UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period ended
September 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 34-022552
RAILTEX, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
- -------------------------------------------------------------------------------
TEXAS 74-1948121
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
- -------------------------------------------------------------------------------
4040 Broadway, Suite 200
SAN ANTONIO, TEXAS
(Address of principal executive 78209
offices) (Zip Code)
- -------------------------------------------------------------------------------
Registrant's telephone number,
including area code: (210) 841-7600
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
X YES NO
- -------------------------------------------------------------------------------
Indicate the number of shares outstanding of the Registrant's Common Stock as
of October 31, 1998: 9,208,963
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RAILTEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
---------------------- ----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING REVENUES ................. $ 40,027 $ 37,970 $ 117,574 $ 109,510
OPERATING EXPENSES:
Transportation .............. 13,560 13,486 42,036 39,679
General and administrative .. 7,431 6,875 18,633 18,719
Equipment ................... 4,836 4,304 14,040 13,476
Maintenance of way .......... 3,465 3,692 12,202 10,658
Depreciation and amortization 3,947 3,265 11,133 9,353
--------- --------- --------- ---------
Total operating expenses 33,239 31,622 98,044 91,885
--------- --------- --------- ---------
OPERATING INCOME ................... 6,788 6,348 19,530 17,625
INTEREST EXPENSE ................... (2,959) (2,770) (8,316) (7,742)
OTHER INCOME, NET .................. 1,033 1,278 1,580 1,577
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES ......... 4,862 4,856 12,794 11,460
INCOME TAXES ....................... (1,933) (2,026) (4,917) (4,637)
--------- --------- --------- ---------
NET INCOME ......................... $ 2,929 $ 2,830 $ 7,877 $ 6,823
========= ========= ========= =========
BASIC EARNINGS PER SHARE ........... $ 0.32 $ 0.31 $ 0.86 $ 0.75
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF
BASIC SHARES OF COMMON STOCK
OUTSTANDING ........................ 9,204 9,161 9,188 9,150
DILUTED EARNINGS PER SHARE ......... $ 0.32 $ 0.31 $ 0.85 $ 0.74
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF
DILUTED SHARES OF COMMON STOCK
OUTSTANDING ........................ 9,246 9,228 9,239 9,224
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
RAILTEX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1998 1997
------------- -------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ................................................ $ 1,932 $ 570
Accounts receivable, less doubtful receivables of $1,262; $1,563 in 1997 . 29,044 32,171
Prepaid expenses and other current assets ................................ 4,310 2,527
Deferred tax assets, net ................................................. 1,777 1,777
------------- -------------
Total current assets .................................................. 37,063 37,045
------------- -------------
PROPERTY AND EQUIPMENT, less accumulated depreciation of
$50,981; $41,122 in 1997 ................................................. 287,713 259,444
------------- -------------
OTHER ASSETS:
Investments in Brazilian railroad companies .............................. 17,809 17,809
Other .................................................................... 9,565 5,610
------------- -------------
Total other assets .................................................... 27,374 23,419
------------- -------------
Total assets .......................................................... $ 352,150 $ 319,908
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term notes payable, net ............................................ $ 323 $ 384
Current portion of long-term debt ........................................ 14,347 7,763
Accounts payable ......................................................... 12,061 18,829
Accrued liabilities ...................................................... 15,093 17,434
------------- -------------
Total current liabilities ............................................. 41,824 44,410
DEFERRED INCOME TAXES, NET .................................................. 29,419 20,521
LONG-TERM DEBT .............................................................. 135,925 117,893
OTHER LIABILITIES ........................................................... 3,931 3,826
------------- -------------
Total liabilities ..................................................... 211,099 186,650
------------- -------------
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY:
Preferred stock; $1.00 par value; 10 million shares authorized;
no shares issued or outstanding ....................................... -- --
Common stock; $.10 par value; 30 million shares authorized; issued and
outstanding 9,208,963; 9,160,924 in 1997 .............................. 921 916
Paid-in capital .......................................................... 84,333 83,799
Retained earnings ........................................................ 56,781 48,901
Deferred compensation .................................................... (194) --
Cumulative translation adjustment ........................................ (790) (358)
------------- -------------
Total shareholders' equity ............................................ 141,051 133,258
------------- -------------
Total liabilities and shareholders' equity ............................ $ 352,150 $ 319,908
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
RAILTEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
----------------------
1998 1997
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income.............................................................................. 7,877 $ 6,823
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization........................................................ 11,133 9,353
Deferred income taxes................................................................ 4,699 1,654
Amortization of deferred financing costs............................................. 291 280
Provision for losses on accounts receivable.......................................... 13 229
Gain on sale of assets............................................................... (1,389) (1,508)
Other................................................................................ 32 --
Changes in working capital:
Accounts receivable................................................................ 4,044 (2,634)
Prepaid expenses................................................................... (1,664) (770)
Accounts payable and accrued liabilities........................................... (10,372) 4,135
---------- ---------
Net cash provided by operating activities............................................ 14,664 17,562
---------- ---------
INVESTING ACTIVITIES:
Purchase of Central Properties, net of cash acquired.................................... (13,096) --
Purchase of Detroit, Toledo and Ironton, including related costs........................ -- (25,841)
Purchase of investment in Brazilian railroad company.................................... -- (1,362)
Sale of preferred shares of Brazilian railroad companies................................ -- 2,758
Purchase of property and equipment...................................................... (24,701) (22,464)
Proceeds from sale of property and equipment............................................ 1,523 1,685
Increase in other long-term assets...................................................... (646) (453)
---------- ---------
Net cash used in investing activities................................................ (36,920) (45,677)
---------- ---------
FINANCING ACTIVITIES:
Increase (decrease) in short-term notes, net............................................ (247) 169
Proceeds from senior notes.............................................................. -- 50,000
Proceeds from long-term debt............................................................ 21,900 23,500
Principal payments on long-term debt.................................................... (2,566) (52,688)
Net increase in working capital facility................................................ 4,298 6,250
Issuance of common stock................................................................ 247 73
Deferred financing costs................................................................ (3) (309)
---------- ---------
Net cash provided by financing activities............................................ 23,629 26,995
---------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH.................................................... (11) 43
---------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS.................................................... 1,362 (1,077)
CASH AND CASH EQUIVALENTS, beginning of period............................................. 570 2,108
---------- ---------
CASH AND CASH EQUIVALENTS; end of period................................................... $ 1,932 $ 1,031
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
1. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION:
The interim consolidated financial statements presented herein include the
accounts of RailTex, Inc. and its wholly-owned subsidiaries. References to
"RailTex" or the "Company" mean RailTex, Inc. and, unless the context indicates
otherwise, its consolidated subsidiaries. All significant intercompany
transactions and accounts have been eliminated in consolidation. These interim
consolidated financial statements have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC"). All adjustments have been made to the accompanying interim
consolidated financial statements which are, in the opinion of the Company's
management, necessary for a fair presentation of the Company's operating
results. All adjustments are of a normal recurring nature. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. It is recommended that these
interim consolidated financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997. The
results of operations for any interim period are not necessarily indicative of
the results of operations for the entire year. Certain reclassifications have
been made in the prior period financial statements to conform with the current
period presentation.
2. RECENTLY ISSUED PRONOUNCEMENTS:
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("FAS 130"). FAS 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. This statement is effective for fiscal years beginning
after December 15, 1997. Because the Company's component of comprehensive
income, foreign currency translation adjustment, is immaterial to the financial
condition or results of operations for the three months and nine months ended
September 30, 1998 and 1997, the amounts are not reported or displayed in the
financial statements.
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, "Employers' Disclosures about Pensions and Other
Post-Retirement Benefits". The Company does not provide post-retirement or
post-employment benefits to its employees.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS
133"). FAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This statement is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
Initial application of this statement should be as of the beginning of an
entity's fiscal quarter. Earlier application of this statement is encouraged,
but it is permitted only as of the beginning of any fiscal quarter that begins
after the issuance of this statement. The Company believes the adoption of this
statement will not have a material impact on the financial condition or results
of operations of the Company.
In April 1998, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position 98-5 "Reporting on the Costs of Start-up
Activities" ("SOP 98-5"). SOP 98-5 requires the costs of start-up activities and
organization costs, as defined, to be expensed as incurred. The SOP is effective
for fiscal years beginning after December 15, 1998. Earlier application is
encouraged, initial application will be reported as a cumulative effect of a
change in accounting principle and restatement of previously issued financial
statements is not permitted. The Company currently capitalizes the costs of
start-up activities and organization costs associated with the acquisition of
new railroad properties and amortizes these costs over five years. As of January
1, 1998, the Company would have reported a cumulative effect of a change in
accounting principle in the amount of $1.5 million, net of associated income
taxes. Prospectively, the Company's results of operations will reflect higher
costs associated with the acquisition of new railroad properties.
5
<PAGE>
RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of
the basic and diluted per-share computation for net income (in thousands, except
per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Numerator:
Net income-numerator for basic and diluted earnings per share........ $2,929 $2,830 $7,877 $6,823
====== ====== ====== ======
Denominator:
Denominator for basic earnings per share-weighted average shares ...... 9,204 9,161 9,188 9,150
Effect of dilutive securities:
Employee and Director stock options ................................. 42 67 51 74
------ ------ ------ ------
Denominator for diluted earnings per share-adjusted
weighted average shares ............................................. 9,246 9,228 9,239 9,224
====== ====== ====== ======
Basic earnings per share ................................................ $ 0.32 $ 0.31 $ 0.86 $ 0.75
====== ====== ====== ======
Diluted earnings per share .............................................. $ 0.32 $ 0.31 $ 0.85 $ 0.74
====== ====== ====== ======
</TABLE>
4. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
Cash paid during the period for:
Interest.................................................... $ 6,514 $ 7,973
Income taxes................................................ 2,192 2,128
Non-cash investing and financing activities:
Capital leases.............................................. 1,475 345
Grants...................................................... 184 18
Tax benefit from exercise of non-qualified stock options.... 76 100
Restricted stock awards..................................... 22 --
</TABLE>
The Company acquired 100% of the outstanding capital stock of Central
Properties, Inc. for $14.0 million. In conjunction with the acquisition,
liabilities were assumed as follows:
Fair value of assets acquired....................... $15,809
Cash paid for capital stock......................... 14,003
------
Liabilities assumed......................... 1,806
=======
5. DERIVATIVE ACCOUNTING PRINCIPLES
The Company historically has hedged certain anticipated transactions.
Interest rate swaps and diesel fuel price collar contracts with third parties
are used to hedge interest rates and diesel fuel costs. Hedges of anticipated
transactions are accounted for under the deferral method with gains and losses
on these transactions recognized in interest expense and operating expenses when
the hedged transaction occurs. The Company does not currently hold or issue
financial instruments for trading purposes.
The Company has entered into two commodity collar transactions to hedge
market risks of diesel fuel prices. The first collar is effective April 1, 1998
and terminates March 31, 1999 and represents notional amounts totaling 250,000
gallons per month with a cap price of $0.5600 per gallon and a floor price of
$0.4375 per gallon.
6
<PAGE>
RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The second collar is effective July 1, 1998 and terminates June 30, 1999
and represents notional amounts totaling 225,000 gallons per month with a cap
price of $0.5600 per gallon and a floor price of $0.4490 per gallon. At
September 30, 1998, the Company had not entered into any interest rate swaps
contracts.
6. RESTRICTED STOCK AWARDS
In July 1998, the Company, under the 1993 Stock Plan, as amended ("Plan"),
granted 15,000 restricted shares in the form of the Company's Common Stock to a
key executive. The restricted shares vest ratably over three years or in the
event of a change in control or termination, not for cause. The unvested portion
of the restricted shares forfeit if the key executive is terminated for cause
during the restriction period. The awards were recorded at the fair market value
of the Company's common stock on the date of grant as deferred compensation and
will be amortized over the restriction period. For the three and nine months
ended September 30, 1998, the Company recorded compensation expense of $21,962.
7. COMMITMENTS AND CONTINGENCIES
The Oregon Department of Environmental Quality ("DEQ") has filed an
administrative action against one of the Company's railroads for alleged
violations of the Clean Water Act by the disposal of landslide debris into a
waterway. The administrative action requires the railroad to cease and desist
all further disposal of slide material and to develop a plan for the appropriate
disposal of future material and subjects the Company to a potential civil
penalty of up to $10,000 per day of violation. Upon receipt of the
administrative action the Company filed an answer denying the charges and
asserted various affirmative defenses to the violation and requested an informal
conference to see if the matter could be resolved. The representatives from the
DEQ and the Company met in November 1997 to discuss an informal resolution of
the administrative proceedings and the DEQ agreed to dismiss the administrative
enforcement actions if the Company would develop, with the assistance of an
appropriate environmental consultant, a landslide excavation and debris disposal
plan. A plan was prepared, with the assistance of an environmental consultant,
which was submitted to the DEQ. In October 1998, the Company signed a mutual
agreement and order ("MAO") on the landslide excavation and debris disposal plan
to settle the administrative action.
In connection with the alleged Clean Water Act violation discussed above,
the Environmental Protection Agency ("EPA") has commenced a criminal
investigation. In connection with the investigation, a subpoena was issued on
October 29, 1997, requesting various documents from the Company. Additionally,
in March and June of 1998, several employees were subpoenaed to testify in front
of a grand jury related to this criminal investigation. The Company and the
employees complied with these subpoenas and there has been no additional action
by the EPA. The Company intends to vigorously defend its position but is unable
to predict the outcome of this investigation.
In December 1996, a corporation filed a construction lien against one of
the Company's railroads in the amount of approximately $600,000. The alleged
basis for the construction lien is the provision by the plaintiff of labor and
materials to the Company's railroad in connection with a train derailment in
August 1996, which derailment the Company believes was caused primarily by the
plaintiff. In March 1997, the Company filed a complaint in Federal Court for
approximately $700,000 incurred by the Company in connection with such
derailment and the plaintiffs state claim was combined in the federal
litigation. The Company is vigorously pursuing its claim and defending the
plaintiff's claim. Trial has been set for December 1998. The Company is unable
to predict the outcome of the trial; however, the Company believes it is
adequately reserved to cover any losses it may incur in connection with this
matter. In addition, any loss in excess of the Company's self-insured retention
of $500,000 will be covered by its insurance.
7
<PAGE>
RAILTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
In October 1998, the Utah Transit Authority ("UTA") asserted a claim for
contribution against one of the Company's railroads under the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") relating to
certain pollution existing at one of their rail yards over which the Company has
an operating easement. The Company believes it is not a potentially responsible
party under CERCLA and believes it is contractually indemnified against such
claim. The amount of contribution being sought by the UTA is unknown at this
time.
The Company is also involved in other litigation and various legal matters
which are being defended and handled in the ordinary course of business. In
management's judgment, based on the opinion of the Company's legal counsel
handling such matters, the ultimate liability, if any, from such legal
proceedings will not have a material effect on the Company's financial position
and results of operations.
8. SUBSEQUENT EVENT
Effective November 10, 1998, the Board of Directors of the Company granted
employee stock options to its current employee optionholders other than its
Chairman of the Board at an exercise price of $11.9375 per share, the then
current market value of the Company's stock. These options vest over five years
in accordance with the Company's 1993 stock plan, as amended. In order to obtain
the newly granted stock options the employees are required to tender all
previously granted employee options for cancellation. As to any employee, the
amount of shares included under the new options are reduced from the number of
shares covered by the cancelled options by the same percentage as the new option
exercise price is less than the cancelled option exercise price. If all active
employees tender their options, the number of options outstanding would be
reduced to approximately 456, 000 from 644,000 for that group of employees.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE
IN THIS QUARTERLY REPORT ON FORM 10-Q.
This Form 10-Q, including, without limitation, the year 2000 compliance
disclosure, contains certain "forward-looking" statements as such term is
defined in The Private Securities Litigation Reform Act of 1995 and information
relating to the Company and its subsidiaries that are based on the beliefs of
the Company's management. When used in this report, the words "anticipate,"
"believe," "estimate," "expect" and "intend" and words or phrases of similar
import, as they relate to the Company or its subsidiaries or Company management,
are intended to identify forward-looking statements. Such statements reflect the
current risks, uncertainties and assumptions related to certain factors
including, without limitation, competitive factors, general economic conditions,
customer relations, relationships with vendors, the interest rate environment,
governmental regulation and supervision, seasonality, technological change,
changes in industry practices, one-time events and other factors described
herein and in other filings made by the Company with the Securities and Exchange
Commission. Based upon changing conditions, should any one or more of these
risks or uncertainties materialize, or should any underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated, expected, or intended. The Company does not
intend to update these forward-looking statements.
GENERAL
The Company's growth to date has resulted primarily from implementation of
its expansion strategy. The number of miles operated by RailTex has grown to
more than 4,100 at September 30, 1998.
The Company has added railroad properties to its portfolio primarily
through purchase of track and roadbed, lease of such assets, contracts to
operate such assets under management agreements and purchase of railroad company
common stock. These arrangements typically relate only to the physical assets of
the railroad property, and, except for the purchase of the Indiana & Ohio Rail
Corp and Central Properties, Inc. ("CPI"), the Company typically does not
contractually assume any of the operations or liabilities of the divesting
carriers. After acquiring the right to operate each of its railroad properties,
the Company must arrange for the purchase or lease of operating equipment and
hire the work force necessary to operate the railroad. Accordingly, for any
railroad property, the historical results of operations of the railroad property
as previously operated are not necessarily indicative of the results of
operations for the property following commencement of operations by the Company.
Because of variations in the structure, timing and size of portfolio
additions and differences in economics among the Company's portfolio railroads
resulting from the unique terms, rates and other provisions for each railroad's
operation established through negotiation between RailTex and each divesting
carrier, the Company's results of operations in any reporting period are not
directly comparable to (i) its results of operations in other reporting periods
or (ii) the results of operations of other railroad companies. Therefore, care
should be taken when using traditional measurements of railroad operating
performance, such as freight revenues per carload, operating ratio and labor
ratio, in assessing or comparing the Company's operating results.
RECENT DEVELOPMENTS:
Effective August 24, 1998, Ronald A. Rittenmeyer joined the Company as
President and Chief Executive Officer. Mr. Rittenmeyer comes to RailTex from
Ryder TRS, where he had served as President and Chief Operating Officer since
1997. As COO of Ryder TRS, Mr. Rittenmeyer ran an investor-owned consumer
truck-rental company with more than 4,200 dealers in North America. Prior to
Ryder TRS, Mr. Rittenmeyer was President and Chief Operating Officer of Merisel,
Inc. From 1994 to 1995, Mr. Rittenmeyer was employed by Burlington Northern,
Inc. until it merged into the Santa Fe Railroad, serving most recently as its
Chief Operating Officer. Mr. Rittenmeyer also spent nearly 20 years with Frito
Lay, a division of PepsiCo, Inc., in a number of positions rising to become Vice
President of Operations.
9
<PAGE>
On June 23, 1998, the Company acquired 100% of the outstanding stock of
CPI. The stock was originally held in a voting trust pending Surface
Transportation Board ("STB") approval, which was received effective July 26,
1998. CPI was a privately held company which owns 100% of the stock of two
railroads in Ohio and Indiana. The Central Railroad of Indianapolis ("CERA")
operates under a lease from Norfolk Southern over approximately 73 miles of rail
line in north central Indiana. The Central Railroad of Indiana ("CIND")
currently owns and operates over 81 miles of rail line between Cincinnati, Ohio
and Shelbyville, Indiana. The purchase price was $14.3 million including a $14.0
million cash payment and the assumption of approximately $266,000 of long-term
debt. The Company began actively operating the two railroads on August 1, 1998.
Approximately 30% of the Company's carloads interchange with the Union
Pacific Railroad ("UP"). As a result, the Company has been impacted by the
congestion the UP is experiencing primarily through car supply issues and
increased operating expenses due to overtime associated with running trains on
unscheduled days and delays caused by waiting for access to UP yards.
Additionally, revenues have been lost to other modes of transportation as
customers avoid the service problems caused by the UP congestion. To the extent
that the UP problems continue or worsen, the Company's results of operations
could be materially adversely impacted.
In November 1998, a wholly-owned subsidiary of the Company, RailTex
International Holdings, Inc. ("RIHI"), signed an agreement to sell a 49.5%
interest in its Brazilian railroad investments to Global Environment Fund
("GEF") for $11.0 million. RIHI will retain the remaining 50.5% interest;
however, under the agreement RIHI can be required to repurchase GEF's shares
after five years at a price equal to the lower of 95% of the appraised fair
market value or certain collar amounts provided for in the agreement. The
transaction is expected to close prior to year end but such closing is subject
to, among other things, certain approvals from the Brazilian government and the
satisfaction of the parties that the transaction does not violate any Brazilian
agreement or law pursuant to which Brazilian interests were initially issued.
Either party may terminate the agreement in the event the closing does not occur
by March 31, 1999. RailTex will record a $2.0 million gain, or $0.13 per share,
on the transaction if closed. Proceeds from the transaction will be used to
reduce the Company's senior credit facilities and for general corporate
purposes.
Effective November 10, 1998, the Board of Directors of the Company granted
employee stock options to its current employee optionholders other than its
Chairman of the Board. In order to obtain the newly granted stock options the
employees are required to tender all previously granted options for cancellation
(See Note 8).
In order to improve its overall profitability and financial returns, the
Company is continually analyzing its portfolio railroad properties with the
objective of identifying those properties which do not meet the Company's
overall financial objectives and which do not offer significant revenues or
operating expansion opportunities. As a result, the Company is divesting its
Northeast Kansas and Missouri Railroad for $3.2 million to UP. Proceeds from the
transaction will be used to reduce the Company's senior credit facilities and
for general corporate purposes. The completion of the transaction is dependent
upon STB approval and no material gain or loss is expected. The Company may
divest additional railroads in the future.
As a result of the acquisition of Consolidated Rail Corporation
("Conrail") by CSX Transportation, Inc. ("CSX") and Norfolk Southern Railway
Company ("NS"), Conrail's rail lines will be divided between CSX and NS which
may cause revenue to be diverted from the New England Central Railroad, Inc. and
the Indiana Southern Railroad, Inc., wholly-owned subsidiaries of RailTex, Inc.
In addition the INOH, a wholly-owned subsidiary of RailTex, Inc., believes the
division of rail lines between CSX and NS will cause operating inefficiencies
for INOH. The Company believes the affect on revenues and operating efficiencies
for these railroads will be immaterial.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1997
For the three months ended September 30, 1998, compared to the three
months ended September 30, 1997, New Railroad Properties include CPI.
The Company's net income for the three months ended September 30, 1998
increased by approximately $99,000, or 3.5%, to $2.9 million from $2.8 million
in the prior year period and basic and diluted earnings per share increased by
3.2% to $0.32 per share from $0.31 per share in the prior year period.
10
<PAGE>
OPERATING REVENUES. Operating revenues for the three months ended
September 30, 1998 increased by $2.1 million, or 5.4%, to $40.0 million from
$38.0 million in the prior year period. Operating revenues attributable to New
Railroad Properties accounted for 74.2% of this increase. Operating revenues for
Comparable Railroad Properties increased by approximately $657,000, or 1.7%.
Carloads transported increased by 13,363 carloads, or 10.8%, to 137,483 carloads
from 124,120 carloads in the prior year period. Carloads attributable to New
Railroad Properties accounted for 34.8% of this increase. Carloads attributable
to Comparable Railroad Properties increased by 8,707, or 7.0%, from the prior
year period.
Freight revenues for the three months ended September 30, 1998 increased
by $2.0 million, or 6.1%, to $34.5 million from $32.5 million in the prior year
period. The following table compares freight revenues, traffic volume (in
carloads) and average freight revenues per carload by commodity group for the
three months ended September 30, 1998 and 1997.
FREIGHT REVENUES AND CARLOADS COMPARISON BY COMMODITY GROUP
(DOLLARS IN THOUSANDS, EXCEPT PER CARLOAD AMOUNTS)
<TABLE>
<CAPTION>
AVERAGE FREIGHT
REVENUES PER
FREIGHT REVENUES CARLOADS CARLOAD(1)
------------------------------------- ----------------------------------- ----------------
1998 1997 1998 1997 1998 1997
------------------- ---------------- ----------------- ---------------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMMODITY GROUP % OF % OF % OF % OF
DOLLARS TOTAL DOLLARS TOTAL NUMBER TOTAL NUMBER TOTAL
------- ------- ------- ------- ------- ------- ------- ------- ------- ------
Lumber and forest products ......... $ 6,676 19.4% $ 6,352 19.5% 16,786 12.2% 16,811 13.5% $ 398 $ 378
Coal ............................... 4,379 12.7 5,367 16.5 24,231 17.6 28,226 22.7 181 190
Chemicals .......................... 4,333 12.6 3,817 11.7 12,881 9.4 11,731 9.5 336 325
Farm products ...................... 2,923 8.5 2,197 6.8 12,108 8.8 8,005 6.4 241 274
Scrap paper & paper products ....... 2,733 7.9 2,974 9.2 8,800 6.4 8,297 6.7 311 358
Scrap metal & metal products ....... 2,728 7.9 2,645 8.1 10,042 7.3 10,076 8.1 272 262
Railroad equipment ................. 2,374 6.9 908 2.8 19,382 14.1 6,051 4.9 122 150
Non-metallic ores .................. 1,757 5.1 1,629 5.0 10,130 7.4 9,052 7.3 173 180
Minerals & stone ................... 1,723 5.0 1,349 4.2 4,796 3.5 3,891 3.1 359 347
Food products ...................... 1,685 4.9 1,449 4.5 6,367 4.6 5,665 4.6 265 256
Autos and auto parts ............... 1,023 3.0 1,320 4.1 4,848 3.5 7,481 6.0 211 176
Petroleum products ................. 870 2.5 1,220 3.8 2,850 2.1 3,546 2.9 305 344
Other .............................. 1,265 3.6 1,270 3.8 4,262 3.1 5,288 4.3 297 240
------- ------- ------- ------- ------- ------- ------- -------
Total ......................... $34,470 100.0% $32,497 100.0% 137,483 100.0% 124,120 100.0% $ 251 $ 262
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
(1) Calculated as freight revenues divided by carloads.
Approximately $1.4 million, or 71.8%, of the increase in freight revenues
for the three months ended September 30, 1998, is attributable to New Railroad
Properties. These properties added 4,656 carloads consisting primarily of farm
products (2,566), chemicals (755), non-metallic ores (481) and minerals and
stone (341). Freight revenues for Comparable Railroad Properties increased by
approximately $557,000, or 1.7%, while carloadings for Comparable Railroad
Properties increased by 8,707, or 7.0%, primarily a result of increases in
railroad equipment (13,300) due to the transportation of empty coal freight cars
at one of the Company's railroads for UP offset by decreases in coal (4,057) due
to fewer spot moves in the current year and coal mine problems at one of the
Company's largest coal customers.
Average freight revenues per carload for the three months ended September
30, 1998 decreased by $11 from the prior year period, primarily due to the
transportation of empty coal freight cars for the UP at a lower average revenue
per carload.
11
<PAGE>
Non-freight revenues for the three months ended September 30, 1998
increased by approximately $84,000, or 1.5%, to $5.6 million from $5.5 million
in the prior year period. Non-freight revenues include joint facilities,
switching, demurrage, car hire and car repair services performed for third
parties, and lease income. These non-freight revenues contributed 13.9% and
14.4% of operating revenues in the three months ended September 30, 1998 and
1997, respectively. New Railroad Properties contributed substantially all of
this increase.
OPERATING EXPENSES. Operating expenses for the three months ended
September 30, 1998 increased by $1.6 million, or 5.1%, to $33.2 million from
$31.6 million in the prior year period. New Railroad Properties accounted for
59.9% of the increase. Operating expenses for Comparable Railroad Properties
increased by approximately $109,000, or 0.4%, and corporate operating expenses
increased by approximately $456,000, or 8.7%, primarily due to higher
depreciation and amortization, reflecting an expanded locomotive fleet. The
Company's operating ratio (operating expenses divided by operating revenues)
decreased for the three months ended September 30, 1998 to 83.0%, from 83.3% in
the prior year period. The Company's operating ratio for Comparable Railroad
Properties improved to 75.2%, compared to 76.3% in the prior year period.
The following table sets forth a comparison of the Company's operating
expenses during the three month periods ended September 30, 1998 and 1997, in
dollars and as a percentage of operating revenues:
OPERATING EXPENSES COMPARISON
(DOLLARS IN THOUSANDS)
1998 1997
-------------------- ------------------
% OF % OF
OPERATING OPERATING
DOLLARS REVENUES DOLLARS REVENUES
Labor and benefits.................. $12,786 31.9% $12,033 31.7%
Equipment rents .................... 4,217 10.5 3,815 10.0
Depreciation and amortization ...... 3,947 9.9 3,265 8.6
Diesel fuel ........................ 2,159 5.4 2,299 6.1
Purchased services ................. 2,596 6.5 2,258 5.9
Casualties and insurance ........... 1,562 3.9 1,808 4.8
Materials .......................... 1,601 4.0 1,495 3.9
Joint facilities ................... 1,227 3.1 1,330 3.5
Other .............................. 3,144 7.8 3,319 8.8
------- ------- ------- -------
Total............................ $33,239 83.0% $31,622 83.3%
======= ======= ======= =======
Labor and benefits for the three months ended September 30, 1998 increased
by approximately $753,000, or 6.3%, to $12.8 million from $12.0 million in the
prior year period. Labor and benefits attributable to New Railroad Properties
accounted for 42.5% of this increase. Labor and benefits for Comparable Railroad
Properties increased by approximately $415,000, or 4.1%, reflecting an increase
in total employment at the Company's Comparable Railroad Properties primarily
due to an increase in carloadings.
Equipment rents for the three months ended September 30, 1998 increased by
approximately $402,000, or 10.5%, to $4.2 million from $3.8 million in the prior
year period. Equipment rents attributable to New Railroad Properties accounted
for 24.9% of this increase. Equipment rents for Comparable Railroad Properties
increased by approximately $262,000, or 4.2%, primarily due to an increase in
car hire expense and locomotive lease.
Depreciation and amortization for the three months ended September 30,
1998 increased by approximately $682,000, or 20.9%, to $3.9 million from $3.3
million in the prior year period. Depreciation and amortization attributable to
New Railroad Properties accounted for 15.7% of this increase. The remainder of
this increase is primarily a result of capital asset additions for track
rehabilitation and increased vehicle and locomotive depreciation related to
fleet expansion.
12
<PAGE>
Diesel fuel expense for the three months ended September 30, 1998
decreased by approximately $140,000, or 6.1%, to $2.2 million from $2.3 million
in the prior year period. New Railroad Properties incurred approximately $34,000
in diesel fuel expense offset by a decrease of approximately $174,000, or 7.6%,
for Comparable Railroad Properties primarily due to a $0.14 per gallon, or
19.4%, decrease in average fuel prices as compared to the prior year period.
Purchased services for the three months ended September 30, 1998 increased
by approximately $338,000, or 15.0%, to $2.6 million from $2.3 million in the
prior year period. Purchased services attributable to New Railroad Properties
accounted for 15.1% of the increase. Purchased services for Comparable Railroad
Properties increased by approximately $177,000, or 9.1%, primarily a result of
increased contract labor for repair and maintenance. Corporate purchased
services increased by approximately $26,000, or 4.6%, due to an increase in
certain technology fees.
Casualties and insurance expense for the three months ended September 30,
1998 decreased by approximately $246,000, or 13.6%, to $1.6 million from $1.8
million in the prior year period. New Railroad Properties incurred approximately
$35,000 in casualties and insurance expense. Casualties and insurance expense
for Comparable Railroad Properties decreased by approximately $270,000, or
21.1%, due primarily to the receipt of flood relief funding at one of the
Company's railroads for expenses previously thought to be unreimbursable.
Materials expense for the three months ended September 30, 1998 increased
by approximately $106,000, or 7.1%, to $1.6 million from $1.5 million in the
prior year period. Materials expense attributable to New Railroad Properties
accounted for 16.0% of this increase. The remainder of this increase is a result
of increased locomotive repair materials.
Joint facilities expense for the three months ended September 30, 1998
decreased by approximately $103,000, or 7.7%, to $1.2 million from $1.3 million
in the prior year period. New Railroad Properties incurred approximately $8,000
of joint facilities expense offset by a decrease of approximately $111,000, or
8.3%, for Comparable Railroad Properties due to a decrease in carloadings at one
of the Company's railroads with high levels of joint facility expense.
Other expenses for the three months ended September 30, 1998, decreased by
approximately $175,000, or 5.3%, to $3.1 million from $3.3 million in the prior
year period. New Railroad Properties incurred approximately $297,000 of other
expense offset by a decrease of approximately $202,000, or 8.8%, for Comparable
Railroad Properties primarily due to decreased bad debt expense. The remainder
of the decrease is a result of a decrease in corporate travel expenses.
INTEREST EXPENSE. Interest expense for the three months ended September
30, 1998 increased by approximately $189,000, or 6.8%, to $3.0 million from $2.8
million in the prior year period primarily due to borrowings for capital asset
additions.
OTHER INCOME. Other income for the three months ended September 30, 1998
decreased by approximately $245,000, or 19.2%, to $1.0 million from $1.3 million
in the prior year period due primarily to less gain on the sale of non-operating
assets for the three months ended September 30, 1998.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1997
For the nine months ended September 30, 1998 compared to the nine months
ended September 30, 1997 New Railroad Properties include CPI.
13
<PAGE>
The Company's net income for the nine months ended September 30, 1998
increased by approximately $1.1 million, or 15.4%, to $7.9 million from $6.8
million in the prior year period. Basic earnings per share increased by 14.7% to
$0.86 per share from $0.75 per share in the prior year period and diluted
earnings per share increased by 14.9% to $0.85 per share from $0.74 per share in
the prior year period.
OPERATING REVENUES. Operating revenues for the nine months ended September
30, 1998 increased by $8.1 million, or 7.4%, to $117.6 million from $109.5
million in the prior year period. Operating revenues attributable to New
Railroad Properties accounted for 18.9% of this increase. Operating revenues for
Comparable Railroad Properties increased by $6.9 million, or 6.3%. Carloads
transported increased by 42,950 carloads, or 12.1%, to 399,010 carloads from
356,060 carloads in the prior year period. Carloads attributable to New Railroad
Properties accounted for 10.8% of this increase. Carloads attributable to
Comparable Railroad Properties increased by 38,294, or 10.8%, from the prior
year period.
Freight revenues for the nine months ended September 30, 1998 increased by
$7.3 million, or 7.7%, to $101.4 million from $94.2 million in the prior year
period. The following table compares freight revenues, traffic volume (in
carloads) and average freight revenues per carload by commodity group for the
nine months ended September 30, 1998 and 1997.
FREIGHT REVENUES AND CARLOADS COMPARISON BY COMMODITY GROUP
(DOLLARS IN THOUSANDS, EXCEPT PER CARLOAD AMOUNTS)
<TABLE>
<CAPTION>
AVERAGE FREIGHT
REVENUES PER
FREIGHT REVENUES CARLOADS CARLOAD(1)
-------------------------------------- ------------------------------------- ---------------
1998 1997 1998 1997 1998 1997
----------------- -------------- -------------- -------------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMMODITY GROUP % OF % OF % OF % OF
DOLLARS TOTAL DOLLARS TOTAL NUMBER TOTAL NUMBER TOTAL
-------- ------ -------- ----- ------- ----- -------- ----
Lumber and forest products........ $20,539 20.2% $18,183 19.3% 51,540 12.9% 48,330 13.6% $399 $376
Coal.............................. 13,324 13.1 13,438 14.3 73,458 18.4 71,463 20.1 181 188
Chemicals......................... 12,646 12.5 11,300 12.0 38,581 9.7 35,240 9.9 328 321
Scrap metal & metal products...... 8,576 8.5 7,338 7.8 31,310 7.8 27,155 7.6 274 270
Scrap paper & paper products...... 8,538 8.4 9,128 9.7 26,275 6.6 25,318 7.1 325 361
Farm products..................... 7,995 7.9 7,492 8.0 32,237 8.1 29,264 8.2 248 256
Railroad equipment................ 5,232 5.2 2,552 2.7 43,030 10.8 16,393 4.6 122 156
Food products..................... 5,179 5.1 4,803 5.1 19,488 4.9 18,241 5.1 266 263
Non-metallic ores................. 4,875 4.8 4,767 5.1 27,483 6.9 26,587 7.5 177 179
Minerals & stone.................. 4,481 4.4 4,023 4.3 12,875 3.2 11,880 3.3 348 339
Autos and auto parts.............. 3,551 3.5 3,664 3.9 19,420 4.9 20,153 5.7 183 182
Petroleum products................ 3,159 3.1 3,896 4.1 9,415 2.4 10,383 2.9 336 375
Other............................. 3,352 3.3 3,606 3.7 13,898 3.4 15,653 4.4 241 230
-------- ------ -------- ----- ------- ----- -------- ----
Total........................ $101,448 100.0% $94,189 100.0% 399,010 100.0% 356,060 100.0% $254 $265
======== ====== ======== ===== ======= ===== ======= =====
</TABLE>
(1) Calculated as freight revenues divided by carloads.
Approximately $1.4 million, or 19.5%, of the increase in freight revenues
for the nine months ended September 30, 1998, is attributable to New Railroad
Properties. These properties added 4,656 carloads consisting primarily of farm
products (2,566), chemicals (755), non-metallic ores (481), and minerals and
stone (341). Freight revenues for Comparable Railroad Properties increased by
$5.8 million, or 6.2%, while carloadings for Comparable Railroad Properties
increased by 38,294, or 10.8%, primarily a result of increases in railroad
equipment (26,606), scrap metal and metal products (4,011), lumber and forest
products (3,191), and chemicals (2,586) primarily due to the transportation of
empty coal freight cars at one of the Company's railroads for UP and increased
business with existing customers.
14
<PAGE>
Average freight revenues per carload for the nine months ended September
30, 1998 decreased by $11 from the prior year period, primarily due to the
transportation of empty coal freight cars for the UP at a lower average revenue
per carload.
Non-freight revenues for the nine months ended September 30, 1998
increased by approximately $806,000, or 5.3%, to $16.1 million from $15.3
million in the prior year period. Non-freight revenues include joint facilities,
switching, demurrage, car hire and car repair services performed for third
parties and lease income. These non-freight revenues contributed 13.7% and 14.0%
of operating revenues in the nine months ended September 30, 1998 and 1997,
respectively. Non-freight revenues attributable to New Railroad Properties
accounted for 13.6% of this increase. Non-freight revenues for Comparable
Railroad Properties increased by $1.0 million, or 6.6%, primarily due to
increases in car hire.
OPERATING EXPENSES. Operating expenses for the nine months ended September
30, 1998 increased by $6.2 million, or 6.7%, to $98.0 million from $91.9 million
in the prior year period. New Railroad Properties accounted for 15.7% of this
increase. Operating expenses for Comparable Railroad Properties increased by
$5.3 million, or 6.2%, and corporate operating expenses increased by
approximately $370,000, or 2.7%. The Company's operating ratio (operating
expenses divided by operating revenues) decreased for the nine months ended
September 30, 1998 to 83.4% from 83.9% in the prior year period. The Company's
operating ratio for Comparable Railroad Properties improved for the period to
77.8%, compared to 77.9% in the prior year period.
The following table sets forth a comparison of the Company's operating
expenses during the nine month periods ended September 30, 1998 and 1997, in
dollars and as a percentage of operating revenues:
OPERATING EXPENSES COMPARISON
(DOLLARS IN THOUSANDS)
1998 1997
-------------------- -------------------
% OF % OF
OPERATING OPERATING
DOLLARS REVENUES DOLLARS REVENUES
------- -------- ------- --------
Labor and benefits................... $36,674 31.2% $33,927 31.0%
Equipment rents ..................... 13,008 11.1 12,107 11.1
Depreciation and amortization ....... 11,133 9.5 9,353 8.5
Diesel fuel ......................... 7,263 6.2 8,372 7.6
Purchased services .................. 7,617 6.5 6,532 6.0
Casualties and insurance ............ 4,945 4.2 4,491 4.1
Materials ........................... 4,637 3.9 4,177 3.8
Joint facilities .................... 3,563 3.0 3,515 3.2
Other ............................... 9,204 7.8 9,411 8.6
------- ------- ------- -------
Total............................. $98,044 83.4% $91,885 83.9%
======= ======= ======= =======
Labor and benefits for the nine months ended September 30, 1998 increased
by $2.7 million, or 8.1%, to $36.7 million from $33.9 million in the prior year
period. Labor and benefits attributable to New Railroad Properties accounted for
11.6% of this increase. Labor and benefits for Comparable Railroad Properties
increased by $2.5 million, or 8.9%, reflecting an increase in total employment
at the Company's Comparable Railroad Properties primarily due to an increase in
carloadings.
Equipment rents for the nine months ended September 30, 1998 increased by
approximately $901,000, or 7.4%, to $13.0 million from $12.1 million in the
prior year period. Equipment rents attributable to New Railroad Properties
accounted for 11.1% of this increase. Equipment rents for Comparable Railroad
Properties increased by approximately $990,000, or 5.3%, due primarily to an
increase in locomotive lease.
15
<PAGE>
Depreciation and amortization for the nine months ended September 30, 1998
increased by $1.8 million, or 19.0%, to $11.1 million from $9.4 million in the
prior year period. Depreciation and amortization attributable to New Railroad
Properties accounted for 6.0% of this increase. The remainder of this increase
is primarily a result of capital asset additions for track rehabilitation and
increased vehicle and locomotive depreciation related to fleet expansion.
Diesel fuel expense for the nine months ended September 30, 1998 decreased
by $1.1 million, or 13.2%, to $7.3 million from $8.4 million in the prior year
period. New Railroad Properties incurred $34,000 in diesel fuel expense offset
by a decrease of $1.1 million, or 13.7%, for Comparable Railroad Properties,
primarily due to a $0.17 per gallon, or 22.1%, decrease in average fuel prices
as compared to the prior year period.
Purchased services for the nine months ended September 30, 1998 increased
by $1.1 million, or 16.6%, to $7.6 million from $6.5 million in the prior year
period. Purchased services attributable to New Railroad Properties accounted for
4.7% of this increase. Purchased services for Comparable Railroad Properties
increased by approximately $853,000, or 15.0%, primarily due to an increase in
contract labor related to maintenance projects and an increase in consulting
expense. The remainder of the increase is a result of increased information
technology fees at corporate headquarters.
Casualties and insurance expense for the nine months ended September 30,
1998 increased by approximately $454,000, or 10.1%, to $4.9 million from $4.5
million in the prior year period. New Railroad Properties accounted for 7.5% of
this increase. Casualties and insurance expense for Comparable Railroad
Properties increased by $1.0 million, or 29.3%, due to increased derailments and
property damage cost. These increases were offset by a decrease in corporate
self-insured and litigation liability reserves.
Materials expense for the nine months ended September 30, 1998 increased
by approximately $460,000, or 11.0%, to $4.6 million from $4.2 million in the
prior year period. Materials costs attributable to New Railroad Properties
accounted for 3.7% of this increase. Materials expense for Comparable Railroad
Properties increased by approximately $330,000, or 8.8%, primarily as a result
of an increase in materials to repair locomotives and rail cars. The remainder
of the increase is due to an increase in locomotive repair materials.
Joint facilities expense for the nine months ended September 30, 1998
increased by approximately $48,000, or 1.4%, to $3.6 million from $3.5 million
in the prior year period. Joint facilities expense attributable to New Railroad
Properties accounted for 16.7% of this increase. Joint facilities expense for
Comparable Railroad Properties increased by approximately $39,000, or 1.1%, due
primarily to an increase in carload activity.
Other expenses for the nine months ended September 30, 1998 decreased by
approximately $207,000, or 2.2%, to $ 9.2 million from $9.4 million in the prior
year period. New Railroad Properties incurred $298,000 of other expense. Other
expenses for Comparable Railroad Properties decreased by approximately $260,000,
or 3.8%, primarily due to a reduction in travel expenses as a result of less
track rehabilitation activity. The remainder of the decrease is a result of less
corporate travel expense.
INTEREST EXPENSE. Interest expense for the nine months ended September 30,
1998 increased by approximately $574,000, or 7.4%, to $8.3 million from $7.7
million in the prior year period primarily due to borrowings for capital asset
additions.
OTHER INCOME. Other income for the nine months ended September 30,
1998 remained flat at $1.6 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically relied primarily on cash generated from
operations to fund working capital and capital expenditure needs relating to
ongoing operations while relying on contributed capital and borrowed funds to
finance its acquisitions.
16
<PAGE>
During the nine months ended September 30, 1998, the Company generated
cash from operations of $14.7 million and borrowed a total of $12.2 million on
its credit facilities which was primarily used to fund capital expenditures as
follows (in thousands):
Track..........................................$13,192
Locomotives.................................... 4,204
Detroit, Toledo and Ironton ("DTI") track
rehabilitation................................ 4,996
Technology..................................... 1,300
Other......................................... 1,009
-------
$24,701
=======
The Company currently anticipates that its maintenance capital expenditure
requirements in 1998 for track, including DTI track rehabilitation, locomotives
and equipment will be $27.0 million. Additionally, computer hardware, software
and related capital expenditures are currently expected to be $3.0 million.
On June 23, 1998, the Company acquired 100% of the outstanding stock of
Central Properties, Inc. ("CPI"). The purchase price was $14.3 million including
a $14.0 million cash payment and the assumption of approximately $266,000 of
long-term debt. This acquisition was funded by borrowings under the Company's
$75.0 million U.S. acquisition facility ("U.S. Acquisition Facility").
At September 30, 1998, the Company had long-term senior debt, capital
leases and senior subordinated debt outstanding totaling $150.3 million, which
constituted 51.6% of its total capitalization. Comparable figures at December
31, 1997 were $125.7 million and 48.5%, respectively.
At September 30, 1998, availability under the Company's U.S. Acquisition
Facility, $10.0 million U.S. working capital facility ("U.S. Working Capital
Facility"), CDN $25.0 million Canadian acquisition agreement, and CDN $5.0
million Canadian working capital facility ("Canadian Working Capital Facility")
was, in U.S. dollars, $42.7 million, $1.0 million, $16.3 million and $3.3
million, respectively. The unused portion of all of the Company's senior bank
credit facilities are subject to a 0.25% commitment fee.
Covenants contained in the agreements evidencing the Company's senior
bank, senior unsecured and senior subordinated debt prohibit the Company from
paying dividends on its capital stock and limit its ability to incur additional
indebtedness, create liens on its assets, make capital expenditures and
repurchase shares of its capital stock or any outstanding options or other
rights to acquire stock of the Company. The Company is also limited in its
ability to make loans, investments or guarantees. Additionally, the Company is
required to maintain a minimum tangible net worth and certain ratios of leverage
and cash flow to debt service. At September 30, 1998, the Company was in
compliance with all covenants, except for its debt covenant related to Capital
Expenditure Amount Limit, which has been waived by the lending institution and
subsequently increased effective November 2, 1998.
The Company believes its cash flow from operations together with available
amounts under the U.S. Working Capital Facility and Canadian Working Capital
Facility will allow it to meet its liquidity and capital expenditure
requirements for railroads it currently operates through the expiration of these
facilities in April 1999. The Company further believes that these facilities
will be renewed and extended upon expiration.
INFLATION
In recent years, inflation has not had a significant impact on the
Company's operations. The Company's contracts with connecting carriers typically
include clauses that adjust the Company's per car fees based on the STB's cost
or inflation indices.
17
<PAGE>
SEASONALITY
Except for revenue from shipment of farm products, which represent less
than 10.0% of revenues, the Company's operating revenues from existing
operations have not historically been subject to significant seasonal changes.
YEAR 2000 COMPLIANCE
The Company has been assessing its information technology infrastructure
for year 2000 compliance for the past year. The assessment includes
investigating its information technology, locomotives, railroad signals,
railroad equipment, communications, office equipment, environmental systems and
facilities for year 2000 compliance issues. The Company does not anticipate any
material disruption in its operations as a result of any failure by the Company
to be in compliance. The Company's largest internal information technology
applications, which were acquired in the ordinary course of business, are year
2000 compliant; however, all internal systems will be test and verified to
ensure year 2000 compliance. The Company is still in the process of determining
year 2000 impact in all other areas. The Company does not expect that its
external costs to address its year 2000 compliance issues will be material to
its financial condition or results of operations. Currently, the Company's
internal costs are unknown.
As part of its assessment, the Company is also investigating the year 2000
compliance status of its suppliers and customers. If it appears that some of its
suppliers will be unable to become year 2000 compliant, the Company will switch
to suppliers that are year 2000 compliant. In addition, the Company is a member
of the American Association of Railroad's Rail Industry Year 2000 Coordination
Task Force, which was formed to share year 2000 issues related to the railroad
industry, to help test for year 2000 compliance and to help implement year 2000
compliance changes. The Company is in the process of evaluating its contingency
plan if any of the Class I railroads are unable to become year 2000 compliant.
However, if any of the Company's significant suppliers or customers, including
Class I railroads, do not successfully and timely achieve year 2000 compliance
the Company's business or operations may be adversely affected.
The Company expects to complete its assessment phase and implement any
necessary corrections by June 30, 1999.
18
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A). EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
10.42 Sixth Amendment to Credit Agreement, dated September 4, 1998
between the Company; Wells Fargo Bank (Texas), N.A.; as Agent
and the several financial institutions that are parties to the
Credit Agreement.
10.43 Seventh Amendment to Credit Agreement, dated November 1, 1998
between the Company; Wells Fargo Bank (Texas), N.A.; as Agent
and the several financial institutions that are parties to the
Credit Agreement.
10.53 Severance Agreement, dated as of July 29, 1998, between the
Company and its President and Chief Executive Officer.
10.54 Employment Agreement, dated as of July 29, 1998, between the
Company and its President and Chief Executive Officer.
27.1 Financial Data Schedule.
(B). REPORTS ON FORM 8-K:
None.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in San Antonio,
Texas.
RAILTEX, INC.
Date: November 13, 1998 By: /s/ JOSEPH P. JAHNKE
Name: JOSEPH P. JAHNKE
Title:Vice President and Chief
Financial Officer
Date: November 13, 1998 By: /s/ JULIE B. HERBORT
Name: JULIE B. HERBORT
Title:Controller and Chief Accounting
Officer
20
EXHIBIT 10.42
SIXTH AMENDMENT
TO
CREDIT AGREEMENT
By and Among
RAILTEX, INC.,
THE SEVERAL FINANCIAL INSTITUTIONS
PARTY TO THIS AGREEMENT,
and
WELLS FARGO BANK (TEXAS),
NATIONAL ASSOCIATION,
As Agent
Dated as of September 4, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
Section 1. Certain Defined Terms .......................................... 1
Section 2. Recitals ....................................................... 1
Section 3. Amendments ..................................................... 1
Section 4. Conditions Precedent ........................................... 1
Section 5. Ratification of Continued Force and Effect ..................... 1
Section 6. Applicable Law ................................................. 2
Section 7. Successors and Assigns ......................................... 2
Section 8. Counterparts ................................................... 2
Section 9. Effect of Waiver ............................................... 2
Section 10. Headings ....................................................... 2
Section 11. Non-Application of Chapter 346 of Texas Finance Code ........... 2
Section 12. ENTIRE AGREEMENT ............................................... 2
<PAGE>
SIXTH AMENDMENT TO CREDIT AGREEMENT
This is the Sixth Amendment (the "Amendment"), dated as of September 4,
1998, to a Credit Agreement, dated as of May 17, 1996, among Wells Fargo Bank
(Texas), National Association (formerly known as First Interstate Bank of Texas,
N.A.), individually and as Agent, National Bank of Canada, New York Branch, ABN
Amro Bank, N.V. - Houston Agency, National City Bank of Kentucky and RailTex,
Inc. and previously amended by amendments dated as of June 1, 1996, July 22,
1996, August 13, 1996, December 3, 1996 and November 14, 1997 (as amended, the
"Agreement").
In consideration of the following Recitals, for $10 in hand paid and for
other good and valuable considerations, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows, intending to be legally
bound:
Section 1. CERTAIN DEFINED TERMS. Capitalized terms used but not
defined herein have the meanings ascribed to them in the Agreement.
Section 2. RECITALS. The Borrower has requested that the Agent and the
Lenders (i) reduce the Acquisition Loan Commitments to $70,000,000 and (ii)
increase the Revolving Loan Commitments to $15,000,000. Subject to the terms and
conditions herein contained, the Agent and the Lenders are willing to amend the
Agreement as set forth below in this amendment.
Section 3. AMENDMENTS. The Agreement is amended as follows:
(A) The definition of "Acquisition Loan Commitments" is amended by
deleting the reference to $75,000,000" and inserting in lieu thereof a reference
to "$70,000,000."
(B) The definition of "Revolving Loan Commitments" is amended by deleting
the reference to "$10,000,000" and inserting in lieu thereof a reference to
"$15,000,000."
(C) Schedule 1.2 is deleted from the Agreement and Schedule 1.2 attached
to this Amendment is substituted therefor.
Section 4. CONDITIONS PRECEDENT. The effectiveness of this Amendment
is subject to the following conditions precedent:
(A) Receipt by the Agent of fully signed counterparts of this Amendment,
replacement Revolving Notes for each of the Lenders and replacement Interim
Acquisition Notes for each of the Lenders; and
(B) Delivery of such other documents from the Borrower as the Agent shall
reasonably request.
Section 5. RATIFICATION OF CONTINUED FORCE AND EFFECT. Except as
specifically
<PAGE>
amended herein, all of the terms and conditions of the Agreement and all of the
Loan Documents executed in connection therewith or contemplated thereby are and
remain in full force and effect in accordance with their respective terms. All
of the terms used herein have the same meanings as set out in the Agreement,
unless amended hereby or unless the context clearly required otherwise.
References in the Agreement to the "Agreement," and the "Credit Agreement,"
"hereof," "herein" and the words of similar import shall be deemed to be
references to the Agreement as amended through the Effective Date. Any reference
in any Note or any other Loan Documents to the "Credit Agreement" shall be
deemed to be references to the Agreement as amended through the Effective Date.
Section 6. APPLICABLE LAW. This Amendment and all other Loan Documents
executed pursuant hereto shall be deemed to have been made and to be performable
in Houston, Harris County, Texas and shall be governed by and construed in
accordance with the laws of the State of Texas.
Section 7. SUCCESSORS AND ASSIGNS. This Amendment is binding upon and
shall inure to the benefit of the Lenders, the Agent and the Borrower and their
respective successors and assigns, except the Borrower may not assign or
transfer any of its rights or obligations hereunder without the prior written
consent of the Lenders and the Agent.
Section 8. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
Section 9. EFFECT OF WAIVER. No consent or waiver, express or implied, by
any Lender or the Agent to or for any breach of or deviation from any covenant,
condition or duty by the Borrower shall be deemed a consent or waiver to or of
any other breach of the same or any other covenant, condition or duty.
Section 10. HEADINGS. The headings, captions, and arrangements used in
this Amendment are for convenience only and shall not affect the interpretation
of this Amendment.
Section 11. NON-APPLICATION OF CHAPTER 346 OF TEXAS FINANCE CODE. The
provisions of Chapter 346 of the Texas Finance Code are specifically declared by
the parties not to be applicable to this Amendment or any of the Loan Documents
or the transactions contemplated hereby.
Section 12. ENTIRE AGREEMENT. THIS AMENDMENT, THE AGREEMENT AND ALL OTHER
INSTRUMENTS, DOCUMENTS, AND AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION WITH
THIS AMENDMENT REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO
-2-
<PAGE>
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES HERETO.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed and delivered effective as of the date first written above.
- -------------------------------------------------------------------------------
BORROWER:
RAILTEX, INC. Address: 4040 Broadway, Suite 200
San Antonio, Texas 78209
Attn: Joe Jahnke
Telephone No. (210) 841-7600
By:/s/JOSEPH P. JAHNKE Telecopy No. (210) 841-7629
Joseph P. Jahnke
Treasurer
Domestic Lending Office and
AGENT: Eurodollar Lending Office
WELLS FARGO BANK (TEXAS), Address: 1000 Louisiana
NATIONAL ASSOCIATION Houston, Texas 77002
Attn: Bennett D. Douglas
Vice President
Telephone No. (713) 250-1039
By:/s/BENNETT D. DOUGLAS Telecopy No. (713) 250-7031
Bennett D. Douglas
Vice President
Domestic Lending Office and
LENDERS: Eurodollar Lending Office
WELLS FARGO BANK (TEXAS), Address: 1000 Louisiana
NATIONAL ASSOCIATION Houston, Texas 77002
Attn: Bennett D. Douglas
Vice President
Telephone No. (713) 250-1039
By:/s/BENNETT D. DOUGLAS Telecopy No. (713) 250-7031
Bennett D. Douglas
Vice President
-3-
<PAGE>
NATIONAL BANK OF CANADA, Domestic Lending Office and
NEW YORK BRANCH Eurodollar Lending Office
Address: National Bank of Canada,
New York Branch
125 W. 55th Street
By:/s/LARRY L. SEARS New York, New York 10019
Larry L. Sears
Vice President and Manager
With a copy to:
and
National Bank of Canada
2121 San Jacinto, Suite 1850
Dallas, Texas 75201
By:/s/DOUGLAS CLARK Attn: Mr. Douglas Clark
Douglas Clark Vice President
Vice President Telephone No. (214) 871-1265
Telecopy No. (214) 871-2015
ABN AMRO BANK, N.V. Domestic Lending Office and
Eurodollar Lending Office
Address: ABN AMRO Bank, N.V.
By:/s/LAURIE C. TUZO 135 S. LaSalle St., Suite 625
Laurie C. Tuzo Chicago, Illinois 60603
Group Vice President ATTN: Loan Administrator
Telephone No.: (312) 904-8865
Telecopy No.: (312) 904-6893
With a copy to:
and
ABN AMRO Bank, N.V.
By:/s/ERIC R. HOLLINGSWORTH Three Riverway, Suite 1700
Eric R. Hollingsworth Houston, Texas 77056
Assistant Vice President Attn: Laurie C. Tuzo
Telephone No. (713) 964-3360
Telecopy No. (713) 961-1699
NATIONAL CITY BANK OF KENTUCKY Domestic Lending Office and
Eurodollar Lending Office
-4-
<PAGE>
Address: 101 South Fifth Street
By:/s/TOM GURBACH Louisville, Kentucky 40202
Tom Gurbach Attn: Donald R. Pullen, Jr.
Vice President Telephone No. (502) 581-6352
Telecopy No. (502) 582-5122
-5-
EXHIBIT 10.43
SEVENTH AMENDMENT
TO
CREDIT AGREEMENT
By and Among
RAILTEX, INC.,
THE SEVERAL FINANCIAL INSTITUTIONS
PARTY TO THIS AGREEMENT,
and
WELLS FARGO BANK (TEXAS),
NATIONAL ASSOCIATION,
As Agent
Dated as of November 2, 1998
<PAGE>
SEVENTH AMENDMENT TO CREDIT AGREEMENT
This is the Seventh Amendment (the "AMENDMENT"), dated as of November 2,
1998, to a Credit Agreement, dated as of May 17, 1996, among Wells Fargo Bank
(Texas), National Association (formerly known as First Interstate Bank of Texas,
N.A.), individually and as Agent (in its capacity as agent, the "AGENT"),
National Bank of Canada, New York Branch, ABN Amro Bank, N.V. -Houston Agency,
National City Bank of Kentucky (collectively, the "LENDERS") and RailTex, Inc.
(the "BORROWER") and previously amended by amendments dated as of June 1, 1996,
July 22, 1996, August 13, 1996, December 3, 1996, November 14, 1997 and
September 4, 1998 (as amended, the "AGREEMENT").
The Borrower has requested that the Agent and the Lenders (i) waive any
Default or Event of Default related to Borrower's failure to comply as of July
31, 1998 with the limit on capital expenditures set forth in Section 6.13 (the
"WAIVER"), (ii) consent to a sale of a portion of the Borrower's investments
made with proceeds of the Brazilian Acquisition Loans, (iii) amend the limit on
capital expenditures set forth in Section 6.13, and (iv) amend Section 6.5
regarding dispositions of assets in order to permit the Borrower to participate
in certain tax-free exchanges under Section 1031 of the Code (as defined in the
Agreement). Subject to the terms and conditions herein contained, the Agent and
the Lenders are willing to amend the Agreement as set forth below in this
amendment.
In consideration of the following Recitals, for $10 in hand paid and for
other good and valuable considerations, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows, intending to be legally
bound:
Section 1. CERTAIN DEFINED TERMS. Capitalized terms used but not defined
herein have the meanings ascribed to them in the Agreement.
Section 2. WAIVER. Subject to the terms of this Amendment, the Agent and
the Lenders hereby grant the Waiver. The Waiver is limited as set forth herein
and shall not constitute a modification, acceptance or waiver of any other
provision of the Agreement or any other Loan Document. The Agent's and the
Lenders' Waiver shall not constitute and shall not be deemed to constitute a
waiver of any other Event of Default or Default.
Section 3. CONSENT. The Borrower desires to (i) sell approximately 49.5%
of the Borrower's investments made with the proceeds of Brazilian Acquisition
Loans for a price of $11,000,000 (the "TRANSACTION"), and (ii) apply the net
proceeds of the Transaction to reduce outstanding Acquisition Loans or the
Revolving Loans, at the option of the Borrower. The Transaction is not permitted
under the Agreement without the prior written consent of the Majority Lenders
and the Borrower requests that the Majority Lenders (i) consent to the
Transaction, (ii) waive SECTION 6.5(IV) and SECTION 3.5(A) of the Agreement in
connection with the Transaction, and (iii) waive any Default or Event of Default
that would occur as a result thereof (the "REQUESTED CONSENT"). The Agent and
the Lenders grant the Requested Consent
<PAGE>
on the express condition that the Borrower applies the net proceeds of the
Transaction to the Obligations as set forth in Section 4 below.
Section 4. BORROWER'S AGREEMENT. As an inducement for the Agent and the
Lenders to give the Required Consent to the Transaction, the Borrower covenants
and agrees as follows, intending to be legally bound:
(i) contemporaneously with the receipt of net proceeds of the Transaction,
the Borrower shall cause the same to be used to reduce either the Acquisition
Loans or the Revolving Loans, or both; and
(ii) except with respect to the Requested Consent, all of the terms and
provisions of the Loan Documents remain in full force and effect.
Section 5. AMENDMENTS. The Agreement is amended as follows:
(i) The definition of "Capital Expenditure Amount Limit" in Section 1.1 of
the Agreement is amended and restated in its entirety as follows:
"CAPITAL EXPENDITURE AMOUNT LIMIT" means $27,000,000.
(ii) Section 3.5(a) of the Agreement is amended by adding the following
language at the end of such subsection:
Notwithstanding the foregoing, if the Borrower sells assets in
connection with an anticipated tax-free exchange permitted under
Section 6.5 hereof, the Borrower shall not be required to make a
mandatory prepayment with the proceeds received from any such sale
so long as the Borrower is diligently pursuing reinvestment of the
proceeds in a like-kind purchase in accordance with the requirements
of Section 1031 of the Code; PROVIDED, however, that during such
time period, the proceeds must be placed in a trust or escrow
arrangement for the benefit of the Agent, and further provided that,
if the Borrower has not reinvested the proceeds in a like-kind
purchase within 180 days of sale, the Borrower shall make a
mandatory prepayment as required by this Section 3.5(a).
(iii) The second proviso in Section 6.5 of the Agreement is amended and
restated in its entirety as follows:
PROVIDED, HOWEVER, that (A) the Borrower may contribute its Property
to wholly-owned Subsidiaries engaged principally in
-2-
<PAGE>
domestic United States operations, (B) the Borrower or its
Subsidiaries may contribute, at book value not to exceed
$15,000,000, locomotives to RailTex International provided that the
same are reacquired at book value, within 10 days after the date of
the funding of the Brazilian Acquisition Loans by RailTex
International, and (C) the Borrower may participate in tax-free
exchanges in accordance with Section 1031 of the Code with respect
to the sale of parcels of real estate acquired in connection with
the acquisition of shortline railroads that are not necessary or
useful for the operation of the railroad being acquired or the
Borrower's or any Subsidiary's business.
Section 6. CONDITIONS PRECEDENT. The effectiveness of this Amendment
is subject to the following conditions precedent:
(i) Receipt by the Agent of fully signed counterparts of this
Amendment; and
(ii) Delivery of such other documents from the Borrower as the Agent
shall reasonably request.
Section 7. RATIFICATION OF CONTINUED FORCE AND EFFECT. Except as
specifically amended herein, all of the terms and conditions of the Agreement
and all of the Loan Documents executed in connection therewith or contemplated
thereby are and remain in full force and effect in accordance with their
respective terms. All of the terms used herein have the same meanings as set out
in the Agreement, unless amended hereby or unless the context clearly required
otherwise. References in the Agreement to the "Agreement," and the "Credit
Agreement," "hereof," "herein" and the words of similar import shall be deemed
to be references to the Agreement as amended through the Effective Date. Any
reference in any Note or any other Loan Documents to the "Credit Agreement"
shall be deemed to be references to the Agreement as amended through the
Effective Date.
Section 8. APPLICABLE LAW. This Amendment and all other Loan Documents
executed pursuant hereto shall be deemed to have been made and to be performable
in Houston, Harris County, Texas and shall be governed by and construed in
accordance with the laws of the State of Texas.
Section 9. SUCCESSORS AND ASSIGNS. This Amendment is binding upon and
shall inure to the benefit of the Lenders, the Agent and the Borrower and their
respective successors and assigns, except the Borrower may not assign or
transfer any of its rights or obligations hereunder without the prior written
consent of the Lenders and the Agent.
-3-
<PAGE>
Section 10. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
Section 11. EFFECT OF CONSENT AND WAIVER. No consent or waiver, express or
implied, by any Lender or the Agent to or for any breach of or deviation from
any covenant, condition or duty by the Borrower shall be deemed a consent or
waiver to or of any other breach of the same or any other covenant, condition or
duty.
Section 12. HEADINGS. The headings, captions, and arrangements used in
this Amendment are for convenience only and shall not affect the interpretation
of this Amendment.
Section . NON-APPLICATION OF CHAPTER 346 OF TEXAS FINANCE CODE. The
provisions of Chapter 346 of the Texas Finance Code are specifically declared by
the parties not to be applicable to this Amendment or any of the Loan Documents
or the transactions contemplated hereby.
Section 14. ENTIRE AGREEMENT. THIS AMENDMENT, THE AGREEMENT AND ALL OTHER
INSTRUMENTS, DOCUMENTS, AND AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION WITH
THIS AMENDMENT REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES HERETO.
[Balance of this page intentionally left blank.]
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed and delivered effective as of the date first written above.
BORROWER:
RAILTEX, INC. Address: 4040 Broadway, Suite 200
San Antonio, Texas 78209
Attn: Joe Jahnke
Telephone No. (210) 841-7600
By:/s/JOSEPH P. JAHNKE Telecopy No. (210) 841-7629
Joseph P. Jahnke
Treasurer
AGENT:
WELLS FARGO BANK (TEXAS), Domestic Lending Office and
NATIONAL ASSOCIATION Eurodollar Lending Office
Address: 700 N. St. Mary's Street
Suite 300
By:/s/RONALD E. MERSER San Antonio, Texas 78205
Ronald E. Merser Attn: Ronald E. Merser
Vice President Telephone No. (210) 554-0716
Telecopy No. (210) 554-0734
LENDERS:
WELLS FARGO BANK (TEXAS), Domestic Lending Office and
NATIONAL ASSOCIATION Eurodollar Lending Office
Address: 700 N. St. Mary's Street
Suite 300
San Antonio, Texas 78205
Attn: Ronald E. Merser
Vice President
Telephone No. (210) 554-0716
By:/s/RONALD E. MERSER Telecopy No. (210) 554-0734
Ronald E. Merser
Vice President
NATIONAL BANK OF CANADA, Domestic Lending Office and
NEW YORK BRANCH Eurodollar Lending Office
-5-
<PAGE>
By:/s/LARRY L. SEARS Address: National Bank of Canada,
Larry L. Sears New York Branch
Vice President and Manager 125 W. 55th Street
New York, New York 10019
With a copy to:
and
By:/s/DOUGLAS CLARK National Bank of Canada
Douglas Clark 2121 San Jacinto, Suite 1850
Vice President Dallas, Texas 75201
Attn: Mr. Douglas Clark
Vice President
Telephone No. (214) 871-1265
Telecopy No. (214) 871-2015
ABN AMRO BANK, N.V. Domestic Lending Office and
Eurodollar Lending Office
Address: ABN AMRO Bank, N.V.
By:/s/LAURIE C. TUZO 135 S. LaSalle St., Suite 625
Laurie C. Tuzo Chicago, Illinois 60603
Group Vice President ATTN: Loan Administrator
Telephone No.: (312) 904-8865
Telecopy No.: (312) 904-6893
With a copy to:
and
By:/s/ERIC R. HOLLINGSWORTH
Eric R. Hollingsworth ABN AMRO Bank, N.V.
Assistant Vice President Three Riverway, Suite 1700
Houston, Texas 77056
Attn: Laurie C. Tuzo
Telephone No. (713) 964-3360
Telecopy No. (713) 961-1699
NATIONAL CITY BANK OF KENTUCKY Domestic Lending Office and
Eurodollar Lending Office
Address: 101 South Fifth Street
-6-
<PAGE>
By:/s/DONALD R. PULLEN, JR. Louisville, Kentucky 40202
Donald R. Pullen, Jr. Attn: Donald R. Pullen, Jr.
Vice President Telephone No. (502) 581-6352
Telecopy No. (502) 582-5122
-7-
EXHIBIT 10.53
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT (this "Agreement"), dated as of July 29, 1998, is
made and entered by and between RAILTEX, INC., a Texas corporation (the
"Company"), and RONALD A. RITTENMEYER (the "Executive").
WITNESSETH:
WHEREAS, the Executive is a senior executive of the Company and has made
and is expected to continue to make major contributions to the short-and
long-term profitability, growth and financial strength of the Company;
WHEREAS, the Company recognizes that, as is the case for most publicly
held companies, the possibility of a Change in Control (as defined below)
exists;
WHEREAS, the Company desires to assure itself of both present and future
continuity of management and desires to establish certain minimum severance
benefits for certain of its senior executives, including the Executive,
applicable in the event of a Change in Control;
WHEREAS, the Company wishes to ensure that its senior executives are not
practically disabled from discharging their duties in respect of a proposed or
actual transaction involving a Change in Control; and
WHEREAS, the Company desires to provide additional inducement for the
Executive to continue to remain in the employ of the Company.
NOW, THEREFORE, the Company and the Executive agree as follows:
1. CERTAIN DEFINED TERMS. In addition to terms defined elsewhere herein,
the following terms have the following meanings when used in this Agreement with
initial capital letters:
(a) "Base Pay" means the Executive's annual base salary rate as in
effect from time to time.
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means that, prior to any termination pursuant to Section
3(b) or Section 3(c), the Executive shall have committed:
(i) conviction of a criminal violation involving fraud,
embezzlement or theft in connection with his duties or in the course of
his employment with the Company or any Subsidiary;
<PAGE>
(ii) intentional wrongful damage to property of the Company or any
Subsidiary; or
(iii) intentional wrongful disclosure of secret processes or
confidential information of the Company or any Subsidiary;
and any such act shall have been demonstrably and materially harmful to
the Company. For purposes of this Agreement, no act or failure to act on
the part of the Executive shall be deemed "intentional" if it was due
primarily to an error in judgment or negligence, but shall be deemed
"intentional" only if done or omitted to be done by the Executive not in
good faith and without reasonable belief that his action or omission was
in the best interest of the Company. Notwithstanding the foregoing, the
Executive shall not be deemed to have been terminated for "Cause"
hereunder unless and until there shall have been delivered to the
Executive a copy of a resolution duly adopted by the affirmative vote of
not less than three quarters of the Board then in office at a meeting of
the Board called and held for such purpose, after reasonable notice to the
Executive and an opportunity for the Executive, together with the
Executive's counsel (if the Executive chooses to have counsel present at
such meeting), to be heard before the Board, finding that, in the good
faith opinion of the Board, the Executive had committed an act
constituting "Cause" as herein defined and specifying the particulars
thereof in detail. Nothing herein will limit the right of the Executive or
his beneficiaries to contest the validity or propriety of any such
determination.
(d) "Change in Control" means the occurrence during the Term of any
of the following events:
(i) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of the combined voting
power of the then outstanding Voting Stock of the Company; provided,
however, that for purposes of this Section 1(d)(i), the following
acquisitions of Voting Stock of the Company shall not constitute a Change
in Control: (A) any issuance of Voting Stock of the Company directly from
the Company that is approved by the Incumbent Board (as defined in Section
1(d)(ii), below), the consideration for which consists principally of
property other than cash, (B) any acquisition by the Company of Voting
Stock of the Company, (C) any acquisition of Voting Stock of the Company
by any employee benefit plan (or related trust) sponsored or maintained by
the Company or any Subsidiary, or (D) any acquisition of Voting Stock of
the Company by any Person pursuant to a Business Combination that complies
with clauses (A), (B) and (C) of Section 1(d)(iii) below; or
(ii) individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
Director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved
-2-
<PAGE>
by a vote of at least two-thirds of the Directors then comprising the
Incumbent Board (either by a specific vote or by approval of the proxy
statement of the Company in which such person is named as a nominee for
director, without objection to such nomination) shall be deemed to have
been a member of the Incumbent Board; or
(iii) consummation of a reorganization, merger or consolidation, a
sale or other disposition of all or substantially all of the assets of the
Company, or other transaction (each, a "Business Combination"), unless, in
each case, immediately following such Business Combination, (A) all or
substantially all of the individuals and entities who were the beneficial
owners of Voting Stock of the Company immediately prior to such Business
Combination beneficially own, directly or indirectly, more than two-thirds
of the combined voting power of the then outstanding shares of Voting
Stock of the entity resulting from such Business Combination (including,
without limitation, an entity which as a result of such transaction owns
the Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries), (B) no Person (other than
the Company, such entity resulting from such Business Combination, or any
employee benefit plan (or related trust) sponsored or maintained by the
Company, any Subsidiary or such entity resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more of the
combined voting power of the then outstanding shares of Voting Stock of
the entity resulting from such Business Combination, and (C) at least a
majority of the members of the Board of Directors of the entity resulting
from such Business Combination were members of the Incumbent Board at the
time of the execution of the initial agreement or of the action of the
Board providing for such Business Combination; or
(iv) approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company, except pursuant to a Business
Combination that complies with clauses (A), (B) and (C) of Section
1(d)(iii).
(e) "Employee Benefits" means the perquisites, benefits and service
credit for benefits as provided under any and all employee retirement
income and welfare benefit policies, plans, programs or arrangements in
which Executive is entitled to participate, including without limitation
any stock option, performance share, performance unit, stock purchase,
stock appreciation, savings, pension, supplemental executive retirement,
or other retirement income or welfare benefit, deferred compensation,
incentive compensation, group or other life, health, medical/hospital or
other insurance (whether funded by actual insurance or self-insured by the
Company or a Subsidiary), disability, salary continuation, expense
reimbursement and other employee benefit policies, plans, programs or
arrangements that may now exist or any equivalent successor policies,
plans, programs or arrangements that may be adopted hereafter by the
Company or a Subsidiary, providing perquisites, benefits and service
credit for benefits at least as great in the aggregate as are payable
thereunder prior to a Change in Control.
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(f) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(g) "Incentive Pay" means an annual bonus, incentive or other
payment of compensation, in addition to Base Pay, made or to be made in
regard to services rendered in any year or other period pursuant to any
bonus, incentive, profit-sharing, performance, discretionary pay or
similar agreement, policy, plan, program or arrangement (whether or not
funded) of the Company or a Subsidiary, or any successor thereto.
(h) "Severance Period" means the period of time commencing on the
date of the first occurrence of a Change in Control and continuing until
the earlier of (i) the second anniversary of the occurrence of the Change
in Control, or (ii) the Executive's death; PROVIDED, however, that
commencing on each anniversary of the Change in Control, the Severance
Period will automatically be extended for an additional year unless, not
later than 90 calendar days prior to such anniversary date, either the
Company or the Executive shall have given written notice to the other that
the Severance Period is not to be so extended.
(i) "Subsidiary" means an entity in which the Company directly or
indirectly beneficially owns 50% or more of the outstanding Voting Stock.
(j) "Term" means the period commencing as of the date hereof and
expiring as of the later of (i) the close of business on August 24, 2003,
or (ii) the expiration of the Severance Period; PROVIDED, however, that
(A) commencing on August 24, 2003 and each August 24 thereafter, the term
of this Agreement will automatically be extended for an additional year
unless, not later than one (1) year and ninety (90) days before August 24,
2003, or before any anniversary date thereafter, the Company or the
Executive shall have given notice that it or the Executive, as the case
may be, does not wish to have the Term extended and (B) subject to the
last sentence of Section 9, if, prior to a Change in Control, the
Executive ceases for any reason to be an executive officer of the Company
and any Subsidiary, thereupon without further action the Term shall be
deemed to have expired and this Agreement will immediately terminate and
be of no further effect.
(k) "Termination Date" means the date on which the Executive's
employment is terminated (the effective date of which shall be the date of
termination, or such other date that may be specified by the Executive if
the termination is pursuant to Section 3(b) or Section 3(c)).
(l) "Voting Stock" means securities entitled to vote generally in
the election of directors.
2. OPERATION OF AGREEMENT. This Agreement will be effective and binding
immediately upon its execution, but, anything in this Agreement to the contrary
notwithstanding, this Agreement will not be operative unless and until a Change
in Control occurs. Upon the
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occurrence of a Change in Control at any time during the Term, without further
action, this Agreement shall become immediately operative, including without
limitation, the last sentence of Section 9 notwithstanding that the Term may
have theretofore expired.
3. TERMINATION FOLLOWING A CHANGE IN CONTROL.
(a) In the event of the occurrence of a Change in Control, the
Executive's employment may be terminated by the Company or a Subsidiary
during the Severance Period and the Executive shall be entitled to the
benefits provided by Section 4 unless such termination is the result of
the occurrence of one or more of the following events:
(i) The Executive's death;
(ii) If the Executive becomes permanently disabled within the
meaning of, and begins actually to receive disability benefits pursuant
to, the long-term disability plan in effect for, or applicable to,
Executive immediately prior to the Change in Control; or
(iii) Cause.
If, during the Severance Period, the Executive's employment is terminated by the
Company or any Subsidiary other than pursuant to Section 3(a)(i), 3(a)(ii) or
3(a)(iii), the Executive will be entitled to the benefits provided by Section 4
hereof.
(b) In the event of the occurrence of a Change in Control, the
Executive may terminate employment with the Company and any Subsidiary
during the Severance Period with the right to severance compensation as
provided in Section 4 upon the occurrence of one or more of the following
events (regardless of whether any other reason, other than Cause as
hereinabove provided, for such termination exists or has occurred,
including without limitation other employment):
(ii) Failure to elect or reelect or otherwise to maintain the
Executive in the office or the position, or a substantially equivalent
office or position, of or with the Company and/or RailTex Service Co.,
Inc. (or any successor entity by operation of law or otherwise), as the
case may be, which the Executive held immediately prior to a Change in
Control, or the removal of the Executive as a Director of the Company (or
any successor thereto) if the Executive shall have been a Director of the
Company immediately prior to the Change in Control;
(iii) (A) A significant adverse change in the nature or scope of
the authorities, powers, functions, responsibilities or duties attached to
the position with the Company and any Subsidiary which the Executive held
immediately prior to the Change in Control, (B) a reduction in the
aggregate of the Executive's Base Pay and Incentive Pay received from the
Company and any Subsidiary, or (C) the termination or denial of the
Executive's rights to Employee Benefits or a reduction in the scope or
value thereof, any
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of which is not remedied by the Company within 10 calendar days after
receipt by the Company of written notice from the Executive of such
change, reduction or termination, as the case may be;
(iv) A determination by the Executive (which determination will be
conclusive and binding upon the parties hereto provided it has been made
in good faith and in all events will be presumed to have been made in good
faith unless otherwise shown by the Company by clear and convincing
evidence) that a change in circumstances has occurred following a Change
in Control, including, without limitation, a change in the scope of the
business or other activities for which the Executive was responsible
immediately prior to the Change in Control, which has rendered the
Executive substantially unable to carry out, has substantially hindered
Executive's performance of, or has caused Executive to suffer a
substantial reduction in, any of the authorities, powers, functions,
responsibilities or duties attached to the position held by the Executive
immediately prior to the Change in Control, which situation is not
remedied within 10 calendar days after written notice to the Company from
the Executive of such determination;
(v) The liquidation, dissolution, merger, consolidation or
reorganization of the Company or transfer of all or substantially all of
its business and/or assets, unless the successor or successors (by
liquidation, merger, consolidation, reorganization, transfer or otherwise)
to which all or substantially all of its business and/or assets have been
transferred (by operation of law or otherwise) assumed all duties and
obligations of the Company under this Agreement pursuant to Section 11(a);
(vi) The Company (A) relocates its principal executive offices (if
such offices are the principal location of Executive's work), or (B)
requires the Executive to have his principal location of work changed, to
any location that, in either case, is in excess of 50 miles from the
location thereof immediately prior to the Change in Control, or (C)
requires the Executive to travel away from his office in the course of
discharging his responsibilities or duties hereunder at least 20% more (in
terms of aggregate days in any calendar year or in any calendar quarter
when annualized for purposes of comparison to any prior year) than was
required of Executive in any of the three full years immediately prior to
the Change in Control without, in either case, his prior written consent,
and, in the case of clause (C), which is not remedied by the Company
within 10 calendar days after receipt by the Company of written notice of
such increase; or
(vii) Without limiting the generality or effect of the foregoing,
any material breach of this Agreement by the Company or any successor
thereto which is not remedied by the Company within 10 calendar days after
receipt by the Company of written notice from the Executive of such
breach.
(c) Notwithstanding anything contained in this Agreement to the
contrary, in the event of a Change in Control, the Executive may terminate
employment with the Company and any Subsidiary for any reason, or without
reason, during the 30-day
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period immediately following the six month anniversary of the first
occurrence of a Change in Control with the right to severance compensation
as provided in Section 4.
(d) A termination by the Company pursuant to Section 3(a) or by the
Executive pursuant to Section 3(b) or Section 3(c) will not affect any
rights that the Executive may have pursuant to any agreement, policy,
plan, program or arrangement of the Company or Subsidiary providing
Employee Benefits, which rights shall be governed by the terms thereof.
4. SEVERANCE COMPENSATION.
(a) If, following the occurrence of a Change in Control, the Company
or Subsidiary terminates the Executive's employment during the Severance
Period other than pursuant to Section 3(a)(i), 3(a)(ii) or 3(a)(iii), or
if the Executive terminates his employment pursuant to Section 3(b) or
Section 3(c), the Company will pay to the Executive the amounts described
in Annex A within five business days after the Termination Date and will
continue to provide to the Executive the benefits described on Annex A for
the periods described therein.
(b) Without limiting the rights of the Executive at law or in
equity, if the Company fails to make any payment or provide any benefit
required to be made or provided hereunder on a timely basis, the Company
will pay interest on the amount or value thereof at an annualized rate of
interest equal to the so-called composite "prime rate" as quoted from time
to time during the relevant period in the Southwest Edition of THE WALL
STREET JOURNAL, plus 2%. Such interest will be payable as it accrues on
demand. Any change in such prime rate will be effective on and as of the
date of such change.
(c) Notwithstanding any provision of this Agreement to the contrary,
the parties' respective rights and obligations under this Section 4 and
under Sections 5, 7, 8 and the last sentence of Section 9 will survive any
termination or expiration of this Agreement or the termination of the
Executive's employment following a Change in Control for any reason
whatsoever.
(d) Unless otherwise expressly provided by the applicable annual
bonus plan, after the occurrence of a Change in Control, the Company shall
pay in cash to the Executive a lump-sum amount equal to the value of the
Executive's annual bonus earned or accrued with respect to the Executive's
service during the annual performance period that includes the date on
which the Change in Control occurred, disregarding any applicable vesting
requirements; provided that such amount shall be calculated at the plan
target rate, but prorated to base payment only on the portion of the
Executive's service that had elapsed during the applicable performance
period. Such payment shall take into account service rendered through the
payment date and shall be made at the earlier of (i) the date prescribed
for payment pursuant to the applicable plan, program or agreement, and
(ii) within five business days after the Termination Date.
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5. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding, but
subject to Section 5(h), in the event that this Agreement shall become
operative and it shall be determined (as hereafter provided) that any
payment (other than the Gross-Up payments provided for in this Section 5)
or distribution by the Company or any of its affiliates to or for the
benefit of the Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise
pursuant to or by reason of any other agreement, policy, plan, program or
arrangement, including without limitation any stock option, performance
share, performance unit, stock appreciation right or similar right, or the
lapse or termination of any restriction on or the vesting or
exercisability of any of the foregoing (a "Payment"), would be subject to
the excise tax imposed by Section 4999 of the Internal Revenue Code of
1986, as amended (the "Code") (or any successor provision thereto) by
reason of being considered "contingent on a change in ownership or
control" of the Company, within the meaning of Section 280G of the Code
(or any successor provision thereto) or to any similar tax imposed by
state or local law, or any interest or penalties with respect to such tax
(such tax or taxes, together with any such interest and penalties, being
hereafter collectively referred to as the "Excise Tax"), then the
Executive shall be entitled to receive an additional payment or payments
(collectively, a "Gross-Up Payment"); provided, however, that no Gross-up
Payment shall be made with respect to the Excise Tax, if any, attributable
to (i) any incentive stock option, as defined by Section 422 of the Code
("ISO") granted prior to the execution of this Agreement, or (ii) any
stock appreciation or similar right, whether or not limited, granted in
tandem with any ISO described in clause (i). The Gross-Up Payment shall be
in an amount such that, after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including any Excise Tax imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed
upon the Payment.
(b) Subject to the provisions of Section 5(f), all determinations
required to be made under this Section 5, including whether an Excise Tax
is payable by the Executive and the amount of such Excise Tax and whether
a Gross-Up Payment is required to be paid by the Company to the Executive
and the amount of such Gross-Up Payment, if any, shall be made by a
nationally recognized accounting firm (the "Accounting Firm") selected by
the Executive in his sole discretion. The Executive shall direct the
Accounting Firm to submit its determination and detailed supporting
calculations to both the Company and the Executive within 30 calendar days
after the Termination Date, if applicable, and any such other time or
times as may be requested by the Company or the Executive. If the
Accounting Firm determines that any Excise Tax is payable by the
Executive, the Company shall pay the required Gross-Up Payment to the
Executive within five business days after receipt of such determination
and calculations with respect to any Payment to the Executive. If the
Accounting Firm determines that no Excise Tax is payable by the Executive,
it shall, at the same time as it makes such determination, furnish the
Company and the Executive an opinion that the Executive has substantial
authority not to report any Excise Tax on his federal, state or local
income or other tax
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return. As a result of the uncertainty in the application of Section 4999
of the Code (or any successor provision thereto) and the possibility of
similar uncertainty regarding applicable state or local tax law at the
time of any determination by the Accounting Firm hereunder, it is possible
that Gross-Up Payments which will not have been made by the Company should
have been made (an "Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts or
fails to pursue its remedies pursuant to Section 5(f) and the Executive
thereafter is required to make a payment of any Excise Tax, the Executive
shall direct the Accounting Firm to determine the amount of the
Underpayment that has occurred and to submit its determination and
detailed supporting calculations to both the Company and the Executive as
promptly as possible. Any such Underpayment shall be promptly paid by the
Company to, or for the benefit of, the Executive within five business days
after receipt of such determination and calculations.
(c) The Company and the Executive shall each provide the Accounting
Firm access to and copies of any books, records and documents in the
possession of the Company or the Executive, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the
Accounting Firm in connection with the preparation and issuance of the
determinations and calculations contemplated by Section 5(b). Any
determination by the Accounting Firm as to the amount of the Gross-Up
Payment shall be binding upon the Company and the Executive.
(d) The federal, state and local income or other tax returns filed
by the Executive shall be prepared and filed on a consistent basis with
the determination of the Accounting Firm with respect to the Excise Tax
payable by the Executive. The Executive shall make proper payment of the
amount of any Excise Payment, and at the request of the Company, provide
to the Company true and correct copies (with any amendments) of his
federal income tax return as filed with the Internal Revenue Service and
corresponding state and local tax returns, if relevant, as filed with the
applicable taxing authority, and such other documents reasonably requested
by the Company, evidencing such payment. If prior to the filing of the
Executive's federal income tax return, or corresponding state or local tax
return, if relevant, the Accounting Firm determines that the amount of the
Gross-Up Payment should be reduced, the Executive shall within five
business days pay to the Company the amount of such reduction.
(e) The fees and expenses of the Accounting Firm for its services in
connection with the determinations and calculations contemplated by
Section 5(b) shall be borne by the Company. If such fees and expenses are
initially paid by the Executive, the Company shall reimburse the Executive
the full amount of such fees and expenses within five business days after
receipt from the Executive of a statement therefor and reasonable evidence
of his payment thereof.
(f) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service or any other taxing authority that, if
successful, would require the payment by the Company of a Gross-Up
Payment. Such notification shall be given as
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promptly as practicable but no later than 10 business days after the
Executive actually receives notice of such claim and the Executive shall
further apprise the Company of the nature of such claim and the date on
which such claim is requested to be paid (in each case, to the extent
known by the Executive). The Executive shall not pay such claim prior to
the earlier of (i) the expiration of the 30-calendar-day period following
the date on which he gives such notice to the Company and (ii) the date
that any payment of amount with respect to such claim is due. If the
Company notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall:
(i) provide the Company with any written records or documents in
his possession relating to such claim reasonably requested by the Company;
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time,
including without limitation accepting legal representation with respect
to such claim by an attorney competent in respect of the subject matter
and reasonably selected by the Company;
(iii) cooperate with the Company in good faith in order effectively
to contest such claim; and
(iv) permit the Company to participate in any proceedings relating
to such claim;
PROVIDED, HOWEVER, that the Company shall bear and pay directly all costs
and expenses (including interest and penalties) incurred in connection
with such contest and shall indemnify and hold harmless the Executive, on
an after-tax basis, for and against any Excise Tax or income tax,
including interest and penalties with respect thereto, imposed as a result
of such representation and payment of costs and expenses. Without limiting
the foregoing provisions of this Section 5(f), the Company shall control
all proceedings taken in connection with the contest of any claim
contemplated by this Section 5(f) and, at its sole option, may pursue or
forego any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim (provided,
however, that the Executive may participate therein at his own cost and
expense) and may, at its option, either direct the Executive to pay the
tax claimed and sue for a refund or contest the claim in any permissible
manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; PROVIDED, HOWEVER, that if the Company directs the Executive to
pay the tax claimed and sue for a refund, the Company shall advance the
amount of such payment to the Executive on an interest-free basis and
shall indemnify and hold the Executive harmless, on an after-tax basis,
from any Excise Tax or income or other tax, including interest or
penalties with respect thereto, imposed with respect to such advance; and
provided FURTHER, HOWEVER, that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the
Executive with respect to which the contested amount is
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claimed to be due is limited solely to such contested amount. Furthermore,
the Company's control of any such contested claim shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder
and the Executive shall be entitled to settle or contest, as the case may
be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
(g) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 5(f), the Executive receives any refund
with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 5(f)) promptly pay to the
Company the amount of such refund (together with any interest paid or
credited thereon after any taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company pursuant to
Section 5(f), a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial or
refund prior to the expiration of 30 calendar days after such
determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of any such advance shall offset, to
the extent thereof, the amount of Gross-Up Payment required to be paid by
the Company to the Executive pursuant to this Section 5.
(h) Notwithstanding any provision of this Agreement to the contrary,
if (i) but for this sentence, the Company would be obligated to make a
Gross-Up Payment to the Executive and (ii) the aggregate "present value"
of the "parachute payments" to be paid or provided to the Executive under
this Agreement or otherwise does not exceed 1.15 multiplied by three times
the Executive's "base amount," then the payments and benefits to be paid
or provided under this Agreement will be reduced to the minimum extent
necessary (but in no event to less than zero) so that no portion of any
payment or benefit to the Executive, as so reduced, constitutes an "excess
parachute payment." For purposes of this Section 5(h), the terms "excess
parachute payment," "present value," "parachute payment," and "base
amount" will have the meanings assigned to them by Section 280G of the
Code. The determination of whether any reduction in such payments or
benefits to be provided under this Agreement is required pursuant to the
preceding sentence will be made at the expense of the Company, if
requested by the Executive or the Company, by the Accounting Firm. The
fact that the Executive's right to payments or benefits may be reduced by
reason of the limitations contained in this Section 5(h) will not of
itself limit or otherwise affect any other rights of the Executive other
than pursuant to this Agreement. In the event that any payment or benefit
intended to be provided under this Agreement or otherwise is required to
be reduced pursuant to this Section 5(h), the Executive will be entitled
to designate the payments and/or benefits to be so reduced in order to
give effect to this Section 5(h). The Company will provide the Executive
with all information reasonably requested by the Executive to permit the
Executive to make such designation. In the event that the Executive fails
to make such designation within 10 business days of the Termination Date,
the Company may effect such reduction in any manner it deems appropriate.
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6. NO MITIGATION OBLIGATION. The Company hereby acknowledges that it will
be difficult and may be impossible for the Executive to find reasonably
comparable employment following the Termination Date. Accordingly, the payment
of the severance compensation by the Company to the Executive in accordance with
the terms of this Agreement is hereby acknowledged by the Company to be
reasonable, and the Executive will not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise,
nor will any profits, income, earnings or other benefits from any source
whatsoever create any mitigation, offset, reduction or any other obligation on
the part of the Executive hereunder or otherwise, except as expressly provided
in the last sentence of Paragraph 2 set forth on Annex A.
7. LEGAL FEES AND EXPENSES. It is the intent of the Company that the
Executive not be required to incur legal fees and the related expenses
associated with the interpretation, enforcement or defense of Executive's rights
under this Agreement by litigation or otherwise because the cost and expense
thereof would substantially detract from the benefits intended to be extended to
the Executive hereunder. Accordingly, if it should appear to the Executive that
the Company has failed to comply with any of its obligations under this
Agreement or in the event that the Company or any other person takes or
threatens to take any action to declare this Agreement void or unenforceable, or
institutes any litigation or other action or proceeding designed to deny, or to
recover from, the Executive the benefits provided or intended to be provided to
the Executive hereunder, the Company irrevocably authorizes the Executive from
time to time to retain counsel of Executive's choice, at the expense of the
Company as hereafter provided, to advise and represent the Executive in
connection with any such interpretation, enforcement or defense, including
without limitation the initiation or defense of any litigation or other legal
action, whether by or against the Company or any Director, officer, stockholder
or other person affiliated with the Company, in any jurisdiction.
Notwithstanding any existing or prior attorney-client relationship between the
Company and such counsel, the Company irrevocably consents to the Executive's
entering into an attorney-client relationship with such counsel, and in that
connection the Company and the Executive agree that a confidential relationship
shall exist between the Executive and such counsel. Without respect to whether
the Executive prevails, in whole or in part, in connection with any of the
foregoing, the Company will pay and be solely financially responsible for any
and all attorneys' and related fees and expenses incurred by the Executive in
connection with any of the foregoing; provided that, in regard to such matters,
the Executive has not acted in bad faith or with no colorable claim of success.
8. CONFIDENTIALITY; NONSOLICITATION.
(a) During the Term, the Company agrees that it will disclose to
Executive its confidential or proprietary information (as defined in this
Section 8(a)) to the extent necessary for Executive to carry out his
obligations to the Company. The Executive hereby covenants and agrees that
the Executive will not, without the prior written consent of the Company,
during the Term or thereafter disclose to any person not employed by the
Company, or use in connection with engaging in competition with the
Company, any confidential or proprietary information of the Company. For
purposes of this Agreement,
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the term "confidential or proprietary information" will include all
information of any nature and in any form that is owned by the Company and
that is not publicly available (other than by Executive's breach of this
Section 8(a)) or generally known to persons engaged in businesses similar
or related to those of the Company. Confidential or proprietary
information will include, information concerning the Company's business,
affairs, customers, clients, sources of supply and customer lists. For
purposes of the preceding two sentences, the term "Company" will also
include any Subsidiary (collectively, the "Restricted Group"). The
foregoing obligations imposed by this Section 8(a) will not apply (i)
during the Term, in the course of the business of and for the benefit of
the Company, (ii) if such confidential or proprietary information will
have become, through no fault of the Executive, generally known to the
public or (iii) if the Executive is required by law to make disclosure
(after giving the Company notice and an opportunity to contest such
requirement).
(b) The Executive hereby covenants and agrees that during the Term
and for one year thereafter Executive will not, without the prior written
consent of the Company, which consent will not unreasonably be withheld,
knowingly solicit any employee of the Restricted Group to leave the
employment of the Restricted Group.
9. EMPLOYMENT RIGHTS. Nothing expressed or implied in this Agreement will
create any right or duty on the part of the Company or the Executive to have the
Executive remain in the employment of the Company or any Subsidiary prior to or
following any Change in Control. Any termination of employment of the Executive
or the removal of the Executive from the office or position in the Company or
any Subsidiary that occurs (i) (A) not more than one year prior to the date on
which a Change in Control, as defined in Section 1(d)(ii), 1(d)(iii) or
1(d)(iv), occurs, or (B) not more than 90 days prior to the date on which a
Change in Control, as defined in Section 1(d)(i), but not otherwise in Section
1(d), occurs, and (ii) following the commencement of any discussion with a third
person that ultimately results in a Change in Control, shall be deemed to be a
termination or removal of the Executive after a Change in Control for purposes
of this Agreement.
10. WITHHOLDING OF TAXES. The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as the
Company is required to withhold pursuant to any applicable law, regulation or
ruling.
11. SUCCESSORS AND BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation, reorganization or otherwise)
to all or substantially all of the business or assets of the Company, by
agreement in form and substance reasonably satisfactory to the Executive,
expressly to assume and agree to perform this Agreement in the same manner
and to the same extent the Company would be required to perform if no such
succession had taken place. This Agreement will be binding upon and inure
to the benefit of the Company and any successor to the Company, including
without limitation any persons acquiring directly or indirectly all or
substantially all of the business or assets
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of the Company whether by purchase, merger, consolidation, reorganization
or otherwise (and such successor shall thereafter be deemed the "Company"
for the purposes of this Agreement), but will not otherwise be assignable,
transferable or delegable by the Company.
(b) This Agreement will inure to the benefit of and be enforceable
by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees and legatees.
(c) This Agreement is personal in nature and neither of the parties
hereto shall, without the consent of the other, assign, transfer or
delegate this Agreement or any rights or obligations hereunder except as
expressly provided in Sections 11(a) and 11(b). Without limiting the
generality or effect of the foregoing, the Executive's right to receive
payments hereunder will not be assignable, transferable or delegable,
whether by pledge, creation of a security interest, or otherwise, other
than by a transfer by Executive's will or by the laws of descent and
distribution and, in the event of any attempted assignment or transfer
contrary to this Section 11(c), the Company shall have no liability to pay
any amount so attempted to be assigned, transferred or delegated.
12. NOTICES. For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests or approvals, required
or permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or three business days after having been
sent by a nationally recognized overnight courier service such as FedEx, UPS, or
Purolator, addressed to the Company (to the attention of the Secretary of the
Company) at its principal executive office and to the Executive at his principal
residence, or to such other address as any party may have furnished to the other
in writing and in accordance herewith, except that notices of changes of address
shall be effective only upon receipt.
13. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement will be governed by and construed in accordance
with the substantive laws of the State of Texas, without giving effect to the
principles of conflict of laws of such State.
14. VALIDITY. If any provision of this Agreement or the application of any
provision hereof to any person or circumstances is held invalid, unenforceable
or otherwise illegal, the remainder of this Agreement and the application of
such provision to any other person or circumstances will not be affected, and
the provision so held to be invalid, unenforceable or otherwise illegal will be
reformed to the extent (and only to the extent) necessary to make it
enforceable, valid or legal.
15. MISCELLANEOUS. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the
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other party hereto or compliance with any condition or provision of this
Agreement to be performed by such other party will be deemed a waiver of similar
or dissimilar provisions or conditions at the same or at any prior or subsequent
time. No agreements or representations, oral or otherwise, expressed or implied
with respect to the subject matter hereof have been made by either party which
are not set forth expressly in this Agreement. References to Sections are to
references to Sections of this Agreement.
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed and delivered as of the date first above written.
RAILTEX, INC.
By:/s/ BRUCE M. FLOHR
Bruce M. Flohr, Chairman of the Board
/s/RONALD A. RITTENMEYER
RONALD A. RITTENMEYER
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ANNEX A
SEVERANCE COMPENSATION
(1) A lump-sum payment in an amount equal to three times the sum of (A)
Base Pay (at the highest rate in effect for any period prior to the Termination
Date), plus (B) Incentive Pay (in an amount equal to the target bonus applicable
immediately prior to the Change in Control or, if greater, the target bonus in
effect prior to the Termination Date).
(2) For a period of 36 months following the Termination Date (the
"Continuation Period"), the Company will arrange to provide the Executive with
Employee Benefits that are welfare benefits (but not stock option, performance
share, performance unit, stock purchase, stock appreciation or similar
compensatory benefits) substantially similar to those that the Executive was
receiving or entitled to receive immediately prior to the Termination Date (or,
if greater, immediately prior to the reduction, termination, or denial described
in Section 3(b)(ii)), including, but not limited to, health care, dental, group
life, and group long-term disability benefits, and the term life equivalent
benefit for any split-dollar insurance program. If and to the extent that any
benefit described in this Paragraph 2 is not or cannot be paid or provided under
any policy, plan, program or arrangement of the Company or any Subsidiary, as
the case may be, then the Company will itself pay or provide for the payment to
the Executive, his dependents and beneficiaries, of such Employee Benefits.
Notwithstanding the foregoing, or any other provision of the Agreement, for
purposes of determining the period of continuation coverage to which the
Executive or any of his dependents is entitled pursuant to Section 4980B of the
Code (or any successor provision thereto) under the Company's medical, dental
and other group health plans, or successor plans, the Executive's "qualifying
event" shall be the termination of the Continuation Period and the Executive
shall be considered to have remained actively employed on a full-time basis
through that date. Employee Benefits otherwise receivable by the Executive
pursuant to this Paragraph 2 will be reduced to the extent comparable welfare
benefits are actually received by the Executive from another employer during the
Continuation Period following the Executive's Termination Date, and any such
benefits actually received by the Executive shall be reported by the Executive
to the Company.
(3) If, prior to the Change in Control, Executive has been provided the
use of a Company car, then within five business days after the Termination Date,
the Company will convey title to such car to Executive without additional
consideration therefor.
A-1
EXHIBIT 10.54
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement"), dated as of July 29,
1998 (the "Effective Date"), is made and entered into by and between RailTex,
Inc., a Texas corporation (the "Company") and Ronald A. Rittenmeyer
("Executive").
WHEREAS, the Company desires to obtain Executive's management and
executive services by directly engaging Executive as its President and Chief
Executive Officer and by Executive serving as a director of the Company and its
subsidiaries;
WHEREAS, in order to induce Executive to serve in such positions,
the Company desires to provide Executive with compensation and other benefits on
the terms and conditions set forth in this Agreement; and
WHEREAS, Executive is willing to accept such employment and perform
services for the Company, on the terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the promises and of the mutual
covenants herein contained, it is agreed as follows:
I . EMPLOYMENT, POSITIONS AND DUTIES.
1.1 The Company hereby agrees to employ Executive and the Executive
hereby agrees to undertake employment with the Company upon the terms and
considerations herein set forth.
1.2 During the Term (as hereafter defined), the Executive will serve
in the positions of President and Chief Executive Officer of the Company and in
appropriate positions in each subsidiary of the Company. Executive will be
appointed immediately to fill an open position as a member of the Board of
Directors of the Company (the "Board"). Throughout the Term, the Company will
(i) cause Executive to be included in the management slate for election as a
director at every shareholders' meeting at which his term as a director would
otherwise expire, and (ii) cause the Executive to be elected as a member of the
Board of Directors of each subsidiary of the Company.
1.3 During the Term, the Executive will devote substantially all of
his working time and efforts to the performance of services, duties and
responsibilities in accordance with this Agreement. The Executive will have such
duties, functions, responsibilities and authority as are (i) consistent with the
positions set forth in Section 1.2, (ii) assigned to his positions by the
applicable bylaws of the Company or (iii) reasonably assigned to him by the
Board. Executive will report directly to the Board. Executive's duties,
functions, responsibilities and authority may be increased, but not decreased,
by the Board and, as so increased, will thereafter constitute Executive's
duties, functions, responsibilities and authority hereunder.
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1.4 Notwithstanding the foregoing, Executive may, (i) subject to the
approval of the Board, serve as the director of a noncompeting company, (ii)
serve as an officer, director or otherwise participate in educational, welfare,
social, religious and civic organizations, and (iii) manage personal and family
investments.
1.5 In connection with his employment during the Term, unless
otherwise agreed by the Executive, the Executive will be based at the Company's
principal executive offices in San Antonio, Texas. The Executive will undertake
normal business travel on behalf of the Company, the reasonable expenses of
which will be paid by the Company pursuant to Section 5.
1.6 The Company will provide to Executive its standard
indemnification agreement for officers and directors of the Company.
2. Term OF EMPLOYMENT. Executive's term of employment under this Agreement
will commence on August 24, 1998 (the "Start Date") and, subject to the
provisions of this Agreement, will terminate on the earlier of (i) the fifth
anniversary of the Start Date or (ii) termination of the Executive's employment
pursuant to Section 7 of this Agreement (the "Termination Date"); PROVIDED,
however, that this Agreement will be automatically renewed and the term extended
for additional one-year periods commencing on the fifth anniversary of the Start
Date, and on each anniversary date thereafter, unless the Company or Executive
provides prior written notice in accordance with Section 12.5 at least one year
and 90 days before the fifth anniversary of the Start Date or before any
anniversary date thereafter (any reference to the "Term" of this Agreement will
include the initial term and any renewal thereof).
3. COMPENSATION.
3.1 SALARY. During the Term, the Company will pay Executive an
annual base salary ("Base Salary") of not less than $400,000. Base Salary will
be payable at the times and in the manner consistent with the Company's general
policies regarding compensation of executive employees. Base Salary may be
increased (but not decreased) in the discretion of the Compensation Committee of
the Board (the "Compensation Committee") and, as so increased, will thereafter
constitute "Base Salary" hereunder.
3.2 ANNUAL INCENTIVE COMPENSATION. Executive will be eligible to
participate in the current and any future annual cash incentive and/or
management incentive plan (the "Bonus Plan") on terms commensurate with
Executive's position and level of responsibility; PROVIDED, however, that
Executive's annual target incentive will be not less than 50% of Base Salary;
and PROVIDED, further, that Executive's annual incentive award for the 1998
fiscal year will be not less than 50% of Base Salary, which amount will be
prorated to reflect Executive's actual period of service during 1998 after the
Start Date. Except as set forth in the preceding sentence, nothing in this
Section 3.2 will guarantee to the Executive any specific amount of incentive
compensation, or prevent the Compensation Committee from establishing an
additional enhanced annual incentive compensation program with performance goals
and compensation targets applicable only to the Executive.
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3.3 LONG-TERM INCENTIVE COMPENSATION. Executive will be eligible to
participate in the current and in any future long-term incentive compensation
plan on terms commensurate with his position and level of responsibility;
PROVIDED, HOWEVER, that Executive's participation in the Company's long-term
incentive program will be at a level of not less than 150% of Executive's annual
incentive award. Except as set forth in the preceding sentence, nothing in this
Section 3.3 will guarantee to the Executive any specific level or amount of
long-term incentive compensation, or prevent the Compensation Committee from
establishing an additional enhanced long-term compensation program with
performance goals and compensation targets applicable only to the Executive.
3.4 RELOCATION EXPENSES. As promptly as practicable following the
Start Date, Executive will relocate to the general area of the Company's
headquarters in San Antonio, Texas. The Company will reimburse the Executive for
(or, where possible, pay on Executive's behalf) his reasonable relocation costs,
including, without limitation, the following: (i) interest paid by Executive on
any bridge loan incurred by Executive for the period (the "Bridge Period")
between the purchase of his residence in the San Antonio, Texas area (the "New
Residence") and the sale of his existing residence; PROVIDED, HOWEVER, that the
loan amount on which interest will be reimbursed pursuant to this clause (i)
will not exceed, in the aggregate, the amount of Executive's equity in his
existing residence as of the Start Date; (ii) the mortgage payments during the
Bridge Period on the smaller of the two mortgages Executive is then carrying on
his existing residence and the New Residence; (iii) the closing costs
(including, without limitation, real estate commissions, transaction taxes,
filing fees, title and property inspections, appraisals, attorney fees, etc.)
incurred on the sale of Executive's existing residence and on the purchase of
the New Residence; (iv) the expenses (points) associated with the Executive's
mortgage on his New Residence, but not in excess of $20,000; and (v) housing
expenses in San Antonio through June 1999 or, if earlier, until Executive
completes his relocation to San Antonio. The Company will make Executive whole
for any taxes for which Executive becomes liable by reason of the reimbursements
and payments provided for in the preceding sentence. Executive agrees that (a)
the asking price for the sale of his existing residence will reasonably reflect
the relevant housing market under all of the circumstances, and (b) Executive
will consider any reasonable bona fide offer made to purchase his existing
residence. Upon request by the Compensation Committee, Executive will provide,
at the Company's expense, documentation evidencing his good faith adherence to
the terms of this Section 3.4, including, without limitation, appraisals and
other information relevant to determining the value of his existing residence.
3.5 OTHER COMPENSATION. Nothing in this Section 3 will preclude the
Compensation Committee from authorizing such additional compensation to the
Executive, in cash or in property, as the Compensation Committee may determine
in its sole discretion to be appropriate.
3.6 ANNUAL PERFORMANCE ]REVIEW. Executive will receive an annual
performance review by the Board in writing and in person within a reasonable
time following the close of the Company's fiscal year.
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4. EMPLOYEE BENEFITS.
4.1 EMPLOYEE BENEFIT PROGRAMS, PLANS AND PRACTICES. (i) During the
Term, subject to Section 3 and this Section 4, the Company will provide
Executive and his eligible dependents, subject to the terms and conditions of
the applicable plans, participation in all Company-sponsored employee benefit
plans, including all employee retirement income and welfare benefit policies,
plans, programs or arrangements in which senior executives of the Company
participate, in a manner commensurate with his position and level of
responsibility in the Company.
(ii) The Company will arrange for a supplemental disability
policy such that, in the aggregate, the disability benefits provided to
Executive will be 60% of Base Salary.
(iii) Without limiting the foregoing, during the Term,
Executive will participate in the same manner as other senior executives of the
Company in (a) the Company's 401 (k) plan and (b) the Company's split-dollar
life insurance program or alternative life insurance and retirement program
providing comparable benefits.
4.2 VACATION AND FRINGE BENEFITS. Executive will be entitled to four
weeks' vacation per year, effective on the Start Date. In addition, Executive
will be entitled to the perquisites and other fringe benefits made available to
senior executives of the Company, commensurate with his position and level of
responsibility with the Company, including, without limitation, one club
membership, tax and financial planning, and an allowance for, or, a Company car.
5. EXPENSES. The Company will promptly reimburse the Executive for all
travel and other business expenses that the Executive incurs in the course of
the performance of his duties to the Company under this Agreement in a manner
commensurate with the Executive's position and level of responsibility with the
Company and in accordance with the Company's policies and rules relating to the
reimbursement of such expenses.
6. RESTRICTED STOCK AND STOCK OPTIONS.
6.1 The Company will grant to Executive, effective on the Effective
Date, 5,000 shares of the Company's common stock (the "Restricted Stock"). The
Restricted Stock will be held in escrow and will be subject to forfeiture
(subject to Section 7.5) as set forth in the agreement evidencing the grant of
shares of Restricted Stock; PROVIDED, however, that on each of the first three
anniversary dates of the Effective Date, 5,000 shares of such Restricted Stock
will no longer be subject to forfeiture and will be released from escrow.
6.2 The Company will grant to Executive, effective on the Effective
Date, one option (the "First Option") to purchase 150,000 shares of the
Company's common stock and three options (the "Second Option," "Third Option,"
and "Fourth Option") each to purchase 50,000 shares of the Company's common
stock. (The First, Second, Third and Fourth Options will be
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referred to herein separately as an "Option" and collectively as the "Options.")
Each Option will have a 10-year term and an exercise price equal to the closing
price of the Company's common stock on the trading date immediately preceding
the Effective Date. The First Option will become exercisable in installments of
30,000 shares on each of the first five anniversary dates of the Effective Date,
provided that the Executive remains employed by the Company (subject to Sections
7.1 and 7.5) on such dates. The Second, Third and Fourth Options will become
exercisable in their entirety on the ninth anniversary date of the Effective
Date, provided that the Executive remains employed by the Company on such date;
PROVIDED, however, that the Second, Third and Fourth Options will become
exercisable earlier at the close of the first 15-consecutive trading-day period
over which the average closing price of the Company's common stock is at least
equal to a target price of-
$30 per share Second Option
$35 per share Third Option
$40 per share Fourth Option
Upon the achievement of a target price as set forth above, the Option will then
become exercisable in installments of 10,000 shares, determined retrospectively
as of each of the first five anniversary dates of the Effective Date. Thus, for
purposes of illustration only, if the target price of $30 per share were
achieved on October 1, 2000, 20,000 shares covered by the Second option would
immediately become exercisable on such date, and the remaining 30,000 shares
covered by the Second Option would become exercisable in installments of 10,000
shares on each of the third, fourth and fifth anniversary dates, respectively,
of the Effective Date, provided that the Executive remains employed by the
Company on such anniversary dates (subject to Section 7.5).
6.3 The grants of the shares of Restricted Stock and of the Options
will be made pursuant to, and subject to the terms, conditions and restrictions
set forth in, the Company's 1993 Stock Plan, as amended. The definitive terms of
the grants of the shares of Restricted Stock and the Options will be as set
forth in agreements previously provided to the Executive.
7. TERMINATION OF EMPLOYMENT. Notwithstanding the Term specified in
Section 2, the termination of the Executive's employment hereunder will be
governed by the following provisions:
7.1 DEATH. The Executive's employment will terminate upon his death
during the Term. In the event of the Executive's death during the Term, the
Company will pay to the Executive's beneficiaries or estate, as appropriate, as
soon as practicable after the Executive's death, (i) the unpaid Base Salary to
which the Executive is entitled, pursuant to Section 3. 1, and any other
compensation earned but not yet paid through the date of the Executive's
termination (,'collectively, the "Compensation Payments"), (ii) for any accrued
and/or unused vacation days (the "Vacation Payment"), (iii) the target bonus
under the Bonus Plan in respect of the fiscal year in which the Executive's
termination occurs, prorated for the number of days until Executive's
termination during such fiscal year (the "Prorated Bonus"), and (iv) any death
benefits under the employee benefit programs, plans and practices referred to in
Section 4. 1, in accordance with
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their terms. In the event of Executive's death prior to the effectiveness of the
alternative life insurance and retirement program described in Section 4. 1
(iii)(b), the First Option will become fully vested and exercisable for a period
of one year. This Section 7.1 will not limit the entitlement of the Executive's
estate or beneficiaries to any death or other benefits then available to the
Executive under any life insurance, stock ownership, stock options, or other
benefit plan or policy that is maintained by the Company for the Executive's
benefit or otherwise.
7.2 PERMANENT DISABILITY. If the Executive becomes totally and
permanently disabled (as defined in the Company's Long-Term Disability Benefit
Plan available to senior executive officers as in effect at the time Executive's
disability is incurred) ("Permanent Disability") during the Term, the Company or
the Executive may terminate Executive's employment on written notice thereof in
accordance with Section 12.5, and (a) the Company will provide to the Executive
as soon as practicable: (i) amounts payable pursuant to the terms of any
applicable disability insurance policy or policies or similar arrangement that
the Company maintains during the Term, (ii) the Prorated Bonus, (iii) the
Vacation Payment, (iv) the Compensation Payments, and (v) such payments under
applicable plans or programs, including but not limited to those referred to in
Section 4.1, to which the Executive is entitled pursuant to the terms of such
plans or programs, and (b) the Executive will retain eligibility as an employee
for the Company's medical plan until the disability ends, other insurance
providing comparable benefits is secured, or the Executive attains age 65,
whichever occurs first.
7.3 VOLUNTARY TERMINATION BY EXECUTIVE; DISCHARGE FOR CAUSE. (i)
During the Term, the Company may terminate the Executive's employment hereunder
for Cause (as defined below). In the event that during the Term the Executive's
employment is terminated by the Company for Cause or by the Executive other than
for Good Reason (as defined below) or other than as a result of the Executive's
Permanent Disability or death, the Company will pay as soon as practicable to
the Executive (or his representative) (a) the Compensation Payments and (b) the
Vacation Payment, and the Executive will be entitled to no other compensation,
except as otherwise due to him under applicable law or the terms of any
applicable plan or program. Executive will not be entitled, among other things,
to the payment of any bonus in respect of all or any portion of the fiscal year
in which such termination occurs.
(ii) For purposes of this Agreement, the Company will have
"Cause" to terminate the Executive's employment hereunder upon a finding by the
Board that (a) the Executive has been convicted by a court of competent
jurisdiction of the commission of a felony, (b) the Executive has willfully and
continuously failed to perform material assigned duties after written notice
from the Board of such failure and Executive fails to cure such failure within a
reasonable period after receipt of such notice, (c) the Executive engaged in
willful misconduct that is materially injurious to the Company, or (d) the
Executive materially breached any of the express covenants set forth in Section
10.1 or 10.5.
(iii) The Company may not terminate the Executive's employment
for Cause under this Section 7.3 unless, in the case of Section 7.3(ii)(b), the
Executive has not cured the failure in the manner specified therein, and unless
and until the Company provides the Executive with written notice in accordance
with Section 12.5 that the Company intends to
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terminate his employment for Cause. Such written notice will specify the
particular act or acts, or failure to act, that is or are the basis for the
decision to so terminate the Executive's employment for Cause. The Employee will
be given the opportunity within 30 calendar days of the receipt of such notice
to meet with the Board to defend such act or acts, or failure to act.
Thereafter, the Executive's employment by the Company may be terminated under
this Section 7.3 for Cause as of the receipt of a written notice (or, if later,
the date specific in such notice) from the Company terminating the Executive for
Cause accompanied by a copy of a resolution duly adopted by the affirmative vote
of not loss than three-quarters of the Board (excluding the Executive) finding
Cause and terminating Executive's employment for Cause. A notice of termination
for Cause given under this Section 7.3 must set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination.
7.4 TERMINATION.
(i) INVOLUNTARY TERMINATION. During the Term, the Executive's
employment hereunder may be terminated by the Company for any reason other than
Cause by delivery in accordance with Section 12.5 to the Executive at least 90
days prior to the proposed Termination Date of a notice of termination and a
copy of a resolution duly adopted by the affirmative vote of a majority of the
full number of directors constituting the Board at a meeting Of the Board called
and held for the purpose of terminating Executive's employment. The Executive
will be treated for purposes of this Agreement as having been involuntarily
terminated Other than for Cause if during the Term the Executive terminates his
employment with the Company prior to termination for Cause for any of the
following reasons (each, a "Good Reason"): without the Executive's written
consent, (a) the Company has breached any material provision of this Agreement
and within 30 days after notice thereof from the Executive, the Company fails to
cure such breach; (b) a successor or assign (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company fails to assume liability under the
Agreement; (c) the failure to elect or reelect or otherwise to maintain the
Executive as President, Chief Executive Officer and as a director of the Company
(or any successor entity by operation of law or otherwise); or (d) at any time
after the Company has notified the Executive pursuant to Section 2 that the
Company does not intend to renew the Agreement and the Executive's employment
at the end of the Term (including any previous renewals) (rather than to allow
the Agreement automatically to renew).
(ii) VOLUNTARY TERMINATION. During the Term, the Executive
may voluntarily terminate the Agreement at any time upon 90 days' prior notice
to the Company as provided in Section 12.5. The Executive's death or Permanent
Disability during the Term will be deemed to constitute a voluntary termination
of employment for purposes of eligibility for termination payments and benefits
as provided in Section 7.5, but for no other purpose.
7.5 TERMINATION PAYMENTS AND BENEFITS.
(i) FORM AND AMOUNT. Upon the Executive's involuntary
termination other than for Cause pursuant to Section 7.4(i), (a) the Company
will pay or provide as soon as practicable to the Executive (1) the Prorated
Bonus, (2) the Vacation Payment, (3) the
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Compensation Payments, (4) such payments under applicable plans or programs to
which the Executive is entitled pursuant to the terms of such plans or programs,
(5) a payment equal to two times the sum of Base Salary plus two times target
annual bonus pursuant to the Bonus Plan, (6) for 24 months (the "Continuation
Period"), the continuation of employee welfare benefits set forth in Section 4.1
except as offset by benefits paid or provided by other sources as set forth in
Section 8, or as prohibited by law, and (7) outplacement services by a firm
selected by the Executive, at the expense of the Company, in an amount up to
$30,000; and (b) notwithstanding any provision to the contrary in the applicable
award agreement or in any plan, (i) all restrictions pertaining to the shares of
Restricted Stock will lapse, (ii) the First Option will become fully vested and
exercisable for one year thereafter, (iii) any of the Second, Third or Fourth
Options that otherwise became exercisable prior to the Termination Date will
become fully vested and exercisable for one year thereafter. Notwithstanding the
foregoing, in the case of a termination of employment pursuant to Section
7.4(i)(d) (Good Reason due to Company's notice of nonrenewal of the Agreement),
"one times" will be substituted for "two times" in Section 7.5(i)(a)(5) and " 12
months" will be substituted for "24 months" in Section 7.5(i)(a)(6). For
purposes of determining the period of continuation coverage to which the
Executive or any of his dependents is entitled tinder Section 4980B of the
Internal Revenue Code of 1986, as amended (or any successor provision thereto),
under any group health plan maintained by the Company or its affiliates, the
Executive will be deemed to have remained employed until the end of the
Continuation Period.
(ii) TIME AND MANNER OF PAYMENT. The cash amounts due to
Executive pursuant to Section 7.5(i)(a) will be paid by the Company within five
business days after the Executive's Termination Date by check payable to the
order of Executive or by wire transfer to an if account specified by Executive;
PROVIDED, HOWEVER, that any earned bonus included in the Compensation Payment
and any payments due under Section 7.5(i)(a)(4) will be paid in accordance with
the terms of the applicable plan or program.
(iii) MAINTENANCE OF BENEFITS. During the Continuation Period,
the Company will use its best efforts to maintain in full force and effect for
the continued benefit of the Executive all benefits referenced in Section
7.5(i)(a)(6) or will arrange to make available to the Executive benefits
substantially similar to those that the Executive would otherwise have been
entitled to receive if his employment had not been terminated. Such benefits
will be provided to the Executive on the same terms and conditions (including
employee contributions toward the premium payments) under which the Executive
was entitled to participate immediately prior to his termination at no
additional cost (including, without limitation, additional taxes thereon) to the
Executive. If the Executive decides not to continue making premium payments on
his split-dollar life insurance policy, Executive agrees that he will promptly
reassign the policy to the Company.
(iv) FORFEITURE. Notwithstanding the foregoing provisions of
Section 7.5, any right of the Executive to receive benefits under Section
7.5(i)(6) and Section 7.5(i)(7) will be forfeited to the extent of any amounts
payable or benefits to be provided after a material breach of the covenants set
forth in Section 10.1 or 10.2.
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7.6 NONDUPLICATION OF BENEFITS. To the extent, and only to the
extent, a payment or benefit that is paid or provided under this Section 7 would
also be paid or provided under the terms of the applicable plan, program,
agreement or arrangement, including, without limitation, the Executive's
Severance Agreement described in Section 9, such applicable plan, program,
agreement or arrangement will be deemed to have been satisfied by the payment
made or benefit provided under this Agreement.
7.7 RESIGNATION AS A DIRECTOR. Immediately upon Executive's
termination of employment with the Company for any reason, Executive will resign
as a member of the Board and of the board of directors of each subsidiary of the
Company. The Company's obligations to Executive under this Section 7 will be
conditioned on Executive furnishing such resignations.
8. MITIGATION AND OFFSET. The Executive is under no obligation to mitigate
damages or the amount of any payment or benefit provided for hereunder by
seeking other employment or otherwise and no amounts earned by the Executive,
whether from self-employment, as common law employee or otherwise, will reduce
the amount of any payment or benefit under any provision of this Agreement;
PROVIDED, HOWEVER, that the Executive's coverage under the Company's welfare
benefits as provided in Section 7.5(i)(a)(6) will terminate as soon as the
Executive becomes covered under any comparable employee benefit plan made
available by another employer and covering the same type of benefits. The
Executive will report to the Company any such benefits actually received by him.
9. CHANGE-IN-CONTROL PROVISIONS.
9.1 The Executive will be offered the Company's form of
change-in-control Severance Agreement (the "Severance Agreement"), to be
effective as of the Start Date and continue throughout the Term; PROVIDED,
however, that Section 3(c) of the Severance Agreement will be revised to
substitute "six-month anniversary" for "first anniversary."
9.2 Either the Executive's Severance Agreement or the agreements
evidencing the grants of the shares of Restricted Stock and the Options will
provide that upon the occurrence of a "Change in Control" (as defined in the
Severance Agreement), all restrictions pertaining to the shares of Restricted
Stock will lapse and all of the Options will become fully vested and
exercisable.
10. COVENANTS.
10.1 CONFIDENTIALITY. During the Term, the Company agrees that it
will disclose to Executive its confidential or proprietary information (as
defined in this Section 10.1) to the extent necessary for Executive to carry out
his obligations under this Agreement. The Executive hereby covenants and agrees
that he will not, without the prior written consent of the Company, during the
Term or thereafter intentionally and wrongfully disclose to any person not
employed by, representing, or engaged by, the Company or any of its
subsidiaries, or to any director of the Company or any of its subsidiaries, or
intentionally and wrongfully use in connection with engaging in competition with
the Company, any confidential or proprietary information of the
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Company. For purposes of this Agreement, the term "confidential or proprietary
information" means all material information of a confidential and proprietary
nature and in any form that is owned by the Company and that is not publicly
available (other than by Executive's breach of this Section 10.1) or generally
known to persons engaged in businesses similar or related to those of the
Company. Confidential or proprietary information may include, without
limitation, the Company's financial matters, customers, employees, industry
contracts, strategic business plans, product development (or other proprietary
product data), marketing plans, and all other secrets and all other information
of a confidential or proprietary nature. For purposes of the preceding two
sentences, the term "Company" will also include its affiliates (collectively,
the "Restricted Group"). The foregoing obligations imposed by this Section 10. 1
will not apply (i) during the Term, in the course of the business of and for the
benefit of the Company, (ii) if such confidential or proprietary information is
or will have become, through no fault of the Executive, known to the public or
(iii) if the Executive is required by law to make disclosure (after giving the
Company notice and an opportunity to contest such requirement).
10.2 NONSOLICITATION. The Executive hereby covenants and
agrees that during the Term and for one year thereafter he will not, without the
prior written consent of the Company, on his own behalf or on behalf of any
person, firm or company, directly or indirectly, solicit or attempt to solicit
any employee of the Restricted Group to give up employment with the Restricted
Group. The Company agrees that neither advertisement of employment positions,
nor contact of an employee of the Company by an executive search firm that has
not been instructed to target a Company employee, nor a contact initiated by a
Company employee regarding employment will be considered "solicitation" for
purposes of this Section 10.2.
10.3 ENFORCEMENT. Executive and the Company agree that the covenants
contained in Sections 10.1 and 10.2 are reasonable under the circumstances, and
further agree that if in the opinion of the court of competent jurisdiction any
such covenant is not reasonable in any respect, such court will have the right,
power and authority to excise or modify any provision or provisions of such
covenants as to the court will appear not reasonable and to enforce the
remainder of the covenants as so amended. Executive acknowledges and agrees that
the remedy at law available to the Company for breach of any of his obligations
under Sections 10.1 and 10.2 would be inadequate and that damages flowing from
such a breach may not readily be susceptible to being measured in monetary
terms. Accordingly, Executive acknowledges, consents and agrees that, in
addition to any other rights or remedies that the Company may have at law, in
equity or under this Agreement, upon adequate proof of his violation of any such
provision of this Agreement, the Company will be entitled to immediate
injunctive relief and may obtain a temporary order restraining any threatened or
further breach, without the necessity of proof of actual damage.
10.4 POST-TERMINATION ASSISTANCE. The Executive agrees that after
his employment with the Company has terminated he will provide, upon reasonable
notice, such information and assistance to the Company as may reasonably be
requested by the Company in connection with any litigation in which it or any of
its affiliates is or may become a party; PROVIDED, however, that the Company
agrees to reimburse the Executive for any related out-of pocket expenses,
including travel expenses.
-10-
<PAGE>
10.5 PRIVATE PLANE. The Executive agrees that during the Term the
Executive will not fly his plane on Company business.
11. SURVIVAL. The expiration or termination of the Term will not impair
the rights or obligations of any party hereto that accrue hereunder prior to
such expiration or termination, except to the extent specifically stated herein.
In addition to the foregoing, the Executive's covenants contained in Sections
10.1, 10.2 and 10.4 and the Company's obligations under Sections 7 and 12.1 will
survive the expiration or termination of Executive's employment.
12. MISCELLANEOUS PROVISIONS.
12.1 DISPUTE RESOLUTION. Any dispute between the parties under this
Agreement will be resolved (except as provided below) through informal
arbitration (located in the city in which the Company's principal executive
offices are based) by an arbitrator selected under the rules of the American
Arbitration Association and the arbitration will be conducted in that location
under the rules of said Association. Each party will be entitled to present
evidence and argument to the arbitrator. The arbitrate will have the right only
to interpret and apply the provisions of this Agreement and may not change any
of its provisions. The arbitrator will permit reasonable pre-hearing discovery
of facts, to the extent necessary to establish a claim or a defense to a claim,
subject to supervision by the arbitrator. The determination of the arbitrator
will be conclusive and binding upon the parties and judgment upon the same may
be entered in any court having jurisdiction thereof The arbitrator will give
written notice to the parties stating his or their determination, and will
furnish to each party a signed copy of such determination. The expenses of
arbitration will be born equally by the Executive and the Company or as the
arbitrator otherwise equitably determines. Notwithstanding the foregoing, the
Company will not be required to seek or participate in arbitration regarding any
breach of the Executive's covenants contained in Sections 10.1, 10.2, 10.3 or
10.5, but may pursue its remedies for such breach in a court of competent
jurisdiction in the city in which the Company's principal executive offices are
based. Any arbitration or action pursuant to this Section 12.1 will be governed
by and construed in accordance with the substantive laws of the State of Texas,
without giving effect to the principles of conflict of laws of such State.
12.2 BINDING ON SUCCESSORS; ASSIGNMENT. This Agreement will be
binding upon and inure to the benefit of the Company, the Executive and each of
their respective successors, assigns, personal and legal representatives,
executors, administrators, heirs, distributees, devisees, and legatees, as
applicable; PROVIDED, however, that neither this Agreement nor any rights or
obligations hereunder will be assignable or otherwise subject to hypothecation
by Executive (except by will or by operation of the laws of intestate
succession) or by the Company, except that the Company may assign this Agreement
to any successor (whether by merger, purchase or otherwise) to all or
substantially all of the stock, assets or businesses of the Company, if such
successor expressly agrees to assume the obligations of the Company hereunder.
-11-
<PAGE>
12.3 GOVERNING Law. This Agreement will be governed, construed,
interpreted and enforced in accordance with the substantive laws of the State of
Texas, without regard to conflicts of law principles.
12.4 SEVERABILITY. Any provision of this Agreement that is deemed
invalid, illegal or unenforceable in any jurisdiction will, as to that
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability, without affecting in any way the remaining provisions hereof
in such jurisdiction or rendering that or any other provisions of this Agreement
invalid, illegal, or unenforceable in any other jurisdiction. If any covenant
should be deemed invalid, illegal or unenforceable because its scope is
considered excessive, such covenant will be modified so that the scope of the
covenant is reduced only to the minimum extent necessary to render the modified
covenant valid, legal and enforceable.
12.5 NOTICES. For all purposes of this Agreement, all
communications, including without limitation notices, consents, requests or
approvals, required or permitted to be given hereunder will be in writing and
will be deemed to have been duly given when hand delivered or dispatched by
electronic facsimile transmission (with receipt thereof confirmed), or five
business days after having been mailed by United States registered or certified
mail, return receipt requested, postage prepaid, or three business days after
having been sent by a nationally recognized overnight courier service such as
Federal Express, UPS, or Purolator, addressed to the Company (to the attention
of the Secretary of the Company) at its principal executive office and to the
Executive at his principal residence, or to such other address as any party may
have finished to the other in writing and in accordance herewith, except that
notices of changes of address will be effective only upon receipt.
12.6 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which will be deemed to be an original, but all of which
together will constitute one and the same Agreement.
12.7 ENTIRE AGREEMENT. The terms of this Agreement are intended by
the parties to be the final expression of their agreement with respect to the
Executive's employment by the Company and may not be contradicted by evidence of
any prior or contemporaneous agreement. The parties further intend that this
Agreement will constitute the complete and exclusive statement of its terms and
that no extrinsic evidence whatsoever may be introduced in any judicial,
administrative or other legal proceeding to vary the terms of this Agreement.
12.8 AMENDMENTS; WAIVERS. This Agreement may not be modified,
amended, or terminated except by an instrument in writing, approved by the
Company and signed by the Executive and the Company. Failure on the part of
either party to complain of any action or omission, breach or default on the
part of the other party, no matter how long the same may continue, will never be
deemed to be a waiver of any rights or remedies hereunder, at law or in equity.
The Executive or the Company may waive compliance by the other party with any
provision of this Agreement that such other party was or is obligated to comply
with or perform only through an executed writing; PROVIDED, HOWEVER, that such
waiver will not operate as a waiver of, or estoppel with respect to, any other
or subsequent failure.
-12-
<PAGE>
12.9 NO INCONSISTENT ACTIONS. The parties will not voluntarily
undertake or fail to undertake any action or course of action that is
inconsistent with the provisions or essential intent of this Agreement.
Furthermore, it is the intent of the parties hereto to act in a fair and
reasonable manner with respect to the interpretation and application of the
provisions of this Agreement.
12.10 HEADINGS AND SECTION REFERENCES. The headings used in this
Agreement are intended for convenience or reference only and will not in any
manner amplify, limit, modify or otherwise be used in the construction or
interpretation of any provision of this Agreement. All section references are to
sections of this Agreement, unless otherwise noted.
12.11 BENEFICIARIES. Executive will be entitled to select (and
change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder following
Executive's death, and may change such election, in either case by giving the
Company written notice thereof. In the event of Executive's death or a judicial
determination of his incompetence, reference in this Agreement to "Executive"
will be deemed, where appropriate, to his beneficiary, estate or other legal
representative.
12.12 WITHHOLDING. The Company will be entitled to withhold from
payment any amount of withholding required by law.
12.13 AUTHORITY. The Company represents and warrants that it and its
signatory hereto are duly authorized and empowered to execute and enter into
this Agreement without any further action or approval.
12.14 INTERIM EMPLOYMENT. Executive agrees, if so requested by the
Company, to make himself available as a part-time employee of the Company
commencing on the Effective Date and continuing up to the Start Date. Executive
will be compensated for such service at a rate of $5,000 per month, prorated for
the period of actual service.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date and year first above written.
/s/RONALD A. RITTENMEYER
Ronald A. Rittenmeyer
RAILTEX, INC., a Texas corporation
/s/By:BRUCE M. FLOHR
Bruce M. Flohr, Chairman of the Board
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,932
<SECURITIES> 0
<RECEIVABLES> 30,306
<ALLOWANCES> 1,262
<INVENTORY> 0
<CURRENT-ASSETS> 37,063
<PP&E> 338,694
<DEPRECIATION> 50,981
<TOTAL-ASSETS> 352,150
<CURRENT-LIABILITIES> 41,824
<BONDS> 150,272
0
0
<COMMON> 921
<OTHER-SE> 140,130
<TOTAL-LIABILITY-AND-EQUITY> 352,150
<SALES> 0
<TOTAL-REVENUES> 117,574
<CGS> 0
<TOTAL-COSTS> 98,044
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 13
<INTEREST-EXPENSE> 8,316
<INCOME-PRETAX> 12,794
<INCOME-TAX> 4,917
<INCOME-CONTINUING> 7,877
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,877
<EPS-PRIMARY> 0.86
<EPS-DILUTED> 0.85
</TABLE>
