Closing Date (including, with respect to CPI Concrete Products, Inc., the
value of the Cash Company Consideration to be received by its Employee Stock
Ownership Plan), that the Company has elected to repay (or repurchase, as the
case may be) with a portion of the RW Common Stock to be received as part of the
Merger Consideration. At least five days prior to the Delivery Date, the Company
will deliver to RW a schedule of the aggregate principal amount of the Company
Indebtedness, certified by the President of the Company, that will be
outstanding on the IPO Closing Date, and RW will repay such Company Indebtedness
on the IPO Closing Date. To the extent that the actual amount of Company
Indebtedness exceeds the amount shown on such schedule, such excess shall be
repaid by the Stockholders on or prior to the IPO Closing Date.
"Counsel for RW and Newco" means King & Spalding.
"Counsel for the Company and the Stockholders" means such counsel as
shall be designated by the Company in writing on or prior to the Delivery Date.
"Current Balance Sheet" means the balance sheet of the Company as at
March 31, 1998 which is included in the Initial Financial Statements.
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"Current Balance Sheet Date" means December 31, 1997.
"Defined Net Worth" as of the IPO Closing Date shall mean (i) the total
assets of the Company, as set forth on the balance sheet of the Company as of
such date, except that (A) expenses of the Company directly attributable to the
IPO and/or the transactions contemplated by this Agreement, including but not
limited to, costs incurred pursuant to the HSR Act, shall be added back to the
assets of the company and (B) the value of inventory, machinery, equipment and
real estate shall be determined pursuant to Section 2.06(a), less (ii) the total
liabilities of the Company, as set forth on the balance sheet of the Company as
of such date, excluding the Company Indebtedness. Notwithstanding the foregoing,
in the case of Comstock, Comstock's contractual obligation to Spie Group, Inc.,
as successor to Comstock Group, Inc., shall not be deemed to be a liability for
purposes of determining Defined Net Worth.
"Delivery" or "Delivery Date" shall have the meaning set forth in
Section 7.01.
"Earnings Percentage" shall have the meaning set forth in Exhibit D.
"Employment Agreement" means each of the Employment Agreements entered
into as of the Closing Date between RW and each of the Stockholders set forth on
Exhibit A hereto, a form of which is attached hereto as Exhibit B.
"fair market value" means that value at which goods and/or services
would be exchanged between a willing buyer and willing seller in a transaction
entered into at arms length with each party having relevant facts of all aspects
of the transaction.
"Initial Financial Statements" means (a) the balance sheets of the
Company as at December 31, 1997 and March 31, 1998 and the related reviewed
statements of operations and retained earnings for each of the Company's two
fiscal years in the period ended December 31, 1997, and (b) the Current Balance
Sheet and the related statement of income for the Company's fiscal year ended
December 31, 1997, which the Company has delivered to RW prior to the date
hereof.
"IPO Closing Date" means the date on which RW first receives payment
for the shares of RW Common Stock it sells to the Underwriter in the IPO.
"Merger Consideration" has the meaning specified in Section 2.04.
"Newco" means Screaming Eagle Wood Preserving Company, an Indiana
corporation.
"Responsible Officer" means the President, Chief Executive Officer or
any Vice President of the Company.
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"Retainages" means the portion of progress payments due to a Company
for contracting projects that is withheld by a customer of such Company until
completion of a project, pursuant to the terms of a contract with such customer,
as security for the completion of the project.
"RW" means RailWorks Corporation, a Delaware corporation.
"Scheduled Related Party Agreements" means the agreements described in
Schedule 4.11.
"Surviving Corporation" means the Person to be designated in the
Certificate of Merger as the surviving corporation of the Merger.
"Threshold Amount" means 2.0% of the Merger Consideration.
"Transaction Value" means the (i)(A) the total number of shares of RW
outstanding immediately upon the closing of the IPO and the transactions
contemplated by this Agreement and the Other Agreements multiplied by (B) the
IPO Price multiplied by (C) 92% minus (ii) actual expenses of RW incurred with
respect to the IPO, an estimate of which will be set forth in Item 13 of Part II
of the Registration Statement minus (iii) the underwriting discounts and
commissions paid to the Underwriter pursuant to the IPO minus (iv) the proceeds
received by RW in connection with any shares of RW Common Stock sold by RW to
finance the working capital needs of RW, which shares shall not exceed 5% of the
number of shares to be sold in the IPO.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions of RW for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. Certificate of Merger. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the Delivery Date to the Department
of State of the State of Indiana.
Section 2.02. The Effective Time. The effective time of the Merger (the
"Effective Time") will be the time on the IPO Closing Date as specified in the
Certificate of Merger or, if the Certificate of Merger does not specify another
time, 8:00 a.m., eastern daylight standard time, on the IPO Closing Date.
Section 2.03. Certain Effects of the Merger. At and as of the Effective
Time, (a) Newco will be merged with and into the Company in accordance with the
provisions of the Indiana Business Corporation Law, (b) Newco will cease to
exist as a separate legal entity, (c) the articles of
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incorporation of the Company will be amended to change its authorized capital
stock to 100 shares, par value $0.01 per share, of Common Stock, (d) the Company
will be the Surviving Corporation and, as such, will, all with the effect
provided by the Indiana Business Corporation Law, (i) possess all the properties
and rights, and be subject to all the restrictions and duties, of the Company
and Newco and (ii) be governed by the laws of the State of Indiana, (e) the
Charter Documents of the Company then in effect (after giving effect to the
amendment of the Company's articles of incorporation specified in clause (c) of
this sentence) will become and thereafter remain (until changed in accordance
with (i) applicable law (in the case of the articles of incorporation) or (ii)
their terms (in the case of the bylaws)) the Charter Documents of the Surviving
Corporation, (f) the initial board of directors of the Surviving Corporation
will be the Chief Executive Officer of RW and the other persons named in
Schedule 2.03, and those persons will hold the office of director of the
Surviving Corporation subject to the provisions of the applicable laws of the
State of Indiana and the Charter Documents of the Surviving Corporation, and (g)
the initial officers of the Surviving Corporation will be as set forth in
Schedule 2.03, and each of those persons will serve in each office specified for
that person in Schedule 2.03, subject to the provisions of the Charter Documents
of the Surviving Corporation, until that person's successor is duly elected to,
and, if necessary, qualified for, that office.
Section 2.04. Effect of the Merger on Capital Stock. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the right to
receive, subject to the provisions of Section 2.05 and Exhibit D, without
interest, on surrender of the certificate evidencing those shares, the amount of
cash and the number of whole and fractional shares of RW Common Stock set forth
or determined as provided in Exhibit D (the "Merger Consideration"), (ii) cease
to be outstanding and to exist and (iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to exist
and (ii) be canceled and retired; and
(c) each share of Newco Common Stock issued and outstanding immediately
prior to the Effective Time will be converted into one share of Common Stock, no
par value, of the Surviving Corporation, and the shares of Common Stock of the
Surviving Corporation issued on that conversion will constitute all the issued
and outstanding shares of Capital Stock of the Surviving Corporation. Each
holder of a certificate representing shares of Company Common Stock immediately
prior to the Effective Time will, as of the Effective Time and thereafter, cease
to have any rights respecting those shares other than the right to receive,
subject to the provisions of Section 2.05, without interest, the Merger
Consideration and the additional cash, if any, owing with respect to those
shares as provided in Section 2.07.
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Section 2.05. Delivery, Exchange and Payment.
(a) At or after the Effective Time: (i) each Stockholder, as the holder
of certificates representing shares of Company Common Stock, will, on surrender
of those certificates to RW (or any agent that may be appointed by RW for
purposes of this Section 2.05), receive, subject to the provisions of this
Article II and the Escrow Agreement, such Stockholder's share of the Merger
Consideration pursuant to Section 2.04 and Exhibit D; and (ii) until any
certificate representing Company Common Stock has been surrendered and replaced
pursuant to this Section 2.05, that certificate will, for all purposes, be
deemed to evidence ownership of the number of whole shares of RW Common Stock
included in the Merger Consideration payable in respect of that certificate
pursuant to Section 2.04. The Escrow Agreement will provide that the shares of
RW Common Stock issued to the Stockholders as a part of the Merger Consideration
together with duly executed stock powers in blank, shall be placed in escrow to
be held subject to the terms of the Escrow Agreement and further subject to
Exhibit D and Section 11.02. The escrow shall consist solely of shares of RW
Common Stock that shall be issued at the Effective Time to the Stockholders of
the Founding Companies and delivered, at the Closing, to the Escrow Agent. All
shares of RW Common Stock issuable in the Merger will be deemed for all purposes
to have been issued by RW at the Effective Time.
(b) Each Stockholder will deliver to RW (or any agent that may be
appointed by RW for purposes of this Section 2.05) on or before the Delivery
Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Stockholder, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Stockholder's expense, affixed and canceled.
Each Stockholder shall cure any deficiencies in the endorsement of the
certificates or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Stockholder.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to RW Common Stock and payable to
the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of RW Common Stock have been issued in the Merger until
those certificates are surrendered as provided herein, but (i) on that surrender
RW will cause to be paid, to the Person in whose name the certificates
representing such shares of RW Common Stock shall then be issued, the amount of
dividends or other distributions previously paid with respect to such whole
shares of RW Common Stock with a record date, or which have accrued, subsequent
to the Effective Time, but prior to surrender, and the amount of any cash
payable to such Person for and in lieu of fractional shares pursuant to Section
2.07 and (ii) at the appropriate payment date or as soon as practicable
thereafter, RW will cause to be paid to that Person the amount of dividends or
other distributions with a record date, or which have been accrued, subsequent
to the Effective Time, but which are not payable until a date subsequent to
surrender, which are payable with respect to such whole shares of RW Common
Stock, subject in all cases to any applicable
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escheat laws. No interest will be payable with respect to the payment of such
dividends or other distributions or cash for and in lieu of fractional shares on
surrender of outstanding certificates.
(d) Each Stockholder hereby authorizes and directs RW to deliver 3.5%
of the Cash Company Consideration and 3.5% of the Stock Company Consideration
owed to such Stockholder pursuant to this Agreement (before deposit of the
shares of RW Common Stock into escrow) to IPO Development Company in payment of
fees owed to IPO Development Company by such Stockholder.
Section 2.06. Merger Consideration Calculation.
(a) No later than fifteen (15) days following the IPO Closing Date, the
Company shall provide to the Chief Accounting Officer of RW (the "CAO") a
determination of the fair market value (as defined) of its inventory, machinery,
equipment and real estate (the "Valued Assets") as of the IPO Closing Date.
Within seven (7) days of such date, the CAO shall distribute to every Founding
Company the value of the Valued Assets of every Founding Company. The Company
shall have seven (7) days from the date of the distribution of such valuation to
dispute the value of the Valued Assets of any Founding Company by providing
written notice of such dispute to the CAO. If the CAO is unable to resolve any
such dispute, the dispute shall be resolved by binding arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
which arbitration shall be resolved no later than thirty (30) days from
selection of the arbitrator. The arbitrator shall be selected by the CAO.
(b) Arthur Andersen or, if not Arthur Andersen, the Company's
accountant, shall cause to be prepared and delivered to RW and the Company a
calculation as of the IPO Closing Date of the Defined Net Worth of the Company
(the "Balance Sheet Calculation"). The Balance Sheet Calculation shall be final
and binding on the Company and the Other Founding Companies absent fraud,
manifest error or gross negligence.
(c) The Balance Sheet Calculation shall include a report of Arthur
Andersen or, if not Arthur Andersen, the Company's accountant, stating that it
has been prepared in a manner consistent with the accounting policies and
procedures used in preparation of the balance sheets in the Initial Financial
Statements, except as provided in the definition of "Defined Net Worth"
contained herein. The Stockholders shall give Arthur Andersen and other
appropriate personnel such assistance and access to the assets and books and
records of the Company as Arthur Andersen shall reasonably request during normal
business hours in order to enable them to prepare the Balance Sheet Calculation.
The Surviving Corporation shall be responsible for the fees and expenses of
Arthur Andersen or, if not Arthur Andersen the Company's accountant.
Section 2.07. Fractional Shares. Notwithstanding any other provision
herein, no fractional shares of RW Common Stock will be issued. All shares of RW
Common Stock shall be aggregated, and any Stockholder entitled hereunder, after
such aggregation, to receive a fractional share of RW Common Stock but for this
Section 2.07 will be entitled hereunder to receive a cash payment for and
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in lieu thereof in the amount (rounded to the nearest whole cent) equal to that
Stockholder's fractional interest in a share of RW Common Stock multiplied by
the IPO Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01. By Each Stockholder. The Stockholders severally represent
and warrant to, and agree with, RW that all the following representations and
warranties in this Article III are as of the date of this Agreement, and will
be, as amended or supplemented pursuant to Section 6.08, on the IPO Closing
Date, true and correct:
(a) (i) each Stockholder will acquire the shares of RW Common Stock to
be issued pursuant to Article II to the Stockholder solely for the Stockholder's
account, for investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection with
any distribution;
(ii) no Stockholder is a party to any agreement or other
arrangement for the disposition of any shares of RW Common Stock other
than this Agreement; (iii) except as set forth on Schedule 3.01(a)(ii)
each Stockholder is an "accredited investor" as defined in Rule 501(a)
promulgated under the Securities Act; (iv) each Stockholder (A) is able
to bear the economic risk of an investment in the RW Common Stock
acquired pursuant to this Agreement, (B) can afford to sustain a total
loss of that investment, (C) has such knowledge and experience in
financial and business matters that he or she is capable of evaluating
the merits and risks of the proposed investment in the RW Common Stock,
(D) has had an adequate opportunity to ask questions and receive
answers from the officers of RW concerning any and all matters relating
to the transactions contemplated hereby, including the background and
experience of the current and proposed officers and directors of RW,
the plans for the operations of the business of RW, the business,
operations and financial condition of the Other Founding Companies and
any plans of RW for additional acquisitions, and (E) has asked all
questions of the nature described in preceding clause (D) that such
Stockholder thought to ask, and all those questions have been answered
to his or her satisfaction;
(b) the representations and warranties contained in Article III of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to; and
(c) (i) the terms and conditions of any agreements between any
Stockholder or an Affiliate of any Stockholder, on the one hand, and the Company
on the other hand, included in the Scheduled Related Party Agreements will have
been amended effective as of the IPO Closing Date to be no less favorable to the
Company than the Company reasonably could have expected to obtain in an
arms-length transaction with a Person other than an Affiliate of the Company and
(ii) the
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rentals or other payments provided for in such agreements then will not exceed
fair market rentals of the property being leased or fair market value of the sum
or product being provided and such amounts shall have been previously approved
in writing by the Chief Financial Officer of RW.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS
Section 4.01. By the Company and Each Primary Stockholder. The Company
and each Primary Stockholder jointly and severally represent and warrant to, and
agree with, RW that all the following representations and warranties in this
Article IV are as of the date of this Agreement, and will be, as amended or
supplemented pursuant to Section 6.08, on the Delivery Date and the IPO Closing
Date, true and correct:
(a) the Organization State of the Company is the State of Indiana, and
the Company (i) is a corporation duly organized, validly existing and in good
standing under the laws of that State, (ii) has all requisite corporate power
and authority under those laws and its Charter Documents to own or lease and to
operate its properties and to carry on its business as now conducted and (iii)
is duly qualified and in good standing as a foreign corporation in all
jurisdictions (other than the State of Indiana) in which it owns or leases
property or in which the carrying on of its business as now conducted so
requires except where the failure to be so qualified, singly or in the
aggregate, would not have a Material Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is comprised of
1,000 shares of Company Common Stock, of which 1,000 shares have been issued and
are now outstanding and no shares are held by the Company as treasury shares,
and (ii) there are no Derivative Securities of the Company;
(c) the Company has elected to be treated as an S corporation within
the meaning of the Code, as amended; and
(d) the representations and warranties contained in Article IV of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO
Section 5.01. By RW and Newco. RW and Newco jointly and severally
represent and warrant to the Company and each Stockholder that all the following
representations and warranties
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in this Article V are as of the date of this Agreement, and will be on the IPO
Closing Date, true and correct:
(a) Newco is a corporation duly organized, validly existing and in good
standing under the laws of the State of Indiana;
(b) except as disclosed in the Private Placement Memorandum, no
Derivative Securities of Newco are outstanding;
(c) Newco has been organized for the sole purpose of participating in
the Merger and has not, and will not, engage in any activities other than those
necessary to effectuate the Merger;
(d) except for shares of RW Common Stock to be publicly sold in the IPO
and as disclosed in the Private Placement Memorandum or preliminary prospectus,
neither RW nor Newco is a party to any agreement or other arrangement for the
disposition of any shares of RW Common Stock; and
(e) the representations and warranties contained in Article V of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01. Of Each Party. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01. The Closing and Certain Conditions.
(a) The Closing. On or before the IPO Pricing Date, the parties hereto
will take all actions necessary to (i) effect the Merger (including, as
permitted by the Applicable Corporate Code, (A) the execution of a Certificate
of Merger (1) meeting the requirements of the Applicable Corporate Code and (2)
providing that the Merger will become effective on the IPO Closing Date and (B)
the delivery of that Certificate of Merger with a filing service that will file
such Certificate of Merger with the Department of State of the State of Indiana)
upon notification of the closing of the IPO (provided that Comstock's
Certificate of Merger shall be filed immediately prior to the closing of the
IPO), (ii) verify the existence and ownership of the certificates evidencing the
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Company Common Stock to be exchanged for the Merger Consideration pursuant to
Section 2.05 and (iii) satisfy the document delivery requirements to which the
obligations of the parties to effect the Merger and the other transactions
contemplated hereby are conditioned by the provisions of this Article VII (all
those actions collectively being the "Delivery"). The Delivery will take place
at the offices of King & Spalding, 191 Peachtree Street, Atlanta, Georgia at
10:00 a.m., Atlanta time on the IPO Pricing Date, or at such later time on the
IPO Pricing Date as RW shall specify by written notice to the President of the
Company (the "Delivery Date"). The actions taken at the Delivery will not
include the completion of either the Merger or the delivery of the Company
Common Stock or the Merger Consideration pursuant to Section 2.05. On the IPO
Closing Date, the Certificate of Merger will be filed and will become effective
pursuant to Section 2.02, and all transactions contemplated by this Agreement to
be closed or completed on or before the IPO Closing Date, including the
surrender of the Company Common Stock in exchange for the Merger Consideration
(including a certified check or checks in an amount equal to the cash portion of
the Merger Consideration) will be closed or completed, as the case may be.
During the period from the Delivery Date to the IPO Closing Date, this Agreement
may be terminated by the parties only pursuant to Section 12.01(b)(i).
(b) Certain Conditions to the Obligations of the Company and the
Stockholders. The obligations of the Company and the Stockholders with respect
to the actions to be taken by them at or before the Delivery Date are subject to
the satisfaction on or before the Delivery Date, or waiver by them pursuant to
Section 11.05, of all the conditions set forth in Sections 7.01 and 7.02(a). The
obligations of the Stockholders with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of the following
conditions: (if required by such Stockholder) (i) the Employment Agreement then
shall be in full force and effect; and (ii) all the conditions set forth in
Sections 7.01 and 7.02(b).
(c) Certain Conditions to the Obligations of RW and Newco. The
obligations of RW and Newco with respect to actions to be taken by them at or
before the Delivery Date are subject to the satisfaction on or before the date
of the Delivery Date, or waiver by them pursuant to Section 11.05, of the
following conditions: (i) the Company shall have delivered to RW a copy of the
articles of incorporation, as amended to the Delivery Date and certified by the
Secretary of State of the State of Indiana as of a Current Date, of the Company;
and (ii) all the conditions set forth in Sections 7.01 and 7.03(a). The
obligations of RW and Newco with respect to the actions to be taken on the IPO
Closing Date are subject to the satisfaction on that date of the following
conditions: (i) the Employment Agreements then shall be in full force and
effect; and (ii) all the conditions set forth in Sections 7.01 and 7.03(b).
(d) Uniform Provisions. The text of Article VII of the Uniform
Provisions hereby is incorporated herein by this reference.
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<PAGE> 15
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01. Of Each Party Other than the Company. From and after the
Effective Time, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Company) will comply with each covenant for which
provision is made in Article VIII of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) to be performed or
observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01. Indemnification Rights and Obligations. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. Any provision contained in Article IX of the Uniform Provisions to
the contrary notwithstanding, the indemnification obligations of the
Stockholders pursuant to this Agreement shall be joint and several.
ARTICLE X
[Intentionally Ommitted]
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. Treatment of Confidential Information. Each party hereto
will comply with each covenant for which provision is made in Section 11.01 of
the Uniform Provisions (the text of which Section hereby is incorporated herein
by this reference) to be performed or observed by that party.
Section 11.02. Restrictions on Transfer of RW Common Stock.
(a) Except for transfers to employees of the Company that are approved
in writing by the Board of Directors of RW (or a committee designated by the
Board of Directors of RW) prior to such transfer, during the one year period
ending on the first anniversary of the IPO Closing Date (the "Restricted
Period"), no Stockholder voluntarily will: (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
RW Common Stock received by any Stockholder in the Merger or (B) any interest in
(including any option to buy or sell) any of those shares of RW Common Stock, in
whole or in part, and RW will have no obligation to, and shall not, treat any
such attempted transfer as effective for any purpose; or (ii) engage in any
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<PAGE> 16
transaction, whether or not with respect to any shares of RW Common Stock or any
interest therein, the intent or effect of which is to reduce the risk of owning
the shares of RW Common Stock acquired pursuant to Section 2.04 (including, for
example engaging in put, call, short-sale, straddle or similar market
transactions); provided, however, that this Section 11.02 shall not restrict any
transfer of RW Common Stock acquired by a Stockholder pursuant to Section 2.04
to any of that Stockholder's Related Persons who agree in writing to be bound by
the provisions of Section 11.01 and this Section 11.02. The certificates
evidencing the RW Common Stock delivered to each Stockholder pursuant to Section
2.05 will bear a legend substantially in the form set forth below and containing
such other information as RW may deem necessary or appropriate:
"EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER
PARTIES THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE
REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF
ANY OF THOSE SHARES, DURING THE ONE-YEAR PERIOD ENDING ON __________ [DATE THAT
IS THE FIRST ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED PERIOD"). ON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE."
(b) From the first anniversary of the IPO Closing Date to the fourth
anniversary of the IPO Closing Date, the Stockholders agree to sell shares of RW
Common Stock acquired pursuant to this Agreement only in accordance with the
procedures set forth in this Section 11.02(b). Every quarter during such period,
every Stockholder will be permitted to sell, in the aggregate, up to 8% of the
aggregate number of shares of Common Stock received by such Stockholder pursuant
to this Agreement (the "Quarterly Block Trade Shares") in either a block trade
or a registered public offering, at the option of RW. If a Stockholder does not
sell all of his or her Quarterly Block Trade Shares in any given quarter, such
Stockholder may sell such Quarterly Block Trade Shares pursuant to this Section
11.02(b) in any later quarter, provided, however, that in no event may a
Stockholder sell more than 20% of the shares of Common Stock received by such
Stockholder pursuant to this Agreement in any one quarter. Any Stockholder that
wishes to sell shares of RW Common Stock pursuant to such selling opportunity
must give notice to RW and the Executive Council no later than fourteen days
prior to the commencement of the fiscal quarter of RW during which such
Stockholder wants to sell such shares. Notwithstanding anything set forth in
this Section 11.02(b), RW may elect to make available to the Stockholders (i)
additional opportunities to sell shares of RW Common Stock and/or (ii) the
opportunity to sell an amount in excess of such amount during any particular
quarter. The Company may modify or waive this Section 11.02(b) at its sole
discretion at any time following written notice to the Stockholders, provided
that no such modification or waiver may
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<PAGE> 17
reduce the number of selling opportunities or the maximum number of shares of RW
Common Stock that may be sold by any Stockholder during any selling opportunity.
(c) Each Stockholder, severally and not jointly with any other Person,
(i) acknowledges that the shares of RW Common Stock to be delivered to that
Stockholder pursuant to Section 2.04 have not been and will not be registered
under the Securities Act and therefore may not be resold by that Stockholder
without compliance with the Securities Act and (ii) covenants that none of the
shares of RW Common Stock issued to that Stockholder pursuant to Section 2.04
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable provisions of
the Securities Act and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of RW Common
Stock issued pursuant to Section 2.04 will bear the following legend in addition
to the legend prescribed by Section 11.02(a):
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, HAVE
BEEN ISSUED PURSUANT TO ONE OR MORE EXEMPTIONS THERETO, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED OR DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED."
In addition, certificates evidencing shares of RW Common Stock issued pursuant
to Section 2.04 to each Stockholder will bear any legend required by the
securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03. Brokers and Agents. Except for IPO Development Company,
each of the Stockholders jointly and severally, on the one hand, and RW, on the
other, represents and warrants to the other that such Person has not directly or
indirectly employed or become obligated to pay any broker, finder or similar
agent in connection with the transactions contemplated hereby and agree, without
regard to the Threshold Amount limitations set forth in Article IX, to indemnify
the other against all Damage Claims arising out of claims for any and all fees
and commissions of brokers or similar agents employed or promised payment by
such Person.
Section 11.04. Assignment; No Third Party Beneficiaries. This Agreement
and the rights of the parties hereunder may not be assigned (except by operation
of law) and shall be binding on and inure to the benefit of the parties hereto,
the successors of RW, and the heirs and legal representatives of the
Stockholders (and, in the case of any trust, the successor trustees of that
trust). Neither this Agreement nor any other Transaction Document is intended,
or shall be construed, deemed or interpreted, to confer on any Person not a
party hereto or thereto any rights or remedies hereunder or thereunder, except
as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise provided
expressly herein or therein.
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<PAGE> 18
Section 11.05. Entire Agreement; Amendment; Waivers. Except with
respect to Section 11.07 hereof, this Agreement and the documents delivered
pursuant hereto constitute the entire agreement and understanding among the
Stockholders, the Company, Newco and RW and supersede all prior agreements and
understandings, both written and oral, relating to the subject matter of this
Agreement. This Agreement may be amended, modified or supplemented, and any
right hereunder may be waived, if, but only if, that amendment, modification,
supplement or waiver is in writing and signed by each of the Stockholders, the
Company and RW. The waiver of any of the terms and conditions hereof shall not
be construed or interpreted as, or deemed to be, a waiver of any other term or
condition hereof.
Section 11.06. Counterparts. This Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
Section 11.07. Expenses. If the transactions contemplated hereby (i)
are consummated, RW will pay the fees, expenses and disbursements of RW and
Newco and their Representatives which are incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all costs
and expenses incurred in the performance of and compliance with all conditions
to be performed by RW and Newco under this Agreement, including the costs of
preparing the Registration Statement, (collectively, the "RW Expenses") and (ii)
if the transactions contemplated hereby are not consummated, the RW Expenses
shall be paid by the Founding Companies subject to the provisions of the IPO
Cost Liability Sharing Agreement attached hereto as Exhibit C and incorporated
herein by reference (b) the Stockholders will pay from personal funds, and not
from funds of the Company or any Company Subsidiary, all sales, use, transfer
and other similar taxes and fees (collectively, "Transfer Taxes") incurred in
connection with the transactions contemplated hereby and (c) the Company will
pay the fees, expenses and disbursements of Counsel for the Company and the
Stockholders incurred in connection with the subject matter of this Agreement
and the Registration Statement on or before the IPO Closing Date. The
Stockholders will file all necessary documentation and Returns with respect to
all Transfer Taxes. In addition, each Stockholder acknowledges that he, and not
the Company or RW or the Surviving Corporation, will pay all Taxes due upon
receipt of the consideration payable to that Stockholder pursuant to Article II.
Section 11.08. Notices. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received
(a) if personally delivered or if delivered by telex, telegram,
facsimile or courier service, when actually received by the party to whom notice
is sent or
(b) if delivered by mail (whether actually received or not), at the
close of business on the third Business Day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
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<PAGE> 19
(i) if to RW or Newco, addressed to it at:
RailWorks Corporation
403 Somerset Road
Baltimore, Maryland 21210
Attn: Chief Executive Officer
with copies (which shall not constitute notice for purposes
of this Agreement) to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attn: Jeffrey M. Stein
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
Southern Indiana Wood Preserving Company, Inc.
RR 1 - Box 147
Winslow, Indiana 47598
Attn: Sean G. Gough
with copies (which shall not constitute notice for purposes
of this Agreement) to Counsel for the Company and the
Stockholders at the address designated by the Company
Section 11.09. Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF DELAWARE
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10. Exercise of Rights and Remedies. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11. Time. Time is of the essence in the performance of this
Agreement in all respects.
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<PAGE> 20
Section 11.12. Reformation and Severability. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13. Remedies Cumulative. No right, remedy or election given
by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14. Respecting the IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither RW or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that RW will use its reasonable best efforts to
cause the Registration Statement to become effective prior to August 14, 1998)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to RW or the
IPO.
ARTICLE XII
TERMINATION
Section 12.01. Termination of this Agreement.
(a) This Agreement may be terminated at any time prior to the Delivery
Date solely:
(i) by the mutual written consent of RW and the Company;
(ii) by the Stockholders or the Company, on the one hand, or
by RW, on the other hand, if the events contemplated by this Agreement
to take place at the Delivery Date shall not have taken place by
September 4, 1998, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the
case of the Stockholders and the Company, any of them) seeking to
terminate this Agreement to perform or adhere to any agreement required
hereby to be performed or adhered to by it prior to or at the Delivery
Date or thereafter on the IPO Closing Date;
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<PAGE> 21
(iii) by the Stockholders or the Company, on the one hand, or by
RW, on the other hand, if a material breach or default shall be made by
the other party (or in the case of the Stockholders and the Company,
any of them) in the observance or in the due and timely performance of
any of the covenants, agreements or conditions contained in Article VI
or Section 11.01;
(iv) by the Stockholders or the Company, on the one hand, or RW,
on the other, if it is entitled to do so as provided in Section 6.08;
(v) by the Stockholders prior to the filing of the Registration
Statement if the Registration Statement is not filed by June 15, 1998;
(vi) by RW or the Stockholders prior to 9:00 a.m. on the IPO
Pricing Date (as set forth in Section 8.10) if the value of RW at the
IPO Pricing Date (as calculated by multiplying the price per share at
which the RW common stock is to be sold in the IPO by the number of
shares of common stock to be outstanding after the Closing of the IPO)
shall be less than $215 million;
(vii) by the Stockholders if the Registration Statement has not
been declared effective by the Securities and Exchange Commission by
August 14, 1998;
(viii) by the Stockholders if John G. Larkin is no longer serving
as Chairman of the Board of Directors and Chief Executive Officer prior
to the Closing; or
(ix) by the stockholders of CPI Concrete Products, Inc. if its
Employee Stock Ownership Plan does not approve the merger prior to the
Delivery Date.
(b) This Agreement may be terminated after the Delivery Date solely:
(i) by RW or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the IPO Pricing Date and prior
to the consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City business
days after the Delivery Date.
(c) If this Agreement is terminated pursuant to this Section 12.01, the
Merger will be deemed for all purposes to have been abandoned and of no force or
effect.
Section 12.02. Liabilities in Event of Termination. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Sections
11.03 or 11.07 and (b) to the extent that such liability is based on the breach
by that party of any of its representations, warranties or covenants set forth
in this Agreement.
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<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
RAILWORKS CORPORATION
By: /s/ John G. Larkin
-----------------------------------------
John G. Larkin
Chief Executive Officer
SCREAMING EAGLE WOOD
PRESERVING COMPANY
By: /s/ John G. Larkin
-----------------------------------------
John G. Larkin
President
SOUTHERN INDIANA WOOD
PRESERVING CO.
By: /s/ Authorized Signature
-----------------------------------------
Name:
Title:
STOCKHOLDERS:
/S/ Sean G. Gough
--------------------------------------------
Sean G. Gough
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<PAGE> 23
ADDENDUM 1
OTHER FOUNDING COMPANIES
A. Words and terms used in this Addendum which are defined
in the captioned Agreement to which this is an Addendum are used herein as
therein defined.
B. The Founding Companies are:
Alpha - Keystone Engineering, Inc.
Annex Railroad Builders, Inc.
Comtrak Construction, Inc.
Comstock Holdings Inc.
Condon Brothers, Inc.
CPI Concrete Products
HP McGinley, Inc.
Kennedy Railroad Builders, Inc.
Merit Railroad Contractors, Inc.
Midwest Construction Services, Inc.
Minnesota Railroad Services, Inc.
Mize Construction Co.
New England Railroad Construction Co., Inc.
Northern Rail Service & Supply Company, Inc.
Railcorp, Inc.
Railroad Service, Inc.
Railroad Specialities, Inc,
Southern Indiana Wood Preserving Co.
U.S. Railway Supply, Inc,
U.S. Trackworks, Inc.
W.A. Smith Construction Co., Inc.
W.A Smith Rerailing Co., Inc.
<PAGE> 1
EXHIBIT 10.20
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 21, 1998
BY AND BETWEEN
RAILWORKS CORPORATION,
FIGHTING IRISH-U.S. RAILWAY SUPPLY COMPANY,
U.S. RAILWAY SUPPLY, INC.
AND
THE STOCKHOLDERS NAMED HEREIN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS...................................................................................1
Section 1.01. Certain Defined Terms.................................................1
ARTICLE II THE MERGER AND RELATED MATTERS................................................................4
Section 2.01. Certificate of Merger.................................................4
Section 2.02. The Effective Time....................................................4
Section 2.03. Certain Effects of the Merger.........................................4
Section 2.04. Effect of the Merger on Capital Stock.................................5
Section 2.05. Delivery, Exchange and Payment........................................6
Section 2.06. Merger Consideration Calculation......................................7
Section 2.07. Fractional Shares.....................................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
EACH STOCKHOLDER .............................................................................8
Section 3.01. By Each Stockholder...................................................8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS......................................................9
Section 4.01. By the Company and Each Primary Stockholder...........................9
ARTICLE V REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO................................................9
Section 5.01. By RW and Newco.......................................................9
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME....................................................10
Section 6.01. Of Each Party........................................................10
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION.................................................................................10
Section 7.01. The Closing and Certain Conditions...................................10
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME.......................................................12
Section 8.01. Of Each Party Other than the Company.................................12
ARTICLE IX INDEMNIFICATION..............................................................................12
Section 9.01. Indemnification Rights and Obligations...............................12
ARTICLE X [Intentionally Ommitted].....................................................................12
ARTICLE XI GENERAL PROVISIONS...........................................................................12
Section 11.01. Treatment of Confidential Information................................12
Section 11.02. Restrictions on Transfer of RW Common Stock..........................12
Section 11.03. Brokers and Agents...................................................14
Section 11.04. Assignment; No Third Party Beneficiaries.............................14
Section 11.05. Entire Agreement; Amendment; Waivers.................................15
Section 11.06. Counterparts.........................................................15
Section 11.07. Expenses.............................................................15
Section 11.08. Notices..............................................................15
Section 11.09. Governing Law........................................................16
Section 11.10. Exercise of Rights and Remedies......................................16
Section 11.11. Time.................................................................16
Section 11.12. Reformation and Severability.........................................17
Section 11.13. Remedies Cumulative..................................................17
Section 11.14. Respecting the IPO...................................................17
ARTICLE XII TERMINATION..................................................................................17
Section 12.01. Termination of this Agreement........................................17
Section 12.02. Liabilities in Event of Termination..................................18
</TABLE>
EXHIBITS
- --------
Exhibit A - List of Primary Stockholders
Exhibit B - Form of Employment Agreement
Exhibit C - IPO Cost Liability Sharing Agreement
Exhibit D - Merger Consideration
-ii-
<PAGE> 4
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as
of May 21, 1998, by and among RailWorks Corporation, a Delaware corporation
("RW"), Fighting Irish-U.S. Railway Supply Company, an Indiana corporation and a
wholly owned subsidiary of RW("Newco"), U.S. Railyway Supply, Inc., an Indiana
corporation (the "Company"), and the persons listed on the signature pages
hereof under the caption "Stockholders" (collectively, the "Stockholders," and
each of those persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(a) Newco will merge into the Company on the terms and subject to the
conditions set forth herein (that merger being the "Merger");
(b) RW will acquire the stock of all or some of the entities listed in
the accompanying Addendum 1 (each an "Other Founding Company" and, collectively
with the Company, the "Founding Companies") pursuant to agreements that are (i)
similar in all material respects to this Agreement and (ii) entered into among
those entities and their equity owners, RW and subsidiaries of RW (collectively,
the "Other Agreements"); and
(c) RW shall at such time as specified herein and if certain conditions
are met, effect a public offering of shares of its common stock and issue and
sell those shares.
The respective boards of directors of RW, Newco and the Company have
approved and adopted this Agreement to effect a transaction subject to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Certain Defined Terms. As used in this Agreement and in
the related Addendums, Annexes, Schedules and Exhibits, the following terms have
the meanings assigned to them below in this Section 1.01. Capitalized terms used
in this Agreement and not defined below in this Section 1.01 have the meanings
assigned to them in the Preliminary Statement or Article I of the Uniform
Provisions (the text of which Article hereby is incorporated herein by this
reference), as the case may be.
<PAGE> 5
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement and all attached Schedules, Addendums,
Annexes and Exhibits, as each of the same may be amended, modified or
supplemented from time to time pursuant to the provisions hereof or thereof.
"Applicable Corporate Code" means the laws of the Organization State of
the Company that govern corporations incorporated in such state.
"Closing Date Balance Sheet" of the Company means a balance sheet of
the Company as at the IPO Closing Date which is prepared on a basis consistent
with the basis on which the Current Balance Sheet was prepared.
"Closing Memorandum" means the form of closing memorandum to be
prepared by RW for the Closing under this Agreement in which are included the
forms of certificates of officers, the opinions of counsel and certain other
documents to be delivered at the Closing as provided in Article VII.
"Company Accounts Receivable" shall mean the accounts and notes or
other advances receivable of the Company and the Company Subsidiaries, excluding
any Retainages, as of the IPO Closing Date.
"Company Common Stock" means the common stock, no par value, of the
Company.
"Company Indebtedness" means the indebtedness of the Company, as of the
IPO Closing Date (including, with respect to CPI Concrete Products, Inc., the
value of the Cash Company Consideration to be received by its Employee Stock
Ownership Plan), that the Company has elected to repay (or repurchase, as the
case may be) with a portion of the RW Common Stock to be received as part of the
Merger Consideration. At least five days prior to the Delivery Date, the Company
will deliver to RW a schedule of the aggregate principal amount of the Company
Indebtedness, certified by the President of the Company, that will be
outstanding on the IPO Closing Date, and RW will repay such Company Indebtedness
on the IPO Closing Date. To the extent that the actual amount of Company
Indebtedness exceeds the amount shown on such schedule, such excess shall be
repaid by the Stockholders on or prior to the IPO Closing Date.
"Counsel for RW and Newco" means King & Spalding.
"Counsel for the Company and the Stockholders" means such counsel as
shall be designated by the Company in writing on or prior to the Delivery Date.
"Current Balance Sheet" means the balance sheet of the Company as at
March 31, 1998 which is included in the Initial Financial Statements.
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"Current Balance Sheet Date" means December 31, 1997.
"Defined Net Worth" as of the IPO Closing Date shall mean (i) the total
assets of the Company, as set forth on the balance sheet of the Company as of
such date, except that (A) expenses of the Company directly attributable to the
IPO and/or the transactions contemplated by this Agreement, including but not
limited to, costs incurred pursuant to the HSR Act, shall be added back to the
assets of the company and (B) the value of inventory, machinery, equipment and
real estate shall be determined pursuant to Section 2.06(a), less (ii) the total
liabilities of the Company, as set forth on the balance sheet of the Company as
of such date, excluding the Company Indebtedness. Notwithstanding the foregoing,
in the case of Comstock, Comstock's contractual obligation to Spie Group, Inc.,
as successor to Comstock Group, Inc., shall not be deemed to be a liability for
purposes of determining Defined Net Worth.
"Delivery" or "Delivery Date" shall have the meaning set forth in
Section 7.01.
"Earnings Percentage" shall have the meaning set forth in Exhibit D.
"Employment Agreement" means each of the Employment Agreements entered
into as of the Closing Date between RW and each of the Stockholders set forth on
Exhibit A hereto, a form of which is attached hereto as Exhibit B.
"fair market value" means that value at which goods and/or services
would be exchanged between a willing buyer and willing seller in a transaction
entered into at arms length with each party having relevant facts of all aspects
of the transaction.
"Initial Financial Statements" means (a) the balance sheets of the
Company as at December 31, 1997 and March 31, 1998 and the related reviewed
statements of operations and retained earnings for each of the Company's two
fiscal years in the period ended December 31, 1997, and (b) the Current Balance
Sheet and the related statement of income for the Company's fiscal year ended
December 31, 1997, which the Company has delivered to RW prior to the date
hereof.
"IPO Closing Date" means the date on which RW first receives payment
for the shares of RW Common Stock it sells to the Underwriter in the IPO.
"Merger Consideration" has the meaning specified in Section 2.04.
"Newco" means Fighting Irish-U.S. Railway Supply Company, an Indiana
corporation.
"Responsible Officer" means the President, Chief Executive Officer or
any Vice President of the Company.
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"Retainages" means the portion of progress payments due to a Company
for contracting projects that is withheld by a customer of such Company until
completion of a project, pursuant to the terms of a contract with such customer,
as security for the completion of the project.
"RW" means RailWorks Corporation, a Delaware corporation.
"Scheduled Related Party Agreements" means the agreements described in
Schedule 4.11.
"Surviving Corporation" means the Person to be designated in the
Certificate of Merger as the surviving corporation of the Merger.
"Threshold Amount" means 2.0% of the Merger Consideration.
"Transaction Value" means the (i)(A) the total number of shares of RW
outstanding immediately upon the closing of the IPO and the transactions
contemplated by this Agreement and the Other Agreements multiplied by (B) the
IPO Price multiplied by (C) 92% minus (ii) actual expenses of RW incurred with
respect to the IPO, an estimate of which will be set forth in Item 13 of Part II
of the Registration Statement minus (iii) the underwriting discounts and
commissions paid to the Underwriter pursuant to the IPO minus (iv) the proceeds
received by RW in connection with any shares of RW Common Stock sold by RW to
finance the working capital needs of RW, which shares shall not exceed 5% of the
number of shares to be sold in the IPO.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions of RW for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. Certificate of Merger. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the Delivery Date to the Department
of State of the State of Indiana.
Section 2.02. The Effective Time. The effective time of the Merger (the
"Effective Time") will be the time on the IPO Closing Date as specified in the
Certificate of Merger or, if the Certificate of Merger does not specify another
time, 8:00 a.m., eastern daylight standard time, on the IPO Closing Date.
Section 2.03. Certain Effects of the Merger. At and as of the Effective
Time, (a) Newco will be merged with and into the Company in accordance with the
provisions of the Indiana Business Corporation Law, (b) Newco will cease to
exist as a separate legal entity, (c) the articles of
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incorporation of the Company will be amended to change its authorized capital
stock to 100 shares, par value $0.01 per share, of Common Stock, (d) the Company
will be the Surviving Corporation and, as such, will, all with the effect
provided by the Indiana Business Corporation Law, (i) possess all the properties
and rights, and be subject to all the restrictions and duties, of the Company
and Newco and (ii) be governed by the laws of the State of Indiana, (e) the
Charter Documents of the Company then in effect (after giving effect to the
amendment of the Company's articles of incorporation specified in clause (c) of
this sentence) will become and thereafter remain (until changed in accordance
with (i) applicable law (in the case of the articles of incorporation) or (ii)
their terms (in the case of the bylaws)) the Charter Documents of the Surviving
Corporation, (f) the initial board of directors of the Surviving Corporation
will be the Chief Executive Officer of RW and the other persons named in
Schedule 2.03, and those persons will hold the office of director of the
Surviving Corporation subject to the provisions of the applicable laws of the
State of Indiana and the Charter Documents of the Surviving Corporation, and (g)
the initial officers of the Surviving Corporation will be as set forth in
Schedule 2.03, and each of those persons will serve in each office specified for
that person in Schedule 2.03, subject to the provisions of the Charter Documents
of the Surviving Corporation, until that person's successor is duly elected to,
and, if necessary, qualified for, that office.
Section 2.04. Effect of the Merger on Capital Stock. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the right to
receive, subject to the provisions of Section 2.05 and Exhibit D, without
interest, on surrender of the certificate evidencing those shares, the amount of
cash and the number of whole and fractional shares of RW Common Stock set forth
or determined as provided in Exhibit D (the "Merger Consideration"), (ii) cease
to be outstanding and to exist and (iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to exist
and (ii) be canceled and retired; and
(c) each share of Newco Common Stock issued and outstanding immediately
prior to the Effective Time will be converted into one share of Common Stock, no
par value, of the Surviving Corporation, and the shares of Common Stock of the
Surviving Corporation issued on that conversion will constitute all the issued
and outstanding shares of Capital Stock of the Surviving Corporation. Each
holder of a certificate representing shares of Company Common Stock immediately
prior to the Effective Time will, as of the Effective Time and thereafter, cease
to have any rights respecting those shares other than the right to receive,
subject to the provisions of Section 2.05, without interest, the Merger
Consideration and the additional cash, if any, owing with respect to those
shares as provided in Section 2.07.
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Section 2.05. Delivery, Exchange and Payment.
(a) At or after the Effective Time: (i) each Stockholder, as the holder
of certificates representing shares of Company Common Stock, will, on surrender
of those certificates to RW (or any agent that may be appointed by RW for
purposes of this Section 2.05), receive, subject to the provisions of this
Article II and the Escrow Agreement, such Stockholder's share of the Merger
Consideration pursuant to Section 2.04 and Exhibit D; and (ii) until any
certificate representing Company Common Stock has been surrendered and replaced
pursuant to this Section 2.05, that certificate will, for all purposes, be
deemed to evidence ownership of the number of whole shares of RW Common Stock
included in the Merger Consideration payable in respect of that certificate
pursuant to Section 2.04. The Escrow Agreement will provide that the shares of
RW Common Stock issued to the Stockholders as a part of the Merger Consideration
together with duly executed stock powers in blank, shall be placed in escrow to
be held subject to the terms of the Escrow Agreement and further subject to
Exhibit D and Section 11.02. The escrow shall consist solely of shares of RW
Common Stock that shall be issued at the Effective Time to the Stockholders of
the Founding Companies and delivered, at the Closing, to the Escrow Agent. All
shares of RW Common Stock issuable in the Merger will be deemed for all purposes
to have been issued by RW at the Effective Time.
(b) Each Stockholder will deliver to RW (or any agent that may be
appointed by RW for purposes of this Section 2.05) on or before the Delivery
Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Stockholder, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Stockholder's expense, affixed and canceled.
Each Stockholder shall cure any deficiencies in the endorsement of the
certificates or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Stockholder.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to RW Common Stock and payable to
the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of RW Common Stock have been issued in the Merger until
those certificates are surrendered as provided herein, but (i) on that surrender
RW will cause to be paid, to the Person in whose name the certificates
representing such shares of RW Common Stock shall then be issued, the amount of
dividends or other distributions previously paid with respect to such whole
shares of RW Common Stock with a record date, or which have accrued, subsequent
to the Effective Time, but prior to surrender, and the amount of any cash
payable to such Person for and in lieu of fractional shares pursuant to Section
2.07 and (ii) at the appropriate payment date or as soon as practicable
thereafter, RW will cause to be paid to that Person the amount of dividends or
other distributions with a record date, or which have been accrued, subsequent
to the Effective Time, but which are not payable until a date subsequent to
surrender, which are payable with respect to such whole shares of RW Common
Stock, subject in all cases to any applicable
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escheat laws. No interest will be payable with respect to the payment of such
dividends or other distributions or cash for and in lieu of fractional shares on
surrender of outstanding certificates.
(d) Each Stockholder hereby authorizes and directs RW to deliver 3.5%
of the Cash Company Consideration and 3.5% of the Stock Company Consideration
owed to such Stockholder pursuant to this Agreement (before deposit of the
shares of RW Common Stock into escrow) to IPO Development Company in payment of
fees owed to IPO Development Company by such Stockholder.
Section 2.06. Merger Consideration Calculation.
(a) No later than fifteen (15) days following the IPO Closing Date, the
Company shall provide to the Chief Accounting Officer of RW (the "CAO") a
determination of the fair market value (as defined) of its inventory, machinery,
equipment and real estate (the "Valued Assets") as of the IPO Closing Date.
Within seven (7) days of such date, the CAO shall distribute to every Founding
Company the value of the Valued Assets of every Founding Company. The Company
shall have seven (7) days from the date of the distribution of such valuation to
dispute the value of the Valued Assets of any Founding Company by providing
written notice of such dispute to the CAO. If the CAO is unable to resolve any
such dispute, the dispute shall be resolved by binding arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
which arbitration shall be resolved no later than thirty (30) days from
selection of the arbitrator. The arbitrator shall be selected by the CAO.
(b) Arthur Andersen or, if not Arthur Andersen, the Company's
accountant, shall cause to be prepared and delivered to RW and the Company a
calculation as of the IPO Closing Date of the Defined Net Worth of the Company
(the "Balance Sheet Calculation"). The Balance Sheet Calculation shall be final
and binding on the Company and the Other Founding Companies absent fraud,
manifest error or gross negligence.
(c) The Balance Sheet Calculation shall include a report of Arthur
Andersen or, if not Arthur Andersen, the Company's accountant, stating that it
has been prepared in a manner consistent with the accounting policies and
procedures used in preparation of the balance sheets in the Initial Financial
Statements, except as provided in the definition of "Defined Net Worth"
contained herein. The Stockholders shall give Arthur Andersen and other
appropriate personnel such assistance and access to the assets and books and
records of the Company as Arthur Andersen shall reasonably request during normal
business hours in order to enable them to prepare the Balance Sheet Calculation.
The Surviving Corporation shall be responsible for the fees and expenses of
Arthur Andersen or, if not Arthur Andersen the Company's accountant.
Section 2.07. Fractional Shares. Notwithstanding any other provision
herein, no fractional shares of RW Common Stock will be issued. All shares of RW
Common Stock shall be aggregated, and any Stockholder entitled hereunder, after
such aggregation, to receive a fractional share of RW Common Stock but for this
Section 2.07 will be entitled hereunder to receive a cash payment for and
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in lieu thereof in the amount (rounded to the nearest whole cent) equal to that
Stockholder's fractional interest in a share of RW Common Stock multiplied by
the IPO Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01. By Each Stockholder. The Stockholders severally represent
and warrant to, and agree with, RW that all the following representations and
warranties in this Article III are as of the date of this Agreement, and will
be, as amended or supplemented pursuant to Section 6.08, on the IPO Closing
Date, true and correct:
(a) (i) each Stockholder will acquire the shares of RW Common Stock to
be issued pursuant to Article II to the Stockholder solely for the Stockholder's
account, for investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection with
any distribution;
(ii) no Stockholder is a party to any agreement or other
arrangement for the disposition of any shares of RW Common Stock other
than this Agreement; (iii) except as set forth on Schedule 3.01(a)(ii)
each Stockholder is an "accredited investor" as defined in Rule 501(a)
promulgated under the Securities Act; (iv) each Stockholder (A) is able
to bear the economic risk of an investment in the RW Common Stock
acquired pursuant to this Agreement, (B) can afford to sustain a total
loss of that investment, (C) has such knowledge and experience in
financial and business matters that he or she is capable of evaluating
the merits and risks of the proposed investment in the RW Common Stock,
(D) has had an adequate opportunity to ask questions and receive
answers from the officers of RW concerning any and all matters relating
to the transactions contemplated hereby, including the background and
experience of the current and proposed officers and directors of RW,
the plans for the operations of the business of RW, the business,
operations and financial condition of the Other Founding Companies and
any plans of RW for additional acquisitions, and (E) has asked all
questions of the nature described in preceding clause (D) that such
Stockholder thought to ask, and all those questions have been answered
to his or her satisfaction;
(b) the representations and warranties contained in Article III of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to; and
(c) (i) the terms and conditions of any agreements between any
Stockholder or an Affiliate of any Stockholder, on the one hand, and the Company
on the other hand, included in the Scheduled Related Party Agreements will have
been amended effective as of the IPO Closing Date to be no less favorable to the
Company than the Company reasonably could have expected to obtain in an
arms-length transaction with a Person other than an Affiliate of the Company and
(ii) the
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rentals or other payments provided for in such agreements then will not exceed
fair market rentals of the property being leased or fair market value of the sum
or product being provided and such amounts shall have been previously approved
in writing by the Chief Financial Officer of RW.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS
Section 4.01. By the Company and Each Primary Stockholder. The Company
and each Primary Stockholder jointly and severally represent and warrant to, and
agree with, RW that all the following representations and warranties in this
Article IV are as of the date of this Agreement, and will be, as amended or
supplemented pursuant to Section 6.08, on the Delivery Date and the IPO Closing
Date, true and correct:
(a) the Organization State of the Company is the State of Indiana, and
the Company (i) is a corporation duly organized, validly existing and in good
standing under the laws of that State, (ii) has all requisite corporate power
and authority under those laws and its Charter Documents to own or lease and to
operate its properties and to carry on its business as now conducted and (iii)
is duly qualified and in good standing as a foreign corporation in all
jurisdictions (other than the State of Indiana) in which it owns or leases
property or in which the carrying on of its business as now conducted so
requires except where the failure to be so qualified, singly or in the
aggregate, would not have a Material Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is comprised of
1,000 shares of Company Common Stock, of which 300 shares have been issued and
are now outstanding and no shares are held by the Company as treasury shares,
and (ii) there are no Derivative Securities of the Company;
(c) the Company has elected to be treated as an S corporation within
the meaning of the Code, as amended; and
(d) the representations and warranties contained in Article IV of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO
Section 5.01. By RW and Newco. RW and Newco jointly and severally
represent and warrant to the Company and each Stockholder that all the following
representations and warranties
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in this Article V are as of the date of this Agreement, and will be on the IPO
Closing Date, true and correct:
(a) Newco is a corporation duly organized, validly existing and in good
standing under the laws of the State of Indiana;
(b) except as disclosed in the Private Placement Memorandum, no
Derivative Securities of Newco are outstanding;
(c) Newco has been organized for the sole purpose of participating in
the Merger and has not, and will not, engage in any activities other than those
necessary to effectuate the Merger;
(d) except for shares of RW Common Stock to be publicly sold in the IPO
and as disclosed in the Private Placement Memorandum or preliminary prospectus,
neither RW nor Newco is a party to any agreement or other arrangement for the
disposition of any shares of RW Common Stock; and
(e) the representations and warranties contained in Article V of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01. Of Each Party. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01. The Closing and Certain Conditions.
(a) The Closing. On or before the IPO Pricing Date, the parties hereto
will take all actions necessary to (i) effect the Merger (including, as
permitted by the Applicable Corporate Code, (A) the execution of a Certificate
of Merger (1) meeting the requirements of the Applicable Corporate Code and (2)
providing that the Merger will become effective on the IPO Closing Date and (B)
the delivery of that Certificate of Merger with a filing service that will file
such Certificate of Merger with the Department of State of the State of Indiana)
upon notification of the closing of the IPO (provided that Comstock's
Certificate of Merger shall be filed immediately prior to the closing of the
IPO), (ii) verify the existence and ownership of the certificates evidencing the
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Company Common Stock to be exchanged for the Merger Consideration pursuant to
Section 2.05 and (iii) satisfy the document delivery requirements to which the
obligations of the parties to effect the Merger and the other transactions
contemplated hereby are conditioned by the provisions of this Article VII (all
those actions collectively being the "Delivery"). The Delivery will take place
at the offices of King & Spalding, 191 Peachtree Street, Atlanta, Georgia at
10:00 a.m., Atlanta time on the IPO Pricing Date, or at such later time on the
IPO Pricing Date as RW shall specify by written notice to the President of the
Company (the "Delivery Date"). The actions taken at the Delivery will not
include the completion of either the Merger or the delivery of the Company
Common Stock or the Merger Consideration pursuant to Section 2.05. On the IPO
Closing Date, the Certificate of Merger will be filed and will become effective
pursuant to Section 2.02, and all transactions contemplated by this Agreement to
be closed or completed on or before the IPO Closing Date, including the
surrender of the Company Common Stock in exchange for the Merger Consideration
(including a certified check or checks in an amount equal to the cash portion of
the Merger Consideration) will be closed or completed, as the case may be.
During the period from the Delivery Date to the IPO Closing Date, this Agreement
may be terminated by the parties only pursuant to Section 12.01(b)(i).
(b) Certain Conditions to the Obligations of the Company and the
Stockholders. The obligations of the Company and the Stockholders with respect
to the actions to be taken by them at or before the Delivery Date are subject to
the satisfaction on or before the Delivery Date, or waiver by them pursuant to
Section 11.05, of all the conditions set forth in Sections 7.01 and 7.02(a). The
obligations of the Stockholders with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of the following
conditions: (if required by such Stockholder) (i) the Employment Agreement then
shall be in full force and effect; and (ii) all the conditions set forth in
Sections 7.01 and 7.02(b).
(c) Certain Conditions to the Obligations of RW and Newco. The
obligations of RW and Newco with respect to actions to be taken by them at or
before the Delivery Date are subject to the satisfaction on or before the date
of the Delivery Date, or waiver by them pursuant to Section 11.05, of the
following conditions: (i) the Company shall have delivered to RW a copy of the
articles of incorporation, as amended to the Delivery Date and certified by the
Secretary of State of the State of Indiana as of a Current Date, of the Company;
and (ii) all the conditions set forth in Sections 7.01 and 7.03(a). The
obligations of RW and Newco with respect to the actions to be taken on the IPO
Closing Date are subject to the satisfaction on that date of the following
conditions: (i) the Employment Agreements then shall be in full force and
effect; and (ii) all the conditions set forth in Sections 7.01 and 7.03(b).
(d) Uniform Provisions. The text of Article VII of the Uniform
Provisions hereby is incorporated herein by this reference.
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ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01. Of Each Party Other than the Company. From and after the
Effective Time, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Company) will comply with each covenant for which
provision is made in Article VIII of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) to be performed or
observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01. Indemnification Rights and Obligations. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. Any provision contained in Article IX of the Uniform Provisions to
the contrary notwithstanding, the indemnification obligations of the
Stockholders pursuant to this Agreement shall be joint and several.
ARTICLE X
[Intentionally Ommitted]
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. Treatment of Confidential Information. Each party hereto
will comply with each covenant for which provision is made in Section 11.01 of
the Uniform Provisions (the text of which Section hereby is incorporated herein
by this reference) to be performed or observed by that party.
Section 11.02. Restrictions on Transfer of RW Common Stock.
(a) Except for transfers to employees of the Company that are approved
in writing by the Board of Directors of RW (or a committee designated by the
Board of Directors of RW) prior to such transfer, during the one year period
ending on the first anniversary of the IPO Closing Date (the "Restricted
Period"), no Stockholder voluntarily will: (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
RW Common Stock received by any Stockholder in the Merger or (B) any interest in
(including any option to buy or sell) any of those shares of RW Common Stock, in
whole or in part, and RW will have no obligation to, and shall not, treat any
such attempted transfer as effective for any purpose; or (ii) engage in any
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transaction, whether or not with respect to any shares of RW Common Stock or any
interest therein, the intent or effect of which is to reduce the risk of owning
the shares of RW Common Stock acquired pursuant to Section 2.04 (including, for
example engaging in put, call, short-sale, straddle or similar market
transactions); provided, however, that this Section 11.02 shall not restrict any
transfer of RW Common Stock acquired by a Stockholder pursuant to Section 2.04
to any of that Stockholder's Related Persons who agree in writing to be bound by
the provisions of Section 11.01 and this Section 11.02. The certificates
evidencing the RW Common Stock delivered to each Stockholder pursuant to Section
2.05 will bear a legend substantially in the form set forth below and containing
such other information as RW may deem necessary or appropriate:
"EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER
PARTIES THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE
REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF
ANY OF THOSE SHARES, DURING THE ONE-YEAR PERIOD ENDING ON __________ [DATE THAT
IS THE FIRST ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED PERIOD"). ON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE."
(b) From the first anniversary of the IPO Closing Date to the fourth
anniversary of the IPO Closing Date, the Stockholders agree to sell shares of RW
Common Stock acquired pursuant to this Agreement only in accordance with the
procedures set forth in this Section 11.02(b). Every quarter during such period,
every Stockholder will be permitted to sell, in the aggregate, up to 8% of the
aggregate number of shares of Common Stock received by such Stockholder pursuant
to this Agreement (the "Quarterly Block Trade Shares") in either a block trade
or a registered public offering, at the option of RW. If a Stockholder does not
sell all of his or her Quarterly Block Trade Shares in any given quarter, such
Stockholder may sell such Quarterly Block Trade Shares pursuant to this Section
11.02(b) in any later quarter, provided, however, that in no event may a
Stockholder sell more than 20% of the shares of Common Stock received by such
Stockholder pursuant to this Agreement in any one quarter. Any Stockholder that
wishes to sell shares of RW Common Stock pursuant to such selling opportunity
must give notice to RW and the Executive Council no later than fourteen days
prior to the commencement of the fiscal quarter of RW during which such
Stockholder wants to sell such shares. Notwithstanding anything set forth in
this Section 11.02(b), RW may elect to make available to the Stockholders (i)
additional opportunities to sell shares of RW Common Stock and/or (ii) the
opportunity to sell an amount in excess of such amount during any particular
quarter. The Company may modify or waive this Section 11.02(b) at its sole
discretion at any time following written notice to the Stockholders, provided
that no such modification or waiver may
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reduce the number of selling opportunities or the maximum number of shares of RW
Common Stock that may be sold by any Stockholder during any selling opportunity.
(c) Each Stockholder, severally and not jointly with any other Person,
(i) acknowledges that the shares of RW Common Stock to be delivered to that
Stockholder pursuant to Section 2.04 have not been and will not be registered
under the Securities Act and therefore may not be resold by that Stockholder
without compliance with the Securities Act and (ii) covenants that none of the
shares of RW Common Stock issued to that Stockholder pursuant to Section 2.04
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable provisions of
the Securities Act and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of RW Common
Stock issued pursuant to Section 2.04 will bear the following legend in addition
to the legend prescribed by Section 11.02(a):
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, HAVE
BEEN ISSUED PURSUANT TO ONE OR MORE EXEMPTIONS THERETO, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED OR DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED."
In addition, certificates evidencing shares of RW Common Stock issued pursuant
to Section 2.04 to each Stockholder will bear any legend required by the
securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03. Brokers and Agents. Except for IPO Development Company,
each of the Stockholders jointly and severally, on the one hand, and RW, on the
other, represents and warrants to the other that such Person has not directly or
indirectly employed or become obligated to pay any broker, finder or similar
agent in connection with the transactions contemplated hereby and agree, without
regard to the Threshold Amount limitations set forth in Article IX, to indemnify
the other against all Damage Claims arising out of claims for any and all fees
and commissions of brokers or similar agents employed or promised payment by
such Person.
Section 11.04. Assignment; No Third Party Beneficiaries. This Agreement
and the rights of the parties hereunder may not be assigned (except by operation
of law) and shall be binding on and inure to the benefit of the parties hereto,
the successors of RW, and the heirs and legal representatives of the
Stockholders (and, in the case of any trust, the successor trustees of that
trust). Neither this Agreement nor any other Transaction Document is intended,
or shall be construed, deemed or interpreted, to confer on any Person not a
party hereto or thereto any rights or remedies hereunder or thereunder, except
as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise provided
expressly herein or therein.
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<PAGE> 18
Section 11.05. Entire Agreement; Amendment; Waivers. Except with
respect to Section 11.07 hereof, this Agreement and the documents delivered
pursuant hereto constitute the entire agreement and understanding among the
Stockholders, the Company, Newco and RW and supersede all prior agreements and
understandings, both written and oral, relating to the subject matter of this
Agreement. This Agreement may be amended, modified or supplemented, and any
right hereunder may be waived, if, but only if, that amendment, modification,
supplement or waiver is in writing and signed by each of the Stockholders, the
Company and RW. The waiver of any of the terms and conditions hereof shall not
be construed or interpreted as, or deemed to be, a waiver of any other term or
condition hereof.
Section 11.06. Counterparts. This Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
Section 11.07. Expenses. If the transactions contemplated hereby (i)
are consummated, RW will pay the fees, expenses and disbursements of RW and
Newco and their Representatives which are incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all costs
and expenses incurred in the performance of and compliance with all conditions
to be performed by RW and Newco under this Agreement, including the costs of
preparing the Registration Statement, (collectively, the "RW Expenses") and (ii)
if the transactions contemplated hereby are not consummated, the RW Expenses
shall be paid by the Founding Companies subject to the provisions of the IPO
Cost Liability Sharing Agreement attached hereto as Exhibit C and incorporated
herein by reference (b) the Stockholders will pay from personal funds, and not
from funds of the Company or any Company Subsidiary, all sales, use, transfer
and other similar taxes and fees (collectively, "Transfer Taxes") incurred in
connection with the transactions contemplated hereby and (c) the Company will
pay the fees, expenses and disbursements of Counsel for the Company and the
Stockholders incurred in connection with the subject matter of this Agreement
and the Registration Statement on or before the IPO Closing Date. The
Stockholders will file all necessary documentation and Returns with respect to
all Transfer Taxes. In addition, each Stockholder acknowledges that he, and not
the Company or RW or the Surviving Corporation, will pay all Taxes due upon
receipt of the consideration payable to that Stockholder pursuant to Article II.
Section 11.08. Notices. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received
(a) if personally delivered or if delivered by telex, telegram,
facsimile or courier service, when actually received by the party to whom notice
is sent or
(b) if delivered by mail (whether actually received or not), at the
close of business on the third Business Day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
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<PAGE> 19
(i) if to RW or Newco, addressed to it at:
RailWorks Corporation
403 Somerset Road
Baltimore, Maryland 21210
Attn: Chief Executive Officer
with copies (which shall not constitute notice for purposes
of this Agreement) to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attn: Jeffrey M. Stein
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
U.S. Railway Supply, Inc.
P.O. Box 128
Troy, Illinois 62294
Attn: Ronald E. Brown
with copies (which shall not constitute notice for purposes
of this Agreement) to Counsel for the Company and the
Stockholders at the address designated by the Company
Section 11.09. Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF DELAWARE
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10. Exercise of Rights and Remedies. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11. Time. Time is of the essence in the performance of this
Agreement in all respects.
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<PAGE> 20
Section 11.12. Reformation and Severability. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13. Remedies Cumulative. No right, remedy or election given
by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14. Respecting the IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither RW or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that RW will use its reasonable best efforts to
cause the Registration Statement to become effective prior to August 14, 1998)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to RW or the
IPO.
ARTICLE XII
TERMINATION
Section 12.01. Termination of this Agreement.
(a) This Agreement may be terminated at any time prior to the Delivery
Date solely:
(i) by the mutual written consent of RW and the Company;
(ii) by the Stockholders or the Company, on the one hand, or by RW,
on the other hand, if the events contemplated by this Agreement to take
place at the Delivery Date shall not have taken place by September 4,
1998, unless the failure of such transactions to be consummated results
from the willful failure of the party (or in the case of the
Stockholders and the Company, any of them) seeking to terminate this
Agreement to perform or adhere to any agreement required hereby to be
performed or adhered to by it prior to or at the Delivery Date or
thereafter on the IPO Closing Date;
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<PAGE> 21
(iii) by the Stockholders or the Company, on the one hand, or by
RW, on the other hand, if a material breach or default shall be made by
the other party (or in the case of the Stockholders and the Company,
any of them) in the observance or in the due and timely performance of
any of the covenants, agreements or conditions contained in Article VI
or Section 11.01;
(iv) by the Stockholders or the Company, on the one hand, or RW,
on the other, if it is entitled to do so as provided in Section 6.08;
(v) by the Stockholders prior to the filing of the Registration
Statement if the Registration Statement is not filed by June 15, 1998;
(vi) by RW or the Stockholders prior to 9:00 a.m. on the IPO
Pricing Date (as set forth in Section 8.10) if the value of RW at the
IPO Pricing Date (as calculated by multiplying the price per share at
which the RW common stock is to be sold in the IPO by the number of
shares of common stock to be outstanding after the Closing of the IPO)
shall be less than $215 million;
(vii) by the Stockholders if the Registration Statement has not
been declared effective by the Securities and Exchange Commission by
August 14, 1998;
(viii) by the Stockholders if John G. Larkin is no longer serving
as Chairman of the Board of Directors and Chief Executive Officer prior
to the Closing; or
(ix) by the stockholders of CPI Concrete Products, Inc. if its
Employee Stock Ownership Plan does not approve the merger prior to the
Delivery Date.
(b) This Agreement may be terminated after the Delivery Date solely:
(i) by RW or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the IPO Pricing Date and prior
to the consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City business
days after the Delivery Date.
(c) If this Agreement is terminated pursuant to this Section 12.01, the
Merger will be deemed for all purposes to have been abandoned and of no force or
effect.
Section 12.02. Liabilities in Event of Termination. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Sections
11.03 or 11.07 and (b) to the extent that such liability is based on the breach
by that party of any of its representations, warranties or covenants set forth
in this Agreement.
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<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
RAILWORKS CORPORATION
By:/s/ John G. Larkin
---------------------------------------
John G. Larkin
Chief Executive Officer
FIGHTING IRISH-U.S. RAILWAYS
SUPPLY COMPANY
By:/s/ John G. Larkin
---------------------------------------
John G. Larkin
President
U.S. RAILWAY SUPPLY, INC.
By: /s/ Authorized Signature
---------------------------------------
Name:
Title:
STOCKHOLDERS:
/s/ Julie M. Brown
------------------------------------------
Julie M. Brown
/s/ Ronald E. Brown
------------------------------------------
Ronald E. Brown
/s/ Rebecca S. Lawyer
------------------------------------------
Rebecca S. Lawyer
/s/ Gary A. Smith
------------------------------------------
Gary A. Smith
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<PAGE> 23
ADDENDUM 1
OTHER FOUNDING COMPANIES
A. Words and terms used in this Addendum which are defined
in the captioned Agreement to which this is an Addendum are used herein as
therein defined.
B. The Founding Companies are:
Alpha - Keystone Engineering, Inc.
Annex Railroad Builders, Inc.
Comtrak Construction, Inc.
Comstock Holdings Inc.
Condon Brothers, Inc.
CPI Concrete Products
HP McGinley, Inc.
Kennedy Railroad Builders, Inc.
Merit Railroad Contractors, Inc.
Midwest Construction Services, Inc.
Minnesota Railroad Services, Inc.
Mize Construction Co.
New England Railroad Construction Co., Inc.
Northern Rail Service & Supply Company, Inc.
Railcorp, Inc.
Railroad Service, Inc.
Railroad Specialities, Inc,
Southern Indiana Wood Preserving Co.
U.S. Railway Supply, Inc,
U.S. Trackworks, Inc.
W.A. Smith Construction Co., Inc.
W.A Smith Rerailing Co., Inc.
<PAGE> 1
EXHIBIT 10.21
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 21, 1998
BY AND BETWEEN
RAILWORKS CORPORATION,
SPARTANS TRACKWORKS COMPANY,
U.S. TRACKWORKS, INC.
AND
THE STOCKHOLDERS NAMED HEREIN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS...................................................................................1
Section 1.01. Certain Defined Terms.................................................1
ARTICLE II THE MERGER AND RELATED MATTERS................................................................4
Section 2.01. Certificate of Merger.................................................4
Section 2.02. The Effective Time....................................................4
Section 2.03. Certain Effects of the Merger.........................................4
Section 2.04. Effect of the Merger on Capital Stock.................................5
Section 2.05. Delivery, Exchange and Payment........................................6
Section 2.06. Merger Consideration Calculation......................................7
Section 2.07. Fractional Shares.....................................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
EACH STOCKHOLDER .............................................................................8
Section 3.01. By Each Stockholder...................................................8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS......................................................9
Section 4.01. By the Company and Each Primary Stockholder...........................9
ARTICLE V REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO................................................9
Section 5.01. By RW and Newco.......................................................9
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME ...................................................10
Section 6.01. Of Each Party........................................................10
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION.................................................................................10
Section 7.01. The Closing and Certain Conditions...................................10
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME.......................................................12
Section 8.01. Of Each Party Other than the Company.................................12
ARTICLE IX INDEMNIFICATION..............................................................................12
Section 9.01. Indemnification Rights and Obligations...............................12
ARTICLE X [Intentionally Ommitted].....................................................................12
ARTICLE XI GENERAL PROVISIONS...........................................................................12
Section 11.01. Treatment of Confidential Information................................12
Section 11.02. Restrictions on Transfer of RW Common Stock..........................12
Section 11.03. Brokers and Agents...................................................14
Section 11.04. Assignment; No Third Party Beneficiaries.............................14
Section 11.05. Entire Agreement; Amendment; Waivers.................................15
Section 11.06. Counterparts.........................................................15
Section 11.07. Expenses.............................................................15
Section 11.08. Notices..............................................................15
Section 11.09. Governing Law........................................................16
Section 11.10. Exercise of Rights and Remedies......................................16
Section 11.11. Time.................................................................16
Section 11.12. Reformation and Severability.........................................17
Section 11.13. Remedies Cumulative..................................................17
Section 11.14. Respecting the IPO...................................................17
ARTICLE XII TERMINATION..................................................................................17
Section 12.01. Termination of this Agreement........................................17
Section 12.02. Liabilities in Event of Termination..................................18
</TABLE>
EXHIBITS
Exhibit A - List of Primary Stockholders
Exhibit B - Form of Employment Agreement
Exhibit C - IPO Cost Liability Sharing Agreement
Exhibit D - Merger Consideration
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<PAGE> 4
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as
of May 21, 1998, by and among RailWorks Corporation, a Delaware corporation
("RW"), Spartans Trackworks Company, a Michigan corporation and a wholly owned
subsidiary of RW("Newco"), U.S. Trackworks, Inc., a Michigan corporation (the
"Company"), and the persons listed on the signature pages hereof under the
caption "Stockholders" (collectively, the "Stockholders," and each of those
persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(a) Newco will merge into the Company on the terms and subject to the
conditions set forth herein (that merger being the "Merger");
(b) RW will acquire the stock of all or some of the entities listed in
the accompanying Addendum 1 (each an "Other Founding Company" and, collectively
with the Company, the "Founding Companies") pursuant to agreements that are (i)
similar in all material respects to this Agreement and (ii) entered into among
those entities and their equity owners, RW and subsidiaries of RW (collectively,
the "Other Agreements"); and
(c) RW shall at such time as specified herein and if certain conditions
are met, effect a public offering of shares of its common stock and issue and
sell those shares.
The respective boards of directors of RW, Newco and the Company have
approved and adopted this Agreement to effect a transaction subject to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Certain Defined Terms. As used in this Agreement and in
the related Addendums, Annexes, Schedules and Exhibits, the following terms have
the meanings assigned to them below in this Section 1.01. Capitalized terms used
in this Agreement and not defined below in this Section 1.01 have the meanings
assigned to them in the Preliminary Statement or Article I of the Uniform
Provisions (the text of which Article hereby is incorporated herein by this
reference), as the case may be.
<PAGE> 5
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement and all attached Schedules, Addendums,
Annexes and Exhibits, as each of the same may be amended, modified or
supplemented from time to time pursuant to the provisions hereof or thereof.
"Applicable Corporate Code" means the laws of the Organization State of
the Company that govern corporations incorporated in such state.
"Closing Date Balance Sheet" of the Company means a balance sheet of
the Company as at the IPO Closing Date which is prepared on a basis consistent
with the basis on which the Current Balance Sheet was prepared.
"Closing Memorandum" means the form of closing memorandum to be
prepared by RW for the Closing under this Agreement in which are included the
forms of certificates of officers, the opinions of counsel and certain other
documents to be delivered at the Closing as provided in Article VII.
"Company Accounts Receivable" shall mean the accounts and notes or
other advances receivable of the Company and the Company Subsidiaries, excluding
any Retainages, as of the IPO Closing Date.
"Company Common Stock" means the common stock, par value $10.00 per
share, of the Company.
"Company Indebtedness" means the indebtedness of the Company, as of the
IPO Closing Date (including, with respect to CPI Concrete Products, Inc., the
value of the Cash Company Consideration to be received by its Employee Stock
Ownership Plan), that the Company has elected to repay (or repurchase, as the
case may be) with a portion of the RW Common Stock to be received as part of the
Merger Consideration. At least five days prior to the Delivery Date, the Company
will deliver to RW a schedule of the aggregate principal amount of the Company
Indebtedness, certified by the President of the Company, that will be
outstanding on the IPO Closing Date, and RW will repay such Company Indebtedness
on the IPO Closing Date. To the extent that the actual amount of Company
Indebtedness exceeds the amount shown on such schedule, such excess shall be
repaid by the Stockholders on or prior to the IPO Closing Date.
"Counsel for RW and Newco" means King & Spalding.
"Counsel for the Company and the Stockholders" means such counsel as
shall be designated by the Company in writing on or prior to the Delivery Date.
"Current Balance Sheet" means the balance sheet of the Company as at
March 31, 1998 which is included in the Initial Financial Statements.
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<PAGE> 6
"Current Balance Sheet Date" means December 31, 1997.
"Defined Net Worth" as of the IPO Closing Date shall mean (i) the total
assets of the Company, as set forth on the balance sheet of the Company as of
such date, except that (A) expenses of the Company directly attributable to the
IPO and/or the transactions contemplated by this Agreement, including but not
limited to, costs incurred pursuant to the HSR Act, shall be added back to the
assets of the company and (B) the value of inventory, machinery, equipment and
real estate shall be determined pursuant to Section 2.06(a), less (ii) the total
liabilities of the Company, as set forth on the balance sheet of the Company as
of such date, excluding the Company Indebtedness. Notwithstanding the foregoing,
in the case of Comstock, Comstock's contractual obligation to Spie Group, Inc.,
as successor to Comstock Group, Inc., shall not be deemed to be a liability for
purposes of determining Defined Net Worth.
"Delivery" or "Delivery Date" shall have the meaning set forth in
Section 7.01.
"Earnings Percentage" shall have the meaning set forth in Exhibit D.
"Employment Agreement" means each of the Employment Agreements entered
into as of the Closing Date between RW and each of the Stockholders set forth on
Exhibit A hereto, a form of which is attached hereto as Exhibit B.
"fair market value" means that value at which goods and/or services
would be exchanged between a willing buyer and willing seller in a transaction
entered into at arms length with each party having relevant facts of all aspects
of the transaction.
"Initial Financial Statements" means (a) the balance sheets of the
Company as at December 31, 1997 and March 31, 1998 and the related reviewed
statements of operations and retained earnings for each of the Company's two
fiscal years in the period ended December 31, 1997, and (b) the Current Balance
Sheet and the related statement of income for the Company's fiscal year ended
December 31, 1997, which the Company has delivered to RW prior to the date
hereof.
"IPO Closing Date" means the date on which RW first receives payment
for the shares of RW Common Stock it sells to the Underwriter in the IPO.
"Merger Consideration" has the meaning specified in Section 2.04.
"Newco" means Spartans Trackworks Company, a Michigan corporation.
"Responsible Officer" means the President, Chief Executive Officer or
any Vice President of the Company.
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<PAGE> 7
"Retainages" means the portion of progress payments due to a Company
for contracting projects that is withheld by a customer of such Company until
completion of a project, pursuant to the terms of a contract with such customer,
as security for the completion of the project.
"RW" means RailWorks Corporation, a Delaware corporation.
"Scheduled Related Party Agreements" means the agreements described in
Schedule 4.11.
"Surviving Corporation" means the Person to be designated in the
Certificate of Merger as the surviving corporation of the Merger.
"Threshold Amount" means 2.0% of the Merger Consideration.
"Transaction Value" means the (i)(A) the total number of shares of RW
outstanding immediately upon the closing of the IPO and the transactions
contemplated by this Agreement and the Other Agreements multiplied by (B) the
IPO Price multiplied by (C) 92% minus (ii) actual expenses of RW incurred with
respect to the IPO, an estimate of which will be set forth in Item 13 of Part II
of the Registration Statement minus (iii) the underwriting discounts and
commissions paid to the Underwriter pursuant to the IPO minus (iv) the proceeds
received by RW in connection with any shares of RW Common Stock sold by RW to
finance the working capital needs of RW, which shares shall not exceed 5% of the
number of shares to be sold in the IPO.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions of RW for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. Certificate of Merger. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the Delivery Date to the Department
of State of the State of Michigan.
Section 2.02. The Effective Time. The effective time of the Merger (the
"Effective Time") will be the time on the IPO Closing Date as specified in the
Certificate of Merger or, if the Certificate of Merger does not specify another
time, 8:00 a.m., eastern daylight standard time, on the IPO Closing Date.
Section 2.03. Certain Effects of the Merger. At and as of the Effective
Time, (a) Newco will be merged with and into the Company in accordance with the
provisions of the Michigan Business Corporation Act, (b) Newco will cease to
exist as a separate legal entity, (c) the articles of
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<PAGE> 8
incorporation of the Company will be amended to change its authorized capital
stock to 100 shares, par value $0.01 per share, of Common Stock, (d) the Company
will be the Surviving Corporation and, as such, will, all with the effect
provided by the Michigan Business Corporation Act, (i) possess all the
properties and rights, and be subject to all the restrictions and duties, of the
Company and Newco and (ii) be governed by the laws of the State of Michigan, (e)
the Charter Documents of the Company then in effect (after giving effect to the
amendment of the Company's articles of incorporation specified in clause (c) of
this sentence) will become and thereafter remain (until changed in accordance
with (i) applicable law (in the case of the articles of incorporation) or (ii)
their terms (in the case of the bylaws)) the Charter Documents of the Surviving
Corporation, (f) the initial board of directors of the Surviving Corporation
will be the Chief Executive Officer of RW and the other persons named in
Schedule 2.03, and those persons will hold the office of director of the
Surviving Corporation subject to the provisions of the applicable laws of the
State of Michigan and the Charter Documents of the Surviving Corporation, and
(g) the initial officers of the Surviving Corporation will be as set forth in
Schedule 2.03, and each of those persons will serve in each office specified for
that person in Schedule 2.03, subject to the provisions of the Charter Documents
of the Surviving Corporation, until that person's successor is duly elected to,
and, if necessary, qualified for, that office.
Section 2.04. Effect of the Merger on Capital Stock. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the right to
receive, subject to the provisions of Section 2.05 and Exhibit D, without
interest, on surrender of the certificate evidencing those shares, the amount of
cash and the number of whole and fractional shares of RW Common Stock set forth
or determined as provided in Exhibit D (the "Merger Consideration"), (ii) cease
to be outstanding and to exist and (iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to exist
and (ii) be canceled and retired; and
(c) each share of Newco Common Stock issued and outstanding immediately
prior to the Effective Time will be converted into one share of Common Stock,
$10.00 par value, of the Surviving Corporation, and the shares of Common Stock
of the Surviving Corporation issued on that conversion will constitute all the
issued and outstanding shares of Capital Stock of the Surviving Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, subject to the provisions of Section 2.05, without interest,
the Merger Consideration and the additional cash, if any, owing with respect to
those shares as provided in Section 2.07.
-5-
<PAGE> 9
Section 2.05. Delivery, Exchange and Payment.
(a) At or after the Effective Time: (i) each Stockholder, as the holder
of certificates representing shares of Company Common Stock, will, on surrender
of those certificates to RW (or any agent that may be appointed by RW for
purposes of this Section 2.05), receive, subject to the provisions of this
Article II and the Escrow Agreement, such Stockholder's share of the Merger
Consideration pursuant to Section 2.04 and Exhibit D; and (ii) until any
certificate representing Company Common Stock has been surrendered and replaced
pursuant to this Section 2.05, that certificate will, for all purposes, be
deemed to evidence ownership of the number of whole shares of RW Common Stock
included in the Merger Consideration payable in respect of that certificate
pursuant to Section 2.04. The Escrow Agreement will provide that the shares of
RW Common Stock issued to the Stockholders as a part of the Merger Consideration
together with duly executed stock powers in blank, shall be placed in escrow to
be held subject to the terms of the Escrow Agreement and further subject to
Exhibit D and Section 11.02. The escrow shall consist solely of shares of RW
Common Stock that shall be issued at the Effective Time to the Stockholders of
the Founding Companies and delivered, at the Closing, to the Escrow Agent. All
shares of RW Common Stock issuable in the Merger will be deemed for all purposes
to have been issued by RW at the Effective Time.
(b) Each Stockholder will deliver to RW (or any agent that may be
appointed by RW for purposes of this Section 2.05) on or before the Delivery
Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Stockholder, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Stockholder's expense, affixed and canceled.
Each Stockholder shall cure any deficiencies in the endorsement of the
certificates or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Stockholder.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to RW Common Stock and payable to
the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of RW Common Stock have been issued in the Merger until
those certificates are surrendered as provided herein, but (i) on that surrender
RW will cause to be paid, to the Person in whose name the certificates
representing such shares of RW Common Stock shall then be issued, the amount of
dividends or other distributions previously paid with respect to such whole
shares of RW Common Stock with a record date, or which have accrued, subsequent
to the Effective Time, but prior to surrender, and the amount of any cash
payable to such Person for and in lieu of fractional shares pursuant to Section
2.07 and (ii) at the appropriate payment date or as soon as practicable
thereafter, RW will cause to be paid to that Person the amount of dividends or
other distributions with a record date, or which have been accrued, subsequent
to the Effective Time, but which are not payable until a date subsequent to
surrender, which are payable with respect to such whole shares of RW Common
Stock, subject in all cases to any applicable
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escheat laws. No interest will be payable with respect to the payment of such
dividends or other distributions or cash for and in lieu of fractional shares on
surrender of outstanding certificates.
(d) Each Stockholder hereby authorizes and directs RW to deliver 3.5%
of the Cash Company Consideration and 3.5% of the Stock Company Consideration
owed to such Stockholder pursuant to this Agreement (before deposit of the
shares of RW Common Stock into escrow) to IPO Development Company in payment of
fees owed to IPO Development Company by such Stockholder.
Section 2.06. Merger Consideration Calculation.
(a) No later than fifteen (15) days following the IPO Closing Date, the
Company shall provide to the Chief Accounting Officer of RW (the "CAO") a
determination of the fair market value (as defined) of its inventory, machinery,
equipment and real estate (the "Valued Assets") as of the IPO Closing Date.
Within seven (7) days of such date, the CAO shall distribute to every Founding
Company the value of the Valued Assets of every Founding Company. The Company
shall have seven (7) days from the date of the distribution of such valuation to
dispute the value of the Valued Assets of any Founding Company by providing
written notice of such dispute to the CAO. If the CAO is unable to resolve any
such dispute, the dispute shall be resolved by binding arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
which arbitration shall be resolved no later than thirty (30) days from
selection of the arbitrator. The arbitrator shall be selected by the CAO.
(b) Arthur Andersen or, if not Arthur Andersen, the Company's
accountant, shall cause to be prepared and delivered to RW and the Company a
calculation as of the IPO Closing Date of the Defined Net Worth of the Company
(the "Balance Sheet Calculation"). The Balance Sheet Calculation shall be final
and binding on the Company and the Other Founding Companies absent fraud,
manifest error or gross negligence.
(c) The Balance Sheet Calculation shall include a report of Arthur
Andersen or, if not Arthur Andersen, the Company's accountant, stating that it
has been prepared in a manner consistent with the accounting policies and
procedures used in preparation of the balance sheets in the Initial Financial
Statements, except as provided in the definition of "Defined Net Worth"
contained herein. The Stockholders shall give Arthur Andersen and other
appropriate personnel such assistance and access to the assets and books and
records of the Company as Arthur Andersen shall reasonably request during normal
business hours in order to enable them to prepare the Balance Sheet Calculation.
The Surviving Corporation shall be responsible for the fees and expenses of
Arthur Andersen or, if not Arthur Andersen the Company's accountant.
Section 2.07. Fractional Shares. Notwithstanding any other provision
herein, no fractional shares of RW Common Stock will be issued. All shares of RW
Common Stock shall be aggregated, and any Stockholder entitled hereunder, after
such aggregation, to receive a fractional share of RW Common Stock but for this
Section 2.07 will be entitled hereunder to receive a cash payment for and
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in lieu thereof in the amount (rounded to the nearest whole cent) equal to that
Stockholder's fractional interest in a share of RW Common Stock multiplied by
the IPO Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01. By Each Stockholder. The Stockholders severally represent
and warrant to, and agree with, RW that all the following representations and
warranties in this Article III are as of the date of this Agreement, and will
be, as amended or supplemented pursuant to Section 6.08, on the IPO Closing
Date, true and correct:
(a) (i) each Stockholder will acquire the shares of RW Common Stock to
be issued pursuant to Article II to the Stockholder solely for the Stockholder's
account, for investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection with
any distribution;
(ii) no Stockholder is a party to any agreement or other
arrangement for the disposition of any shares of RW Common Stock other
than this Agreement; (iii) except as set forth on Schedule 3.01(a)(ii)
each Stockholder is an "accredited investor" as defined in Rule 501(a)
promulgated under the Securities Act; (iv) each Stockholder (A) is able
to bear the economic risk of an investment in the RW Common Stock
acquired pursuant to this Agreement, (B) can afford to sustain a total
loss of that investment, (C) has such knowledge and experience in
financial and business matters that he or she is capable of evaluating
the merits and risks of the proposed investment in the RW Common Stock,
(D) has had an adequate opportunity to ask questions and receive
answers from the officers of RW concerning any and all matters relating
to the transactions contemplated hereby, including the background and
experience of the current and proposed officers and directors of RW,
the plans for the operations of the business of RW, the business,
operations and financial condition of the Other Founding Companies and
any plans of RW for additional acquisitions, and (E) has asked all
questions of the nature described in preceding clause (D) that such
Stockholder thought to ask, and all those questions have been answered
to his or her satisfaction;
(b) the representations and warranties contained in Article III of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to; and
(c) (i) the terms and conditions of any agreements between any
Stockholder or an Affiliate of any Stockholder, on the one hand, and the Company
on the other hand, included in the Scheduled Related Party Agreements will have
been amended effective as of the IPO Closing Date to be no less favorable to the
Company than the Company reasonably could have expected to obtain in an
arms-length transaction with a Person other than an Affiliate of the Company and
(ii) the
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rentals or other payments provided for in such agreements then will not exceed
fair market rentals of the property being leased or fair market value of the sum
or product being provided and such amounts shall have been previously approved
in writing by the Chief Financial Officer of RW.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS
Section 4.01. By the Company and Each Primary Stockholder. The Company
and each Primary Stockholder jointly and severally represent and warrant to, and
agree with, RW that all the following representations and warranties in this
Article IV are as of the date of this Agreement, and will be, as amended or
supplemented pursuant to Section 6.08, on the Delivery Date and the IPO Closing
Date, true and correct:
(a) the Organization State of the Company is the State of Michigan, and
the Company (i) is a corporation duly organized, validly existing and in good
standing under the laws of that State, (ii) has all requisite corporate power
and authority under those laws and its Charter Documents to own or lease and to
operate its properties and to carry on its business as now conducted and (iii)
is duly qualified and in good standing as a foreign corporation in all
jurisdictions (other than the State of Michigan) in which it owns or leases
property or in which the carrying on of its business as now conducted so
requires except where the failure to be so qualified, singly or in the
aggregate, would not have a Material Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is comprised of
45,000 shares of Company Common Stock, of which 26,314 have been issued and are
now outstanding and no shares are held by the Company as treasury shares, and
(ii) there are no Derivative Securities of the Company;
(c) the Company has elected to be treated as an S corporation within
the meaning of the Code, as amended; and
(d) the representations and warranties contained in Article IV of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO
Section 5.01. By RW and Newco. RW and Newco jointly and severally
represent and warrant to the Company and each Stockholder that all the following
representations and warranties
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in this Article V are as of the date of this Agreement, and will be on the IPO
Closing Date, true and correct:
(a) Newco is a corporation duly organized, validly existing and in good
standing under the laws of the State of Michigan;
(b) except as disclosed in the Private Placement Memorandum, no
Derivative Securities of Newco are outstanding;
(c) Newco has been organized for the sole purpose of participating in
the Merger and has not, and will not, engage in any activities other than those
necessary to effectuate the Merger;
(d) except for shares of RW Common Stock to be publicly sold in the IPO
and as disclosed in the Private Placement Memorandum or preliminary prospectus,
neither RW nor Newco is a party to any agreement or other arrangement for the
disposition of any shares of RW Common Stock; and
(e) the representations and warranties contained in Article V of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01. Of Each Party. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01. The Closing and Certain Conditions.
(a) The Closing. On or before the IPO Pricing Date, the parties hereto
will take all actions necessary to (i) effect the Merger (including, as
permitted by the Applicable Corporate Code, (A) the execution of a Certificate
of Merger (1) meeting the requirements of the Applicable Corporate Code and (2)
providing that the Merger will become effective on the IPO Closing Date and (B)
the delivery of that Certificate of Merger with a filing service that will file
such Certificate of Merger with the Department of State of the State of
Michigan) upon notification of the closing of the IPO (provided that Comstock's
Certificate of Merger shall be filed immediately prior to the closing of the
IPO), (ii) verify the existence and ownership of the certificates evidencing the
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Company Common Stock to be exchanged for the Merger Consideration pursuant to
Section 2.05 and (iii) satisfy the document delivery requirements to which the
obligations of the parties to effect the Merger and the other transactions
contemplated hereby are conditioned by the provisions of this Article VII (all
those actions collectively being the "Delivery"). The Delivery will take place
at the offices of King & Spalding, 191 Peachtree Street, Atlanta, Georgia at
10:00 a.m., Atlanta time on the IPO Pricing Date, or at such later time on the
IPO Pricing Date as RW shall specify by written notice to the President of the
Company (the "Delivery Date"). The actions taken at the Delivery will not
include the completion of either the Merger or the delivery of the Company
Common Stock or the Merger Consideration pursuant to Section 2.05. On the IPO
Closing Date, the Certificate of Merger will be filed and will become effective
pursuant to Section 2.02, and all transactions contemplated by this Agreement to
be closed or completed on or before the IPO Closing Date, including the
surrender of the Company Common Stock in exchange for the Merger Consideration
(including a certified check or checks in an amount equal to the cash portion of
the Merger Consideration) will be closed or completed, as the case may be.
During the period from the Delivery Date to the IPO Closing Date, this Agreement
may be terminated by the parties only pursuant to Section 12.01(b)(i).
(b) Certain Conditions to the Obligations of the Company and the
Stockholders. The obligations of the Company and the Stockholders with respect
to the actions to be taken by them at or before the Delivery Date are subject to
the satisfaction on or before the Delivery Date, or waiver by them pursuant to
Section 11.05, of all the conditions set forth in Sections 7.01 and 7.02(a). The
obligations of the Stockholders with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of the following
conditions: (if required by such Stockholder) (i) the Employment Agreement then
shall be in full force and effect; and (ii) all the conditions set forth in
Sections 7.01 and 7.02(b).
(c) Certain Conditions to the Obligations of RW and Newco. The
obligations of RW and Newco with respect to actions to be taken by them at or
before the Delivery Date are subject to the satisfaction on or before the date
of the Delivery Date, or waiver by them pursuant to Section 11.05, of the
following conditions: (i) the Company shall have delivered to RW a copy of the
articles of incorporation, as amended to the Delivery Date and certified by the
Secretary of State of the State of Michigan as of a Current Date, of the
Company; and (ii) all the conditions set forth in Sections 7.01 and 7.03(a). The
obligations of RW and Newco with respect to the actions to be taken on the IPO
Closing Date are subject to the satisfaction on that date of the following
conditions: (i) the Employment Agreements then shall be in full force and
effect; and (ii) all the conditions set forth in Sections 7.01 and 7.03(b).
(d) Uniform Provisions. The text of Article VII of the Uniform
Provisions hereby is incorporated herein by this reference.
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ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01. Of Each Party Other than the Company. From and after the
Effective Time, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Company) will comply with each covenant for which
provision is made in Article VIII of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) to be performed or
observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01. Indemnification Rights and Obligations. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. Any provision contained in Article IX of the Uniform Provisions to
the contrary notwithstanding, the indemnification obligations of the
Stockholders pursuant to this Agreement shall be joint and several.
ARTICLE X
[Intentionally Ommitted]
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. Treatment of Confidential Information. Each party hereto
will comply with each covenant for which provision is made in Section 11.01 of
the Uniform Provisions (the text of which Section hereby is incorporated herein
by this reference) to be performed or observed by that party.
Section 11.02. Restrictions on Transfer of RW Common Stock.
(a) Except for transfers to employees of the Company that are approved
in writing by the Board of Directors of RW (or a committee designated by the
Board of Directors of RW) prior to such transfer, during the one year period
ending on the first anniversary of the IPO Closing Date (the "Restricted
Period"), no Stockholder voluntarily will: (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
RW Common Stock received by any Stockholder in the Merger or (B) any interest in
(including any option to buy or sell) any of those shares of RW Common Stock, in
whole or in part, and RW will have no obligation to, and shall not, treat any
such attempted transfer as effective for any purpose; or (ii) engage in any
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transaction, whether or not with respect to any shares of RW Common Stock or any
interest therein, the intent or effect of which is to reduce the risk of owning
the shares of RW Common Stock acquired pursuant to Section 2.04 (including, for
example engaging in put, call, short-sale, straddle or similar market
transactions); provided, however, that this Section 11.02 shall not restrict any
transfer of RW Common Stock acquired by a Stockholder pursuant to Section 2.04
to any of that Stockholder's Related Persons who agree in writing to be bound by
the provisions of Section 11.01 and this Section 11.02. The certificates
evidencing the RW Common Stock delivered to each Stockholder pursuant to Section
2.05 will bear a legend substantially in the form set forth below and containing
such other information as RW may deem necessary or appropriate:
"EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER
PARTIES THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE
REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF
ANY OF THOSE SHARES, DURING THE ONE-YEAR PERIOD ENDING ON __________ [DATE THAT
IS THE FIRST ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED PERIOD"). ON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE."
(b) From the first anniversary of the IPO Closing Date to the fourth
anniversary of the IPO Closing Date, the Stockholders agree to sell shares of RW
Common Stock acquired pursuant to this Agreement only in accordance with the
procedures set forth in this Section 11.02(b). Every quarter during such period,
every Stockholder will be permitted to sell, in the aggregate, up to 8% of the
aggregate number of shares of Common Stock received by such Stockholder pursuant
to this Agreement (the "Quarterly Block Trade Shares") in either a block trade
or a registered public offering, at the option of RW. If a Stockholder does not
sell all of his or her Quarterly Block Trade Shares in any given quarter, such
Stockholder may sell such Quarterly Block Trade Shares pursuant to this Section
11.02(b) in any later quarter, provided, however, that in no event may a
Stockholder sell more than 20% of the shares of Common Stock received by such
Stockholder pursuant to this Agreement in any one quarter. Any Stockholder that
wishes to sell shares of RW Common Stock pursuant to such selling opportunity
must give notice to RW and the Executive Council no later than fourteen days
prior to the commencement of the fiscal quarter of RW during which such
Stockholder wants to sell such shares. Notwithstanding anything set forth in
this Section 11.02(b), RW may elect to make available to the Stockholders (i)
additional opportunities to sell shares of RW Common Stock and/or (ii) the
opportunity to sell an amount in excess of such amount during any particular
quarter. The Company may modify or waive this Section 11.02(b) at its sole
discretion at any time following written notice to the Stockholders, provided
that no such modification or waiver may
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reduce the number of selling opportunities or the maximum number of shares of RW
Common Stock that may be sold by any Stockholder during any selling opportunity.
(c) Each Stockholder, severally and not jointly with any other Person,
(i) acknowledges that the shares of RW Common Stock to be delivered to that
Stockholder pursuant to Section 2.04 have not been and will not be registered
under the Securities Act and therefore may not be resold by that Stockholder
without compliance with the Securities Act and (ii) covenants that none of the
shares of RW Common Stock issued to that Stockholder pursuant to Section 2.04
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable provisions of
the Securities Act and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of RW Common
Stock issued pursuant to Section 2.04 will bear the following legend in addition
to the legend prescribed by Section 11.02(a):
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, HAVE
BEEN ISSUED PURSUANT TO ONE OR MORE EXEMPTIONS THERETO, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED OR DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED."
In addition, certificates evidencing shares of RW Common Stock issued pursuant
to Section 2.04 to each Stockholder will bear any legend required by the
securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03. Brokers and Agents. Except for IPO Development Company,
each of the Stockholders jointly and severally, on the one hand, and RW, on the
other, represents and warrants to the other that such Person has not directly or
indirectly employed or become obligated to pay any broker, finder or similar
agent in connection with the transactions contemplated hereby and agree, without
regard to the Threshold Amount limitations set forth in Article IX, to indemnify
the other against all Damage Claims arising out of claims for any and all fees
and commissions of brokers or similar agents employed or promised payment by
such Person.
Section 11.04. Assignment; No Third Party Beneficiaries. This Agreement
and the rights of the parties hereunder may not be assigned (except by operation
of law) and shall be binding on and inure to the benefit of the parties hereto,
the successors of RW, and the heirs and legal representatives of the
Stockholders (and, in the case of any trust, the successor trustees of that
trust). Neither this Agreement nor any other Transaction Document is intended,
or shall be construed, deemed or interpreted, to confer on any Person not a
party hereto or thereto any rights or remedies hereunder or thereunder, except
as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise provided
expressly herein or therein.
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Section 11.05. Entire Agreement; Amendment; Waivers. Except with
respect to Section 11.07 hereof, this Agreement and the documents delivered
pursuant hereto constitute the entire agreement and understanding among the
Stockholders, the Company, Newco and RW and supersede all prior agreements and
understandings, both written and oral, relating to the subject matter of this
Agreement. This Agreement may be amended, modified or supplemented, and any
right hereunder may be waived, if, but only if, that amendment, modification,
supplement or waiver is in writing and signed by each of the Stockholders, the
Company and RW. The waiver of any of the terms and conditions hereof shall not
be construed or interpreted as, or deemed to be, a waiver of any other term or
condition hereof.
Section 11.06. Counterparts. This Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
Section 11.07. Expenses. If the transactions contemplated hereby (i)
are consummated, RW will pay the fees, expenses and disbursements of RW and
Newco and their Representatives which are incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all costs
and expenses incurred in the performance of and compliance with all conditions
to be performed by RW and Newco under this Agreement, including the costs of
preparing the Registration Statement, (collectively, the "RW Expenses") and (ii)
if the transactions contemplated hereby are not consummated, the RW Expenses
shall be paid by the Founding Companies subject to the provisions of the IPO
Cost Liability Sharing Agreement attached hereto as Exhibit C and incorporated
herein by reference (b) the Stockholders will pay from personal funds, and not
from funds of the Company or any Company Subsidiary, all sales, use, transfer
and other similar taxes and fees (collectively, "Transfer Taxes") incurred in
connection with the transactions contemplated hereby and (c) the Company will
pay the fees, expenses and disbursements of Counsel for the Company and the
Stockholders incurred in connection with the subject matter of this Agreement
and the Registration Statement on or before the IPO Closing Date. The
Stockholders will file all necessary documentation and Returns with respect to
all Transfer Taxes. In addition, each Stockholder acknowledges that he, and not
the Company or RW or the Surviving Corporation, will pay all Taxes due upon
receipt of the consideration payable to that Stockholder pursuant to Article II.
Section 11.08. Notices. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received
(a) if personally delivered or if delivered by telex, telegram,
facsimile or courier service, when actually received by the party to whom notice
is sent or
(b) if delivered by mail (whether actually received or not), at the
close of business on the third Business Day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
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(i) if to RW or Newco, addressed to it at:
RailWorks Corporation
403 Somerset Road
Baltimore, Maryland 21210
Attn: Chief Executive Officer
with copies (which shall not constitute notice for purposes
of this Agreement) to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attn: Jeffrey M. Stein
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
U.S. Trackworks, Inc.
1165 142nd Avenue
Waylan, Michigan 49348
Attn: Lambertus L. Tameling
with copies (which shall not constitute notice for purposes
of this Agreement) to Counsel for the Company and the
Stockholders at the address designated by the Company
Section 11.09. Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF DELAWARE
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10. Exercise of Rights and Remedies. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11. Time. Time is of the essence in the performance of this
Agreement in all respects.
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Section 11.12. Reformation and Severability. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13. Remedies Cumulative. No right, remedy or election given
by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14. Respecting the IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither RW or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that RW will use its reasonable best efforts to
cause the Registration Statement to become effective prior to August 14, 1998)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to RW or the
IPO.
ARTICLE XII
TERMINATION
Section 12.01. Termination of this Agreement.
(a) This Agreement may be terminated at any time prior to the
Delivery Date solely:
(i) by the mutual written consent of RW and the Company;
(ii) by the Stockholders or the Company, on the one hand, or by RW,
on the other hand, if the events contemplated by this Agreement to take
place at the Delivery Date shall not have taken place by September 4,
1998, unless the failure of such transactions to be consummated results
from the willful failure of the party (or in the case of the
Stockholders and the Company, any of them) seeking to terminate this
Agreement to perform or adhere to any agreement required hereby to be
performed or adhered to by it prior to or at the Delivery Date or
thereafter on the IPO Closing Date;
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<PAGE> 21
(iii) by the Stockholders or the Company, on the one hand, or by
RW, on the other hand, if a material breach or default shall be made by
the other party (or in the case of the Stockholders and the Company,
any of them) in the observance or in the due and timely performance of
any of the covenants, agreements or conditions contained in Article VI
or Section 11.01;
(iv) by the Stockholders or the Company, on the one hand, or RW,
on the other, if it is entitled to do so as provided in Section 6.08;
(v) by the Stockholders prior to the filing of the Registration
Statement if the Registration Statement is not filed by June 15, 1998;
(vi) by RW or the Stockholders prior to 9:00 a.m. on the IPO
Pricing Date (as set forth in Section 8.10) if the value of RW at the
IPO Pricing Date (as calculated by multiplying the price per share at
which the RW common stock is to be sold in the IPO by the number of
shares of common stock to be outstanding after the Closing of the IPO)
shall be less than $215 million;
(vii) by the Stockholders if the Registration Statement has not
been declared effective by the Securities and Exchange Commission by
August 14, 1998;
(viii) by the Stockholders if John G. Larkin is no longer serving
as Chairman of the Board of Directors and Chief Executive Officer prior
to the Closing; or
(ix) by the stockholders of CPI Concrete Products, Inc. if its
Employee Stock Ownership Plan does not approve the merger prior to the
Delivery Date.
(b) This Agreement may be terminated after the Delivery Date solely:
(i) by RW or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the IPO Pricing Date and prior
to the consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City business
days after the Delivery Date.
(c) If this Agreement is terminated pursuant to this Section 12.01, the
Merger will be deemed for all purposes to have been abandoned and of no force or
effect.
Section 12.02. Liabilities in Event of Termination. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Sections
11.03 or 11.07 and (b) to the extent that such liability is based on the breach
by that party of any of its representations, warranties or covenants set forth
in this Agreement.
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<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
RAILWORKS CORPORATION
By:/s/ John G. Larkin
---------------------------------------
John G. Larkin
Chief Executive Officer
SPARTANS TRACKWORKS COMPANY
By:/s/ John G. Larkin
---------------------------------------
John G. Larkin
President
U.S. TRACKWORKS, INC.
By: /s/ Authorized Signature
---------------------------------------
Name:
Title:
STOCKHOLDERS:
/s/ Douglas J. Nagel
------------------------------------------
Douglas J. Nagel
/s/ Arnold D. Morren
------------------------------------------
Arnold D. Morren
/s/ Lambertus L. Tameling
------------------------------------------
Lambertus L. Tameling
/s/ Cynthia L. Morren
------------------------------------------
Cynthia L. Morren
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<PAGE> 23
ADDENDUM 1
OTHER FOUNDING COMPANIES
A. Words and terms used in this Addendum which are defined in
the captioned Agreement to which this is an Addendum are used herein as therein
defined.
B. The Founding Companies are:
Alpha - Keystone Engineering, Inc.
Annex Railroad Builders, Inc.
Comtrak Construction, Inc.
Comstock Holdings Inc.
Condon Brothers, Inc.
CPI Concrete Products
HP McGinley, Inc.
Kennedy Railroad Builders, Inc.
Merit Railroad Contractors, Inc.
Midwest Construction Services, Inc.
Minnesota Railroad Services, Inc.
Mize Construction Co.
New England Railroad Construction Co., Inc.
Northern Rail Service & Supply Company, Inc.
Railcorp, Inc.
Railroad Service, Inc.
Railroad Specialities, Inc,
Southern Indiana Wood Preserving Co.
U.S. Railway Supply, Inc,
U.S. Trackworks, Inc.
W.A. Smith Construction Co., Inc.
W.A Smith Rerailing Co., Inc.
<PAGE> 1
EXHIBIT 10.22
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 21, 1998
BY AND BETWEEN
RAILWORKS CORPORATION,
MUSTANG SMITH CONSTRUCTION COMPANY,
WM. A. SMITH CONSTRUCTION CO., INC.
AND
THE STOCKHOLDERS NAMED HEREIN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS...................................................................................1
Section 1.01. Certain Defined Terms.................................................1
ARTICLE II THE MERGER AND RELATED MATTERS................................................................4
Section 2.01. Certificate of Merger.................................................4
Section 2.02. The Effective Time....................................................4
Section 2.03. Certain Effects of the Merger.........................................4
Section 2.04. Effect of the Merger on Capital Stock.................................5
Section 2.05. Delivery, Exchange and Payment........................................6
Section 2.06. Merger Consideration Calculation......................................7
Section 2.07. Fractional Shares.....................................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
EACH STOCKHOLDER .............................................................................8
Section 3.01. By Each Stockholder...................................................8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS......................................................9
Section 4.01. By the Company and Each Primary Stockholder...........................9
ARTICLE V REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO................................................9
Section 5.01. By RW and Newco.......................................................9
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME ...................................................10
Section 6.01. Of Each Party........................................................10
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION.................................................................................10
Section 7.01. The Closing and Certain Conditions...................................10
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME.......................................................12
Section 8.01. Of Each Party Other than the Company.................................12
ARTICLE IX INDEMNIFICATION..............................................................................12
Section 9.01. Indemnification Rights and Obligations...............................12
ARTICLE X [Intentionally Ommitted].....................................................................12
ARTICLE XI GENERAL PROVISIONS...........................................................................12
Section 11.01. Treatment of Confidential Information................................12
Section 11.02. Restrictions on Transfer of RW Common Stock..........................12
Section 11.03. Brokers and Agents...................................................14
Section 11.04. Assignment; No Third Party Beneficiaries.............................14
Section 11.05. Entire Agreement; Amendment; Waivers.................................15
Section 11.06. Counterparts.........................................................15
Section 11.07. Expenses.............................................................15
Section 11.08. Notices..............................................................15
Section 11.09. Governing Law........................................................16
Section 11.10. Exercise of Rights and Remedies......................................16
Section 11.11. Time.................................................................16
Section 11.12. Reformation and Severability.........................................17
Section 11.13. Remedies Cumulative..................................................17
Section 11.14. Respecting the IPO...................................................17
ARTICLE XII TERMINATION..................................................................................17
Section 12.01. Termination of this Agreement........................................17
Section 12.02. Liabilities in Event of Termination..................................18
</TABLE>
EXHIBITS
Exhibit A - List of Primary Stockholders
Exhibit B - Form of Employment Agreement
Exhibit C - IPO Cost Liability Sharing Agreement
Exhibit D - Merger Consideration
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<PAGE> 4
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as
of May 21, 1998, by and among RailWorks Corporation, a Delaware corporation
("RW"), Mustang Smith Construction Company, a Texas corporation and a wholly
owned subsidiary of RW("Newco"), Wm. A. Smith Construction Co., Inc., a Texas
corporation (the "Company"), and the persons listed on the signature pages
hereof under the caption "Stockholders" (collectively, the "Stockholders," and
each of those persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(a) Newco will merge into the Company on the terms and subject to the
conditions set forth herein (that merger being the "Merger");
(b) RW will acquire the stock of all or some of the entities listed in
the accompanying Addendum 1 (each an "Other Founding Company" and, collectively
with the Company, the "Founding Companies") pursuant to agreements that are (i)
similar in all material respects to this Agreement and (ii) entered into among
those entities and their equity owners, RW and subsidiaries of RW (collectively,
the "Other Agreements"); and
(c) RW shall at such time as specified herein and if certain conditions
are met, effect a public offering of shares of its common stock and issue and
sell those shares.
The respective boards of directors of RW, Newco and the Company have
approved and adopted this Agreement to effect a transaction subject to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Certain Defined Terms. As used in this Agreement and in
the related Addendums, Annexes, Schedules and Exhibits, the following terms have
the meanings assigned to them below in this Section 1.01. Capitalized terms used
in this Agreement and not defined below in this Section 1.01 have the meanings
assigned to them in the Preliminary Statement or Article I of the Uniform
Provisions (the text of which Article hereby is incorporated herein by this
reference), as the case may be.
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<PAGE> 5
"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement and all attached Schedules, Addendums,
Annexes and Exhibits, as each of the same may be amended, modified or
supplemented from time to time pursuant to the provisions hereof or thereof.
"Applicable Corporate Code" means the laws of the Organization State of
the Company that govern corporations incorporated in such state.
"Closing Date Balance Sheet" of the Company means a balance sheet of
the Company as at the IPO Closing Date which is prepared on a basis consistent
with the basis on which the Current Balance Sheet was prepared.
"Closing Memorandum" means the form of closing memorandum to be
prepared by RW for the Closing under this Agreement in which are included the
forms of certificates of officers, the opinions of counsel and certain other
documents to be delivered at the Closing as provided in Article VII.
"Company Accounts Receivable" shall mean the accounts and notes or
other advances receivable of the Company and the Company Subsidiaries, excluding
any Retainages, as of the IPO Closing Date.
"Company Common Stock" means the common stock, par value $1.00 per
share, of the Company.
"Company Indebtedness" means the indebtedness of the Company, as of the
IPO Closing Date (including, with respect to CPI Concrete Products, Inc., the
value of the Cash Company Consideration to be received by its Employee Stock
Ownership Plan), that the Company has elected to repay (or repurchase, as the
case may be) with a portion of the RW Common Stock to be received as part of the
Merger Consideration. At least five days prior to the Delivery Date, the Company
will deliver to RW a schedule of the aggregate principal amount of the Company
Indebtedness, certified by the President of the Company, that will be
outstanding on the IPO Closing Date, and RW will repay such Company Indebtedness
on the IPO Closing Date. To the extent that the actual amount of Company
Indebtedness exceeds the amount shown on such schedule, such excess shall be
repaid by the Stockholders on or prior to the IPO Closing Date.
"Counsel for RW and Newco" means King & Spalding.
"Counsel for the Company and the Stockholders" means such counsel as
shall be designated by the Company in writing on or prior to the Delivery Date.
"Current Balance Sheet" means the balance sheet of the Company as at
March 31, 1998 which is included in the Initial Financial Statements.
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<PAGE> 6
"Current Balance Sheet Date" means December 31, 1997.
"Defined Net Worth" as of the IPO Closing Date shall mean (i) the total
assets of the Company, as set forth on the balance sheet of the Company as of
such date, except that (A) expenses of the Company directly attributable to the
IPO and/or the transactions contemplated by this Agreement, including but not
limited to, costs incurred pursuant to the HSR Act, shall be added back to the
assets of the company and (B) the value of inventory, machinery, equipment and
real estate shall be determined pursuant to Section 2.06(a), less (ii) the total
liabilities of the Company, as set forth on the balance sheet of the Company as
of such date, excluding the Company Indebtedness. Notwithstanding the foregoing,
in the case of Comstock, Comstock's contractual obligation to Spie Group, Inc.,
as successor to Comstock Group, Inc., shall not be deemed to be a liability for
purposes of determining Defined Net Worth.
"Delivery" or "Delivery Date" shall have the meaning set forth in
Section 7.01.
"Earnings Percentage" shall have the meaning set forth in Exhibit D.
"Employment Agreement" means each of the Employment Agreements entered
into as of the Closing Date between RW and each of the Stockholders set forth on
Exhibit A hereto, a form of which is attached hereto as Exhibit B.
"fair market value" means that value at which goods and/or services
would be exchanged between a willing buyer and willing seller in a transaction
entered into at arms length with each party having relevant facts of all aspects
of the transaction.
"Initial Financial Statements" means (a) the balance sheets of the
Company as at December 31, 1997 and March 31, 1998 and the related reviewed
statements of operations and retained earnings for each of the Company's two
fiscal years in the period ended December 31, 1997, and (b) the Current Balance
Sheet and the related statement of income for the Company's fiscal year ended
December 31, 1997, which the Company has delivered to RW prior to the date
hereof.
"IPO Closing Date" means the date on which RW first receives payment
for the shares of RW Common Stock it sells to the Underwriter in the IPO.
"Merger Consideration" has the meaning specified in Section 2.04.
"Newco" means Mustang Smith Construction Company, a Texas corporation.
"Responsible Officer" means the President, Chief Executive Officer or
any Vice President of the Company.
"Retainages" means the portion of progress payments due to a Company
for contracting projects that is withheld by a customer of such Company until
completion of a project, pursuant to
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<PAGE> 7
the terms of a contract with such customer, as security for the completion of
the project.
"RW" means RailWorks Corporation, a Delaware corporation.
"Scheduled Related Party Agreements" means the agreements described in
Schedule 4.11.
"Surviving Corporation" means the Person to be designated in the
Certificate of Merger as the surviving corporation of the Merger.
"Threshold Amount" means 2.0% of the Merger Consideration.
"Transaction Value" means the (i)(A) the total number of shares of RW
outstanding immediately upon the closing of the IPO and the transactions
contemplated by this Agreement and the Other Agreements multiplied by (B) the
IPO Price multiplied by (C) 92% minus (ii) actual expenses of RW incurred with
respect to the IPO, an estimate of which will be set forth in Item 13 of Part II
of the Registration Statement minus (iii) the underwriting discounts and
commissions paid to the Underwriter pursuant to the IPO minus (iv) the proceeds
received by RW in connection with any shares of RW Common Stock sold by RW to
finance the working capital needs of RW, which shares shall not exceed 5% of the
number of shares to be sold in the IPO.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions of RW for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. Certificate of Merger. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the Delivery Date to the Department
of State of the State of Texas.
Section 2.02. The Effective Time. The effective time of the Merger (the
"Effective Time") will be the time on the IPO Closing Date as specified in the
Certificate of Merger or, if the Certificate of Merger does not specify another
time, 8:00 a.m., eastern daylight standard time, on the IPO Closing Date.
Section 2.03. Certain Effects of the Merger. At and as of the Effective
Time, (a) Newco will be merged with and into the Company in accordance with the
provisions of the Texas Business Corporation Act, (b) Newco will cease to exist
as a separate legal entity, (c) the articles of
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<PAGE> 8
incorporation of the Company will be amended to change its authorized capital
stock to 100 shares, par value $0.01 per share, of Common Stock, (d) the Company
will be the Surviving Corporation and, as such, will, all with the effect
provided by the Texas Business Corporation Act, (i) possess all the properties
and rights, and be subject to all the restrictions and duties, of the Company
and Newco and (ii) be governed by the laws of the State of Texas, (e) the
Charter Documents of the Company then in effect (after giving effect to the
amendment of the Company's articles of incorporation specified in clause (c) of
this sentence) will become and thereafter remain (until changed in accordance
with (i) applicable law (in the case of the articles of incorporation) or (ii)
their terms (in the case of the bylaws)) the Charter Documents of the Surviving
Corporation, (f) the initial board of directors of the Surviving Corporation
will be the Chief Executive Officer of RW and the other persons named in
Schedule 2.03, and those persons will hold the office of director of the
Surviving Corporation subject to the provisions of the applicable laws of the
State of Texas and the Charter Documents of the Surviving Corporation, and (g)
the initial officers of the Surviving Corporation will be as set forth in
Schedule 2.03, and each of those persons will serve in each office specified for
that person in Schedule 2.03, subject to the provisions of the Charter Documents
of the Surviving Corporation, until that person's successor is duly elected to,
and, if necessary, qualified for, that office.
Section 2.04. Effect of the Merger on Capital Stock. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the right to
receive, subject to the provisions of Section 2.05 and Exhibit D, without
interest, on surrender of the certificate evidencing those shares, the amount of
cash and the number of whole and fractional shares of RW Common Stock set forth
or determined as provided in Exhibit D (the "Merger Consideration"), (ii) cease
to be outstanding and to exist and (iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to exist
and (ii) be canceled and retired; and
(c) each share of Newco Common Stock issued and outstanding immediately
prior to the Effective Time will be converted into one share of Common Stock,
$1.00 par value, of the Surviving Corporation, and the shares of Common Stock of
the Surviving Corporation issued on that conversion will constitute all the
issued and outstanding shares of Capital Stock of the Surviving Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, subject to the provisions of Section 2.05, without interest,
the Merger Consideration and the additional cash, if any, owing with respect to
those shares as provided in Section 2.07.
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<PAGE> 9
Section 2.05. Delivery, Exchange and Payment.
(a) At or after the Effective Time: (i) each Stockholder, as the holder
of certificates representing shares of Company Common Stock, will, on surrender
of those certificates to RW (or any agent that may be appointed by RW for
purposes of this Section 2.05), receive, subject to the provisions of this
Article II and the Escrow Agreement, such Stockholder's share of the Merger
Consideration pursuant to Section 2.04 and Exhibit D; and (ii) until any
certificate representing Company Common Stock has been surrendered and replaced
pursuant to this Section 2.05, that certificate will, for all purposes, be
deemed to evidence ownership of the number of whole shares of RW Common Stock
included in the Merger Consideration payable in respect of that certificate
pursuant to Section 2.04. The Escrow Agreement will provide that the shares of
RW Common Stock issued to the Stockholders as a part of the Merger Consideration
together with duly executed stock powers in blank, shall be placed in escrow to
be held subject to the terms of the Escrow Agreement and further subject to
Exhibit D and Section 11.02. The escrow shall consist solely of shares of RW
Common Stock that shall be issued at the Effective Time to the Stockholders of
the Founding Companies and delivered, at the Closing, to the Escrow Agent. All
shares of RW Common Stock issuable in the Merger will be deemed for all purposes
to have been issued by RW at the Effective Time.
(b) Each Stockholder will deliver to RW (or any agent that may be
appointed by RW for purposes of this Section 2.05) on or before the Delivery
Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Stockholder, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Stockholder's expense, affixed and canceled.
Each Stockholder shall cure any deficiencies in the endorsement of the
certificates or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Stockholder.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to RW Common Stock and payable to
the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of RW Common Stock have been issued in the Merger until
those certificates are surrendered as provided herein, but (i) on that surrender
RW will cause to be paid, to the Person in whose name the certificates
representing such shares of RW Common Stock shall then be issued, the amount of
dividends or other distributions previously paid with respect to such whole
shares of RW Common Stock with a record date, or which have accrued, subsequent
to the Effective Time, but prior to surrender, and the amount of any cash
payable to such Person for and in lieu of fractional shares pursuant to Section
2.07 and (ii) at the appropriate payment date or as soon as practicable
thereafter, RW will cause to be paid to that Person the amount of dividends or
other distributions with a record date, or which have been accrued, subsequent
to the Effective Time, but which are not payable until a date subsequent to
surrender, which are payable with respect to such whole shares of RW Common
Stock, subject in all cases to any applicable
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<PAGE> 10
escheat laws. No interest will be payable with respect to the payment of such
dividends or other distributions or cash for and in lieu of fractional shares on
surrender of outstanding certificates.
(d) Each Stockholder hereby authorizes and directs RW to deliver 3.5%
of the Cash Company Consideration and 3.5% of the Stock Company Consideration
owed to such Stockholder pursuant to this Agreement (before deposit of the
shares of RW Common Stock into escrow) to IPO Development Company in payment of
fees owed to IPO Development Company by such Stockholder.
Section 2.06. Merger Consideration Calculation.
(a) No later than fifteen (15) days following the IPO Closing Date, the
Company shall provide to the Chief Accounting Officer of RW (the "CAO") a
determination of the fair market value (as defined) of its inventory, machinery,
equipment and real estate (the "Valued Assets") as of the IPO Closing Date.
Within seven (7) days of such date, the CAO shall distribute to every Founding
Company the value of the Valued Assets of every Founding Company. The Company
shall have seven (7) days from the date of the distribution of such valuation to
dispute the value of the Valued Assets of any Founding Company by providing
written notice of such dispute to the CAO. If the CAO is unable to resolve any
such dispute, the dispute shall be resolved by binding arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
which arbitration shall be resolved no later than thirty (30) days from
selection of the arbitrator. The arbitrator shall be selected by the CAO.
(b) Arthur Andersen or, if not Arthur Andersen, the Company's
accountant, shall cause to be prepared and delivered to RW and the Company a
calculation as of the IPO Closing Date of the Defined Net Worth of the Company
(the "Balance Sheet Calculation"). The Balance Sheet Calculation shall be final
and binding on the Company and the Other Founding Companies absent fraud,
manifest error or gross negligence.
(c) The Balance Sheet Calculation shall include a report of Arthur
Andersen or, if not Arthur Andersen, the Company's accountant, stating that it
has been prepared in a manner consistent with the accounting policies and
procedures used in preparation of the balance sheets in the Initial Financial
Statements, except as provided in the definition of "Defined Net Worth"
contained herein. The Stockholders shall give Arthur Andersen and other
appropriate personnel such assistance and access to the assets and books and
records of the Company as Arthur Andersen shall reasonably request during normal
business hours in order to enable them to prepare the Balance Sheet Calculation.
The Surviving Corporation shall be responsible for the fees and expenses of
Arthur Andersen or, if not Arthur Andersen the Company's accountant.
Section 2.07. Fractional Shares. Notwithstanding any other provision
herein, no fractional shares of RW Common Stock will be issued. All shares of RW
Common Stock shall be aggregated, and any Stockholder entitled hereunder, after
such aggregation, to receive a fractional share of RW Common Stock but for this
Section 2.07 will be entitled hereunder to receive a cash payment for and
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<PAGE> 11
in lieu thereof in the amount (rounded to the nearest whole cent) equal to that
Stockholder's fractional interest in a share of RW Common Stock multiplied by
the IPO Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01. By Each Stockholder. The Stockholders severally represent
and warrant to, and agree with, RW that all the following representations and
warranties in this Article III are as of the date of this Agreement, and will
be, as amended or supplemented pursuant to Section 6.08, on the IPO Closing
Date, true and correct:
(a) (i) each Stockholder will acquire the shares of RW Common Stock to
be issued pursuant to Article II to the Stockholder solely for the Stockholder's
account, for investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection with
any distribution;
(ii) no Stockholder is a party to any agreement or other
arrangement for the disposition of any shares of RW Common Stock other
than this Agreement; (iii) except as set forth on Schedule 3.01(a)(ii)
each Stockholder is an "accredited investor" as defined in Rule 501(a)
promulgated under the Securities Act; (iv) each Stockholder (A) is able
to bear the economic risk of an investment in the RW Common Stock
acquired pursuant to this Agreement, (B) can afford to sustain a total
loss of that investment, (C) has such knowledge and experience in
financial and business matters that he or she is capable of evaluating
the merits and risks of the proposed investment in the RW Common Stock,
(D) has had an adequate opportunity to ask questions and receive
answers from the officers of RW concerning any and all matters relating
to the transactions contemplated hereby, including the background and
experience of the current and proposed officers and directors of RW,
the plans for the operations of the business of RW, the business,
operations and financial condition of the Other Founding Companies and
any plans of RW for additional acquisitions, and (E) has asked all
questions of the nature described in preceding clause (D) that such
Stockholder thought to ask, and all those questions have been answered
to his or her satisfaction;
(b) the representations and warranties contained in Article III of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to; and
(c) (i) the terms and conditions of any agreements between any
Stockholder or an Affiliate of any Stockholder, on the one hand, and the Company
on the other hand, included in the Scheduled Related Party Agreements will have
been amended effective as of the IPO Closing Date to be no less favorable to the
Company than the Company reasonably could have expected to obtain in an
arms-length transaction with a Person other than an Affiliate of the Company and
(ii) the
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<PAGE> 12
rentals or other payments provided for in such agreements then will not exceed
fair market rentals of the property being leased or fair market value of the sum
or product being provided and such amounts shall have been previously approved
in writing by the Chief Financial Officer of RW.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS
Section 4.01. By the Company and Each Primary Stockholder. The Company
and each Primary Stockholder jointly and severally represent and warrant to, and
agree with, RW that all the following representations and warranties in this
Article IV are as of the date of this Agreement, and will be, as amended or
supplemented pursuant to Section 6.08, on the Delivery Date and the IPO Closing
Date, true and correct:
(a) the Organization State of the Company is the State of Texas, and
the Company (i) is a corporation duly organized, validly existing and in good
standing under the laws of that State, (ii) has all requisite corporate power
and authority under those laws and its Charter Documents to own or lease and to
operate its properties and to carry on its business as now conducted and (iii)
is duly qualified and in good standing as a foreign corporation in all
jurisdictions (other than the State of Texas) in which it owns or leases
property or in which the carrying on of its business as now conducted so
requires except where the failure to be so qualified, singly or in the
aggregate, would not have a Material Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is comprised of
1,000 shares of Company Common Stock, of which 1,000 shares have been issued and
are now outstanding and no shares are held by the Company as treasury shares,
and (ii) there are no Derivative Securities of the Company; and
(c) the representations and warranties contained in Article IV of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO
Section 5.01. By RW and Newco. RW and Newco jointly and severally
represent and warrant to the Company and each Stockholder that all the following
representations and warranties in this Article V are as of the date of this
Agreement, and will be on the IPO Closing Date, true and correct:
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<PAGE> 13
(a) Newco is a corporation duly organized, validly existing and in good
standing under the laws of the State of Texas;
(b) except as disclosed in the Private Placement Memorandum, no
Derivative Securities of Newco are outstanding;
(c) Newco has been organized for the sole purpose of participating in
the Merger and has not, and will not, engage in any activities other than those
necessary to effectuate the Merger;
(d) except for shares of RW Common Stock to be publicly sold in the IPO
and as disclosed in the Private Placement Memorandum or preliminary prospectus,
neither RW nor Newco is a party to any agreement or other arrangement for the
disposition of any shares of RW Common Stock; and
(e) the representations and warranties contained in Article V of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01. Of Each Party. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01. The Closing and Certain Conditions.
(a) The Closing. On or before the IPO Pricing Date, the parties hereto
will take all actions necessary to (i) effect the Merger (including, as
permitted by the Applicable Corporate Code, (A) the execution of a Certificate
of Merger (1) meeting the requirements of the Applicable Corporate Code and (2)
providing that the Merger will become effective on the IPO Closing Date and (B)
the delivery of that Certificate of Merger with a filing service that will file
such Certificate of Merger with the Department of State of the State of Texas)
upon notification of the closing of the IPO (provided that Comstock's
Certificate of Merger shall be filed immediately prior to the closing of the
IPO), (ii) verify the existence and ownership of the certificates evidencing the
Company Common Stock to be exchanged for the Merger Consideration pursuant to
Section 2.05 and (iii) satisfy the document delivery requirements to which the
obligations of the parties to effect the Merger and the other transactions
contemplated hereby are conditioned by the provisions of this
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<PAGE> 14
Article VII (all those actions collectively being the "Delivery"). The Delivery
will take place at the offices of King & Spalding, 191 Peachtree Street,
Atlanta, Georgia at 10:00 a.m., Atlanta time on the IPO Pricing Date, or at such
later time on the IPO Pricing Date as RW shall specify by written notice to the
President of the Company (the "Delivery Date"). The actions taken at the
Delivery will not include the completion of either the Merger or the delivery of
the Company Common Stock or the Merger Consideration pursuant to Section 2.05.
On the IPO Closing Date, the Certificate of Merger will be filed and will become
effective pursuant to Section 2.02, and all transactions contemplated by this
Agreement to be closed or completed on or before the IPO Closing Date, including
the surrender of the Company Common Stock in exchange for the Merger
Consideration (including a certified check or checks in an amount equal to the
cash portion of the Merger Consideration) will be closed or completed, as the
case may be. During the period from the Delivery Date to the IPO Closing Date,
this Agreement may be terminated by the parties only pursuant to Section
12.01(b)(i).
(b) Certain Conditions to the Obligations of the Company and the
Stockholders. The obligations of the Company and the Stockholders with respect
to the actions to be taken by them at or before the Delivery Date are subject to
the satisfaction on or before the Delivery Date, or waiver by them pursuant to
Section 11.05, of all the conditions set forth in Sections 7.01 and 7.02(a). The
obligations of the Stockholders with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of the following
conditions: (if required by such Stockholder) (i) the Employment Agreement then
shall be in full force and effect; and (ii) all the conditions set forth in
Sections 7.01 and 7.02(b).
(c) Certain Conditions to the Obligations of RW and Newco. The
obligations of RW and Newco with respect to actions to be taken by them at or
before the Delivery Date are subject to the satisfaction on or before the date
of the Delivery Date, or waiver by them pursuant to Section 11.05, of the
following conditions: (i) the Company shall have delivered to RW a copy of the
articles of incorporation, as amended to the Delivery Date and certified by the
Secretary of State of the State of Texas as of a Current Date, of the Company;
and (ii) all the conditions set forth in Sections 7.01 and 7.03(a). The
obligations of RW and Newco with respect to the actions to be taken on the IPO
Closing Date are subject to the satisfaction on that date of the following
conditions: (i) the Employment Agreements then shall be in full force and
effect; and (ii) all the conditions set forth in Sections 7.01 and 7.03(b).
(d) Uniform Provisions. The text of Article VII of the Uniform
Provisions hereby is incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01. Of Each Party Other than the Company. From and after the
Effective Time, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Company) will
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<PAGE> 15
comply with each covenant for which provision is made in Article VIII of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) to be performed or observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01. Indemnification Rights and Obligations. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. Any provision contained in Article IX of the Uniform Provisions to
the contrary notwithstanding, the indemnification obligations of the
Stockholders pursuant to this Agreement shall be joint and several.
ARTICLE X
[Intentionally Ommitted]
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. Treatment of Confidential Information. Each party hereto
will comply with each covenant for which provision is made in Section 11.01 of
the Uniform Provisions (the text of which Section hereby is incorporated herein
by this reference) to be performed or observed by that party.
Section 11.02. Restrictions on Transfer of RW Common Stock.
(a) Except for transfers to employees of the Company that are approved
in writing by the Board of Directors of RW (or a committee designated by the
Board of Directors of RW) prior to such transfer, during the one year period
ending on the first anniversary of the IPO Closing Date (the "Restricted
Period"), no Stockholder voluntarily will: (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
RW Common Stock received by any Stockholder in the Merger or (B) any interest in
(including any option to buy or sell) any of those shares of RW Common Stock, in
whole or in part, and RW will have no obligation to, and shall not, treat any
such attempted transfer as effective for any purpose; or (ii) engage in any
transaction, whether or not with respect to any shares of RW Common Stock or any
interest therein, the intent or effect of which is to reduce the risk of owning
the shares of RW Common Stock acquired pursuant to Section 2.04 (including, for
example engaging in put, call, short-sale, straddle or similar market
transactions); provided, however, that this Section 11.02 shall not restrict any
transfer of RW Common Stock acquired by a Stockholder pursuant to Section 2.04
to any of that Stockholder's Related Persons who agree in writing to be bound by
the provisions of Section 11.01
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<PAGE> 16
and this Section 11.02. The certificates evidencing the RW Common Stock
delivered to each Stockholder pursuant to Section 2.05 will bear a legend
substantially in the form set forth below and containing such other information
as RW may deem necessary or appropriate:
"EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER
PARTIES THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE
REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF
ANY OF THOSE SHARES, DURING THE ONE-YEAR PERIOD ENDING ON __________ [DATE THAT
IS THE FIRST ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED PERIOD"). ON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE."
(b) From the first anniversary of the IPO Closing Date to the fourth
anniversary of the IPO Closing Date, the Stockholders agree to sell shares of RW
Common Stock acquired pursuant to this Agreement only in accordance with the
procedures set forth in this Section 11.02(b). Every quarter during such period,
every Stockholder will be permitted to sell, in the aggregate, up to 8% of the
aggregate number of shares of Common Stock received by such Stockholder pursuant
to this Agreement (the "Quarterly Block Trade Shares") in either a block trade
or a registered public offering, at the option of RW. If a Stockholder does not
sell all of his or her Quarterly Block Trade Shares in any given quarter, such
Stockholder may sell such Quarterly Block Trade Shares pursuant to this Section
11.02(b) in any later quarter, provided, however, that in no event may a
Stockholder sell more than 20% of the shares of Common Stock received by such
Stockholder pursuant to this Agreement in any one quarter. Any Stockholder that
wishes to sell shares of RW Common Stock pursuant to such selling opportunity
must give notice to RW and the Executive Council no later than fourteen days
prior to the commencement of the fiscal quarter of RW during which such
Stockholder wants to sell such shares. Notwithstanding anything set forth in
this Section 11.02(b), RW may elect to make available to the Stockholders (i)
additional opportunities to sell shares of RW Common Stock and/or (ii) the
opportunity to sell an amount in excess of such amount during any particular
quarter. The Company may modify or waive this Section 11.02(b) at its sole
discretion at any time following written notice to the Stockholders, provided
that no such modification or waiver may reduce the number of selling
opportunities or the maximum number of shares of RW Common Stock that may be
sold by any Stockholder during any selling opportunity.
(c) Each Stockholder, severally and not jointly with any other Person,
(i) acknowledges that the shares of RW Common Stock to be delivered to that
Stockholder pursuant to Section 2.04 have not been and will not be registered
under the Securities Act and therefore may not be resold by that Stockholder
without compliance with the Securities Act and (ii) covenants that none of the
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<PAGE> 17
shares of RW Common Stock issued to that Stockholder pursuant to Section 2.04
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable provisions of
the Securities Act and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of RW Common
Stock issued pursuant to Section 2.04 will bear the following legend in addition
to the legend prescribed by Section 11.02(a):
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, HAVE
BEEN ISSUED PURSUANT TO ONE OR MORE EXEMPTIONS THERETO, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED OR DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED."
In addition, certificates evidencing shares of RW Common Stock issued pursuant
to Section 2.04 to each Stockholder will bear any legend required by the
securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03. Brokers and Agents. Except for IPO Development Company,
each of the Stockholders jointly and severally, on the one hand, and RW, on the
other, represents and warrants to the other that such Person has not directly or
indirectly employed or become obligated to pay any broker, finder or similar
agent in connection with the transactions contemplated hereby and agree, without
regard to the Threshold Amount limitations set forth in Article IX, to indemnify
the other against all Damage Claims arising out of claims for any and all fees
and commissions of brokers or similar agents employed or promised payment by
such Person.
Section 11.04. Assignment; No Third Party Beneficiaries. This Agreement
and the rights of the parties hereunder may not be assigned (except by operation
of law) and shall be binding on and inure to the benefit of the parties hereto,
the successors of RW, and the heirs and legal representatives of the
Stockholders (and, in the case of any trust, the successor trustees of that
trust). Neither this Agreement nor any other Transaction Document is intended,
or shall be construed, deemed or interpreted, to confer on any Person not a
party hereto or thereto any rights or remedies hereunder or thereunder, except
as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise provided
expressly herein or therein.
Section 11.05. Entire Agreement; Amendment; Waivers. Except with
respect to Section 11.07 hereof, this Agreement and the documents delivered
pursuant hereto constitute the entire agreement and understanding among the
Stockholders, the Company, Newco and RW and supersede all prior agreements and
understandings, both written and oral, relating to the subject matter of this
Agreement. This Agreement may be amended, modified or supplemented, and any
right hereunder may be waived, if, but only if, that amendment, modification,
supplement or waiver is in writing and
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<PAGE> 18
signed by each of the Stockholders, the Company and RW. The waiver of any of the
terms and conditions hereof shall not be construed or interpreted as, or deemed
to be, a waiver of any other term or condition hereof.
Section 11.06. Counterparts. This Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
Section 11.07. Expenses. If the transactions contemplated hereby (i)
are consummated, RW will pay the fees, expenses and disbursements of RW and
Newco and their Representatives which are incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all costs
and expenses incurred in the performance of and compliance with all conditions
to be performed by RW and Newco under this Agreement, including the costs of
preparing the Registration Statement, (collectively, the "RW Expenses") and (ii)
if the transactions contemplated hereby are not consummated, the RW Expenses
shall be paid by the Founding Companies subject to the provisions of the IPO
Cost Liability Sharing Agreement attached hereto as Exhibit C and incorporated
herein by reference (b) the Stockholders will pay from personal funds, and not
from funds of the Company or any Company Subsidiary, all sales, use, transfer
and other similar taxes and fees (collectively, "Transfer Taxes") incurred in
connection with the transactions contemplated hereby and (c) the Company will
pay the fees, expenses and disbursements of Counsel for the Company and the
Stockholders incurred in connection with the subject matter of this Agreement
and the Registration Statement on or before the IPO Closing Date. The
Stockholders will file all necessary documentation and Returns with respect to
all Transfer Taxes. In addition, each Stockholder acknowledges that he, and not
the Company or RW or the Surviving Corporation, will pay all Taxes due upon
receipt of the consideration payable to that Stockholder pursuant to Article II.
Section 11.08. Notices. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received
(a) if personally delivered or if delivered by telex, telegram,
facsimile or courier service, when actually received by the party to whom notice
is sent or
(b) if delivered by mail (whether actually received or not), at the
close of business on the third Business Day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
(i) if to RW or Newco, addressed to it at:
RailWorks Corporation
403 Somerset Road
Baltimore, Maryland 21210
Attn: Chief Executive Officer
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<PAGE> 19
with copies (which shall not constitute notice for purposes
of this Agreement) to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attn: Jeffrey M. Stein
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
Wm. A. Smith Construction Company, Inc.
6060 Armour Drive
Houston, Texas 77220
Attn: Jack I. Wilt
with copies (which shall not constitute notice for purposes
of this Agreement) to Counsel for the Company and the
Stockholders at the address designated by the Company
Section 11.09. Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF DELAWARE
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10. Exercise of Rights and Remedies. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11. Time. Time is of the essence in the performance of this
Agreement in all respects.
Section 11.12. Reformation and Severability. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this
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<PAGE> 20
Agreement, and in either case the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
Section 11.13. Remedies Cumulative. No right, remedy or election given
by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14. Respecting the IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither RW or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that RW will use its reasonable best efforts to
cause the Registration Statement to become effective prior to August 14, 1998)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to RW or the
IPO.
ARTICLE XII
TERMINATION
Section 12.01. Termination of this Agreement.
(a) This Agreement may be terminated at any time prior to the Delivery
Date solely:
(i) by the mutual written consent of RW and the Company;
(ii) by the Stockholders or the Company, on the one hand, or by
RW, on the other hand, if the events contemplated by this Agreement to
take place at the Delivery Date shall not have taken place by September
4, 1998, unless the failure of such transactions to be consummated
results from the willful failure of the party (or in the case of the
Stockholders and the Company, any of them) seeking to terminate this
Agreement to perform or adhere to any agreement required hereby to be
performed or adhered to by it prior to or at the Delivery Date or
thereafter on the IPO Closing Date;
(iii) by the Stockholders or the Company, on the one hand, or by
RW, on the other hand, if a material breach or default shall be made by
the other party (or in the case of the Stockholders and the Company,
any of them) in the observance or in the due and timely
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<PAGE> 21
performance of any of the covenants, agreements or conditions contained
in Article VI or Section 11.01;
(iv) by the Stockholders or the Company, on the one hand, or RW,
on the other, if it is entitled to do so as provided in Section 6.08;
(v) by the Stockholders prior to the filing of the Registration
Statement if the Registration Statement is not filed by June 15, 1998;
(vi) by RW or the Stockholders prior to 9:00 a.m. on the IPO
Pricing Date (as set forth in Section 8.10) if the value of RW at the
IPO Pricing Date (as calculated by multiplying the price per share at
which the RW common stock is to be sold in the IPO by the number of
shares of common stock to be outstanding after the Closing of the IPO)
shall be less than $215 million;
(vii) by the Stockholders if the Registration Statement has not
been declared effective by the Securities and Exchange Commission by
August 14, 1998;
(viii) by the Stockholders if John G. Larkin is no longer serving
as Chairman of the Board of Directors and Chief Executive Officer prior
to the Closing; or
(ix) by the stockholders of CPI Concrete Products, Inc. if its
Employee Stock Ownership Plan does not approve the merger prior to the
Delivery Date.
(b) This Agreement may be terminated after the Delivery Date solely:
(i) by RW or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the IPO Pricing Date and prior
to the consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City business
days after the Delivery Date.
(c) If this Agreement is terminated pursuant to this Section 12.01, the
Merger will be deemed for all purposes to have been abandoned and of no force or
effect.
Section 12.02. Liabilities in Event of Termination. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Sections
11.03 or 11.07 and (b) to the extent that such liability is based on the breach
by that party of any of its representations, warranties or covenants set forth
in this Agreement.
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<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
RAILWORKS CORPORATION
By: /s/ John G. Larkin
---------------------------------------
John G. Larkin
Chief Executive Officer
MUSTANG SMITH CONSTRUCTION COMPANY
By: /s/ John G. Larkin
---------------------------------------
John G. Larkin
President
WM. A. SMITH CONSTRUCTION CO., INC.
By: /s/ Authorized Signature
---------------------------------------
Name:
Title:
STOCKHOLDERS:
Jack I. Wilt
------------------------------------------
Jack I. Wilt
/s/ Daniel E. Burg
------------------------------------------
Daniel E. Burg
/s/ Richard H. Stephens
------------------------------------------
Richard H. Stephens
/s/ Robert O. Carson
------------------------------------------
Robert O. Carson
/S/ Ben Hernandez
------------------------------------------
Ben Hernandez
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<PAGE> 23
ADDENDUM 1
OTHER FOUNDING COMPANIES
A. Words and terms used in this Addendum which are defined
in the captioned Agreement to which this is an Addendum are used herein as
therein defined.
B. The Founding Companies are:
Alpha - Keystone Engineering, Inc.
Annex Railroad Builders, Inc.
Comtrak Construction, Inc.
Comstock Holdings Inc.
Condon Brothers, Inc.
CPI Concrete Products
HP McGinley, Inc.
Kennedy Railroad Builders, Inc.
Merit Railroad Contractors, Inc.
Midwest Construction Services, Inc.
Minnesota Railroad Services, Inc.
Mize Construction Co.
New England Railroad Construction Co., Inc.
Northern Rail Service & Supply Company, Inc.
Railcorp, Inc.
Railroad Service, Inc.
Railroad Specialities, Inc,
Southern Indiana Wood Preserving Co.
U.S. Railway Supply, Inc,
U.S. Trackworks, Inc.
W.A. Smith Construction Co., Inc.
W.A Smith Rerailing Co., Inc.
<PAGE> 1
EXHIBIT 10.23
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MAY 21, 1998
BY AND BETWEEN
RAILWORKS CORPORATION,
LONGHORN SMITH RERAILING COMPANY,
WM. A. SMITH RERAILING SERVICES, INC.
AND
THE STOCKHOLDERS NAMED HEREIN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS...................................................................................1
Section 1.01. Certain Defined Terms.................................................1
ARTICLE II THE MERGER AND RELATED MATTERS................................................................4
Section 2.01. Certificate of Merger.................................................4
Section 2.02. The Effective Time....................................................4
Section 2.03. Certain Effects of the Merger.........................................4
Section 2.04. Effect of the Merger on Capital Stock.................................5
Section 2.05. Delivery, Exchange and Payment........................................6
Section 2.06. Merger Consideration Calculation......................................7
Section 2.07. Fractional Shares.....................................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
EACH STOCKHOLDER .............................................................................8
Section 3.01. By Each Stockholder...................................................8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS......................................................9
Section 4.01. By the Company and Each Primary Stockholder...........................9
ARTICLE V REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO................................................9
Section 5.01. By RW and Newco.......................................................9
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME ...................................................10
Section 6.01. Of Each Party........................................................10
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION.................................................................................10
Section 7.01. The Closing and Certain Conditions...................................10
</TABLE>
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<TABLE>
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<S> <C> <C>
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME.......................................................12
Section 8.01. Of Each Party Other than the Company.................................12
ARTICLE IX INDEMNIFICATION..............................................................................12
Section 9.01. Indemnification Rights and Obligations...............................12
ARTICLE X [Intentionally Ommitted].....................................................................12
ARTICLE XI GENERAL PROVISIONS...........................................................................12
Section 11.01. Treatment of Confidential Information................................12
Section 11.02. Restrictions on Transfer of RW Common Stock..........................12
Section 11.03. Brokers and Agents...................................................14
Section 11.04. Assignment; No Third Party Beneficiaries.............................14
Section 11.05. Entire Agreement; Amendment; Waivers.................................15
Section 11.06. Counterparts.........................................................15
Section 11.07. Expenses.............................................................15
Section 11.08. Notices..............................................................15
Section 11.09. Governing Law........................................................16
Section 11.10. Exercise of Rights and Remedies......................................16
Section 11.11. Time.................................................................16
Section 11.12. Reformation and Severability.........................................17
Section 11.13. Remedies Cumulative..................................................17
Section 11.14. Respecting the IPO...................................................17
ARTICLE XII TERMINATION..................................................................................17
Section 12.01. Termination of this Agreement........................................17
Section 12.02. Liabilities in Event of Termination..................................18
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EXHIBITS
Exhibit A - List of Primary Stockholders
Exhibit B - Form of Employment Agreement
Exhibit C - IPO Cost Liability Sharing Agreement
Exhibit D - Merger Consideration
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as
of May 21, 1998, by and among RailWorks Corporation, a Delaware corporation
("RW"), Longhorn Smith Rerailing Company, a Texas corporation and a wholly owned
subsidiary of RW("Newco"), Wm. A. Smith Rerailing Services, Inc., a Texas
corporation (the "Company"), and the persons listed on the signature pages
hereof under the caption "Stockholders" (collectively, the "Stockholders," and
each of those persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(a) Newco will merge into the Company on the terms and subject to the
conditions set forth herein (that merger being the "Merger");
(b) RW will acquire the stock of all or some of the entities listed in
the accompanying Addendum 1 (each an "Other Founding Company" and, collectively
with the Company, the "Founding Companies") pursuant to agreements that are (i)
similar in all material respects to this Agreement and (ii) entered into among
those entities and their equity owners, RW and subsidiaries of RW (collectively,
the "Other Agreements"); and
(c) RW shall at such time as specified herein and if certain conditions
are met, effect a public offering of shares of its common stock and issue and
sell those shares.
The respective boards of directors of RW, Newco and the Company have
approved and adopted this Agreement to effect a transaction subject to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Certain Defined Terms. As used in this Agreement and in
the related Addendums, Annexes, Schedules and Exhibits, the following terms have
the meanings assigned to them below in this Section 1.01. Capitalized terms used
in this Agreement and not defined below in this Section 1.01 have the meanings
assigned to them in the Preliminary Statement or Article I of the Uniform
Provisions (the text of which Article hereby is incorporated herein by this
reference), as the case may be.
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"Agreed Rate" means 8.0% per annum.
"Agreement" means this Agreement and all attached Schedules, Addendums,
Annexes and Exhibits, as each of the same may be amended, modified or
supplemented from time to time pursuant to the provisions hereof or thereof.
"Applicable Corporate Code" means the laws of the Organization State of
the Company that govern corporations incorporated in such state.
"Closing Date Balance Sheet" of the Company means a balance sheet of
the Company as at the IPO Closing Date which is prepared on a basis consistent
with the basis on which the Current Balance Sheet was prepared.
"Closing Memorandum" means the form of closing memorandum to be
prepared by RW for the Closing under this Agreement in which are included the
forms of certificates of officers, the opinions of counsel and certain other
documents to be delivered at the Closing as provided in Article VII.
"Company Accounts Receivable" shall mean the accounts and notes or
other advances receivable of the Company and the Company Subsidiaries, excluding
any Retainages, as of the IPO Closing Date.
"Company Common Stock" means the common stock, par value $1.00 per
share, of the Company.
"Company Indebtedness" means the indebtedness of the Company, as of the
IPO Closing Date (including, with respect to CPI Concrete Products, Inc., the
value of the Cash Company Consideration to be received by its Employee Stock
Ownership Plan), that the Company has elected to repay (or repurchase, as the
case may be) with a portion of the RW Common Stock to be received as part of the
Merger Consideration. At least five days prior to the Delivery Date, the Company
will deliver to RW a schedule of the aggregate principal amount of the Company
Indebtedness, certified by the President of the Company, that will be
outstanding on the IPO Closing Date, and RW will repay such Company Indebtedness
on the IPO Closing Date. To the extent that the actual amount of Company
Indebtedness exceeds the amount shown on such schedule, such excess shall be
repaid by the Stockholders on or prior to the IPO Closing Date.
"Counsel for RW and Newco" means King & Spalding.
"Counsel for the Company and the Stockholders" means such counsel as
shall be designated by the Company in writing on or prior to the Delivery Date.
"Current Balance Sheet" means the balance sheet of the Company as at
March 31, 1998 which is included in the Initial Financial Statements.
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"Current Balance Sheet Date" means December 31, 1997.
"Defined Net Worth" as of the IPO Closing Date shall mean (i) the total
assets of the Company, as set forth on the balance sheet of the Company as of
such date, except that (A) expenses of the Company directly attributable to the
IPO and/or the transactions contemplated by this Agreement, including but not
limited to, costs incurred pursuant to the HSR Act, shall be added back to the
assets of the company and (B) the value of inventory, machinery, equipment and
real estate shall be determined pursuant to Section 2.06(a), less (ii) the total
liabilities of the Company, as set forth on the balance sheet of the Company as
of such date, excluding the Company Indebtedness. Notwithstanding the foregoing,
in the case of Comstock, Comstock's contractual obligation to Spie Group, Inc.,
as successor to Comstock Group, Inc., shall not be deemed to be a liability for
purposes of determining Defined Net Worth.
"Delivery" or "Delivery Date" shall have the meaning set forth in
Section 7.01.
"Earnings Percentage" shall have the meaning set forth in Exhibit D.
"Employment Agreement" means each of the Employment Agreements entered
into as of the Closing Date between RW and each of the Stockholders set forth on
Exhibit A hereto, a form of which is attached hereto as Exhibit B.
"fair market value" means that value at which goods and/or services
would be exchanged between a willing buyer and willing seller in a transaction
entered into at arms length with each party having relevant facts of all aspects
of the transaction.
"Initial Financial Statements" means (a) the balance sheets of the
Company as at December 31, 1997 and March 31, 1998 and the related reviewed
statements of operations and retained earnings for each of the Company's two
fiscal years in the period ended December 31, 1997, and (b) the Current Balance
Sheet and the related statement of income for the Company's fiscal year ended
December 31, 1997, which the Company has delivered to RW prior to the date
hereof.
"IPO Closing Date" means the date on which RW first receives payment
for the shares of RW Common Stock it sells to the Underwriter in the IPO.
"Merger Consideration" has the meaning specified in Section 2.04.
"Newco" means Longhorn Smith Rerailing Company, a Texas corporation.
"Responsible Officer" means the President, Chief Executive Officer or
any Vice President of the Company.
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"Retainages" means the portion of progress payments due to a Company
for contracting projects that is withheld by a customer of such Company until
completion of a project, pursuant to the terms of a contract with such customer,
as security for the completion of the project.
"RW" means RailWorks Corporation, a Delaware corporation.
"Scheduled Related Party Agreements" means the agreements described in
Schedule 4.11.
"Surviving Corporation" means the Person to be designated in the
Certificate of Merger as the surviving corporation of the Merger.
"Threshold Amount" means 2.0% of the Merger Consideration.
"Transaction Value" means the (i)(A) the total number of shares of RW
outstanding immediately upon the closing of the IPO and the transactions
contemplated by this Agreement and the Other Agreements multiplied by (B) the
IPO Price multiplied by (C) 92% minus (ii) actual expenses of RW incurred with
respect to the IPO, an estimate of which will be set forth in Item 13 of Part II
of the Registration Statement minus (iii) the underwriting discounts and
commissions paid to the Underwriter pursuant to the IPO minus (iv) the proceeds
received by RW in connection with any shares of RW Common Stock sold by RW to
finance the working capital needs of RW, which shares shall not exceed 5% of the
number of shares to be sold in the IPO.
"Transfer Taxes" has the meaning specified in Section 11.07.
"Uniform Provisions" means the Uniform Provisions of RW for the
Acquisition of Founding Companies attached hereto as Annex 1.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. Certificate of Merger. Subject to the terms and
conditions hereof, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the Delivery Date to the Department
of State of the State of Texas.
Section 2.02. The Effective Time. The effective time of the Merger (the
"Effective Time") will be the time on the IPO Closing Date as specified in the
Certificate of Merger or, if the Certificate of Merger does not specify another
time, 8:00 a.m., eastern daylight standard time, on the IPO Closing Date.
Section 2.03. Certain Effects of the Merger. At and as of the Effective
Time, (a) Newco will be merged with and into the Company in accordance with the
provisions of the Texas Business Corporation Act, (b) Newco will cease to exist
as a separate legal entity, (c) the articles of
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incorporation of the Company will be amended to change its authorized capital
stock to 100 shares, par value $0.01 per share, of Common Stock, (d) the Company
will be the Surviving Corporation and, as such, will, all with the effect
provided by the Texas Business Corporation Act, (i) possess all the properties
and rights, and be subject to all the restrictions and duties, of the Company
and Newco and (ii) be governed by the laws of the State of Texas, (e) the
Charter Documents of the Company then in effect (after giving effect to the
amendment of the Company's articles of incorporation specified in clause (c) of
this sentence) will become and thereafter remain (until changed in accordance
with (i) applicable law (in the case of the articles of incorporation) or (ii)
their terms (in the case of the bylaws)) the Charter Documents of the Surviving
Corporation, (f) the initial board of directors of the Surviving Corporation
will be the Chief Executive Officer of RW and the other persons named in
Schedule 2.03, and those persons will hold the office of director of the
Surviving Corporation subject to the provisions of the applicable laws of the
State of Texas and the Charter Documents of the Surviving Corporation, and (g)
the initial officers of the Surviving Corporation will be as set forth in
Schedule 2.03, and each of those persons will serve in each office specified for
that person in Schedule 2.03, subject to the provisions of the Charter Documents
of the Surviving Corporation, until that person's successor is duly elected to,
and, if necessary, qualified for, that office.
Section 2.04. Effect of the Merger on Capital Stock. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the right to
receive, subject to the provisions of Section 2.05 and Exhibit D, without
interest, on surrender of the certificate evidencing those shares, the amount of
cash and the number of whole and fractional shares of RW Common Stock set forth
or determined as provided in Exhibit D (the "Merger Consideration"), (ii) cease
to be outstanding and to exist and (iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to exist
and (ii) be canceled and retired; and
(c) each share of Newco Common Stock issued and outstanding immediately
prior to the Effective Time will be converted into one share of Common Stock,
$1.00 par value, of the Surviving Corporation, and the shares of Common Stock of
the Surviving Corporation issued on that conversion will constitute all the
issued and outstanding shares of Capital Stock of the Surviving Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, subject to the provisions of Section 2.05, without interest,
the Merger Consideration and the additional cash, if any, owing with respect to
those shares as provided in Section 2.07.
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Section 2.05. Delivery, Exchange and Payment.
(a) At or after the Effective Time: (i) each Stockholder, as the holder
of certificates representing shares of Company Common Stock, will, on surrender
of those certificates to RW (or any agent that may be appointed by RW for
purposes of this Section 2.05), receive, subject to the provisions of this
Article II and the Escrow Agreement, such Stockholder's share of the Merger
Consideration pursuant to Section 2.04 and Exhibit D; and (ii) until any
certificate representing Company Common Stock has been surrendered and replaced
pursuant to this Section 2.05, that certificate will, for all purposes, be
deemed to evidence ownership of the number of whole shares of RW Common Stock
included in the Merger Consideration payable in respect of that certificate
pursuant to Section 2.04. The Escrow Agreement will provide that the shares of
RW Common Stock issued to the Stockholders as a part of the Merger Consideration
together with duly executed stock powers in blank, shall be placed in escrow to
be held subject to the terms of the Escrow Agreement and further subject to
Exhibit D and Section 11.02. The escrow shall consist solely of shares of RW
Common Stock that shall be issued at the Effective Time to the Stockholders of
the Founding Companies and delivered, at the Closing, to the Escrow Agent. All
shares of RW Common Stock issuable in the Merger will be deemed for all purposes
to have been issued by RW at the Effective Time.
(b) Each Stockholder will deliver to RW (or any agent that may be
appointed by RW for purposes of this Section 2.05) on or before the Delivery
Date the certificates representing Company Common Stock owned by the
Stockholder, duly endorsed in blank by that Stockholder, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at that Stockholder's expense, affixed and canceled.
Each Stockholder shall cure any deficiencies in the endorsement of the
certificates or other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing Company Common Stock delivered by
that Stockholder.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to RW Common Stock and payable to
the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company Common
Stock for which shares of RW Common Stock have been issued in the Merger until
those certificates are surrendered as provided herein, but (i) on that surrender
RW will cause to be paid, to the Person in whose name the certificates
representing such shares of RW Common Stock shall then be issued, the amount of
dividends or other distributions previously paid with respect to such whole
shares of RW Common Stock with a record date, or which have accrued, subsequent
to the Effective Time, but prior to surrender, and the amount of any cash
payable to such Person for and in lieu of fractional shares pursuant to Section
2.07 and (ii) at the appropriate payment date or as soon as practicable
thereafter, RW will cause to be paid to that Person the amount of dividends or
other distributions with a record date, or which have been accrued, subsequent
to the Effective Time, but which are not payable until a date subsequent to
surrender, which are payable with respect to such whole shares of RW Common
Stock, subject in all cases to any applicable
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escheat laws. No interest will be payable with respect to the payment of such
dividends or other distributions or cash for and in lieu of fractional shares on
surrender of outstanding certificates.
(d) Each Stockholder hereby authorizes and directs RW to deliver 3.5%
of the Cash Company Consideration and 3.5% of the Stock Company Consideration
owed to such Stockholder pursuant to this Agreement (before deposit of the
shares of RW Common Stock into escrow) to IPO Development Company in payment of
fees owed to IPO Development Company by such Stockholder.
Section 2.06. Merger Consideration Calculation.
(a) No later than fifteen (15) days following the IPO Closing Date, the
Company shall provide to the Chief Accounting Officer of RW (the "CAO") a
determination of the fair market value (as defined) of its inventory, machinery,
equipment and real estate (the "Valued Assets") as of the IPO Closing Date.
Within seven (7) days of such date, the CAO shall distribute to every Founding
Company the value of the Valued Assets of every Founding Company. The Company
shall have seven (7) days from the date of the distribution of such valuation to
dispute the value of the Valued Assets of any Founding Company by providing
written notice of such dispute to the CAO. If the CAO is unable to resolve any
such dispute, the dispute shall be resolved by binding arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
which arbitration shall be resolved no later than thirty (30) days from
selection of the arbitrator. The arbitrator shall be selected by the CAO.
(b) Arthur Andersen or, if not Arthur Andersen, the Company's
accountant, shall cause to be prepared and delivered to RW and the Company a
calculation as of the IPO Closing Date of the Defined Net Worth of the Company
(the "Balance Sheet Calculation"). The Balance Sheet Calculation shall be final
and binding on the Company and the Other Founding Companies absent fraud,
manifest error or gross negligence.
(c) The Balance Sheet Calculation shall include a report of Arthur
Andersen or, if not Arthur Andersen, the Company's accountant, stating that it
has been prepared in a manner consistent with the accounting policies and
procedures used in preparation of the balance sheets in the Initial Financial
Statements, except as provided in the definition of "Defined Net Worth"
contained herein. The Stockholders shall give Arthur Andersen and other
appropriate personnel such assistance and access to the assets and books and
records of the Company as Arthur Andersen shall reasonably request during normal
business hours in order to enable them to prepare the Balance Sheet Calculation.
The Surviving Corporation shall be responsible for the fees and expenses of
Arthur Andersen or, if not Arthur Andersen the Company's accountant.
Section 2.07. Fractional Shares. Notwithstanding any other provision
herein, no fractional shares of RW Common Stock will be issued. All shares of RW
Common Stock shall be aggregated, and any Stockholder entitled hereunder, after
such aggregation, to receive a fractional share of RW Common Stock but for this
Section 2.07 will be entitled hereunder to receive a cash payment for and
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in lieu thereof in the amount (rounded to the nearest whole cent) equal to that
Stockholder's fractional interest in a share of RW Common Stock multiplied by
the IPO Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01. By Each Stockholder. The Stockholders severally represent
and warrant to, and agree with, RW that all the following representations and
warranties in this Article III are as of the date of this Agreement, and will
be, as amended or supplemented pursuant to Section 6.08, on the IPO Closing
Date, true and correct:
(a) (i) each Stockholder will acquire the shares of RW Common Stock to
be issued pursuant to Article II to the Stockholder solely for the Stockholder's
account, for investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of those shares in connection with
any distribution;
(ii) no Stockholder is a party to any agreement or other
arrangement for the disposition of any shares of RW Common Stock other
than this Agreement; (iii) except as set forth on Schedule 3.01(a)(ii)
each Stockholder is an "accredited investor" as defined in Rule 501(a)
promulgated under the Securities Act; (iv) each Stockholder (A) is able
to bear the economic risk of an investment in the RW Common Stock
acquired pursuant to this Agreement, (B) can afford to sustain a total
loss of that investment, (C) has such knowledge and experience in
financial and business matters that he or she is capable of evaluating
the merits and risks of the proposed investment in the RW Common Stock,
(D) has had an adequate opportunity to ask questions and receive
answers from the officers of RW concerning any and all matters relating
to the transactions contemplated hereby, including the background and
experience of the current and proposed officers and directors of RW,
the plans for the operations of the business of RW, the business,
operations and financial condition of the Other Founding Companies and
any plans of RW for additional acquisitions, and (E) has asked all
questions of the nature described in preceding clause (D) that such
Stockholder thought to ask, and all those questions have been answered
to his or her satisfaction;
(b) the representations and warranties contained in Article III of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to; and
(c) (i) the terms and conditions of any agreements between any
Stockholder or an Affiliate of any Stockholder, on the one hand, and the Company
on the other hand, included in the Scheduled Related Party Agreements will have
been amended effective as of the IPO Closing Date to be no less favorable to the
Company than the Company reasonably could have expected to obtain in an
arms-length transaction with a Person other than an Affiliate of the Company and
(ii) the
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rentals or other payments provided for in such agreements then will not exceed
fair market rentals of the property being leased or fair market value of the sum
or product being provided and such amounts shall have been previously approved
in writing by the Chief Financial Officer of RW.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRIMARY STOCKHOLDERS
Section 4.01. By the Company and Each Primary Stockholder. The Company
and each Primary Stockholder jointly and severally represent and warrant to, and
agree with, RW that all the following representations and warranties in this
Article IV are as of the date of this Agreement, and will be, as amended or
supplemented pursuant to Section 6.08, on the Delivery Date and the IPO Closing
Date, true and correct:
(a) the Organization State of the Company is the State of Texas, and
the Company (i) is a corporation duly organized, validly existing and in good
standing under the laws of that State, (ii) has all requisite corporate power
and authority under those laws and its Charter Documents to own or lease and to
operate its properties and to carry on its business as now conducted and (iii)
is duly qualified and in good standing as a foreign corporation in all
jurisdictions (other than the State of Texas) in which it owns or leases
property or in which the carrying on of its business as now conducted so
requires except where the failure to be so qualified, singly or in the
aggregate, would not have a Material Adverse Effect;
(b) (i) the authorized Capital Stock of the Company is comprised of
100,000 shares of Company Common Stock, of which 1,000 shares have been issued
and are now outstanding and no shares are held by the Company as treasury
shares, and (ii) there are no Derivative Securities of the Company; and
(c) the representations and warranties contained in Article IV of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct, and the agreements set forth in that
Article hereby are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF RW AND NEWCO
Section 5.01. By RW and Newco. RW and Newco jointly and severally
represent and warrant to the Company and each Stockholder that all the following
representations and warranties in this Article V are as of the date of this
Agreement, and will be on the IPO Closing Date, true and correct:
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(a) Newco is a corporation duly organized, validly existing and in good
standing under the laws of the State of Texas;
(b) except as disclosed in the Private Placement Memorandum, no
Derivative Securities of Newco are outstanding;
(c) Newco has been organized for the sole purpose of participating in
the Merger and has not, and will not, engage in any activities other than those
necessary to effectuate the Merger;
(d) except for shares of RW Common Stock to be publicly sold in the IPO
and as disclosed in the Private Placement Memorandum or preliminary prospectus,
neither RW nor Newco is a party to any agreement or other arrangement for the
disposition of any shares of RW Common Stock; and
(e) the representations and warranties contained in Article V of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01. Of Each Party. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article hereby is incorporated herein by this reference) to
be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01. The Closing and Certain Conditions.
(a) The Closing. On or before the IPO Pricing Date, the parties hereto
will take all actions necessary to (i) effect the Merger (including, as
permitted by the Applicable Corporate Code, (A) the execution of a Certificate
of Merger (1) meeting the requirements of the Applicable Corporate Code and (2)
providing that the Merger will become effective on the IPO Closing Date and (B)
the delivery of that Certificate of Merger with a filing service that will file
such Certificate of Merger with the Department of State of the State of Texas)
upon notification of the closing of the IPO (provided that Comstock's
Certificate of Merger shall be filed immediately prior to the closing of the
IPO), (ii) verify the existence and ownership of the certificates evidencing the
Company Common Stock to be exchanged for the Merger Consideration pursuant to
Section 2.05 and (iii) satisfy the document delivery requirements to which the
obligations of the parties to effect the Merger and the other transactions
contemplated hereby are conditioned by the provisions of this
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Article VII (all those actions collectively being the "Delivery"). The Delivery
will take place at the offices of King & Spalding, 191 Peachtree Street,
Atlanta, Georgia at 10:00 a.m., Atlanta time on the IPO Pricing Date, or at such
later time on the IPO Pricing Date as RW shall specify by written notice to the
President of the Company (the "Delivery Date"). The actions taken at the
Delivery will not include the completion of either the Merger or the delivery of
the Company Common Stock or the Merger Consideration pursuant to Section 2.05.
On the IPO Closing Date, the Certificate of Merger will be filed and will become
effective pursuant to Section 2.02, and all transactions contemplated by this
Agreement to be closed or completed on or before the IPO Closing Date, including
the surrender of the Company Common Stock in exchange for the Merger
Consideration (including a certified check or checks in an amount equal to the
cash portion of the Merger Consideration) will be closed or completed, as the
case may be. During the period from the Delivery Date to the IPO Closing Date,
this Agreement may be terminated by the parties only pursuant to Section
12.01(b)(i).
(b) Certain Conditions to the Obligations of the Company and the
Stockholders. The obligations of the Company and the Stockholders with respect
to the actions to be taken by them at or before the Delivery Date are subject to
the satisfaction on or before the Delivery Date, or waiver by them pursuant to
Section 11.05, of all the conditions set forth in Sections 7.01 and 7.02(a). The
obligations of the Stockholders with respect to the actions to be taken on the
IPO Closing Date are subject to the satisfaction on that date of the following
conditions: (if required by such Stockholder) (i) the Employment Agreement then
shall be in full force and effect; and (ii) all the conditions set forth in
Sections 7.01 and 7.02(b).
(c) Certain Conditions to the Obligations of RW and Newco. The
obligations of RW and Newco with respect to actions to be taken by them at or
before the Delivery Date are subject to the satisfaction on or before the date
of the Delivery Date, or waiver by them pursuant to Section 11.05, of the
following conditions: (i) the Company shall have delivered to RW a copy of the
articles of incorporation, as amended to the Delivery Date and certified by the
Secretary of State of the State of Texas as of a Current Date, of the Company;
and (ii) all the conditions set forth in Sections 7.01 and 7.03(a). The
obligations of RW and Newco with respect to the actions to be taken on the IPO
Closing Date are subject to the satisfaction on that date of the following
conditions: (i) the Employment Agreements then shall be in full force and
effect; and (ii) all the conditions set forth in Sections 7.01 and 7.03(b).
(d) Uniform Provisions. The text of Article VII of the Uniform
Provisions hereby is incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01. Of Each Party Other than the Company. From and after the
Effective Time, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Company) will
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<PAGE> 15
comply with each covenant for which provision is made in Article VIII of the
Uniform Provisions (the text of which Article hereby is incorporated herein by
this reference) to be performed or observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01. Indemnification Rights and Obligations. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. Any provision contained in Article IX of the Uniform Provisions to
the contrary notwithstanding, the indemnification obligations of the
Stockholders pursuant to this Agreement shall be joint and several.
ARTICLE X
[Intentionally Ommitted]
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. Treatment of Confidential Information. Each party hereto
will comply with each covenant for which provision is made in Section 11.01 of
the Uniform Provisions (the text of which Section hereby is incorporated herein
by this reference) to be performed or observed by that party.
Section 11.02. Restrictions on Transfer of RW Common Stock.
(a) Except for transfers to employees of the Company that are approved
in writing by the Board of Directors of RW (or a committee designated by the
Board of Directors of RW) prior to such transfer, during the one year period
ending on the first anniversary of the IPO Closing Date (the "Restricted
Period"), no Stockholder voluntarily will: (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
RW Common Stock received by any Stockholder in the Merger or (B) any interest in
(including any option to buy or sell) any of those shares of RW Common Stock, in
whole or in part, and RW will have no obligation to, and shall not, treat any
such attempted transfer as effective for any purpose; or (ii) engage in any
transaction, whether or not with respect to any shares of RW Common Stock or any
interest therein, the intent or effect of which is to reduce the risk of owning
the shares of RW Common Stock acquired pursuant to Section 2.04 (including, for
example engaging in put, call, short-sale, straddle or similar market
transactions); provided, however, that this Section 11.02 shall not restrict any
transfer of RW Common Stock acquired by a Stockholder pursuant to Section 2.04
to any of that Stockholder's Related Persons who agree in writing to be bound by
the provisions of Section 11.01
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<PAGE> 16
and this Section 11.02. The certificates evidencing the RW Common Stock
delivered to each Stockholder pursuant to Section 2.05 will bear a legend
substantially in the form set forth below and containing such other information
as RW may deem necessary or appropriate:
"EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER
PARTIES THERETO, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE
REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF
ANY OF THOSE SHARES, DURING THE ONE-YEAR PERIOD ENDING ON __________ [DATE THAT
IS THE FIRST ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED PERIOD"). ON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE."
(b) From the first anniversary of the IPO Closing Date to the fourth
anniversary of the IPO Closing Date, the Stockholders agree to sell shares of RW
Common Stock acquired pursuant to this Agreement only in accordance with the
procedures set forth in this Section 11.02(b). Every quarter during such period,
every Stockholder will be permitted to sell, in the aggregate, up to 8% of the
aggregate number of shares of Common Stock received by such Stockholder pursuant
to this Agreement (the "Quarterly Block Trade Shares") in either a block trade
or a registered public offering, at the option of RW. If a Stockholder does not
sell all of his or her Quarterly Block Trade Shares in any given quarter, such
Stockholder may sell such Quarterly Block Trade Shares pursuant to this Section
11.02(b) in any later quarter, provided, however, that in no event may a
Stockholder sell more than 20% of the shares of Common Stock received by such
Stockholder pursuant to this Agreement in any one quarter. Any Stockholder that
wishes to sell shares of RW Common Stock pursuant to such selling opportunity
must give notice to RW and the Executive Council no later than fourteen days
prior to the commencement of the fiscal quarter of RW during which such
Stockholder wants to sell such shares. Notwithstanding anything set forth in
this Section 11.02(b), RW may elect to make available to the Stockholders (i)
additional opportunities to sell shares of RW Common Stock and/or (ii) the
opportunity to sell an amount in excess of such amount during any particular
quarter. The Company may modify or waive this Section 11.02(b) at its sole
discretion at any time following written notice to the Stockholders, provided
that no such modification or waiver may reduce the number of selling
opportunities or the maximum number of shares of RW Common Stock that may be
sold by any Stockholder during any selling opportunity.
(c) Each Stockholder, severally and not jointly with any other Person,
(i) acknowledges that the shares of RW Common Stock to be delivered to that
Stockholder pursuant to Section 2.04 have not been and will not be registered
under the Securities Act and therefore may not be resold by that Stockholder
without compliance with the Securities Act and (ii) covenants that none of the
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<PAGE> 17
shares of RW Common Stock issued to that Stockholder pursuant to Section 2.04
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable provisions of
the Securities Act and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of RW Common
Stock issued pursuant to Section 2.04 will bear the following legend in addition
to the legend prescribed by Section 11.02(a):
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, HAVE
BEEN ISSUED PURSUANT TO ONE OR MORE EXEMPTIONS THERETO, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED OR DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED."
In addition, certificates evidencing shares of RW Common Stock issued pursuant
to Section 2.04 to each Stockholder will bear any legend required by the
securities or blue sky laws of the state in which that Stockholder resides.
Section 11.03. Brokers and Agents. Except for IPO Development Company,
each of the Stockholders jointly and severally, on the one hand, and RW, on the
other, represents and warrants to the other that such Person has not directly or
indirectly employed or become obligated to pay any broker, finder or similar
agent in connection with the transactions contemplated hereby and agree, without
regard to the Threshold Amount limitations set forth in Article IX, to indemnify
the other against all Damage Claims arising out of claims for any and all fees
and commissions of brokers or similar agents employed or promised payment by
such Person.
Section 11.04. Assignment; No Third Party Beneficiaries. This Agreement
and the rights of the parties hereunder may not be assigned (except by operation
of law) and shall be binding on and inure to the benefit of the parties hereto,
the successors of RW, and the heirs and legal representatives of the
Stockholders (and, in the case of any trust, the successor trustees of that
trust). Neither this Agreement nor any other Transaction Document is intended,
or shall be construed, deemed or interpreted, to confer on any Person not a
party hereto or thereto any rights or remedies hereunder or thereunder, except
as provided in Section 6.05(b) or 11.14, in Article IX or as otherwise provided
expressly herein or therein.
Section 11.05. Entire Agreement; Amendment; Waivers. Except with
respect to Section 11.07 hereof, this Agreement and the documents delivered
pursuant hereto constitute the entire agreement and understanding among the
Stockholders, the Company, Newco and RW and supersede all prior agreements and
understandings, both written and oral, relating to the subject matter of this
Agreement. This Agreement may be amended, modified or supplemented, and any
right hereunder may be waived, if, but only if, that amendment, modification,
supplement or waiver is in writing and
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<PAGE> 18
signed by each of the Stockholders, the Company and RW. The waiver of any of the
terms and conditions hereof shall not be construed or interpreted as, or deemed
to be, a waiver of any other term or condition hereof.
Section 11.06. Counterparts. This Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
Section 11.07. Expenses. If the transactions contemplated hereby (i)
are consummated, RW will pay the fees, expenses and disbursements of RW and
Newco and their Representatives which are incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all costs
and expenses incurred in the performance of and compliance with all conditions
to be performed by RW and Newco under this Agreement, including the costs of
preparing the Registration Statement, (collectively, the "RW Expenses") and (ii)
if the transactions contemplated hereby are not consummated, the RW Expenses
shall be paid by the Founding Companies subject to the provisions of the IPO
Cost Liability Sharing Agreement attached hereto as Exhibit C and incorporated
herein by reference (b) the Stockholders will pay from personal funds, and not
from funds of the Company or any Company Subsidiary, all sales, use, transfer
and other similar taxes and fees (collectively, "Transfer Taxes") incurred in
connection with the transactions contemplated hereby and (c) the Company will
pay the fees, expenses and disbursements of Counsel for the Company and the
Stockholders incurred in connection with the subject matter of this Agreement
and the Registration Statement on or before the IPO Closing Date. The
Stockholders will file all necessary documentation and Returns with respect to
all Transfer Taxes. In addition, each Stockholder acknowledges that he, and not
the Company or RW or the Surviving Corporation, will pay all Taxes due upon
receipt of the consideration payable to that Stockholder pursuant to Article II.
Section 11.08. Notices. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received
(a) if personally delivered or if delivered by telex, telegram,
facsimile or courier service, when actually received by the party to whom notice
is sent or
(b) if delivered by mail (whether actually received or not), at the
close of business on the third Business Day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
(i) if to RW or Newco, addressed to it at:
RailWorks Corporation
403 Somerset Road
Baltimore, Maryland 21210
Attn: Chief Executive Officer
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<PAGE> 19
with copies (which shall not constitute notice for purposes
of this Agreement) to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attn: Jeffrey M. Stein
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
Wm. A. Smith Rerailing Services, Inc.
6040 Armour Drive
Houston, Texas 77220
Attn: Jack I. Wilt
with copies (which shall not constitute notice for purposes
of this Agreement) to Counsel for the Company and the
Stockholders at the address designated by the Company
Section 11.09. Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF DELAWARE
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
Section 11.10. Exercise of Rights and Remedies. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11. Time. Time is of the essence in the performance of this
Agreement in all respects.
Section 11.12. Reformation and Severability. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this
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<PAGE> 20
Agreement, and in either case the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
Section 11.13. Remedies Cumulative. No right, remedy or election given
by any term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
Section 11.14. Respecting the IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither RW or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that RW will use its reasonable best efforts to
cause the Registration Statement to become effective prior to August 14, 1998)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to RW or the
IPO.
ARTICLE XII
TERMINATION
Section 12.01. Termination of this Agreement.
(a) This Agreement may be terminated at any time prior to the Delivery
Date solely:
(i) by the mutual written consent of RW and the Company;
(ii) by the Stockholders or the Company, on the one hand, or
by RW, on the other hand, if the events contemplated by this Agreement
to take place at the Delivery Date shall not have taken place by
September 4, 1998, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the
case of the Stockholders and the Company, any of them) seeking to
terminate this Agreement to perform or adhere to any agreement required
hereby to be performed or adhered to by it prior to or at the Delivery
Date or thereafter on the IPO Closing Date;
(iii) by the Stockholders or the Company, on the one hand, or by
RW, on the other hand, if a material breach or default shall be made by
the other party (or in the case of the Stockholders and the Company,
any of them) in the observance or in the due and timely
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<PAGE> 21
performance of any of the covenants, agreements or conditions contained
in Article VI or Section 11.01;
(iv) by the Stockholders or the Company, on the one hand, or RW,
on the other, if it is entitled to do so as provided in Section 6.08;
(v) by the Stockholders prior to the filing of the Registration
Statement if the Registration Statement is not filed by June 15, 1998;
(vi) by RW or the Stockholders prior to 9:00 a.m. on the IPO
Pricing Date (as set forth in Section 8.10) if the value of RW at the
IPO Pricing Date (as calculated by multiplying the price per share at
which the RW common stock is to be sold in the IPO by the number of
shares of common stock to be outstanding after the Closing of the IPO)
shall be less than $215 million;
(vii) by the Stockholders if the Registration Statement has not
been declared effective by the Securities and Exchange Commission by
August 14, 1998;
(viii) by the Stockholders if John G. Larkin is no longer serving
as Chairman of the Board of Directors and Chief Executive Officer prior
to the Closing; or
(ix) by the stockholders of CPI Concrete Products, Inc. if its
Employee Stock Ownership Plan does not approve the merger prior to the
Delivery Date.
(b) This Agreement may be terminated after the Delivery Date solely:
(i) by RW or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the IPO Pricing Date and prior
to the consummation of the IPO; or
(ii) automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City business
days after the Delivery Date.
(c) If this Agreement is terminated pursuant to this Section 12.01, the
Merger will be deemed for all purposes to have been abandoned and of no force or
effect.
Section 12.02. Liabilities in Event of Termination. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Sections
11.03 or 11.07 and (b) to the extent that such liability is based on the breach
by that party of any of its representations, warranties or covenants set forth
in this Agreement.
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<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
RAILWORKS CORPORATION
By:/s/ John G. Larkin
-------------------------------------
John G. Larkin
Chief Executive Officer
LONGHORN SMITH RERAILING
COMPANY
By:/s/ John G. Larkin
-------------------------------------
John G. Larkin
President
WM. A. SMITH RERAILING CO., INC.
By:/s/ Authorized Signature
-------------------------------------
Name:
Title:
STOCKHOLDERS:
/s/ Jack I. Wilt
----------------------------------------
Jack I. Wilt
/s/ Daniel E. Burg
----------------------------------------
Daniel E. Burg
/s/ Richard H. Stephens
----------------------------------------
Richard H. Stephens
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<PAGE> 23
/s/ Robert O. Carson
----------------------------------------
Robert O. Carson
/s/ Ben Hernandez
----------------------------------------
Ben Hernandez
/s/ Ralph P. Gautreux
----------------------------------------
Ralph P. Gautreux
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<PAGE> 24
ADDENDUM 1
OTHER FOUNDING COMPANIES
A. Words and terms used in this Addendum which are defined
in the captioned Agreement to which this is an Addendum are used herein as
therein defined.
B. The Founding Companies are:
Alpha - Keystone Engineering, Inc.
Annex Railroad Builders, Inc.
Comtrak Construction, Inc.
Comstock Holdings Inc.
Condon Brothers, Inc.
CPI Concrete Products
HP McGinley, Inc.
Kennedy Railroad Builders, Inc.
Merit Railroad Contractors, Inc.
Midwest Construction Services, Inc.
Minnesota Railroad Services, Inc.
Mize Construction Co.
New England Railroad Construction Co., Inc.
Northern Rail Service & Supply Company, Inc.
Railcorp, Inc.
Railroad Service, Inc.
Railroad Specialities, Inc,
Southern Indiana Wood Preserving Co.
U.S. Railway Supply, Inc,
U.S. Trackworks, Inc.
W.A. Smith Construction Co., Inc.
W.A Smith Rerailing Co., Inc.
<PAGE> 1
EXHIBIT 10.24
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of
this 21st day of May, 1998, by and between Michael R. Azarela, an individual
resident of the State of New York ("Employee"), the Founding Companies (as
defined below), and RailWorks Corporation, a Delaware corporation (as defined
below the "Holding Company").
W I T N E S S E T H
WHEREAS, the entities listed on Exhibit A, which is attached
hereto and hereby incorporated by reference herein (the "Founding Companies")
intend to form a consolidated group with a common parent (the "Holding Company")
to hold all of the outstanding stock of each of the Founding Companies (the
"Combination");
WHEREAS, the Holding Company will be created for the purpose
of carrying on the businesses of the Founding Companies, and conducting a public
offering of its common stock under applicable law. The Holding Company will be
the Employer hereunder;
WHEREAS, the Employee has substantial experience advising
entities that are in the same businesses as the Founding Companies, and has
substantial managerial experience;
WHEREAS, the Founding Companies desire that the Holding
Company employ the Employee to be the Executive Vice President and Chief
Financial Officer of the Holding Company on the terms and conditions as
contained herein; and
WHEREAS, the Employee desires to be so employed by the Holding
Company, on the terms and conditions as contained herein.
NOW, THEREFORE, in consideration of the premises and the
mutual promises and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged by
the parties hereto, the parties hereto, intending to be legally bound, hereby
agree as follows:
<PAGE> 2
SECTION 1. EMPLOYMENT.
Subject to the terms hereof, Employer will employ Employee and
Employee hereby accepts such employment. After the Combination is consummated,
the Employee shall serve as the Executive Vice President and Chief Financial
Officer of the Holding Company and shall be a director of the Holding Company.
In addition, after the Combination is consummated, the Holding Company shall
have at least two outside directors who shall be selected with the advice and
consent of the Employee.
Subject to the terms and conditions of this Agreement, from
the date hereof until the Combination is consummated, the Employee shall devote
reasonable efforts to the Founding Companies to help consummate the Combination,
but shall be permitted to remain in his present job or any similar job until the
Combination is so consummated. After the Combination is consummated, Employee
agrees to devote substantially all of his business time and best efforts to the
performance of his job as Executive Vice President and Chief Financial Officer
of the Holding Company, subject to direction by the Board of Directors of the
Holding Company (the "Board of Directors"), as long as such directions are
consistent with the duties, responsibilities and authority customarily given or
required of chief financial officers generally, with the Employee to report his
activities regularly to the Board of Directors.
SECTION 2. TERM OF EMPLOYMENT. The term of the Employee's
employment hereunder (the "Term") shall be from the date this Agreement is fully
executed until the occurrence of any of the following events:
(i) The death or total disability of Employee (total disability
meaning the failure to fully perform his normal required
services hereunder for a period of six (6) consecutive months
during any consecutive twelve (12) month period during the
term hereof, as determined by an independent medical doctor
jointly chosen by the Employee and the Employer) by reason of
mental or physical disability;
(ii) The termination by Employer of Employee's employment
hereunder, upon thirty (30) days prior written notice to
Employee, for "good cause", as reasonably determined by the
Board of Directors. For purposes of this Agreement, "good
cause" for termination of Employee's employment shall exist
(A) if Employee is convicted of, pleads guilty to or confesses
to any felony or any act of fraud, misappropriation or
embezzlement, (B) if Employee has engaged in a dishonest act
to the material damage or prejudice of Employer or an
affiliate of Employer, or in conduct or activities materially
damaging to the property, business, or reputation of Employer
or an affiliate of Employer, or (C) if Employee violates any
of the provisions contained in Section 5 of this Agreement,
after receiving
2
<PAGE> 3
written notice from the Employer specifically outlining the
alleged violations by the Employee of Section 5 hereof and
either (1) the Employee fails to stop the alleged behavior
which is claimed to be such a breach within thirty (30) days
of receipt by the Employee of such written notice or (2) the
Employer prevails in mediation or binding arbitration pursuant
to the commercial arbitration rules of the American
Arbitration Association which arbitration is commenced by the
Employee within thirty (30) days of receipt by the Employer of
such notice in accordance with the provisions of Section 5.6
hereof;
(iii) The termination by the Employee in the event that the
Combination is not consummated with the participation of L.K.
Comstock & Company, Inc. ("Comstock") in accordance with the
Agreement and Plan of Reorganization to which it is a party
dated as of May 21, 1998, or at least Forty Million Dollars
($40,000,000) has not been raised as part of the initial
public offering (the "IPO") contemplated as part of the
Combination by September 4, 1998, upon thirty (30) days
written notice to the Founding Companies;
(iv) After the Combination and the IPO have both been consummated,
the termination by either the Employee or the Employer, upon
thirty (30) days written notice to the other party, in the
event of a Change of Control of the Employer (as defined
hereinbelow).
For purposes of this Agreement, a "Change of Control"
shall be deemed to have occurred if (A) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), other
than a trustee or other fiduciary holding securities under an
employee benefit plan of the Holding Company, a corporation
owned directly or indirectly by the stockholders of the
Holding Company (immediately after the IPO) or any of their
respective affiliates, becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Holding Company representing
50% or more of the total voting power represented by the
Holding Company's then outstanding securities that vote
generally in the election of directors (referred to herein as
"Voting Securities"); (B) during any period of two consecutive
years, individuals who at the beginning of such period
constitute the Board of Directors and any new directors whose
election by the Board of Directors or nomination for election
by the Holding Company's stockholders was approved by a vote
or a majority of the directors then still in office who either
were directors at the beginning of the period or whose
election or nomination for election was previously so
approved, cease for any reason to constitute a majority
3
<PAGE> 4
of the Board of Directors; (C) the stockholders of the Holding
Company approve a merger or consolidation of the Holding
Company with any other corporation, other than a merger or
consolidation (i) which would result in the Voting Securities
of the Holding Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by
being converted into Voting Securities of the surviving
entity) at least 50% of the total voting power represented by
the Voting Securities of the Holding Company or such surviving
entity outstanding immediately after such merger or
consolidation or (ii) in which 50% or more of the board of
directors of the surviving entity is composed of members from
the Board of Directors of the Holding Company; (D) the
stockholders of the Holding Company approve a plan of complete
liquidation of the Holding Company or an agreement for the
sale or disposition by the Holding Company of (in one
transaction or a series of transactions) all or substantially
all of the Holding Company's assets; (E) the executive offices
of the Holding Company are relocated from the Greater
Baltimore Metropolitan Area or (F) the Employee is not a
member of the Board of Directors or is not on any Executive
Committee or similar committee of the Board of Directors; or
(v) After December 31, 2001, this Agreement shall continue upon a
year-to-year basis unless terminated by either the Employer or
the Employee upon ninety days (90) written notice to the other
before January 1 of the next year.
SECTION 3. COMPENSATION.
3.1 Term of Employment. Employer will provide Employee with
the following salary, expense reimbursement and additional employee benefits
during the term of employment hereunder.
(a) Salary
(i) Subject to the terms and conditions hereof,
until the IPO is consummated, the Employee
shall receive no salary but shall be
entitled to reimbursement, with ten (10)
days of submission of a reimbursement
report, of any and all of his reasonable
out-of-pocket expenses, of any kind or
nature, incurred by the Employee in
promoting and helping to structure and
facilitate the Combination. All such
expenses shall be paid from the interim
monthly corporate budget of Employer, equal
to $33,000 per month until consummation of
the IPO. Every Founding Company
4
<PAGE> 5
has contributed to, and hereby agrees to
continue to contribute to, the interim
monthly corporate budget on a pro rata
basis.
(ii) After the IPO is consummated, Employee will
be paid a salary (the "Base Salary") of no
less than Two Hundred Twenty Five Thousand
Dollars ($225,000) per annum, less
deductions and withholdings required by
applicable law. The Base Salary shall be
paid to Employee in equal monthly
installments (or on such more frequent basis
as other executives of Employer are
compensated). The Base Salary shall be
reviewed by the Board of Directors of
Employer on at least an annual basis
thereafter and may be increased but not
decreased as a result of any such review.
(b) Performance Bonuses. In addition to the Base Salary,
the Employee shall have the right to receive from the
Employer, and the Employer shall be obligated to pay
to the Employee, a performance bonus (the
"Performance Bonus") for each fiscal year during the
term of this Agreement, equal to the aggregate amount
determined by the bonus formulas delineated herein
below. Any amount of a Performance Bonus required to
be paid to the Employee for a fiscal year during the
term of this Agreement shall be paid by the Employer
in the first pay period of the Employer immediately
following the finalization of the accounting audit
for financial accounting purposes of the Employer for
the preceding fiscal year but in all events by March
31 of the year immediately following the end of the
fiscal year for which such Performance Bonus is
attributable.
The formulas to determine a Performance Bonus for any
fiscal year during the term of this Agreement shall
be as follows:
(i) For each fiscal year of the Employer, .2% of
the pre-tax net income, before any
performance or other periodic bonuses for
any of the employees of the Employer and any
of its consolidated subsidiaries, of the
Employer on a consolidated basis for
financial accounting basis based upon
applying generally accepted accounting
principles and generally accepted auditing
standards on a consistent basis. This bonus
shall be calculated by the independent
certified public accountant regularly
employed by the Employer (the "CPA")
applying such generally accepted
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accounting principles and generally accepted
auditing standards on a consistent basis.
Plus
(ii) For each fiscal year of the Employer, two
percent (2%) of the excess of (a) the
consolidated after tax net income of the
Employer and its consolidated subsidiaries
for a fiscal year, computed by the CPA
applying generally accepted accounting
principles and generally accepted auditing
standards on a consistent basis over (b) the
Wall Street Estimate (as hereinafter
defined) for such fiscal year. For purposes
of this subsection (ii)(b), Wall Street
Estimate for a fiscal year shall mean the
simple arithmetical average of the
consolidated earnings per share estimates
for a fiscal year of the Employer and its
consolidated subsidiaries in the possession
of First Call on the Determination Date (as
hereinafter defined), translated by the CPA
into the equivalent consolidated after tax
net income of the Employer and its
consolidated subsidiaries for such fiscal
year. For purposes of this subsection
(ii)(b), the Determination Date shall mean
the date the IPO is consummated and
thereafter shall be the first day of the
fiscal year for which such computation
applies.
(c) Discretionary Bonus. The Board of Directors may, from
time to time, award the Employee an additional
discretionary bonus based upon such factors as the
Board of Directors deems appropriate. The Employer
shall have no entitlement to such a discretionary
bonus until and unless so awarded by the Board of
Directors.
(d) Vacation. Employee shall receive four (4) weeks
vacation time per calendar year during the term of
this Agreement in addition to customary holidays
afforded other employees of Employer. Any unused
vacation days in any calendar year may not be carried
over to subsequent years. The Employer recognizes the
benefit to it of the Employee attending and
participating in trade seminars, conventions, and
similar gatherings and educational seminars and
encourages the Employee to attend such seminars and
conventions. Accordingly, any reasonable cost and
expenses thereof will be paid for by the Employer and
any time spent by the Employee at such seminars and
conventions shall not constitute vacation
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time but shall constitute part of the Employee's
duties under this Agreement.
(e) Expenses. Subsequent to the IPO, Employer shall
reimburse Employee, within thirty (30) days of its
receipt of a reimbursement report from the Employee,
for all reasonable and necessary expenses incurred by
Employee on behalf of Employer.
(f) Benefit Plans. Employee shall have the option of
participating in such medical, dental, disability,
hospitalization, life insurance, stock option and
other benefit plans (such as pension and profit
sharing plans) as Employer maintains from time to
time for the benefit of other senior executives of
Employer, on the terms and subject to the conditions
set forth in such plans.
(g) Relocation. In addition to other compensation and
reimbursement of expenses required to be paid under
this Agreement, Employer shall reimburse Employee
within ten (10) days of submission of a reimbursement
report:
(A) Any and all of his out-of-pocket expenses of
any kind or nature, incurred by Employee
relating to the relocation ("Relocation") of
Employee and/or his family from the New York
City Metropolitan area to the Baltimore
Metropolitan area including, but not limited
to:
I. Packing, storage and professional
mover costs relating to the
furniture, clothing, household
belongings and other personal
property of Employee and his
family.
II. Travel expenses incurred by
Employee and his family in
connection with commuting to and
from New York and Maryland relating
to searching for a new residence
("Maryland Home") in Maryland and
the sale of Employee's existing
home ("New York Home") in New York.
III. Real estate commissions paid
relating to the sale of the New
York Home.
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IV. Mortgage application, points, fees,
charges, appraisal, attorney fees
of the mortgage lender, title
insurance, survey, and all other
costs and expenses associated with
obtaining a loan and mortgage and
the purchase of the Maryland Home.
V. Attorney fees incurred by Employee
relating to the sale of the New
York Home and purchase of the
Maryland Home.
(B) Temporary housing costs in Maryland for
Employee and/or his family pending
completion of the Relocation, for a period
not exceeding six months from the effective
date of the IPO.
(h) Notwithstanding anything to the contrary contained
herein, until the IPO is consummated, the Employee
shall not be an employee of any of the Founding
Companies or the Holding Company but shall remain
employed by Comstock and, to the extent required to
fulfill his duties hereunder, shall be an agent of
each of the Founding Companies. Furthermore, the
Holding Company, and not the Founding Companies,
shall be responsible to provide to the Employee the
compensation and benefits provided by this Section 3;
provided that the provisions of this paragraph shall
not affect any agreement between the Founding
Companies to provide funds to the Holding Company
prior to the IPO or otherwise.
3.2 Effect of Termination. Except as hereinafter
provided, upon the termination of the employment of Employee hereunder for any
reason, Employee shall be entitled to all compensation and benefits earned or
accrued under Section 3.1 as of the effective date of termination (the
"Termination Date"), but from and after the Termination Date no additional
compensation or benefits shall be earned by Employee hereunder. Except upon
termination by the Employer of the employment of the Employee pursuant to the
provisions of Section 2(ii) hereof, Employee shall be deemed to have earned any
Performance Bonus payable with respect to the fiscal year in which the
Termination Date occurs on a prorated basis (based on the number of days in such
calendar year through and including the Termination Date divided by 365). Any
such Performance Bonus shall be payable on the date on which the Performance
Bonus would have been paid had Employee continued his employment hereunder. In
addition, the Employee and his eligible dependents shall be entitled to receive
at the sole cost of the Employer (A) the health insurance benefits specified
hereunder for a period of twelve (12) months following the Termination Date (the
"Continuation Period") and following such time period, the Employee shall be
entitled to all rights afforded to him under the Federal Omnibus Reconciliation
Act ("COBRA") to purchase continuation coverage of such health insurance
benefits for himself and his dependents for the maximum period permitted by law,
and the
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Employee shall be deemed to have elected to exercise his rights under Cobra as
of the first day of the Continuation Period, and (B) the life insurance benefits
specified hereinabove for the period of the Continuation Period.
(i) Upon termination of this Agreement, pursuant to the
provisions of Sections 2 (i) or (iv) hereof, any stock grants or options
previously awarded to the Employee, either by this Agreement or otherwise, shall
fully and completely vest and the Employee shall be able to retain or obtain as
the case may be, such stock, as though there was no vesting period or criteria
of any kind or nature, with respect to such stock. If stock options have
previously been awarded to the Employee, notwithstanding any terms and
conditions of such award or any plan pursuant to which such stock options were
awarded, the Employee or his authorized representative shall have a period of
three (3) months from the Termination Date to exercise any or all of such stock
options and acquire for his own benefit the shares of stock covered by such
stock options.
(ii) Upon termination of the Agreement pursuant to the terms
of Section 2(ii) or (v) hereof, all granted but unvested, at the Termination
Date, stock grants or options shall be forfeited upon such termination; provided
that the Employee shall be able to retain or exercise any rights for a period of
one (1) month after the Termination Date, notwithstanding the terms and
provisions of such stock options awarded or the plan under which they were
awarded, with respect to any shares of stock granted or shares of stock covered
by stock options that have fully vested as of the Termination Date.
SECTION 4. COMMON STOCK.
4.1. Term of Employment. So that Employee can share in the
increase in value of the business of Employer over time, Employee will be
granted common stock of Employer as follows:
(i) Stock Grant. Simultaneously with the consummation of
the Combination, Employee will be granted that number
of shares of all classes of stock of the Holding
Company equal to one percent (1.0%) of the number of
shares of all classes of stock of the Holding Company
outstanding immediately upon consummation of the IPO.
Such shares so granted shall fully and completely
vest on the date of issuance.
(ii) Stock Splits and Recapitalization. The number of
shares of common stock granted hereby shall be
automatically adjusted to reflect any change in the
capitalization of the Holding Company, including, but
not limited
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to, such changes as stock dividends, stock splits or
recapitalizations. If any adjustment under this
Section would create the right of Employee to acquire
a fractional share of stock, such fractional share
shall be disregarded and the number of shares of
common stock subject to the grant shall be the next
higher number of whole shares of common stock,
rounding all fractions upward.
4.2 Stock Loan.
(i) In order to help the Employee pay any required income
taxes with respect to the stock granted to the
Employee pursuant to the provisions of Section 4.1
hereof, at any time after the IPO has been
consummated, the Employer, upon thirty (30) days
written notice from the Employee, shall provide to
the Employee a loan (the "Loan") in an amount equal
to such income taxes, to be interest only for a
period of five (5) years, to require yearly payments
of simple interest at the same interest rate as the
Holding Company incurs to borrow funds from its
institutional lenders, to be collateralized only by
the stock granted and the Employee otherwise will not
be personally obligated to repay the Loan; provided
that upon the termination of this Agreement pursuant
to the provisions of Section 2(i) or (ii), the loan
shall be fully paid off within three (3) months of
the Termination Date and upon the termination of this
Agreement to Sections 2 (iii), (iv) or (v), hereof,
the Loan shall be fully paid off within one (1) year
after the Termination Date.
(ii) To the extent that the Employee has not repaid the
entire principal balance of the Loan plus any accrued
interest thereon before January 1, 2001, the Employee
agrees to sell, as promptly as practicable, a
sufficient number of shares of Common Stock to enable
the Employee to repay the then remaining outstanding
balance (unpaid principal balance and unpaid accrued
interest from time to time, the ("Unpaid Balance of
the Loan")) of the Loan after any taxes have been
provided for (the "Required Number of Shares"),
subject to the following conditions and requirements:
(A) Such sales shall be made in a manner which
shall reasonably not disrupt the orderly
trading of Common Stock, either through open
market or privately negotiated transactions
as long as no sales shall be made at a price
lower that 1/16 below the last sales price
of Common Stock publicly traded immediately
prior to such sale even if such prohibition
shall cause a delay in Employee's compliance
with his obligation to sell Common Stock as
provided hereinabove;
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(B) If after January 1, 2001 the Holding Company
proposes to register any of its securities
under the Securities Act for sale to the
public for its own account or for the
account of other security holders or both,
the Holding Company may, upon 30 days prior
written notice to the Employee, require the
Employee to include the Required Number of
Shares in such offering and to sell such
shares as part of such offering. In such
event, all of the costs of registering the
Required Number of Shares, including but not
limited to, all registration and filing
fees, printing expenses, fees and
disbursements of counsel and independent
public accountants for the Holding Company;
fees of the National Association of
Securities Dealers, Inc., state Blue Sky
fees and expenses, transfer taxes, fees of
transfer agents and registrars and costs of
insurance; and all underwriting discounts
and selling commissions applicable to the
sale of shares other than the Required
Number of Shares, shall be paid by the
Holding Company. Notwithstanding the above,
the Employee shall pay all underwriting
discounts and selling commissions directly
payable with respect to the registration of
the Required Number of Shares; or
(C) If, as of June 1, 2001, Employee has not yet
disposed of the Required Number of Shares,
the Holding Company will repurchase from the
Employee the Required Number of Shares at a
per share price equal to 1/16 lower than the
average of the closing sales price for the
Common Stock as reported on the national
stock exchange on which the Holding
Company's stock trades for a ten (10) day
period prior to the date of such sale to the
Holding Company, provided, however, that
such repurchase shall only be required if it
can be effected in a manner that complies
with all applicable securities laws.
Notwithstanding anything contained herein to the contrary,
the Employee shall not be required to sell any of the Required Number of Shares
unless the net proceeds paid to the Employee as a result of such shares equals
or exceeds 150% of the IPO Price per share.
Nothing in this Section 4.2(ii) shall be construed to require
the Employee to sell
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common stock except in compliance with all applicable securities laws. Any delay
imposed due to compliance with requirements of applicable securities laws shall
suspend the Employee's obligation to sell Common Stock as otherwise provided
hereinabove.
Lastly, notwithstanding anything to the contrary contained in
this Section 4.2(ii), the Employee shall have the right but not the obligation,
at any time and from time to time, to repay the Unpaid Balance of the Loan from
his personal resources.
4.3 Securities Act. THE SHARES OF COMMON STOCK (THE
"SHARES") GRANTED PURSUANT TO THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE
SECURITIES LAWS, THE SHARES ARE OFFERED PURSUANT TO EXEMPTIONS PROVIDED BY
SECTION 4(2) OF THE ACT AND CERTAIN RULES AND REGULATIONS PROMULGATED PURSUANT
THERETO. THE SHARES MAY NOT BE TRANSFERRED BY THE EMPLOYEE IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL ACCEPTABLE TO EMPLOYER AND ITS COUNSEL,
WHICH ACCEPTANCE SHALL NOT BE UNREASONABLY WITHHELD, THAT SUCH REGISTRATION IS
NOT REQUIRED.
At such time as counsel for the Employee, which is acceptable
to the Holding Company, which acceptance shall not be unreasonably withheld,
opines that the aforementioned stock restriction and legend can be removed from
the certificates representing stock granted pursuant to Section 4.1(i) hereof in
accordance with applicable securities law, the Holding Company agrees to delete
any such legend from the certificates representing such shares that have been so
granted.
SECTION 5. PARTIAL RESTRAINT ON COMPETITION.
5.1 Definitions. For the purposes of this Section 5, the
following definitions shall apply.
(a) "Company Activities" means the business of
construction and maintenance of railway beds
and tracks; construction and maintenance of
elevated rail systems and structures;
construction and maintenance of railway
switching and signaling equipment,
distributorships and supply in the field of
rail and railway construction materials;
distributorships and supply in the field of
electromechanical controls for use in the
railroad industry, namely, railway switching
equipment and railway signaling equipment;
and
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design for others in the field of
railroad industry, namely, engineering
design of rail and railway related
structures and equipment or any other
business of the Employer and its
consolidated (for financial accounting
purposes) subsidiaries (the "Consolidated
Group") which said entities are engaged in
on the Termination Date as long as such
business generated gross sales of at least
10% or more of the total gross sales of the
Consolidated Group for the most recent
fiscal year of the Employer before or on the
Termination Date.
(b) "Competitor" means any business, individual,
partnership, joint venture, association,
firm, corporation or other entity, other
than the Employer or its affiliates or
subsidiaries, engaged, wholly or partly, in
Company Activities.
(c) "Competitive Position" means (i) having any
financial interest in a Competitor,
including but not limited to, the direct or
indirect ownership or control of all or any
portion of a Competitor, or acting as a
partner, officer, director, principal, agent
or trustee of any Competitor or (ii)
engaging in any employment or independent
contractor arrangement, business or other
activity with any Competitor whereby
Employee will serve such Competitor in any
senior managerial capacity.
(d) "Confidential Information" means any
confidential, proprietary business
information or data belonging to or
pertaining to Employer that does not
constitute a "Trade Secret" (as hereinafter
defined) and that is not generally known by
or available through legal means to the
public, including, but not limited to,
information regarding Employer's customers
or actively sought prospective customers,
acquisition targets, suppliers,
manufacturers and distributors gained by
Employee as a result of his employment with
Employer. Information shall be excluded from
this definition if (i) it, at the time of
disclosure, is generally known to the trade
or public, (ii) it becomes at a later date
generally known to the trade or public
through no fault of the Employee, (iii) it
is known or possessed by the Employee prior
to the effectiveness of this Agreement, (iv)
it is disclosed to the Employee in good
faith by a third party who has a right to
such information, (v) it is disclosed
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in compliance with a subpoena or court order
or (vi) it is possessed by the recipient of
the information prior to receipt of same
from the Employee.
(e) "Customer" means actual customers or
actively sought prospective customers of
Employer during the Term.
(f) "Noncompete Period" or "Nonsolicitation
Period" means the period beginning the date
hereof and ending on the first anniversary
of the termination of Employee's employment
with Employer; provided that such Noncompete
Period or Nonsolicitation Period shall end
on the Termination Date in the event this
Agreement is terminated pursuant to the
provisions of Sections 2 (iii) or (iv),
hereof and, provided further, that the
Noncompete Period or Nonsoliciation Period
may be shortened at the discretion of the
Board of Directors of Employer.
(g) "Territory" means the area within a one
hundred (100) mile radius of any corporate
office or job site of Employer or any of its
subsidiaries, affiliates or divisions.
(h) "Trade Secrets" means information or data of
or about Employer, including but not limited
to technical or non-technical data,
formulas, patterns, compilations, programs,
devices, methods, techniques, drawings,
processes, financial data, financial plans,
products plans, or lists of actual or
potential customers, clients, distributees
or licensees, information concerning
Employer's finances, services, staff,
contemplated acquisitions, marketing
investigations and surveys, that are not
generally known to, and/or are not readily
ascertainable by legal means by, other
persons. Information and/or data shall be
excluded from this definition if (i) it, at
the time of disclosure, is generally known
to the trade or public or (ii) it becomes at
a later date generally known to the trade or
public through no fault of the Employee.
(i) "Work Product" means any and all work
product property, data documentation or
information of any kind prepared, conceived,
discovered, developed or created by Employee
for Employer or its affiliates, or any of
Employer's or its affiliates' clients or
customers for utilization in Company
Activities, not generally
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known by and/or not readily ascertainable by
proper means by other persons who can obtain
economic value from their disclosure or use.
5.2 Trade Name and Confidential Information.
(a) Employee hereby agrees that (i) with regard
to each item constituting all or any portion
of the Trade Secrets and Confidential
Information, at all times during the Term
and all times during which such item
continues to constitute a Trade Secret or
Confidential Information, respectively:
(i) Employee shall not, directly or by
assisting others own, manage,
operate, join, control or
participate in the ownership,
management, operation or control
of, or be connected in any manner
with, any business conducted under
any corporate or trade name of
Employer or name confusingly
similar thereto, without the prior
written consent of Employer;
(ii) Employee shall hold in confidence
all Trade Secrets and all
Confidential Information and will
not, either directly or indirectly,
use, sell, lend, lease, distribute,
license, give, transfer, assign,
show, disclose, disseminate,
reproduce, copy, appropriate or
otherwise communicate any Trade
Secrets or Confidential
Information, without the prior
written consent of Employer; and
(iii) Employee shall immediately notify
Employer of any unauthorized
disclosure or use of any Trade
Secrets or Confidential Information
of which Employee becomes aware.
Employee shall assist Employer, to
the extent necessary, in the
procurement or any protection of
Employer's rights to or in any of
the Trade Secrets or Confidential
Information.
(b) Upon the request of Employer and, in any
event, upon the termination of Employee's
employment with Employer, Employee shall
deliver to Employer all memoranda, notes,
records, manuals
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and other documents, including all copies of
such materials and all documentation
prepared or produced in connection
therewith, pertaining to the performance of
Employee's services hereunder or Employer's
business or containing Trade Secrets or
Confidential Information, whether made or
complied by Employee or furnished to
Employee from another source by virtue of
Employee's employment with Employer.
(c) To the greatest extent possible, all Work
Product shall be deemed to be "work made for
hire" (as defined in the Copyright Act, 17
U.S.C.A. ss.ss. 101 et seq., as amended) and
owned exclusively by Employer. Employee
hereby unconditionally and irrevocably
transfers and assigns to Employer all
rights, title and interest Employee may have
in or to any and all Work Product,
including, without limitation, all patents,
copyrights, trademarks, service marks and
other intellectual property rights. Employee
agrees to execute and deliver to Employer
any transfers, assignments, documents or
other instruments which Employer may deem
necessary or appropriate to vest complete
title and ownership of any and all such Work
Product, and all rights therein, exclusively
in Employer.
5.3 Noncompetition.
(a) The parties hereto acknowledge that Employee
is conducting Company Activities throughout
the Territory. Employee acknowledges that to
protect adequately the interest of Employer
in the business of Employer it is essential
that any noncompete covenant with respect
thereto cover all Company Activities and the
entire Territory.
(b) Employee hereby agrees that, during the Term
and the Noncompete Period, Employee will
not, in the Territory, either directly or
indirectly, alone or in conjunction with any
other party, accept, enter into or take any
action in conjunction with or in furtherance
of a Competitive Position with Employer.
Employee shall notify Employer promptly in
writing if Employee receives an offer of a
Competitive Position during the Noncompete
Term, and such notice shall describe all
material terms of such offer.
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Nothing contained in this Section 5 shall prohibit Employee
from acquiring not more than five percent (5%) of any Competitor, or from
acquiring any percentage of any company which is non-competitive with Employer,
whose common stock is publicly traded on a national securities exchange or in
the over-the-counter market.
5.4 Nonsolicitation During Employment Term. Employee
hereby agrees that Employee will not, during the Term, either directly or
indirectly, alone or in conjunction with any other party:
(a) solicit, divert or appropriate or attempt to
solicit, divert or appropriate, any Customer
for the purpose of providing the Customer
with services or products competitive with
those offered by Employer during the Term,
or
(b) solicit or attempt to solicit any officer,
director, employee, consultant, contractor,
agent, lessor, lessee, licensor, licensee,
supplier or any shareholder of any of the
Founding Companies or other personnel of
Employer or any of its affiliates or
subsidiaries to terminate, alter or lessen
that party's affiliation with Employer or
such affiliate or subsidiary or to violate
the terms of any agreement or understanding
between such employee, consultant,
contractor or other person and Employer.
5.5 Nonsolicitation During Nonsolicitation Period.
Employee hereby agrees that Employee will not, during the Nonsolicitation
Period, either directly or indirectly, alone or in conjunction with any other
party:
(a) solicit, divert or appropriate or attempt to
solicit, divert or appropriate, any Customer
for the purpose of providing the Customer
with services or products that qualify as
Company Activities during the Term;
provided, however, that the covenant in this
clause shall limit Employee's conduct only
with respect to those Customers with whom
Employee had substantial contact (through
direct or supervisory interaction with the
Customer or the Customer's account) during a
period of time up to but no greater than two
(2) years prior to the last day of the Term;
or
(b) solicit or attempt to solicit any officer,
director, employee, consultant, contractor,
agent, lessor, lessee, licensor, licensee,
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supplier or any shareholder of any of the
Founding Companies or other personnel of
Employer or any of its affiliates or
subsidiaries residing at the time of the
solicitation in the Territory to terminate,
alter or lessen that party's affiliation
with Employer or such affiliate or
subsidiary or to violate the terms of any
agreement or understanding between such
employee, consultant, contractor or other
person and Employer. For purposes of this
clause (b), employees, consultants,
contractors, or other personnel are those
with knowledge of or access to Trade Secrets
and Confidential Information of the
Employer.
5.6 Binding Arbitration. The parties shall refer any dispute
as to whether or not the Employee has violated the provisions of this Section 5
to a mediator and, in the event that mediation is unsuccessful, such dispute
shall be resolved by binding arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. The arbitrator shall
be selected by the mediator. The cost of the mediator and, if necessary, the
arbitrator and all other costs of the mediation and, if necessary, the
arbitration shall be split equally between the Employee and the Employer, except
for attorneys fees which shall be paid by the party employing such attorney.
SECTION 6. MISCELLANEOUS.
6.1 Severability. The covenants in this Agreement shall be
construed as covenants independent of one another and as obligations distinct
from any other contract between Employee and Employer.
6.2 Survival of Obligations. The covenants in Section 5 of
this Agreement shall survive termination of Employee's employment, except in the
case of termination of this Agreement pursuant to the provisions of Sections
2(iii) or (iv) hereof, in which case they shall terminate also and have no
further force or legal effect as of the Termination Date.
6.3 Notices. Any notice or other document to be given
hereunder by any party hereto to any other party hereto shall be in writing and
delivered in person or by courier, by telecopy transmission or sent by any
express mail service, postage or fees prepaid at the following addresses:
FOUNDING COMPANIES - as listed on Exhibit A
HOLDING COMPANY -
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c/o RailWorks Corporation
--------------------------------------
--------------------------------------
--------------------------------------
Attention: Chief Executive Officer
Telecopy No.: ( )
EMPLOYEE
Mr. Michael R. Azarela
--------------------------------------
--------------------------------------
or at such other address or number for a party as shall be specified by like
notice. Any notice which is delivered in the manner provided herein shall be
deemed to have been duly given to the party to whom it is directed upon actual
receipt by such party or its agent.
6.4 Binding Effect. This Agreement ensures to the benefit of,
and is binding upon, Employer and their respective successors and assigns, and
Employee, together with Employee's executor, administrator, personal
representative, heirs, and legatees.
6.5 Entire Agreement. This Agreement is intended by the
parties hereto to be the final expression of their agreement with respect to the
subject matter hereof and is the complete and exclusive statement of the terms
thereof, notwithstanding any representations, statements or agreements to the
contrary heretofore made. This Agreement supersedes and terminates all prior
employment and compensation agreements, arrangements and understandings between
or among Employer and Employee. This Agreement may be modified only by a written
instrument signed by all of the parties hereto.
6.6 Governing Law. This Agreement shall be deemed to be
made in, and in all respects shall be interpreted, construed, and governed by
and in accordance with, the laws of the State of Maryland. No provision of this
Agreement shall be construed against or interpreted to the disadvantage of any
party hereto by any court of other governmental or judicial authority or by any
board of arbitrators by reasons of such party or its counsel having or being
deemed to have structured or drafted such provision.
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6.7 Headings. The section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
6.8 Specific Performance. Each party hereby agrees that any
remedy at law for any breach of provisions contained in this Agreement shall be
inadequate and that the other parties hereto shall be entitled to specific
performance and any other appropriate injunctive relief in addition to any other
remedy such party might have under this Agreement or at law or in equity.
6.9 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same instrument.
6.10 Other Employment Agreements. Without the prior written
consent of Employee, no person that is subsequently hired by RailWorks in a
position comparable to the position held by Employee shall be offered an
employment agreement that contain benefits that are more favorable to such
person than the terms contained herein.
20
<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
ANNEX RAILROAD BUILDERS, INC.
WITNESS
/s/ By: /s/ Authorized Signature (SEAL)
- -------------------------------- --------------------------
Name:
Title:
COMTRAK CONSTRUCTION, INC.
/s/ By: /s/ Authorized Signature (SEAL)
- -------------------------------- --------------------------
Name:
Title:
CONDON BROTHERS, INC.
/s/ By: /s/ Authorized Signature (SEAL)
- -------------------------------- --------------------------
Name:
Title:
CPI CONCRETE PRODUCTS, INC.
/s/ By: /s/ Authorized Signature (SEAL)
- -------------------------------- --------------------------
Name:
Title:
21
<PAGE> 22
HP MCGINLEY, INC.
/s/ By: /s/ Authorized Signature (SEAL)
- -------------------------------- --------------------------
Name:
Title:
KENNEDY RAILROAD BUILDERS, INC.
/s/ By: /s/ Authorized Signature (SEAL)
- -------------------------------- --------------------------
Name:
Title:
COMSTOCK HOLDINGS, INC.
/s/ By: /s/ Authorized Signature (SEAL)
- -------------------------------- --------------------------
Name:
Title:
MERIT RAILROAD CONTRACTORS, INC.
/s/ By: /s/ Authorized Signature (SEAL)
- -------------------------------- --------------------------
Name:
Title:
MIDWEST CONSTRUCTION SERVICES, INC.
/s/ By: /s/ Authorized Signature (SEAL)
- -------------------------------- --------------------------
Name:
Title:
22
<PAGE> 23
NEW ENGLAND CONSTRUCTION, INC.
/s/ By: /s/ Authorized Signature (SEAL)
- -------------------------------- --------------------------
Name:
Title:
RAILROAD SERVICE, INC.
/s/ By: /s/ Authorized Signature (SEAL)
- -------------------------------- --------------------------
Name:
Title:
SOUTHERN INDIANA WOOD
PRESERVING CO.
/s/ By: /s/ Authorized Signature (SEAL)
- -------------------------------- --------------------------
Name:
Title:
U.S. TRACKWORKS, INC.
/s/ By: /s/ Authorized Signature (SEAL)
- -------------------------------- --------------------------
Name:
Title:
23
<PAGE> 24
W. A. SMITH CONSTRUCTION CO., INC.
/s/ By: /s/ Authorized Signature (SEAL)
- -------------------------------- --------------------------
Name:
Title:
HOLDING COMPANY
RAILWORKS CORPORATION
/s/ By: /s/ John G. Larkin (SEAL)
- --------------------------------- ---------------------------
John G. Larkin
Chief Executive Officer
EMPLOYEE
/s/ /s/ Michael R. Azarela (SEAL)
- --------------------------------- -------------------------------
Michael R. Azarela
24
<PAGE> 25
EXHIBIT A
Annex Railroad Builders, Inc.
Mize Construction Company
Railroad Specialties, Inc.
Comtrak Construction, Inc.
Condon Brothers, Inc.
HP McGinley, Inc.
Kennedy Railroad Builders, Inc.
Alpha-Keystone Engineering, Inc.
Railcorp, Inc.
Merit Railroad Contractors, Inc.
Midwest Construction Services, Inc.
New England Railroad Construction Co.
Comstock Holdings, Inc.
Railroad Service, Inc.
Minnesota Railroad Service, Inc.
Southern Indiana Wood Preserving Co.
U.S. Trackworks, Inc.
Northern Rail Service & Supply Co.
W.A. Smith Construction Co., Inc.
W.A. Smith Rerailing Serviceds, Inc.
CPI Concrete Products, Inc.
25
<PAGE> 1
EXHIBIT 10.25
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of
this 21st day of May, 1998, by and between John G. Larkin, an individual
resident of the State of Maryland ("Employee"), the Founding Companies (as
defined below), and Railworks Corporation, a Delaware corporation (as defined
below the "Holding Company").
W I T N E S S E T H
WHEREAS, the entities listed on Exhibit A, which is attached
hereto and hereby incorporated by reference herein (the "Founding Companies")
intend to form a consolidated group with a common parent (the "Holding Company")
to hold all of the outstanding stock of each of the Founding Companies (the
"Combination");
WHEREAS, the Holding Company will be created for the purpose
of carrying on the businesses of the Founding Companies, and conducting a public
offering of its common stock under applicable law. The Holding Company will be
the Employer hereunder;
WHEREAS, the Employee has significant experience in
structuring and consummating transactions substantially similar to the
Combination, has substantial experience advising entities that are in the same
businesses as the Founding Companies, and has substantial managerial experience;
WHEREAS, the Founding Companies desire that the Holding
Company employ the Employee to help them structure and consummate the
Combination and to be the Chief Executive Officer of the Holding Company
thereafter, on the terms and conditions as contained herein; and
WHEREAS, the Employee desires to be so employed by the Holding
Company, on the terms and conditions as contained herein.
NOW, THEREFORE, in consideration of the premises and the
mutual promises and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged by
the parties hereto, the parties hereto, intending to be legally bound, hereby
agree as follows:
<PAGE> 2
SECTION 1. EMPLOYMENT.
Subject to the terms hereof, Employer will employ Employee and
Employee hereby accepts such employment. Before the Combination is consummated,
the Employee will serve the Employer as a financial and business advisor,
assisting the Employer in structuring and consummating the Combination. After
the Combination is consummated, the Employee shall serve as the Chief Executive
Officer of the Holding Company and shall be a director of each of the entities
constituting the Founding Companies which participate in the Combination and
shall also serve on any executive committee which oversees the daily operations
of the Holding Company, or any similar committee having such function. In
addition, after the Combination is consummated, the Holding Company shall have
at least two outside directors who shall be selected with the advice and consent
of the Employee.
Subject to the terms and conditions of this Agreement, from
the date hereof until the Combination is consummated, the Employee shall devote
reasonable efforts to the Founding Companies to help consummate the Combination,
but shall be permitted to remain in his present job or any similar job until the
Combination is so consummated. After the Combination is consummated, Employee
agrees to devote substantially all of his business time and best efforts to the
performance of his job as Chief Executive Officer of the Holding Company,
subject to direction by the Board of Directors of the Holding Company (the
"Board of Directors"), as long as such directions are consistent with the
duties, responsibilities and authority customarily given or required of chief
executive officers generally, with the Employee to report his activities
regularly to the Board of Directors. Notwithstanding anything to the contrary
contained herein, after the Combination has been consummated, the Employee shall
be permitted to invest in entities that sell, and sell himself, financial
services and products generally; provided that such activities do not interfere
with the performance of his duties under this Agreement and such activities are
not in contravention of the terms and conditions of Section 5 hereof.
SECTION 2. TERM OF EMPLOYMENT.
The term of the Employee's employment hereunder (the "Term")
shall be from the date this Agreement is fully executed until the occurrence of
any of the following events:
(i) The death or total disability of Employee (total disability
meaning the failure to fully perform his normal required
services hereunder for a period of six (6) consecutive months
during any consecutive twelve (12) month
2
<PAGE> 3
period during the term hereof, as determined by an independent
medical doctor jointly chosen by the Employee and the
Employer) by reason of mental or physical disability;
(ii) The termination by Employer of Employee's employment
hereunder, upon thirty (30) days prior written notice to
Employee, for "good cause", as reasonably determined by the
Board of Directors. For purposes of this Agreement, "good
cause" for termination of Employee's employment shall exist
(A) if Employee is convicted of, pleads guilty to or confesses
to any felony or any act of fraud, misappropriation or
embezzlement, (B) if Employee has engaged in a dishonest act
to the material damage or prejudice of Employer or an
affiliate of Employer, or in conduct or activities materially
damaging to the property, business, or reputation of Employer
or an affiliate of Employer, or (C) if Employee violates any
of the provisions contained in Section 5 of this Agreement,
after receiving written notice from the Employer specifically
outlining the alleged violations by the Employee of Section 5
hereof and either (1) the Employee fails to stop the alleged
behavior which is claimed to be such a breach within thirty
(30) days of receipt by the Employee of such written notice or
(2) the Employer prevails in mediation or binding arbitration
pursuant to the commercial arbitration rules of the American
Arbitration Association which arbitration is commenced by the
Employee within thirty (30) days of receipt by the Employer of
such notice in accordance with the provisions of Section 5.6
hereof;
(iii) The termination by the Employee in the event that the
Combination is not consummated or at least Forty Million
Dollars ($40,000,000) has not been raised as part of the
initial public offering (the "IPO") contemplated as part of
the Combination by September 4, 1998, upon thirty (30) days
written notice to the Founding Companies;
(iv) After the Combination and the IPO have both been consummated,
the termination by either the Employee or the Employer, upon
thirty (30) days written notice to the other party, in the
event of a Change of Control of the Employer (as defined
hereinbelow).
For purposes of this Agreement, a "Change of Control"
shall be deemed to have occurred if (A) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as
3
<PAGE> 4
amended (the "Exchange Act")), other than a trustee or other
fiduciary holding securities under an employee benefit plan of
the Holding Company, a corporation owned directly or
indirectly by the stockholders of the Holding Company
(immediately after the IPO) or any of their respective
affiliates, becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of
securities of the Holding Company representing 50% or more of
the total voting power represented by the Holding Company's
then outstanding securities that vote generally in the
election of directors (referred to herein as "Voting
Securities"); (B) during any period of two consecutive years,
individuals who at the beginning of such period constitute the
Board of Directors and any new directors whose election by the
Board of Directors or nomination for election by the Holding
Company's stockholders was approved by a vote or a majority of
the directors then still in office who either were directors
at the beginning of the period or whose election or nomination
for election was previously so approved, cease for any reason
to constitute a majority of the Board of Directors; (C) the
stockholders of the Holding Company approve a merger or
consolidation of the Holding Company with any other
corporation, other than a merger or consolidation (i) which
would result in the Voting Securities of the Holding Company
outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into
Voting Securities of the surviving entity) at least 50% of the
total voting power represented by the Voting Securities of the
Holding Company or such surviving entity outstanding
immediately after such merger or consolidation or (ii) in
which 50% or more of the board of directors of the surviving
entity is composed of members from the Board of Directors of
the Holding Company; (D) the stockholders of the Holding
Company approve a plan of complete liquidation of the Holding
Company or an agreement for the sale or disposition by the
Holding Company of (in one transaction or a series of
transactions) all or substantially all of the Holding
Company's assets; (E) the executive offices of the Holding
Company are relocated from the Greater Baltimore Metropolitan
Area or (F) the Employee is not a member of the Board of
Directors or is not on any Executive Committee or similar
committee of the Board of Directors; or
(v) After December 31, 2001, this Agreement shall continue upon a
year-to-year basis unless terminated by either the Employer or
the Employee upon ninety days (90) written notice to the other
before January 1 of the next year.
4
<PAGE> 5
SECTION 3. COMPENSATION.
3.1 Term of Employment. Employer will provide Employee
with the following salary, expense reimbursement and additional employee
benefits during the term of employment hereunder.
(a) Salary
(i) Subject to the terms and conditions hereof,
until the IPO is consummated, the Employee
shall receive no salary but shall be
entitled to reimbursement, with ten (10)
days of submission of a reimbursement
report, of any and all of his reasonable
out-of-pocket expenses, of any kind or
nature, incurred by the Employee in
promoting and helping to structure and
facilitate the Combination.
(ii) After the IPO is consummated, Employee will
be paid a salary (the "Base Salary") of no
less than Three Hundred Fifty Thousand
Dollars ($350,000) per annum, less
deductions and withholdings required by
applicable law. For the period from March 1,
1998 until the IPO is consummated, the Base
Salary shall be accrued and shall be paid in
full to the Employee upon consummation of
the IPO. The Base Salary after consummation
of the IPO shall be paid to Employee in
equal monthly installments (or on such more
frequent basis as other executives of
Employer are compensated). The Base Salary
shall be reviewed by the Board of Directors
of Employer on at least an annual basis
thereafter and may be increased but not
decreased as a result of any such review.
(b) Performance Bonuses. In addition to the Base Salary,
the Employee shall have the right to receive from the
Employer, and the Employer shall be obligated to pay
to the Employee, a performance bonus (the
"Performance Bonus") for each fiscal year during the
term of this Agreement, equal to the aggregate amount
determined by the bonus formulas delineated herein
below. Any amount of a Performance Bonus required to
be paid to the Employee for a fiscal year during the
term of this Agreement shall
5
<PAGE> 6
be paid by the Employer in the first pay period of
the Employer immediately following the finalization
of the accounting audit for financial accounting
purposes of the Employer for the preceding fiscal
year but in all events by March 31 of the year
immediately following the end of the fiscal year for
which such Performance Bonus is attributable.
The formulas to determine a Performance Bonus for any
fiscal year during the term of this Agreement shall
be as follows:
(i) For each fiscal year of the Employer, .5% of
the pre-tax net income, before any
performance or other periodic bonuses for
any of the employees of the Employer and any
of its consolidated subsidiaries, of the
Employer on a consolidated basis for
financial accounting basis based upon
applying generally accepted accounting
principles and generally accepted auditing
standards on a consistent basis. This bonus
shall be calculated by the independent
certified public accountant regularly
employed by the Employer (the "CPA")
applying such generally accepted accounting
principles and generally accepted auditing
standards on a consistent basis.
Plus
(ii) For each fiscal year of the Employer, five
percent (5%) of the excess of (a) the
consolidated after tax net income of the
Employer and its consolidated subsidiaries
for a fiscal year, computed by the CPA
applying generally accepted accounting
principles and generally accepted auditing
standards on a consistent basis over (b) the
Wall Street Estimate (as hereinafter
defined) for such fiscal year. For purposes
of this subsection (ii)(b), Wall Street
Estimate for a fiscal year shall mean the
simple arithmetical average of the
consolidated earnings per share estimates
for a fiscal year of the Employer and its
consolidated subsidiaries in the possession
of First Call on the Determination Date (as
hereinafter defined), translated by the CPA
into the equivalent consolidated after tax
net income of the Employer and its
consolidated subsidiaries for such fiscal
6
<PAGE> 7
year. For purposes of this subsection
(ii)(b), the Determination Date shall mean
the date the IPO is consummated and
thereafter shall be the first day of the
fiscal year for which such computation
applies.
(c) Discretionary Bonus. The Board of Directors may, from
time to time, award the Employee an additional
discretionary bonus based upon such factors as the
Board of Directors deems appropriate. The Employer
shall have no entitlement to such a discretionary
bonus until and unless so awarded by the Board of
Directors.
(d) Vacation. Employee shall receive four (4) weeks
vacation time per calendar year during the term of
this Agreement in addition to customary holidays
afforded other employees of Employer. Any unused
vacation days in any calendar year may not be carried
over to subsequent years. The Employer recognizes the
benefit to it of the Employee attending and
participating in trade seminars, conventions, and
similar gatherings and educational seminars and
encourages the Employee to attend such seminars and
conventions. Accordingly, any reasonable cost and
expenses thereof will be paid for by the Employer and
any time spent by the Employee at such seminars and
conventions shall not constitute vacation time but
shall constitute part of the Employee's duties under
this Agreement.
(e) Expenses. Subsequent to the IPO, Employer shall
reimburse Employee, within thirty (30) days of its
receipt of a reimbursement report from the Employee,
for all reasonable and necessary expenses incurred by
Employee on behalf of Employer.
(f) Benefit Plans. Employee shall have the option of
participating in such medical, dental, disability,
hospitalization, life insurance, stock option and
other benefit plans (such as pension and profit
sharing plans) as Employer maintains from time to
time for the benefit of other senior executives of
Employer, on the terms and subject to the conditions
set forth in such plans.
(g) Notwithstanding anything to the contrary contained
herein, until the IPO is consummated, the Employee
shall not be an employee
7
<PAGE> 8
of any of the Funding Companies but shall be the
employee of the Holding Company and to the extent
required to fulfill his duties hereunder be an agent
of each of the Founding Companies. Accordingly, the
Holding Company, and not the Founding Companies,
shall be responsible to provide to the Employee the
compensation and benefits provided by this Section 3;
provided that the provisions of this paragraph shall
not affect any agreement between the Founding
Companies to provide funds to the Holding Company
prior to the IPO or otherwise.
3.2 Effect of Termination. Except as hereinafter provided, upon the
termination of the employment of Employee hereunder for any reason, Employee
shall be entitled to all compensation and benefits earned or accrued under
Section 3.1 as of the effective date of termination (the "Termination Date"),
but from and after the Termination Date no additional compensation or benefits
shall be earned by Employee hereunder. Except upon termination by the Employer
of the employment of the Employee pursuant to the provisions of Section 2(ii)
hereof, Employee shall be deemed to have earned any Performance Bonus payable
with respect to the fiscal year in which the Termination Date occurs on a
prorated basis (based on the number of days in such calendar year through and
including the Termination Date divided by 365). Any such Performance Bonus shall
be payable on the date on which the Performance Bonus would have been paid had
Employee continued his employment hereunder. In addition, the Employee and his
eligible dependents shall be entitled to receive at the sole cost of the
Employer (A) the health insurance benefits specified hereunder for a period of
twelve (12) months following the Termination Date (the "Continuation Period")
and following such time period, the Employee shall be entitled to all rights
afforded to him under the Federal Omnibus Reconciliation Act ("COBRA") to
purchase continuation coverage of such health insurance benefits for himself and
his dependents for the maximum period permitted by law, and the Employee shall
be deemed to have elected to exercise his rights under Cobra as of the first day
of the Continuation Period, and (B) the life insurance benefits specified
hereinabove for the period of the Continuation Period.
(i) Upon termination of this Agreement, pursuant to the provisions
of Sections 2 (i) or (iv) hereof, any stock grants or options previously awarded
to the Employee, either by this Agreement or otherwise, shall fully and
completely vest and the Employee shall be able to retain or obtain as the case
may be, such stock, as though there was no vesting period or criteria of any
kind or nature, with respect to such stock. If stock options have previously
been awarded to the Employee, notwithstanding any terms and conditions of such
award or any plan pursuant to which such stock options were awarded, the
Employee or his authorized representative shall have a period of three (3)
8
<PAGE> 9
months from the Termination Date to exercise any or all of such stock options
and acquire for his own benefit the shares of stock covered by such stock
options.
(ii) Upon termination of the Agreement pursuant to the terms of
Section 2(ii) or (v) hereof, all granted but unvested, at the Termination Date,
stock grants or options shall be forfeited upon such termination; provided that
the Employee shall be able to retain or exercise any rights for a period of one
(1) month after the Termination Date, notwithstanding the terms and provisions
of such stock options awarded or the plan under which they were awarded, with
respect to any shares of stock granted or shares of stock covered by stock
options that have fully vested as of the Termination Date.
SECTION 4 COMMON STOCK.
4.1. Term of Employment. So that Employee can share in the
increase in value of the business of Employer over time, Employee will be
granted common stock of Employer as follows:
(i) Stock Grants. Simultaneously with the consummation of the
Combination, Employee will be granted that number of shares of
all classes of stock of the Holding Company equal to four and
one-half (4 1/2%) of the number of shares of all classes of
stock of the Holding Company outstanding immediately upon
consummation of the IPO. Such shares so granted shall fully
and completely vest on the date of issuance.
(ii) Stock Splits and Recapitalization. The number of shares of
common stock granted hereby shall be automatically adjusted to
reflect any change in the capitalization of the Holding
Company, including, but not limited to, such changes as stock
dividends, stock splits or recapitalizations. If any
adjustment under this Section would create the right of
Employee to acquire a fractional share of stock, such
fractional share shall be disregarded and the number of shares
of common stock subject to the grant shall be the next higher
number of whole shares of common stock, rounding all fractions
upward.
9
<PAGE> 10
4.2 Stock Loan.
(i) In order to help the Employee pay any required income taxes
with respect to the stock granted to the Employee pursuant to
the provisions of Section 4.1 hereof, at any time after the
IPO has been consummated, the Employer, upon thirty (30) days
written notice from the Employee, shall provide to the
Employee a loan (the "Loan") in an amount equal to such income
taxes, to be interest only for a period of five (5) years, to
require yearly payments of simple interest, at the same
interest rate as the Holding Company incurs to borrow funds
from its institutional lenders, to be collateralized only by
the stock granted and the Employee otherwise will not be
personally obligated to repay the Loan; provided that upon the
termination of this Agreement pursuant to the provisions of
Section 2(i) or (ii), the loan shall be fully paid off within
three (3) months of the Termination Date and upon the
termination of this Agreement to Sections 2 (iii), (iv) or
(v), hereof, the Loan shall be fully paid off within one (1)
year after the Termination Date.
(ii) To the extent that the Employee has not repaid the entire
principal balance of the Loan plus any accrued interest
thereon before January 1, 2001, the Employee agrees to sell,
as promptly as practicable, a sufficient number of shares of
Common Stock to enable the Employee to repay the then
remaining outstanding balance (unpaid principal balance and
unpaid accrued interest from time to time, the ("Unpaid
Balance of the Loan")) of the Loan after any taxes have been
provided for (the "Required Number of Shares"), subject to the
following conditions and requirements:
(A) Such sales shall be made in a manner which shall
reasonably not disrupt the orderly trading of Common
Stock, either through open market or privately
negotiated transactions as long as no sales shall be
made at a price lower that 1/16 below the last sales
price of Common Stock publicly traded immediately
prior to such sale even if such prohibition shall
cause a delay in Employee's compliance with his
obligation to sell Common Stock as provided
hereinabove;
(B) If after January 1, 2001 the Holding Company proposes
to register any of its securities under the
Securities Act for sale to the public for its own
account or for the account of other security holders
or both, the Holding Company may, upon 30 days prior
written notice to the Employee, require the Employee
to include the Required Number of Shares in such
offering and to sell such shares as part of
10
<PAGE> 11
such offering. In such event, all of the costs of
registering the Required Number of Shares, including
but not limited to, all registration and filing fees,
printing expenses, fees and disbursements of counsel
and independent public accountants for the Holding
Company; fees of the National Association of
Securities Dealers, Inc., state Blue Sky fees and
expenses, transfer taxes, fees of transfer agents and
registrars and costs of insurance; and all
underwriting discounts and selling commissions
applicable to the sale of shares other than the
Required Number of Shares, shall be paid by the
Holding Company. Notwithstanding the above, the
Employee shall pay all underwriting discounts and
selling commissions directly payable with respect to
the registration of the Required Number of Shares; or
(C) If, as of June 1, 2001, Employee has not yet disposed
of the Required Number of Shares, the Holding Company
will repurchase from the Employee the Required Number
of Shares at a per share price equal to 1/16 lower
than the average of the closing sales price for the
Common Stock as reported on the national stock
exchange on which the Holding Company's stock trades
for a ten (10) day period prior to the date of such
sale to the Holding Company, provided, however, that
such repurchase shall only be required if it can be
effected in a manner that complies with all
applicable securities laws.
Notwithstanding anything contained herein to the contrary, the
Employee shall not be required to sell any of the Required Number of Shares
unless the net proceeds paid to the Employee as a result of such shares equals
or exceeds 150% of the IPO Price per share.
Nothing in this Section 4.2(ii) shall be construed to require
the Employee to sell common stock except in compliance with all applicable
securities laws. Any delay imposed due to compliance with requirements of
applicable securities laws shall suspend the Employee's obligation to sell
Common Stock as otherwise provided hereinabove.
Lastly, notwithstanding anything to the contrary contained in
this Section 4.2(ii), the Employee shall have the right but not the obligation,
at any time and from time to time, to repay the Unpaid Balance of the Loan from
his personal resources.
11
<PAGE> 12
4.3 Securities Act. THE SHARES OF COMMON STOCK (THE "SHARES")
GRANTED PURSUANT TO THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS,
THE SHARES ARE OFFERED PURSUANT TO EXEMPTIONS PROVIDED BY SECTION 4(2) OF THE
ACT AND CERTAIN RULES AND REGULATIONS PROMULGATED PURSUANT THERETO. THE SHARES
MAY NOT BE TRANSFERRED BY THE EMPLOYEE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR
AN OPINION OF COUNSEL ACCEPTABLE TO EMPLOYER AND ITS COUNSEL, WHICH ACCEPTANCE
SHALL NOT BE UNREASONABLY WITHHELD, THAT SUCH REGISTRATION IS NOT REQUIRED.
At such time as counsel for the Employee, which is acceptable
to the Holding Company, which acceptance shall not be unreasonably withheld,
opines that the aforementioned stock restriction and legend can be removed from
the certificates representing stock granted pursuant to Section 4.1(i) hereof in
accordance with applicable securities law, the Holding Company agrees to delete
any such legend from the certificates representing such shares that have been so
granted.
Section 5. Partial Restraint on Competition.
5.1 Definitions. For the purposes of this Section 5, the
following definitions shall apply.
(a) "Company Activities" means the business of
construction and maintenance of railway beds and
tracks; construction and maintenance of elevated
rail systems and structures; construction and
maintenance of railway switching and signaling
equipment, distributorships and supply in the
field of rail and railway construction materials;
distributorships and supply in the field of
electromechanical controls for use in the
railroad industry, namely, railway switching
equipment and railway signaling equipment; and
design for others in the field of railroad
industry, namely, engineering design of rail and
railway related structures and equipment or any
other business of the Employer and its
consolidated (for financial accounting purposes)
subsidiaries (the "Consolidated Group") which
said entities are engaged in on the Termination
Date as long as such
12
<PAGE> 13
business generated gross sales of at least 10% or
more of the total gross sales of the Consolidated
Group for the most recent fiscal year of the Employer
before or on the Termination Date.
Company Activities shall not include investing in
entities which sell, or the provision by the Employee
of sales, of financial services or products of any
kind or nature or consulting with respect to such
sales of such services and/or products ("Permitted
Activity" or "Permitted Activities").
(b) "Competitor" means any business, individual,
partnership, joint venture, association, firm,
corporation or other entity, other than the Employer
or its affiliates or subsidiaries, engaged, wholly or
partly, in Company Activities.
(c) "Competitive Position" means (i) having any financial
interest in a Competitor, including but not limited
to, the direct or indirect ownership or control of
all or any portion of a Competitor, or acting as a
partner, officer, director, principal, agent or
trustee of any Competitor or (ii) engaging in any
employment or independent contractor arrangement,
business or other activity with any Competitor
whereby Employee will serve such Competitor in any
senior managerial capacity.
(d) "Confidential Information" means any confidential,
proprietary business information or data belonging to
or pertaining to Employer that does not constitute a
"Trade Secret" (as hereinafter defined) and that is
not generally known by or available through legal
means to the public, including, but not limited to,
information regarding Employer's customers or
actively sought prospective customers, acquisition
targets, suppliers, manufacturers and distributors
gained by Employee as a result of his employment with
Employer; but shall not include any information known
by the Employee before March 1, 1998.
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<PAGE> 14
(e) "Customer" means actual customers or actively sought
prospective customers of Employer during the Term.
(f) "Noncompete Period" or "Nonsolicitation Period" means
the period beginning the date hereof and ending on
the second anniversary of the termination of
Employee's employment with Employer; provided that
such Noncompete Period or Nonsolicitation Period
shall end on the Termination Date in the event this
Agreement is terminated pursuant to the provisions of
Sections 2 (iii) or (iv), hereof.
(g) "Territory" means the area within a one hundred (100)
mile radius of any corporate office or job site of
Employer or any of its subsidiaries, affiliates or
divisions.
(h) "Trade Secrets" means information or data of or about
Employer, including but not limited to technical or
nontechnical data, formulas, patterns, compilations,
programs, devices, methods, techniques, drawings,
processes, financial data, financial plans, products
plans, or lists of actual or potential customers,
clients, distributees or licensees, information
concerning Employer's finances, services, staff,
contemplated acquisitions, marketing investigations
and surveys, that are not generally known to, and/or
are not readily ascertainable by proper means by,
other persons.
(i) "Work Product" means any and all work product
property, data documentation or information of any
kind prepared, conceived, discovered, developed or
created by Employee for Employer or its affiliates,
or any of Employer's or its affiliates' clients or
customers for utilization in Company Activities, not
generally known by or not readily ascertainable by
proper means by other persons who can obtain economic
value from their disclosure or use.
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<PAGE> 15
5.2 Trade Name and Confidential Information.
(a) Employee hereby agrees that (i) with regard to each
item constituting all or any portion of the Trade
Secrets and Confidential Information, at all times
during the Term and all times during which such item
continues to constitute a Trade Secret or
Confidential Information, respectively:
(i) Employee shall not, directly or by assisting
others own, manage, operate, join, control
or participate in the ownership, management,
operation or control of, or be connected in
any manner with, any business conducted
under any corporate or trade name of
Employer or name confusingly similar
thereto, without the prior written consent
of Employer;
(ii) Employee shall hold in confidence all Trade
Secrets and all Confidential Information and
will not, either directly or indirectly,
use, sell, lend, lease, distribute, license,
give, transfer, assign, show, disclose,
disseminate, reproduce, copy, appropriate or
otherwise communicate any Trade Secrets or
Confidential Information, without the prior
written consent of Employer; and
(iii) Employee shall immediately notify Employer
of any unauthorized disclosure or use of any
Trade Secrets or Confidential Information of
which Employee becomes aware. Employee shall
assist Employer, to the extent necessary, in
the procurement or any protection of
Employer's rights to or in any of the Trade
Secrets or Confidential Information.
(b) Upon the request of Employer and, in any event, upon
the termination of Employee's employment with
Employer, Employee shall deliver to Employer all
memoranda, notes, records, manuals and other
documents, including all copies of such materials and
all documentation prepared or produced in connection
therewith, pertaining to the performance of
Employee's services hereunder or
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<PAGE> 16
Employer's business or containing Trade
Secrets or Confidential Information, whether
made or complied by Employee or furnished to
Employee from another source by virtue of
Employee's employment with Employer.
(c) To the greatest extent possible, all Work
Product shall be deemed to be "work made for
hire" (as defined in the Copyright Act, 17
U.S.C.A. ss.ss. 101 et seq., as amended) and
owned exclusively by Employer. Employee
hereby unconditionally and irrevocably
transfers and assigns to Employer all
rights, title and interest Employee may have
in or to any and all Work Product,
including, without limitation, all patents,
copyrights, trademarks, service marks and
other intellectual property rights. Employee
agrees to execute and deliver to Employer
any transfers, assignments, documents or
other instruments which Employer may deem
necessary or appropriate to vest complete
title and ownership of any and all such Work
Product, and all rights therein, exclusively
in Employer.
5.3 Noncompetition.
(a) The parties hereto acknowledge that Employee
is conducting Company Activities throughout
the Territory. Employee acknowledges that to
protect adequately the interest of Employer
in the business of Employer it is essential
that any noncompete covenant with respect
thereto cover all Company Activities and the
entire Territory.
(b) Employee hereby agrees that, during the Term
and the Noncompete Period, Employee will
not, in the Territory, either directly or
indirectly, alone or in conjunction with any
other party, accept, enter into or take any
action in conjunction with or in furtherance
of a Competitive Position with Employer.
Employee shall notify Employer promptly in
writing if Employee receives an offer of a
Competitive Position during the Noncompete
Term, and such notice shall describe all
material terms of such offer.
16
<PAGE> 17
Nothing contained in this Section 5 shall prohibit Employee
from acquiring not more than five percent (5%) of any Competitor, or from
acquiring any percentage of any company which is non-competitive with Employer,
whose common stock is publicly traded on a national securities exchange or in
the over-the-counter market or from engaging in Permitted Activities.
5.4 Nonsolicitation During Employment Term. Employee hereby
agrees that Employee will not, during the Term, either directly or indirectly,
alone or in conjunction with any other party:
(a) solicit, divert or appropriate or attempt to
solicit, divert or appropriate, any Customer
for the purpose of providing the Customer with
services or products competitive with those
offered by Employer during the Term, other than
a Permitted Activity, or
(b) solicit or attempt to solicit any officer,
director, employee, consultant, contractor,
agent, lessor, lessee, licensor, licensee,
supplier or any shareholder of any of the
Founding Companies or other personnel of
Employer or any of its affiliates or
subsidiaries to terminate, alter or lessen that
party's affiliation with Employer or such
affiliate or subsidiary or to violate the terms
of any agreement or understanding between such
employee, consultant, contractor or other person
and Employer.
5.5 Nonsolicitation During Nonsolicitation Period. Employee
hereby agrees that Employee will not, during the Nonsolicitation Period, either
directly or indirectly, alone or in conjunction with any other party:
(a) solicit, divert or appropriate or attempt to
solicit, divert or appropriate, any Customer for
the purpose of providing the Customer with
services or products competitive with those
offered by Employer during the Term; provided,
however, that the covenant in this clause shall
limit Employee's conduct only with respect to
those Customers with whom Employee had
substantial contact (through direct or
supervisory interaction with the Customer or the
Customer's account) during a period of time up
to but no
17
<PAGE> 18
greater than two (2) years prior to the last day
of the Term; or
(b) solicit or attempt to solicit any officer,
director, employee, consultant, contractor,
agent, lessor, lessee, licensor, licensee,
supplier or any shareholder of any of the
Founding Companies or other personnel of Employer
or any of its affiliates or subsidiaries residing
at the time of the solicitation in the Territory
to terminate, alter or lessen that party's
affiliation with Employer or such affiliate or
subsidiary or to violate the terms of any
agreement or understanding between such employee,
consultant, contractor or other person and
Employer, other than with respect to Permitted
Activities. For purposes of this clause (b),
employees, consultants, contractors, or other
personnel are those with knowledge of or access
to Trade Secrets and Confidential Information of
the Employer.
5.6 Binding Arbitration. The parties shall refer any dispute
as to whether or not the Employee has violated the provisions of this Section 5
to a mediator and, in the event that mediation is unsuccessful, such dispute
shall be resolved by binding arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. The arbitrator shall
be selected by the mediator. The cost of the mediator and, if necessary, the
arbitrator and all other costs of the mediation and, if necessary, the
arbitration shall be split equally between the Employee and the Employer, except
for attorneys fees which shall be paid by the party employing such attorney.
Section 6. Miscellaneous.
6.1 Severability. The covenants in this Agreement shall be
construed as covenants independent of one another and as obligations distinct
from any other contract between Employee and Employer.
6.2 Survival of Obligations. The covenants in Section 5 of
this Agreement shall survive termination of Employee's employment, except in the
case of termination of this Agreement pursuant to the provisions of Sections
2(iii) or (iv) hereof, in which case they shall terminate also and have no
further force or legal effect as of the Termination Date.
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<PAGE> 19
6.3 Notices. Any notice or other document to be given
hereunder by any party hereto to any other party hereto shall be in writing and
delivered in person or by courier, by telescopy transmission or sent by any
express mail service, postage or fees prepaid at the following addresses:
19
<PAGE> 20
FOUNDING COMPANIES - as listed on Exhibit A
HOLDING COMPANY -
c/o RailWorks Corporation
-------------------------
-------------------------
-------------------------
Attention:
---------------
Telecopy No.: ( )
EMPLOYEE
Mr. John G. Larkin
403 Somerset Road
Baltimore, Maryland 21210
or at such other address or number for a party as shall be specified by like
notice. Any notice which is delivered in the manner provided herein shall be
deemed to have been duly given to the party to whom it is directed upon actual
receipt by such party or its agent.
6.4 Binding Effect. This Agreement inures to the benefit of,
and is binding upon, Employer and their respective successors and assigns, and
Employee, together with Employee's executor, administrator, personal
representative, heirs, and legatees.
6.5 Entire Agreement. This Agreement is intended by the
parties hereto to be the final expression of their agreement with respect to the
subject matter hereof and is the complete and exclusive statement of the terms
thereof, notwithstanding any representations, statements or agreements to the
contrary heretofore made. This Agreement supersedes and terminates all prior
employment and compensation agreements, arrangements and understandings between
or among Employer and Employee. This Agreement may be modified only by a written
instrument signed by all of the parties hereto.
6.6 Governing Law. This Agreement shall be deemed to be made
in, and in all respects shall be interpreted, construed, and governed by and in
accordance
20
<PAGE> 21
with, the laws of the State of Maryland. No provision of this Agreement shall be
construed against or interpreted to the disadvantage of any party hereto by any
court of other governmental or judicial authority or by any board of arbitrators
by reasons of such party or its counsel having or being deemed to have
structured or drafted such provision.
6.7 Headings. The section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
6.8 Specific Performance. Each party hereby agrees that any
remedy at law for any breach of provisions contained in this Agreement shall be
inadequate and that the other parties hereto shall be entitled to specific
performance and any other appropriate injunctive relief in addition to any other
remedy such party might have under this Agreement or at law or in equity.
6.9 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same instrument.
6.10 Other Employment Agreements. Without the prior written
consent of Employee, no person that is subsequently hired by RailWorks in a
position comparable to the position held by Employee shall be offered an
employment agreement that contain benefits that are more favorable to such
person than the terms contained herein.
21
<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
ANNEX RAILROAD BUILDERS, INC.
WITNESS
/s/ /s/ Authorized Signature
_________________________ By: _________________________(SEAL)
Name:
Title:
COMTRAK CONSTRUCTION, INC.
/s/ /s/ Authorized Signature
_________________________ By: _________________________(SEAL)
Name:
Title:
CONDON BROTHERS, INC.
/s/ /s/ Authorized Signature
_________________________ By: _________________________(SEAL)
Name:
Title:
CPI CONCRETE PRODUCTS, INC.
/s/ /s/ Authorized Signature
_________________________ By: _________________________(SEAL)
Name:
Title:
22
<PAGE> 23
HP MCGINLEY, INC.
/s/ /s/ Authorized Signature
_________________________ By: _________________________(SEAL)
Name:
Title:
KENNEDY RAILROAD BUILDERS, INC.
/s/ /s/ Authorized Signature
_________________________ By: _________________________(SEAL)
Name:
Title:
COMSTOCK HOLDINGS, INC.
/s/ /s/ Authorized Signature
_________________________ By: _________________________(SEAL)
Name:
Title:
MERIT RAILROAD CONTRACTORS, INC.
/s/ /s/ Authorized Signature
_________________________ By: _________________________(SEAL)
Name:
Title:
23
<PAGE> 24
MIDWEST CONSTRUCTION SERVICES, INC.
/s/ /s/ Authorized Signature
_________________________ By: _________________________(SEAL)
Name:
Title:
NEW ENGLAND CONSTRUCTION, INC.
/s/ /s/ Authorized Signature
_________________________ By: _________________________(SEAL)
Name:
Title:
RAILROAD SERVICE, INC.
/s/ /s/ Authorized Signature
_________________________ By: _________________________(SEAL)
Name:
Title:
SOUTHERN INDIANA WOOD
PRESERVING CO.
_________________________ By: _________________________(SEAL)
Name:
Title:
24
<PAGE> 25
U.S. TRACKWORKS, INC.
/s/ /s/ Authorized Signature
_________________________ By: ___________________________(SEAL)
Name:
Title:
W. A. SMITH CONSTRUCTION CO., INC.
/s/ /s/ Authorized Signature
_________________________ By: _________________________(SEAL)
Name:
Title:
HOLDING COMPANY
RAILWORKS CORPORATION
/s/ /s/ Authorized Signature
_________________________ By: _________________________(SEAL)
Name:
Title:
EMPLOYEE
/s/ /s/ John G. Larkin
_________________________ _______________________________(SEAL)
John G. Larkin
25
<PAGE> 26
EXHIBIT A
Annex Railroad Builders, Inc.
Mize Construction Company
Railroad Specialties, Inc.
Comtrak Construction, Inc.
Condon Brothers, Inc.
HP McGinley, Inc.
Kennedy Railroad Builders, Inc.
Alpha-Keystone Engineering, Inc.
Railcorp, Inc.
Merit Railroad Contractors, Inc.
Midwest Construction Services, Inc.
New England Railroad Construction Co.
Comstock Holdings, Inc.
Railroad Service, Inc.
Minnesota Railroad Service, Inc.
Southern Indiana Wood Preserving Co.
U.S. Trackworks, Inc.
Northern Rail Service & Supply Co.
W.A. Smith Construction Co., Inc.
W.A. Smith Rerailing Serviceds, Inc.
CPI Concrete Products, Inc.
26
<PAGE> 1
EXHIBIT 10.26
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of
this 21st day of May, 1998, by and between Harold C. Kropp, Jr., an individual
resident of the State of Pennsylvania ("Employee"), the Founding Companies (as
defined below), and RailWorks Corporation, a Delaware corporation (as defined
below the "Holding Company").
W I T N E S S E T H
WHEREAS, the entities listed on Exhibit A, which is attached
hereto and hereby incorporated by reference herein (the "Founding Companies")
intend to form a consolidated group with a common parent (the "Holding Company")
to hold all of the outstanding stock of each of the Founding Companies (the
"Combination");
WHEREAS, the Holding Company will be created for the purpose
of carrying on the businesses of the Founding Companies, and conducting a public
offering of its common stock under applicable law. The Holding Company will be
the Employer hereunder;
WHEREAS, the Founding Companies desire that the Holding
Company employ the Employee to be the Vice President and Chief Accounting
Officer of the Holding Company thereafter, on the terms and conditions as
contained herein; and
WHEREAS, the Employee desires to be so employed by the Holding
Company, on the terms and conditions as contained herein.
NOW, THEREFORE, in consideration of the premises and the
mutual promises and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged by
the parties hereto, the parties hereto, intending to be legally bound, hereby
agree as follows:
SECTION 1. EMPLOYMENT.
Subject to the terms hereof, Employer will employ Employee and
Employee hereby accepts such employment. After the Combination is consummated,
the Employee shall serve as the Vice President and Chief Accounting Officer of
the Holding Company.
<PAGE> 2
Subject to the terms and conditions of this Agreement, from
the date hereof until the Combination is consummated, the Employee shall devote
reasonable efforts to the Founding Companies to help consummate the Combination,
but shall be permitted to remain in his present job or any similar job until the
Combination is so consummated. After the Combination is consummated, Employee
agrees to devote substantially all of his business time and best efforts to the
performance of his job as Vice President and Chief Accounting Officer of the
Holding Company, subject to direction by the Board of Directors of the Holding
Company (the "Board of Directors"), as long as such directions are consistent
with the duties, responsibilities and authority customarily given or required of
chief accounting officers generally, with the Employee to report his activities
regularly to the Board of Directors.
SECTION 2. TERM OF EMPLOYMENT.
The term of the Employee's employment hereunder (the "Term")
shall be from the date this Agreement is fully executed until the occurrence of
any of the following events:
(i) The death or total disability of Employee (total disability
meaning the failure to fully perform his normal required
services hereunder for a period of six (6) consecutive months
during any consecutive twelve (12) month period during the
term hereof, as determined by an independent medical doctor
jointly chosen by the Employee and the Employer) by reason of
mental or physical disability;
(ii) The termination by Employer of Employee's employment
hereunder, upon thirty (30) days prior written notice to
Employee, for "good cause", as reasonably determined by the
Board of Directors. For purposes of this Agreement, "good
cause" for termination of Employee's employment shall exist
(A) if Employee is convicted of, pleads guilty to or confesses
to any felony or any act of fraud, misappropriation or
embezzlement, (B) if Employee has engaged in a dishonest act
to the material damage or prejudice of Employer or an
affiliate of Employer, or in conduct or activities materially
damaging to the property, business, or reputation of Employer
or an affiliate of Employer, or (C) if Employee violates any
of the provisions contained in Section 5 of this Agreement,
after receiving written notice from the Employer specifically
outlining the alleged violations by the Employee of Section 5
hereof and either (1) the Employee fails to stop the alleged
behavior which is claimed to be such a breach within thirty
(30) days of receipt by the Employee of such written notice or
(2) the Employer prevails in mediation or binding arbitration
pursuant to the commercial arbitration rules of the American
Arbitration Association which arbitration is commenced by the
Employee within thirty (30) days of receipt by the Employer of
such notice in accordance with the provisions of Section 5.6
hereof;
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<PAGE> 3
(iii) The termination by the Employee in the event that the
Combination is not consummated and/or at least Forty Million
Dollars ($40,000,000) has not been raised as part of the
initial public offering (the "IPO") contemplated as part of
the Combination by August 15, 1998, upon thirty (30) days
written notice to the Founding Companies;
(iv) After the Combination and the IPO have both been consummated,
the termination by either the Employee or the Employer, upon
thirty (30) days written notice to the other party, in the
event of a Change of Control of the Employer (as defined
hereinbelow).
For purposes of this Agreement, a "Change of Control"
shall be deemed to have occurred if (A) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), other
than a trustee or other fiduciary holding securities under an
employee benefit plan of the Holding Company, a corporation
owned directly or indirectly by the stockholders of the
Holding Company (immediately after the IPO) or any of their
respective affiliates, becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Holding Company representing
50% or more of the total voting power represented by the
Holding Company's then outstanding securities that vote
generally in the election of directors (referred to herein as
"Voting Securities"); (B) during any period of two consecutive
years, individuals who at the beginning of such period
constitute the Board of Directors and any new directors whose
election by the Board of Directors or nomination for election
by the Holding Company's stockholders was approved by a vote
or a majority of the directors then still in office who either
were directors at the beginning of the period or whose
election or nomination for election was previously so
approved, cease for any reason to constitute a majority of the
Board of Directors; (C) the stockholders of the Holding
Company approve a merger or consolidation of the Holding
Company with any other corporation, other than a merger or
consolidation (i) which would result in the Voting Securities
of the Holding Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by
being converted into Voting Securities of the surviving
entity) at least 50% of the total voting power represented by
the Voting Securities of the Holding Company or such surviving
entity outstanding immediately after such merger or
consolidation or (ii) in which 50% or more of the board of
directors of the surviving entity is composed of members from
the Board of Directors of the Holding Company; (D) the
stockholders of the Holding Company approve a plan of complete
liquidation
3
<PAGE> 4
of the Holding Company or an agreement for the sale or
disposition by the Holding Company of (in one transaction or a
series of transactions) all or substantially all of the
Holding Company's assets; or
(v) After December 31, 2001, this Agreement shall continue upon a
year-to-year basis unless terminated by either the Employer or
the Employee upon ninety days (90) written notice to the other
before January 1 of the next year.
SECTION 3. COMPENSATION.
3.1 Term of Employment. Employer will provide Employee
with the following salary, expense reimbursement and additional employee
benefits during the term of employment hereunder.
(a) Salary
(i) Subject to the terms and conditions hereof,
until the IPO is consummated, the Employee
shall receive no salary but shall be
entitled to reimbursement, with ten (10)
days of submission of a reimbursement
report, of any and all of his reasonable
out-of-pocket expenses, of any kind or
nature, incurred by the Employee in
promoting and helping to structure and
facilitate the Combination. All such
expenses shall be paid from the interim
monthly corporate budget of Employer, equal
to $33,000 per month until consummation of
the IPO. Every Founding Company has
contributed to, and hereby agrees to
continue to contribute to, the interim
monthly corporate budget on a pro rata
basis.
(ii) After the IPO is consummated, Employee will
be paid a salary (the "Base Salary") of no
less than One Hundred Eighty Five Thousand
Dollars ($185,000) per annum, less
deductions and withholdings required by
applicable law. The Base Salary shall be
paid to Employee in equal monthly
installments (or on such more frequent basis
as other executives of Employer are
compensated). The Base Salary shall be
reviewed by the Board of Directors of
Employer on at least an annual basis
thereafter and may be increased but not
decreased as a result of any such review.
(b) Performance Bonuses. In addition to the Base Salary,
the Employee shall have the right to receive from the
Employer, and the Employer shall be
4
<PAGE> 5
obligated to pay to the Employee, a performance bonus (the
"Performance Bonus") for each fiscal year during the term of
this Agreement, equal to the aggregate amount determined by
the bonus formulas delineated herein below. Any amount of a
Performance Bonus required to be paid to the Employee for a
fiscal year during the term of this Agreement shall be paid by
the Employer in the first pay period of the Employer
immediately following the finalization of the accounting audit
for financial accounting purposes of the Employer for the
preceding fiscal year but in all events by March 31 of the
year immediately following the end of the fiscal year for
which such Performance Bonus is attributable.
The formulas to determine a Performance Bonus for any fiscal
year during the term of this Agreement shall be as follows:
(i) For each fiscal year of the Employer, .15% of the
pre-tax net income, before any performance or other
periodic bonuses for any of the employees of the
Employer and any of its consolidated subsidiaries, of
the Employer on a consolidated basis for financial
accounting basis based upon applying generally
accepted accounting principles and generally accepted
auditing standards on a consistent basis. This bonus
shall be calculated by the independent certified
public accountant regularly employed by the Employer
(the "CPA") applying such generally accepted
accounting principles and generally accepted auditing
standards on a consistent basis.
Plus
(ii) For each fiscal year of the Employer, one point five
percent (1.5%) of the excess of (a) the consolidated
after tax net income of the Employer and its
consolidated subsidiaries for a fiscal year, computed
by the CPA applying generally accepted accounting
principles and generally accepted auditing standards
on a consistent basis over (b) the Wall Street
Estimate (as hereinafter defined) for such fiscal
year. For purposes of this subsection (ii)(b), Wall
Street Estimate for a fiscal year shall mean the
simple arithmetical average of the consolidated
earnings per share estimates for a fiscal year of the
Employer and its consolidated subsidiaries in the
possession of First Call on the Determination
5
<PAGE> 6
Date (as hereinafter defined), translated by
the CPA into the equivalent consolidated after
tax net income of the Employer and its
consolidated subsidiaries for such fiscal
year. For purposes of this subsection (ii)(b),
the Determination Date shall mean the date the
IPO is consummated and thereafter shall be the
first day of the fiscal year for which such
computation applies.
(c) Discretionary Bonus. The Board of Directors may, from
time to time, award the Employee an additional
discretionary bonus based upon such factors as the
Board of Directors deems appropriate. The Employer
shall have no entitlement to such a discretionary
bonus until and unless so awarded by the Board of
Directors.
(d) Vacation. Employee shall receive four (4) weeks
vacation time per calendar year during the term of
this Agreement in addition to customary holidays
afforded other employees of Employer. Any unused
vacation days in any calendar year may not be carried
over to subsequent years. The Employer recognizes the
benefit to it of the Employee attending and
participating in trade seminars, conventions, and
similar gatherings and educational seminars and
encourages the Employee to attend such seminars and
conventions. Accordingly, any reasonable cost and
expenses thereof will be paid for by the Employer and
any time spent by the Employee at such seminars and
conventions shall not constitute vacation time but
shall constitute part of the Employee's duties under
this Agreement.
(e) Expenses. Subsequent to the IPO, Employer shall
reimburse Employee, within thirty (30) days of its
receipt of a reimbursement report from the Employee,
for all reasonable and necessary expenses incurred by
Employee on behalf of Employer.
(f) Benefit Plans. Employee shall have the option of
participating in such medical, dental, disability,
hospitalization, life insurance, stock option and
other benefit plans (such as pension and profit
sharing plans) as Employer maintains from time to
time for the benefit of other senior executives of
Employer, on the terms and subject to the conditions
set forth in such plans.
(g) Relocation. In addition to other compensation and
reimbursement of expenses required to be paid under
this Agreement, Employer shall
6
<PAGE> 7
reimburse Employee within ten (10) days of submission
of a reimbursement report:
(A) Any and all of his out-of-pocket expenses of
any kind or nature, incurred by Employee
relating to the relocation ("Relocation") of
Employee and/or his family from Pennsylvania
to the Baltimore Metropolitan area
including, but not limited to:
I. Packing, storage and professional
mover costs relating to the
furniture, clothing, household
belongings and other personal
property of Employee and his
family.
II. Travel expenses incurred by
Employee and his family in
connection with commuting to and
from Pennsylvania and Maryland
relating to searching for a new
residence ("Maryland Home") in
Maryland and the sale of Employee's
existing home ("Pennsylvania Home")
in Pennsylvania.
III. Real estate commissions paid
relating to the sale of the
Pennsylvania Home.
IV. Mortgage application, points, fees,
charges, appraisal, attorney fees
of the mortgage lender, title
insurance, survey, and all other
costs and expenses associated with
obtaining a loan and mortgage and
the purchase of the Maryland Home.
V. Attorney fees incurred by Employee
relating to the sale of the
Pennsylvania Home and purchase of
the Maryland Home.
(B) Temporary housing costs in Maryland for
Employee and/or his family pending
completion of the Relocation, for a period
not exceeding six months from the effective
date of the IPO.
(h) Notwithstanding anything to the contrary contained
herein, until the IPO is consummated, the Employee
shall not be an employee of any of the Founding
Companies but shall be the employee of the Holding
Company and to the extent required to fulfill his
duties hereunder be an agent of each
7
<PAGE> 8
of the Founding Companies. Accordingly, the Holding
Company, and not the Founding Companies, shall be
responsible to provide to the Employee the
compensation and benefits provided by this Section 3;
provided that the provisions of this paragraph shall
not affect any agreement between the Founding
Companies to provide funds to the Holding Company
prior to the IPO or otherwise.
3.2 Effect of Termination. Except as hereinafter provided,
upon the termination of the employment of Employee hereunder for any reason,
Employee shall be entitled to all compensation and benefits earned or accrued
under Section 3.1 as of the effective date of termination (the "Termination
Date"), but from and after the Termination Date no additional compensation or
benefits shall be earned by Employee hereunder. Except upon termination by the
Employer of the employment of the Employee pursuant to the provisions of Section
2(ii) hereof, Employee shall be deemed to have earned any Performance Bonus
payable with respect to the fiscal year in which the Termination Date occurs on
a prorated basis (based on the number of days in such calendar year through and
including the Termination Date divided by 365). Any such Performance Bonus shall
be payable on the date on which the Performance Bonus would have been paid had
Employee continued his employment hereunder. In addition, the Employee and his
eligible dependents shall be entitled to receive at the sole cost of the
Employer (A) the health insurance benefits specified hereunder for a period of
twelve (12) months following the Termination Date (the "Continuation Period")
and following such time period, the Employee shall be entitled to all rights
afforded to him under the Federal Omnibus Reconciliation Act ("COBRA") to
purchase continuation coverage of such health insurance benefits for himself and
his dependents for the maximum period permitted by law, and the Employee shall
be deemed to have elected to exercise his rights under Cobra as of the first day
of the Continuation Period, and (B) the life insurance benefits specified
hereinabove for the period of the Continuation Period.
(i) Upon termination of this Agreement, pursuant to the provisions
of Sections 2 (i) or (iv) hereof, any stock grants or options previously awarded
to the Employee, either by this Agreement or otherwise, shall fully and
completely vest and the Employee shall be able to retain or obtain as the case
may be, such stock, as though there was no vesting period or criteria of any
kind or nature, with respect to such stock. If stock options have previously
been awarded to the Employee, notwithstanding any terms and conditions of such
award or any plan pursuant to which such stock options were awarded, the
Employee or his authorized representative shall have a period of three (3)
months from the Termination Date to exercise any or all of such stock options
and acquire for his own benefit the shares of stock covered by such stock
options.
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<PAGE> 9
(ii) Upon termination of the Agreement pursuant to the terms of
Section 2(ii) or (v) hereof, all granted but unvested, at the Termination Date,
stock grants or options shall be forfeited upon such termination; provided that
the Employee shall be able to retain or exercise any rights for a period of one
(1) month after the Termination Date, notwithstanding the terms and provisions
of such stock options awarded or the plan under which they were awarded, with
respect to any shares of stock granted or shares of stock covered by stock
options that have fully vested as of the Termination Date.
SECTION 4. COMMON STOCK.
4.1. Term of Employment. So that Employee can share in the
increase in value of the business of Employer over time, Employee will be
granted common stock of Employer as follows:
(i) Stock Grant. Simultaneously with the consummation of
the Combination, Employee will be granted that number
of shares of all classes of stock of the Holding
Company equal to one percent (1.0%) of the number of
shares of all classes of stock of the Holding Company
outstanding immediately upon consummation of the IPO.
Such shares so granted shall fully and completely
vest on the date of issuance.
(ii) Stock Splits and Recapitalization. The number of
shares of common stock granted hereby shall be
automatically adjusted to reflect any change in the
capitalization of the Holding Company, including, but
not limited to, such changes as stock dividends,
stock splits or recapitalizations. If any adjustment
under this Section would create the right of Employee
to acquire a fractional share of stock, such
fractional share shall be disregarded and the number
of shares of common stock subject to the grant shall
be the next higher number of whole shares of common
stock, rounding all fractions upward.
4.2 Stock Loan.
(i) In order to help the Employee pay any required income
taxes with respect to the stock granted to the
Employee pursuant to the provisions of Section 4.1
hereof, at any time after the IPO has been
consummated, the Employer, upon thirty (30) days
written notice from the Employee, shall provide to
the Employee a loan (the "Loan") in an amount equal
to such income taxes, to be interest only for a
period of five (5) years, to require
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<PAGE> 10
yearly payments of simple interest at the same
interest rate as the Holding Company incurs to borrow
funds from its institutional lenders, to be
collateralized only by the stock granted and the
Employee otherwise will not be personally obligated
to repay the Loan; provided that upon the termination
of this Agreement pursuant to the provisions of
Section 2(i) or (ii), the loan shall be fully paid
off within three (3) months of the Termination Date
and upon the termination of this Agreement to
Sections 2 (iii), (iv) or (v), hereof, the Loan shall
be fully paid off within one (1) year after the
Termination Date.
(ii) To the extent that the Employee has not repaid the
entire principal balance of the Loan plus any accrued
interest thereon before January 1, 2001, the Employee
agrees to sell, as promptly as practicable, a
sufficient number of shares of Common Stock to enable
the Employee to repay the then remaining outstanding
balance (unpaid principal balance and unpaid accrued
interest from time to time, the ("Unpaid Balance of
the Loan")) of the Loan after any taxes have been
provided for (the "Required Number of Shares"),
subject to the following conditions and requirements:
(A) Such sales shall be made in a manner which
shall reasonably not disrupt the orderly
trading of Common Stock, either through open
market or privately negotiated transactions
as long as no sales shall be made at a price
lower that 1/16 below the last sales price
of Common Stock publicly traded immediately
prior to such sale even if such prohibition
shall cause a delay in Employee's compliance
with his obligation to sell Common Stock as
provided hereinabove;
(B) If after January 1, 2001 the Holding Company
proposes to register any of its securities
under the Securities Act for sale to the
public for its own account or for the
account of other security holders or both,
the Holding Company may, upon 30 days prior
written notice to the Employee, require the
Employee to include the Required Number of
Shares in such offering and to sell such
shares as part of such offering. In such
event, all of the costs of registering the
Required Number of Shares, including but not
limited to, all registration and filing
fees, printing expenses, fees and
disbursements of counsel and independent
public accountants for the Holding Company;
fees of the National Association of
Securities Dealers, Inc., state Blue Sky
fees and expenses, transfer
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<PAGE> 11
taxes, fees of transfer agents and
registrars and costs of insurance; and all
underwriting discounts and selling
commissions applicable to the sale of shares
other than the Required Number of Shares,
shall be paid by the Holding Company.
Notwithstanding the above, the Employee
shall pay all underwriting discounts and
selling commissions directly payable with
respect to the registration of the Required
Number of Shares; or
(C) If, as of June 1, 2001, Employee has not yet
disposed of the Required Number of Shares,
the Holding Company will repurchase from the
Employee the Required Number of Shares at a
per share price equal to 1/16 lower than the
average of the closing sales price for the
Common Stock as reported on the national
stock exchange on which the Holding
Company's stock trades for a ten (10) day
period prior to the date of such sale to the
Holding Company, provided, however, that
such repurchase shall only be required if it
can be effected in a manner that complies
with all applicable securities laws.
Notwithstanding anything contained herein to the contrary, the
Employee shall not be required to sell any of the Required Number of Shares
unless the net proceeds paid to the Employee as a result of such shares equals
or exceeds 150% of the IPO Price per share.
Nothing in this Section 4.2(ii) shall be construed to require
the Employee to sell common stock except in compliance with all applicable
securities laws. Any delay imposed due to compliance with requirements of
applicable securities laws shall suspend the Employee's obligation to sell
Common Stock as otherwise provided hereinabove.
Lastly, notwithstanding anything to the contrary contained in
this Section 4.2(ii), the Employee shall have the right but not the obligation,
at any time and from time to time, to repay the Unpaid Balance of the Loan from
his personal resources.
4.3 Securities Act. THE SHARES OF COMMON STOCK (THE "SHARES")
GRANTED PURSUANT TO THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS,
THE SHARES ARE OFFERED PURSUANT TO EXEMPTIONS PROVIDED BY SECTION 4(2) OF THE
ACT AND CERTAIN RULES AND REGULATIONS PROMULGATED PURSUANT THERETO. THE SHARES
MAY NOT BE TRANSFERRED BY THE EMPLOYEE IN THE ABSENCE OF AN
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<PAGE> 12
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL ACCEPTABLE TO EMPLOYER AND ITS COUNSEL,
WHICH ACCEPTANCE SHALL NOT BE UNREASONABLY WITHHELD, THAT SUCH REGISTRATION IS
NOT REQUIRED.
At such time as counsel for the Employee, which is acceptable
to the Holding Company, which acceptance shall not be unreasonably withheld,
opines that the aforementioned stock restriction and legend can be removed from
the certificates representing stock granted pursuant to Section 4.1(i) hereof in
accordance with applicable securities law, the Holding Company agrees to delete
any such legend from the certificates representing such shares that have been so
granted.
SECTION 5. PARTIAL RESTRAINT ON COMPETITION.
5.1 Definitions. For the purposes of this Section 5, the
following definitions shall apply.
(a) "Company Activities" means the business of
construction and maintenance of railway beds
and tracks; construction and maintenance of
elevated rail systems and structures;
construction and maintenance of railway
switching and signaling equipment,
distributorships and supply in the field of
rail and railway construction materials;
distributorships and supply in the field of
electromechanical controls for use in the
railroad industry, namely, railway switching
equipment and railway signaling equipment;
and design for others in the field of
railroad industry, namely, engineering
design of rail and railway related
structures and equipment or any other
business of the Employer and its
consolidated (for financial accounting
purposes) subsidiaries (the "Consolidated
Group") which said entities are engaged in
on the Termination Date as long as such
business generated gross sales of at least
10% or more of the total gross sales of the
Consolidated Group for the most recent
fiscal year of the Employer before or on the
Termination Date.
(b) "Competitor" means any business, individual,
partnership, joint venture, association,
firm, corporation or other entity, other
than the Employer or its affiliates or
subsidiaries, engaged, wholly or partly, in
Company Activities.
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<PAGE> 13
(c) "Competitive Position" means (i) having any
financial interest in a Competitor,
including but not limited to, the direct or
indirect ownership or control of all or any
portion of a Competitor, or acting as a
partner, officer, director, principal, agent
or trustee of any Competitor or (ii)
engaging in any employment or independent
contractor arrangement, business or other
activity with any Competitor whereby
Employee will serve such Competitor in any
senior managerial capacity.
(d) "Confidential Information" means any
confidential, proprietary business
information or data belonging to or
pertaining to Employer that does not
constitute a "Trade Secret" (as hereinafter
defined) and that is not generally known by
or available through legal means to the
public, including, but not limited to,
information regarding Employer's customers
or actively sought prospective customers,
acquisition targets, suppliers,
manufacturers and distributors gained by
Employee as a result of his employment with
Employer.
(e) "Customer" means actual customers or
actively sought prospective customers of
Employer during the Term.
(f) "Noncompete Period" or "Nonsolicitation
Period" means the period beginning the date
hereof and ending on the second anniversary
of the termination of Employee's employment
with Employer; provided that such Noncompete
Period or Nonsolicitation Period shall end
on the Termination Date in the event this
Agreement is terminated pursuant to the
provisions of Sections 2 (iii) or (iv),
hereof.
(g) "Territory" means the area within a one
hundred (100) mile radius of any corporate
office or job site of Employer or any of its
subsidiaries, affiliates or divisions.
(h) "Trade Secrets" means information or data of
or about Employer, including but not limited
to technical or non-technical data,
formulas, patterns, compilations, programs,
devices, methods, techniques, drawings,
processes, financial data, financial plans,
products plans, or lists of actual or
potential customers, clients,
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<PAGE> 14
distributees or licensees, information
concerning Employer's finances, services,
staff, contemplated acquisitions, marketing
investigations and surveys, that are not
generally known to, and/or are not readily
ascertainable by proper means by, other
persons.
(i) "Work Product" means any and all work
product property, data documentation or
information of any kind prepared, conceived,
discovered, developed or created by Employee
for Employer or its affiliates, or any of
Employer's or its affiliates' clients or
customers for utilization in Company
Activities, not generally known by or not
readily ascertainable by proper means by
other persons who can obtain economic value
from their disclosure or use.
5.2 Trade Name and Confidential Information.
(a) Employee hereby agrees that (i) with regard
to each item constituting all or any portion
of the Trade Secrets and Confidential
Information, at all times during the Term
and all times during which such item
continues to constitute a Trade Secret or
Confidential Information, respectively:
(i) Employee shall not, directly or by
assisting others own, manage,
operate, join, control or
participate in the ownership,
management, operation or control
of, or be connected in any manner
with, any business conducted under
any corporate or trade name of
Employer or name confusingly
similar thereto, without the prior
written consent of Employer;
(ii) Employee shall hold in confidence
all Trade Secrets and all
Confidential Information and will
not, either directly or indirectly,
use, sell, lend, lease, distribute,
license, give, transfer, assign,
show, disclose, disseminate,
reproduce, copy, appropriate or
otherwise communicate any Trade
Secrets or Confidential
Information, without the prior
written consent of Employer; and
(iii) Employee shall immediately notify
Employer of any unauthorized
disclosure or use of any Trade
Secrets or
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<PAGE> 15
Confidential Information of which
Employee becomes aware. Employee
shall assist Employer, to the
extent necessary, in the
procurement or any protection of
Employer's rights to or in any of
the Trade Secrets or Confidential
Information.
(b) Upon the request of Employer and, in any
event, upon the termination of Employee's
employment with Employer, Employee shall
deliver to Employer all memoranda, notes,
records, manuals and other documents,
including all copies of such materials and
all documentation prepared or produced in
connection therewith, pertaining to the
performance of Employee's services hereunder
or Employer's business or containing Trade
Secrets or Confidential Information, whether
made or complied by Employee or furnished to
Employee from another source by virtue of
Employee's employment with Employer.
(c) To the greatest extent possible, all Work
Product shall be deemed to be "work made for
hire" (as defined in the Copyright Act, 17
U.S.C.A. ss.ss. 101 et seq., as amended) and
owned exclusively by Employer. Employee
hereby unconditionally and irrevocably
transfers and assigns to Employer all
rights, title and interest Employee may have
in or to any and all Work Product,
including, without limitation, all patents,
copyrights, trademarks, service marks and
other intellectual property rights. Employee
agrees to execute and deliver to Employer
any transfers, assignments, documents or
other instruments which Employer may deem
necessary or appropriate to vest complete
title and ownership of any and all such Work
Product, and all rights therein, exclusively
in Employer.
5.3 Noncompetition.
(a) The parties hereto acknowledge that Employee
is conducting Company Activities throughout
the Territory. Employee acknowledges that to
protect adequately the interest of Employer
in the business of Employer it is essential
that any noncompete covenant with respect
thereto cover all Company Activities and the
entire Territory.
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<PAGE> 16
(b) Employee hereby agrees that, during the Term
and the Noncompete Period, Employee will
not, in the Territory, either directly or
indirectly, alone or in conjunction with any
other party, accept, enter into or take any
action in conjunction with or in furtherance
of a Competitive Position with Employer.
Employee shall notify Employer promptly in
writing if Employee receives an offer of a
Competitive Position during the Noncompete
Term, and such notice shall describe all
material terms of such offer.
Nothing contained in this Section 5 shall prohibit Employee
from acquiring not more than five percent (5%) of any Competitor, or from
acquiring any percentage of any company which is non-competitive with Employer,
whose common stock is publicly traded on a national securities exchange or in
the over-the-counter market.
5.4 Nonsolicitation During Employment Term. Employee hereby
agrees that Employee will not, during the Term, either directly or indirectly,
alone or in conjunction with any other party:
(a) solicit, divert or appropriate or attempt to
solicit, divert or appropriate, any Customer
for the purpose of providing the Customer
with services or products competitive with
those offered by Employer during the Term,
or
(b) solicit or attempt to solicit any officer,
director, employee, consultant, contractor,
agent, lessor, lessee, licensor, licensee,
supplier or any shareholder of any of the
Founding Companies or other personnel of
Employer or any of its affiliates or
subsidiaries to terminate, alter or lessen
that party's affiliation with Employer or
such affiliate or subsidiary or to violate
the terms of any agreement or understanding
between such employee, consultant,
contractor or other person and Employer.
5.5 Nonsolicitation During Nonsolicitation Period.
Employee hereby agrees that Employee will not, during the Nonsolicitation
Period, either directly or indirectly, alone or in conjunction with any other
party:
(a) solicit, divert or appropriate or attempt to
solicit, divert or appropriate, any Customer
for the purpose of providing the Customer
with services or products competitive with
those offered by Employer during the Term;
provided, however, that the
16
<PAGE> 17
covenant in this clause shall limit
Employee's conduct only with respect to
those Customers with whom Employee had
substantial contact (through direct or
supervisory interaction with the Customer or
the Customer's account) during a period of
time up to but no greater than two (2) years
prior to the last day of the Term; or
(b) solicit or attempt to solicit any officer,
director, employee, consultant, contractor,
agent, lessor, lessee, licensor, licensee,
supplier or any shareholder of any of the
Founding Companies or other personnel of
Employer or any of its affiliates or
subsidiaries residing at the time of the
solicitation in the Territory to terminate,
alter or lessen that party's affiliation
with Employer or such affiliate or
subsidiary or to violate the terms of any
agreement or understanding between such
employee, consultant, contractor or other
person and Employer. For purposes of this
clause (b), employees, consultants,
contractors, or other personnel are those
with knowledge of or access to Trade Secrets
and Confidential Information of the
Employer.
5.6 Binding Arbitration. The parties shall refer any dispute
as to whether or not the Employee has violated the provisions of this Section 5
to a mediator and, in the event that mediation is unsuccessful, such dispute
shall be resolved by binding arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. The arbitrator shall
be selected by the mediator. The cost of the mediator and, if necessary, the
arbitrator and all other costs of the mediation and, if necessary, the
arbitration shall be split equally between the Employee and the Employer, except
for attorneys fees which shall be paid by the party employing such attorney.
SECTION 6. MISCELLANEOUS.
6.1 Severability. The covenants in this Agreement shall be
construed as covenants independent of one another and as obligations distinct
from any other contract between Employee and Employer.
6.2 Survival of Obligations. The covenants in Section 5 of
this Agreement shall survive termination of Employee's employment, except in the
case of termination of this Agreement pursuant to the provisions of Sections
2(iii) or (iv) hereof, in which case they shall terminate also and have no
further force or legal effect as of the Termination Date.
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<PAGE> 18
6.3 Notices. Any notice or other document to be given
hereunder by any party hereto to any other party hereto shall be in writing and
delivered in person or by courier, by telecopy transmission or sent by any
express mail service, postage or fees prepaid at the following addresses:
FOUNDING COMPANIES - as listed on Exhibit A
HOLDING COMPANY -
c/o RailWorks Corporation
-----------------------------------
-----------------------------------
-----------------------------------
Attention: Chief Executive Officer
Telecopy No.: ( )
EMPLOYEE
Mr. Harold C. Kropp, Jr.
-----------------------------------
-----------------------------------
or at such other address or number for a party as shall be specified by like
notice. Any notice which is delivered in the manner provided herein shall be
deemed to have been duly given to the party to whom it is directed upon actual
receipt by such party or its agent.
6.4 Binding Effect. This Agreement enures to the benefit of,
and is binding upon, Employer and their respective successors and assigns, and
Employee, together with Employee's executor, administrator, personal
representative, heirs, and legatees.
6.5 Entire Agreement. This Agreement is intended by the
parties hereto to be the final expression of their agreement with respect to the
subject matter hereof and is the complete and exclusive statement of the terms
thereof, notwithstanding any representations, statements or agreements to the
contrary heretofore made. This Agreement supersedes and terminates all prior
employment and compensation agreements, arrangements and understandings between
or among Employer and Employee. This Agreement may be modified only by a written
instrument signed by all of the parties hereto.
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<PAGE> 19
6.6 Governing Law. This Agreement shall be deemed to be made
in, and in all respects shall be interpreted, construed, and governed by and in
accordance with, the laws of the State of Maryland. No provision of this
Agreement shall be construed against or interpreted to the disadvantage of any
party hereto by any court of other governmental or judicial authority or by any
board of arbitrators by reasons of such party or its counsel having or being
deemed to have structured or drafted such provision.
6.7 Headings. The section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
6.8 Specific Performance. Each party hereby agrees that any
remedy at law for any breach of provisions contained in this Agreement shall be
inadequate and that the other parties hereto shall be entitled to specific
performance and any other appropriate injunctive relief in addition to any other
remedy such party might have under this Agreement or at law or in equity.
6.9 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same instrument.
6.10 Other Employment Agreements. Without the prior written
consent of Employee, no person that is subsequently hired by RailWorks in a
position comparable to the position held by Employee shall be offered an
employment agreement that contain benefits terms that are more favorable to such
person than the terms contained herein.
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<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
ANNEX RAILROAD BUILDERS, INC.
WITNESS
/s/ By: /s/ Authorized Signature (SEAL)
- ------------------------- ---------------------------
Name:
Title:
COMTRAK CONSTRUCTION, INC.
/s/ By: /s/ Authorized Signature (SEAL)
- ------------------------- ---------------------------
Name:
Title:
CONDON BROTHERS, INC.
/s/ By: /s/ Authorized Signature (SEAL)
- ------------------------- ---------------------------
Name:
Title:
CPI CONCRETE PRODUCTS, INC.
/s/ By: /s/ Authorized Signature (SEAL)
- ------------------------- ---------------------------
Name:
Title:
20
<PAGE> 21
HP MCGINLEY, INC.
/s/ By: /s/ Authorized Signature (SEAL)
- ------------------------- ---------------------------
Name:
Title:
KENNEDY RAILROAD BUILDERS, INC.
/s/ By: /s/ Authorized Signature (SEAL)
- ------------------------- ---------------------------
Name:
Title:
COMSTOCK HOLDINGS, INC.
/s/ By: /s/ Authorized Signature (SEAL)
- ------------------------- ---------------------------
Name:
Title:
MERIT RAILROAD CONTRACTORS, INC.
/s/ By: /s/ Authorized Signature (SEAL)
- ------------------------- ---------------------------
Name:
Title:
MIDWEST CONSTRUCTION SERVICES, INC.
/s/ By: /s/ Authorized Signature (SEAL)
- ------------------------- ---------------------------
Name:
Title:
21
<PAGE> 22
NEW ENGLAND CONSTRUCTION, INC.
/s/ By: /s/ Authorized Signature (SEAL)
- ------------------------- ---------------------------
Name:
Title:
RAILROAD SERVICE, INC.
/s/ By: /s/ Authorized Signature (SEAL)
- ------------------------- ---------------------------
Name:
Title:
SOUTHERN INDIANA WOOD
PRESERVING CO.
/s/ By: /s/ Authorized Signature (SEAL)
- ------------------------- ---------------------------
Name:
Title:
U.S. TRACKWORKS, INC.
/s/ By: /s/ Authorized Signature (SEAL)
- ------------------------- ---------------------------
Name:
Title:
W. A. SMITH CONSTRUCTION CO., INC.
/s/ By: /s/ Authorized Signature (SEAL)
- ------------------------- ---------------------------
Name:
Title:
22
<PAGE> 23
HOLDING COMPANY
RAILWORKS CORPORATION
/s/ By: /s/ John G. Larkin (SEAL)
- ------------------------- ---------------------------
John G. Larkin
Chief Executive Officer
EMPLOYEE
/s/ /s/ Harold C. Kropp, Jr. (SEAL)
- ------------------------- -------------------------------
Harold C. Kropp, Jr.
23
<PAGE> 24
EXHIBIT A
Annex Railroad Builders, Inc.
Mize Construction Company
Railroad Specialties, Inc.
Comtrak Construction, Inc.
Condon Brothers, Inc.
HP McGinley, Inc.
Kennedy Railroad Builders, Inc.
Alpha-Keystone Engineering, Inc.
Railcorp, Inc.
Merit Railroad Contractors, Inc.
Midwest Construction Services, Inc.
New England Railroad Construction Co.
Comstock Holdings, Inc.
Railroad Service, Inc.
Minnesota Railroad Service, Inc.
Southern Indiana Wood Preserving Co.
U.S. Trackworks, Inc.
Northern Rail Service & Supply Co.
W.A. Smith Construction Co., Inc.
W.A. Smith Rerailing Serviceds, Inc.
CPI Concrete Products, Inc.
24
<PAGE> 1
EXHIBIT 10.27
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of
this 21st day of May, 1998, by and between John Kennedy, an individual resident
of the State of Pennsylvania ("Employee"), the Founding Companies (as defined
below), and RailWorks Corporation, a Delaware corporation (as defined below the
"Holding Company").
W I T N E S S E T H
WHEREAS, the entities listed on Exhibit A, which is attached
hereto and hereby incorporated by reference herein (the "Founding Companies")
intend to form a consolidated group with a common parent (the "Holding Company")
to hold all of the outstanding stock of each of the Founding Companies (the
"Combination");
WHEREAS, the Holding Company will be created for the purpose
of carrying on the businesses of the Founding Companies, and conducting a public
offering of its common stock under applicable law. The Holding Company will be
the Employer hereunder;
WHEREAS, the Founding Companies desire that the Holding
Company employ the Employee to be the Vice President and Chief Operating Officer
of the Holding Company on the terms and conditions as contained herein; and
WHEREAS, the Employee desires to be so employed by the Holding
Company, on the terms and conditions as contained herein.
NOW, THEREFORE, in consideration of the premises and the
mutual promises and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged by
the parties hereto, the parties hereto, intending to be legally bound, hereby
agree as follows:
SECTION 1. EMPLOYMENT.
Subject to the terms hereof, Employer will employ Employee and
Employee hereby accepts such employment. After the Combination is consummated,
the Employee shall serve as the Vice President and Chief Operating Officer of
the Holding Company.
<PAGE> 2
Subject to the terms and conditions of this Agreement, from
the date hereof until the Combination is consummated, the Employee shall devote
reasonable efforts to the Founding Companies to help consummate the Combination,
but shall be permitted to remain in his present job or any similar job until the
Combination is so consummated. After the Combination is consummated, Employee
agrees to devote substantially all of his business time and best efforts to the
performance of his job as Vice President and Chief Operating Officer of the
Holding Company, subject to direction by the Board of Directors of the Holding
Company (the "Board of Directors"), as long as such directions are consistent
with the duties, responsibilities and authority customarily given or required of
chief operating officers generally, with the Employee to report his activities
regularly to the Board of Directors.
SECTION 2. TERM OF EMPLOYMENT.
The term of the Employee's employment hereunder (the "Term")
shall be from the date this Agreement is fully executed until the occurrence of
any of the following events:
(i) The death or total disability of Employee (total disability
meaning the failure to fully perform his normal required
services hereunder for a period of six (6) consecutive months
during any consecutive twelve (12) month period during the
term hereof, as determined by an independent medical doctor
jointly chosen by the Employee and the Employer) by reason of
mental or physical disability;
(ii) The termination by Employer of Employee's employment
hereunder, upon thirty (30) days prior written notice to
Employee, for "good cause", as reasonably determined by the
Board of Directors. For purposes of this Agreement, "good
cause" for termination of Employee's employment shall exist
(A) if Employee is convicted of, pleads guilty to or confesses
to any felony or any act of fraud, misappropriation or
embezzlement, (B) if Employee has engaged in a dishonest act
to the material damage or prejudice of Employer or an
affiliate of Employer, or in conduct or activities materially
damaging to the property, business, or reputation of Employer
or an affiliate of Employer, or (C) if Employee violates any
of the provisions contained in Section 5 of this Agreement,
after receiving written notice from the Employer specifically
outlining the alleged violations by the Employee of Section 5
hereof and either (1) the Employee fails to stop the alleged
behavior which is claimed to be such a breach within thirty
(30) days of receipt by the Employee of such written notice or
(2) the Employer prevails in mediation or binding arbitration
pursuant to the commercial arbitration rules of the American
Arbitration Association which arbitration is commenced by the
Employee within thirty (30) days of receipt by the Employer of
such notice in accordance with the provisions of Section 5.6
hereof;
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(iii) The termination by the Employee in the event that the
Combination is not consummated and/or at least Forty Million
Dollars ($40,000,000) has not been raised as part of the
initial public offering (the "IPO") contemplated as part of
the Combination by August 15, 1998, upon thirty (30) days
written notice to the Founding Companies;
(iv) After the Combination and the IPO have both been consummated,
the termination by either the Employee or the Employer, upon
thirty (30) days written notice to the other party, in the
event of a Change of Control of the Employer (as defined
hereinbelow).
For purposes of this Agreement, a "Change of Control"
shall be deemed to have occurred if (A) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), other
than a trustee or other fiduciary holding securities under an
employee benefit plan of the Holding Company, a corporation
owned directly or indirectly by the stockholders of the
Holding Company (immediately after the IPO) or any of their
respective affiliates, becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Holding Company representing
50% or more of the total voting power represented by the
Holding Company's then outstanding securities that vote
generally in the election of directors (referred to herein as
"Voting Securities"); (B) during any period of two consecutive
years, individuals who at the beginning of such period
constitute the Board of Directors and any new directors whose
election by the Board of Directors or nomination for election
by the Holding Company's stockholders was approved by a vote
or a majority of the directors then still in office who either
were directors at the beginning of the period or whose
election or nomination for election was previously so
approved, cease for any reason to constitute a majority of the
Board of Directors; (C) the stockholders of the Holding
Company approve a merger or consolidation of the Holding
Company with any other corporation, other than a merger or
consolidation (i) which would result in the Voting Securities
of the Holding Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by
being converted into Voting Securities of the surviving
entity) at least 50% of the total voting power represented by
the Voting Securities of the Holding Company or such surviving
entity outstanding immediately after such merger or
consolidation or (ii) in which 50% or more of the board of
directors of the surviving entity is composed of members from
the Board of Directors of the Holding Company; (D) the
stockholders of the Holding Company approve a plan of complete
liquidation
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of the Holding Company or an agreement for the sale or
disposition by the Holding Company of (in one transaction or a
series of transactions) all or substantially all of the
Holding Company's assets; or
(v) After December 31, 2001, this Agreement shall continue upon a
year-to-year basis unless terminated by either the Employer or
the Employee upon ninety days (90) written notice to the other
before January 1 of the next year.
SECTION 3. COMPENSATION.
3.1 Term of Employment. Employer will provide Employee with
the following salary, expense reimbursement and additional employee benefits
during the term of employment hereunder.
(a) Salary
(i) Subject to the terms and conditions hereof,
until the IPO is consummated, the Employee
shall receive no salary but shall be
entitled to reimbursement, with ten (10)
days of submission of a reimbursement
report, of any and all of his reasonable
out-of-pocket expenses, of any kind or
nature, incurred by the Employee in
promoting and helping to structure and
facilitate the Combination. All such
expenses shall be paid from the interim
monthly corporate budget of Employer, equal
to $33,000 per month until consummation of
the IPO. Every Founding Company has
contributed to, and hereby agrees to
continue to contribute to, the interim
monthly corporate budget on a pro rata
basis.
(ii) After the IPO is consummated, Employee will
be paid a salary (the "Base Salary") of no
less than One Hundred Eighty Five Thousand
Dollars ($185,000) per annum, less
deductions and withholdings required by
applicable law. The Base Salary shall be
paid to Employee in equal monthly
installments (or on such more frequent basis
as other executives of Employer are
compensated). The Base Salary shall be
reviewed by the Board of Directors of
Employer on at least an annual basis
thereafter and may be increased but not
decreased as a result of any such review.
(b) Performance Bonuses. In addition to the Base Salary,
the Employee shall have the right to receive from the
Employer, and the Employer shall be
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<PAGE> 5
obligated to pay to the Employee, a performance bonus
(the "Performance Bonus") for each fiscal year during
the term of this Agreement, equal to the aggregate
amount determined by the bonus formulas delineated
herein below. Any amount of a Performance Bonus
required to be paid to the Employee for a fiscal year
during the term of this Agreement shall be paid by
the Employer in the first pay period of the Employer
immediately following the finalization of the
accounting audit for financial accounting purposes of
the Employer for the preceding fiscal year but in all
events by March 31 of the year immediately following
the end of the fiscal year for which such Performance
Bonus is attributable.
The formulas to determine a Performance Bonus for any
fiscal year during the term of this Agreement shall
be as follows:
(i) For each fiscal year of the Employer, .15%
of the pre-tax net income, before any
performance or other periodic bonuses for
any of the employees of the Employer and any
of its consolidated subsidiaries, of the
Employer on a consolidated basis for
financial accounting basis based upon
applying generally accepted accounting
principles and generally accepted auditing
standards on a consistent basis. This bonus
shall be calculated by the independent
certified public accountant regularly
employed by the Employer (the "CPA")
applying such generally accepted accounting
principles and generally accepted auditing
standards on a consistent basis.
Plus
(ii) For each fiscal year of the Employer, one
point five percent (1.5%) of the excess of
(a) the consolidated after tax net income of
the Employer and its consolidated
subsidiaries for a fiscal year, computed by
the CPA applying generally accepted
accounting principles and generally accepted
auditing standards on a consistent basis
over (b) the Wall Street Estimate (as
hereinafter defined) for such fiscal year.
For purposes of this subsection (ii)(b),
Wall Street Estimate for a fiscal year shall
mean the simple arithmetical average of the
consolidated earnings per share estimates
for a fiscal year of the Employer and its
consolidated subsidiaries in the possession
of First Call on the Determination
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Date (as hereinafter defined), translated by
the CPA into the equivalent consolidated
after tax net income of the Employer and its
consolidated subsidiaries for such fiscal
year. For purposes of this subsection
(ii)(b), the Determination Date shall mean
the date the IPO is consummated and
thereafter shall be the first day of the
fiscal year for which such computation
applies.
(c) Discretionary Bonus. The Board of Directors may, from
time to time, award the Employee an additional
discretionary bonus based upon such factors as the
Board of Directors deems appropriate. The Employer
shall have no entitlement to such a discretionary
bonus until and unless so awarded by the Board of
Directors.
(d) Vacation. Employee shall receive four (4) weeks
vacation time per calendar year during the term of
this Agreement in addition to customary holidays
afforded other employees of Employer. Any unused
vacation days in any calendar year may not be carried
over to subsequent years.
(e) Expenses. Subsequent to the IPO, Employer shall
reimburse Employee, within thirty (30) days of its
receipt of a reimbursement report from the Employee,
for all reasonable and necessary expenses incurred by
Employee on behalf of Employer.
(f) Benefit Plans. Employee shall have the option of
participating in such medical, dental, disability,
hospitalization, life insurance, stock option and
other benefit plans (such as pension and profit
sharing plans) as Employer maintains from time to
time for the benefit of other senior executives of
Employer, on the terms and subject to the conditions
set forth in such plans.
(g) Notwithstanding anything to the contrary contained
herein, until the IPO is consummated, the Employee
shall not be an employee of any of the Founding
Companies but shall be the employee of the Holding
Company and to the extent required to fulfill his
duties hereunder be an agent of each of the Founding
Companies. Accordingly, the Holding Company, and not
the Founding Companies, shall be responsible to
provide to the Employee the compensation and benefits
provided by this Section 3; provided that the
provisions of this paragraph shall not affect any
agreement between the Founding Companies to provide
funds to the Holding Company prior to the IPO or
otherwise.
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3.2 Effect of Termination. Except as hereinafter provided,
upon the termination of the employment of Employee hereunder for any reason,
Employee shall be entitled to all compensation and benefits earned or accrued
under Section 3.1 as of the effective date of termination (the "Termination
Date"), but from and after the Termination Date no additional compensation or
benefits shall be earned by Employee hereunder. Except upon termination by the
Employer of the employment of the Employee pursuant to the provisions of Section
2(ii) hereof, Employee shall be deemed to have earned any Performance Bonus
payable with respect to the fiscal year in which the Termination Date occurs on
a prorated basis (based on the number of days in such calendar year through and
including the Termination Date divided by 365). Any such Performance Bonus shall
be payable on the date on which the Performance Bonus would have been paid had
Employee continued his employment hereunder. In addition, the Employee and his
eligible dependents shall be entitled to receive at the sole cost of the
Employer (A) the health insurance benefits specified hereunder for a period of
twelve (12) months following the Termination Date (the "Continuation Period")
and following such time period, the Employee shall be entitled to all rights
afforded to him under the Federal Omnibus Reconciliation Act ("COBRA") to
purchase continuation coverage of such health insurance benefits for himself and
his dependents for the maximum period permitted by law, and the Employee shall
be deemed to have elected to exercise his rights under Cobra as of the first day
of the Continuation Period, and (B) the life insurance benefits specified
hereinabove for the period of the Continuation Period.
(i) Upon termination of this Agreement, pursuant to the
provisions of Sections 2 (i) or (iv) hereof, any stock grants or options
previously awarded to the Employee, either by this Agreement or otherwise, shall
fully and completely vest and the Employee shall be able to retain or obtain as
the case may be, such stock, as though there was no vesting period or criteria
of any kind or nature, with respect to such stock. If stock options have
previously been awarded to the Employee, notwithstanding any terms and
conditions of such award or any plan pursuant to which such stock options were
awarded, the Employee or his authorized representative shall have a period of
three (3) months from the Termination Date to exercise any or all of such stock
options and acquire for his own benefit the shares of stock covered by such
stock options.
(ii) Upon termination of the Agreement pursuant to the
terms of Section 2(ii) or (v) hereof, all granted but unvested, at the
Termination Date, stock grants or options shall be forfeited upon such
termination; provided that the Employee shall be able to retain or exercise any
rights for a period of one (1) month after the Termination Date, notwithstanding
the terms and provisions of such stock options awarded or the plan under which
they were awarded, with
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<PAGE> 8
respect to any shares of stock granted or shares of stock covered by stock
options that have fully vested as of the Termination Date.
SECTION 4. COMMON STOCK.
4.1. Term of Employment. So that Employee can share in the increase
in value of the business of Employer over time, Employee will be granted common
stock of Employer as follows:
(i) Stock Grant. Simultaneously with the consummation of
the Combination, Employee will be granted that number
of shares of all classes of stock of the Holding
Company equal to one percent (1.0%) of the number of
shares of all classes of stock of the Holding Company
outstanding immediately upon consummation of the IPO.
Such shares so granted shall fully and completely
vest on the date of issuance.
(ii) Stock Splits and Recapitalization. The number of
shares of common stock granted hereby shall be
automatically adjusted to reflect any change in the
capitalization of the Holding Company, including, but
not limited to, such changes as stock dividends,
stock splits or recapitalizations. If any adjustment
under this Section would create the right of Employee
to acquire a fractional share of stock, such
fractional share shall be disregarded and the number
of shares of common stock subject to the grant shall
be the next higher number of whole shares of common
stock, rounding all fractions upward.
4.2 Stock Loan.
(i) In order to help the Employee pay any required income
taxes with respect to the stock granted to the
Employee pursuant to the provisions of Section 4.1
hereof, at any time after the IPO has been
consummated, the Employer, upon thirty (30) days
written notice from the Employee, shall provide to
the Employee a loan (the "Loan") in an amount equal
to such income taxes, to be interest only for a
period of five (5) years, to require yearly payments
of simple interest at the same interest rate as the
Holding Company incurs to borrow funds from its
institutional lenders, to be collateralized only by
the stock granted and the Employee otherwise will not
be personally obligated to repay the Loan; provided
that upon the termination of this Agreement pursuant
to the provisions of Section 2(i) or (ii), the loan
shall be fully paid off within three (3) months of
the
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<PAGE> 9
Termination Date and upon the termination of this
Agreement to Sections 2 (iii), (iv) or (v), hereof,
the Loan shall be fully paid off within one (1) year
after the Termination Date.
(ii) To the extent that the Employee has not repaid the
entire principal balance of the Loan plus any accrued
interest thereon before January 1, 2001, the Employee
agrees to sell, as promptly as practicable, a
sufficient number of shares of Common Stock to enable
the Employee to repay the then remaining outstanding
balance (unpaid principal balance and unpaid accrued
interest from time to time, the ("Unpaid Balance of
the Loan")) of the Loan after any taxes have been
provided for (the "Required Number of Shares"),
subject to the following conditions and requirements:
(A) Such sales shall be made in a manner which
shall reasonably not disrupt the orderly
trading of Common Stock, either through open
market or privately negotiated transactions
as long as no sales shall be made at a price
lower that 1/16 below the last sales price
of Common Stock publicly traded immediately
prior to such sale even if such prohibition
shall cause a delay in Employee's compliance
with his obligation to sell Common Stock as
provided hereinabove;
(B) If after January 1, 2001 the Holding Company
proposes to register any of its securities
under the Securities Act for sale to the
public for its own account or for the
account of other security holders or both,
the Holding Company may, upon 30 days prior
written notice to the Employee, require the
Employee to include the Required Number of
Shares in such offering and to sell such
shares as part of such offering. In such
event, all of the costs of registering the
Required Number of Shares, including but not
limited to, all registration and filing
fees, printing expenses, fees and
disbursements of counsel and independent
public accountants for the Holding Company;
fees of the National Association of
Securities Dealers, Inc., state Blue Sky
fees and expenses, transfer taxes, fees of
transfer agents and registrars and costs of
insurance; and all underwriting discounts
and selling commissions applicable to the
sale of shares other than the Required
Number of Shares, shall be paid by the
Holding Company. Notwithstanding the above,
the Employee shall pay all underwriting
discounts and
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<PAGE> 10
selling commissions directly payable with
respect to the registration of the Required
Number of Shares; or
(C) If, as of June 1, 2001, Employee has not yet
disposed of the Required Number of Shares,
the Holding Company will repurchase from the
Employee the Required Number of Shares at a
per share price equal to 1/16 lower than the
average of the closing sales price for the
Common Stock as reported on the national
stock exchange on which the Holding
Company's stock trades for a ten (10) day
period prior to the date of such sale to the
Holding Company, provided, however, that
such repurchase shall only be required if it
can be effected in a manner that complies
with all applicable securities laws.
Notwithstanding anything contained herein to the contrary, the
Employee shall not be required to sell any of the Required Number of Shares
unless the net proceeds paid to the Employee as a result of such shares equals
or exceeds 150% of the IPO Price per share.
Nothing in this Section 4.2(ii) shall be construed to require
the Employee to sell common stock except in compliance with all applicable
securities laws. Any delay imposed due to compliance with requirements of
applicable securities laws shall suspend the Employee's obligation to sell
Common Stock as otherwise provided hereinabove.
Lastly, notwithstanding anything to the contrary contained in
this Section 4.2(ii), the Employee shall have the right but not the obligation,
at any time and from time to time, to repay the Unpaid Balance of the Loan from
his personal resources.
4.3 Securities Act. THE SHARES OF COMMON STOCK (THE "SHARES")
GRANTED PURSUANT TO THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS,
THE SHARES ARE OFFERED PURSUANT TO EXEMPTIONS PROVIDED BY SECTION 4(2) OF THE
ACT AND CERTAIN RULES AND REGULATIONS PROMULGATED PURSUANT THERETO. THE SHARES
MAY NOT BE TRANSFERRED BY THE EMPLOYEE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR
AN OPINION OF COUNSEL ACCEPTABLE TO EMPLOYER AND ITS COUNSEL, WHICH ACCEPTANCE
SHALL NOT BE UNREASONABLY WITHHELD, THAT SUCH REGISTRATION IS NOT REQUIRED.
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At such time as counsel for the Employee, which is acceptable
to the Holding Company, which acceptance shall not be unreasonably withheld,
opines that the aforementioned stock restriction and legend can be removed from
the certificates representing stock granted pursuant to Section 4.1(i) hereof in
accordance with applicable securities law, the Holding Company agrees to delete
any such legend from the certificates representing such shares that have been so
granted.
SECTION 5. PARTIAL RESTRAINT ON COMPETITION.
5.1 Definitions. For the purposes of this Section 5, the
following definitions shall apply.
(a) "Company Activities" means the business of
construction and maintenance of railway beds
and tracks; construction and maintenance of
elevated rail systems and structures;
construction and maintenance of railway
switching and signaling equipment,
distributorships and supply in the field of
rail and railway construction materials;
distributorships and supply in the field of
electromechanical controls for use in the
railroad industry, namely, railway switching
equipment and railway signaling equipment;
and design for others in the field of
railroad industry, namely, engineering
design of rail and railway related
structures and equipment or any other
business of the Employer and its
consolidated (for financial accounting
purposes) subsidiaries (the "Consolidated
Group") which said entities are engaged in
on the Termination Date as long as such
business generated gross sales of at least
10% or more of the total gross sales of the
Consolidated Group for the most recent
fiscal year of the Employer before or on the
Termination Date.
(b) "Competitor" means any business, individual,
partnership, joint venture, association,
firm, corporation or other entity, other
than the Employer or its affiliates or
subsidiaries, engaged, wholly or partly, in
Company Activities.
(c) "Competitive Position" means (i) having any
financial interest in a Competitor,
including but not limited to, the direct or
indirect ownership or control of all or any
portion of a Competitor, or acting as a
partner, officer, director, principal, agent
or trustee of
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any Competitor or (ii) engaging in any
employment or independent contractor
arrangement, business or other activity with
any Competitor whereby Employee will serve
such Competitor in any senior managerial
capacity.
(d) "Confidential Information" means any
confidential, proprietary business
information or data belonging to or
pertaining to Employer that does not
constitute a "Trade Secret" (as hereinafter
defined) and that is not generally known by
or available through legal means to the
public, including, but not limited to,
information regarding Employer's customers
or actively sought prospective customers,
acquisition targets, suppliers,
manufacturers and distributors gained by
Employee as a result of his employment with
Employer; but shall not include any
information known by the Employee before
March 1, 1998.
(e) "Customer" means actual customers or
actively sought prospective customers of
Employer during the Term.
(f) "Noncompete Period" or "Nonsolicitation
Period" means the period beginning the date
hereof and ending on the second anniversary
of the termination of Employee's employment
with Employer; provided that such Noncompete
Period or Nonsolicitation Period shall end
on the Termination Date in the event this
Agreement is terminated pursuant to the
provisions of Sections 2 (iii) or (iv),
hereof.
(g) "Territory" means the area within a one
hundred (100) mile radius of any corporate
office or job site of Employer or any of its
subsidiaries, affiliates or divisions.
(h) "Trade Secrets" means information or data of
or about Employer, including but not limited
to technical or non-technical data,
formulas, patterns, compilations, programs,
devices, methods, techniques, drawings,
processes, financial data, financial plans,
products plans, or lists of actual or
potential customers, clients, distributees
or licensees, information concerning
Employer's finances, services, staff,
contemplated acquisitions, marketing
investigations and surveys, that are not
generally known to, and/or are not readily
ascertainable by proper means by, other
persons.
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(i) "Work Product" means any and all work
product property, data documentation or
information of any kind prepared, conceived,
discovered, developed or created by Employee
for Employer or its affiliates, or any of
Employer's or its affiliates' clients or
customers for utilization in Company
Activities, not generally known by or not
readily ascertainable by proper means by
other persons who can obtain economic value
from their disclosure or use.
5.2 Trade Name and Confidential Information.
(a) Employee hereby agrees that (i) with regard
to each item constituting all or any portion
of the Trade Secrets and Confidential
Information, at all times during the Term
and all times during which such item
continues to constitute a Trade Secret or
Confidential Information, respectively:
(i) Employee shall not, directly or by
assisting others own, manage,
operate, join, control or
participate in the ownership,
management, operation or control
of, or be connected in any manner
with, any business conducted under
any corporate or trade name of
Employer or name confusingly
similar thereto, without the prior
written consent of Employer;
(ii) Employee shall hold in confidence
all Trade Secrets and all
Confidential Information and will
not, either directly or indirectly,
use, sell, lend, lease, distribute,
license, give, transfer, assign,
show, disclose, disseminate,
reproduce, copy, appropriate or
otherwise communicate any Trade
Secrets or Confidential
Information, without the prior
written consent of Employer; and
(iii) Employee shall immediately notify
Employer of any unauthorized
disclosure or use of any Trade
Secrets or Confidential Information
of which Employee becomes aware.
Employee shall assist Employer, to
the extent necessary, in the
procurement or any protection of
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<PAGE> 14
Employer's rights to or in any of
the Trade Secrets or Confidential
Information.
(b) Upon the request of Employer and, in any
event, upon the termination of Employee's
employment with Employer, Employee shall
deliver to Employer all memoranda, notes,
records, manuals and other documents,
including all copies of such materials and
all documentation prepared or produced in
connection therewith, pertaining to the
performance of Employee's services hereunder
or Employer's business or containing Trade
Secrets or Confidential Information, whether
made or complied by Employee or furnished to
Employee from another source by virtue of
Employee's employment with Employer.
(c) To the greatest extent possible, all Work
Product shall be deemed to be "work made for
hire" (as defined in the Copyright Act, 17
U.S.C.A. ss.ss. 101 et seq., as amended) and
owned exclusively by Employer. Employee
hereby unconditionally and irrevocably
transfers and assigns to Employer all
rights, title and interest Employee may have
in or to any and all Work Product,
including, without limitation, all patents,
copyrights, trademarks, service marks and
other intellectual property rights. Employee
agrees to execute and deliver to Employer
any transfers, assignments, documents or
other instruments which Employer may deem
necessary or appropriate to vest complete
title and ownership of any and all such Work
Product, and all rights therein, exclusively
in Employer.
5.3 Noncompetition.
(a) The parties hereto acknowledge that Employee
is conducting Company Activities throughout
the Territory. Employee acknowledges that to
protect adequately the interest of Employer
in the business of Employer it is essential
that any noncompete covenant with respect
thereto cover all Company Activities and the
entire Territory.
(b) Employee hereby agrees that, during the Term
and the Noncompete Period, Employee will
not, in the Territory, either directly or
indirectly, alone or in conjunction with any
other party,
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accept, enter into or take any action in
conjunction with or in furtherance of a
Competitive Position with Employer. Employee
shall notify Employer promptly in writing if
Employee receives an offer of a Competitive
Position during the Noncompete Term, and
such notice shall describe all material
terms of such offer.
Nothing contained in this Section 5 shall prohibit Employee
from acquiring not more than five percent (5%) of any Competitor, or from
acquiring any percentage of any company which is non-competitive with Employer,
whose common stock is publicly traded on a national securities exchange or in
the over-the-counter market.
5.4 Nonsolicitation During Employment Term. Employee
hereby agrees that Employee will not, during the Term, either directly or
indirectly, alone or in conjunction with any other party:
(a) solicit, divert or appropriate or attempt to
solicit, divert or appropriate, any Customer
for the purpose of providing the Customer
with services or products competitive with
those offered by Employer during the Term,
or
(b) solicit or attempt to solicit any officer,
director, employee, consultant, contractor,
agent, lessor, lessee, licensor, licensee,
supplier or any shareholder of any of the
Founding Companies or other personnel of
Employer or any of its affiliates or
subsidiaries to terminate, alter or lessen
that party's affiliation with Employer or
such affiliate or subsidiary or to violate
the terms of any agreement or understanding
between such employee, consultant,
contractor or other person and Employer.
5.5 Nonsolicitation During Nonsolicitation Period.
Employee hereby agrees that Employee will not, during the Nonsolicitation
Period, either directly or indirectly, alone or in conjunction with any other
party:
(a) solicit, divert or appropriate or attempt to
solicit, divert or appropriate, any Customer
for the purpose of providing the Customer
with services or products competitive with
those offered by Employer during the Term;
provided, however, that the covenant in this
clause shall limit Employee's conduct only
with respect to those Customers with whom
Employee had substantial
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contact (through direct or supervisory
interaction with the Customer or the
Customer's account) during a period of time
up to but no greater than two (2) years
prior to the last day of the Term; or
(b) solicit or attempt to solicit any officer,
director, employee, consultant, contractor,
agent, lessor, lessee, licensor, licensee,
supplier or any shareholder of any of the
Founding Companies or other personnel of
Employer or any of its affiliates or
subsidiaries residing at the time of the
solicitation in the Territory to terminate,
alter or lessen that party's affiliation
with Employer or such affiliate or
subsidiary or to violate the terms of any
agreement or understanding between such
employee, consultant, contractor or other
person and Employer. For purposes of this
clause (b), employees, consultants,
contractors, or other personnel are those
with knowledge of or access to Trade Secrets
and Confidential Information of the
Employer.
5.6 Binding Arbitration. The parties shall refer any dispute
as to whether or not the Employee has violated the provisions of this Section 5
to a mediator and, in the event that mediation is unsuccessful, such dispute
shall be resolved by binding arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. The arbitrator shall
be selected by the mediator. The cost of the mediator and, if necessary, the
arbitrator and all other costs of the mediation and, if necessary, the
arbitration shall be split equally between the Employee and the Employer, except
for attorneys fees which shall be paid by the party employing such attorney.
SECTION 6. MISCELLANEOUS.
6.1 Severability. The covenants in this Agreement shall be
construed as covenants independent of one another and as obligations distinct
from any other contract between Employee and Employer.
6.2 Survival of Obligations. The covenants in Section 5 of
this Agreement shall survive termination of Employee's employment, except in the
case of termination of this Agreement pursuant to the provisions of Sections
2(iii) or (iv) hereof, in which case they shall terminate also and have no
further force or legal effect as of the Termination Date.
16
<PAGE> 17
6.3 Notices. Any notice or other document to be given
hereunder by any party hereto to any other party hereto shall be in writing and
delivered in person or by courier, by telecopy transmission or sent by any
express mail service, postage or fees prepaid at the following addresses:
FOUNDING COMPANIES - as listed on Exhibit A
HOLDING COMPANY -
c/o RailWorks Corporation
----------------------------------
----------------------------------
----------------------------------
Attention: Chief Executive Officer
Telecopy No.: ( )
EMPLOYEE
Mr. John Kennedy
----------------------------------
----------------------------------
----------------------------------
or at such other address or number for a party as shall be specified by like
notice. Any notice which is delivered in the manner provided herein shall be
deemed to have been duly given to the party to whom it is directed upon actual
receipt by such party or its agent.
6.4 Binding Effect. This Agreement enures to the benefit of,
and is binding upon, Employer and their respective successors and assigns, and
Employee, together with Employee's executor, administrator, personal
representative, heirs, and legatees.
6.5 Entire Agreement. This Agreement is intended by the
parties hereto to be the final expression of their agreement with respect to the
subject matter hereof and is the complete and exclusive statement of the terms
thereof, notwithstanding any representations, statements or agreements to the
contrary heretofore made. This Agreement supersedes and terminates all prior
employment and compensation agreements, arrangements and understandings between
or among Employer and Employee. This Agreement may be modified only by a written
instrument signed by all of the parties hereto.
17
<PAGE> 18
6.6 Governing Law. This Agreement shall be deemed to be made
in, and in all respects shall be interpreted, construed, and governed by and in
accordance with, the laws of the State of Maryland. No provision of this
Agreement shall be construed against or interpreted to the disadvantage of any
party hereto by any court of other governmental or judicial authority or by any
board of arbitrators by reasons of such party or its counsel having or being
deemed to have structured or drafted such provision.
6.7 Headings. The section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
6.8 Specific Performance. Each party hereby agrees that any
remedy at law for any breach of provisions contained in this Agreement shall be
inadequate and that the other parties hereto shall be entitled to specific
performance and any other appropriate injunctive relief in addition to any other
remedy such party might have under this Agreement or at law or in equity.
6.9 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same instrument.
6.10 Other Employment Agreements. Without the prior written
consent of Employee, no person that is subsequently hired by RailWorks in a
position comparable to the position held by Employee shall be offered an
employment agreement that contain benefits that are more favorable to such
person than the terms contained herein.
18
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
ANNEX RAILROAD BUILDERS, INC.
WITNESS
/s/ By: /s/ Authorized Signature (SEAL)
- ------------------------- ---------------------------
Name:
Title:
COMTRAK CONSTRUCTION, INC.
/s/ By: /s/ Authorized Signature (SEAL)
- ------------------------- ---------------------------
Name:
Title:
CONDON BROTHERS, INC.
/s/ By: /s/ Authorized Signature (SEAL)
- ------------------------- ---------------------------
Name:
Title:
CPI CONCRETE PRODUCTS, INC.
/s/ By: /s/ Authorized Signature (SEAL)
- ------------------------- ---------------------------
Name:
Title:
19
<PAGE> 20
HP MCGINLEY, INC.
/s/ By: /s/ Authorized Signature (SEAL)
- ------------------------- ---------------------------
Name:
Title:
KENNEDY RAILROAD BUILDERS, INC.
/s/ By: /s/ Authorized Signature (SEAL)
- ------------------------- ---------------------------
Name:
Title:
COMSTOCK HOLDINGS, INC.
/s/ By: /s/ Authorized Signature (SEAL)
- ------------------------- ---------------------------
Name:
Title:
MERIT RAILROAD CONTRACTORS, INC.
/s/ By: /s/ Authorized Signature (SEAL)
- ------------------------- ---------------------------
Name:
Title:
20
<PAGE> 21
MIDWEST CONSTRUCTION SERVICES, INC.
/s/ By: /s/ Authorized Signature (SEAL)
- ------------------------- ---------------------------
Name:
Title:
NEW ENGLAND CONSTRUCTION, INC.
/s/ By: /s/ Authorized Signature (SEAL)
- ------------------------- ---------------------------
Name:
Title:
RAILROAD SERVICE, INC.
/s/ By: /s/ Authorized Signature (SEAL)
- ------------------------- ---------------------------
Name:
Title:
SOUTHERN INDIANA WOOD
PRESERVING CO.
/s/ By: /s/ Authorized Signature (SEAL)
- ------------------------- ---------------------------
Name:
Title:
21
<PAGE> 22
U.S. TRACKWORKS, INC.
/s/ By: /s/ Authorized Signature (SEAL)
- ------------------------- ---------------------------
Name:
Title:
W. A. SMITH CONSTRUCTION CO., INC.
/s/ By: /s/ Authorized Signature (SEAL)
- ------------------------- ---------------------------
Name:
Title:
HOLDING COMPANY
RAILWORKS CORPORATION
/s/ By: /s/ John G. Larkin (SEAL)
- ------------------------- ---------------------------
John G. Larkin
Chief Executive Officer
EMPLOYEE
/s/ /s/ John Kennedy (SEAL)
- ------------------------- -------------------------------
John Kennedy
22
<PAGE> 23
EXHIBIT A
Annex Railroad Builders, Inc.
Mize Construction Company
Railroad Specialties, Inc.
Comtrak Construction, Inc.
Condon Brothers, Inc.
HP McGinley, Inc.
Kennedy Railroad Builders, Inc.
Alpha-Keystone Engineering, Inc.
Railcorp, Inc.
Merit Railroad Contractors, Inc.
Midwest Construction Services, Inc.
New England Railroad Construction Co.
Comstock Holdings, Inc.
Railroad Service, Inc.
Minnesota Railroad Service, Inc.
Southern Indiana Wood Preserving Co.
U.S. Trackworks, Inc.
Northern Rail Service & Supply Co.
W.A. Smith Construction Co., Inc.
W.A. Smith Rerailing Serviceds, Inc.
CPI Concrete Products, Inc.
23
<PAGE> 1
EXHIBIT 10.28
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of this ____
day of ________, 1998, by and between ___________, an individual resident of the
State of ___________ ("Employee"), ____________________, a ______________
corporation ("Employer"), a wholly owned subsidiary of RailWorks Corporation
("RailWorks"), a Delaware corporation, and RailWorks Corporation, a Delaware
corporation.
W I T N E S S E T H:
WHEREAS, pursuant to a merger that became effective on the date of this
Agreement (the "Merger"), Employer became a wholly owned subsidiary of
RailWorks;
WHEREAS, as a condition to the Merger, each of the Employee and
Employer agreed to enter into this Agreement;
WHEREAS, Employer desires to employ Employee, and Employee desires to
be employed by Employer, on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
promises and agreements contained herein, the parties hereto, intending to be
legally bound, hereby agree as follows:
Section 1 Employment.
Subject to the terms hereof, Employer hereby employs Employee, and
Employee hereby accepts such employment. Employee will serve as [INSERT CURRENT
TITLE] of Employer or in such other capacity as the Board of Directors of
Employer (the "Board of Directors") may hereafter from time to time determine
and will have duties and responsibilities customarily assigned to a person with
such title within Employer's industry. Employee agrees to devote his full
business time and best efforts to the performance of the duties that Employer
may assign Employee from time to time.
Section 2 Term of Employment.
2.1 The term of Employee's employment hereunder (the "Initial Term")
shall be from the date hereof until the earlier of (a) the two year anniversary
of the date of this Agreement or (b) the occurrence of any of the following
events:
(i) The death or total disability of Employee (total disability
meaning the failure to fully perform his normal required
services hereunder for a period of six (6) consecutive months
during any consecutive twelve (12) month period during the
term hereof, as
<PAGE> 2
determined by an independent medical doctor jointly chosen by
the Employee and the Employer), by reason of mental or
physical disability; or
(ii) The termination by Employer of Employee's employment
hereunder, upon seven (7) days prior written notice to
Employee, for "good cause", as determined by the Board of
Directors. For purposes of this Agreement, "good cause" for
termination of Employee's employment shall exist (A) if
Employee is convicted of, pleads guilty to, or confesses to
any felony or any act of fraud, misappropriation or
embezzlement, (B) if Employee has engaged in a dishonest act
to the material damage or prejudice of Employer or an
affiliate of Employer, or in conduct or activities materially
damaging to the property, business, or reputation of Employer
or an affiliate of Employer, (C) if Employee violates any of
the provisions contained in Section 4 of this Agreement, after
receiving written notice from Employer specifically outlining
the alleged violations by the Employee of Section 4 hereof and
either (1) the Employee fails to stop the alleged behavior
which is claimed to be such a breach and within thirty (30)
days of receipt by the Employer of such written notice or (2)
the Employee prevails in binding arbitration pursuant to the
commercial arbitration rules of the American Arbitration
Association, which arbitration is commenced by the Employee
within thirty (30) days of receipt by the Employer of such
notice in accordance with the provision of Section 4.6 hereof;
or
(iii) The termination by the Employee or Employer, upon thirty (30)
days written notice to the other party, in the event of a
Change of Control of RailWorks (as defined hereinbelow).
For purposes of this Agreement, a "Change of Control" shall be
deemed to have occurred if (A) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")), other than a
trustee or other fiduciary holding securities under an
employee benefit plan of RailWorks, a corporation owned
directly or indirectly by the stockholders of RailWorks or any
of their respective affiliates, becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of RailWorks representing 50% or
more of the total voting power represented by RailWorks' then
outstanding securities that vote generally in the election of
directors (referred to herein as "Voting Securities"); (B)
during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board of Directors
and any new directors whose election by the Board of Directors
or nomination for election by RailWorks' stockholders was
approved by a vote or at least a majority of the directors
then still in office who either were directors at the
beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to
constitute a majority of the Board of Directors; (C) the
stockholders of RailWorks approve a merger or consolidation of
RailWorks with any other corporation, other than a merger or
consolidation (i) which would
-2-
<PAGE> 3
result in the Voting Securities of RailWorks outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting
Securities of the surviving entity) at least 50% of the total
voting power represented by the Voting Securities of RailWorks
or such surviving entity outstanding immediately after such
merger or consolidation or (ii) in which 50% or more of the
board of directors of the surviving entity is composed of
members from the Board of Directors of RailWorks; or (D) the
stockholders of RailWorks approve a plan of complete
liquidation of RailWorks or an agreement for the sale or
disposition by RailWorks of (in one transaction or a series of
transactions) all or substantially all of RailWorks' assets.
(iv) The termination of the Employee by Employee for Good Cause (as
defined). "Good Cause" shall be defined as (A) any material
and adverse change in the position or duties of the Employee
or (B) relocation of the primary office of Employer to a
location over 60 miles from its current location (a
"Relocation"). RailWorks agrees to reimburse Employee for
reasonable moving expenses incurred in connection with the
relocation of Employee following any Relocation of Employer.
2.2 Successive Terms. After the Initial Term, this Agreement
shall continue upon a year-to-year basis (the "Successive Terms"; together with
the Initial Term, the "Term") unless terminated by either the Employer or the
Employee upon one years' written notice to the other (which notice may not be
given until the two year anniversary of this Agreement).
2.3 Retirement. Notwithstanding the provisions of Sections 2.1
and 2.2, Employee may retire upon reaching age 65, or any time thereafter, at
his or her election, provided that Employee gives Employer and RailWorks six (6)
months advance written notice of such election and the date of such retirement.
Section 3 Compensation.
3.1 Term of Employment. Employer will provide Employee with
the following salary, expense reimbursement and additional employee benefits
during the term of employment hereunder:
(a) Salary. During the Initial Term, Employee will be
paid a salary (the "Salary"), that shall be no less
than _______ ($_______) per annum, less deductions
and withholdings required by applicable law.
Thereafter, and during the Successive Terms, Employee
will be paid a salary (the "Successive Terms Salary")
that shall be commensurate with the duties and
responsibilities of the Employee, as determined by a
council consisting of the president of each
subsidiary of RailWorks on the date of the initial
public offering of RailWorks (the "Executive
Council") in consultation with a reputable industry
consultant and approved by the Board of Directors of
RailWorks. The Salary and
-3-
<PAGE> 4
Successive Terms Salary shall be paid to Employee in
equal monthly installments (or on such more frequent
basis as other executives of Employer are
compensated). The Salary and Successive Terms Salary
shall be reviewed by the Board of Directors of
RailWorks on at least an annual basis and may be
increased but not decreased as a result of such
review.
(b) Performance Bonuses. In addition to the Salary and
the Successive Terms Salary, the Employee shall have
the right to receive from the Employer, and the
Employer shall be obligated to pay to the Employee, a
performance bonus (the "Performance Bonus") for each
fiscal year during the term of this Agreement, equal
to the aggregate amount determined by the bonus
formulas delineated herein below. Any amount of a
Performance Bonus required to be paid to the Employee
for a fiscal year during the term of this Agreement
shall be paid by the Employer in the first pay period
of the Employer immediately following the
finalization of the accounting audit for financial
accounting purposes of the Employer for the preceding
fiscal year but in all events by March 31 of the year
immediately following the end of the fiscal year for
which such Performance Bonus is attributable.
Employee shall have the option, with regard to any
amount due to him as part of the Performance Bonus,
to direct RailWorks to make distribution of all or
any part of such bonus to any employee or employees
of Employer, or any entity established solely for the
benefit of such employee or employees, as determined
in the Employee's sole discretion. At least thirty
(30) days prior to the intent to distribute such
bonus, RailWorks shall advise the Employee in writing
of the amount due the Employee under the bonus pool
and the Employee shall have ten (10) days from such
date in which to advise RailWorks in writing of his
intent to distribute all or any portion of such bonus
to any such person. In the event of such written
notification, RailWorks hereby agrees to so
distribute the bonus. Absent such written
notification, the bonus shall be payable in full to
the Employee as described herein.
The formulas to determine a Performance Bonus for any
fiscal year during the term of this Agreement shall
be as follows:
(i) For each fiscal year of RailWorks, a portion
of the bonus pool (the "First Bonus Pool")
as determined by the Board of Directors of
RailWorks, as set forth in this section. The
First Bonus Pool will consist of four (4)
percent of pre-tax income (computed before
performance or other periodic bonuses for
any of the employees of RailWorks and any of
its consolidated subsidiaries) on a
consolidated basis for financial accounting
based upon applying generally accepted
accounting principles and generally
accepted auditing
-4-
<PAGE> 5
standards on a consistent basis. This bonus
shall be calculated by the independent
certified public accountant regularly
employed by RailWorks (the "CPA") applying
such generally accepted accounting
principles and generally accepted auditing
standards on a consistent basis. The
Employer's portion ("Employer First Bonus
Pool") of the First Bonus Pool (i) for the
first year of the Term, shall be equal to
____% [BASED ON THE % OF THE DIVISION
FORMULA] and (ii) for all successive years,
shall be equal to the percentage of the
Employer's contribution to the operating
income of RailWorks, as determined by the
CPA. The First Bonus Pool shall be allocated
as designated by the Board of Directors of
Employer.
Plus
(ii) For each fiscal year of RailWorks, a portion
of the bonus pool (the "Second Bonus Pool")
as determined by the Board of Directors of
RailWorks, as set forth in this section. The
Second Bonus Pool For each fiscal year of
RailWorks will consist of five (5) percent
of the excess of (a) the consolidated after
tax net income of RailWorks and its
consolidated subsidiaries for a fiscal year,
computed by the CPA applying generally
accepted accounting principles and generally
accepted auditing standards on a consistent
basis over (b) the Wall Street Estimate (as
hereinafter defined) for such fiscal year.
For purposes of this subsection (ii)(b),
Wall Street Estimate for a fiscal year shall
mean the simple arithmetical average of the
consolidated earnings per share estimates
for a fiscal year of RailWorks and its
consolidated subsidiaries in the possession
of First Call on the Determination Date (as
hereinafter defined), translated by the CPA
into the equivalent consolidated after tax
net income of RailWorks and its consolidated
subsidiaries for such fiscal year. For
purposes of this subsection (ii)(b), the
Determination Date shall mean the date of
this Agreement and thereafter shall be the
first day of the fiscal year for which such
computation applies. This bonus shall be
calculated by the CPA applying such
generally accepted accounting principles and
generally accepted auditing standards on a
consistent basis. The Employer's portion
("Employer Second Bonus Pool") of the Second
Bonus Pool (i) for the first year of the
Term, shall be equal to ____% [BASED ON THE
% OF THE DIVISION FORMULA] and (ii) for all
successive years, shall be equal to the
percentage of the Employer's contribution to
the operating income of RailWorks, as
determined by the CPA. The Second Bonus Pool
shall be allocated as designated by the
Board of Directors of Employer.
-5-
<PAGE> 6
(c) Discretionary Bonus. The Board of Directors may, from
time to time, award the Employee an additional
discretionary bonus based upon such factors as the
Board of Directors deems appropriate. The Employer
shall have no entitlement to such a discretionary
bonus until and unless so awarded by the Board of
Directors.
(d) Vacation. Employee shall receive four (4) weeks
vacation time per calendar year during the term of
this Agreement in addition to customary holidays
afforded employees of RailWorks. Any unused vacation
days in any calendar year may not be carried over to
subsequent years.
(e) Expenses. Employer shall reimburse Employee within
thirty (30) days of its receipt of a reimbursement
report from the Employee, for all reasonable and
necessary expenses incurred by Employee at the
request of and on behalf of Employer or RailWorks.
(f) Benefit Plans. Employee shall have the option of
participating in such medical, dental, disability,
hospitalization, life insurance, stock option and
other benefit plans (such as pension and profit
sharing plans) as Employer maintains from time to
time for the benefit of other employees of Employer,
on the terms and subject to the conditions set forth
in such plans.
3.2 Effect of Termination. Except as hereinafter
provided, upon the termination of the employment of Employee hereunder for any
reason, Employee shall be entitled to all compensation and benefits earned or
accrued under Section 3.1 as of the effective date of termination (the
"Termination Date"), but from and after the Termination Date no additional
compensation or benefits shall be earned by Employee hereunder. Except upon
termination by the Employer or RailWorks of the employment of the Employee
pursuant to the provisions of Section 2(ii) hereof, Employee shall be deemed to
have earned any Bonus payable with respect to the calendar year in which the
Termination Date occurs on a prorated basis (based on the number of days in such
calendar year through and including the Termination Date divided by 365). Any
such Bonus shall be payable on the date on which the Bonus would have been paid
had Employee continued his employment hereunder. In addition, the Employee and
his eligible dependents shall be entitled to receive at the sole cost of the
Employer (A) the health insurance benefits generally made available to persons
in similar positions within RailWorks for a period of twelve (12) months
following the Termination Date (the "Continuation Period") and following such
time period, the Employee shall be entitled to all rights afforded to him under
the Federal Omnibus Reconciliation Act ("COBRA") to purchase continuation
coverage of such health insurance benefits for himself and his dependents for
the maximum period permitted by law, and the employee shall be deemed to have
elected to exercise his rights under Cobra as of the first day of the
Continuation Period, and (B) the life insurance benefits generally made
available to persons in similar positions within RailWorks for the period of the
Continuation Period. Notwithstanding any of the foregoing, in the event that the
employment of Employee is terminated by Employer (A) pursuant to Section
2.1(iii) or 2.1(iv) or (B) for any reason
-6-
<PAGE> 7
that is not set forth in Section 2.1 and that is unrelated to the performance of
the duties of Employee in a manner reasonably satisfactory to RailWorks,
Employer shall pay as severance pay to Employee a lump sum payment in an amount
equal to Fifty Thousand Dollars ($50,000). Such payment shall be made to the
Employee within thirty (30) days of the Termination Date.
(i) Upon termination of this Agreement pursuant to the
provisions of Sections 2.1 (i), (iii) or (iv) hereof, any stock grants or
options previously awarded to the Employee, either by this Agreement or
otherwise, shall fully and completely vest and the Employee shall be able to
retain or obtain as the case may be, such stock, as though there was no vesting
period or criteria of any kind or nature, with respect to such stock. If stock
options have previously been awarded to the Employee, notwithstanding any terms
and conditions of such award or any plan pursuant to which such stock options
were awarded, the Employee or his authorized representative shall have a period
of three (3) months from the Termination Date to exercise any or all of such
stock options and acquire for his own benefit the shares of stock covered by
such stock options.
(ii) Upon termination of the Agreement pursuant to the terms
of Section 2.1 (ii) hereof, all granted but unvested, at the Termination Date,
stock grants and/or options shall be forfeited upon such termination; provided
that the Employee shall be able to retain or exercise any rights for a period of
one (1) month after the Termination Date, notwithstanding the terms and
provisions of such stock options awarded or the plan under which they were
awarded, with respect to any shares of stock granted or shares of stock covered
by stock options that have fully vested as of the Termination Date.
Section 4 Noncompetition and Nonsolicitation During
Employment.
4.1 Definitions. For the purposes of this Section 4, the
following definitions shall apply.
(a) "Company Activities" means the business of
construction and maintenance of railway beds and
tracks; construction and maintenance of elevated rail
systems and structures; construction and maintenance
of railway switching and signaling equipment,
distributorships and supply in the field of rail and
railway construction materials; distributorships and
supply in the field of electromechanical controls for
use in the railroad industry, namely, railway
switching equipment and railway signaling equipment;
and design for others in the field of railroad
industry, namely, engineering design of rail and
railway related structures and equipment.
(b) "Competitor" means any business, individual,
partnership, joint venture, association, firm,
corporation or other entity, other than the RailWorks
or Employer or their affiliates or subsidiaries,
engaged, wholly or partly, in Company Activities.
-7-
<PAGE> 8
(c) "Competitive Position" means (i) having any financial
interest in a Competitor, including but not limited
to, the direct or indirect ownership or control of
all or any portion of a Competitor, or acting as a
partner, officer, director, principal, agent or
trustee of any Competitor or (ii) engaging in any
employment or independent contractor arrangement,
business or other activity with any Competitor
whereby Employee will serve such Competitor in any
senior managerial capacity.
(d) "Confidential Information" means any confidential,
proprietary business information or data belonging to
or pertaining to RailWorks or Employer that does not
constitute a "Trade Secret" (as hereinafter defined)
and that is not generally known by or available
through legal means to the public, including, but not
limited to, information regarding RailWorks' or the
Employer's customers or actively sought prospective
customers, acquisition targets, suppliers,
manufacturers and distributors gained by Employee as
a result of his employment with Employer.
(e) "Customer" means actual customers or actively sought
prospective customers of RailWorks or Employer.
(f) "Territory" means the area within a one hundred (100)
mile radius of any corporate office or job site of
RailWorks or any of its subsidiaries, affiliates or
divisions.
(g) "Trade Secrets" means information or data of or about
RailWorks or Employer, including but not limited to
technical or non-technical data, formulas, patterns,
compilations, programs, devices, methods, techniques,
drawings, processes, financial data, financial plans,
products plans, or lists of actual or potential
customers, clients, distributees or licensees,
information concerning RailWorks' or Employer's
finances, services, staff, contemplated acquisitions,
marketing investigations and surveys, that are not
generally known to, and/or are not readily
ascertainable by proper means by, other persons.
(h) "Work Product" means any and all work product
property, data documentation or information of any
kind prepared, conceived, discovered, developed or
created by Employee for RailWorks or its subsidiaries
or affiliates, or any of RailWorks' or its
affiliates' clients or customers for utilization in
Company Activities, not generally
-8-
<PAGE> 9
known by or not readily ascertainable by proper means
by other persons who can obtain economic value from
their disclosure or use.
4.2 Trade Name and Confidential Information.
(a) Employee hereby agrees that (i) with regard to each
item constituting all or any portion of the Trade
Secrets and Confidential Information, at all times
during the Term:
(i) Employee shall not, directly or by assisting
others own, manage, operate, join, control
or participate in the ownership, management,
operation or control of, or be connected in
any manner with, any business conducted
under any corporate or trade name of
Employer or name confusingly similar
thereto, without the prior written consent
of RailWorks;
(ii) Employee shall hold in confidence all Trade
Secrets and all Confidential Information and
will not, either directly or indirectly,
use, sell, lend, lease, distribute, license,
give, transfer, assign, show, disclose,
disseminate, reproduce, copy, appropriate or
otherwise communicate any Trade Secrets or
Confidential Information, without the prior
written consent of RailWorks; and
(iii) Employee shall immediately notify RailWorks
of any unauthorized disclosure or use of any
Trade Secrets or Confidential Information of
which Employee becomes aware. Employee shall
assist RailWorks, to the extent necessary,
in the procurement or any protection of
RailWorks' or Employer's rights to or in any
of the Trade Secrets or Confidential
Information.
(b) Upon the request of RailWorks or Employer, Employee
shall deliver to Employer all memoranda, notes,
records, manuals and other documents, including all
copies of such materials and all documentation
prepared or produced in connection therewith,
pertaining to the performance of Employee's services
hereunder or RailWorks' or Employer's business or
containing Trade Secrets or Confidential
Information, whether made or complied by Employee or
furnished to Employee from another source by virture
of Employee's employment with Employer.
-9-
<PAGE> 1
EXHIBIT 10.29
Adopted June 29, 1998
RAILWORKS CORPORATION
1998 INCENTIVE STOCK PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ss.1 BACKGROUND AND PURPOSE..................................................................................1
ss.2 DEFINITIONS.............................................................................................1
2.1 Affiliate..............................................................................1
2.3 Change in Control......................................................................1
2.4 Code...................................................................................2
2.5 Committee..............................................................................3
2.6 Director...............................................................................3
2.7 Fair Market Value......................................................................3
2.8 ISO....................................................................................3
2.9 Key Employee...........................................................................4
2.10 1933 Act...............................................................................4
2.11 1934 Act...............................................................................4
2.12 Non-ISO................................................................................4
2.13 Option.................................................................................4
2.14 Option Certificate.....................................................................4
2.15 Option Price...........................................................................4
2.16 Parent.................................................................................4
2.17 Plan...................................................................................4
2.18 RailWorks..............................................................................4
2.19 Restricted Stock.......................................................................4
2.20 Restricted Stock Certificate...........................................................5
2.21 Rule 16b-3.............................................................................5
2.22 Stock..................................................................................5
2.23 Subsidiary.............................................................................5
2.24 Ten Percent Stockholder................................................................5
ss.3 SHARES RESERVED UNDER PLAN..............................................................................5
ss.4 EFFECTIVE DATE..........................................................................................6
ss.5 COMMITTEE...............................................................................................6
ss.6 ELIGIBILITY AND ANNUAL GRANT CAPS.......................................................................6
ss.7 OPTIONS.................................................................................................7
7.1 Committee Action.......................................................................7
7.2 $100,000 Limit.........................................................................7
</TABLE>
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<TABLE>
<S> <C> <C>
7.3 Grants to Directors.................................................................... 8
7.4 Option Price........................................................................... 9
7.5 Exercise Period........................................................................ 9
ss.8 RESTRICTED STOCK........................................................................................10
8.1 Committee Action.......................................................................10
8.2 Effective Date.........................................................................10
8.3 Conditions.............................................................................11
(a) Conditions to Issuance of Stock...............................................11
(b) Forfeiture Conditions.........................................................11
8.4 Dividends and Voting Rights............................................................12
8.5 Satisfaction of All Conditions.........................................................12
8.6 Section 162(m).........................................................................12
ss.9 NONTRANSFERABILITY......................................................................................13
ss.10 SECURITIES REGISTRATION AND RESTRICTIONS................................................................13
ss.11 LIFE OF PLAN............................................................................................14
ss.12 ADJUSTMENT..............................................................................................15
12.1 Capital Structure......................................................................15
12.2 Mergers................................................................................15
12.3 Fractional Shares......................................................................16
ss.13 SALE, MERGER OR CHANGE IN CONTROL.......................................................................16
ss.14 AMENDMENT OR TERMINATION................................................................................17
ss.15 MISCELLANEOUS...........................................................................................18
15.1 Stockholder Rights.....................................................................18
15.2 No Contract of Employment..............................................................18
15.3 Withholding............................................................................18
15.4 Construction...........................................................................19
15.5 Other Conditions.......................................................................19
15.6 Rule 16b-3.............................................................................19
15.7 Loans..................................................................................19
</TABLE>
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SS. 1
BACKGROUND AND PURPOSE
The purpose of this Plan is to promote the interest of RailWorks by
authorizing the Committee to grant Options to Key Employees and Directors and to
grant Restricted Stock to Key Employees in order (1) to attract and retain Key
Employees and Directors, (2) to provide an additional incentive to each Key
Employee or Director to work to increase the value of Stock and (3) to provide
each Key Employee or Director with a stake in the future of RailWorks which
corresponds to the stake of each of RailWorks' stockholders.
SS. 2
DEFINITIONS
Each term set forth in this ss. 2 shall have the meaning set forth
opposite such term for purposes of this Plan and, for purposes of such
definitions, the singular shall include the plural and the plural shall include
the singular.
2.1 Affiliate -- means any organization (other than a Subsidiary) that
would be treated as under common control with RailWorks under ss. 414(c) of the
Code if "50 percent" were substituted for "80 percent" in the income tax
regulations under ss. 414(c) of the Code.
2.2 Board -- means the Board of Directors of RailWorks.
2.3 Change in Control -- means (1) a "change in control" of RailWorks
of a nature that would be required to be reported in response to Item 6(e) of
Schedule 14A for a proxy statement filed under Section 14(a) of the Securities
Exchange Act of 1934, as amended ("1934 Act"), (2) a "person" (as that term is
used in 14(d)(2) of the 1934 Act)
<PAGE> 5
becomes the beneficial owner (as defined in Rule 13d-3 under the 1934 Act)
directly or indirectly of securities representing 20% or more of the combined
voting power for election of directors of the then outstanding securities of
RailWorks, (3) the individuals who at the beginning of any period of two
consecutive years or less constitute the Board cease for any reason during such
period to constitute at least a majority of the Board, unless the election or
nomination for election of each new member of the Board was approved by vote of
at least two-thirds of the members of the Board then still in office who were
members of the Board at the beginning of such period, (4) the stockholders of
RailWorks approve any dissolution or liquidation of RailWorks or any sale or
disposition of 50% or more of the assets or business of RailWorks, (5) the
stockholders of RailWorks approve a merger or consolidation to which RailWorks
is a party (other than a merger or consolidation with a wholly-owned subsidiary
of RailWorks) or a share exchange in which RailWorks shall exchange RailWorks
shares for shares of another corporation as a result of which the persons who
were stockholders of RailWorks immediately before the effective date of such
merger, consolidation or share exchange shall have beneficial ownership of less
than 50% of the combined voting power for election of directors of the surviving
corporation following the effective date of such merger, consolidation or share
exchange.
2.4 Code -- means the Internal Revenue Code of 1986, as amended.
2.5 Committee -- means a committee of the Board which shall have at
least 2 members, each of whom shall be appointed by and shall serve at the
pleasure of the Board and shall come within the definition of a "non-employee
director" under Rule
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16b-3 and an "outside director" under ss. 162(m) of the Code.
2.6 Director -- means any member of the Board who is not an employee of
RailWorks or a Parent or Subsidiary or "affiliate" (as such term is defined in
Rule 405 of the 1933 Act) of RailWorks.
2.7 Fair Market Value -- means (1) the closing price on any date for a
share of Stock as reported by The Wall Street Journal under the Nasdaq Stock
Market's quotation system (or under any successor quotation system) or, if Stock
is no longer traded on the Nasdaq Stock Market, under the quotation system under
which such closing price is reported or, if The Wall Street Journal no longer
reports such closing price, such closing price as reported by a newspaper or
trade journal selected by the Committee or, if no such closing price is
available on such date, (2) such closing price as so reported in accordance with
ss. 2.7(1) for the immediately preceding business day, or, if no newspaper or
trade journal reports such closing price or if no such price quotation is
available, (3) the price which the Committee acting in good faith determines
through any reasonable valuation method that a share of Stock might change hands
between a willing buyer and a willing seller, neither being under any compulsion
to buy or to sell and both having reasonable knowledge of the relevant facts.
2.8 ISO -- means an option granted under this Plan to purchase Stock
which is intended to satisfy the requirements of ss. 422 of the Code.
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2.9 Key Employee -- means an employee of RailWorks or any Subsidiary or
Parent or Affiliate designated by the Committee who, in the judgment of the
Committee acting in its absolute discretion, is key directly or indirectly to
the success of RailWorks.
2.10 1933 Act -- means the Securities Act of 1933, as amended.
2.11 1934 Act -- means the Securities Exchange Act of 1934, as amended.
2.12 Non-ISO -- means an option granted under this Plan to purchase
Stock which is intended to fail to satisfy the requirements of ss. 422 of the
Code.
2.13 Option -- means an ISO or a Non-ISO which is granted under ss. 7
of this Plan.
2.14 Option Certificate -- means the written certificate which sets
forth the terms and conditions of an Option granted to a Key Employee or
Director under this Plan.
2.15 Option Price -- means the price which shall be paid to purchase
one share of Stock upon the exercise of an Option granted under this Plan.
2.16 Parent -- means any corporation which is a parent of RailWorks
within the meaning of ss. 424(e) of the Code.
2.17 Plan -- means this RailWorks Corporation 1998 Incentive Stock Plan
as effective as of the date adopted by the Board in 1998 and as amended from
time to time thereafter.
2.18 RailWorks -- means RailWorks Corporation and any successor to
RailWorks Corporation.
2.19 Restricted Stock -- means Stock granted to a Key Employee under
ss. 8 of this Plan.
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2.20 Restricted Stock Certificate -- means the written certificate
which sets forth the terms and conditions of a Restricted Stock grant to a Key
Employee.
2.21 Rule 16b-3 -- means the exemption under Rule 16b-3 to Section
16(b) of the 1934 Act or any successor to such rule.
2.22 Stock -- means $.01 par value common stock of RailWorks.
2.23 Subsidiary -- means a corporation which is a subsidiary
corporation (within the meaning of ss. 424(f) of the Code) of RailWorks.
2.24 Ten Percent Stockholder -- means a person who owns (after taking
into account the attribution rules of ss. 424(d) of the Code) more than ten
percent of the total combined voting power of all classes of stock of either
RailWorks, a Subsidiary or Parent.
SS. 3
SHARES RESERVED UNDER PLAN
There shall be 2,000,000 shares of Stock reserved for use under this
Plan. Such shares of Stock shall be reserved to the extent that RailWorks deems
appropriate from authorized but unissued shares of Stock and from shares of
Stock which have been reacquired by RailWorks. Any shares of Stock subject to an
Option which remain unissued after the cancellation, expiration or exchange of
such Option or any shares of Restricted Stock which are forfeited or canceled
thereafter shall again become available for use under this Plan, but any shares
of Stock used to exercise an Option or to satisfy a withholding obligation shall
not again become available for use under this Plan.
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SS. 4
EFFECTIVE DATE
The effective date of this Plan shall be the date of its adoption by
the Board, provided the stockholders of RailWorks (acting at a duly called
meeting of such stockholders) approve such adoption within twelve (12) months of
such effective date. Any Option or Restricted Stock granted before such
stockholder approval automatically shall be granted subject to such approval.
SS. 5
COMMITTEE
This Plan shall be administered by the Committee. The Committee acting
in its absolute discretion shall exercise such powers and take such action as
expressly called for under this Plan and, further, the Committee shall have the
power to interpret this Plan and (subject to ss. 13, ss. 14 and ss. 15 and Rule
16b-3) to take such other action in the administration and operation of this
Plan as the Committee deems equitable under the circumstances, which action
shall be binding on RailWorks, on each affected Key Employee or Director and on
each other person directly or indirectly affected by such action.
SS. 6
ELIGIBILITY AND ANNUAL GRANT CAPS
Only Key Employees who are employed by RailWorks or a Subsidiary or
Parent shall be eligible for the grant of ISOs under this Plan, and Key
Employees and Directors shall be eligible for the grant of Non-ISOs under this
Plan. Only Key Employees
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shall be eligible for the grant of Restricted Stock under this Plan. No Key
Employee in any calendar year shall be granted an Option to purchase more than
100,000 shares of Stock.
SS. 7
OPTIONS
7.1 Committee Action. The Committee acting in its absolute discretion
shall have the right to grant Options to Key Employees under this Plan from time
to time to purchase shares of Stock; provided, however, that the Committee shall
not grant new Options in exchange for the cancellation of outstanding Options
which have a higher Option Price than the new Options. Each grant of an Option
to a Key Employee shall be evidenced by an Option Certificate, and each Option
Certificate shall set forth whether the Option is an ISO or a Non-ISO and shall
set forth such other terms and conditions of such grant as the Committee acting
in its absolute discretion deems consistent with the terms of this Plan;
however, if the Committee grants an ISO and a Non-ISO to a Key Employee on the
same date, the right of the Key Employee to exercise the ISO shall not be
conditioned on his or her failure to exercise the Non-ISO. The Committee shall
have the right to grant a Non-ISO and Restricted Stock to a Key Employee at the
same time and to condition the exercise of the Non-ISO on the forfeiture of the
Restricted Stock grant.
7.2 $100,000 Limit. To the extent that the aggregate Fair Market Value
of Stock (determined as of the date the ISO is granted) with respect to which
ISOs first become exercisable in any calendar year exceeds $100,000, such
Options shall be treated as Non-ISOs. The Fair Market Value of Stock subject to
any other option (determined as
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<PAGE> 11
of the date such option was granted) which (1) satisfies the requirements of ss.
422 of the Code and (2) is granted to a Key Employee under a plan maintained by
RailWorks, a Subsidiary or a Parent shall be treated (for purposes of this
$100,000 limitation) as if granted under this Plan. The Committee shall
interpret and administer the limitation set forth in this ss. 7.2 in accordance
with ss. 422(d) of the Code, and the Committee shall treat this ss. 7.2 as in
effect only for those periods for which ss. 422(d) of the Code is in effect.
7.3 Grants to Directors. The Board acting in its absolute discretion
shall have the right to grant Options to Directors under this Plan from time to
time to purchase shares of Stock; provided, however, that the Board shall not
grant new Options in exchange for the cancellation of outstanding Options which
have a higher Option Price than the new Options. Each grant of an Option to a
Director shall be evidenced by an Option Certificate, and each Option
Certificate shall set forth such terms and conditions of such grant as the Board
acting in its absolute discretion deems consistent with the terms of this Plan.
Each Non-ISO granted under this Plan to a Director shall be evidenced by an
Option Certificate, shall expire 90 days after a Director ceases to serve as
such or, if earlier, on the tenth anniversary of the date of the grant of the
Non-ISO. A Non-ISO granted to a Director under this ss. 7.3 shall conform in all
other respects to the terms and conditions of a Non-ISO under this Plan, and no
Director shall be eligible to receive an Option under this Plan except as
provided in this ss. 7.3. A grant of a Non-ISO to a Director under this ss. 7.3
is intended to be granted in a manner which continues to allow such Director to
be a "non-employee director" within the meaning of Rule 16b-3 and an "outside
director" within the meaning of ss. 162(m) of the Code, and all Non-ISOs granted
to
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Directors under this ss. 7.3 shall be construed to effect such intent.
7.4 Option Price. The Option Price for each share of Stock subject to
an Option which is granted to a Key Employee or a Director shall be no less than
the Fair Market Value of a share of Stock on the date the Option is granted;
provided, however, if the Option is an ISO granted to a Key Employee who is a
Ten Percent Stockholder, the Option Price for each share of Stock subject to
such ISO shall be no less than 110% of the Fair Market Value of a share of Stock
on the date such ISO is granted. The Option Price shall be payable in full upon
the exercise of any Option, and at the discretion of the Committee an Option
Certificate can provide for the payment of the Option Price either in cash, by
check or in Stock which has been held for at least six months and which is
acceptable to the Committee or in any combination of cash, check and such Stock.
The Option Price in addition may be paid through any broker facilitated cashless
exercise procedure acceptable to the Committee or its delegate. Any payment made
in Stock shall be treated as equal to the Fair Market Value of such Stock on the
date the properly endorsed certificate for such Stock is delivered to the
Committee or its delegate.
7.5 Exercise Period. Each Option granted under this Plan to a Key
Employee shall be exercisable in whole or in part at such time or times as set
forth in the related Option Certificate, but no Option Certificate shall make an
Option granted to a Key Employee exercisable after the earlier of
(1) the date such Option is exercised in full, or
(2) the date which is the fifth anniversary of the date the Option
is granted, if the Option is an ISO and the Key Employee is a
Ten
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Percent Stockholder on the date the Option is granted, or
(3) the date which is the tenth anniversary of the date the Option is
granted, if the Option is (a) a Non-ISO or (b) an ISO which is
granted to a Key Employee who is not a Ten Percent Stockholder on
the date the Option is granted.
An Option Certificate may provide for the exercise of an Option after the
employment of a Key Employee has terminated for any reason whatsoever, including
death or disability.
SS. 8
RESTRICTED STOCK
8.1 Committee Action. The Committee acting in its absolute discretion
shall have the right to grant Restricted Stock to Key Employees under this Plan
from time to time and, further, shall have the right to make new Restricted
Stock grants in exchange for the cancellation of an outstanding Restricted Stock
grant to such Key Employee. Each Restricted Stock grant shall be evidenced by a
Restricted Stock Certificate, and each Restricted Stock Certificate shall set
forth the conditions, if any, under which the grant will be effective and the
conditions under which the Key Employee's interest in the underlying Stock will
become nonforfeitable.
8.2 Effective Date. A Restricted Stock grant shall be effective (1) as
of the date set by the Committee when the grant is made or, if the grant is made
subject to one, or more than one, condition, (2) as of the date such conditions
have been timely satisfied.
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8.3 Conditions.
(a) Conditions to Issuance of Stock. The Committee acting in its
absolute discretion may make the issuance of Restricted Stock to a Key Employee
subject to the satisfaction of one, or more than one, condition which the
Committee deems appropriate under the circumstances for Key Employees generally
or for a Key Employee in particular, and the related Restricted Stock
Certificate shall set forth each such condition, if any, and the deadline, if
any, for satisfying each such condition. Stock subject to a Restricted Stock
grant shall be issued in the name of a Key Employee only after each such
condition, if any, has been timely satisfied or has expired in accordance with
the terms of the related Restricted Stock Certificate, and any Stock which is so
issued shall be held by RailWorks pending the satisfaction of the forfeiture
conditions, if any, under ss. 8.3(b) for the related Restricted Stock grant.
(b) Forfeiture Conditions. The Committee acting in its absolute
discretion may make Restricted Stock issued in the name of a Key Employee
subject to forfeiture upon a failure to satisfy one, or more than one, condition
that the Committee acting in its absolute discretion deems appropriate under the
circumstances for Key Employees generally or for a Key Employee in particular,
and the related Restricted Stock Certificate shall set forth each such
condition, if any, and the deadline, if any, for satisfying each such forfeiture
condition or the expiration date, if any, for each such condition. Stock issued
in the name of a Key Employee shall be forfeited unless each such forfeiture
condition, if any, has been satisfied or has expired in accordance with the
terms of the related Restricted Stock Certificate. Each share of Stock
underlying a Restricted Stock grant shall be unavailable under ss. 3 after such
grant is effective unless such share is forfeited as a result
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<PAGE> 15
of a failure to timely satisfy a forfeiture condition, in which event such share
of Stock shall again become available under ss. 3 as of the date of such
failure.
8.4 Dividends and Voting Rights. Each Restricted Stock Certificate
shall specify what rights, if any, a Key Employee shall have with respect to the
Stock issued in the name of a Key Employee, including rights to receive
dividends and to vote, pending the forfeiture of such Stock or the satisfaction
or expiration of each forfeiture condition, if any, with respect to such Stock.
Furthermore, the Committee may grant dividend equivalent rights on Restricted
Stock while such Stock remains subject to an issuance condition under ss. 9.2(a)
under which cash equivalent to a dividend shall be paid to the Key Employee by
RailWorks when a dividend is paid, and any such dividend equivalent right shall
be set forth in the related Restricted Stock Certificate.
8.5 Satisfaction of All Conditions. A share of Stock issued in the name
of a Key Employee shall cease to be Restricted Stock at such time as a Key
Employee's interest in such Stock becomes nonforfeitable, and the certificate
representing such share shall be released by RailWorks (or RailWorks' delegate)
and transferred to the Key Employee as soon as practicable thereafter.
8.6 Section 162(m). Except where the Committee deems it in the best
interests of RailWorks, the Committee shall use its best efforts to grant
Restricted Stock either (1) subject to at least one condition which can result
in the Restricted Stock qualifying as "performance-based compensation" under ss.
162(m) of the Code if the stockholders of RailWorks approve such condition and
the Committee takes such other action as the Committee deems necessary or
appropriate for such grant to so qualify under
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<PAGE> 16
ss. 162(m) or (2) under such other circumstances as the Committee deems likely
to result in an income tax deduction for the grant.
SS. 9
NONTRANSFERABILITY
No ISO granted to a Key Employee, Non-ISO granted to an Outside
Director or Restricted Stock grant shall be transferable by a Key Employee or
Outside Director other than by will or by the laws of descent and distribution,
and any ISO granted to a Key Employee and Non-ISO granted to an Outside Director
shall be exercisable during a Key Employee's or Outside Director's lifetime only
by the Key Employee or Outside Director. No Non-ISO granted to a Key Employee
shall be transferable other than (1) under circumstances that would permit the
Non-ISO or the underlying Stock to be registered on a Form S-8 and (2) by will
or by the laws of descent and distribution. The person or persons to whom an
Option or Restricted Stock is transferred thereafter shall be treated as the Key
Employee or Outside Director.
SS. 10
SECURITIES REGISTRATION AND RESTRICTIONS
Each Option Certificate or Restricted Stock Certificate shall provide
that, upon the receipt of shares of Stock as a result of the exercise of an
Option or the satisfaction or expiration of the forfeiture conditions, if any,
on any Restricted Stock, the Key Employee or Outside Director shall, if so
requested by RailWorks, agree to hold such shares of stock for investment and
not with a view of resale or distribution to the public and, if so requested by
RailWorks, shall deliver to RailWorks a written statement
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<PAGE> 17
satisfactory to RailWorks to that effect. Each Option Certificate and Restricted
Stock Certificate also shall provide that, if so requested by RailWorks, the Key
Employee or Outside Director shall make a written representation to RailWorks
that he or she will not sell or offer for sale any of such Stock unless a
registration statement shall be in effect with respect to such Stock under the
1933 Act and any applicable state securities law or he or she shall have
furnished to RailWorks an opinion in form and substance satisfactory to
RailWorks of legal counsel satisfactory to RailWorks that such registration is
not required. Certificates representing the Stock transferred upon the exercise
of an Option or upon the lapse of the forfeiture conditions, if any, on any
Restricted Stock may at the discretion of RailWorks bear a legend to the effect
that such Stock has not been registered under the 1933 Act or any applicable
state securities law and that such Stock cannot be sold or offered for sale in
the absence of an effective registration statement as to such Stock under the
1933 Act and any applicable state securities law or an opinion in form and
substance satisfactory to RailWorks of legal counsel satisfactory to RailWorks
that such registration is not required.
SS. 11
LIFE OF PLAN
No Option or Restricted Stock shall be granted under this Plan on or
after the earlier of
(1) the tenth anniversary of the effective date of this Plan (as
determined under ss. 4 of this Plan), in which event this Plan
otherwise thereafter shall continue in effect until all outstanding
Options have been
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exercised in full or no longer are exercisable and all
Restricted Stock grants under this Plan have been forfeited or
the forfeiture conditions, if any, on such Stock have been
satisfied in full, or
(2) the date on which all of the Stock reserved under ss. 3 of this
Plan has (as a result of the exercise of Options granted under
this Plan or the satisfaction of the forfeiture conditions, if
any, on Restricted Stock) been issued or no longer is
available for use under this Plan, in which event this Plan
also shall terminate on such date.
SS. 12
ADJUSTMENT
12.1 Capital Structure. The number, kind or class (or any combination
thereof) of shares of Stock reserved under ss. 3 of this Plan, the number, kind
or class (or any combination thereof) of shares of Stock subject to Options
granted under this Plan and the Option Price of such Options as well as the
number, kind or class of shares of Restricted Stock granted under this Plan
shall be adjusted by the Committee in an equitable manner to reflect any change
in the capitalization of RailWorks, including, but not limited to, such changes
as stock dividends or stock splits.
12.2 Mergers. The Committee as part of any corporate transaction
described in ss. 424(a) of the Code shall have the right to adjust (in any
manner which the Committee in its discretion deems consistent with ss. 424(a) of
the Code) the number, kind or class (or any combination thereof) of shares of
Stock reserved under ss. 3 of this Plan. Furthermore, the Committee as part of
any corporate transaction described in ss. 424(a)
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<PAGE> 19
of the Code shall have the right to adjust (in any manner which the Committee in
its discretion deems consistent with ss. 424(a) of the Code) the number, kind or
class (or any combination thereof) of shares of Stock underlying any Restricted
Stock grants previously made under this Plan and any related grant conditions
and forfeiture conditions, and the number, kind or class (or any combination
thereof) of shares subject to Option grants previously made under this Plan and
the related Option Price for each such Option, and, further, shall have the
right (in any manner which the Committee in its discretion deems consistent with
ss. 424(a) of the Code) to make Restricted Stock and Option grants to effect the
assumption of, or the substitution for, restricted stock and option grants
previously made by any other corporation to the extent that such corporate
transaction calls for such substitution or assumption of such restricted stock
or option grants.
12.3 Fractional Shares. If any adjustment under this ss. 12 would
create a fractional share of Stock or a right to acquire a fractional share of
Stock, such fractional share shall be disregarded and the number of shares of
Stock reserved under this Plan and the number subject to any Options grants and
Restricted Stock grants shall be the next lower number of shares of Stock,
rounding all fractions downward. An adjustment made under this ss. 12 by the
Committee shall be conclusive and binding on all affected persons and, further,
shall not constitute an increase in "the number of shares reserved under ss. 3"
within the meaning of ss. 14 of this Plan.
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SS. 13
SALE, MERGER OR CHANGE IN CONTROL
If on any date RailWorks agrees to sell all or substantially all of its
assets or agrees to any merger, consolidation, reorganization, division or other
corporate transaction in which Stock is converted into another security or into
the right to receive securities or property or if a tender offer is made which
could lead to a Change in Control (other than a tender offer by RailWorks or an
employee benefit plan established and maintained by RailWorks), the Board shall
waive any conditions to the exercise of all then outstanding Options and waive
any then outstanding issuance and forfeiture conditions on any Restricted Stock
and shall have the right to cancel such Options and Restricted Stock grants
after providing each Key Employee and Director a reasonable opportunity to
exercise his or her Options and to take such other action as necessary or
appropriate to receive the Stock subject to any Restricted Stock grants.
SS. 14
AMENDMENT OR TERMINATION
This Plan may be amended by the Board from time to time to the extent
that the Board deems necessary or appropriate; provided, however, no such
amendment shall be made absent the approval of the stockholders of RailWorks
required under ss. 422 of the Code (1) to increase the number of shares of stock
reserved under ss. 3, or (2) to change the class of employees eligible for
Options. The Board also may suspend the granting of Options or Restricted Stock
under this Plan at any time and may terminate this Plan at any time; provided,
however, the Board shall not have the right unilaterally to modify, amend
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or cancel any Option or Restricted Stock granted before such suspension or
termination unless (1) the Key Employee or Director consents in writing to such
modification, amendment or cancellation or (2) there is a dissolution or
liquidation of RailWorks or a transaction described in ss. 12 or ss. 13 of this
Plan.
SS. 15
MISCELLANEOUS
15.1 Stockholder Rights. No Key Employee or Director shall have any
rights as a stockholder of RailWorks as a result of the grant of an Option
granted to him or her under this Plan or his or her exercise of such Option
pending the actual delivery of the Stock subject to such Option to such Key
Employee or Director. Subject to ss. 8.4, a Key Employee's rights as a
stockholder in the shares of Stock underlying a Restricted Stock grant which is
effective shall be set forth in the related Restricted Stock Certificate.
15.2 No Contract of Employment. The grant of an Option or Restricted
Stock to a Key Employee or Director under this Plan shall not constitute a
contract of employment or a right to continue to serve on the Board and shall
not confer on a Key Employee or Director any rights upon his or her termination
of employment or service in addition to those rights, if any, expressly set
forth in the related Option Certificate or Restricted Stock Certificate.
15.3 Withholding. Each Option and Restricted Stock grant shall be made
subject to the condition that the Key Employee or Director consents to whatever
action the Committee directs to satisfy the federal and state tax withholding
requirements, if any, which the Committee in its discretion deems applicable to
the exercise of such Option or
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<PAGE> 22
the satisfaction of any forfeiture conditions with respect to Restricted Stock
issued in the name of the Key Employee or Director. The Committee also shall
have the right to provide in an Option Certificate or a Restricted Stock
Certificate that a Key Employee or Director may elect to satisfy federal and
state tax withholding requirements through a reduction in the cash or the number
of shares of Stock actually transferred to him or to her under this Plan.
15.4 Construction. All references to sections (ss.) are to sections
(ss.) of this Plan unless otherwise indicated. This Plan shall be construed
under the laws of the State of Delaware.
15.5 Other Conditions. Each Option Certificate or Restricted Stock
Certificate may require that a Key Employee or Director (as a condition to the
exercise of an Option or a Restricted Stock grant) enter into any agreement or
make such representations prepared by RailWorks, including any agreement which
restricts the transfer of Stock acquired pursuant to the exercise of an Option
or Restricted Stock grant or provides for the repurchase of such Stock by
RailWorks under certain circumstances.
15.6 Rule 16b-3. The Committee shall have the right to amend any Option
or Restricted Stock grant or to withhold or otherwise restrict the transfer of
any Stock or cash under this Plan to a Key Employee or Director as the Committee
deems appropriate in order to satisfy any condition or requirement under Rule
16b-3 to the extent Rule 16 of the 1934 Act might be applicable to such grant or
transfer.
15.7 Loans. If approved by the Committee, RailWorks may lend money to,
or guarantee loans made by a third party to, any Key Employee to finance the
exercise of
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any Option granted under this Plan, and the exercise of an Option with the
proceeds of any such loan shall be treated as an exercise for cash under this
Plan. If approved by the Committee, RailWorks also may, in accordance with a Key
Employee's instructions, transfer Stock upon the exercise of an Option directly
to a third party in connection with any arrangement made by the Key Employee for
financing the exercise of such Option.
IN WITNESS WHEREOF, RailWorks Corporation has caused its duly
authorized officer to execute this Plan to evidence its adoption of this Plan.
RAILWORKS CORPORATION
By: /s/ Authorized Signature
------------------------------
Date: June 29, 1998
----------------------------
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<PAGE> 1
EXHIBIT 10.31
STOCK PURCHASE AGREEMENT
between
COMSTOCK GROUP, INC.,
and
LKC ACQUISITION CORP.
Dated as of April 3, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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ARTICLE I
<S> <C>
Section 1.1 Specific Definitions.................................... 2
Section 1.2 Other Terms............................................. 5
Section 1.3 Other Definitional Provisions .......................... 5
ARTICLE II
PURCHASE AND SALE OF SHARES
Section 2.1 Purchase and Sale of Shares............................. 6
Section 2.2 Purchase Price Adjustments.............................. 8
Section 2.3 Effective Date; Closing; Delivery.......................
and Payment Effective Date............................ 9
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Section 3.1 Organization and Authority
of Seller............................................. 10
Section 3.2 Capitalization of LKC................................... 12
Section 3.3 Consents and Approvals.................................. 12
Section 3.4 No Other Representations
or Warranties......................................... 13
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Section 4.1 Organization and Authority of Buyer..................... 13
Section 4.2 Financial Capability.................................... 15
Section 4.3 Securities Act.......................................... 15
Section 4.4 Consents and Approvals.................................. 15
Section 4.5 No Other Representations
or Warranties......................................... 15
ARTICLE V
TAX MATTERS
Section 5.1 Tax Sharing............................................. 16
Section 5.2 Tax Indemnification..................................... 16
Section 5.3 Tax Returns............................................. 18
Section 5.4 Contest Provisions...................................... 20
Section 5.5 Assistance and Cooperation.............................. 21
Section 5.6 Post-Closing Actions Which
May Affect Seller's Liability
for Taxes............................................. 23
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
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<S> <C>
Section 5.7 Computation of Losses Subject
to Indemnification.................................... 23
Section 5.8 Transfer Taxes.......................................... 23
Section 5.9 Alternative Minimum Tax Credits......................... 23
ARTICLE VI
CERTAIN COVENANTS AND AGREEMENTS
OF SELLER AND BUYER
Section 6.1 Conduct of Business..................................... 24
Section 6.2 Certain Obligations of the Parties...................... 25
Section 6.3 Retention of Books and Records.......................... 26
Section 6.4 Closing Date Financial Information...................... 27
Section 6.5 Registrations, Filings and Consents..................... 28
Section 6.6 Further Assurances...................................... 28
ARTICLE VII
CONDITIONS TO CLOSING
Section 7.1 Conditions to Obligations of Buyer...................... 28
Section 7.2 Conditions to Obligations of Seller..................... 30
ARTICLE VIII
TERMINATION
Section 8.1 Termination............................................. 31
Section 8.2 Effect of Termination................................... 32
ARTICLE IX
SURVIVAL AND INDEMNIFICATION
Section 9.1 Survival of Representations,
Warranties, Covenants and
Agreements; Knowledge of Breach....................... 32
Section 9.2 Indemnification......................................... 34
Section 9.3 Method of Asserting claims, etc......................... 36
ARTICLE X
MISCELLANEOUS
Section 10.1 Amendment and Modification; Waiver...................... 39
Section 10.2 Expenses................................................ 40
Section 10.3 Public Disclosure....................................... 40
Section 10.4 Assignment.............................................. 41
Section 10.5 Entire Agreement........................................ 41
Section 10.6 Fulfillment of Obligations.............................. 41
Section 10.7 Parties in Interest; No
Third Party Beneficiaries............................. 41
</TABLE>
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<PAGE> 4
<TABLE>
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<S> <C> <C>
Section 10.8 Schedules .................................................. 42
Section 10.9 Counterparts ............................................... 42
Section 10.10 Section Headings ........................................... 42
Section 10.11 Notices .................................................... 42
Section 10.12 GOVERNING LAW; SUBMISSION TO JURISDICTION;
SELECTION OF FORUM 43
Section 10.13 Severability ............................................... 44
SCHEDULES
Schedule 2.1 LKC Accounting Policies
Schedule 3 Consents
Schedule 5.2(a) Election under Section 338(h)(10)
Schedule 5.2(b) LKC State Income Tax Payments
Schedule 7.2(b) Form of Opinion of Counsel of Buyer
</TABLE>
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<PAGE> 5
STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of April 3, 1997,
among Comstock Group, Inc., a corporation organized under the laws of New York
("Seller"), and LKC Acquisition Corp., a corporation organized under the laws of
Delaware ("Buyer").
W I T N E S S E T H:
WHEREAS, Seller owns all of the issued and outstanding shares of
capital stock of L.K. Comstock & Company, Inc., a corporation organized under
the laws of New York ("LKC" or the "Company") (consisting of 1,200 shares of
common stock, par value $0.25 per share (the "Shares"));
WHEREAS, Seller desires to sell the Shares to certain members of the
current management of LKC ("Management"), as more specifically provided herein;
WHEREAS, Management has incorporated Buyer for the purposes of
acquiring the Shares;
WHEREAS, it is the intention of the parties that, following the
acquisition of the Shares by Buyer, LKC will continue its operations and conduct
its business substantially as conducted and operated prior to the date hereof;
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings contained herein, and subject to and on the terms and conditions
herein set forth, the parties hereto agree as follows:
<PAGE> 6
ARTICLE I
Section 1.1 Specific Definitions. As used in this Agreement, the
following terms shall have the meanings set forth or as referenced below:
"Affiliate", as applied to any Person, means any other Person directly
or indirectly controlling, controlled by or under common control with that
Person.
"Agreement" shall mean this Agreement and all Schedules hereto.
"Business Day" shall mean any day other than a Saturday, a Sunday or a
day on which banks in New York City, New York are authorized or obligated by law
or executive order to close.
"Buyer" shall have the meaning set forth in the Preamble.
"Claim Notice" shall have the meaning set forth in Section 9.3(b).
"Closing" shall have the meaning set forth in Section 2.3(b).
"Closing Date" shall have the meaning set forth in Section 2.3(b).
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall have the meaning set forth in the Preamble.
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<PAGE> 7
"Deductible" shall have the meaning set forth in Section 9.1(a).
"Effective Date" shall mean January 1, 1997.
"Election" shall have the meaning set forth in Section 5.2(a).
"Encumbrances" shall have the meaning set forth in Section 3.2.
"Indemnified Party" shall have the meaning set forth in Section 9.2(a).
"Indemnifying Party" shall have the meaning set forth in Section
9.2(a).
"LKC" shall have the meaning set forth in the Preamble.
"Material Adverse Effect" shall mean a material adverse effect on the
business, financial condition, properties, operations or results of operations
of LKC other than as may arise from changes in general economic conditions or
the construction business generally or as a result of the public disclosure of
the transactions contemplated by this Agreement.
"Notice Period" shall have the meaning set forth in Section 9.3(b).
"Person" means any individual, corporation, partnership, firm, joint
venture, association, joint-stock company, trust, unincorporated organization,
governmental or regulatory body or other entity.
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<PAGE> 8
"Pre-Closing Tax Period" shall have the meaning set forth in Section
5.2(b).
"Purchase Price" shall have the meaning set forth in Section 2.1(b).
"Safe Harbor Lease" shall mean the agreement between American
Airlines, Inc. and LKC regarding the participation of LKC in the purchase of
the Federal Income Tax benefits in one Boeing 767 aircraft to be owned and
operated by American Airlines, Inc., including all Schedules and Exhibits
thereto, dated December 15, 1983.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Seller" shall have the meaning set forth in the Preamble.
"SGI" shall mean Spie Group, Inc., a corporation organized under the
laws of Delaware.
"SGI Note" shall mean the note between SGI and Seller, which was
transferred by Seller to LKC on December 31, 1995, originally in the amount of
$7,115,124 and subsequently reduced such that as of the date hereof there
remains $3,615,124 in principal and $1,129,669 in accrued interest owing
thereunder.
"Shares" shall have the meaning set forth in the Preamble.
"63rd and White Plains Projects" shall mean New York City Transit
Authority project Contracts (a) C-20204,
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<PAGE> 9
63rd Street Line to Queens Boulevard, Connection Track and Signal Work, "B"
Division (BMT and IND) in the Borough of Queens, and (b) S-32336, White Plans
Line, Bronx Park East to 241st Street Station, Signal System Modernization, "A"
Division in the Borough of the Bronx.
"Tax Returns" shall mean all federal, state, local or foreign tax
returns, tax reports, and declarations of estimated tax.
"Taxes" shall mean all federal, state, local or foreign income, gross
receipts, windfall or excess profits, severance, property, production, sales,
use, license, excise, franchise, employment, withholding or similar taxes,
together with any interest, additions or penalties with respect thereto and any
interest in respect of such additions or penalties.
"Third Party Claim Notice" shall have the meaning set forth in Section
9.3(b).
Section 1.2 Other Terms. Other terms may be defined elsewhere in the
text of this Agreement and, unless otherwise indicated, shall have such meaning
indicated throughout this Agreement.
Section 1.3 Other Definitional Provisions. (a) The words "hereof",
"herein" and "hereunder" and words of similar import, when used in this
Agreement, shall refer to this Agreement as a whole and not to any particular
provision of this Agreement.
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<PAGE> 10
(b) The terms defined in the singular shall have a comparable
meaning when used in the plural, and vice versa.
(c) The terms "dollars" and "$" shall mean United States
dollars.
ARTICLE II
PURCHASE AND SALE OF SHARES
Section 2.1 Purchase and Sale of Shares.
(a) Buyer agrees to purchase from Seller, and Seller agrees
to sell to Buyer, the Shares, in exchange for payment of the Purchase Price by
Buyer. Seller shall transfer all of the Shares of LKC to Buyer at Closing.
(b) As consideration for the transfer by Seller of the Shares
to Buyer, Buyer agrees to:
(i) at the Closing pay to Seller an amount equal to $5
million, plus accrued interest thereon in accordance with Section 2.3, subject
to any adjustment as provided by Section 2.2;
(ii) pay to Seller, within 120 days of December 31, 1997,
1998 and 1999, respectively, an amount in dollars equal to 30% of the annual
net income before taxes of LKC for such year (as defined in LKC's audited
financial statements for such year); provided, however, that the aggregate
amount of all payments made pursuant to this clause (ii) shall not exceed $2.5
million;
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<PAGE> 11
(iii) pay to Seller, within 120 days of December 31, 1997,
1998 and 1999, an amount in dollars equal to 40% of the annual net income before
taxes of LKC for such year (as defined in LKC's audited financial statements
for such year) provided, however, that no amount need be paid under this clause
(iii) until the date when the aggregate amount of annual net income after taxes
of LKC (as defined in LKC's audited financial statements for such year), after
deduction of any amount paid to Seller pursuant to clause (ii) above, shall
exceed $5 million; and provided, further, that the aggregate amount of all
payments made pursuant to this clause (iii) shall not exceed $2.5 million (the
aggregate of all sums payable by Buyer pursuant to clauses (i), (ii) and (iii)
shall constitute the "Purchase Price").
(c) Notwithstanding anything to the contrary herein, Buyer
and Seller agree that, for the purposes of calculating the annual net income of
LKC in connection with this Section 2.1, all annual or interim financial
statements of LKC for each fiscal year (commencing with the fiscal year
starting on January 1, 1997) and each interim period during such fiscal years
shall be prepared or restated, as the case may be, in accordance with the
accounting policies set forth in Schedule 2.1 hereto.
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<PAGE> 12
(d) Buyer and Seller agree that Buyer may satisfy its
obligations under clauses (ii) and (iii) of paragraph (b) above by causing LKC
to make payments of such amounts directly to Seller. Buyer agrees to
indemnifying Seller and its Affiliates (and any director or officer thereof)
and hold them harmless from all and any liability to third parties arising from
any such payment by LKC and to reimburse them for any costs or expenses
(including reasonable fees of legal counsel) incurred by any of them in
connection therewith.
Section 2.2 Purchase Price Adjustments. On or prior to
Closing, Seller and Buyer shall have established a list of all intercompany
accounts between LKC and Seller and its Affiliates, other than the intercompany
accounts set forth in Section 6.2(b), which list shall become, as of the date
thereof, an integral part of this Agreement for all purposes hereunder. Such
list shall set forth in reasonable detail the difference between (i) the
aggregate amounts owed by LKC to Seller or its Affiliates and (ii) the
aggregate amounts owed to LKC by Seller or its Affiliates, in each case with
accrued interest thereon (calculated on the basis of the actual number of days
elapsed divided by 360) at the rate of 8.25% for the period up to, but
excluding, the Closing Date. The amount to be paid by Buyer pursuant to Section
2.1(b)(i) shall be increased by the amount of such difference if the aggregate
amounts owed by LKC are greater
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<PAGE> 13
than the aggregate amounts owned to LKC, in each case to Seller or its
Affiliates, and shall otherwise be decreased by the amount of such difference.
Upon payment of the amount set forth in Section 2.1(b)(i) as adjusted by this
Section 2.2, all such intercompany accounts will be extinguished.
Section 2.3 Effective Date; Closing; Delivery and Payment Effective
Date.
(a) Subject to the Closing taking place in accordance with this Section
2.3, the parties agree that for the purposes of this Agreement all transactions
contemplated under Sections 2.1(a), 2.2(b)(i), and 2.2 shall be deemed to have
been consummated, and the obligations of the parties pursuant to such Sections
shall be deemed to have been performed, on the Effective Date.
(b) The closing ("Closing") shall be held at the offices of Sullivan &
Cromwell, 125 Broad Street, New York, New York, at 10:00 AM on April 3, 1997
unless otherwise mutually agreed by the parties. The date on which Closing
occurs is herein after referred to as the "Closing Date."
(c) On the Closing Date, (i) Seller shall deliver to Buyer
certificates representing the Shares duly endorsed and in form for transfer to
Buyer and (ii) Buyer shall pay to Seller the amount set forth in Section
2.1(b)(i) (as adjusted pursuant to Section 2.2) in immediately available funds
to an account designed by Seller (which account
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<PAGE> 14
shall be designated not less than two business days prior to Closing)
(d) The parties agree that all amounts payable on Closing as set forth
in paragraph (c) above shall be paid with accrued interest thereon (calculated
on the basis of the actual number of days elapsed divided by 360) at the rate
of 8.25% for the period from, and including, the Effective Date to, and
excluding, the Closing Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as of the date hereof and as
of the Closing Date (except that representations and warranties that are made
as of a specific date need be true only as of such date) as follows with
respect to itself:
Section 3.1 Organization and Authority of Seller. Seller has been duly
incorporated, is validly existing and is in good standing under the laws of the
State of New York, with full power and authority to enter into this Agreement
and to perform its obligations hereunder. This Agreement has been duly
authorized, executed and delivered by Seller and constitutes a legal, valid and
binding obligation of Seller, enforceable in accordance with its terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditor's
rights and to general
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<PAGE> 15
equity principles, and no other proceedings on its part are necessary to
authorize this Agreement and the consummation to the transactions contemplated
hereby. Neither the execution and delivery of this Agreement by Seller nor the
compliance with its terms and provisions by Seller will (a) violate any
provision of its certificate of incorporation or by-laws; (b) subject to
obtaining any consents referred to in Section 3.3, conflict with or result in
the breach of, or constitute a default under, or result in the termination,
cancellation or acceleration (whether after the giving of notice or the lapse
of time or both) of any of the rights or obligations of Seller or result in a
loss of any benefit to which Seller is entitled under, any contract, franchise,
license, agreement, lease, indenture or other instrument to which Seller is a
party; or (c) to Seller's knowledge, as the case may be, violate or result in a
breach of or constitute a default under any law, rule, regulation, judgment,
injunction, order, decree or other restriction of any court of governmental
authority to which it is subject, except where, in all cases, individually or in
the aggregate such violation, conflict, breach, termination, default,
cancellation, acceleration or loss would not be reasonably likely to prohibit or
materially impair or delay Seller's performance of its obligations under this
Agreement.
Section 3.2 Capitalization of LKC. Seller represents and warrants that
the Shares are duly authorized,
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<PAGE> 16
validly issued, fully paid and nonassessable and are owned of record and
beneficially by Seller. Seller has good and valid title to the Shares and, upon
consummation of the transactions contemplated in this Agreement, shall have
transferred such title to the Shares to Buyer pursuant to the terms of this
Agreement, free and clear of any liens, charges, pledges, security interests,
adverse claims or other encumbrances (collectively, "Encumbrances"), other than
such Encumbrances which were incurred by Buyer or caused to be incurred by LKC
by Buyer or as a result of the transactions contemplated by this Agreement.
There are no preemptive or other outstanding rights, subscriptions, options,
warrants, calls, contracts, demands, commitments, convertible securities or
other agreements or arrangements of any character or nature whatsoever under
which Seller is or may become obligated to vote, issued, assign or transfer any
shares of the capital stock, or rights or warrants to acquire, or securities
convertible into shares of capital stock, of LKC.
Section 3.3 Consents and Approvals. Except for any consents to be
obtained by LKC pursuant to any agreement to which it is a party which Buyer
shall obtain or cause to be obtained prior to Closing, the execution, delivery
and performance of this Agreement by Seller will not require Seller to obtain
any consent, waiver, authorization or approval of, or make any filing with or
give notice to, any
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Person, except for such consents, waivers, authorizations or approvals other
than those the failure of which to obtain would not be reasonably likely to
prohibit or materially impair or delay Seller's performance of its obligations
under this Agreement.
Section 3.4 No Other Representations or Warranties. Except for the
representations and warranties contained in this Article III, neither Seller
nor any other Person makes any other express or implied representation or
warranty on behalf of Seller.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as of the date hereof and as
of the Closing date (except that representations and warranties that are made
as of a specific date need be true only as of such date) as follows:
Section 4.1 Organization and Authority of Buyer. Buyer has been duly
incorporated, is validly existing and is in good standing under the laws of
Delaware, with full power and authority to enter into this Agreement and
perform its obligations hereunder. This Agreement has been duly authorized,
executed and delivered by Buyer and constitutes a legal, valid and binding
obligation of Buyer, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or
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<PAGE> 18
affecting creditors' rights and to general equity principles, and no other
proceedings on the part of Buyer are necessary to authorize this Agreement and
the consummation of transactions contemplated hereby. Neither the execution and
delivery of this Agreement nor compliance by Buyer with its terms and
provisions will (a) violate any provision of the certificate of incorporation
or by-laws of Buyer of LKC; (b) subject to obtaining the consents referred to
in Section 4.4, conflict with, or result in the breach of, or constitute a
default under, or result in the termination, cancellation or acceleration
(whether after the giving of notice or the lapse of time or both) of any right
or obligation of Buyer or LKC, or result in a loss of any benefit to which
Buyer or LKC is entitled under, any contract, franchise, license, agreement,
lease, indenture or other instrument to which Buyer or LKC is a party; or (c)
to the knowledge of Buyer, violate or result in a breach of or constitute a
default under any law, rule, regulation, judgment, injunction, order, degree or
other restriction of any court of governmental authority to which buyer of LKC
is subject, except where, in all cases, such a violation would not be reasonably
likely to prohibit or materially impair or delay Buyer's performance of its
obligations under this Agreement or have a Material Adverse Effect.
Section 4.2 Financial Capability. On the Closing Date, Buyer will have
sufficient funds to purchase the
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<PAGE> 19
Shares on the terms and conditions contemplated by this Agreement.
Section 4.3 Securities Act. Buyer is acquiring the Shares solely
for the purpose of investment and not with a view to, or for sale in connection
with, any distribution thereof in violation of the Securities Act. Buyer
Acknowledges that the Shares are not registered under the Securities Act or any
applicable state securities law, and that such Shares may not be transferred or
sold except pursuant to the registration provisions of such Securities Act or
pursuant to an applicable exemption therefrom and pursuant to state securities
laws and regulations as applicable.
Section 4.4 Consents and Approvals. The execution, delivery and
performance of this Agreement will not require Buyer or LKC to obtain any
consent, waiver, authorization or approval of, or make any filing with or
give notice to, any Person.
Section 4.5 No Other Representations or Warranties. Except for the
representations and warranties contained in this Article IV, neither Buyer nor
any other Person makes any other express or implied representation or warranty
on behalf of Buyer.
ARTICLE V
TAX MATTERS
SECTION 5.1 TAX SHARING. Any and all tax sharing agreements and
arrangements shall be cancelled as between
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Seller and/or SGI, on the one hand, and LKC, on the other, and no further
payments shall be made by LKC to Seller and/or SGI, or by Seller and/or SGI to
LKC, pursuant thereto.
Section 5.2 Tax Indemnification. (a) Schneider Electric Holdings,
Inc., as the common parent of the federal income tax consolidated return group
of which Seller is a member on the Effective Date, and Buyer shall make an
election under Section 338(h) (10) of the Code (and any corresponding elections
understate, local and foreign tax law) (collectively the "Election") with
respect to the purchase of the Shares. Seller shall pay any Taxes attributable
to the making of the Election and shall indemnify the Buyer and LKC and hold
them harmless from any and all liabilities for any such Taxes) attributable to
an election under state, local and foreign tax similar to the election available
under Section 338 of the Code (or which results from the making of an election
under Section 338 of the Code) with respect to the purchase of the Shares.
Schneider Electric Holdings, Inc. and Buyer shall execute the Election,
substantially in the form attached as Schedule 5.2(a), and shall file it as soon
as possible thereafter and not later than 60 days following the Closing (and
Buyer agrees and
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acknowledges that Schneider Electric Holdings, Inc. shall have the right to
execute and file the Election jointly with Buyer). Seller and Buyer agree to
treat any additional Purchase Price paid pursuant to Sections 2.1(b)(ii) and
2.1(b)(iii) and any amounts paid pursuant to Section 5.9 in accordance with
section 338(h)(10) of the Code and the regulations thereunder as of the date
such amounts are paid.
(b) Seller hereby agrees to indemnify Buyer and hold it harmless
from all liability for Taxes imposed on LKC for any taxable year or period
ending on or before the Effective Date and, in the case of any taxable year or
period beginning before and ending after the Effective Date, the portion of
such period ending on the Effective Date (the "Pre-Closing Tax Period").
Notwithstanding the preceding sentence, Buyer specifically acknowledges that
Seller is not indemnifying Buyer or LKC for any claim for Taxes which would
adversely affect the liability for Taxes of the Buyer or LKC for any period
after the Effective Date, which arises from any tax authority's
recharacteriztion of the tax consequences of the Election. Seller shall be
entitled to all refunds of which Taxes which apply to a period or portion
thereof ending on or before the Effective Date. Notwithstanding the preceding
sentence, LKC shall be entitled to retain all refunds and obligated to make all
payments associate with the filing of the 1996 state income tax returns
described in attached Schedule 5.2(b).
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(c) Buyer hereby agrees to indemnify Seller and its Affiliates and
hold them harmless from all liability for Taxes imposed on LKC for any taxable
year or period beginning after the Effective Date and, in the case of any
taxable year or period beginning before and ending after the Effective Date, the
portion of such period beginning after the Effective Date, except as otherwise
expressly provided in Section 5.2(a).
(d) Whenever it is necessary to determine liability for Taxes for
a portion of a taxable year of period beginning before and ending after the
Effective Date, the determination shall be made assuming that there was a
closing of the books on the Effective Date, except that Taxes (other than Taxes
measured by net income or gains), exemptions, allowances or deductions that are
calculated on an annual basis shall be apportioned on a time basis.
Section 5.3 Tax Returns. Subject to review and approval by Seller,
LKC shall prepare and file or cause to be filed when due all Tax Returns,
including the 1996 consolidated federal income tax return of SGI, Seller and
LKC, that are required to be filed by or with respect to LKC for taxable years
or periods in the last sentence of Section 5.2(b), Seller shall pay (or
reimburse LKC for) any Taxes due in respect of such Tax Returns. Subject to
review and approval by Seller, LKC shall prepare and file or cause
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to be filed when due all Tax Returns, including the 1996 consolidated federal
income tax return of SGI, Seller and LKC, that are required to be filed by or
with respect to SGI and/or Seller for taxable years or periods ending before
the Effective Date. Seller shall pay (or reimburse LKC for) any Taxes due in
respect of such Tax Returns. Buyer shall file or cause to be filed when due
all Tax Returns that are required to be filed by or with respect to LKC for
taxable years or periods ending after the Effective Date and shall remit any
Taxes due in respect of such Tax Returns. Seller shall file or cause to be
filed when due all Tax Returns that are required to be filed by or with respect
to LKC as a result of the making of the Election described in Section 5.2(a).
Seller shall pay LKC the Taxes for which Seller is liable pursuant to Section
5.2(b) but which are payable with Tax Returns to be filed by LKC pursuant to
this Section 5.3 within 10 days prior to the due date for the payment of
estimated Taxes in accordance with the requirements of federal, state and local
laws and regulations, provided that promptly upon filing by LKC of any Tax
Return for the period in respect of which such estimated taxes were paid, (i)
LKC shall reimburse Seller for the difference between (A) the amount paid by
Seller pursuant to this Section 5.3 and (B) the amount payable by LKC pursuant
to such Tax Return, if such amount is positive.
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and (ii) Seller shall reimburse LKC for the amount of such difference, if such
amount is negative.
Section 5.4 Contest Provision. (a) Buyer shall promptly notify Seller
in writing upon receipt by Buyer, any of its Affiliates or LKC of notice of any
pending or threatened federal, state, local or foreign income or franchise tax
audits or assessments which may materially affect the tax liabilities of LKC for
which Seller would be required to indemnify Buyer pursuant to Section 5.2 (a)
or 5.2 (b), provided that failure to comply with this provision shall not
affect Buyer's right to indemnification hereunder, except to the extent that
Seller is prejudice by such failure to notify. Seller shall have the sole
right to represent LKC's interests in any tax audit or administrative or court
proceeding relating to (i) the making of the Election described in Section 5.2
(a) or (ii) taxable periods ending before the Effective Date as described in
5.2 (b), and to employ counsel of its choice at its expense. Notwithstanding
the foregoing, Seller shall not be entitled to settle, either administratively
or after the commencement of litigation, any claim for Taxes of the Buyer or
LKC for any period after the Effective Date to any extent (including, but not
limited to, the reduction of asset basis or cost adjustments, the lengthening
of any amortization or
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depreciation periods, the denial of amortization or depreciation deductions, or
the reduction of loss or credit carryforwards) without the prior written
consent of Buyer. Such consent shall not be unreasonably withheld, and shall
not be necessary to the extent that Seller has indemnified Buyer against the
effects of any such settlement.
(b) Seller shall be entitled to participate at its expense in the
defense of any claim for Taxes for a year or period ending after the Effective
Date which may be the subject of indemnification by Seller pursuant to Section
5.2 (b) and, with the written consent of Buyer, and at its sole expense, may
assume the entire defense of such tax claim. Neither Buyer nor LKC may agree to
settle any tax claim for the portion of the year or period ending on the
Effective Date which may be the subject of indemnification by Seller under
Section 5.2 (b) without the prior written consent of Seller, which consent
shall not be unreasonably withheld.
Section 5.5 Assistance and Cooperation. (a) After the Closing Date,
each of Seller and Buyer shall:
(i) to the extent reasonably requested, assist (and cause their
respective Affiliates to assist) the other party in preparing any Tax Returns
or reports which such other party is responsible for preparing and filing in
accordance with this Article V;
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(ii) to the extent reasonably requested, cooperate fully in preparing
for any audits of, or disputes with taxing authorities regarding, any Tax
returns of LKC, SGI or Seller;
(iii) make available to the other and to any taxing authority as
reasonably requested all information, records and documents relating to Taxes
of LKC, SGI or Seller;
(iv) provide timely notice to the other in writing of any pending or
threatened tax audits or assessments of LKC, SGI or Seller for taxable periods
for which the other may have a liability under this Article V; and
(v) furnish the other with copies of all correspondence received
from any taxing authority in connection with any tax audit or information
request with respect to any such taxable period.
(b) Within 180 days after the Closing Date, Buyer and LKC shall use
their best efforts to supply Seller with all accounting and tax records of LKC,
SGI and Seller necessary to sufficiently document the federal and state tax
attributes retained by Seller, SGI and LKC for all relevant Pre-Closing Tax
Periods. These accounting and tax records shall include, but not necessarily be
limited to, federal and state tax returns, audited financial statements and
general ledgers for 1983-1996. Seller shall provide a
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written request to Buyer and LKC of any additional records required within this
180 day period. Seller agrees to cooperate fully with Buyer and LKC to minimize
the potential business disruption to Buyer and LKC associated with supplying
these records.
Section 5.6 Post-Closing Actions Which May Affect Seller's Liability
for Taxes. Except to the extent required by law, neither Buyer nor LKC shall,
and each of Buyer and LKC agrees to use its best efforts to cause its
Affiliates not to, without the prior written consent of Seller, amend and Tax
Return filed by, or with respect to, LKC (during any taxable period, or portion
thereof, ending before the Effective Date) for any taxable period, or portion
thereof, beginning before the Effective Date.
Section 5.7 Computation of Losses Subject to Indemnification. The
amount of any liability or loss for which indemnification is provided under
this Agreement shall be computed net of the Tax benefit or savings realized or
realizable with respect to such liability or loss.
Section 5.8 Transfer Taxes. Buyer shall be liable for all sales,
transfer or other similar Taxes arising from the sale of the Shares.
Section 5.9 Alternative Minimum Tax Credits. In the event Seller
(including, for purposes of this Section, any successor in interest to Seller)
shall claim any alternative minimum tax credit related to the Company, then
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Seller shall pay Buyer within 30 days after filing of the return on which
Seller has claimed such credit an amount in cash equal to the amount of the
credit then claimed by Seller up to an aggregate amount of $658,621. Buyer and
Seller agree to treat any such payment as a reduction of the Purchase Price.
Section 5.10 Survival of Obligations. The obligations of the
parties set forth in this Article shall be unconditional and absolute and shall
remain in effect without limitation as to time.
ARTICLE VI
CERTAIN COVENANTS AND AGREEMENTS
OF SELLER AND BUYER
Section 6.1 Conduct of Business. Prior to closing, and except
as otherwise expressly permitted by this Agreement or consented to or approved
by Buyer in writing, Seller covenants and agrees that, without the express
consent of Buyer:
(a) Seller shall not use its rights as a shareholder of LKC
to allow or cause LKC to operate its business in any manner other than
in the ordinary and usual course consistent with past practice;
(b) Seller shall not use its rights as a shareholder of LKC
to allow or cause LKC to (i) change or amend its certificate of
incorporation or by-laws, (ii) authorize, issue or sell any shares of
capital
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stock, or authorize, issue or sell any securities convertible into, or
options with respect to, or warrants to purchase or rights to
subscribe for, any shares of capital stock or enter into any agreement
obligating it to do any of the foregoing or (iii) declare or set aside
for payment any dividends or other distributions, except for
constructive dividends resulting from the loan forgiveness
contemplated by Section 6.2(b);
(c) Seller shall not use its rights as a shareholder of LKC
to allow or cause LKC to, directly or indirectly, redeem, purchase or
otherwise acquire any of the Shares; and
(d) Seller shall not use its rights as a shareholder of LKC
to allow or cause LKC to merge or consolidate with or into any other
Person.
Section 6.2 Certain Obligations of the Parties.
(a) Buyer shall provide for the release, on or prior to the
Closing of all guarantees or contingent payment obligations of Seller or any of
its Affiliates with respect to LKC, including, but not limited to, (i) the
indemnification obligations of Seller and Schneider for the 63rd Street and
White Plains Projects and (ii) all obligations under the outstanding general
agreement of indemnity, dated December 15, 1989, between Spie Enertrans and St.
Paul Seaboard.
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(b) On or prior to Closing, Buyer shall arrange for the SGI
Note now due and owing by SGI TO LKC to be discharged or otherwise forgiven by
LKC in a manner satisfactory to Seller, including, without limitation, any
indemnity reasonably requested by Seller.
(c) LKC shall retain the Safe Harbor Lease. For all purposes
of this Agreement, the parties shall treat the Safe Harbor Lease as disposed
of, and consequently terminated, in connection with the deemed asset sale under
the Election. Seller agrees to indemnify LKC against any losses sustained by
LKC as a result of any claim that any consent was required in connection with
such deemed asset sale.
Section 6.3 Retention of Books and Records. Buyer shall cause
LKC to retain, until all applicable tax statutes of limitations (including
periods of waiver) have expired, all books, records and other documents
pertaining to LKC, SGI and Seller in existence on the Closing Date that are
required to be retained under current retention policies and to make the same
available after the Closing Date for inspection and copying by Seller or its
agents at Seller's expense, during regular business hours and upon reasonable
request and upon reasonable advance notice. After the expiration of such
period, no such books and records shall be destroyed by Buyer without first
advising the tax director of Seller in writing detailing the contents thereof
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and giving Seller at least 120 days to obtain possession thereof. Seller agrees
that such records will be kept strictly confidential and used only for tax
purposes.
Section 6.4 Closing Date Financial Information. For a period of one
year from and after the Closing Date, to the extent reasonably necessary for
Seller, SGI or their Affiliates to prepare consolidated financial statements
or any governmental permits, licenses or required filings and to comply with
reporting obligations in respect thereof, upon written request of Seller, LKC
shall provide, and Buyer shall use it best efforts to cause LKC to provide, to
Seller, SGI and their accountants within a reasonable period of time (in light
of Seller's and SGI's needs) such computer support, access to employees and
Buyer's accountants and financial information of LKC as of the Closing Date as
Seller and SGI may reasonably request in the format customarily required by
Seller, SGI or their Affiliates and, upon Seller's or SGI's request, it will
be accompanied by supplemental financial schedules customarily required by
Seller, SGI or their Affiliates in support of such financial information.
Seller agrees that it shall, and that it shall use reasonable efforts to ensure
that its Affiliates shall, keep such records strictly confidential and use such
records only for tax purposes.
Section 6.5 Registrations, Filings and Consents. Seller and Buyer
shall cooperate and use their respective
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reasonable best efforts to fulfill the conditions precedent to the other party's
obligations hereunder, including but not limited to, securing as promptly as
practicable all consents, approvals, waivers and authorizations required,
necessary or desirable in connection with the transactions contemplated hereby.
Section 6.6 Further Assurances. At any time after the Closing
Date, each of Seller and Buyer shall, and Buyer agrees to cause LKC to,
promptly execute, acknowledge and deliver any other assurances or documents
reasonably requested by Seller, Buyer as the case may be, and necessary for each
of Seller and Buyer, as the case may be, to satisfy its obligations hereunder
or obtain the benefits contemplated hereby.
ARTICLE VII
CONDITIONS TO CLOSING
Section 7.1 Conditions to Obligations of Buyer. The obligation of
Buyer to consummate the transactions contemplated by this Agreement shall be
subject to the satisfaction or waiver by Buyer in writing on or prior to the
Closing Date of each of the following conditions:
(a) Each of the representations and warranties of Seller contained
in this Agreement shall be true in all material respects when made and as of
the Closing Date, with the same effect as though such representations and
warranties had been made on and as of the Closing Date
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(except (i) representations and warranties that are made as of a specific date
need be true, or true in all material respects, as the case may be, only as of
such date and (ii) as expressly permitted by this Agreement to change between
the date of this Agreement and the Closing Date); each of the covenants and
agreements of Seller to be performed on or prior to the Closing Date shall have
been duly performed in all material respects; and Buyer shall have received at
Closing certificates to that effect dated as of the Closing Date and executed
on behalf of Seller by its President or any of its Vice Presidents and its
Secretary or any of its Assistant Secretaries.
(b) Seller shall have delivered to Buyer resignations of all
directors of LKC who are not also employees of LKC.
(c) Seller and Buyer shall have established the list set forth in
Section 2.2.
(d) SGI and LKC shall have entered into an agreement providing for
the assignment to LKC of certain intellectual property rights and the
assumption by LKC of certain obligations under such intellectual property
rights (the "Assignment and Assumption Agreement").
Section 7.2 Conditions to Obligations of Seller.
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The obligations of Seller to consummate the transactions contemplated by this
Agreement shall be subject to the satisfaction or waiver in writing by Seller
on or prior to the Closing Date of each of the following conditions;
(a) Each of the representations and warranties of Buyer
contained in this Agreement shall be true in all material respects when
made and as of the Closing Date, with the same effect as though such
representations and warranties had been made on and as of the Closing
Date (except (i) representations and warranties that are made as of a
specific date need be true, or true in all material respects, as the
case may be, only as of such date and (ii) as expressly permitted by
this Agreement to change between the date of this Agreement and the
Closing Date); each of the covenants and agreements of Buyer to be
performed on or prior to the Closing Date shall have been duly
performed in all material respects; and Seller shall have received at
the Closing certificates to that effect dated as of the Closing Date
and executed on behalf of Buyer by its President or any of its Vice
Presidents and its Secretary or any of its Assistant Secretaries.
(b) Seller shall have received from Lex A. Passman, general
counsel of Buyer, an opinion, dated as of the Closing Date,
substantially in the form of Schedule 7.2(b) hereof.
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(c) Seller and Buyer shall have established the list set forth in
Section 2.2.
(d) SGI and LKC shall have entered into the Assignment and Assumption
Agreement.
ARTICLE VIII
TERMINATION
SECTION 8.1 Termination. This Agreement my be terminated at any time
prior to Closing.
(a) by agreement of Seller and Buyer;
(b) by Seller or Buyer, by giving written notice of such termination to
the other parties hereto, if (x) any condition to the terminating party's
obligations hereunder has not been satisfied or waived and (y) Closing shall not
have occurred on or prior to April 4, 1997; provided that the terminating party
is not in material breach of its obligations under this Agreement;
(c) by Seller or Buyer, by giving written notice of such termination
to the other parities hereto, if (x) each condition thereto shall have been
satisfied or waived and (y) Closing shall not have occurred on or prior to
March 31, 1997; provided that the terminating party is not in material breach
of its obligations under this Agreement;
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(d) by Seller or Buyer if there shall be in effect any law or
regulation that prohibits the consummation of Closing or if consummation of
Closing would violate any non-applicable final order, decree or judgment of
any court or governmental body having competent jurisdiction; or
(e) by Seller if Closing shall not have occurred on or prior to 10
Business Days following the satisfaction of all the conditions to Closing set
forth in Section 7.1 hereof as a result of any action or inaction by Buyer.
Section 8.2 Effect of Termination. In the event of the termination of
this Agreement in accordance with Section 8.1 hereof, this Agreement shall
thereafter become void and have no effect, and no party hereto (or any of their
respective Affiliates, representatives, directors, officers or employees) shall
have any liability to the other party hereto contained in this Section 8.2 and
in Sections 10.2 and 10.3 hereof, and except that nothing herein will relieve
any party from liability for any breach of this Agreement prior to such
termination.
ARTICLE IX
SURVIVAL AND INDEMNIFICATION
Section 9.1 Survival of Representations,
Warranties, Covenants and Agreements; Knowledge of Breach.
(a) Notwithstanding any otherwise applicable statute of limitations,
the representations and warranties
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included or provided for herein shall survive Closing until one year after the
Closing Date; provided, however, that any representation or warranty contained
in Section 4.3 and Article V hereof shall survive Closing until the expiration
of the applicable statute of limitations (including any waivers or extensions
thereof) with respect to such matters. The covenants and other agreements
contained in this Agreement shall survive Closing until the date or dates
specified therein or the expiration of the applicable statute of limitations
(including any waivers or extensions thereof) with respect to such matters,
whichever is later. Except with respect to the representations, warranties,
covenants and agreements contained in Article V hereof, in no event shall Buyer
be liable to Seller or Seller be liable to Buyer, as the case may be, for any
breach of the representations, warranties, covenants and agreements included or
provided for herein or in any schedule or certificate or other document
delivered pursuant to this Agreement, unless and until all claims for which
damages are recoverable hereunder by Buyer or Seller, as the case may be, exceed
$1,000,000 (the "Deductible"), in which case Buyer or Seller, as the case may
be, shall be entitled to damages in an amount up to the Purchase Price in the
aggregate; provided, however, that Buyer or Seller, as the case may be, shall be
liable only for the amount by which all such recoverable damages exceed the
Deductible;
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provided, further that no such Deductible shall apply in connection with the
indemnification obligations provided in Section 6.2(c) hereof.
(b) No party hereto shall be deemed to have breached any
representation, warranty, covenant or agreement if (i) such party shall have
notified the other parties hereto in writing, on or prior to the Closing Date,
of the breach of, or inaccuracy in, or of any facts or circumstances
constituting or resulting in the breach of or inaccuracy in, such
representation, warranty, covenant or agreement, specifically referring to the
provisions of this Agreement so breached or rendered inaccurate, and (ii) such
other parties have permitted Closing to occur and, for purposes of this
Agreement, are thereby deemed to have waived such breach or inaccuracy;
provided, however, that a disclosure pursuant to this Section 9.1(b) shall not
prejudice the rights of the parties pursuant to Article VII hereof not to
consummate the transactions contemplated by this Agreement or to recover damages
incurred as a result of such breach or inaccuracy.
Section 9.2 Indemnification.
(a) For a period commencing on the Closing Date and ending, as the
case may be, upon the expiration of the periods specified in Section 9.1(a)
hereof, Seller, on the one hand, or Buyer, on the other hand (the "Indemnifying
Party"), shall, subject to the limitations set forth in
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Sections 9.1(a) and 9.1(b) hereof, indemnify respectively Buyer, on the one
hand, or Seller, on the other hand, as the case may be (the "Indemnified
Party"), against and in respect of all losses, damages, liabilities, costs and
expenses (including reasonable attorneys' fees and expenses incurred in
investigating, preparing or defending any claims covered hereby) sustained or
incurred arising out of any breaches of the Indemnifying Party's
representations, warranties, covenants and agreements set forth in this
Agreement (other than representations, warranties, covenants and agreements set
forth in Article V, as to which the indemnification provisions set forth in
Article V shall govern), in each case net of any related tax deduction or other
tax benefit. Any payments pursuant to this Section 9.2 or Article V shall be
treated as an adjustment to the Purchase Price for all Tax purposes.
(b) The indemnity provided herein as it relates to this Agreement and
the transactions contemplated by this Agreement shall be the sole and exclusive
remedy of the parties hereto, their Affiliates, successors and assigns with
respect to any and all claims for losses, damages, liabilities, costs and
expenses sustained or incurred arising out of this Agreement and the
transactions contemplated by this Agreement, except for the right of the parties
hereto to seek specific performance of the obligations set forth in Article II
of this Agreement.
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Section 9.3 Method of Asserting Claims, etc.
(a) All claims for indemnification by any Indemnified party
hereunder shall be asserted and resolved as set forth in this Section 9.3,
except for claims pursuant to Article V hereof (as to which the provisions of
Article V shall be applicable).
(b) In the event that any written claim or demand for which an
Indemnifying Party would be liable to any Indemnified Party hereunder is
asserted against or sought to be collected from any Indemnified Party by a
third party, such Indemnified Party shall promptly, but in no event more than
15 days following such Indemnified Party's receipt of such claim or demand,
notify the Indemnifying Party of such claim or demand and the amount or the
estimated amount thereof to the extent then feasible (which estimate shall not
in any manner prejudice the right of the Indemnified Party to indemnification
to the fullest extent provided hereunder) (the "Third Party Claim Notice") and
in the event that an Indemnified Party shall assert a claim for indemnity under
this Article IX, not including a third party claim, the Indemnified Party shall
notify the Indemnifying Party promptly following its discovery of the facts or
circumstances giving rise thereto (together, with a Third Party Claim Notice, a
"Claim Notice"); provided that no such notice need be provided to an
Indemnifying Party if the Deductible has not been exceeded and will not be
exceeded by
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such claim or demand; and provided, further, that the failure to notify on the
part of the Indemnified Party in the manner set forth herein shall not
foreclose any rights otherwise available to such Indemnified Party hereunder,
except to the extent that the Indemnifying Party is prejudiced by such failure
to notify. The Indemnifying Party 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 the Indemnified Party (i) whether or
not the Indemnifying Party disputes the liability of the Indemnifying Party to
the Indemnified Party hereunder with respect to such claim or demand and (ii)
whether or not it desires to defend the Indemnified Party against such claim or
demand, which it shall not be entitled to do until the Deductible is exceeded.
All costs and expenses incurred by the Indemnifying Party in defending such
claim or demand shall be a liability of, and shall be paid by, the Indemnifying
Party; provided, however, that the amount of such expenses shall be a liability
of the Indemnifying Party hereunder, subject to the limitations set forth in
Section 9.1 hereof. In the event that the Indemnifying Party notifies the
Indemnified Party within the Notice Period that it desires to defend the
Indemnified Party against such claim or demand, which it shall not be entitled
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to do until the Deductible is exceeded and except as hereinafter provided, the
Indemnifying Party shall have the right to defend the Indemnified Party by
appropriate proceedings and by counsel reasonably acceptable to the Indemnified
Party. If any Indemnified Party desires to participate in, but not control, any
such defense or settlement it may do so at its sole cost and expense. The
Indemnified Party shall not settle a claim or demand without the consent of the
Indemnifying Party. The Indemnifying Party shall not, without the prior written
consent of the Indemnified Party, 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, the Indemnified Party or any subsidiary or Affiliate thereof. If the
Indemnifying Party elects not to defend the Indemnified Party against such
claim or demand, whether by not giving the Indemnified Party timely notice as
provided above or otherwise, then the amount of any such claim or demand, or,
if the same be contested by the Indemnified Party, then that portion of any
such claim or demand as to which such defense is unsuccessful (and all
reasonable costs and expenses pertaining to such defense) shall be the
liability of the Indemnifying Party hereunder, subject to the limitations set
forth in Section 9.1 hereof. To the
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extent the Indemnifying Party shall control or participate in the defense or
settlement of any third party claim or demand, the Indemnified Party will give
to the Indemnifying Party 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 the Indemnified Party.
The Indemnified Party shall use its best efforts in the defense of all such
claims, and in connection therewith shall be entitled to reimbursement by the
Indemnifying Party of expenses directly related to efforts undertaken at the
specific request of the Indemnifying Party.
ARTICLE X
MISCELLANEOUS
Section 10.1 Amendment and Modification; Waiver. This Agreement may
be amended or modified only in writing, signed by Seller and Buyer, at any time
prior to Closing with respect to any of the terms contained herein. At any time
prior to Closing either Seller or Buyer may (i) extend the time for the
performance of any of the obligations or other acts of the other party hereto,
(ii) waive any inaccuracies in the representations and warranties of the other
party contained herein or in any document delivered pursuant hereto, or (iii)
waive compliance with any of the agreements or conditions of the other party
contained herein. Any agreement on the part of a party hereto to any
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such extension or waiver shall be valid if set forth in an instrument in
writing signed by the party granting such extension or waiver.
Section 10.2 Expenses. Except as otherwise expressly provided in this
Agreement, whether or not the transactions contemplated by this Agreement are
consummated, the parties shall bear their own respective expenses (including,
but not limited to, all compensation and expenses of counsel, financial
advisors, consultants, actuaries and independent accountants) incurred in
connection with this Agreement and the transactions contemplated hereby.
Section 10.3 Public Disclosure. Each of the parties to this Agreement
hereby agrees with the other parties hereto 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 upon which the securities of one
of the parties or its Affiliates 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 Affiliates is listed
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to make such a public disclosure, such public disclosure shall only be made
after prior consultation with the other party to this Agreement.
Section 10.4 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 party hereto.
Section 10.5 Entire Agreement. This Agreement (including all
schedules hereto) contains the entire agreement between the parties hereto with
respect to the subject matter hereof and supersedes all prior agreements and
understandings, oral or written, with respect to such matters.
Section 10.6 Fulfillment of Obligations. Any obligation of any party
to the any other party under this Agreement, 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 10.7 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
Seller, Spie Enertrans, Buyer, LKC or their successors or permitted assigns any
rights or remedies under or by reason of this Agreement.
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Section 10.8 Schedules. The inclusion of any matter in any schedule
to this Agreement shall be deemed to be an inclusion for all purposes of this
Agreement, including each representation and warranty to which it may relate,
but inclusion therein shall expressly not be deemed to constitute an admission
by Seller, or otherwise imply, that any such matter is material or creates a
measure for materiality for the purposes of this Agreement.
Section 10.9 Counterparts. This Agreement and any amendments hereto
may be executed in on 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 10.10 Section Headings. The section and paragraph headings
and table of contents contained in this Agreement are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.
Section 10.11 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 may (return receipt requested) to the parties at
the following addresses (or at such other addresses as shall be specified by
like notice):
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(a) if to Seller, to:
COMSTOCK GROUP, INC.
c/o Square D Company
1415 S. Roselle Road
Palatine, Illinois 60067
Telephone: (847) 925-3498
Facsimile: (847) 925-7419
Attention: General Counsel
With a copy to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Telephone: (212) 558-4000
Facsimile: (212) 558-3588
Attention: Allan M. Chapin, Esq.
(b) if to Buyer, to:
LKC Acquisition Corp.
One North Lexington Avenue
White Plains, NY 10601
Telephone: (914) 323-3000
Facsimile: (914) 285-9879
Attention: General Counsel
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 10.12 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 BRING ANY ACTION
OR PRECEEDING IN RESPECT OF ANY CLAIM ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR THE
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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 OR PROCESS UPON SUCH PARTY IN ANY SUCH ACTION OR PROCEEDING
SHALL BE EFFECTIVE IF NOTICE IS GIVEN IN ACCORDANCE WITH SECTION 9.1 OF THIS
AGREEMENT. SELLER 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 BUYER STIPULATES THAT SUCH CONSENT AND APPOINTMENT
ARE IRREVOCABLE AND COUPLED WITH AN INTEREST.
Section 10.13 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
-44-
<PAGE> 49
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 provision to other
persons, entities or circumstances shall not be affected by such invalidity or
unenforceability, nor shall such invalidty or unenforceability affect the
validity or enforceability of such provision, or the application thereof, in any
other jurisdiction.
-45-
<PAGE> 50
IN WITNESS WHEREOF, this Agreement has been signed on behalf of each
of the parties hereto as of the date first written above.
COMSTOCK GROUP, INC.
By: /s/
--------------------------------
Name: /s/
Title: /s/
LKC ACQUISITION CORP.
By: /s/
--------------------------------
Name: /s/
Title: /s/
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<PAGE> 51
AGREEMENT
This Agreement dated as of January 8, 1998, among Comstock Group, Inc., a
New York corporation ("CGI"), LKC Acquisition Corp., a Delaware corporation
("LAC") and L.K. Comstock & Company, Inc., a New York corporation ("LKC").
WHEREAS, pursuant to a Stock Purchase Agreement dated April 3, 1997 (the
"Stock Purchase Agreement"), CGI sold all of the issued and outstanding shares
of capital stock of LKC to LAC.
WHEREAS, the Stock Purchase Agreement sets forth the continuing rights and
obligations of the parties with respect to certain matters set forth in the
Stock Purchase Agreement, including but not limited to, cooperation as to tax
matters (Section 5.5(b)) and alternative minimum tax credits (Section 5.9).
WHEREAS, the parties desire to modify, amend, clarify or resolve certain
issues associated with the sections of the Stock Purchase Agreement noted
above.
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
contained herein, and subject to and on the terms and conditions herein set
forth, the parties hereto agree as follows:
1. CGI acknowledges the satisfactory delivery of those accounting and
tax records designated in the following schedule in accordance with Section
5.5(b) of the Stock Purchase Agreement. LAC and LKC shall each use their best
efforts to provide to CGI or its designated representatives, pursuant to
Section 5.5(b) of the Stock Purchase Agreement, the following accounting and
tax records in accordance with the following schedule:
<TABLE>
<S> <C>
Audited Financial Statements Complete
Consolidated Tax Returns Complete
State Tax Returns January 15, 1998
State NOL's January 15, 1998
State Audit Reports/Adjustments January 15, 1998
Federal Audit Reports/Adjustments January 15, 1998
Subsidiary Sale Agreements January 15, 1998
Tax Attribute Carryforward Workpapers January 15, 1998
General Ledgers and Trial Balances January 15, 1998
Accounts Payable To Be Determined
Journal Entries To Be Determined
Tax Schedules and Workpapers To Be Determined
Fixed Assets and Depreciation Schedules To Be Determined
Bank Statements To Be Determined
</TABLE>
<PAGE> 52
1(b). After delivery of the accounting and tax records described herein,
and upon reasonable notice, CGI, or its successors, shall use its best efforts
to make available to LAC or LKC those accounting and tax records which shall
have been requested by LAC or LKC.
2. In complete satisfaction of its obligation under Section 5.9 of the
Stock Purchase Agreement, CGI shall pay to LKC the sum of $500,000 on January
9, 1998. CGI shall have no obligation to pay any amount to LAC or LKC with
respect to any State of New York alternative minimum tax credits.
3. Except as otherwise set forth in this Agreement, the terms and
provisions of the Stock Purchase Agreement shall remain in full force and
effect.
4. This Agreement contains the entire agreement between the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings, oral or written, with respect to such matters.
5. No party to this Agreement may assign any of its rights or
obligations under this Agreement without the prior written consent of the other
party hereto; provided that CGI may assign this Agreement to any affiliate
without prior written consent.
6. 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.
2
<PAGE> 53
IN WITNESS WHEREOF, this Agreement has been signed on behalf of each of
the parties hereto as of the date first written above.
COMSTOCK GROUP INC.
By: /s/ Richard J. O'Shanna
-----------------------------
Name: Richard J. O'Shanna
Title: Vice President & Assistant
Secretary
LKC ACQUISITION CORP.
By: /s/ Michael R. Azarela
-----------------------------
Name: Michael R. Azarela
Title: Chairman
L.K. COMSTOCK & COMPANY, INC.
By: /s/ Pierre H. Lescaut
-----------------------------
Name: Pierre H. Lescaut
Title: CEO
3
<PAGE> 54
SECOND AMENDMENT
This SECOND AMENDMENT dated as of May 20, 1998 by and between Spie
Group Inc. a Delaware corporation ("SGI"), on its own behalf and on behalf of
Comstock Group, Inc. ("CGI"), and Comstock Holdings Inc. a Delaware corporation
("CHI") amend that certain stock Purchase Agreement dated as of April 3, 1997
by and between the parties hereto or their predecessors (the "Agreement").
WHEREAS, subsequent to the date of the Agreement, LKC Acquisition
Corp. changed its name to Comstock Holdings Inc. and CGI merged with and into
SGI, such that SGI was the surviving corporation, and
WHEREAS, pursuant to the Agreement CGI sold all the issued and
outstanding shares of capital stock of L.K. Comstock & Company, Inc. ("LKC") to
CHI, and
WHEREAS, the parties desire to modify and amend certain sections of
the Agreement and provide for certain consents under the Indemnity and
Cooperation Agreement dated as of April 3, 1997 by and between Spie Enertrans
S.A., CGI, LKC and CHI (the "Indemnity Agreement").
NOW THEREFORE, in consideration of the mutual convenants and
undertakings contained herein, and subject to and on the terms and conditions
herein set forth, the parties hereto agree as follows:
1. Sections 2.1(b)(ii) and (iii) and Section 2.1 (c) are deleted
in their entirety and replaced by the following new Section 2.1 (b)(ii):
(ii) pay to Seller on or before September 9, 1998 the amount
of $1.6 million;"
2. Should said sum of $1.6 million not be paid by September 9,
1998, SGI or CHI may declare this Second Amendment null and void by giving
written notice to the other party pursuant to Section 10.11 of the Agreement,
upon which event the Agreement shall continue in full force and effect in
accordance with its terms as if this Second Amendment had not been executed.
3. Said payment when made shall fulfill and release all payment
obligations of CHI under Sections 2.1 and 2.2 of the Agreement.
4. SGI expressly consents on its behalf and on behalf of CGI
pursuant to Sections 4 and 5 of the Indemnity Agreement, without regard to
whether such consent is required thereunder, to the merger of CHI into a
subsidiary of RailWorks Corporation ("RailWorks") pursuant
<PAGE> 55
to a plan of merger by which CHI will become a wholly-owned subsidiary of
RailWorks.
5. SGI and CHI shall, at the reasonable request of the other
party, execute such other and further documents as may be necessary or desirable
to effectuate the intent of this Second Amendment.
6. Except as otherwise set forth in this Second Amendment, the
terms and provisions of the Agreement shall remain in full force and effect.
7. This Second Amendment contains the entire agreement between
the parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, oral or written, with respect to such
matters.
8. No party to this Second Amendment may assign any of its
rights or obligations hereunder except wit the prior written consent of the
other party hereto; provided that CHI may assign its payment obligations
hereunder to an affiliate without prior written consent.
9. This Second Amendment 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.
IN WITNESS WHEREOF, the Second Amendment has been signed on behalf of
each of the parties hereto as of the date first above written.
SPIE GROUP, INC., on its own behalf and
on behalf of COMSTOCK GROUP, INC.
By: /s/ Authorized Signature
------------------------------------
Name:
Title:
COMSTOCK HOLDINGS INC.
By: /s/ Authorized Signature
-----------------------------------
Name:
Title:
2
<PAGE> 1
EXHIBIT 10.32
CONTINGENT PROMISSORY NOTE
US$14,903,215 April 3, 1997
L.K. Comstock & Company, Inc., a New York corporation (the
"Company"), for value received, hereby promises to pay to the order of Spie
Enertrans S.A. ("Spie"), in lawful money of the United States, the principal
sum of fourteen million nine hundred and three thousand two hundred and fifteen
dollars, or, if more or less, the Collectible Amount (as hereinafter defined),
from time to time, at such time or times and in such amount or amounts as the
Collectible Amount is received by the Company in accordance with the terms
hereof until April 3, 2007. This Note shall bear interest, payable
semiannually, commencing April 3, 1997, at a rate per annum (on the basis of a
365-day year for the actual number of days involved) equal to 6.56% of
$14,903,215 as such amount may be reduced from time to time pursuant to the
terms hereof.
The "Collectible Amount" means an amount equal to the
aggregate payments received by the Company from time to time with respect to or
arising out of or in connection with any agreements, contracts or
understandings related to the following projects, including, without
limitation, any claims of the Company against any party to such agreements,
contracts or understandings (the "Claims"): (a) LAX Airfield Signage and
Lighting Agreement - Phase 2; (b) Sunnyside Yard SFC Station Contract No.
8-295-41840; and (c) 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 known as the Los Angeles
International Airport Project and the Sunnyside Yard Converter Station Project
and the Company's investment in the Brooklyn Navy Yard Cogeneration Joint
Venture, respectively (collectively, the "Projects").
The Company shall cause all payments in respect of the Claims
which are received by the Company to be deposited directly into a segregated
account to be established in the name of Spie at Harris Trust and Savings Bank.
The terms of such account shall provide that all moneys held in such account
shall be held solely for the benefit of Spie and that only Spie shall have the
right to make withdrawals and payments from such account. Any amounts paid into
such
<PAGE> 2
account shall be treated as a repayment of principal hereunder.
If Spie institutes any action for the enforcement or
collection of this Note, the Company shall pay on demand all costs and expenses
of such action including reasonable legal fees.
The Company expressly waives any presentment, demand,
protest, or other notice of any kind and any right of set-off.
This Note shall be governed by the laws of the State of New
York, both in interpretation and in performance. The Company hereby submits to
jurisdiction and to the laying of venue in the County of New York, State of New
York in any action or proceeding regarding this Note.
L.K. COMSTOCK & COMPANY, INC.
By: /s/ Authorized Signature
-------------------------------
-2-
<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
June 30, 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 6,800,000 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.
June 30, 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
June 30, 1998
<PAGE> 1
EXHIBIT 24.2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned constitutes and
appoints John G. Larkin, Michael R. Azarela and John Kennedy, and each of them,
his or her 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 on Form S-1
of RailWorks Corporation, 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, as amended, 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
or she 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.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of June 25, 1998.
/s/ R. C. Matney
------------------
Name: R. C. Matney
<PAGE> 2
EXHIBIT 24.2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned constitutes and
appoints John G. Larkin, Michael R. Azarela and John Kennedy, and each of them,
his or her 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 on Form S-1
of RailWorks Corporation, 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, as amended, 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 or
she 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.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of June 26, 1998.
/s/ Ronald W. Drucker
--------------------------------
Name: Ronald W. Drucker
