<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1998
Commission File No. 0-20618
RAILAMERICA, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 65-0328006
- ------------------------------ -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
301 YAMATO ROAD, SUITE 1190, BOCA RATON, FLORIDA 33431
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(561) 994-6015
- --------------------------------------------------------------------------------
(Issuer's telephone number)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes XX No
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:
Common Stock, par value $.001 - 9,479,957 shares as of May 12, 1998
<PAGE> 2
RAILAMERICA, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
QUARTER ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets - March 31, 1998 and
December 31, 1997 1
Consolidated Statements of Income - For the three months
ended March 31, 1998 and 1997 2
Consolidated Statements of Cash Flows - For the three
months ended March 31, 1998 and 1997 3
Notes to Consolidated Financial Statements 4
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 17
Signatures
</TABLE>
<PAGE> 3
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------- -------------
<S> <C> <C>
Current assets:
Cash $ 4,273,586 $ 3,745,534
Accounts receivable 9,633,934 8,388,291
Notes receivable 814,316 1,103,409
Inventories 10,101,472 5,013,106
Other current assets 781,410 497,207
------------- -------------
Total current assets 25,604,718 18,747,547
Property, plant and equipment, net 82,329,078 74,900,836
Notes receivable, less current portions 1,336,037 1,339,169
Investment in Great Southern Railway Limited 1,789,995 1,789,995
Other assets 3,076,117 2,021,433
Excess of cost over net assets of companies acquired, net 2,182,740 2,036,023
------------- -------------
Total assets $ 116,318,685 $ 100,835,003
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 5,202,643 $ 3,923,036
Current maturities of subordinated debt 212,392 212,392
Accounts payable 13,088,318 6,084,119
Accrued expenses and income taxes payable 3,906,263 3,327,497
------------- -------------
Total current liabilities 22,409,616 13,547,044
------------- -------------
Long-term debt, less current maturities 46,560,677 43,875,163
Subordinated debt, less current maturities 3,212,392 3,265,490
Deferred income taxes 7,310,547 7,067,237
Minority interest 6,528,143 6,266,243
Commitments and Contingencies
Stockholders' equity:
Common stock, $.001 par value, 30,000,000 shares authorized;
9,608,819 issued and 9,337,630 outstanding at March 31, 1998;
9,129,564 issued and 8,858,375 outstanding at December 31, 1997 9,609 9,130
Additional paid-in capital 25,628,221 23,350,732
Retained earnings 5,486,612 4,883,973
Accumulated other Comprehensive Income 618,250 15,373
Less treasury stock (271,189 shares at cost, respectively) (1,445,382) (1,445,382)
------------- -------------
Total stockholders' equity 30,297,310 26,813,826
------------- -------------
Total liabilities and stockholders' equity $ 116,318,685 $ 100,835,003
============= =============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
1
<PAGE> 4
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the three months ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Operating revenues:
Transportation - railroad $ 5,581,127 $ 4,308,671
Manufacturing 8,582,725 4,074,019
Other 272,133 351,622
------------ ------------
Total operating revenue 14,435,985 8,734,312
------------ ------------
Operating expenses:
Transportation - railroad 2,778,604 2,239,807
Cost of goods sold - manufacturing 6,191,757 3,121,049
Selling, general and administrative 2,745,892 1,810,716
Depreciation and amortization 701,526 570,637
------------ ------------
Total operating expenses 12,417,779 7,742,209
------------ ------------
Operating income 2,018,206 992,103
Interest expense (993,178) (709,434)
Other income (expense) 151,465 (93,748)
Minority interest in income of subsidiary (261,900) (19,440)
------------ ------------
Income from continuing operations before
income taxes 914,593 169,481
Provision for income taxes 246,715 56,813
------------ ------------
Income from continuing operations 667,878 112,668
Discontinued operations
Loss from operations of discontinued Motor
Carrier segment (less applicable income tax
benefit of $44,000 and $38,000, respectively) (65,241) (61,680)
------------ ------------
Net Income $ 602,637 $ 50,988
============ ============
=============================================================================================
Basic earnings per common share
Continuing operations $ 0.07 $ 0.01
Discontinued operations (0.00) (0.00)
============ ============
Net income $ 0.07 $ 0.01
============ ============
Diluted earnings per common share
Continuing operations $ 0.07 $ 0.01
Discontinued operations (0.01) (0.00)
============ ============
Net income $ 0.06 $ 0.01
============ ============
Weighted average common shares and common
share equivalents outstanding:
Basic 9,184,636 7,514,538
============ ============
Diluted 10,262,575 7,955,216
============ ============
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
2
<PAGE> 5
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 602,637 $ 50,988
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 885,175 688,509
Minority interest in income of subsidiary 261,900 19,440
Gain on sale of properties (7,436) --
Deferred income taxes (196,486) 81,582
Changes in operating assets and liabilities,
net of acquisitions and dispositions:
Accounts receivable (204,373) (66,183)
Inventories (3,354,847) (194,420)
Other current assets (272,983) 52,796
Accounts payable 5,374,206 (184,943)
Accrued expenses 471,882 155,142
Deposits and other 773,302 (2,609)
------------ ------------
Net cash provided by operating activities 4,332,977 600,302
------------ ------------
Cash flows from investing activities:
Purchase of property, plant and equipment (5,713,008) (1,013,424)
Proceeds from sale of properties 47,159 --
Acquisitions, net of cash acquired (1,722,428) (7,389,903)
Deferred acquisition costs and other (80,191) (70,453)
------------ ------------
Net cash used in investing activities (7,468,468) (8,473,780)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 11,877,485 10,437,800
Principal payments on debt and capital leases (9,884,095) (10,905,457)
Sale of common stock 940,050 6,176,999
Proceeds from exercise of stock options 755,175 --
Deferred financing costs paid (873) (89,030)
Deferred loan costs paid (24,199) (16,066)
------------ ------------
Net cash provided by financing activities 3,663,543 5,604,246
------------ ------------
Net increase (decrease) in cash 528,052 (2,269,232)
Cash, beginning of period 3,745,534 3,879,972
------------ ------------
Cash, end of period $ 4,273,586 $ 1,610,740
============ ============
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
3
<PAGE> 6
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION:
The consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. 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.
In the opinion of Management, the consolidated financial statements
contain all adjustments of a recurring nature, and disclosures
necessary to present fairly the financial position of the Company as of
March 31, 1998 and December 31, 1997, and the results of operations and
cash flows for the three months ended March 31, 1998 and 1997.
The accounting principles which materially affect the financial
position, results of operations and cash flows of the Company are set
forth in Notes to the Consolidated Financial Statements which are
included in the Company's 1997 annual report on Form 10-K. Capitalized
terms used but not otherwise defined herein have the meanings set forth
in the Company's 1997 annual report on Form 10-K.
2. EARNINGS PER SHARE:
In 1997, the Company adopted Statement of Accounting Standards No. 128,
"Earnings Per Share", which requires the presentation of both basic and
diluted earnings per share. For the three months ended March 31, 1998
and 1997, basic earnings per share is based on the weighted average
number of common shares outstanding during the period. Diluted earnings
per share is based on the sum of the weighted average number of common
shares outstanding plus common stock equivalents arising out of stock
options, warrants and convertible debt. The convertible debt is
anti-dilutive for the three months ended March 31, 1997 and is
therefore not included in the computation. Earnings per share
information for 1997 has been restated to conform to the requirements
of the standard.
The following is a summary of the net income available for common
stockholders and weighted average shares for the diluted calculation
(in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Income from continuing operations $668 $113
Interest from convertible debt 38 --
---- ----
Income from continuing operations
available to common stockholders $706 $113
==== ====
</TABLE>
4
<PAGE> 7
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. EARNINGS PER SHARE, continued
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Weighted average shares outstanding 9,185 7,515
Assumed conversion of options and warrants 269 440
Assumed conversion of convertible debt 809 --
------ ------
Weighted average shares outstanding 10,263 7,955
====== ======
</TABLE>
3. ACQUISITION
In January 1998, the Company acquired, through its wholly owned
subsidiary Kalyn/Siebert, Inc. all of the outstanding stock of Canadian
truck trailer manufacturer Fabrex, Inc. and its affiliate, Service
Remorques Plus, Inc. (collectively "Fabrex") for approximately $1.5
million in cash and 70,000 shares of RailAmerica common stock and
assumption of approximately $1.0 million of long-term debt. Fabrex's
operations have been combined into Kalyn/Siebert Canada, Inc. ("KSC"),
a wholly owned subsidiary of Kalyn/Siebert, Inc. This acquisition has
been accounted for as a purchase and its results have been consolidated
since January 1, 1998.
Fabrex, located in Trois Rivieres, Quebec, a manufacturer of specialty
bulk-hauling truck trailers used in the solid waste, agricultural and
construction industries, was founded in 1985.
4. INVENTORIES:
Inventories consist of the following as of March 31, 1998 and
December 31, 1997.
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Raw materials $ 5,819,260 $ 3,404,234
Work in process 1,561,071 1,109,318
Finished goods 1,313,520 300,853
Replacement or repair parts for equipment
and road property 2,206,965 1,054,830
------------ ------------
10,900,816 5,869,235
Less, advances related to materials (799,344) (856,129)
------------ ------------
Inventories in excess of contract advances $ 10,101,472 $ 5,013,106
============ ============
</TABLE>
5
<PAGE> 8
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. INCOME TAX PROVISION:
The difference between the U.S. federal statutory tax rate and the
Company's effective rate from continuing operations is primarily due to
the Chilean tax rate on income from Ferronor.
6. DISCONTINUED OPERATIONS:
Operating results of the discontinued operations, as shown below,
include the operations of the Motor Carrier division for the three
months ended March 31, 1998 and 1997.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1998 1997
------- -------
(Thousands)
<S> <C> <C>
Revenues $ 1,827 $ 1,774
Depreciation and amortization 95 94
Operating income (loss) (35) (49)
Loss before taxes (105) (100)
Benefit for income taxes 40 38
Net loss $ (65) $ (62)
</TABLE>
Net assets of the discontinued business held for sale at March 31,
1998 consisted of current assets of $0.8 million, noncurrent assets
of $4.2 million, and total liabilities of $3.7 million.
7. SUBSEQUENT EVENTS:
In April 1998, the Company acquired, through its wholly-owned
subsidiary Saginaw Valley Railway Company, a 51 mile rail line in
Michigan from CSX Transportation.
In April 1998, Kalyn purchased a 105,000 square foot manufacturing
facility in Trois Rivieres, Quebec for approximately $1.2 million.
8. Comprehensive Income:
On January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income", which
established standards for reporting and display of comprehensive
income and its components in a full set of financial statements.
Comprehensive income is defined as the change in stockholders' equity
during a period from transactions from nonowner sources.
Comprehensive income consists of net income and other comprehensive
income, which includes all other nonowner changes in stockholders'
equity.
For the Company, other comprehensive income consist of foreign
currency translation adjustments that amounted to credits of $602,877
and $15,373 for the three months ended March 31, 1998 and 1997,
respectively. Comprehensive income for the three months ended March
31, 1998 and 1997 amounted to $1,205,514 and $66,361, respectively.
The Cumulative Adjustment amount previously reported as a separate
component of stockholders' equity is now included in Accumulated
Other Comprehensive Income in the Consolidated Balance Sheets.
6
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The principal operations of RailAmerica, Inc. (together with its
consolidated subsidiaries, the "Company") include the operation of short line
and regional railroads and trailer manufacturing. The Company hauls varied
products for its customers corresponding to their local operating areas, which
historically have consisted primarily of agricultural commodities. The Company's
trailer production facility, located in Texas, manufactures a broad range of
specialty truck trailers which are marketed to a customer base in the commercial
and government sectors.
The Company's historical growth has resulted primarily from the
execution of its acquisition strategy and internal growth. In accordance with
its acquisition strategy, in February 1997, the Company purchased a majority
interest in the stock of Empresa de Transporte Ferrovario S.A. ("Ferronor"), a
railroad serving northern Chile with approximately 1,400 miles of rail line.
Additionally, the Company acquired a 60 mile rail line in and around Hinckley,
Minnesota. The Company began operation of the rail line September 8, 1997,
through its wholly-owned subsidiary St. Croix Valley Railroad Company ("SCXY").
The number of miles of track operated by RailAmerica has grown to approximately
950 miles in the United States and 2,350 miles worldwide at March 31, 1998. The
Company expanded its trailer manufacturing operations with the acquisition of
Fabrex, Inc and its affiliate, Service Remorques Plus, Inc. (collectively
"Fabrex"), in January 1998. Fabrex, located in Trois Rivieres, Quebec, is a
manufacturer of specialty bulk-hauling truck trailers used in the solid waste,
agricultural and construction industries.
The Company has added railroad properties to its portfolio primarily
through the acquisition of branch and light density rail lines from larger
railroads. Because of the acquisitions and variations in the structure, timing
and size of portfolio additions, the Company's results of operations in any
reporting period may not be directly comparable to its results of operations in
any other reporting period.
Set forth below is a discussion of the results of operations for the
Company's railroad operations, trailer manufacturing operations and corporate
overhead and other.
RAILROAD OPERATIONS
The Company's railroad subsidiaries operated approximately 2,350 miles
of rail lines as of March 31, 1998. These consist of: (i) 136 miles of rail line
which it owns in Michigan; (ii) 4 miles of trackage rights and 45 miles of rail
line which are owned by the State of Michigan and operated pursuant to an
agreement with Michigan Department of Transportation; (iii) 49 miles of rail
line leased from the South Central Tennessee Railroad Authority near Nashville,
Tennessee and 3 miles of trackage rights; (iv) 45 miles of rail line in
Pennsylvania, 18 miles of which the Company is negotiating to purchase from the
Commonwealth of Pennsylvania and 27
7
<PAGE> 10
miles of which are operated under a freight easement with the Commonwealth of
Pennsylvania; (v) 10 miles of rail line in Delaware made available to the
Company pursuant to a lease with the Wilmington & Northern Railroad Company;
(vi) 44 miles of rail line which the Company is operating pursuant to a contract
with the State of Minnesota; (vii) 104 miles of rail line which it owns and 4
miles of trackage rights in West Texas; (viii) 131 miles of rail line which it
owns in the state of Washington; (ix) 72 miles of rail line which it owns in
central Minnesota; (x) 204 miles of rail line it owns in northern Minnesota and
37 miles of trackage rights; (xi) 44 miles of rail line it owns in central
Minnesota and 16 miles of trackage rights; and (xii) 1,400 miles of rail line in
northern Chile.
The Company provides its customers with local rail freight services
with access to the nation's rail system for delivery of products both
domestically and internationally. The Company hauls varied products for its
customers based upon market demands in each customer's local operating area. The
Company's haulage of products in Michigan includes agricultural commodities,
automotive parts, chemicals and fertilizer, ballast and other stone products.
The Company's haulage of products in Tennessee includes wood chips, paper,
chemicals and processed food products. The Company's haulage of products in
Pennsylvania and Delaware includes iron and steel products, chemicals,
agricultural products, lumber and processed food products. The Company's haulage
of products in Minnesota includes plastics, lumber, denatured alcohol, scrap
iron and steel. The Company's haulage of products in Texas consists of cotton,
sodium sulfate, chemicals, fertilizer, scrap iron and steel. The Company's
haulage of products in Washington consists of wood chips, lumber, minerals,
cement and various agricultural products. The Company's haulage of products in
Chile consists of copper, iron ore, limestone and other commodities.
RESULTS OF RAILROAD OPERATIONS
The discussion of results of operations that follows reflects the
consolidated results of the Company's Railroad Operations for the three months
ended March 31, 1998 and 1997. The results of railroad operations include the
operations of Evansville Terminal Company ("ETC") from July 1, 1996 to September
30, 1997, Gettysburg Railway from November 1996 to September 1997, Ferronor from
February 20, 1997 and SCXY from September 8, 1997. As a result, the results of
operations for the three months ended March 31, 1998 are not comparable to the
corresponding period of the prior year in certain material respects.
The following table sets forth the operating revenues and expenses for
the Company's domestic railroad operations for the periods indicated. All
results of operations discussed in this section are for the Company's domestic
railroads only, unless otherwise indicated.
8
<PAGE> 11
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------------
1998 1997
---------- ----------
Revenue:
Transportation revenue $3,474,127 $3,631,671
Other revenue 124,533 257,002
---------- ----------
Total revenue 3,598,660 3,888,673
---------- ----------
Operating Expenses:
Maintenance of way 525,888 588,368
Maintenance of equipment 184,476 193,823
Transportation 822,608 837,644
Equipment rental 78,170 172,151
General and administrative 651,519 650,469
Depreciation and amortization 354,244 371,601
---------- ----------
Total operating expenses 2,616,905 2,814,056
---------- ----------
Operating income 981,755 1,074,617
Interest and other expenses 698,236 669,197
---------- ----------
Income before income taxes $ 283,519 $ 405,420
========== ==========
COMPARISON OF RAILROAD OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31,
1998 AND 1997.
OPERATING REVENUES. Transportation revenue decreased by $0.2 million,
or 4.4%, to $3.5 million for the three months ended March 31, 1998 from $3.6
million for the three months ended March 31, 1997. The domestic transportation
revenue per carload decreased from $327 to $320 primarily due to the difference
in product mix hauled between 1998 and 1997. Domestic carloads handled totaled
10,841 for the three months ended March 31, 1998, a decrease of 260, or 2.3%,
compared to 11,101 carloads in the prior year period. The decrease was primarily
the result of low grain prices, which resulted in grain being stored and not
shipped.
Other revenues decreased by approximately $0.1 million for the three
months ended March 31, 1998 compared to the prior year period. Other revenues
for the three months ended March 31, 1998 and 1997 consist of gain on sales of
railroad assets, easement sales, railroad lease and rental income and other
miscellaneous income.
OPERATING EXPENSES. Operating expenses decreased by approximately $0.2
million, or 7.0%, to $2.6 million for the three months ended March 31, 1998 from
$2.8 million for the three months ended March 31, 1997. Operating expenses, as a
percentage of transportation revenue, were 75.3% and 77.5% for the three months
ended March 31, 1998 and 1997, respectively.
Maintenance of way expenses decreased by approximately $0.1 million, or
10.6%, to $0.5 million for the three months ended March 31, 1998 from $0.6
million for the three months ended March 31, 1997.
Maintenance of equipment expenses remained fairly constant at $0.2
million for the three months ended March 31, 1998 and 1997.
Transportation expense remained fairly constant at $0.8 million for the
three months ended
9
<PAGE> 12
March 31, 1998 and 1997.
Equipment rental decreased by approximately $0.1 million, or 54.6%, to
$0.1 million for the three months ended March 31, 1998 from $0.2 million for the
three months ended March 31, 1997. The decrease was primarily due to fewer
carloads moving during the period and better utilization of the Company's rail
car fleet.
Selling, general and administrative expenses remained fairly constant at
$0.7 million for the three months ended March 31, 1998 and 1997.
INTEREST AND OTHER EXPENSES. Interest and other expenses increased by
approximately $29,000, or 4.3%, to $698,000 for the three months ended March 31,
1998 from $669,000 for the three months ended March 31, 1997.
FERRONOR. In February 1997, the Company, through a newly formed,
wholly-owned subsidiary, RailAmerica de Chile S.A., acquired 55% of the
outstanding voting stock of Ferronor. Ferronor owns and operates approximately
1,400 miles of rail line serving northern Chile. RailAmerica was joined in the
purchase of Ferronor by Andres Pirazzoli y Cia, Ltda. ("APCO"), a Chilean
transportation and distribution company.
Ferronor operates the only north-south railroad in northern Chile,
extending from La Calera near Santiago, where it connects with Chile's southern
railway, Ferrocarril del Pacifico, S.A., to its northern terminus at Iquique,
approximately 120 miles south of the Peruvian border. It also operates several
east-west branch lines that link a number of iron, copper and limestone mines
and production facilities with several Chilean Pacific port cities. Ferronor
also serves Argentina and Bolivia through traffic interchanged with the General
Belgrano Railroad and the Ferrocarriles Antofagasta Bolivia.
The operations of Ferronor are included in the consolidated operations of
the Company from March 1, 1997. As a result, the results of operations for the
three months ended March 31, 1998 are not comparable to the corresponding period
of the prior year in certain material respects.
The following table sets forth the operating revenues and expenses for
the Company's international railroad operations for the periods indicated. All
results of operations discussed in this section are for the Company's
international railroads only, unless otherwise indicated.
10
<PAGE> 13
FOR THE THREE MONTHS
ENDED MARCH 31,
----------- -----------
1998 1997
----------- -----------
Revenue:
Transportation revenue $ 2,107,000 $ 677,000
Other revenue 21,000 --
----------- -----------
Total revenue 2,128,000 677,000
----------- -----------
Operating Expenses:
Transportation 1,118,000 447,821
General and administrative 446,127 91,000
Depreciation and amortization 96,000 44,305
----------- -----------
Total operating expenses 1,660,127 583,126
----------- -----------
Operating income 467,873 93,874
Other income (expense) 85,629 (50,674)
Minority interest in earnings (261,900) (19,440)
----------- -----------
Income before income taxes $ 291,602 $23,760
=========== ===========
OPERATING REVENUES. Transportation revenue increased by $1.4 million,
or 211.2%, to $2.1 million for the three months ended March 31, 1998 from $0.7
million for the three months ended March 31, 1997. Ferronor's carloads handled
totaled 9,037 for the three months ended March 31, 1998, an increase of 6,869,
or 316.8%, compared to 2,168 carloads in the three months ended March 31, 1997.
The increase was due to the prior year period only including one month. In
addition, Ferronor began moving iron ore out of the El Algarrabo mine in late
March 1998. This move is expected to significantly increase Ferronor's
carloadings.
OPERATING EXPENSES. Operating expenses increased by approximately $1.1
million, or 184.6%, to $1.7 million for the three months ended March 31, 1998
from $0.6 million for the three months ended March 31, 1997. Operating expenses,
as a percentage of transportation revenue, were 78.8% and 86.1% for the three
months ended March 31, 1998 and 1997, respectively. The improvement is primarily
due to cost reduction implemented by the Company including reduction in
employees.
OTHER INCOME (EXPENSE). Other income (expense) increased by approximately
$0.1 million, or 269%, to $0.1 million for the three months ended March 31, 1998
from $(0.1) million for the three months ended March 31, 1997.
TRAILER MANUFACTURING OPERATIONS
The discussion of results of operations that follows reflects the results
of Kalyn/Siebert, Inc. ("Kalyn") for the periods indicated and Kalyn/Siebert
Canada ("KSC") from January 1, 1998. As a result, the results of operations for
the three months ended March 31, 1998 are not comparable to the prior year
period in certain material respects.
Kalyn, located in Gatesville, Texas, was established in 1968 and
manufactures a broad range of specialty truck trailers. Kalyn products are
marketed to customers in the construction, trucking, agricultural, railroad,
utility and oil industries. In addition, a substantial portion of Kalyn's sales
are
11
<PAGE> 14
to the military and several other local and federal government agencies.
Government sales represented approximately 52.9% of Kalyn's sales for the first
three months of 1998 and 41.6% of total manufacturing sales for the first three
months of 1998. Management anticipates that the percentage of sales to
government agencies will remain relatively constant over the next several years
based upon contracts that Kalyn entered into with such entities. KSC, located in
Trois Rivieres, Quebec, was established in 1985 and manufactures bulk-hauling
truck trailers. KSC products are marketed to the solid waste, agricultural and
construction industries.
Kalyn's manufacturing operations are conducted in thirteen Company owned
buildings, totaling approximately 198,000 square feet on a 25.5 acre site, which
were constructed over the period 1969 to 1997. Kalyn builds all the structural
parts of its trailers using primarily steel bars and plates. The major
manufacturing steps include cutting, bending and welding of steel and, once
assembled, sand blasting, cleaning and painting. The axles and running gears are
purchased as sub-assemblies which are integrated into the Kalyn trailer design.
Kalyn contracts out any necessary machining.
KSC's manufacturing operations are currently being conducted out of a
45,000 square foot facility. In April 1998, KSC purchased a 105,000 square foot
manufacturing facility located adjacent to its current facility. KSC plans to
start production in the new facility in the second quarter of 1998.
COMPARISON OF OPERATING RESULTS OF TRAILER MANUFACTURING FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1997
The following table sets forth the income and expense items for the three
months ended March 31, 1998 and 1997 and the percentage relationship of income
and expense items to net sales for the periods indicated:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
---------------------------------------------------
MARCH 31, 1998 MARCH 31, 1997
----------------------- -----------------------
<S> <C> <C> <C> <C>
Net sales $8,582,725 100.0% $4,074,019 100.0%
Cost of goods sold 6,191,757 72.1% 3,121,049 76.6%
---------- ------- ---------- -------
Gross profit 2,390,968 27.9% 952,970 23.4%
Selling general and
administrative expenses 788,738 9.2% 400,046 9.8%
Depreciation and amortization 195,580 2.3% 115,006 2.9%
---------- ------- ---------- -------
Income from operations 1,406,650 16.4% 437,918 10.4%
Interest and other expenses 70,687 0.8% 61,895 1.5%
---------- ------- ---------- -------
Net Income Before Taxes $1,335,963 15.6% $ 376,023 8.9%
========== ======= ========== =======
</TABLE>
NET SALES. Net sales increased by approximately $4.5 million, or
110.7%, to $8.6 million for the three months ended March 31, 1998 from $4.1
million for the three months ended March 31, 1997. The net sales increase
consisted of $1.8 million in sales from KSC in 1998 and an increase of
12
<PAGE> 15
$2.7 million in Kalyn's sales. Kalyn sold 198 trailers for the three months
ended March 31, 1998 and 144 trailers for the three months ended March 31, 1997.
The increase in Kalyn's sales volume increased net sales by approximately $1.6
million from the first quarter of 1997 to the first quarter of 1998. Kalyn's
average price per trailer sold was approximately $32,800 for the three months
ended March 31, 1998 and $27,150 for the three months ended March 31, 1997. The
increase in average price per trailer increased Kalyn's sales by approximately
$1.1 million. Sales to governmental agencies represented 41.6% and 31.6% of net
sales for the three months ended March 31, 1998 and 1997, respectively. Kalyn's
increase in sales for the three months ended March 31, 1998 compared to the
three months ended March 31, 1997 was principally due to an increase in
government contract production. The trailer manufacturing division had a backlog
of orders consisting of approximately $23.1 million at March 31, 1998 compared
to $12.7 million at March 31, 1997.
COST OF GOODS SOLD. Cost of goods sold increased by approximately $3.1
million, or 98.4% to $6.2 million for the three months ended March 31, 1998 from
$3.1 million for the three months ended March 31, 1997. The cost of goods sold
increase consisted of $1.5 million from KSC in 1998 and an increase of $1.6
million in Kalyn's cost of goods sold. Cost of goods sold was 72.1% of net sales
for the three months ended March 31, 1998 compared to 76.6% for the three months
ended March 31, 1997. KSC's and Kalyn's cost of goods sold were 80.0% and 70.0%,
respectively for the three months ended March 31, 1998. The decrease in Kalyn's
cost of goods sold was partially due to certain fixed costs of manufacturing
being spread over a larger revenue base in 1998. Additionally, government orders
represented a higher percentage of the sales in 1998 than in 1997. Commercial
trailers have more variations in design which generally require greater
expertise in the manufacturing process. Government contracts are typically for
larger quantities of similar style trailers. This creates greater economies of
scale in the production process which translates into a relatively lower cost
per unit produced. Historically, commercial sales have had a higher cost of
goods sold and lower gross profit margin than government sales.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses increased approximately $0.4 million, or 97%, to $0.8
million for the three months ended March 31, 1998 from $0.4 million for the
three months ended March 31, 1997, but decreased slightly as a percentage of net
sales. KSC's selling, general and administrative expenses were $0.2 million for
1998, while Kalyn's selling, general and administrative expenses increased $0.2
million from the three months ended March 31, 1997 to the three months ended
March 31, 1998.
CORPORATE OVERHEAD AND OTHER
CORPORATE OVERHEAD. Corporate overhead, which benefits all of the
Company's segments, has not been allocated to the business segments for this
analysis. Corporate overhead services include overall strategic planning,
marketing, accounting, legal services, finance, cash management, payroll,
engineering and tax return preparation. The Company believes that this
presentation will facilitate a better understanding of the changes in the
results of the Company's operations. Corporate overhead, which is included in
selling, general and administrative expenses in the consolidated statements of
income, increased by approximately $0.2
13
<PAGE> 16
million, or 35.5%, to $0.9 million for the three months ended March 31, 1998
from $0.7 million for the three months ended March 31, 1997. The increase was
related to the additional costs incurred to manage the subsidiaries acquired
since the second quarter of 1997 and to strengthen the management team in order
to handle the Company's current and anticipated growth.
RAILAMERICA EQUIPMENT CORPORATION ("REC"). REC leases railroad
equipment to various railroads and shippers. Operating revenue increased by
$32,000 to $133,000 for the three months ended March 31, 1998 from $101,000 for
the three months ended March 31, 1997. Operating income decreased slightly to
$30,000 for the three months ended March 31, 1998 from $48,000 for the three
months ended March 31, 1997. The decrease in operating income was primarily due
to additional maintenance work that was performed during the three months ended
March 31, 1998.
MOTOR CARRIER OPERATIONS (DISCONTINUED OPERATIONS). The discussion of
results of operations that follows reflects the results of Steel City Carriers
and RailAmerica Intermodal Services ("RIS") for the three months ended March 31,
1998 and 1997. Since the Company's acquisition of Steel City Carriers, in
February 1995, its performance and development have not met the Company's
expectations. Accordingly, in March 1997 the Company adopted a formal plan to
discontinue its motor carrier operations and refocus the Company's efforts on
expanding its core railroad operations. The Company's Board of Directors
approved the plan of discontinuance on March 20, 1997. Management anticipates
selling either substantially all of the assets or the stock of the Company's
motor carrier subsidiaries within the near future.
Loss from discontinued operations increased by approximately $3,000, or
5%, to $65,000 for the three months ended March 31, 1998 from $62,000 for the
three months ended March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES - COMBINED OPERATIONS
The discussion of liquidity and capital resources that follows reflects
the consolidated results of the Company, including all subsidiaries.
The Company's cash provided by operating activities was $4.3 million
for the three months ended March 31, 1998. The increase was primarily due to the
net income and increase in accounts payable partially offset by an increase in
inventory.
Cash used in investing activities was $7.5 million for the three months
ended March 31, 1998. The Company's main use of cash during the first three
months of 1998 was for the purchase of property, plant and equipment with an
aggregate cost of $5.7 million. Over $4 million of these purchases were by
Ferronor to upgrade its track in anticipation of the new contracts which will
begin in the second half of 1998. In addition, the acquisition of Fabrex used
$1.7 million in cash.
The Company's cash provided by financing activities was $3.7 million
for the three months ended March 31, 1998 consisting of the net proceeds of
approximately $0.9 million from exercise of warrants and $0.8 million from the
exercise of stock options. In addition, the Company's net borrowings increased
by $2.0 million primarily due to the above mentioned capital expenditures at
14
<PAGE> 17
Ferronor.
The Company's long term debt represents financing of property and
equipment, as well as the acquisition financing for many of the Company's
subsidiaries. Certain of this indebtedness was refinanced through the Company's
revolving line of credit (the "Revolver") with National Bank of Canada. The
Revolver bears interest, at the option of the Company, at either the bank's
prime rate plus 0.5% or the one, three or six month LIBOR plus 2.5%. The
Revolver is collateralized by substantially all of the assets of the Company and
certain of its subsidiaries.
On May 3, 1997, the Revolver was increased from $25 million to $40
million by National Bank of Canada and Comerica Bank N.A. at which time the
maturity date was extended to May 2000. Further, the Company accepted a
commitment letter from National Bank of Canada as agent for Comerica and
Southtrust Bank, N.A. in March 1998 to increase the Revolver to $55 million. The
increase is anticipated to close in May 1998.
As of March 31, 1998, the Company had working capital of $3.2 million
compared to working capital of $5.2 million as of December 31, 1997. The
decrease was primarily due to the short-term financing of the Ferronor capital
projects described below. The Company anticipates rolling this short-term
financing into long-term financing during the second quarter of 1998. Cash on
hand as of March 31, 1998 was $4.3 million compared to $3.7 million as of
December 31, 1997. The Company's cash flows from operations have been
historically sufficient to meet its ongoing operating requirements and to
satisfy the Company's interest requirements.
The Company expects that its future cash flows will be sufficient for
its current and contemplated operations for at least the next twelve months, and
will be used for, among other things, anticipated capital expenditures for the
upgrading of existing rail lines and purchases of locomotives and equipment of
approximately $2.8 million and capital expenditures at Kalyn of approximately
$250,000. In addition, the Company anticipates capital expenditures of
approximately $23.6 million over the next three years related to Ferronor's new
20-year take-or-pay contract with CMH. The Company anticipates paying for this
project expansion with debt financing. The Company also is in the process of
purchasing and equipping an additional facility in Quebec, Canada for its newly
purchased specialty trailer manufacturer. The costs of this project are
estimated at $2.1 million. The Company anticipates this project will be funded
with debt. The Company does not presently anticipate any other significant
capital expenditures over the next twelve months. To the extent possible, the
Company will seek to finance any further acquisitions of property, plant and
equipment in order to allow its cash flow from operations to be devoted to other
uses, including debt reduction and acquisition requirements.
The Company's long-term business strategy includes the selective
acquisition of additional transportation-related businesses. Accordingly, the
Company may require additional equity and/or
15
<PAGE> 18
debt capital in order to consummate an acquisition or undertake major
development activities. It is impossible to predict the amount of capital that
may be required for such acquisitions or development, and there is no assurance
that sufficient financing for such activities will be available on terms
acceptable to the Company, if at all. The Revolver allows acquisition loan
advances of up to $35 million for such acquisitions. As of May 1, 1998, the
Company had approximately $6.5 million of availability under the Revolver. As
noted above, it is anticipated that the increase in availability under the
Revolver to $55 million will occur in May 1998, allowing additional availability
for potential future acquisitions.
INFLATION
Inflation in recent years has not had a significant impact on the
Company's operations. The Company believes that inflation will not adversely
affect the Company in the future unless it increases substantially and the
Company is unable to pass through such increases in its freight rates and
trailer prices.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.
The foregoing Management's Discussion and Analysis contains various
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1993, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, which represent the Company's expectations or beliefs concerning
future events, including: statements regarding further growth in
transportation-related assets; the acquisition of additional railroads and other
transportation-related companies; the increased usage of the Company's existing
rail lines; the growth of gross revenues; and the sufficiency of the Company's
cash flows for the Company's future liquidity and capital resource needs. The
Company cautions that these statements are further qualified by important
factors that could cause actual results to differ materially from those in the
forward-looking statements, including, without limitation, the following:
decline in demand for transportation services; the effect of economic conditions
generally and particularly in the markets served by the Company; the Company's
dependence upon obtaining future government contracts; the Company's dependence
upon the agricultural industry as a significant user of the Company's rail
services; the Company's dependence upon the availability of financing for
acquisitions of railroads and other transportation-related companies; a decline
in the market acceptability of railroad services; an organization or
unionization of a material segment of the Company's employee base; the effect of
competitive pricing; the regulation of the Company by federal, state and local
regulatory authorities. Any material adverse change in the financial condition
or results of operations of Kalyn would have a material adverse impact on the
Company. Results actually achieved thus may differ materially from expected
results included in these statements.
16
<PAGE> 19
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
3.1 Amended and Restated Articles of Incorporation of
Registrant(6)
3.2 By-laws of Registrant(1) 4.1 Form of Common Stock Purchase
Rights Agreement, dated as of January 6, 1998, between the
Registrant and American Stock Transfer & Trust Company(15)
4.4 Series A Convertible Subordinated Debentures(4)
10.14 RailAmerica, Inc. 1992 Stock Option Plan(1)+
10.23 Loan Agreement among RailAmerica, Inc., South Central
Tennessee Railroad Corporation, South Central Tennessee
Railroad Company, Inc. and Charter Financial, Inc., dated
as of December 31, 1993(2)
10.32 Stock Purchase Agreement between Steel City Truck Lines
Limited, Josef Bichler and RailAmerica, Inc. dated December
19, 1994(7)
10.33 Stock Purchase Agreement between 823215 Ontario, Inc. and
RailAmerica, Inc. dated February 6, 1995(7)
10.35 Employment Agreement between Robert B. Coward and
Kalyn/Siebert Incorporated(3)
10.37 Stock Purchase Agreement, dated July 11, 1995, among
RailAmerica, Inc., Brain E. Muir, Elli M.A. Mills and
Kimberly Hughes, Prairie Holding Corporation and Dakota
Rail, Inc.(4)
10.39 Loan Agreement, dated September 29, 1995, by and between
RailAmerica, Inc., Kalyn/Siebert Incorporated, RailAmerica
Intermodal Services, Inc., RailAmerica Carriers, Inc.,
Steel City Carriers, Inc., Saginaw Valley Railway Company,
Inc., Huron and Eastern Railway Company, Inc. and National
Bank of Canada(6)
10.40 Asset Purchase Agreement, dated October 11, 1995, by and
among Seagraves, Whiteface & Lubbock Railroad Co., American
Railway Corporation, TEMCO Corporation and RailAmerica,
Inc.(7)
10.41 Employment Agreement between Gary O. Marino and
RailAmerica, Inc.+
10.43 Stock Option Agreement, dated November 11, 1994, between
RailAmerica, Inc. and Gary O. Marino(6)+
10.44 RailAmerica, Inc. 1995 Stock Incentive Plan(13)+
10.45 RailAmerica, Inc. 1995 Non-Employee Director Stock Option
Plan(6)
10.46 RailAmerica, Inc. 1995 Employee Stock Purchase Plan(6)
10.47 RailAmerica, Inc. Corporate Senior Executive Bonus Plan(6)+
10.49 Purchase and Sale Agreement dated November 30, 1995, by and
between CSX Transportation, Inc. and Saginaw Valley Railway
Company, Inc.(7)
10.50 Stock Purchase Agreement dated October 1, 1995 by and
between RailAmerica, Inc. and the holders of all the issued
and outstanding shares of the Company's Preferred Stock(7)
10.51 Asset Purchase Agreement dated January 26, 1996 by and
between TEMCO
17
<PAGE> 20
Corporation and RailAmerica Equipment Corporation(7)
10.52 Agreement of Sale dated July 18, 1996 by and between the
Commonwealth's Department of Transportation and Delaware
Valley Railway Company, Inc., a wholly-owned subsidiary of
RailAmerica, Inc.(8)
10.53 Agreement entered into by and between R. Frank Unger,
Trustee of Sagamore National Corporation, Indiana HiRail
Corporation and RailAmerica, Inc.(8)
10.54 Asset Purchase Agreement, dated August 5, 1996, by and
among Burlington Northern Railroad Company and Cascade and
Columbia River Railroad Company, a subsidiary of
RailAmerica, Inc.(9)
10.55 Confidential Private Placement Memorandum dated September
20, 1996.(10)
10.56 Stock Purchase Agreement, dated as of September 20, 1996,
by and among Otter Tail Valley Railroad Company, Inc. and
Dakota Rail, Inc.(11)
10.57 Commitment letter relating to $40,000,000 Revolving Line of
Credit/Term Loan Facility, dated March 3, 1997, by and
between National Bank of Canada, Comerica Bank,
RailAmerica, Inc., Kalyn/Siebert, Incorporated, RailAmerica
Intermodal Services, Inc., RailAmerica Carriers, Inc.,
Steel City Carriers, Inc., Saginaw Valley Railway Company,
Inc., Huron and Eastern Railway Company, Inc., West Texas
and Lubbock Railroad Company, Inc., Plainview Terminal
Company, Cascade and Columbia River Railroad Company, Inc.,
Minnesota Northern Railroad Company, Inc. and Delaware
Valley Railway Company, Inc.(12)
10.58 Agreement for sale of certain assets, rights and
obligations of Burlington Northern Railroad Company to
Minnesota Northern Railroad, Inc.(12)
10.59 RailAmerica, Inc. Nonqualified Deferred Compensation
Trust.(12)+
10.60 Nonqualified Deferred Compensation Agreement between
RailAmerica, Inc. and Gary O. Marino(12)+
10.62 Agreement for Purchase of Railroad Assets of Delaware
Valley Railway Company, Inc.(13)
10.63 RailAmerica, Inc. 1998 Executive Incentive Compensation
Plan(14)+
21 Subsidiaries of Registrant
- ----------
(1) Incorporated by reference to the same exhibit number filed as part of the
Registrant's Registration Statement on Form S-1, Registration No.
33-49026.
(2) Incorporated by reference to the same exhibit number filed as part of the
Company's Form 10-KSB for the year ended December 31, 1993, filed with
the Securities and Exchange Commission on April 15, 1994.
(3) Incorporated by reference to the same exhibit number filed as a part of
the Registrant's Post-Effective Amendment No. 2 on Form SB-2, dated
October 17, 1994, Registration No. 33-49026.
(4) Incorporated by reference to the same exhibit number filed as part of the
Company's Form 10-QSB for the quarter ended June 30, 1995, filed with the
Securities and Exchange Commission on August 9, 1995.
18
<PAGE> 21
(5) Incorporated by reference to the exhibit number 2.1 filed as part of the
Company's Form 8-K as of November 1, 1995, filed with the Securities and
Exchange Commission on November 3, 1995.
(6) Incorporated by reference to the same exhibit number filed as part of the
Company's Form 10-QSB for the quarter ended September 30, 1995, filed
with the Securities and Exchange Commission on November 12, 1995.
(7) Incorporated by reference to the same exhibit number filed as part of the
Company's Form 10-KSB for the year ended December 31, 1995, filed with
the Securities and Exchange Commission on April 12, 1996.
(8) Incorporated by reference to the same exhibit number filed as part of the
Company's Form 10-QSB for the quarter ended July 30, 1996, filed with the
Securities and Exchange Commission on August 12, 1996.
(9) Incorporated by reference to the exhibit 2.1 filed as part of the
Company's Form 8-K as of September 6, 1996, filed with the Securities and
Exchange Commission on September 12, 1996.
(10) Incorporated by reference to the exhibit A filed as part of the Company's
Form 8-K as of September 30, 1996, filed with the Securities and Exchange
Commission on October 17, 1996.
(11) Incorporated by reference to the exhibit 2.1 filed as part of the
Company's Form 8-K as of October 11, 1996, filed with the Securities and
Exchange Commission on October 25, 1996.
(12) Incorporated by reference to the same exhibit number filed as part of the
Company's Form 10-KSB for the year ended December 31, 1995, filed with
the Securities and Exchange Commission on March 31, 1997.
(13) Incorporated by reference to the Appendix A of the Company's Proxy
Statement filed with the Security and Exchange Commission on June 2,
1997.
(14) Incorporated by reference to the Appendix A of the Company's Proxy
Statement filed with the Security and Exchange Commission on April 30,
1998.
(15) Incorporated by reference to exhibit No. 4.1 filed as part of the
Registrant's Registration Statement on Form 8-A, filed with the Security
and Exchange Commission on January 6, 1998.
+ Executive Compensation Plan or Arrangement.
(b) Reports on Form 8-K.
The Company filed the following reports on Form 8-K during the quarter
ended March 31, 1998:
1. A Current Report on Form 8-K, dated January 8, 1998, was filed in
connection with the Company's Board of Directors adopting a Common
Stock Purchase Rights Agreement.
2. A Current Report on Form 8-K, dated January 26, 1998, was filed
in connection with the Company's issuance of 70,352 shares of
Common Stock pursuant to Regulation S in connection with the
Company's acquisition of Fabrex, Inc. and its affiliate, Service
Remorques Plus, Inc.
19
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RAILAMERICA, INC.
Date: May 12, 1998
By: /s/ GARY O. MARINO
-------------------------
Gary O. Marino, as Chairman,
Chief Executive Officer and
as Principal Financial Officer
<PAGE> 1
Exhibit 10.41
EXECUTIVE
EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") made as
of the 1st day of January, 1998, between RailAmerica, Inc., a Delaware
corporation (the "Company"), having an office at 301 Yamato Road, Suite 1190,
Boca Raton, Florida 33431, and Gary O. Marino ("Executive").
WHEREAS, the Company believes it is in the best interests of
the Company and its subsidiaries and affiliates (collectively, the "Consolidated
Group") to continue to employ Executive, and Executive desires to continue to be
employed by the Company; and
WHEREAS, the Compensation Committee (the "Committee") of the
Board of Directors of the Company (the "Board") has approved of the terms of
this Agreement as of the date set forth above; and
WHEREAS, the Company and Executive desire to set forth the
terms and conditions on which Executive shall be employed by the Company and
provide his services to the Consolidated Group.
NOW, THEREFORE, for good and valuable consideration, the
receipt, adequacy and sufficiency of which are hereby acknowledged, the parties
hereto do hereby agree as follows:
1. EMPLOYMENT. The Company hereby employs Executive, and
Executive hereby accepts such employment, all upon the terms and conditions
hereinafter set forth.
2. TERM. Unless sooner terminated pursuant to the provisions
of this Agreement, the initial term of employment under this Agreement shall be
for a period commencing as of January 1, 1998 and ending December 31, 2000 (the
"Employment Period"). The Employment Period shall be extended automatically for
one (1) year periods after the initial term under this Agreement and the end of
each one-year period thereafter, so that there shall be successive one-year
terms of employment under this Agreement commencing on January 1, 2001, unless
the Company or Executive gives written notice of non-extension to the other
party not less than one hundred eighty (180) days prior to the end of the
Employment Period. References herein to the "Employment Period" shall refer to
both such initial term and each such successive term.
3. BASE SALARY. Executive shall be entitled to receive a base
salary from the Company during the Employment Period (the "Base Salary") at the
rate of Three Hundred Thousand Dollars ($300,000.00) per annum. The Base Salary
shall be payable in accordance with the current normal payroll policies of the
Company, which policies may be changed by the Company from time to time in its
sole discretion, and shall be subject to all appropriate withholding taxes.
Effective each January 1 during the Employment Period, commencing with January
1, 1999, the Base Salary shall be increased by such percentage as corresponds to
any annual percentage increase in the consumer
<PAGE> 2
price index reported in "U.S. City Average: All Items," under the table entitled
"Consumer Price Index for All Urban Consumers" (1967 equals 100), as published
by the U.S. Department of Labor, Bureau of Labor Statistics (the "Index"),
calculated by multiplying the Base Salary for the immediately preceding year by
a fraction, the numerator of which is the Index number for October 1 of such
immediately preceding year, and the denominator of which is the Index number for
October 1 of the next preceding year. In addition to any annual increases in the
Base Salary as a result of changes in the Index, the Base Salary shall be
subject to annual reviews and upward adjustments, effective each January 1
during the Employment Period, commencing with January 1, 1999, in the sole
discretion of the Committee. The Committee shall meet and determine the upward
adjustment, if any, to the Base Salary no later than the December 15 immediately
preceding each January 1 during the Employment Period. An adjustment to the Base
Salary shall not be deemed a modification, amendment or waiver of this Agreement
except as the term "Base Salary" is used in this Agreement; all other provisions
of this Agreement shall, in that case, remain in full force and effect.
4. GENERAL BONUSES. Executive shall participate, with respect
to each full fiscal year during the Employment Period, beginning with the fiscal
year ending December 31, 1998, in the Company's Corporate Senior Executive Bonus
Plan, which shall remain in effect during the entire Employment Period, subject
to such amendments, modifications, supplements or other changes as shall be
determined at any time, or from time to time, by the Committee.
5. COMMON STOCK. The Company shall, after execution of this
Agreement, issue to Executive, at the request of Executive, up to a total of
thirty thousand (30,000) shares of the common stock of the Company, $.01 par
value per share ("Common Stock"), subject to the following terms and conditions:
(a) All requests by Executive must be made by
December 31, 1999;
(b) Executive shall make arrangements
satisfactory to the Committee for
Executive's payment to the Company of the
amount that is necessary for the Company to
withhold in accordance with applicable
federal and state tax withholding
requirements;
(c) For shares to be issued to Executive under
this Section 5, Executive must, prior to or
simultaneously with issuance by the Company
of the shares, purchase an equivalent number
of shares of Common Stock. At least one-half
the total number of shares purchased by
Executive to comply with this condition must
be purchased from the Company, at the market
price of
- 2 -
<PAGE> 3
the Common Stock at the close of business on
the prior trading day; and
(d) Executive shall not sell the shares of
Common Stock that were either issued to him
or purchased by him under the terms of this
Section until two (2) years after the date
on which those shares were issued to him or
purchased by him.
At Executive's sole discretion, in lieu of such issuance of
shares of Common Stock to him by the Company, he may elect to purchase shares of
Common Stock from the Company at fair market value, in exchange for a promissory
note with a term not to extend beyond December 31, 2000. The Company shall then
pay to Executive bonuses each year during the Employment Period equal to the
principal and interest due under the note during the Employment Period. These
bonuses shall be in addition to any bonuses payable to Executive pursuant to
Section 4 or 7 of this Agreement. The conditions in Sections 5(a) through (d)
immediately above shall apply to any shares purchased by Executive under this
note arrangement.
The shares of Common Stock issued by the Company pursuant to
this Section shall be free of any other conditions of forfeiture or restrictions
on transfer other than those required by federal or state securities laws.
Executive agrees to execute such documentation and make such representations and
acknowledgments as may be reasonably necessary to permit the issuance and
purchase of the shares in compliance with federal and state securities laws and
requirements of the Nasdaq National Market.
The rights to acquire shares of Common Stock from the Company
granted by the Company pursuant to this Section have been approved by the
Committee and granted under and subject to the terms and conditions of the
Company's 1998 Executive Incentive Compensation Plan to be submitted to and
approved by the stockholders of the Company at the Company's 1998 Annual Meeting
of Stockholders (the "Incentive Plan"). Such rights are expressly subject to and
contingent upon stockholder approval of the Incentive Plan and, if such approval
is not obtained, shall be null and void.
- 3 -
<PAGE> 4
6. OPTION GRANTS. Upon execution of this Agreement, the
Company shall grant to Executive options to purchase three hundred thousand
(300,000) shares of Common Stock, immediately exercisable at the following
prices:
AMOUNT EXERCISE PRICE PER SHARE
------ ------------------------
75,000 $7.25
75,000 $8.00
75,000 $8.75
75,000 $9.50
The options shall have a term of ten (10) years and such additional terms and
conditions as set forth in an option agreement between the Company and Executive
in the form attached hereto as Exhibit "A" (the "Stock Option Agreement").
Executive agrees to execute such documentation and make such representations and
acknowledgments as may be reasonably necessary to permit the issuance and
purchase of the shares in compliance with federal and state securities laws and
requirements of the Nasdaq National Market.
The options granted by the Company pursuant to this Section have been
approved by the Committee and granted under and subject to the terms and
conditions of the Incentive Plan. Such options are expressly subject to and
contingent upon stockholder approval of the Incentive Plan and, if such approval
is not obtained, shall be null and void.
7. OTHER BONUS OR INCENTIVE PAYMENTS. Executive shall, at all
times during the Employment Period, be eligible to receive, in addition to the
Base Salary, bonuses and other benefits provided for hereunder, additional
bonuses, stock options or grants, stock appreciation rights or other incentive
payments to be determined as to the amount and time of payment by the Committee.
8. BENEFITS.
(a) VACATION. For each twelve-month period from January 1
to December 31 during the Employment Period, Executive shall be entitled to four
(4) weeks of vacation without loss of compensation or other benefits to which he
is entitled under this Agreement, to be taken at such times as Executive may
select and the affairs of the Consolidated Group may permit.
(b) EXECUTIVE BENEFIT PROGRAMS. Without limiting the
compensation or other benefits to which Executive may be entitled pursuant to
any other provision of this Agreement, during the Employment Period Executive
shall be entitled to participate in any pension, retirement, insurance or other
employee benefit plan that is maintained at that time by the Company for its
employees generally, including, without limitation, programs of life,
disability, basic medical and
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dental and supplemental medical and dental insurance. Executive shall be
entitled to the benefits under this Section on terms at least as favorable as
those granted to other employees of the Consolidated Group. Notwithstanding the
foregoing, during the Employment Period Executive shall at all times be entitled
to the following minimum benefits:
(i) Medical and dental insurance for himself and
his family, including supplemental coverage for any co-payments and deductibles;
provided, however, that the annual premiums, fees and other costs paid by the
Company for such insurance for Executive and his family shall not exceed Ten
Thousand Dollars ($10,000.00);
(ii) Long-term disability insurance for himself;
provided, however, that the annual premiums, fees and other costs paid by the
Company for such insurance for Executive shall not exceed Ten Thousand Five
Hundred Dollars ($10,500.00) at a Base Salary of Three Hundred Thousand Dollars
($300,000.00) per annum, plus such additional proportional amount, if any, as
may be necessary to ensure that the benefits provided by Executive's long-term
disability insurance increase proportionally as the Base Salary increases above
Three Hundred Thousand Dollars ($300,000.00), it being the intent of the parties
that Executive's long-term disability benefits approximate sixty-seven percent
(67%) of the then-current Base Salary at all times during the Employment Period
if such long-term disability insurance in such amount is then reasonably
available for an annual premium, fees and other costs paid by the Company not to
exceed Ten Thousand Five Hundred Dollars ($10,500.00) plus such additional
proportional amount;
(iii) Term life insurance on the life of Executive
in the benefit amount of One Million Dollars ($1,000,000.00), with the
beneficiaries thereof designated by Executive;
(iv) Directors' and Officers' Liability Insurance,
if reasonably available, provided that the terms and amounts of such insurance
shall be subject to approval by the Board;
(v) Indemnification by the Company to the fullest
extent permitted by law;
(vi) Advancement or reimbursement of funds for all
reasonable travel, entertainment and miscellaneous expenses incurred by
Executive in connection with the performance of his duties under this Agreement;
provided, however, that Executive properly accounts for such expenses to the
Company in accordance with the Company's practices;
(vii) An automobile allowance of One Thousand
Dollars ($1,000.00) per month; and
(viii) An annual payment to be made by the
Company to or on behalf of Executive each January 1 during the Employment
Period, commencing with January 1, 1998, in an amount equal to ten percent (10%)
of the then-current Base Salary, for purposes of funding an
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<PAGE> 6
individual deferred compensation, salary continuation, annuity or other
retirement arrangement for Executive in lieu of a group plan or plans adopted by
the Board providing retirement benefits for the Company's employees generally,
including Executive, comparable to those provided by other similarly-sized
publicly-traded companies.
9. DUTIES. During the Employment Period:
(a) Executive agrees to serve as Chief Executive Officer of
the Company, and to serve in such other positions with the Company and the other
members of the Consolidated Group with such other titles as the Board may from
time to time determine. Executive shall exercise such powers and comply with and
perform such directions and duties in relation to the business and affairs of
the Consolidated Group as may from time to time be vested in or requested by the
Board and shall use his best efforts to improve and extend the businesses of the
Consolidated Group. Executive shall at all times report to, and his activities
shall at all times be subject to the direction and control of, the Board.
(b) Executive shall devote all of his business and
professional time, energy and skill to the service of the Consolidated Group and
the promotion of its interests and shall use his best efforts in the performance
of his duties hereunder. Subject to the restrictions of Section 13, Executive
may, however, devote an appropriate amount of time to directorships in other
profit and non-profit corporations, participation in professional organizations,
management of purely passive personal and family investments (including, without
limitation, in the capacity of a trustee, executor or guardian for family
members) and participation in community, civic and charitable activities;
provided, however, that these matters and the amount of time devoted to them
shall not conflict with or impair Executive's performance of his duties to the
Consolidated Group in any material way and shall not in the aggregate, on
average, involve more than five (5) hours of Executive's time per week.
Executive agrees to abide by all By-laws, rules and regulations established from
time to time by the Company, a majority of its shareholders and/or the Board;
and all commissions, fees or other income earned and received by Executive, in
furtherance of the business of the Consolidated Group, from any person other
than the Company shall be accepted by Executive for the account of the Company.
10. CONFIDENTIALITY. In the course of Executive's relationship
with the Consolidated Group, some or all of the members of the Consolidated
Group have disclosed or made known, or may disclose or make known, to Executive,
and Executive has been or may be given access to or may become acquainted with,
certain information, trade secrets or both, relating to or useful in one or more
of the businesses of the Consolidated Group (collectively "Information"), and
which the Company considers proprietary and desires to maintain confidential.
As a material inducement to the Company to enter into this
Agreement, Executive covenants and agrees that, during the Employment Period and
at all times thereafter, Executive shall not in any manner, either directly or
indirectly, divulge, disclose or communicate to any person or entity, except to
or for the benefit of the Consolidated Group or as directed by the Board, any of
the Information which he may have acquired in the course of or as an incident to
his relationship with
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<PAGE> 7
any member of the Consolidated Group, including, without limitation, pursuant to
his employment hereunder, the parties agreeing that such Information affects the
successful and effective conduct of the businesses of the Consolidated Group and
its goodwill, and that any breach of the terms of this Section is a material
breach of this Agreement. All equipment, documents, memoranda, reports, records,
computer software, disks, tapes, other means of electronic data storage, files,
materials, samples, books, correspondence, lists, other written and graphic
records and the like (collectively, the "Materials"), affecting or relating to
one or more of the businesses of the Consolidated Group, which Executive shall
prepare, use, construct, observe, possess or control shall be and remain the
sole property of the Consolidated Group and/or in its exclusive custody and
control, and must not be removed from the premises of a member of the
Consolidated Group or given to any person or entity except for the benefit of
the Consolidated Group or as directed by the Board. Promptly upon termination of
the Employment Period for any reason, the Materials, Information and all copies
thereof in the custody or control of Executive shall be delivered promptly to
the Company.
11. CHANGE IN CONTROL.
(a) For the purposes of this Agreement, a "Change in
Control" shall be deemed to have taken place if: (i) any person, including a
"group" as defined in either Section 13(d)(3) or Section 14(d)(2) of the
Securities Exchange Act of 1934, as amended, becomes the beneficial owner of
Company securities, after the date of this Agreement, having twenty-five percent
(25%) or more of the combined voting power of the then-outstanding securities of
the Company that may be cast for the election of directors of the Company (other
than as a result of an issuance of securities specifically approved by Executive
and specifically excluded from the provisions of this Section 11 by subsequent
written agreement of Executive); or (ii) the persons who were directors of the
Company before the occurrence of any of the following transactions shall cease
to constitute a majority of the Board of Directors of the Company, or of the
board of directors of any successor to the Company, as the direct or indirect
result of, or in connection with, any cash tender or exchange offer, merger or
other business combination, sale of assets or contested election or any
combination of the foregoing transactions.
(b) The Company and Executive hereby agree that, if after
a Change in Control occurs (the "Change in Control Date") during the Employment
Period, Executive is requested and, in his sole and absolute discretion,
consents to change his principal business location, the Company shall reimburse
Executive for his relocation expenses, and those of his family, including,
without limitation, moving expenses, temporary living and travel expenses for a
time while arranging to move his residence to the changed location and closing
costs, if any, associated with the sale of his then-existing residence and the
purchase of a replacement residence at the changed location, plus an additional
amount representing a gross-up of any state or federal taxes payable by
Executive as a result of any such reimbursements. If in such a case Executive
shall not consent to change his business location, Executive may continue to
perform the duties required of him hereunder in Boca Raton, Florida, and the
Company shall continue to maintain an office for Executive at that location
commensurate with the Company's office prior to the Change in Control Date.
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<PAGE> 8
(c) During the remaining Employment Period after the
Change in Control Date, the Company shall: (i) continue to honor the terms of
this Agreement, including, without limitation, as to Base Salary and bonus
compensation; and (ii) continue employee benefit programs as to Executive no
less favorable than those in effect on the Change in Control Date (but subject
to such reductions as may be required to maintain such plans in compliance with
applicable federal law and regulation of employee benefit programs).
12. TERMINATION OF EMPLOYMENT PERIOD.
(a) TERMINATION FOR JUDICIALLY-DETERMINED CAUSE. The Board
may terminate the Employment Period pursuant to the terms of this Section 12(a)
FOR CAUSE at any time by giving written notice to Executive. Such termination
shall become effective upon the giving of such notice, except that termination
based upon Section 12(a)(iv) below shall not become effective unless Executive
shall fail to correct such breach within thirty (30) days after receipt of
written notice thereof as provided in the preceding sentence. Upon any such
termination FOR CAUSE, Executive shall have no right to the Base Salary, bonuses
or other payments under Sections 3, 4, 5 and 7, or to participate in any
employee benefit programs under Section 8, as of the effective date of
termination. For purposes of this Section 12(a), "cause" shall mean: (i)
Executive is convicted of a felony; (ii) a judicial determination is made that
Executive, in carrying out his duties hereunder, has exhibited willful gross
negligence or willful gross misconduct resulting, in either case, in material
harm to any member of the Consolidated Group; (iii) Executive is convicted of
misappropriating Consolidated Group assets or convicted of otherwise defrauding
the Consolidated Group; or (iv) a judicial determination is made that Executive
has materially breached any provision of Section 9, 10 or 13 resulting in
material harm to any member of the Consolidated Group.
(b) OTHER "FOR CAUSE" TERMINATION.
(i) The Board may terminate the Employment Period
pursuant to the terms of this Section 12(b) FOR CAUSE if, as a result of
Executive's willful personal dishonesty, gross misconduct, breach of fiduciary
duty involving personal profit, gross negligence or failure to perform his
duties as set forth in Section 9, willful violation of any law, rule or
regulation (other than traffic violations or similar offenses) or material
breach of any provision of this Agreement, there is material harm to any member
of the Consolidated Group. For purposes of this Section 12(b), no act, or
failure to act, on Executive's part shall be considered "willful" unless done,
or omitted to be done, by him not in good faith and without reasonable belief
that his action or omission was in the best interests of the Consolidated Group;
provided, however, that any act or omission to act on Executive's part in
reliance upon an opinion of counsel to the Company or at the direction of the
Board shall not be deemed to be willful. Notwithstanding the foregoing,
Executive shall not be deemed to have been terminated FOR CAUSE under this
Section 12(b) unless and until there shall have been delivered to him a copy of
a certification by the Board finding, after reasonable notice to Executive and
an opportunity for him, together with his counsel, to be heard by the Board,
that, in the good faith opinion of the Board, Executive was guilty of conduct
which is deemed to be CAUSE within the meaning of this Section 12(b)(i) and
specifying the particulars thereof in detail. In the
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<PAGE> 9
event that the Board delivers such a certification of termination to Executive
under this Section 12(b)(i), and Executive does not elect to challenge such
termination in accordance with Section 12(b)(ii), the Employment Period shall
terminate twenty-one (21) days after Executive receives such certification.
(ii) Executive may elect to challenge any
termination FOR CAUSE by the Company of the Employment Period under Section
12(b)(i) by providing written notice of such election to the Company within
twenty-one (21) days after Executive receives the certification of termination.
Any such challenge shall be first determined by arbitration to be conducted in
Palm Beach County, Florida, in accordance with the Commercial Arbitration Rules
of the American Arbitration Association. The decision of the arbitrator(s) (the
"Arbitration Decision") may be appealed by Executive as set forth below. In the
event Executive challenges his termination FOR CAUSE, pending the Arbitration
Decision Executive shall continue to be paid the Base Salary under Section 3,
continue to be paid any bonuses under Section 5, and continue to participate in
any employee benefit programs under Section 8 that were being paid or provided
immediately prior to the Board's certification of termination, but Executive
shall not be required to perform any duties pursuant to Section 9 or to
otherwise report for work to the Company. If the Arbitration Decision determines
that Executive was properly terminated FOR CAUSE, Executive shall, subject to
his rights upon a successful judicial appeal of the Arbitration Decision as set
forth below, have no further rights from the date of such Arbitration Decision
to Base Salary, to any bonuses under Section 5, or to participate in any
employee benefit programs under Section 8, and the Employment Period shall be
considered to have terminated for purposes of the non-compete and non-solicit
provisions of Section 13 as of the date of the Arbitration Decision. If the
Arbitration Decision determines that Executive was properly terminated FOR
CAUSE, and Executive does not appeal the Arbitration Decision to a court having
jurisdiction thereof within thirty (30) days after the date of the Arbitration
Decision, then the Arbitration Decision shall be considered final and binding on
the parties. If (A) the Arbitration Decision determines that Executive was
improperly terminated FOR CAUSE, or (B) the Arbitration Decision determines that
Executive was properly terminated FOR CAUSE, Executive appeals the Arbitration
Decision to a court having jurisdiction thereof within the thirty-day period and
Executive successfully demonstrates to the court or to the final reviewing court
on further appeal that he was improperly terminated FOR CAUSE, then in either
such case the Employment Period shall be deemed to have been terminated WITHOUT
CAUSE under Section 12(e)(i) as of the date on which Executive received the
certification of termination, and Executive shall be entitled to the remedies
provided pursuant to that Section and shall not thereafter be subject to the
non-compete and non-solicit provisions of Section 13.
(c) DEATH OR DISABILITY. The Employment Period shall
terminate upon the death or disability of Executive. For purposes of this
Section 12(c), "disability" shall mean that, for a period of six (6) months in
any twelve-month period, Executive is incapable of substantially fulfilling the
duties set forth in Section 9 because of physical, mental or emotional
incapacity resulting from injury, sickness or disease as determined by an
independent physician mutually acceptable to the Board and Executive. Upon any
such termination for death or disability, the Company shall pay Executive or his
legal representative, as the case may be, the Base Salary under
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<PAGE> 10
Section 3 through the date of such termination of the Employment Period, plus
any bonus earned but not yet paid under the Corporate Senior Executive Bonus
Plan, any bonus not yet earned or earned but not yet paid under Section 5, any
other bonus or incentive payments earned but not yet paid under any other bonus
or incentive plan under Section 7 and any benefits under Section 8 which have
accrued through such date. In addition, in the case of termination for
disability, the Company shall continue to pay Executive or his legal
representative, as the case may be, the Base Salary under Section 3 until
Executive begins to receive payments under the long-term disability policy paid
for by the Company pursuant to Section 8(b)(ii); provided, however, that, in no
event, shall the Company continue to pay the Base Salary for more than ninety
(90) days after the date of such termination for disability. Lastly, for a
period of eighteen (18) months after the date of termination for death or
disability, the Company shall continue to provide medical and dental insurance
coverage to Executive and his family in the form or forms provided under Section
8(b) immediately prior to the date of such termination.
(d) VOLUNTARY TERMINATION. Executive may, on not less
than one hundred eighty (180) days prior written notice to the Company
specifically setting forth the effective date thereof, terminate the Employment
Period prior to the end of the initial term or any successive term of the
Employment Period under Section 2. Upon any such termination, the Company shall
pay Executive the Base Salary under Section 3 through the effective date of such
termination of the Employment Period, plus any bonus earned but not yet paid
under the Corporate Senior Executive Bonus Plan, any bonus not yet earned or
earned but not yet paid under Section 5, any other bonus or incentive payments
earned but not yet paid under any other bonus or incentive plan under Section 7
and any benefits under Section 8 which have accrued through such date.
(e) TERMINATION WITHOUT CAUSE.
(i) Prior to a Change in Control, if the Employment
Period is terminated by the Company other than pursuant to Section 12(a), 12(b)
or 12(c), the Company shall be in breach of this Agreement, and, in lieu of any
other damages or recoveries, Executive shall be entitled to continue to receive
the Base Salary under Section 3 and benefits under Section 8 for the remainder
of the then-current initial or successive term of the Employment Period, as the
case may be, payable in accordance with the normal payroll and benefit program
policies of the Company. In addition, Executive shall be deemed to have been
employed by the Company at all times during such term of the Employment Period
for purposes of determining his entitlement to a bonus under the Corporate
Senior Executive Bonus Plan, for purposes of determining his entitlement to any
other bonus or incentive payments under Section 5 and Section 7 and for purposes
of his options under Section 6. Notwithstanding the foregoing, in the event that
such Company termination occurs within less than one-hundred eighty (180) days
before the expiration of the then-current initial or successive term of the
Employment Period, the references to the then-current initial or successive term
of the Employment Period in the first two sentences of this Section 12(e)(i)
shall be read as referring also to the next-succeeding successive term of the
Employment Period following such termination.
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<PAGE> 11
(ii) Subsequent to a Change in Control, if (A) the
Employment Period is terminated by the Company other than pursuant to Section
12(a), 12(b) or 12(c), or (B) there shall have occurred a material reduction in
Executive's compensation or employment-related benefits, a change in Executive's
status as Chief Executive Officer of the Company, working conditions or
management responsibilities or a material change in the business objectives or
investment policies of the Company, and Executive voluntarily elects to
immediately terminate the Employment Period by giving notice of termination
within sixty (60) days after any such occurrence, or the last in a series of
such occurrences, then in either such case Executive shall be entitled to
receive, in lieu of the Base Salary, bonuses and other payments and benefits
under this Agreement, and subject to the provisions of subparagraph (y) below, a
lump-sum payment in cash equal to one hundred fifty percent (150%) of
Executive's "base period income" as determined under subparagraph (x) below.
Such amount shall be paid to Executive within fifteen (15) days after the date
of termination of the Employment Period.
(x) Executive's "base period income" shall be
the Base Salary paid, bonuses paid or payable and any other compensation paid to
him with respect to the last full fiscal year preceding the date of termination.
(y) Any amounts payable to Executive upon or
as a result of a Change in Control that would be considered an "excess parachute
payment" under Internal Revenue Code Section 280G, and regulations thereunder,
shall be reduced to the extent necessary so that such amounts do not exceed two
hundred ninety-nine percent (299%) of Executive's "base amount" (as computed in
accordance with Internal Revenue Code provisions and regulations) for
determining whether Executive has received an "excess parachute payment."
13. NON-COMPETITION AND NON-SOLICITATION.
(a) GENERAL. Executive acknowledges that he has performed
services or will perform services hereunder, and will acquire Information and
access to Materials, that will directly affect the businesses of the
Consolidated Group. Accordingly, the parties deem it necessary to provide
protective non-competition and non-solicitation provisions in this Agreement.
(b) NON-COMPETE AND NON-SOLICIT. Executive agrees with the
Company that, during the term set forth in Section 13(c), without the prior
written consent of the Board:
(i) Executive shall not, directly or indirectly,
perform any services or duties in any capacity, whether as a consultant,
independent contractor, agent, director, officer, manager, supervisor or
employee, for any person or entity engaged in any business in the United States
that was engaged in by any member of the Consolidated Group at any time during
the Employment Period; provided, however, that, for purposes of this Section
13(b)(i), (A) in no event shall a purely passive personal or family investment
of less than five percent (5%) of the equity of any entity, without more, be
construed as the performance of duties or services for such entity; (B) a
business which is first engaged in by the Consolidated Group after the execution
of this Agreement
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<PAGE> 12
shall be considered to be a business that was engaged in during the Employment
Period by the Consolidated Group only if and to the extent that Executive agrees
in writing at the time of the Consolidated Group's commencement or acquisition
of such business that it will be so considered; and (C) after the termination of
the Employment Period, Executive may become involved with (x) a short-line
freight railroad, if such railroad does not operate track within fifty (50)
miles of track operated by any member of the Consolidated Group, and (y) a motor
freight carrier business, if such business does not have an office or terminal
within two hundred (200) miles of any motor freight carrier office or terminal
operated by any member of the Consolidated Group; and
(ii) Executive shall not employ or attempt to
employ, or assist in employing, any employee of any member of the Consolidated
Group (whether or not such employment is full-time or part-time or pursuant to a
written contract), other than his personal secretary, for the purpose of having
such employee perform services for another person or entity within the United
States.
(c) TERM. The covenants of Executive set forth in
Section 13(b) shall apply at all times (i) during the Employment Period,
including any period for which Executive is receiving the Base Salary and
benefits pending an Arbitration Decision pursuant to Section 12(b), and (ii), in
the event of termination of the Employment Period pursuant to Section 12(a),
12(b) or 12(d), or an election by Executive not to extend the Employment Period
pursuant to Section 2, for a period of twelve (12) months after termination of
the Employment Period.
14. INJUNCTIVE RELIEF. The covenants of Executive set forth in
Sections 10 and 13 are separate and independent covenants, for which valuable
consideration has been paid, the receipt, adequacy and sufficiency of which are
hereby acknowledged by Executive, and which have been made by Executive to
induce the Company to enter into this Agreement. Each of the aforesaid covenants
may be availed of, or relied upon, by the Company in any court of competent
jurisdiction, and each shall form the basis of injunctive relief and damages,
including expenses of litigation (including, without limitation, reasonable
attorneys' fees upon trial and appeal), suffered by the Company arising out of
any breach of any of the aforesaid covenants by Executive. The covenants of
Executive set forth in Sections 10 and 13 are cumulative to each other and to
all other covenants of Executive in favor of the Company contained in this
Agreement. Should any covenant, term or condition in Section 10 or 13 become or
be declared invalid or unenforceable by a court of competent jurisdiction, then
the parties request that such court judicially modify such unenforceable
provision consistent with the intent of Sections 10 and 13 so that it shall be
enforceable as modified.
15. ENTIRE AGREEMENT. This Agreement, the Stock Option
Agreement and the other documents, plans and instruments contemplated herein
represent the entire understanding and agreement between the parties with
respect to the subject matter hereof, and supersede all other negotiations,
understandings and representations, if any, made by and between such parties.
16. AMENDMENTS. The provisions of this Agreement may not be
amended, supplemented, waived or changed orally, but only by a writing signed by
the party as to whom
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<PAGE> 13
enforcement of any such amendment, supplement, waiver or modification is sought
and making specific reference to this Agreement.
17. ASSIGNMENTS. Executive shall not assign his rights and/or
obligations hereunder. The Company may assign its rights and/or obligations
hereunder to any person or entity which purchases all or substantially all of
the assets of the Consolidated Group, subject to Executive's termination rights
under Section 12(e)(ii).
18. BINDING EFFECT. All of the terms and provisions of this
Agreement, whether so expressed or not, shall be binding upon, inure to the
benefit of and be enforceable by the parties and their respective
administrators, executors, legal representatives, heirs, successors and
permitted assigns.
19. NOTICES. All notices, requests, consents and other
communications required or permitted under this Agreement shall be in writing
and shall be (as elected by the person giving such notice) hand delivered by
messenger or courier service or mailed (airmail if international) by registered
or certified mail (postage prepaid), return receipt requested, addressed to:
If to Executive: With a copy to:
Gary O. Marino Nason, Gildan, Yeager,
3735 Devon Court South Gerson & White, P.A.
Boca Raton, Florida 33496 United National Bank Tower
1645 Palm Beach Lakes Boulevard
and Suite 1200
West Palm Beach, Florida 33401
301 Yamato Road Attention: Domenick R. Lioce, Esq.
Suite 1190
Boca Raton, Florida 33431
If to the Company: With a copy to:
RailAmerica, Inc. RailAmerica, Inc.
301 Yamato Road 301 Yamato Road
Suite 1190 Suite 1190
Boca Raton, Florida 33431 Boca Raton, Florida 33431
Attention: Chairman, Attention: General Counsel
Compensation Committee
or to such other address as any party may designate by notice complying with the
terms of this Section. Each such notice shall be deemed delivered on the date
delivered if by personal delivery,
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<PAGE> 14
or on the date upon which the return receipt is signed or delivery is refused or
the notice is designated by the postal authorities as not deliverable, as the
case may be, if mailed.
20. WAIVERS. The failure or delay of any party at any time to
require performance by the other party of any provision of this Agreement shall
not affect the right of such party to require performance of that provision or
to exercise any right, power or remedy hereunder, and any waiver by any party of
any breach of any provision of this Agreement shall not be construed as a waiver
of any continuing or succeeding breach of such provision, a waiver of the
provision itself or a waiver of any right, power or remedy under this Agreement.
No notice to or demand on any party in any case shall, of itself, entitle such
party to any other or further notice or demand in similar or other
circumstances.
21. JURISDICTION AND VENUE. The parties acknowledge that a
substantial portion of the negotiations, anticipated performance and execution
of this Agreement occurred or shall occur in Palm Beach County, Florida, and
that, therefore, without limiting the jurisdiction or venue of any other federal
or state courts, each of the parties irrevocably and unconditionally (a) agrees
that any suit, action or legal proceeding arising out of or relating to this
Agreement may be brought in the courts of record of the State of Florida in Palm
Beach County or the court of the United States, Southern District of Florida;
(b) consents to the jurisdiction of each such court in any such suit, action or
proceeding; (c) waives any objection which it or he may have to the laying of
venue of any such suit, action or proceeding in any of such courts; and (d)
agrees that service of any court papers may be effected on such party by mail,
as provided in this Agreement, or in such other manner as may be provided under
applicable laws or court rules in such courts.
22. ENFORCEMENT COSTS. If any legal action, arbitration or
other proceeding is brought for the enforcement of this Agreement, or because of
an alleged dispute, breach, default or misrepresentation in connection with any
provisions of this Agreement, the ultimately successful or prevailing party
shall be entitled to recover reasonable attorneys' fees, costs and other
expenses, even if not taxable as court costs (including, without limitation, all
such fees, costs and expenses incident to appeals), incurred in that action,
arbitration or other proceeding, in addition to any other relief to which such
party may be entitled.
23. REMEDIES CUMULATIVE. No remedy herein conferred upon any
party is intended to be exclusive of any other remedy, and each and every such
remedy shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity, whether by statute,
rule or otherwise. No single or partial exercise by any party of any right,
power or remedy hereunder shall preclude any other or further exercise thereof.
24. GOVERNING LAW. This Agreement and all transactions
contemplated by this Agreement shall be governed by, and construed and enforced
in accordance with, the internal laws of the State of Delaware without regard to
principles of conflicts of laws.
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<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
RAILAMERICA, INC.
/s/ DONALD D. REDFEARN By: /s/ CHARLES SWINBURN
- ---------------------- --------------------------
Donald D. Redfearn Charles Swinburn, Chairman
Secretary Compensation Committee
/s/ DOROTHY SINGER /s/ GARY O. MARINO
- ---------------------- --------------------------
Witness Gary O. Marino
/s/ VIVIAN TRAPNELL
- ----------------------
Witness
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<PAGE> 16
EXHIBIT A
RAILAMERICA, INC.
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT (the "Agreement"), made as of the 1st
day of January, 1998, between RailAmerica, Inc., a Delaware corporation (the
"Company"), and Gary O. Marino (the "Optionee").
WHEREAS, the Company has retained the Optionee to render
certain services to the Consolidated Group pursuant to the terms of that certain
Executive Employment Agreement, dated as of January 1, 1998, between the Company
and the Optionee (the "Employment Agreement"); and
WHEREAS, pursuant to the terms of the Employment Agreement,
the Company and the Optionee have provided for the grant to the Optionee of
certain options to purchase shares of Common Stock, all as more particularly set
forth herein (the "Options");
NOW, THEREFORE, for good and valuable consideration, the
receipt, adequacy and sufficiency of which are hereby acknowledged, the parties
hereto do hereby agree as follows:
1. OPTIONS SUBJECT TO EMPLOYMENT AGREEMENT AND STOCKHOLDER
APPROVAL. The Options are being granted pursuant to the terms of the Company's
1998 Executive Incentive Compensation Plan (the "Incentive Plan") and the
Employment Agreement to which this Agreement is attached as Exhibit A, and are
subject to all of the terms and conditions of the Incentive Plan and the
Employment Agreement. Capitalized terms used in this Agreement but not defined
herein are used as defined in the Employment Agreement, except that, for
purposes of this Agreement, Common Stock shall include such other securities,
cash or other property into which shares of Common Stock or such other
securities, cash or other property may be adjusted pursuant to the provisions of
Section 9 hereof or the Incentive Plan. The Optionee's exercise of the Option
shall be subject to and conditioned upon the prior approval by the Company's
stockholders of the Incentive Plan as provided in the Employment Agreement. The
Optionee hereby accepts as binding, conclusive and final all decisions or
interpretations of this Agreement by the Committee or the Board under the
Incentive Plan.
2. GRANT OF OPTIONS. Subject to and upon the terms and
conditions set forth in this Agreement and the Incentive Plan, the Company
hereby grants to the Optionee Options to purchase three hundred thousand
(300,000) shares of Common Stock. Subject to the provisions of Sections 9 and
10, of the total Options granted to the Optionee, Options to purchase
seventy-five thousand (75,000) shares of Common Stock shall be immediately
exercisable at an exercise price of $7.25 per share; Options to purchase
seventy-five thousand (75,000) shares of Common Stock shall be immediately
exercisable at an exercise price of $8.00 per share; Options to purchase
seventy-five thousand (75,000) shares of Common Stock shall be immediately
exercisable at an exercise price of $8.75 per share; and the remaining Options
to purchase seventy-five thousand
-1-
<PAGE> 17
(75,000) shares of Common Stock shall be immediately exercisable at an exercise
price of $9.50 per share. Subject to earlier termination as provided in Sections
9 and 10, the term of each Option shall be the period commencing on the date of
this Agreement and ending on the tenth (10th) anniversary of this Agreement; the
Options shall be of no further force and effect and shall not be exercisable to
any extent after such term expires.
3. GRANT AS NON-QUALIFIED STOCK OPTIONS; OTHER OPTIONS. The
Options are NOT intended to qualify as incentive stock options under Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"). The Options are
in addition to any other options heretofore or hereafter granted to the Optionee
by the Company.
4. NON-TRANSFERABILITY. Except as provided below, the Options
shall not be assignable or transferrable by the Optionee other than by will or
the laws of descent and distribution, and shall be exercisable during the
Optionee's lifetime only by the Optionee. Notwithstanding the foregoing, the
Options shall be assignable and transferable by the Optionee to family members,
and to partnerships, trusts and other entities for the exclusive benefit of
family members, for estate planning purposes if and to the extent such
assignments or transfers (a) will not be treated as arms-length transactions
that would result in the assignment or transfer being a taxable event for the
purpose of Section 83 of the Code and the regulations thereunder, and (b) are
then permitted by Securities and Exchange Commission ("SEC") Rule 16b-3 and Form
S-8.
5. PARTIAL EXERCISE. Exercise of the Options may be made in
part at any time and from time to time within the limits set forth in Section 2
above, except that the Options may not be exercised for a fraction of a share.
6. REGISTRATION OF OPTION EXERCISE; PURCHASE FOR INVESTMENT.
The Company shall use its best efforts to file a registration statement on SEC
Form S-8 under the Securities Act of 1933, as amended (the "1933 Act"), relating
to the exercise of the Options and to keep such registration statement effective
and current at all times during which any of the Options is exercisable. If for
any reason the registration statement is not effective and current when the
Optionee elects to exercise any Options, the Optionee agrees (i) that his
purchase of shares of Common Stock upon such exercise will not be made with a
view toward their distribution, as defined in the 1933 Act; (ii) that such
shares of Common Stock may not be transferred or hypothecated unless, in the
opinion of counsel to the Company, such transfer or hypothecation would be in
compliance with the registration provisions of the 1933 Act and relevant state
securities laws, or pursuant to exemptions therefrom; and (iii) to sign a
certificate to such effect at the time of exercising the Options and that the
certificate for the shares so purchased may be inscribed with a legend to ensure
compliance with the 1933 Act and relevant state securities laws.
7. METHOD OF EXERCISING OPTIONS. Subject to the terms and
conditions of this Agreement, the Options may be exercised by written notice to
the Company, at the principal executive office of the Company. Such notice shall
state the election to exercise the Options and the number of shares in respect
of which they are being exercised and shall be signed by the Optionee. Such
notice shall be accompanied by the payment of the full purchase price for such
shares, which shall be payable (i) in cash; (ii) by certified check or bank
cashier's check payable to the order of the Company in the amount of such
purchase price; (iii) by delivery to the Company of shares of
-2-
<PAGE> 18
Common Stock having a fair market value (as defined in Section 9.B) equal to
such purchase price, provided that such shares have been owned by the Optionee
for at least six (6) months or such other period as the Company may determine is
necessary to avoid adverse accounting treatment by the Company; (iv) in the
event that the exercise of the Options is covered by an effective registration
statement, by the delivery from a broker to the Company of an amount of loan
proceeds necessary to pay such purchase price, pursuant to the Optionee's
instructions to the broker to sell some or all of the shares of Common Stock to
be issued upon exercise of the Options and to repay the loan from the proceeds
of the sale, to deliver the remaining cash proceeds, less commissions, brokerage
fees and interest charges, to the Optionee and to deliver any remaining shares
to the Optionee; or (v) by any combination of the methods of payment described
in (i) through (iv) above. The Company shall deliver a certificate or
certificates representing the shares purchased as soon as practicable after the
notice and payment shall be received. The certificate or certificates for the
shares purchased shall, except as otherwise instructed in the case of an
exercise pursuant to (iv) above, all be registered in the name of the Optionee
and shall be delivered to the Optionee. All shares purchased upon the exercise
of Options shall be fully paid and non-assessable. The Optionee shall not have
the rights of a stockholder with respect to the shares covered by the Options
until the date of issuance of a stock certificate to him for such shares. Except
as expressly provided in Section 9, no adjustment shall be made for dividends or
similar rights for which the record date is before the date such stock
certificate is issued.
8. NO OBLIGATION TO EXERCISE OPTIONS. The grant and acceptance
of the Options imposes no obligation on the Optionee to exercise the Options.
9. ADJUSTMENTS. The Optionee's rights with respect to
unexercised Options shall be adjusted as provided in the Incentive Plan. In
addition, upon the occurrence of any of the following events, the Optionee's
rights with respect to unexercised Options shall be adjusted as hereinafter
provided:
A. STOCK DIVIDENDS AND STOCK SPLITS. If the shares of
Common Stock shall be subdivided or combined into a greater or smaller number of
shares, or if the Company shall issue any shares of Common Stock as a stock
dividend on its outstanding Common Stock, the number of shares of Common Stock
deliverable upon the exercise of Options shall be appropriately increased or
decreased proportionately, and appropriate adjustments shall be made in the
purchase price per share to reflect such subdivision, combination or stock
dividend.
B. ACQUISITION OF THE COMPANY. If the Company is to be
consolidated with or acquired by another entity, in a merger, sale of all or
substantially all of the Company's assets or otherwise, in a transaction in
which the Company is not the surviving parent entity (an "Acquisition"), the
Board (or the board of directors of the entity assuming the obligations of the
Company hereunder (the "Successor Board")) shall, with respect to outstanding
Options, take one or more of the following actions: (i) make appropriate
provision for the continuation of such Options by substituting on an equitable
basis for the shares of Common Stock then subject to such
-3-
<PAGE> 19
Options the consideration payable with respect to the outstanding shares of
Common Stock in connection with the Acquisition; (ii) accelerate the date of
exercise of such Options or of any installment of such Options; (iii) upon
written notice to the Optionee, provide that all Options must be exercised, to
the extent then exercisable, within a specified number of days after the date of
such notice, at the end of which period the Options shall terminate; or (iv)
terminate all Options in exchange for a cash payment equal to the excess of the
fair market value of the shares subject to such Options (to the extent then
exercisable) over the exercise price thereof. For purposes of this Agreement,
"fair market value" shall be determined as of the last business day for which
the prices or quotes discussed in this sentence are available prior to the date
of determination and shall mean (a) the average (on that date) of the high and
low sales prices of the Common Stock on the principal national securities
exchange on which the Common Stock is traded, if the Common Stock is then traded
on a national securities exchange, or in the Nasdaq National Market, if the
Common Stock is then quoted in such market; or (b) the average of the high and
low bid prices (on that date) by an established quotation service (including for
these purposes the Nasdaq Small-Cap Market) for over-the-counter securities, if
the Common Stock is not traded or quoted on a national securities exchange or in
the Nasdaq National Market. However, if the Common Stock is not publicly traded
on the date of determination, "fair market value" shall be deemed to be the fair
value of the Common Stock as determined by the Board (or the Successor Board)
after taking into consideration all factors which it deems appropriate,
including, without limitation, recent sale and bid prices of the Common Stock in
private transactions negotiated at arm's length.
C. RECAPITALIZATION OR REORGANIZATION. In the event of a
recapitalization or reorganization of the Company (other than in a transaction
described in subparagraph A or B above) pursuant to which securities of the
Company or of another entity are issued with respect to the outstanding shares
of Common Stock, the Optionee upon exercising the Options shall be entitled to
receive for the purchase price paid upon such exercise the securities that he
would have received if he had exercised the Options prior to such
recapitalization or reorganization.
D. DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Options shall terminate
immediately prior to the consummation of such proposed action, or at such other
time and subject to such other conditions as shall be determined by the Board.
E. ISSUANCES OF SECURITIES. Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
exercise price of shares subject to the Options.
F. FRACTIONAL SHARES. No fractional shares shall be issued
upon exercise of the Options, and the Optionee shall receive from the Company
cash in lieu of such fractional shares.
-4-
<PAGE> 20
10. TERMINATION OR ACCELERATION OF OPTIONS.
Subject to the last sentence of Section 2 and the provisions
of Section 9:
A. In the event that the Employment Period is terminated
pursuant to Section 12(a) or (b) of the Employment Agreement, the Options shall
immediately terminate at the time of such termination, and there shall exist no
further right to exercise any of such Options. In the event that the Employment
Period is terminated pursuant to Section 12(d) of the Employment Agreement, or
the Employment Period terminates because it is not extended pursuant to a notice
given by the Optionee pursuant to Section 2 of the Employment Agreement, the
Options shall be exercisable for a period of ninety (90) days after such
termination. Upon the expiration of such 90-day period, the Options shall
terminate, and there shall exist no further right to exercise any of such
Options.
B. In the event that the Employment Period is terminated
pursuant to Section 12(c) of the Employment Agreement, the Options shall be
exercisable for a period of one (1) year after such termination. Upon the
expiration of such one-year period, the Options shall terminate, and there shall
exist no further right to exercise any of such Options.
C. In the event that the Employment Period is terminated
pursuant to Section 12(e) of the Employment Agreement, all Options shall be
exercisable for the full 10-year term of the Options.
D. In the event that the Employment Period terminates
because it is not extended pursuant to a notice given by the Company pursuant to
Section 2 of the Employment Agreement, the Options shall be exercisable for a
period of one (1) year after such termination. Upon the expiration of such
one-year period, the Options shall terminate, and there shall exist no further
right to exercise any of such Options.
11. ENTIRE AGREEMENT. This Agreement and the Employment
Agreement represent the entire understanding and agreement between the parties
with respect to the subject matter hereof, and supersede all other negotiations,
understandings and representations, if any, made by and between such parties.
12. AMENDMENTS. The provisions of this Agreement may not be
amended, supplemented, waived or changed orally, but only by a writing signed by
the party as to whom enforcement of any such amendment, supplement, waiver or
modification is sought and making specific reference to this Agreement.
13. ASSIGNMENTS. Except as otherwise provided herein, no party
shall assign his or its rights and/or obligations hereunder without the prior
written consent of the other party to this Agreement.
-5-
<PAGE> 21
14. BINDING EFFECT. All of the terms and provisions of this
Agreement, whether so expressed or not, shall be binding upon, inure to the
benefit of and be enforceable by the parties and their respective
administrators, executors, legal representatives, heirs, successors and
permitted assigns.
15. NOTICES. All notices, requests, consents and other
communications required or permitted under this Agreement shall be in writing
and shall be (as elected by the person giving such notice) hand delivered by
messenger or courier service or mailed (airmail if international) by registered
or certified mail (postage prepaid), return receipt requested, addressed to:
If to the Optionee: With copy to:
Gary O. Marino Nason, Gildan, Yeager,
3735 Devon Court South Gerson & White, P.A.
Boca Raton, Florida 33496 United National Bank Tower
1645 Palm Beach Lakes Boulevard
and Suite 1200
West Palm Beach, Florida 33401
301 Yamato Road Attention: Domenick R. Lioce, Esq.
Suite 2222
Boca Raton, Florida 33431
If to the Company: With a copy to:
RailAmerica, Inc. RailAmerica, Inc.
301 Yamato Road 301 Yamato Road
Suite 1190 Suite 1190
Boca Raton, Florida 33431 Boca Raton, Florida 33431
Attention: Chairman, Attention: General Counsel
Compensation Committee
or to such other address as any party may designate by notice complying with the
terms of this Section. Each such notice shall be deemed delivered on the date
delivered if by personal delivery or on the date upon which the return receipt
is signed or delivery is refused or the notice is designated by the postal
authorities as not deliverable, as the case may be, if mailed.
16. HEADINGS. The headings contained in this Agreement are for
convenience of reference only, and shall not limit or otherwise affect in any
way the meaning or interpretation of this
Agreement.
17. SEVERABILITY. If any part of this Agreement is contrary
to, prohibited by or deemed invalid under applicable law or regulation, such
provision shall be inapplicable and deemed omitted to the extent so contrary,
prohibited or invalid, but the remainder hereof shall not be invalidated thereby
and shall be given full force and effect so far as possible.
-6-
<PAGE> 22
18. WAIVERS. The failure or delay of any party at any time to
require performance by the other party of any provision of this Agreement shall
not affect the right of such party to require performance of that provision or
to exercise any right, power or remedy hereunder, and any waiver by any party of
any breach of any provision of this Agreement shall not be construed as a waiver
of any continuing or succeeding breach of such provision, a waiver of the
provision itself or a waiver of any right, power or remedy under this Agreement.
No notice to or demand on any party in any case shall, of itself, entitle such
party to any other or further notice or demand in similar or other
circumstances.
19. JURISDICTION AND VENUE. The parties acknowledge that a
substantial portion of the negotiations, anticipated performance and execution
of this Agreement occurred or shall occur in Palm Beach County, Florida, and
that, therefore, without limiting the jurisdiction or venue of any other federal
or state courts, each of the parties irrevocably and unconditionally (i) agrees
that any suit, action or legal proceeding arising out of or relating to this
Agreement may be brought in the courts of record of the State of Florida in Palm
Beach County or the court of the United States, Southern District of Florida;
(ii) consents to the jurisdiction of each such court in any suit, action or
proceeding; (iii) waives any objection which he or it may have to the laying of
venue of any such suit, action or proceeding in any of such courts; and (iv)
agrees that service of any court papers may be effected on such party by mail,
as provided in this Agreement, or in such other manner as may be provided under
applicable laws or court rules in such courts.
20. ENFORCEMENT COSTS. If any legal action, arbitration or
other proceeding is brought for the enforcement of this Agreement, or because of
an alleged dispute, breach, default or misrepre sentation in connection with any
provisions of this Agreement, the ultimately successful or prevailing party or
parties shall be entitled to recover reasonable attorneys' fees, costs and other
expenses, even if not taxable as court costs (including, without limitation, all
such fees, costs and expenses incident to appeals), incurred in that action,
arbitration or other proceeding, in addition to any other relief to which such
party may be entitled.
21. REMEDIES CUMULATIVE. No remedy herein conferred upon any
party is intended to be exclusive of any other remedy, and each and every such
remedy shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity, whether by statute
or otherwise. No single or partial exercise by any party of any right, power or
remedy hereunder shall preclude any other or further exercise thereof.
-7-
<PAGE> 23
22. GOVERNING LAW. This Agreement and all transactions
contemplated by this Agreement shall be governed by, and construed and enforced
in accordance with, the internal laws of the State of Delaware without regard to
principles of conflicts of laws.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
RAILAMERICA, INC.
/s/ DONALD D. REDFEARN By: /s/ CHARLES SWINBURN
- ---------------------------- -------------------------------
Donald D. Redfearn Charles Swinburn, Chairman
Secretary Compensation Committee
/s/ DOROTHY SINGER /s/ GARY O. MARINO
- ---------------------------- -------------------------------
Witness Gary O. Marino
/S/ VIVIAN TRAPNELL
- ----------------------------
Witness
-8-
<PAGE> 24
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
---------------------------------------
This Amendment No. 1 ("Amendment No. 1") to that certain Employment
Agreement dated as of January 1, 1998 (the "Agreement") between RailAmerica,
Inc. (the "Company") and Gary O. Marino (the "Executive"), is made and entered
into as of the 17th day of March, 1998.
RECITALS
--------
A. The Executive is currently employed by the Company pursuant to the
Agreement.
B. The Compensation Committee of the Board of Directors of the Company
has determined that Amendment No. 1 will reinforce and encourage the
Executive's continued attention and dedication to the Company.
AGREEMENT
---------
Now, therefore, for good and sufficient consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. The Agreement is hereby amended to add thereto the following Section
5A:
"5A.(a) Effective as of March 17, 1998, the Company sold Thirty
Thousand (30,000) shares of common stock of the Company to the
Executive in exchange for a Promissory Note in the principal amount
of Ninety Seven Thousand Five Hundred Dollars ($97,500) and bearing
interest at the "short-term applicable federal rate" as such term is
defined in Section 1274(d) of the Internal Revenue Code dated as of
the date hereof (the "Note"). On March 17, 1998, March 17, 1999 and
March 17, 2000, the Company shall pay bonuses (the "Loan Bonuses") to
the Executive, if he is employed by the Company on that date, equal to
the amount payable by the Executive to the Company on that date under
the Note. In lieu of making actual payment of these Loan Bonuses to
the Executive, the Company may apply the bonus amount, less any
applicable withholding taxes, against the amount due under the Note.
These bonuses shall be in addition to any bonuses payable to Executive
pursuant to Sections 4 and 7 of this Agreement.
(b) In the event that the Executive's employment with the Company
terminates by reason of the Executive's death or disability as
described under Section 12(c) hereof, is terminated by the Company
without Cause under Section 12(e) hereof, is terminated under Section
11 hereof after a Change in Control for any reason other than by the
Company for Cause under Sections 12(a) or 12(b) hereof, or terminates
upon the expiration of the Employment Period if the Company has not
offered the
<PAGE> 25
Excutive to extend the term of the Agreement on substantially the same
terms, then the Company shall pay to the Executive, within 45 days of
such termination, a bonus (the "Final Loan Bonus") equal to the
outstanding principal and accrued interest on the Note. In lieu of
making actual payment of this Final Loan Bonus to the Executive, the
Company may apply the amount of the Final Loan Bonus, less any
applicable withholding taxes, against the amount due under the Note.
2. Except as set forth in this Amendment No. 1, the terms of Agreement
shall remain unchanged and in full force and effect.
2
<PAGE> 26
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
No. 1 as of the day and year first written above.
RAILAMERICA, INC.
/s/ Donald D. Redfearn /s/ Charles Swinburn
- ----------------------- ---------------------------------------
Donald D. Redfearn Charles Swinburn, Chairman Compensation
Secretary Committee
/s/ Dorothy Singer /s/ Gary O. Marino
- ----------------------- ----------------------------------------
Witness Gary O. Marino
/s/ Jane Levin
- -----------------------
Witness
3
<PAGE> 1
EXHIBIT 21 - SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
SUBSIDIARY AND NAME UNDER WHICH SUBSIDIARY DOES BUSINESS STATE OF INCORPORATION
- -------------------------------------------------------- ----------------------
<S> <C>
Cascade and Columbia River Railroad Company, Inc. Delaware
Dakota Rail, Inc. South Dakota
Delaware Valley Railway Company, Inc. Delaware
Florida Rail Lines, Inc. Delaware
Huron and Eastern Railway Company, Inc. Michigan
Kalyn/Siebert Canada, Inc. Quebec
Kalyn/Siebert Incorporated Texas
Minnesota Northern Railroad, Inc. Delaware
Otter Tail Valley Railroad Company, Inc. Minnesota
Plainview Terminal Company Texas
Prairie Holding Corporation Florida
RailAmerica Australia, Inc. Delaware
RailAmerica Australia Pty Ltd Australia
RailAmerica de Chile, S.A. Chile
RailAmerica Carriers, Inc. Ontario, Canada
RailAmerica Equipment Corporation Delaware
RailAmerica Intermodal Services, Inc. Delaware
Saginaw Valley Railway Company, Inc. Delaware
South Central Tennessee Railroad Corporation Delaware
St. Croix Valley Railroad Company, Inc. Delaware
Steel City Carriers, Inc. Ontario, Canada
U.S. Rail Lines, Inc. Delaware
West Texas and Lubbock Railroad Company, Inc. Texas
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,273,586
<SECURITIES> 0
<RECEIVABLES> 9,633,934
<ALLOWANCES> 0
<INVENTORY> 10,101,472
<CURRENT-ASSETS> 25,604,718
<PP&E> 82,329,078
<DEPRECIATION> 0
<TOTAL-ASSETS> 116,411,277
<CURRENT-LIABILITIES> 22,409,616
<BONDS> 46,560,677
0
0
<COMMON> 9,609
<OTHER-SE> 30,380,293
<TOTAL-LIABILITY-AND-EQUITY> 116,411,277
<SALES> 8,582,725
<TOTAL-REVENUES> 14,435,985
<CGS> 6,191,757
<TOTAL-COSTS> 12,417,779
<OTHER-EXPENSES> 110,435
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 993,178
<INCOME-PRETAX> 914,593
<INCOME-TAX> 246,715
<INCOME-CONTINUING> 667,878
<DISCONTINUED> (65,241)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 602,637
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
