<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
---------
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1998
-------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ________________ to __________________
Commission file number 0-24639
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RailWorks Corporation
(Exact name of registrant as specified in its governing instrument)
Delaware 58-2382378
(State of Organization) (IRS Employer Identification No.)
1104 Kenilworth Drive, Suite 301, Baltimore, Maryland 21204
(Address of principal executive office) (Zip Code)
(Registrant's telephone number, including area code) (410) 512-0500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
15,073,530 shares of common stock were outstanding as of September 1, 1998.
- ---------------------------------------------------------------------------
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RailWorks Corporation
CONTENTS
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements:
RailWorks Corporation:
Condensed Balance Sheet as of June 30, 1998 (unaudited)
Condensed Statement of Income for the three months ended June 30,
1998 (unaudited) and for the period from inception (March 20,
1998) to June 30, 1998 (unaudited)
Condensed Statement of Cash Flows for the period from inception
(March 20, 1998) to June 30, 1998 (unaudited)
Notes to Condensed Financial Statements (unaudited)
Comstock Holdings, Inc.:
Consolidated Balance Sheets as of June 30, 1998 (unaudited) and
December 31, 1997
Consolidated Statements of Income for the three months ended June
30, 1998 (unaudited) and 1997 (unaudited) and the six months
ended June 30, 1998 (unaudited) and 1997 (unaudited)
Consolidated Statements of Cash Flows for the six months ended
June 30, 1998 (unaudited) and 1997 (unaudited)
Notes to Consolidated Financial Statements (unaudited)
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations:
RailWorks Corporation
Comstock Holdings, Inc.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
PART II - OTHER INFORMATION
Items 1 through 6
Signatures
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
RailWorks Corporation
CONDENSED BALANCE SHEET
June 30, 1998
(in Thousands)
(Unaudited)
<TABLE>
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash........................................................ $55
---
Total current assets............................... 55
---
Total assets....................................... $55
===
LIABILITIES and STOCKHOLDER'S EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Advances from Founding Companies............................ $55
---
Total current liabilities.......................... 55
---
Total liabilities.................................. 55
---
STOCKHOLDER'S EQUITY:
Preferred stock, $0.01 par value. Authorized 10,000,000
shares. No shares issued.................................. --
Common stock, $0.01 par value. Authorized 100,000,000
shares, 10 shares issued and outstanding.................. --
---
Paid-in capital ............................................
Total stockholder's equity......................... --
---
Total liabilities and stockholder's equity......... $55
===
</TABLE>
See accompanying Notes to Condensed Financial Statements.
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RailWorks Corporation
CONDENSED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1998
AND THE PERIOD FROM INCEPTION (MARCH 20, 1998) TO JUNE 30, 1998
(in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Inception
Ended Through
June 30, 1998 June 30, 1998
------------- -------------
<S> <C> <C>
Revenues....................................................... $ -- $ --
Selling, General and Administrative Expenses................... -- --
-------- -------
Income Before Income Taxes..................................... -- --
Provision For Income Taxes..................................... -- --
-- --
Net Income..................................................... $ -- $ --
======== =======
</TABLE>
See accompanying Notes to Condensed Financial Statements.
4
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RailWorks Corporation
CONDENSED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (MARCH 20, 1998) TO
JUNE 30, 1998
(in Thousands)
(unaudited)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: $--
---
CASH FLOWS FROM INVESTING ACTIVITIES: --
---
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from Founding Companies........................ 55
---
Net cash provided by financing activities...... 55
---
NET INCREASE IN CASH............................................. 55
CASH, beginning of period........................................ --
---
CASH, end of period.............................................. $55
===
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest................ $--
===
Cash paid during the period for income taxes............ $--
===
</TABLE>
See accompanying Notes to Condensed Financial Statements.
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RailWorks Corporation
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 1998
(unaudited)
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulations S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included in the accompanying unaudited condensed financial statements.
Operating results for the three months ended June 30, 1998 and the period from
inception (March 20, 1998) to June 30, 1998 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1998.
NOTE 2 ORGANIZATION
RailWorks Corporation ("RailWorks") was incorporated in Delaware on
March 20, 1998 and was initially capitalized on such date through the sale of 10
shares of Common Stock for an aggregate purchase price of $100. RailWorks seeks
to become a leading nationwide provider of rail system services, including
construction and rehabilitation, repair and maintenance, and related products.
RailWorks' strategy is to provide a full range of rail related services and
products on a national basis and offer integrated rail system solutions. To
accomplish this objective, RailWorks intends to acquire (the "Acquisitions")
fourteen U.S. businesses (the "Founding Companies"), complete an initial public
offering (the "Offering") of its common stock (taken together "the
Consolidation") and, subsequent to the Consolidation, intends to acquire,
through merger or purchase similar companies to expand its operations. RailWorks
and its newly formed, wholly-owned subsidiaries have signed definitive
agreements to acquire by merger the Founding Companies upon consummation of the
Offering. The Founding Companies are: Annex Railroad Builders, Inc. and
Associated Companies, Comtrak Construction, Inc., Comstock Holdings, Inc.,
Condon Brothers, Inc., CPI Concrete Products Inc., H.P. McGinley, Inc., 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 Associated Companies, Southern Indiana
Wood Preserving Company, Inc., U.S. Trackworks, Inc. and Associated Companies,
and Wm. A. Smith Construction Co., Inc. and Associated Companies.
For accounting and financial statement purposes, Comstock Holdings,
Inc. (one of the Founding Companies) has been identified as the accounting
acquiror consistent with Staff Accounting Bulletins ("SAB") No. 97 of the
Securities and Exchange Commission because its owners are expected to receive
the largest portion
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(approximately 32.8%) of the shares of Common Stock issued to the owners of the
Founding Companies in the Consolidation. The acquisitions of the remaining
Founding Companies will be accounted for as purchases in accordance with
Accounting Principles Board ("APB") Statement No. 16 "Business Combinations".
Through June 30, 1998, RailWorks conducted no operations but incurred
incidental startup, organizational and administrative expenses that were funded
by advances from the fourteen Founding Companies.
NOTE 3 SUBSEQUENT EVENTS
On August 4, 1998, RailWorks consummated the Offering of 5,000,000
shares of its common stock at a price of $12.00 per share. Gross proceeds were
$60.0 million and net proceeds to Railworks, after deducting underwriting
discounts and commissions, were $55.8 million ($53.6 million after deducting
miscellaneous Offering expenses of approximately $2.2 million).
Following the completion of the Offering, on September 8, 1998
RailWorks paid $1.6 million to Comstock Group, Inc. in satisfaction of all
contingent payments owed in connection with the purchase of L.K. Comstock &
Company, Inc. by Comstock Holdings, Inc.
Concurrent with the Offering, RailWorks also issued an aggregate of
8,557,280 shares of common stock to the owners of the Founding Companies in
exchange for 100% of the outstanding stock of the Founding Companies. The
Founding Companies were under contract to compensate IPO Development Company,
its organizer, for services rendered in conjunction with the Offering. As a
result, IPO Development Company received 310,368 shares of Common Stock in
satisfaction of the obligations of the Founding Companies.
Additionally, RailWorks issued 1,205,872 shares of common stock to its
executive management team. As a result of this stock grant, RailWorks estimates
it will recognize approximately $14.5 million in compensation expense in the
third quarter of 1998.
On August 13, 1998, the Compensation Committee of the Board of
Directors adopted its 1998 Stock Incentive Plan which reserves 2,000,000
shares of common stock for issuance under the Plan. The shares are to be
issued at the discretion of the Board of Directors to incentivize management
of RailWorks and its subsidiaries.
On August 4, 1998, RailWorks' two independent directors were each
granted an option to purchase 10,000 share of common stock at the Offering
price.
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NOTE 4 - CREDIT FACILITY
On August 4, 1998, RailWorks entered into a secured $75 million
revolving credit agreement with NationsBank, N.A. (the "Credit Facility"). The
Revolver expires on August 4, 2001, however RailWorks may request the bank to
extend the agreement for two, one-year periods. The proceeds of the Credit
Facility are to be utilized for working capital, future acquisitions and letters
of credit. The aggregate amount of letter of credit obligations that can be
drawn against the Credit Facility shall not exceed $20 million.
Interest on loans, commitment fees, and letter of credit fees are based
upon consolidated leverage ratios in a pricing matrix. A facility fee of 2% is
also payable on the total Credit Facility.
As of August 28, 1998, RailWorks had total borrowings outstanding of
$35.3 million under the Credit Facility.
NOTE 5 - EMPLOYMENT AGREEMENTS
RailWorks has entered into employment agreements with its Chief
Executive Officer, Chief Financial Officer, Chief Operating Officer and Chief
Accounting Officer who will be executive officers of the Company (together, 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. The agreements provide for annual base salaries of $275,000,
$200,000, $100,000 and $135,000 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 first bonus pool (the "First Bonus Pool") and
33.3%, 13.3%, 10.0% and 10.1%, respectively, of the second bonus pool (the
"Second Bonus Pool"). The First Bonus Pool will consist of 10% of pre-tax
profits and the Second Bonus Pool will consist of 15% of the amount by which net
income exceeds certain benchmarks. In addition, the agreements provide that each
Executive Officer will be granted shares of restricted stock, as set forth
herein. At any time after the Offering, the employee may request a loan from
RailWorks 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 contains non-competition, non-solicitation and
confidential information provisions.
Upon consummation of the Acquisitions, RailWorks entered into
employment agreements with certain employee-stockholders of each Founding
Company. The agreements 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 is terminable by RailWorks 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
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consecutive twelve-month period or by the employee. Each agreement provides for
an annual base salary and provides that the salary 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.
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Comstock Holdings, Inc.
CONSOLIDATED BALANCE SHEETS
As of June 30, 1998 (unaudited) and December 31, 1997
(in Thousands)
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
ASSETS (unaudited)
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash .................................................. $ 119 $ 1,120
Accounts receivable ................................... 52,435 46,436
Costs and estimated earnings in excess of
billings on uncompleted contracts ................... 17,166 17,149
Inventory ............................................. 769 1,240
Deferred tax asset .................................... 1,020 1,020
Other current assets .................................. 1,280 977
------- -------
Total current assets ................... 72,789 67,942
------- -------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS ..................... 598 448
LESS -- ACCUMULATED DEPRECIATION AND
AMORTIZATION .......................................... 119 56
------- -------
EQUIPMENT AND LEASEHOLD
IMPROVEMENTS, Net ..................................... 479 392
------- -------
OTHER ASSETS ............................................. 206 18
------- -------
Total assets ........................... $73,474 $68,352
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt .................. $ 828 $ 2,555
Accounts payable and accrued liabilities .............. 27,616 22,547
Accrued payroll and related withholdings .............. 4,087 4,711
Billings in excess of costs and estimated
earnings on uncompleted contracts ................... 6,007 8,510
Other current liabilities ............................. 4,262 3,119
------- -------
Total current liabilities .............. 42,800 41,442
------- -------
</TABLE>
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<TABLE>
<S> <C> <C>
LONG-TERM DEBT ........................................... 15,231 12,449
EXCESS OF ACQUIRED NET ASSETS OVER COST .................. 10,076 10,210
OTHER LIABILITIES ........................................ 2,808 2,813
------- -------
Total long-term liabilities ............ 28,115 25,472
------- -------
Total liabilities ...................... 70,915 66,914
------- -------
COMMITMENTS AND CONTINGENCIES ............................ -- --
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 150,000 shares
authorized 111,500 shares issued and
outstanding ......................................... 1 1
Additional paid-in capital ............................ 9 9
Retained earnings ..................................... 2,549 1,428
------- -------
Total Stockholders' Equity ................. 2,559 1,438
------- -------
Total Liabilities & Stockholders' Equity ... $73,474 $68,352
======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
11
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Comstock Holdings, Inc.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1998 and 1997
(in Thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30
----------------------
1998 1997
---- ----
<S> <C> <C>
Revenues............................................ $44,752 $34,739
Contract Costs...................................... 39,938 30,304
------ ------
Gross Profit........................................ 4,814 4,435
Selling, General and Administrative Expenses........ 3,662 3,349
Depreciation and Amortization....................... (19) (53)
Interest Expense.................................... 438 424
Interest and Other Income........................... 5 17
------- -------
Income Before Income Taxes.......................... 728 698
Provision For Income Taxes.......................... 273 280
------- -------
Net Income.......................................... $ 455 $ 418
======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
Comstock Holdings, Inc.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998 and 1997
(in Thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
----------------------
1998 1997
---- ----
<S> <C> <C>
Revenues............................................ $86,380 $67,140
Contract Costs...................................... 77,143 58,301
------- -------
Gross Profit........................................ 9,237 8,839
Selling, General and Administrative Expenses........ 6,886 7,244
Depreciation and Amortization....................... (58) (114)
Interest Expense.................................... 858 988
Interest and Other Income........................... (287) (709)
------- -------
Income Before Income Taxes.......................... 1,838 1,430
Provision For Income Taxes.......................... 717 572
------- -------
Net Income.......................................... $ 1,121 $ 858
======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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Comstock Holdings, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 and 1997
(in Thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
-------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 1,121 $ 858
Adjustments to reconcile net income to net
cash used in operating activities--
Depreciation and amortization........................ (58) (114)
Deferred taxes....................................... -- 208
Gain on sale of equipment............................ (8) (96)
Change in assets and liabilities:
Increase in accounts receivable and costs
and estimated earnings in excess of
billings on uncompleted contracts................ (6,016) (2,569)
Decrease in inventory.............................. 471 356
Increase in other current assets................... (303) (11)
Increase (decrease) in accounts payable
and accrued liabilities.......................... 5,069 (6,101)
(Decrease) increase in accrued payroll and
related withholdings............................. (624) 1,899
(Decrease) increase in billings in excess of
costs and estimated earnings on
uncompleted contracts.............................. (2,503) 4,711
Increase (decrease) in other current
liabilities...................................... 1,143 (9)
Increase in other assets........................... (188) (35)
Decrease in other liabilities...................... (5) (24)
-------- -------
Net cash used in operating activities............ (1,901) (927)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of equipment......................... 8 96
Purchase of equipment and leasehold
improvements........................................... (163) (289)
-------- -------
Net cash used in investing activities............ (155) (193)
-------- -------
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from contingent promissory notes................ -- 14,608
Repayment of contingent promissory notes................. -- (157)
Proceeds from note payable............................... -- 4,000
Repayments of note payable............................... -- (1,000)
Proceeds from long-term borrowings....................... 8,986 8,990
Repayment of long-term borrowings........................ (7,931) (23,420)
-------- -------
Net cash provided by financing activities........ 1,055 3,021
-------- -------
NET (DECREASE) INCREASE IN CASH............................. (1,001) 1,901
CASH, beginning of period................................... 1,120 10
-------- -------
CASH, end of period......................................... $ 119 $ 1,911
======== =======
SUPPLEMENTARY DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for interest................. $ 588 $ 936
======== =======
Cash paid during the period for income taxes............. $ 66 $ 261
======== =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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Comstock Holdings, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(unaudited)
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulations S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The balance sheet at December 31, 1997 has been derived
from the audited financial statements at that date. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included in the
accompanying unaudited consolidated financial statements. Operating results for
the three and six-month periods ended June 30, 1998 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1998.
NOTE 2 ORGANIZATION
Comstock Holdings, Inc. (formerly LKC Acquisition Corp.) (together with
its predecessor company, "Holdings"), 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 November 20, 1996,
its incorporation date, through January 1, 1997.
Effective January 1, 1997, Holdings purchased the stock of the
Predecessor Company. The accompanying financial statements have been prepared by
Holdings management and present the financial position and results of operations
of Holdings from the acquisition date.
Holdings 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.
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NOTE 3 SUBSEQUENT EVENTS
On May 21, 1998, the stockholders of Holdings entered into an Agreement
and Plan of Reorganization (the "Merger Agreement") with RailWorks Corporation
("RailWorks"). Under the terms of the Merger Agreement, the stockholders will
exchange their stock of Holdings for cash and stock of RailWorks.
On August 4, 1998 RailWorks closed an initial public offering ("IPO")
of 5,000,000 shares of its common stock at a price of $12.00 per share. Net
proceeds to RailWorks were $55.8 million.
Concurrent with the closing of the IPO, RailWorks acquired (the
"Combination") 14 companies (the "Founding Companies" or "Subsidiaries") in the
rail system services industry including construction and rehabilitation, repair
and maintenance, and related services. RailWorks issued an aggregate of
8,557,280 shares of common stock to its newly formed, wholly-owned Subsidiaries
upon the closing of the IPO. This issuance was in exchange for one hundred
percent of the outstanding stock of the Founding Companies.
The net proceeds of the Offering were used to pay the cash portion of
the purchase price for the Founding Companies in the Combination and were used
to repay a portion of certain indebtedness of Holdings and of the Founding
Companies.
For accounting and financial statement purposes, Holdings has been
identified as the accounting acquiror consistent with Staff Accounting Bulletins
("SAB") No. 97 of the Securities and Exchange Commission because its owners are
expected to receive the largest portion (approximately 32.8%) 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 Accounting Principles Board ("APB") Statement No.
16 "Business Combinations".
Following the completion of the acquisition of Holdings on September 8,
1998 RailWorks paid $1.6 million to Comstock Group, Inc. in satisfaction of all
contingent payments owed in connection with the purchase of L.K. Comstock &
Company, Inc. by Holdings.
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NOTE 4 DEBT
Long term debt consists of (in thousands):
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
(unaudited)
----------- -----------
<S> <C> <C>
Revolving Credit Agreement(a)............ $15,000 $12,057
Temporary Revolver(a).................... -- 550
Promissory Note(a)....................... 500 1,700
Fixed Asset Notes........................ 559 697
------- -------
16,059 15,004
Less -- Current portion.................. 828 2,555
------- -------
$15,231 $12,449
======= =======
</TABLE>
(a) On August 4, 1998, the outstanding revolving credit debt and promissory
note were paid in full. The settlement of the debt was concurrent with
the consummation of the IPO and the execution of the credit agreement
between RailWorks and NationsBank, N.A.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS - RAILWORKS CORPORATION
RailWorks Corporation ("RailWorks") was incorporated in Delaware on
March 20, 1998 as a holding company to acquire 14 companies (the "Founding
Companies" or "Subsidiaries") that provide rail system services, including
construction and rehabilitation, repair and maintenance, and related products.
For the three months ended June 30, 1998 and for the period from inception
(March 20, 1998) to June 30, 1998 RailWorks did not conduct any operations. Cash
advances were made by the Founding Companies to fund incidental start-up,
organizational and administrative expenses related to RailWorks' subsequent
initial public offering ("IPO"). On July 30, 1998, RailWorks completed the IPO
of 5,000,000 shares of its Common Stock.
LIQUIDITY AND CAPITAL RESOURCES - RAILWORKS CORPORATION
RailWorks expects capital expenditures of approximately $1.0 million
and $3.0 million in 1998 and 1999, respectively, including the 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 million senior revolving credit facility (the "Credit Facility") which
NationsBank, N.A. ("NationsBank") committed to extend on August 4, 1998. The
Revolver expires on August 4, 2001, however RailWorks may request NationsBank to
extend the agreement for two, one-year periods. The proceeds of the Credit
Facility are to be utilized for working capital, future acquisitions and letters
of credit. The aggregate amount of letter of credit obligations that can be
drawn against the Credit Facility shall not exceed $20 million.
Interest on loans, commitment fees, and letter of credit fees are based
upon consolidated leverage ratios in a pricing matrix. A facility fee of 2% is
also payable on the total Credit Facility.
As of August 28, 1998, RailWorks had borrowings outstanding of $35.3
million pursuant to the Credit Facility, which borrowings were used to repay a
portion of the indebtedness of the Founding Companies and fund expenses related
to the IPO. Availability of borrowings will be subject to a borrowing base
formula that initially will limit borrowings to approximately $45 million. The
Credit Facility is secured by a first lien on all of the capital stock of
RailWorks' Subsidiaries and on all accounts receivable of RailWorks and its
Subsidiaries. The credit agreement (the "Credit Agreement") governing the Credit
Facility contains a negative pledge on all other assets of RailWorks and
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its Subsidiaries and other usual and customary covenants and events of default
for transactions of the type contemplated by the Credit Facility. RailWorks may
also finance future acquisitions with shares of Common Stock.
RESULTS OF OPERATIONS - COMSTOCK HOLDINGS, INC.
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997
Revenue. Revenue increased $10.0 million, or 28.8%, from $34.7 million
for the three months ended June 30, 1997 to $44.7 million for the three months
ended June 30, 1998. This increase was partly a result of a $6.3 million
increase in revenue from New York Commercial Operation due primarily to the
completion of work on certain large projects. Included in these projects was
work performed at John F. Kennedy International Airport ("JFK") and Two Penn
Plaza. Progress in the completion of certain New York Transit projects,
including the Pelham Line project, attributed to the additional increase.
Gross Profit. Gross profit increased $379,000, or 8.5%, from $4.4
million for the three months ended June 30, 1997 to $4.8 million for the three
months ended June 30, 1998. This increase was a result of the increased revenue
mentioned above. The gross profit percentage decreased 2.0%, from 12.8% for the
three months ended June 30, 1997 to 10.8% for the three months ended June 30,
1998. This decrease was the result of incremental costs associated with the JFK
projects.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $313,000, or 9.3%, from $3.3 million for the
three months ended June 30, 1997 to $3.7 million for the three months ended June
30, 1998. This increase was primarily attributable to increased bonus-related
compensation expense in the second quarter of 1998. As a percentage of revenue,
selling, general and administrative expenses decreased from 9.6% for the three
months ended June 30, 1997 to 8.2% for the three months ended June 30, 1998.
This decrease was a result of leveraging general and administrative expenses
over higher revenue.
Net Income. Net income remained stable at $418,000 for the three months
ended June 30, 1997 and $455,000 for the three months ended June 30, 1998.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Revenue. Revenue increased $19.2 million, or 28.6%, from $67.1 million
for the six months ended June 30, 1997 to $86.4 million for the six months ended
June 30, 1998. This increase was partly a result of a $16.7 million increase in
revenue from New York Commercial Operation due primarily to the
19
<PAGE> 20
completion of work on certain large projects. Included in these projects was
work performed at JFK and Two Penn Plaza. The continuation of certain power and
industrial work, including the A.K. Steel Project in Indiana and the Mingo
Junction Project in Ohio, attributed to the additional increase in revenue.
Gross Profit. Gross profit increased $398,000, or 4.5%, from $8.8
million for the six months ended June 30, 1997 to $9.2 million for the six
months ended June 30, 1998. This increase was a result of the increased revenue
mentioned above. The gross profit percentage decreased 2.5%, from 13.2% for the
six months ended June 30, 1997 to 10.7% for the six months ended June 30, 1998.
This decrease was the result of costs associated with New York Commercial
Operation including the JFK projects and Emergency Medical Services' Building
project.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $358,000, or 4.9%, from $7.2 million for the
six months ended June 30, 1997 to $6.9 million for the six months ended June 30,
1998. As a percentage of revenues, selling, general and administrative expenses
decreased from 10.8% for the six months ended June 30, 1997 to 8.0% for the six
months ended June 30, 1998. These declines were a result of reductions in
executive and administrative staff and tighter cost controls by management.
Net Income. Net income increased $263,000, or 30.7% from $858,000 for
the six months ended June 30, 1997 to $1.1 million for the six months ended June
30, 1998 as a result of the items mentioned above.
LIQUIDITY AND CAPITAL RESOURCES OF COMSTOCK HOLDINGS, INC.
At June 30, 1998, Holdings had working capital of $30.0 million and
cash and cash equivalents of $119,000 as compared to $26.5 million and $1.1
million, respectively, at December 31, 1997. For the six months ended June 30,
1998, the cash flow deficit from operations of $1.9 million was primarily due to
the acceleration of certain projects in New York Commercial Operation.
At June 30, 1998, Holdings' wholly-owned subsidiary, L.K. Comstock &
Company, Inc. ("L.K. Comstock"), had a $17.0 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 the
London Interbank Offered Rate ("LIBOR"). These borrowings were secured by
substantially all of the assets of L.K. Comstock and were subject to various
financial covenants. Holdings, and to a limited extent, certain members of
Holdings' management, had guaranteed a portion of the borrowings. The total
amount of borrowings outstanding under these credit lines was $15.0 million
20
<PAGE> 21
at June 30, 1998. There were no outstanding letters of credit at June 30, 1998.
Upon the closing of the IPO, RailWorks assumed the obligations under the credit
line and repaid all outstanding borrowings.
At June 30, 1998 L.K. Comstock had a $500,000 note payable to BW
Capital. RailWorks assumed this obligation in conjunction with the IPO and
repaid the amount outstanding.
The contracts under which Holdings performs services generally require
retainage ranging from 2% to 10% of the total contract price until the project
is complete. At June 30, 1998, $15.9 million of Holdings' accounts receivable
consisted of retainage. In some instances, the terms of the contract allow
Holdings to replace the amount withheld with certain marketable securities, such
as treasury bonds, and retain the yield on such investments. At June 30, 1998,
$5.8 million of Holdings retainage was invested in marketable securities.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
21
<PAGE> 22
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
(i) Use of Proceeds
In connection with the initial public offering of the Company's Common
Stock (the "Offering"), the Company's Registration Statement (the "Registration
Statement") on Form S-1 (Registration No. 333-53483) was declared effective by
the Securities and Exchange Commission on July 29, 1998. The managing
underwriters were BT Alex. Brown Incorporated, Schroder & Co. Inc. and Piper
Jaffray Inc. The Offering commenced on July 29, 1998, all securities offered
thereby were sold and the Offering has terminated. The securities registered
consisted of 5,000,000 shares (the "Offered Shares") of Common Stock, all of
which were sold for the account of the Company.
The Offered Shares were sold at a price to the public of $12.00 per
share, for aggregate gross proceeds of $60.0 million. Underwriting discounts
and commissions totaled $4.2 million and other miscellaneous expenses incurred
in connection with the Offering amounted to approximately $2.2 million,
resulting in net offering proceeds of approximately $53.6 million. A portion of
the miscellaneous expenses incurred in connection with the Offering were
financed with borrowings under the Company's credit facility. The proceeds of
the Offering were not received by the Company until August 4, 1998, the closing
date of the Offering, which date is subsequent to the ending date of the period
covered by this Report.
(ii) Recent Sales of Unregistered Securities
On August 4, 1998, (i) 8,557,280 shares of Common Stock were issued to
the owners of the Founding Companies for 100% of the outstanding stock of the
Founding Companies, (ii) 1,205,872 shares of Common Stock were issued to the
executive officers of the Company and (iii) 310,368 shares of Common Stock were
issued to IPO Development Company for services rendered in conjunction with the
completion of the Offering. The foregoing issuances were made in reliance on
the exemption from registration under Section 4(2) of the Securities Act of
1933.
22
<PAGE> 23
* Item 3. Default Upon Senior Securities
None
* Item 4. Submission of Matters to a Vote of Security Holders
On June 25, 1998, by written consent RailWorks' 1998 Stock
Incentive Plan was approved by the sole stockholder.
On May 21, 1998, by written consent, RailWorks' Amended and
Restated Certificate of Incorporation was approved by the sole stockholder.
* Item 5. Other Information
None
* Item 6. Exhibits and Reports on Form 8-K
a) Exhibit List:
10.1 Amended and Restated Employment Agreement between RailWorks
Corporation and John G. Larkin dated as of August 4, 1998
10.2 Amended and Restated Employment Agreement between RailWorks
Corporation and Michael R. Azarela dated as of August 4,
1998
10.3 Amended and Restated Employment Agreement between RailWorks
Corporation and John Kennedy dated as of August 4, 1998
10.4 Amended and Restated Employment Agreement between RailWorks
Corporation and Harold C. Kropp, Jr. dated as of August 4,
1998
27.1 RailWorks Financial Data Schedule (for SEC filing purposes
only)
b) Reports
Not Applicable
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RailWorks Corporation
/s/ MICHAEL R. AZARELA
--------------------------------------------
By: Michael R. Azarela
Executive Vice-President and
Chief Financial Officer
Date: September 11, 1998
24
<PAGE> 1
EXHIBIT 10.1
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of
this 4th day of August, 1998, by and between John G. Larkin, an individual
resident of the State of Maryland ("Employee"), and Railworks Corporation, a
Delaware corporation (as defined below the "Holding Company").
W I T N E S S E T H
WHEREAS, the Holding Company has been created for the purpose
of carrying on the businesses of the entities listed on Exhibit A, which is
attached hereto and hereby incorporated by reference herein (the "Founding
Companies") and the Holding Company has completed a public offering (the "IPO")
of its common stock under applicable law;
WHEREAS, the Founding Companies desire that the Holding
Company employ the Employee to be the Chief Executive 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. 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 and shall also serve on any
executive committee which oversees the daily operations of the Holding Company,
or any similar committee having such function.
Subject to the terms and conditions of this Agreement,
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
<PAGE> 2
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, as of the date of this Agreement, 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 May 21, 1998 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 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 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
3
<PAGE> 4
(iv) 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. Employee will be paid a salary (the "Base
Salary") of no less than Two Hundred Seventy-Five
Thousand Dollars ($275,000) per annum, less
deductions and withholdings required by applicable
law. For the period from March 1, 1998 until August
4, 1998, the Base Salary shall be accrued and shall
be paid in full to the Employee as promptly as
practicable. The Base Salary after the date of this
Agreement 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, .5% of
the pre-tax net income, before any
performance or other periodic bonuses for
any
4
<PAGE> 5
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
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
5
<PAGE> 6
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. 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.
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
6
<PAGE> 7
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 (iii) 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 (iv) 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 IPO, 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.
7
<PAGE> 8
(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 Termination Date and upon the termination of this
Agreement pursuant to Section 2(iii) or (iv) 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
8
<PAGE> 9
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 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.
9
<PAGE> 10
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.
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
10
<PAGE> 11
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.
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
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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 Section 2(iii) 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 legal 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 and/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> 13
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 Employer's business or containing Trade
Secrets or Confidential
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<PAGE> 14
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. Sections 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.
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
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<PAGE> 15
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 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,
supplier or any shareholder of any of the
Founding Companies or other personnel of
Employer or any of its affiliates or
subsidiaries
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<PAGE> 16
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 Section
2(iii) 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 telescopy transmission or sent by any
express mail service, postage or fees prepaid at the following addresses:
HOLDING COMPANY
RailWorks Corporation
c/o L.K. Comstock & Company, Inc.
One North Lexington Avenue
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<PAGE> 17
White Plains, New York 10601
Attention: RailWorks Chief Executive Officer
Telecopy No.: (914) 285-9879
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 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.
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<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
HOLDING COMPANY
RAILWORKS CORPORATION
By: /s/ Michael R. Azarela (SEAL)
---------------------------------
Name: Michael R. Azarela
Title: Chief Financial Officer
EMPLOYEE
/s/ John G. Larkin (SEAL)
--------------------------------------
John G. Larkin
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<PAGE> 19
EXHIBIT A
Annex Railroad Builders, Inc.
Mize Construction Company
Railroad Specialties, Inc.
U.S. Railway Supply, 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.
19
<PAGE> 1
EXHIBIT 10.2
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of
this 4th day of August, 1998, by and between Michael R. Azarela, an individual
resident of the State of New York ("Employee"), and RailWorks Corporation, a
Delaware corporation (as defined below, the "Holding Company").
W I T N E S S E T H
WHEREAS, the Holding Company has been created for the purpose
of carrying on the businesses of the entities listed on Exhibit A, which is
attached hereto and hereby incorporated by reference herein (the "Founding
Companies"), and the Holding Company has completed a public offering (the "IPO")
of its common stock under applicable law.
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:
SECTION 1. EMPLOYMENT.
Subject to the terms hereof, Employer will employ Employee and
Employee hereby accepts such employment. 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.
<PAGE> 2
Subject to the terms and conditions of this Agreement, from
the date hereof, 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 May 21, 1998 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;
(iii) 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).
2
<PAGE> 3
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 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
(iv) 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.
3
<PAGE> 4
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. From the date of this Agreement, Employee
will be paid a salary (the "Base Salary") of no less
than Two Hundred Thousand Dollars ($200,000) 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
4
<PAGE> 5
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
5
<PAGE> 6
time but shall constitute part of the Employee's
duties under this Agreement.
(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 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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<PAGE> 7
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.
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 (iii) 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
7
<PAGE> 8
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 (iv) 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 IPO, 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
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<PAGE> 9
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 pursuant to Sections 2 (iii) or (iv),
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
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<PAGE> 10
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.
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
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<PAGE> 11
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
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.
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<PAGE> 12
(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 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
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<PAGE> 13
Nonsolicitation Period shall end on the
Termination Date in the event this Agreement
is terminated pursuant to the provisions of
Section 2(iii), hereof and, provided
further, that the Noncompete Period or
Nonsolicitation 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 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
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<PAGE> 14
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 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
14
<PAGE> 15
U.S.C.A. Sections 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.
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:
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<PAGE> 16
(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,
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.
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<PAGE> 17
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 Section
2(iii) 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:
HOLDING COMPANY
RailWorks Corporation
c/o L.K. Comstock & Company, Inc.
One North Lexington Avenue
White Plains, New York 10601
Attention: RailWorks Chief Executive Officer
Telecopy No.: (914) 285-9879
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<PAGE> 18
EMPLOYEE
Mr. Michael R. Azarela
17 Livery Land
North Salem, New York 10560
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.
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.
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<PAGE> 19
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.
19
<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
RAILWORKS CORPORATION
By: /s/ John G. Larkin (SEAL)
---------------------------------
John G. Larkin
Chief Executive Officer
EMPLOYEE
/s/ Michael R. Azarela (SEAL)
--------------------------------------
Michael R. Azarela
20
<PAGE> 21
EXHIBIT A
Annex Railroad Builders, Inc.
Mize Construction Company
Railroad Specialties, Inc.
U.S. Railway Supply, 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.
21
<PAGE> 1
EXHIBIT 10.3
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of
this 4th day of August, 1998, by and between John Kennedy, an individual
resident of the State of Pennsylvania ("Employee"), and RailWorks Corporation, a
Delaware corporation (as defined below the "Holding Company").
W I T N E S S E T H
WHEREAS, the Holding Company has been created for the purpose
of carrying on the businesses of the entities listed on Exhibit A, which is
attached hereto and hereby incorporated by reference herein (the "Founding
Companies"), and the Holding Company has completed a public offering of its
common stock under applicable law;
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. The Employee shall serve as the Vice
President and Chief Operating Officer of the Holding Company.
Subject to the terms and conditions of this Agreement,
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
<PAGE> 2
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 May 21, 1998 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;
(iii) 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")),
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<PAGE> 3
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; or
(iv) 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.
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<PAGE> 4
(a) Salary. From the date of this Agreement, Employee will be paid
a salary (the "Base Salary") of no less than One Hundred
Thousand Dollars ($100,000) 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, .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
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(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 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. 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.
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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 (iii) 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 (iv) 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
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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 IPO, 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
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<PAGE> 8
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 pursuant
to Section 2 (iii) or (iv) 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
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<PAGE> 9
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.
4.3 Securities Act. THE SHARES OF COMMON STOCK (THE
"SHARES") GRANTED PURSUANT TO THIS AGREEMENT HAVE NOT BEEN
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<PAGE> 10
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
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.
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(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 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 Section 2(iii) hereof and,
provided further, that the Noncompete Period
or Nonsolicitation Period may be shortened
at the discretion of the Board of Directors
of Employer.
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(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.
(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;
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(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 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
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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.
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
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<PAGE> 15
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,
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.
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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 Section
2(iii) 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:
HOLDING COMPANY
RailWorks Corporation
c/o L.K. Comstock & Company, Inc.
One North Lexington Avenue
White Plains, New York 10601
Attention: RailWorks Chief Executive Officer
Telecopy No.: (914) 285-9879
EMPLOYEE
Mr. John Kennedy
561 Brentwater Road
Camp Hill, PA 17011
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.
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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.
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.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
HOLDING COMPANY
RAILWORKS CORPORATION
By: /s/ John G. Larkin (SEAL)
-----------------------------
John G. Larkin
Chief Executive Officer
EMPLOYEE
/s/ John Kennedy (SEAL)
----------------------------------
John Kennedy
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EXHIBIT A
Annex Railroad Builders, Inc.
Mize Construction Company
Railroad Specialties, Inc.
U.S. Railway Supply, 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 Services, Inc.
CPI Concrete Products, Inc.
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EXHIBIT 10.4
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of
this 4th day of August, 1998, by and between Harold C. Kropp, Jr., an individual
resident of the State of Pennsylvania ("Employee"), and RailWorks Corporation, a
Delaware corporation (as defined below the "Holding Company").
W I T N E S S E T H
WHEREAS, the Holding Company has been created for the purpose
of carrying on the business of the entities listed on Exhibit A, which is
attached hereto and hereby incorporated by reference herein (the "Founding
Companies") and the Holding Company has completed a public offering (the "IPO")
of its common stock under applicable law;
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 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. The Employee shall serve as the Vice
President and Chief Accounting Officer of the Holding Company.
Subject to the terms and conditions of this Agreement, from
the date hereof, 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
<PAGE> 2
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 May 21, 1998 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;
(iii) 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")),
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<PAGE> 3
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; or
(iv) 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.
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<PAGE> 4
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. From the date of this Agreement, Employee
will be paid a salary (the "Base Salary") of no less
than One Hundred Thirty Five Thousand Dollars
($135,000) 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, .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.
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<PAGE> 5
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 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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<PAGE> 6
time but shall constitute part of the Employee's
duties under this Agreement.
(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 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 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,
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<PAGE> 7
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.
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 (iii) 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
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<PAGE> 8
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 (iv) 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 IPO, 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.
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<PAGE> 9
(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 pursuant to Section 2(iii) or (iv) 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
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<PAGE> 10
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 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.
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<PAGE> 11
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
business generated gross sales of at least
10% or more of the total gross sales of the
Consolidated
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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.
(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 Section 2 (iii) hereof and,
provided further, that the Noncompete Period
or Nonsolicitation Period may be shortened
at the discretion of the Board of Directors
of Employer.
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<PAGE> 13
(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.
(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 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;
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<PAGE> 14
(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 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.
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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.
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
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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,
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.
16
<PAGE> 17
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 Section
2(iii) 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:
HOLDING COMPANY
RailWorks Corporation
c/o L.K. Comstock & Company, Inc.
One North Lexington Avenue
White Plains, New York 10601
Attention: RailWorks Chief Executive Officer
Telecopy No.: (914) 285-9879
EMPLOYEE
Mr. Harold C. Kropp, Jr.
1757 McConnell Drive
Williamsport, PA 17701
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
17
<PAGE> 18
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.
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.
18
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
HOLDING COMPANY
RAILWORKS CORPORATION
By: /s/ John G. Larkin (SEAL)
-----------------------------
John G. Larkin
Chief Executive Officer
EMPLOYEE
/s/ Harold C. Kropp, Jr. (SEAL)
----------------------------------
Harold C. Kropp, Jr.
19
<PAGE> 20
EXHIBIT A
Annex Railroad Builders, Inc.
Mize Construction Company
Railroad Specialties, Inc.
U.S. Railway Supply, 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.
20
<PAGE> 21
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF RAILWORKS CORPORATION FOR THE PERIOD ENDED JUNE 30, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 55,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 55,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 55,000
<CURRENT-LIABILITIES> 55,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 55,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
