S-4

   1

   AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 6, 2000
                                                 REGISTRATION NO. 333-
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                             ---------------------

                                    FORM S-4
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933
                             ---------------------

                        RAILAMERICA TRANSPORTATION CORP.
             (Exact name of Registrant as Specified in its Charter)

                                                           
            DELAWARE                           3715                  65-0979478
  (State or Other Jurisdiction     (Primary Standard Industrial   (I.R.S. Employer
of Incorporation or Organization)  Classification Code Number)     Identification
                                                                        No.)



                             ---------------------
        (FOR THE CO-REGISTRANTS, PLEASE SEE "CO-REGISTRANT INFORMATION"
                            ON THE FOLLOWING PAGE)*

                                                           
                                                                                   GARY O. MARINO
                                                                          CHAIRMAN, CHIEF EXECUTIVE OFFICER
                                                                                    AND PRESIDENT
             5300 BROKEN SOUND BOULEVARD, N.W.                            RAILAMERICA TRANSPORTATION CORP.
                 BOCA RATON, FLORIDA 33487                                5300 BROKEN SOUND BOULEVARD, N.W.
                       (561) 994-6015                                         BOCA RATON, FLORIDA 33487
    (Address, Including Zip Code, and Telephone Number,                            (561) 994-6015
                       Including Area                         (Name, Address, Including Zip Code, and Telephone Number,
     Code, of Registrant's Principal Executive Offices)              Including Area Code, of Agent for Service)



                             ---------------------
                          COPIES OF COMMUNICATIONS TO:

                              FERN S. WATTS, ESQ.
                            GREENBERG TRAURIG, P.A.
                              1221 BRICKELL AVENUE
                              MIAMI, FLORIDA 33131
                         TELEPHONE NO.: (305) 579-0500
                         FACSIMILE NO.: (305) 579-0717
                             ---------------------
        APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
  AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.

    If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]

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

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



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                                                                  PROPOSED             PROPOSED
                                               AMOUNT              MAXIMUM              MAXIMUM             AMOUNT OF
          TITLE OF EACH CLASS                   TO BE          OFFERING PRICE          AGGREGATE          REGISTRATION
     OF SECURITIES TO BE REGISTERED          REGISTERED           PER UNIT          OFFERING PRICE             FEE
- --------------------------------------------------------------------------------------------------------------------------
                                                                                           
12 7/8% Senior Subordinated Notes due
  2010..................................    $130,000,000            100%             $130,000,000            $34,320
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Guarantees of 12 7/8% Senior
  Subordinated Notes due 2010...........    $130,000,000             --                   --                   (2)
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Total...................................                                                                     $34,320
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(1) Calculated pursuant to Rule 457(f) of the Securities Act of 1933.
(2) Pursuant to Rule 457(n) of the Securities Act of 1933, no additional
    registration fee is being paid in respect of the guarantees. The guarantees
    will not be traded separately.

    THE CO-REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE CO-REGISTRANTS
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.

* The Co-Registrants named on the following page are the direct and indirect
  parent and domestic subsidiaries of the Registrant and the guarantors of the
  notes to be registered hereby.
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                           CO-REGISTRANT INFORMATION



                                                        (PRIMARY STANDARD   (STATE OR OTHER
                                                           INDUSTRIAL       JURISDICTION OF
            (EXACT NAME OF CO-REGISTRANTS                CLASSIFICATION     INCORPORATION OR   (I.R.S. EMPLOYER
             AS SPECIFIED IN ITS CHARTER)                    NUMBER)         ORGANIZATION)    IDENTIFICATION NO.)
            -----------------------------               -----------------   ----------------  -------------------
                                                                                     
RailAmerica, Inc......................................        3715              Delaware             65-0328006
Palm Beach Rail Holding, Inc..........................        3715              Delaware             65-0979476
Austin & Northwestern Railroad Company, Inc...........        3715               Texas               65-0328006
Boston Central Freight Railroad, Inc..................        3715              Delaware             74-2822956
Cascade and Columbia River Railroad Company, Inc......        3715              Delaware             91-1734603
Central Oregon & Pacific Railroad, Inc................        3715              Delaware             93-1151074
Central Railroad Company of Indiana...................        3715              Indiana              35-1824902
Connecticut Southern Railroad, Inc....................        3715              Delaware             03-0353222
Dakota Rail, Inc......................................        3715            South Dakota           46-0365527
Dallas, Garland & Northeastern Railroad, Inc..........        3715               Texas               74-2410681
Dallas, Garland & Northeastern Railroad, Inc..........        3715              Delaware             74-2782740
Delaware Valley Railway Company, Inc..................        3715              Delaware             23-2769325
Florida Rail Lines, Inc...............................        3715              Delaware             65-0945307
Georgia Southwestern Railroad, Inc....................        3715              Delaware             58-2144829
Huron and Eastern Railway Company, Inc................        3715              Michigan             38-2655990
Indiana & Ohio Central Railroad, Inc..................        3715              Delaware             74-2862103
Indiana & Ohio Rail Corp..............................        3715              Delaware             74-2862101
Indiana & Ohio Railway Company........................        3715              Delaware             74-2862012
Indiana Southern Railroad, Inc........................        3715              Delaware             74-2932611
Marksman Corp.........................................        3715              Delaware             22-2959560
Mid-Michigan Railroad, Inc............................        3715              Michigan             31-1224037
Missouri & Northern Arkansas Railroad Company, Inc....        3715               Kansas              43-1624703
New England Central Railroad, Inc.....................        3715              Delaware             03-0344030
New Orleans Lower Coast Railroad Company, Inc.........        3715             Louisiana             72-1183692
North Carolina and Virginia Railroad Company, Inc.....        3715              Delaware             74-2932608
Otter Tail Valley Railroad Company, Inc...............        3715             Minnesota             41-1565408
Pittsburgh Industrial Railroad, Inc...................        3715              Delaware             74-2733541
Plainview Terminal Company............................        3715               Texas               75-2622280
Prairie Holdings Corporation..........................        3715              Florida              59-2994998
Rail Operating Support Group, Inc.....................        3715              Delaware             65-0797247
RailAmerica Australia, Inc............................        3715              Florida              65-0797248
RailAmerica Equipment Corporation.....................        3715              Delaware             65-0622013
RailAmerica Intermodal Services, Inc..................        3715              Delaware             65-0553260
RaiLink Acquisition, Inc..............................        3715              Delaware             65-1033741
RailTex Acquisition Corp..............................        3715              Delaware             74-2877630
RailTex Distribution Services, Inc....................        3715               Texas               74-2717791
RailTex, Inc..........................................        3715               Texas               74-1948121
RailTex International Holdings, Inc...................        3715              Delaware             74-2787728
RailTex Logistics, Inc................................        3715              Delaware             74-2795200
RailTex Services Co., Inc.............................        3715               Texas               74-2587475
Saginaw Valley Railway Company, Inc...................        3715              Delaware             38-2779857
San Diego & Imperial Valley Railroad Company, Inc.....        3715             California            74-2332456
South Carolina Central Railroad Company, Inc..........        3715           South Carolina          57-0856173
South Central Tennessee Railroad Corp., Inc...........        3715              Delaware             62-1583702
The Toledo, Peoria & Western Railroad Corporation.....        3715              New York             16-1490112
Toledo, Peoria & Western Railway Corporation..........        3715             New Jersey            22-2814670
Ventura County Railroad Co., Inc......................        3715              Delaware             77-0495102
West Texas and Lubbock Railroad Company, Inc..........        3715               Texas               75-2622278


     The address, including zip code of each of the Co-Registrants' principal
executive offices is 5300 Broken Sound Boulevard, N.W., Boca Raton, Florida
33487. The telephone number, including area code, of each of the Co-Registrant's
is (561) 994-6015.

     The name, address, including zip code of the agent for service for each of
the Co-Registrants is Gary O. Marino, Chairman of the Board, President and Chief
Executive Officer of RailAmerica Transportation Corp., 5300 Broken Sound
Boulevard, N.W., Boca Raton, Florida 33487. The telephone number, including area
code, of the agent for service for each of the Co-Registrant's is (561)
994-6015.
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     THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
     MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
     THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT
     AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY
     THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

                 SUBJECT TO COMPLETION, DATED           , 2000
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PROSPECTUS

                                  $130,000,000

                               (RAILAMERICA LOGO)
                        RAILAMERICA TRANSPORTATION CORP.

                               OFFER TO EXCHANGE
           ALL OUTSTANDING 12 7/8% SENIOR SUBORDINATED NOTES DUE 2010
                                      FOR
             REGISTERED 12 7/8% SENIOR SUBORDINATED NOTES DUE 2010

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THE REGISTERED NOTES

    The terms of the registered notes that we are offering in exchange for the
outstanding notes are substantially identical to the terms of the outstanding
notes, except that some transfer restrictions and registration rights relating
to the outstanding notes will not apply to the registered notes.

MATERIAL TERMS OF THE EXCHANGE OFFER

- - The exchange offer will expire at 5:00 p.m., New York City time, on          ,
  2000, unless extended.

- - The exchange offer is subject to customary conditions, including the
  conditions that the exchange offer not violate applicable law or any
  applicable interpretation of the staff of the Securities and Exchange
  Commission.

- - You may withdraw tenders of outstanding notes at any time before the exchange
  offer expires.

- - We will exchange all outstanding notes that are validly tendered and not
  withdrawn before the exchange offer expires.

- - We will issue the registered notes promptly after the exchange offer expires.

- - We believe that the exchange of outstanding notes will not be a taxable event
  for federal income tax purposes, but you should read "Certain U.S. Federal Tax
  Considerations" on page 68 for more information.

- - We will not receive any proceeds from the exchange offer.

- - All broker-dealers must comply with the registration and prospectus delivery
  requirements of the Securities Act of 1933. Each broker-dealer that receives
  registered notes for its own account pursuant to the exchange offer must
  acknowledge that it will deliver a prospectus in connection with any resale of
  the registered notes. The letter of transmittal accompanying this prospectus
  states that by so acknowledging and by delivering a prospectus, a
  broker-dealer will not be deemed to admit that it is an "underwriter" within
  the meaning of the Securities Act. This prospectus, as it may be amended or
  supplemented from time to time, may be used by a broker-dealer in connection
  with resales of registered notes received in exchange for outstanding notes
  where those outstanding notes were acquired by the broker-dealer as a result
  of market-making activities or other trading activities. We have agreed that
  for a period of one year after consummating the exchange offer we will make
  this prospectus available to any broker-dealer for use in connection with any
  such resale.

- - No public market currently exists for the registered notes. We do not intend
  to apply for listing of the registered notes on any securities exchange or to
  arrange for them to be quoted on any quotation system.

     BEFORE PARTICIPATING IN THE EXCHANGE OFFER, PLEASE REFER TO THE SECTION IN
THIS PROSPECTUS ENTITLED "RISK FACTORS" BEGINNING ON PAGE 13.

     NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE REGISTERED NOTES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

           THE DATE OF THIS PROSPECTUS IS                     , 2000
   4

                               TABLE OF CONTENTS



                                                              PAGE
                                                           
Forward-Looking Statements..................................   ii
Prospectus Summary..........................................    1
Risk Factors................................................   13
Use of Proceeds.............................................   23
Capitalization..............................................   24
Unaudited Pro Forma Combined Financial Information..........   25
The Exchange Offer..........................................   39
Description of the Registered Notes.........................   49
Certain United States Federal Income Tax Considerations.....   68
Plan of Distribution........................................   75
Where You Can Find More Information.........................   75
Legal Matters...............................................   77
Experts.....................................................   77
Index to Consolidated Financial Statements..................  F-1


                                        i
   5

                           FORWARD-LOOKING STATEMENTS

     This prospectus contains some forward-looking statements, within the
meaning of federal securities laws, about our financial condition, results of
operations and business. You can find many of these statements by looking for
words like "will," "should," "believes," "expects," "project," "could,"
"anticipates," "estimates," "intends," "may," "pro forma" or similar expressions
used in this prospectus. These forward-looking statements are subject to
numerous assumptions, risks and uncertainties that may cause our actual results
or performance to be materially different from any future results or performance
expressed or implied by the forward-looking statements. The risks and
uncertainties include those risks and uncertainties identified under the heading
"Risk Factors" in this prospectus. These factors include, but are not limited
to, the following:

     - our level of leverage;

     - our ability to meet our debt service obligations;

     - the subordination of the notes to our senior indebtedness, which is
       secured by substantially all of our assets;

     - the restrictions imposed upon us by the indenture and by our senior
       credit facilities;

     - our relationships with Class I railroads;

     - our ability to find suitable acquisition opportunities and to finance and
       complete acquisitions and integrate acquired businesses; and

     - our ability to successfully market and sell non-core properties and
       assets.

     Because these forward-looking statements are subject to risks and
uncertainties, we caution you not to place undue reliance on these statements,
which speak only as of the date of this prospectus. We do not undertake any
responsibility to review or confirm analysts' expectations or estimates or to
release publicly any revisions to these forward-looking statements to take into
account events or circumstances that occur after the date of this prospectus.
Additionally, we do not undertake any responsibility to update you on the
occurrence of unanticipated events which may cause actual results to differ from
those expressed or implied by these forward-looking statements.

                                       ii
   6

                               PROSPECTUS SUMMARY

     This summary highlights information that we believe is especially important
concerning our business and the exchange offer. It does not contain all of the
information that may be important to your investment decision. You should read
the entire prospectus, including "Risk Factors" and our financial statements and
related notes, before deciding to participate in the exchange offer. Except
where the context otherwise requires, the terms "we," "us," "our" or
"RailAmerica," refer to the business of RailAmerica, Inc., the ultimate parent
of the issuer of the notes, and its consolidated subsidiaries. RailAmerica
Transportation Corp., the issuer of the notes, is a wholly-owned indirect
subsidiary of RailAmerica, Inc. and constitutes substantially all of our
continuing operations. All dollar amounts are expressed in U.S. dollars.

     Unless otherwise noted, all financial information and operating data
included in this prospectus:

     - give pro forma effect to the acquisition of RailTex on February 4, 2000;

     - give pro forma effect to the acquisitions of The Toledo, Peoria and
       Western Railroad, RaiLink, and Freight Australia in 1999; and

     - exclude Kalyn/Siebert, Inc. which is considered a discontinued operation
       and is being held for sale.

OUR BUSINESS

     We are the largest owner and operator of short line freight railroads in
North America and a leading owner and operator of regional freight railroads in
Australia and Chile. We own, operate or have equity interests in, a diversified
portfolio of 47 railroads with approximately 12,200 miles of track located in
the United States, Australia, Canada and Chile. Through our diversified
portfolio of rail lines, we operate in numerous geographic regions with varying
concentrations of commodities hauled. We believe individual economic and
seasonal cycles in each region may partially offset each other.

     On February 4, 2000, we acquired RailTex for approximately $128.0 million
in cash and approximately 6.6 million shares of RailAmerica common stock, valued
at $60.8 million. We also refinanced approximately $105.3 million of RailTex
indebtedness and substantially all of our indebtedness. RailTex owns and
operates 25 short line freight railroads with approximately 4,100 miles of track
concentrated in the southeastern, midwestern, Great Lakes and New England
regions of the United States and eastern Canada. In connection with the
acquisition, we and some of our subsidiaries entered into a credit agreement
providing $330.0 million of senior term loans and $50.0 million of senior
revolving loans. In addition, RailAmerica Transportation issued $95.0 million of
subordinated bridge notes and Palm Beach Rail Holding, Inc., the direct parent
of RailAmerica Transportation, issued $55.0 million of asset sale bridge notes,
in connection with the acquisition.

     For the twelve months ended June 30, 2000 excluding the results of
RailAmerica de Chile, S.A., known as Ferronor, we generated revenues of $347.5
million and EBITDA of $94.7 million. For the six months ended June 30, 2000
excluding the results of Ferronor, we generated revenues of $180.8 million and
EBITDA of $48.9 million. The book value of our property, plant and equipment,
excluding Ferronor, as of June 30, 2000 was $690.9 million.

OUR NORTH AMERICAN OPERATIONS

     We own, lease and operate 40 rail properties in North America and have
equity interests in five additional rail properties. All of our North American
rail properties are short line railroads that provide transportation services
for both on-line customers and Class I railroads which interchange with our rail
lines. Short line railroads are typically less than 350 miles long, serve a
particular class of customers in a small geographic area and interchange with
Class I railroads. Short line rail operators primarily serve customers on their
line by transporting products to and from the Class I interchanges. Each of our
North American rail lines is typically the only rail carrier directly serving
its customers. The ability to haul heavy and large quantities of freight as part
of a long-distance haul make rail services generally a more effective,
lower-cost alternative to other modes of transportation, including motor
carriers.

                                        1
   7

     In 1999, we moved over 900,000 carloads of freight in North America, most
of which interchanged with Class I railroads. As of June 30, 2000, 36 of our 40
owned or leased North American short line rail properties generated freight
revenue on a fixed-rate basis under long-term contracts. We believe this
substantially reduces pricing volatility.

     United States.  We own/lease and operate 31 short line rail properties in
the United States with approximately 4,500 miles of track. Our United States
properties are geographically diversified and operate in 24 states. We have
clusters of rail properties in the southeastern, midwestern, Great Lakes and New
England regions of the United States. We believe that this cluster strategy
provides economies of scale and helps us achieve operational synergies. In 1999,
our United States rail properties generated $187.0 million of revenue or 54% of
our total revenue, excluding Ferronor. For the six months ended June 30, 2000,
these properties generated $92.2 million of revenue or 51% of our total revenue,
excluding Ferronor.

     Canada.  We own/lease and operate nine short line rail properties in Canada
with approximately 2,400 miles of track. Our Canadian properties are
geographically diversified and operate in five provinces and the Northwest
Territory. We have clusters of rail properties in Alberta, southern Ontario and
eastern Quebec. In 1999, our Canadian rail properties generated $59.4 million of
revenue or 17% of our total revenue, excluding Ferronor. For the six months
ended June 30, 2000, these properties generated $34.5 million of revenue or 19%
of our total revenue, excluding Ferronor. We also own a 26% equity interest in
Quebec Railway Corporation, a railroad company operating five railroads in
southeastern Canada with approximately 750 miles of track.

OUR INTERNATIONAL OPERATIONS

     Australia.  In Australia, we own Freight Victoria, now doing business as
Freight Australia, a regional freight railroad operating in the States of
Victoria and New South Wales. Freight Australia is our wholly owned Australian
subsidiary that purchased the assets of V/Line Freight Corporation from the
Government of the State of Victoria on April 30, 1999 for total consideration of
approximately $103 million. The assets we purchased from V/Line Freight
Corporation include 106 locomotives and over 2,600 rail cars. As a part of the
total consideration, Freight Australia prepaid to the State of Victoria the
rental payments of a 45-year lease to operate 3,150 miles of track. The present
value of the lease payments totaled approximately $60 million. Freight
Australia's customers span a variety of industries, with particular emphasis on
companies in the Australian agricultural industry for which Freight Australia
carries bulk grain and other agricultural products. Freight Australia generates
a substantial percentage of its revenue from contracts with the Australian Wheat
Board. In addition, Freight Australia receives a substantial percentage of its
revenue from fees received for providing access to track on which V/Line
Passenger operates a passenger railroad servicing the State of Victoria. In
1999, our Australian rail property generated $97.9 million of revenue or 28% of
our total revenue, excluding Ferronor. For the six months ended June 30, 2000,
this property generated $53.3 million of revenue or 30% of our total revenue,
excluding Ferronor.

     Chile.  Through a wholly-owned subsidiary, RailAmerica de Chile S.A., we
own 55% of the outstanding voting stock of Ferronor. Ferronor owns and operates
approximately 1,400 miles of rail line in northern Chile. Ferronor is treated as
an unrestricted subsidiary under the indenture and is not subject to the
negative covenants contained in the indenture. In 1999, we received cash
dividends totaling approximately $0.9 million from Ferronor.

OUR BUSINESS STRATEGY

     Integrate RailTex into our operations.  We expect that the acquisition and
integration of RailTex will generate approximately $11.0 million of annual cost
savings and synergies. A key element to our strategy has been the implementation
of a comprehensive integration plan focusing on areas such as rationalizing
staffing, regionalizing operations, centralizing corporate functions and
management information systems and the elimination of other duplicative costs
including public company costs and board of director fees. To date, we believe
that we have achieved a substantial portion of these cost savings.

                                        2
   8

     Grow internally through focused sales, marketing efforts and customer
service. We will continue to focus on increasing traffic in each of our markets
by aggressively marketing our customer service to our customers and bolstering
our sales efforts. In many cases, we believe customer service and sales and
marketing at railroads that we have acquired have been neglected by the previous
owners. We purchased a number of our rail lines from Class I railroads. Due to
the size of the Class I railroads and their concentration on long-haul traffic,
we believe the Class I operators typically have not effectively marketed these
branch line operations.

     Maintain close relationships with Class I railroads.  Since most of our
North American short line rail properties interchange with at least one Class I
railroad, we maintain close relationships with substantially all of the North
American Class I rail operators. We believe that these relationships will enable
us to pursue new business opportunities on existing rail line properties and
acquire additional short line freight rail lines from the Class I railroads.

     Continue to grow through selective acquisitions.  We expect that
opportunities to acquire selected North American short line rail properties will
continue to become available over the next several years. We also expect to make
acquisitions, in economically and politically stable international markets as a
result of an increasing number of governments seeking to privatize their
national rail systems.

     Focus on core operations through strategic divestitures. We believe that in
order to capitalize on opportunities more profitable to our overall portfolio
and to minimize the amount of management time and effort on the smaller
properties in our portfolio and to reduce debt we may from time to time divest
some of our non-core railroad properties. We have announced a plan to divest
approximately $100 million of these properties and other assets, including our
announced plan to sell Kalyn/Siebert. As part of this plan, as of June 2000, we
sold a corridor of land owned by the West Texas and Lubbock Railroad for $9.3
million and other assets for approximately $2.0 million. In August 2000, we sold
two rail lines for gross proceeds of approximately $4.6 million. We believe a
market for these divestitures exists among other smaller short line operating
companies and selected strategic buyers. We cannot assure you that we will be
able to sell any of these properties or assets on acceptable terms, if at all.

OFFERING OF OUTSTANDING NOTES

     In August 2000, RailAmerica Transportation sold units consisting of
$130,000,000 of outstanding notes and warrants to purchase 1,411,414 shares of
common stock, $.001 par value, of RailAmerica in a private offering. The net
proceeds we received from the issuance of the units were used to repay all $95.0
million of subordinated bridge notes issued by RailAmerica Transportation, $20.0
million of the asset sale bridge notes issued by Palm Beach Rail Holding, Inc.
and approximately $1.8 million of term loans under our senior credit facilities.

ASSETS HELD FOR SALE

     As part of our strategy to focus on our core railroad business, we have
determined to sell Kalyn/Siebert, our truck trailer manufacturing business.
Kalyn/Siebert is a wholly-owned subsidiary of Palm Beach Rail Holding, Inc. and
is classified as a discontinued operation for purposes of our consolidated
financial statements. We intend to use the net proceeds from the sale of
Kalyn/Siebert to repay a majority of the outstanding asset sale bridge notes
issued by Palm Beach Rail Holding, Inc.

CORPORATE INFORMATION

     RailAmerica Transportation Corp. is a wholly-owned indirect subsidiary of
RailAmerica, Inc., a publicly traded company listed on the Nasdaq National
Market under the symbol "RAIL." RailAmerica Transportation comprises
substantially all of the operating assets of RailAmerica, Inc. except
Kalyn/Siebert. RailAmerica Transportation is a Delaware corporation with our
principal executive offices located at 5300 Broken Sound Boulevard, N.W., Boca
Raton, Florida 33487. Our telephone number is (561) 994-6015.

                                        3
   9

          SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
          (IN THOUSANDS, EXCEPT OPERATING DATA AND CREDIT STATISTICS)

    The following table sets forth our summary historical consolidated financial
information and other data for the years ended December 31, 1997, 1998 and 1999
and the six months ended June 30, 1999 and 2000. The summary historical
financial data for the years ended December 31, 1997, 1998 and 1999 exclude
Ferronor and have been derived from our audited consolidated financial
statements and the notes thereto. The summary historical financial data for the
six months ended June 30, 1999 and 2000 exclude Ferronor and have been derived
from our unaudited consolidated financial statements and the notes thereto. The
pro forma financial data for the year ended December 31, 1999, the six months
ended June 30, 2000 and the twelve months ended June 30, 2000 (1) gives effect
to the issuance of the outstanding notes and the application of the net
proceeds, (2) gives effect to our acquisitions of RailTex, the Toledo, Peoria
and Western Railroad, RaiLink and Freight Australia, and the related financings,
including our new senior credit facility and (3) excludes Ferronor, which is
treated as an unrestricted subsidiary under the indenture. The pro forma
financial data assumes the transactions had been consummated on January 1, 1999,
January 1, 2000 or July 1, 1999, in the case of income statement data, other
data, operating data, certain other data and credit statistics and on December
31, 1999 or June 30, 2000, in the case of balance sheet data and certain balance
sheet data. The following financial information should be read in conjunction
with "Unaudited Pro Forma Consolidating Financial Information" and our
consolidated financial statements and the notes thereto included or incorporated
by reference into this prospectus.

                               RAILAMERICA, INC.



                                                                                                                    TWELVE MONTHS
                                                  (UNAUDITED)                            SIX MONTHS ENDED               ENDED
                                            YEAR ENDED DECEMBER 31,                          JUNE 30,                 JUNE 30,
                                    ----------------------------------------      -------------------------------   -------------
                                     1997      1998       1999       1999           1999       2000       2000          2000
                                                                   PRO FORMA                            PRO FORMA     PRO FORMA
                                                                                            
INCOME STATEMENT DATA:
 Operating revenues...............  $16,434   $21,332   $106,257   $346,337       $ 31,517   $166,708   $180,782      $347,510
 Operating expenses -- railroad...    7,389     6,720     63,412    203,569         18,215     94,950    105,839       196,705
 Selling, general and
   administrative.................    5,704     7,352     17,327     51,143          6,827     27,552     26,987        58,252
 Acquisition related costs........       --        --         --         --             --      1,924      1,924         1,924
 Gain on sale and impairment of
   assets (net)...................       --        --         --         --             --     (7,785)    (7,785)       (7,785)
 Depreciation and amortization....    1,521     1,837      7,948     29,443          2,174     13,760     15,163        29,829
 Operating expenses -- motor
   carrier........................       --     4,438         --         --             --         --         --            --
                                    -------   -------   --------   --------       --------   --------   --------      --------
       Operating income...........    1,820       985     17,570     62,182          4,301     36,307     38,654        68,585
 Interest expense.................   (2,934)   (3,213)   (14,692)   (51,114)        (3,558)   (22,240)   (25,758)      (52,167)
 Amortization of financing
   costs..........................     (366)     (465)    (4,203)    (2,216)          (988)    (2,638     (1,352)       (2,945)
 Other............................      340       226      4,819      8,243             68        832        832         7,926
 Foreign exchange loss............       --        --        272         --          2,005     (2,929)        50        (1,908)
                                    -------   -------   --------   --------       --------   --------   --------      --------
 (Loss) income from continuing
   operations before income
   taxes..........................   (1,140)   (2,467)     3,766     17,095          1,828      9,332     12,426        19,491
 (Loss) income from continuing
   operations.....................     (823)   (1,467)     4,553     11,260          1,159      6,320      8,421        14,747
 Discontinued operations..........    1,746     4,288      3,896      3,896          2,523       (112)      (112)        1,261
 Extraordinary loss from early
   extinguishment of debt                --        --         --         --             --     (2,216)    (2,216)       (2,216)
                                    -------   -------   --------   --------       --------   --------   --------      --------
       Net (loss) income..........  $   923   $ 2,821   $  8,449   $ 15,156       $  3,682   $  3,992   $  6,093      $ 13,792
                                    =======   =======   ========   ========       ========   ========   ========      ========
OTHER DATA:
 EBITDA(1)(2)(3)(4)...............  $ 3,341   $ 3,128   $ 27,091   $ 93,379(5)(9) $  6,475   $ 45,131   $ 48,881(6)   $ 94,716(7)(9)
 Cash interest expense(8).........  $ 2,934   $ 3,213   $ 14,692   $ 49,832       $  3,558   $ 21,564   $ 25,117      $ 50,885
 Capital expenditures.............  $ 4,310   $11,960   $ 37,313        N/A       $ 25,554   $ 23,244        N/A           N/A
OPERATING DATA:
 Freight carloads.................   46,207    49,519    154,991        N/A        106,454    551,332        N/A           N/A
 Track mileage....................      930     1,000      2,748     10,300          4,340     11,750     11,750        11,750
BALANCE SHEET DATA (AT PERIOD
 END):
 Total assets.............................................................................   $812,354                 $815,583
 Total debt...............................................................................   $530,416                 $530,815
 Stockholders' equity.....................................................................   $114,765                 $118,771
                                                RAILAMERICA TRANSPORTATION CORP.
CERTAIN BALANCE SHEET DATA (AT
  PERIOD END):
  Total debt.....................................................................................................     $474,746
CERTAIN OTHER DATA:
  Cash interest expense..........................................................................................     $ 49,532
CREDIT STATISTICS:
  Ratio of EBITDA to RailAmerica Transportation cash interest expense............................................          1.9x
  Ratio of RailAmerica Transportation net debt to EBITDA(10).....................................................          4.9x


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

(1) EBITDA represents income from continuing operations before provisions for
    income taxes, interest expense and depreciation and amortization. While
    EBITDA should not be construed as a substitute for other historical
    operating data prepared in accordance with GAAP in analyzing our operating
    performance, financial position and cash flows, we have included EBITDA
    because it is commonly used by some investors to analyze and compare
    companies on the basis of operating performance, leverage and liquidity and
    to determine our ability to service debt.

(2) For the year ended December 31, 1999, EBITDA excludes $651,146 of expenses
    associated with the Delaware Valley Railway, which ceased operations during
    1999 and includes a cash dividend of $921,522 that we received from
    Ferronor.

(3) For the six months ended June 30, 2000, EBITDA excludes (i) $1,924,000 of
    acquisition related costs which consisted of (a) $170,000 non-cash
    amortization of a not-to-compete payment to a former RailTex employee and
    (b) $1,754,000 of other RailTex related acquisition costs, (ii) $925,000
    non-cash amortization of a fuel hedge and (iii) $7,785,000 of net gain on
    sale and impairment of assets.
(4) For the twelve months ended June 30, 2000, EBITDA (i) excludes $133,397 of
    expenses associated with the Delaware Valley Railway, which ceased
    operations during 1999, (ii) includes a cash dividend of $989,182 that we
    received from Ferronor, (iii) excludes $1,924,000 of acquisition related
    costs which consisted of (a) $170,000 non-cash amortization of a
    not-to-compete payment to a former RailTex employee and (b) $1,754,000 of
    other RailTex related acquisition costs, (iv) excludes $925,000 non-cash
    amortization of a fuel hedge and (v) excludes $7,785,000 of net gain on sale
    and impairment of assets.

                                        4
   10

 (5) Pro Forma EBITDA for the year ended December 31, 1999 represents EBITDA for
     that period adjusted as follows:



                                                                 YEAR ENDED
                                                              DECEMBER 31, 1999
                                                              -----------------
                                                           
    EBITDA..................................................       $27,091
    Pro Forma acquisitions..................................        48,536
    Other regulation S-X adjustments........................        17,752
                                                                 ---------
    Pro Forma EBITDA........................................       $93,379


 (6) Pro Forma EBITDA for the six months ended June 30, 2000 represents EBITDA
     for that period adjusted as follows:



                                                              SIX MONTHS ENDED
                                                               JUNE 30, 2000
                                                              ----------------
                                                           
    EBITDA..................................................      $45,131
    Pro Forma acquisitions..................................        3,185
    Other regulation S-X adjustments........................          565
                                                                  -------
    Pro Forma EBITDA........................................      $48,881


 (7) Pro Forma EBITDA for the twelve months ended June 30, 2000 represents
     EBITDA for that period adjusted as follows:



                                                               TWELVE MONTHS
                                                                   ENDED
                                                               JUNE 30, 2000
                                                              ----------------
                                                           
    EBITDA..................................................      $64,964
    Pro Forma acquisitions..................................       25,077
    Other regulation S-X adjustments........................        4,675
                                                                  -------
    Pro Forma EBITDA........................................      $94,716


 (8) Cash interest expense of RailAmerica, Inc. includes $1.4 million of
     interest expense for the year ended December 31, 1999 and the twelve month
     period ended June 30, 2000 and $0.7 million of interest expense for the six
     months ended June 30, 2000 relating to RailAmerica, Inc.'s 6% convertible
     subordinated debt.

 (9) Pro forma EBITDA for the twelve months ended December 31, 1999 includes
     additional RailTex net income from the sale of timber of $181,000 and for
     the twelve months ended June 30, 2000 includes additional RailTex net
     income from the sale of timber of $117,000. This net income is reported as
     other income on the unaudited pro forma consolidating statements of income
     for the twelve months ended June 30, 2000.

(10) For purposes of calculating the ratio of RailAmerica Transportation net
     debt to EBITDA, RailAmerica Transportation net debt is presented net of
     cash and a $5.1 million discount attributable to the value of warrants
     issued in the offering of the outstanding notes.

                                        5
   11

                               THE EXCHANGE OFFER

     The following is a summary of the principal terms of the exchange offer. A
more detailed description is contained in this prospectus under the section
entitled "The Exchange Offer." The term "registered notes" refers to the
registered 12 7/8% Senior Subordinated Notes due 2010 being offered in the
exchange offer. The term "outstanding notes" refers to our currently outstanding
12 7/8% Senior Subordinated Notes due 2010 that are exchangeable for the
registered notes. The term "indenture" refers to the indenture that applies to
both the outstanding notes and the registered notes.

The Exchange Offer..............   We are offering to exchange $1,000 principal
                                   amount of registered notes and integral
                                   multiples of $1,000 in excess thereof which
                                   have been registered under the Securities Act
                                   for each $1,000 principal amount of
                                   outstanding notes and integral multiples of
                                   $1,000. We issued the outstanding notes on
                                   August 14, 2000 in a private offering. In
                                   order to be exchanged, an outstanding note
                                   must be properly tendered and accepted before
                                   expiration of the exchange offer. All
                                   outstanding notes that are validly tendered
                                   and not validly withdrawn will be exchanged.
                                   We will issue the registered notes promptly
                                   after the expiration of the exchange offer.

                                   As of the date of this prospectus, there is
                                   outstanding $130.0 million principal amount
                                   of outstanding notes. Outstanding notes may
                                   be tendered for exchange in whole or in part
                                   for minimum denominations of $1,000 principal
                                   amount and integral multiples of $1,000.

Registration Rights Agreement...   Simultaneously with the sale of the
                                   outstanding notes on August 14, 2000, we
                                   entered into a registration rights agreement
                                   under which we committed to conduct the
                                   exchange offer. You are entitled under the
                                   registration rights agreement to exchange
                                   your outstanding notes for registered notes
                                   with substantially identical terms. The
                                   exchange offer is intended to satisfy these
                                   rights. After the exchange offer is complete,
                                   except as set forth in the next paragraph,
                                   you will no longer be entitled to any
                                   exchange or registration rights with respect
                                   to your outstanding notes.

                                   The registration rights agreement requires us
                                   to file a registration statement for a
                                   continuous offering in accordance with Rule
                                   415 under the Securities Act for your benefit
                                   if:

                                   - we are not permitted to consummate the
                                     exchange offer because the exchange offer
                                     is not permitted by applicable law or SEC
                                     policy;

                                   - you are ineligible to participate in the
                                     exchange offer and indicate that you wish
                                     to have your outstanding notes registered
                                     under the Securities Act; or

                                   - you may not resell registered notes you
                                     have acquired in the exchange offer to the
                                     public without delivering a prospectus and
                                     this prospectus, including any amendment or
                                     supplement thereto, is not appropriate or
                                     available for resales by you.

Resales of the Registered
Notes...........................   We believe that registered notes to be issued
                                   in the exchange offer in exchange for the
                                   outstanding notes may be offered for

                                        6
   12

                                   resale, resold and otherwise transferred by
                                   you without compliance with the registration
                                   and prospectus delivery provisions of the
                                   Securities Act if you meet the following
                                   conditions:

                                     (1) the registered notes are acquired by
                                         you in the ordinary course of your
                                         business;

                                     (2) you are not engaging in and do not
                                         intend to engage in a distribution of
                                         the registered notes;

                                     (3) you do not have an arrangement or
                                         understanding with any person to
                                         participate in the distribution of the
                                         registered notes; and

                                     (4) you are not an affiliate of ours, as
                                         that term is defined in Rule 405 under
                                         the Securities Act

                                   However, the SEC has not considered this
                                   exchange offer in the context of a no-action
                                   letter and we cannot be sure that the staff
                                   of the SEC would make the same determination
                                   with respect to the exchange offer as in
                                   other circumstances. Furthermore, if you do
                                   not meet the above conditions, you may incur
                                   liability under the Securities Act if you
                                   transfer any registered note without
                                   delivering a prospectus meeting the
                                   requirements of the Securities Act. We do not
                                   assume, or indemnify you against, that
                                   liability.

                                   Each broker-dealer that receives registered
                                   notes for its own account in the exchange
                                   offer in exchange for outstanding notes which
                                   that broker-dealer acquired as a result of
                                   market-making activities or other trading
                                   activities must acknowledge that it will
                                   comply with the prospectus delivery
                                   requirements of the Securities Act in
                                   connection with any resale of the registered
                                   notes. Broker-dealers who acquired
                                   outstanding notes directly from us and not as
                                   a result of market-making activities or other
                                   trading activities may not participate in the
                                   exchange offer and must comply with the
                                   prospectus delivery requirements of the
                                   Securities Act in order to resell the
                                   outstanding notes

Expiration Date.................   The exchange offer will expire at 5:00 p.m.,
                                   New York City time, on                     ,
                                   2000, unless we decide to extend the exchange
                                   offer.

Withdrawal......................   You may withdraw the tender of your
                                   outstanding notes at any time prior to 5:00
                                   p.m., New York City time, on the expiration
                                   date.

Conditions to the Exchange
Offer...........................   The only conditions to completing the
                                   exchange offer are that the exchange offer
                                   not violate applicable law or any applicable
                                   interpretation of the staff of the SEC and no
                                   injunction, order or decree has been issued,
                                   or any action or proceeding has been
                                   instituted or threatened that would
                                   reasonably be expected to prohibit, prevent
                                   or materially impair our ability to proceed
                                   with the exchange offer.

                                        7
   13

                                   If any of these conditions exist prior to the
                                   expiration date, we may take the following
                                   actions:

                                   - refuse to accept any outstanding notes and
                                     return all previously tendered outstanding
                                     notes;

                                   - extend the duration of the exchange offer;
                                     or

                                   - waive these conditions to the extent
                                     permissible under applicable law.

Procedures for Tendering
Outstanding Notes...............   We issued the outstanding notes as global
                                   securities in fully registered form without
                                   coupons. Beneficial interests in the
                                   outstanding notes which are held by direct or
                                   indirect participants in The Depository Trust
                                   Company through uncertificated depositary
                                   interests are shown on, and transfers of the
                                   outstanding notes can be made only through,
                                   records maintained in book-entry form by DTC
                                   with respect to its participants.

                                   If you are a holder of an outstanding note
                                   held in the form of a book-entry interest and
                                   you wish to tender your outstanding notes for
                                   exchange pursuant to the exchange offer, you
                                   must transmit to Wells Fargo Bank Minnesota,
                                   N.A., as exchange agent, on or prior to the
                                   expiration of the exchange offer either:

                                   - a written or facsimile copy of a properly
                                     completed and executed letter of
                                     transmittal and all other required
                                     documents to the address set forth on the
                                     cover page of the letter of transmittal; or

                                   - a computer-generated message transmitted by
                                     means of DTC's Automated Tender Offer
                                     Program system and forming a part of a
                                     confirmation of book-entry transfer in
                                     which you acknowledge and agree to be bound
                                     by the terms of the letter of transmittal.

                                   The exchange agent must also receive on or
                                   prior to the expiration of the exchange offer
                                   either:

                                   - a timely confirmation of book-entry
                                     transfer of your outstanding notes into the
                                     exchange agent's account at DTC, in
                                     accordance with the procedure for
                                     book-entry transfers described in this
                                     prospectus under the heading "The Exchange
                                     Offer -- Book-Entry Transfer," or

                                   - the documents necessary for compliance with
                                     the guaranteed delivery procedures
                                     described below.

                                   A letter of transmittal accompanies this
                                   prospectus. By executing the letter of
                                   transmittal or delivering a
                                   computer-generated message through DTC's
                                   Automated Tender Offer Program system, you
                                   will represent to us that, among other
                                   things:

                                     (1) the registered notes to be acquired by
                                         you in the exchange offer are being
                                         acquired in the ordinary course of your
                                         business;

                                        8
   14

                                     (2) you are not engaging in and do not
                                         intend to engage in a distribution of
                                         the registered notes;

                                     (3) you do not have an arrangement or
                                         understanding with any person to
                                         participate in the distribution of the
                                         registered notes; and

                                     (4) you are not an affiliate of ours.

Procedures for Tendering
Certificated Outstanding
  Notes.........................   If you are a holder of book-entry interests
                                   in the outstanding notes, you are entitled to
                                   receive, in limited circumstances, in
                                   exchange for your book-entry interests,
                                   certificated notes which are in equal
                                   principal amounts to your book-entry
                                   interests. See "The Exchange
                                   Offer -- Procedures for
                                   Tendering -- Book-Entry Interests." No
                                   certificated notes are issued and outstanding
                                   as of the date of this prospectus. If you
                                   acquire certificated outstanding notes prior
                                   to the expiration of the exchange offer, you
                                   must tender your certificated outstanding
                                   notes in accordance with the procedures
                                   described in this prospectus under the
                                   heading "The Exchange Offer -- Procedures for
                                   Tendering -- Certificated Outstanding Notes."

Special Procedures for
Beneficial Owners...............   If you are the beneficial owner of
                                   outstanding notes and they are registered in
                                   the name of a broker, dealer, commercial
                                   bank, trust company or other nominee, and you
                                   wish to tender your outstanding notes, you
                                   should promptly contact the person in whose
                                   name your initial notes are registered and
                                   instruct that person to tender on your
                                   behalf. If you wish to tender on your own
                                   behalf, you must, prior to completing and
                                   executing the letter of transmittal and
                                   delivering your outstanding notes, either
                                   make appropriate arrangements to register
                                   ownership of the outstanding notes in your
                                   name or obtain a properly completed bond
                                   power from the person in whose name your
                                   outstanding notes are registered. The
                                   transfer of registered ownership may take
                                   considerable time and it may not be possible
                                   to complete prior to the expiration date.

Guaranteed Delivery
Procedures......................   If you wish to tender your outstanding notes
                                   and your outstanding notes are not
                                   immediately available or you cannot deliver
                                   your outstanding notes, the letter of
                                   transmittal or any other documents required
                                   by the letter of transmittal to the exchange
                                   agent, or you cannot complete the procedure
                                   for book-entry transfer, then prior to the
                                   expiration date you must tender your
                                   outstanding notes according to the guaranteed
                                   delivery procedures set forth in "The
                                   Exchange Offer -- Procedures for
                                   Tendering -- Guaranteed Delivery Procedures."

Acceptance of Outstanding Notes
and Delivery of Registered
  Notes.........................   Except under the circumstances described
                                   above under "Conditions to the Exchange
                                   Offer," we will accept for exchange any and
                                   all outstanding notes which are properly
                                   tendered in the exchange offer before 5:00
                                   p.m., New York City time, on the expiration
                                   date. We will deliver the registered notes
                                   promptly following the expiration date. If we
                                   do not accept any of your

                                        9
   15

                                   outstanding notes for exchange we will return
                                   them to you as promptly as practicable after
                                   the expiration or termination of the exchange
                                   offer without any expense to you.

Interest on the Registered Notes
and the Outstanding Notes.......   The registered notes will pay interest on
                                   every August 15 and February 15, commencing
                                   February 15, 2001. Interest will not be paid
                                   on outstanding notes that are tendered and
                                   accepted for exchange.

Exchange Agent..................   Wells Fargo Bank Minnesota, N.A. is serving
                                   as the exchange agent in connection with the
                                   exchange offer.

Use of Proceeds.................   We will not receive any cash proceeds from
                                   the issuance of the registered notes in the
                                   exchange offer.

Consequences of Failure to
Exchange........................   Outstanding notes that are not tendered or
                                   that are tendered but not accepted will
                                   continue to be subject to the existing
                                   restrictions on transfer provided in the
                                   outstanding notes and in the indenture.

U.S. Federal Tax
Considerations..................   The exchange of the outstanding notes
                                   generally will not be a taxable exchange for
                                   federal income tax purposes.

                         TERMS OF THE REGISTERED NOTES

Issuer..........................   RailAmerica Transportation Corp.

Registered Notes Offered........   $130.0 million aggregate principal amount of
                                   12 7/8% Senior Subordinated Notes due 2010.
                                   The registered notes will evidence the same
                                   debt as the outstanding notes and will be
                                   issued under, and entitled to the benefits
                                   of, the same indenture. The terms of the
                                   registered notes are the same as the terms of
                                   the outstanding notes in all material
                                   respects except that the registered notes:

                                   - have been registered under the Securities
                                     Act;

                                   - do not include rights to registration under
                                     the Securities Act; and

                                   - do not contain transfer restrictions
                                     applicable to the outstanding notes.

Maturity Date...................   August 15, 2010.

Interest Payment Dates..........   Every August 15 and February 15, commencing
                                   February 15, 2001.

Guarantees......................   Each of RailAmerica Transportation's domestic
                                   restricted subsidiaries will be a guarantor
                                   as well as RailAmerica Transportation's
                                   direct parent, Palm Beach Rail Holding, Inc.
                                   and its ultimate parent, RailAmerica, Inc.
                                   Non-guarantor subsidiaries accounted for
                                   approximately 46.8% of our EBITDA for the
                                   year ended December 31, 1999 and 47.1% of our
                                   EBITDA for the six months ended June 30,
                                   2000. If we do not make payments on the
                                   registered notes when they are due, our
                                   guarantors are required to make payments.

                                       10
   16

Sinking Fund....................   None.

Optional Redemption.............   We may redeem some or all of the registered
                                   notes at any time on or after August 15,
                                   2005, in whole or in part, in cash at the
                                   redemption prices described in this
                                   prospectus, plus accrued and unpaid interest
                                   to the date of redemption.

                                   In addition, on or before August 15, 2003, we
                                   may redeem up to 35% of the aggregate
                                   principal amount of the registered notes
                                   originally issued at a redemption price of
                                   112.875% with the proceeds of equity
                                   offerings within 60 days of closing of an
                                   equity offering. We may make that redemption
                                   only if, after the redemption, at least 65%
                                   of the aggregate principal amount of
                                   registered notes originally issued remain
                                   outstanding.

Change of Control...............   Upon a change of control, as defined in
                                   "Description of the Registered Notes," we
                                   will be required to make an offer to purchase
                                   the notes. The purchase price will equal 101%
                                   of the principal amount of the notes on the
                                   date of repurchase, plus accrued and unpaid
                                   interest to the date of repurchase.

Ranking.........................   The registered notes and the guarantees will
                                   be general unsecured obligations and will
                                   rank:

                                   - junior to all of RailAmerica
                                     Transportation's and the guarantors'
                                     existing and future senior indebtedness and
                                     secured indebtedness, including any
                                     obligations under the senior credit
                                     facilities;

                                   - equally with any of RailAmerica
                                     Transportation's and the guarantors' future
                                     senior subordinated indebtedness;

                                   - senior to any of RailAmerica
                                     Transportation's and the guarantors' future
                                     subordinated indebtedness; and

                                   - effectively junior to all of the
                                     liabilities of our subsidiaries that have
                                     not guaranteed the registered notes.

                                   At June 30, 2000, assuming the sale of the
                                   outstanding notes and the related warrants,
                                   and the use of proceeds of that sale had been
                                   completed at that time, the registered notes
                                   would have ranked junior to $337.1 million of
                                   senior indebtedness. In addition, the
                                   guarantors would have had approximately $18.7
                                   million of indebtedness outstanding (other
                                   than indebtedness consisting of guarantees of
                                   RailAmerica Transportation senior
                                   indebtedness) that would have ranked senior
                                   to the guarantors' guarantees of the
                                   registered notes.

Certain Covenants...............   The terms of the indenture governing the
                                   registered notes restrict RailAmerica
                                   Transportation's ability and the ability of
                                   our restricted subsidiaries to:

                                   - incur additional indebtedness;

                                   - create liens;

                                   - pay dividends or make other equity
                                     distributions;

                                   - purchase or redeem capital stock;

                                       11
   17

                                   - make investments;

                                   - sell assets;

                                   - engage in transactions with affiliates; or

                                   - effect a consolidation or merger.

                                   These limitations are subject to a number of
                                   important qualifications and exceptions. See
                                   "Description of the Registered Notes --
                                   Certain Covenants."

                                  RISK FACTORS

     We urge you to read carefully the risk factors beginning on page 13 for a
discussion of factors you should consider before exchanging your outstanding
notes for registered notes.

                                       12
   18

                                  RISK FACTORS

     You should carefully consider the following risk factors in addition to the
other information contained in this prospectus before participating in the
exchange offer. Unless indicated otherwise, the outstanding notes and the
registered notes are collectively referred to as the "notes" in the following
risk factors.

RISKS RELATED TO THE NOTES

  WE HAVE SUBSTANTIAL DEBT AND DEBT SERVICE REQUIREMENTS WHICH COULD HAVE
  ADVERSE CONSEQUENCES ON OUR BUSINESS.

     In August 2000, we issued 130,000 units consisting of the outstanding notes
and warrant to purchase 1,411,414 shares of RailAmerica's common stock, which
yielded gross proceeds to us of $122.2 million. On a pro forma basis as if the
issuance of the units and the application of the net proceeds had occurred on
June 30, 2000, RailAmerica Transportation would have had approximately $474.7
million of total indebtedness outstanding. This amount excludes approximately
$26.9 million of outstanding indebtedness of Ferronor, which is non-recourse to
us and our other subsidiaries. On a pro forma basis as if the acquisition of
RailTex and the related financings, including our borrowings under the senior
credit facility, the issuance of the units and the application of the net
proceeds had occurred on January 1, 1999, our cash interest expense, excluding
Ferronor, would have been approximately $50.9 million for the year ended
December 31, 1999 and $25.1 million for the six months ended June 30, 2000. The
degree to which we are leveraged could have important consequences, including
the following:

     - our ability to borrow additional amounts for working capital, capital
       expenditures, potential acquisition opportunities, general corporate
       purposes and other purposes may be limited or financing may not be
       available on terms favorable to us or at all;

     - a substantial portion of our cash flows from operations must be used to
       pay our interest expense and repay our debt, which would reduce the funds
       that would otherwise be available to us for our operations and future
       business opportunities;

     - we may be more vulnerable to economic downturns, may be limited in our
       ability to withstand competitive pressures and may have reduced
       flexibility in responding to changing business, regulatory and economic
       conditions; and

     - fluctuations in market interest rates will affect the cost of our
       borrowings to the extent not covered by interest rate hedge agreements
       because the interest under our credit facilities is payable at variable
       rates.

  DESPITE CURRENT INDEBTEDNESS LEVELS, RAILAMERICA TRANSPORTATION AND ITS
  SUBSIDIARIES MAY STILL BE ABLE TO INCUR SUBSTANTIALLY MORE DEBT, WHICH WILL
  INTENSIFY THE RISKS DISCUSSED ABOVE.

     The indenture permits, subject to specified limitations, RailAmerica
Transportation and its subsidiaries to be able to incur substantial additional
indebtedness in the future. Our revolving credit facility allows us to borrow a
total of $50.0 million. As of August 31, 2000, we had outstanding borrowings of
approximately $23.6 million under our revolving credit facility. All of these
borrowings would be senior to the notes and the guarantees. If new debt is added
to our and our subsidiaries' current debt levels, the related risks that we and
they now face could intensify.

  WE MAY NOT BE ABLE TO GENERATE SUFFICIENT CASH FLOW TO MEET OUR DEBT SERVICE
  REQUIREMENTS.

     We cannot assure you that our future cash flows will be sufficient to meet
our debt obligations and commitments. Any insufficiency would have a negative
impact on our business. Our ability to generate cash flow from operations
sufficient to make scheduled payments on our debt as they become due will depend
on our future performance and our ability to implement our business strategy
successfully. Our performance will be affected by prevailing economic conditions
and financial, business, regulatory and other factors. Most of these factors are
beyond our control. Failure to pay our interest expense or make our principal
payments

                                       13
   19

would result in a default. A default, if not waived, could result in
acceleration of our indebtedness, in which case the debt would become
immediately due and payable. If this occurs, we may be forced to reduce or delay
capital expenditures and implementation of our business strategy, sell assets,
obtain additional equity capital or refinance or restructure all or a portion of
our outstanding debt. In the event that we are unable to do so, we may be left
without sufficient liquidity and we may not be able to repay our debt and the
lenders will be able to foreclose on our assets. Even if new financing is
available, it may not be on terms that are acceptable to us.

  YOUR RIGHT TO RECEIVE PAYMENT ON THE NOTES AND THE GUARANTEES IS JUNIOR TO ALL
  OF RAILAMERICA TRANSPORTATION'S AND THE GUARANTORS' SENIOR INDEBTEDNESS AND
  POSSIBLY ALL OF RAILAMERICA TRANSPORTATION'S AND THE GUARANTORS' FUTURE
  BORROWINGS.

     The notes will be general unsecured obligations, junior in right of payment
to all of RailAmerica Transportation's existing and future senior indebtedness,
including obligations under the senior credit facilities. The notes will also be
effectively subordinated to any secured debt that we or our subsidiaries may
have now or may incur in the future to the extent of the value of the assets
securing that debt. In addition, the notes will be effectively subordinated to
all of the liabilities of any of our subsidiaries that do not guarantee the
notes. In the event that RailAmerica Transportation or a guarantor is declared
bankrupt, becomes insolvent, is liquidated or reorganized, defaults on payment
under debt that is senior to the notes or commits a default causing the
acceleration of the maturity of debt, any debt that ranks ahead of the notes and
the guarantees will be entitled to be paid in full from RailAmerica
Transportation's assets or the assets of the guarantor, as applicable, before
any payment may be made with respect to the notes or the affected guarantees.
The subordination provisions of the indenture also provide that under specified
circumstances, RailAmerica Transportation cannot make any payments to you for a
period of up to 179 days if a non-payment default exists under our designated
senior indebtedness. In any of the foregoing events, we cannot assure you that
we would have sufficient assets to pay amounts due on the notes. As a result,
holders of the notes may receive less, proportionally, than the holders of debt
senior to the notes and the guarantees.

     At June 30, 2000, after giving pro forma effect to the sale of the
outstanding notes and related warrants and the use of proceeds from that sale,
as if they had occurred on that date, the notes would have ranked junior in
right of payment to approximately $337.1 million of senior indebtedness. In
addition, the guarantors would have had approximately $18.7 million of
indebtedness outstanding (other than indebtedness consisting of guarantees of
RailAmerica Transportation senior indebtedness) that would have ranked senior to
the guarantors' guarantees of the notes. In addition, the indenture governing
the notes permits, subject to specified limitations, the incurrence of
additional indebtedness, some or all of which may be senior indebtedness.

  THE INDENTURE GOVERNING THE NOTES AND OUR SENIOR CREDIT FACILITIES CONTAIN
  COVENANTS THAT SIGNIFICANTLY RESTRICT OUR OPERATIONS.

     The indenture governing the notes and our senior credit facilities contain
numerous covenants imposing financial and operating restrictions on our
business. These restrictions may affect our ability to operate our business and
may limit our ability to take advantage of potential business opportunities as
they arise. These covenants place restrictions on our ability to, among other
things:

     - incur more debt;

     - pay dividends, redeem or repurchase our stock or make other
       distributions;

     - make acquisitions or investments;

     - use assets as security in other transactions;

     - enter into transactions with affiliates;

     - merge or consolidate with others;

     - dispose of assets or use asset sale proceeds;
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   20

     - create liens on our assets; and

     - extend credit.

     In addition, our senior credit facilities also require us to meet a number
of financial ratios and tests. In some cases, RailAmerica Transportation's
subsidiaries are limited in their ability to make distributions to RailAmerica
Transportation. Our ability to meet these ratios and tests and to comply with
other provisions of our credit facilities and the indenture can be affected by
changes in economic or business conditions or other events beyond our control.
Our failure to comply with the obligations in our senior credit facilities and
the indenture could result in an event of default under these facilities and the
indenture, which, if not cured or waived, could permit acceleration of the
notes, our indebtedness under the senior credit facilities or our other
indebtedness which could have a material adverse effect on us. Acceleration of
other indebtedness may cause us to be unable to make interest payments on the
notes and repay the principal amount of the notes.

  RAILAMERICA TRANSPORTATION IS DEPENDENT ON ITS SUBSIDIARIES TO MEET ITS
  PAYMENT OBLIGATIONS UNDER THE NOTES.

     RailAmerica Transportation is a holding company with no significant assets
other than its investments in its subsidiaries. RailAmerica Transportation
conducts all of its business through these subsidiaries. In order to pay
principal, interest or any applicable premiums or liquidated damages on the
notes, RailAmerica Transportation must receive funds from its subsidiaries. The
ability of its subsidiaries to pay dividends, or to make loans, advances or
other payments to RailAmerica Transportation will depend on the subsidiaries'
results of operations, provisions of applicable laws and contractual
restrictions in our senior credit facility, the indenture and other instruments
governing indebtedness. See "Description of the Registered Notes -- Certain
Covenants -- Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" for more information on the limitations on dividends and other
payments by the restricted subsidiaries contained in the indenture.

  YOUR RIGHT TO RECEIVE PAYMENTS ON THESE NOTES COULD BE ADVERSELY AFFECTED IF
  ANY OF OUR NON-GUARANTOR SUBSIDIARIES DECLARES BANKRUPTCY, LIQUIDATE, OR
  REORGANIZE.

     Some but not all of our subsidiaries will guarantee the notes. In the event
of a bankruptcy, liquidation or reorganization of any of the non-guarantor
subsidiaries, holders of their indebtedness and their trade creditors will
generally be entitled to payment of their claims from assets of those
subsidiaries before any assets are made available for distribution to us.

     As of June 30, 2000, if we had completed the sale of the outstanding notes
and related warrants and the use of proceeds from that sale, these notes would
have been effectively junior to approximately $127.6 million of indebtedness and
other liabilities (including trade payables) of these non-guarantor
subsidiaries. The non-guarantor subsidiaries generated 46.8% of our EBITDA for
the year ended December 31, 1999 and 47.1% of our EBITDA for the six months
ended June 30, 2000 and held 40.3% of our assets as of December 31, 1999 and
42.6% of our assets as of June 30, 2000.

  YOU WILL BE REQUIRED TO INCLUDE ORIGINAL ISSUE DISCOUNT IN YOUR GROSS INCOME
  FOR FEDERAL INCOME TAX PURPOSES.

     The outstanding notes were issued with original issue discount for federal
income tax purposes. A holder of a note will generally have income for tax
purposes arising from this original issue discount prior to the actual receipt
of cash in respect of this income. See "Certain United States Federal Income Tax
Considerations."

                                       15
   21

     If a bankruptcy case is commenced by or against our company under the
United States Bankruptcy Code after the issuance of the notes, the claim of a
holder of any of the notes with respect to the principal amount thereof may be
limited to an amount equal to the sum of:

     - the initial offering price allocable to the notes, and

     - that portion of the original issue discount which is not deemed to
       constitute "unmatured interest" for purposes of the Bankruptcy Code.

     Any original issue discount that was not amortized as of any such
bankruptcy filing would constitute "unmatured interest."

  THE REGISTERED NOTES MAY NOT HAVE AN ACTIVE MARKET AND THE PRICE MAY BE
  VOLATILE, SO YOU MAY BE UNABLE TO SELL YOUR REGISTERED NOTES AT THE PRICE YOU
  DESIRE OR AT ALL.

     We cannot ensure that a liquid market will develop for the registered
notes, that you will be able to sell any of the registered notes at a particular
time if at all or that the prices you receive when you sell will be favorable.
Prior to this exchange offer, there has been no public market for the
outstanding notes. The initial purchasers of the outstanding notes have informed
us that they intend to make a market in the registered notes, but they are not
obligated to do so. The initial purchasers may cease their market-making at any
time in their sole discretion. We do not intend to apply, and are not obligated
to apply, for listing of the registered notes on any securities exchange or any
automated quotation system. As a result, you cannot be sure that an active
trading market will develop for the registered notes.

     In addition, the liquidity of the trading market for the registered notes,
if any, and the market price quoted for the registered notes, may be adversely
affected by the changes in interest rates in the market for high-yield
securities and by changes in our financial performance or prospects, or in the
prospects for companies in the railroad industry generally.

  FRAUDULENT TRANSFER STATUTES MAY LIMIT YOUR RIGHTS AS A NOTEHOLDER.

     Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, a subsidiary guarantee, such as the guarantees of the
notes by our subsidiary guarantors, could be voided, or claims in respect of a
subsidiary guarantee could be subordinated to all other debts of that guarantor
if, among other things, the guarantor, at the time it incurred the indebtedness
evidenced by its guarantee received less than reasonably equivalent value or
fair consideration for the incurrence of the guarantee, and any one of the
following:

     - the guarantor was insolvent or rendered insolvent by reason of that
       incurrence;

     - the guarantor was engaged in a business or transaction for which the
       guarantor's remaining assets constituted unreasonably small capital; or

     - the guarantor intended to incur, or believed that it would incur, debts
       beyond its ability to pay those debts as they mature.

     In addition, any payment by that guarantor pursuant to its guarantee could
be voided and required to be returned to the guarantor, or to a fund for the
benefit of the other creditors of the guarantor.

     On the basis of historical financial information, recent operating history
and other factors, we believe that each of the guarantors of the notes, after
giving effect to its guarantee of these notes, will not be insolvent, will not
have unreasonably small capital for the business in which it is engaged and will
not have incurred debts beyond its ability to pay those debts as they mature. We
cannot assure you of the standard a court would apply in making these
determinations or that a court would agree with our conclusions.

     If a court avoided the guarantee of the notes by a subsidiary guarantor as
a result of a fraudulent conveyance, or held the guarantee unenforceable for any
other reason, noteholders would no longer have a claim as a creditor against the
assets of that subsidiary.

                                       16
   22

  WE MAY BE UNABLE TO PURCHASE THE NOTES UPON A CHANGE OF CONTROL.

     Upon the occurrence of specific change of control events, we will be
required to offer to repurchase your notes at 101% of their principal amount,
plus accrued interest. The terms of our senior credit facilities limit our
ability to purchase your notes in those circumstances. Any of our future debt
agreements may contain similar restrictions and provisions. If the holders of
the notes exercise their right to require us to repurchase all of the notes upon
a change of control, the financial effect of this repurchase could cause a
default under our other indebtedness, even if the change in control itself would
not cause a default. The ability to pay cash to the holders of the notes on a
repurchase will be limited by our then existing financial resources.
Accordingly, it is possible that we will not have sufficient funds at the time
of the change of control to make the required repurchase of notes or that
restrictions in our senior credit facilities will not allow those repurchases.
In addition, important corporate events, such as leveraged recapitalizations
that would increase the level of our indebtedness, would not constitute a
"change of control" under the indenture.

  SOME PERSONS WHO PARTICIPATE IN THIS EXCHANGE OFFER MUST DELIVER A PROSPECTUS
  IN CONNECTION WITH RESALES OF THE REGISTERED NOTES.

     Based on no-action letters issued by the staff of the SEC to third parties,
we believe that you may offer for resale, resell or otherwise transfer the
registered notes without compliance with the registration and prospectus
delivery requirements of the Securities Act. However, in some instances
described in this prospectus under "The Exchange Offer," you will remain
obligated to comply with the prospectus delivery requirements of the Securities
Act to transfer your registered notes. In these instances, if you transfer any
registered note without delivering a prospectus meeting the requirements of the
Securities Act or without an exemption from registration of your registered
notes under the Securities Act, you may incur liability under the Securities
Act. We do not and will not assume, or indemnify you against, this liability.

RISKS RELATED TO OUR BUSINESS OPERATIONS

  OUR INABILITY TO INTEGRATE ACQUIRED BUSINESSES SUCCESSFULLY COULD HAVE ADVERSE
  CONSEQUENCES FOR OUR BUSINESS.

     We have experienced significant growth through acquisitions. Acquisitions
result in greater administrative burdens and operating costs and, to the extent
financed with debt, additional interest costs. We cannot assure you that we will
be able to manage or integrate the acquired companies or businesses
successfully. The process of combining RailTex into our operations and
integrating our other acquired businesses may be disruptive to our business and
may cause an interruption of, or a loss of momentum in, our business as a result
of the following factors, among others:

     - loss of key employees or customers;

     - possible inconsistencies in standards, controls, procedures and policies
       among the combined companies and the need to implement company-wide
       financial, accounting, information and other systems;

     - failure to maintain the quality of services that the companies have
       historically provided;

     - the need to coordinate geographically diverse organizations; and

     - the diversion of management's attention from our day-to-day business as a
       result of the need to deal with any disruptions and difficulties and the
       need to add management resources to do so.

     These disruptions and difficulties, if they occur, may cause us to fail to
realize the cost savings, revenue enhancements and other benefits that we
currently expect to result from that integration and may cause material adverse
short- and long-term effects on our operating results and financial condition.

                                       17
   23

  WE EXPECT TO CONTINUE TO ACQUIRE OTHER BUSINESSES, WHICH MAY ADVERSELY AFFECT
  OUR OPERATING RESULTS, FINANCIAL CONDITION AND EXISTING BUSINESS.

     The success of our acquisition program will depend on, among other things:

     - the availability of suitable candidates;

     - competition from other companies for the purchase of available
       candidates;

     - our ability to value those candidates accurately and negotiate favorable
       terms for those acquisitions;

     - the availability of funds to finance acquisitions;

     - our ability to fund acquisitions in accordance with the restrictions
       contained in our senior credit facilities; and

     - the availability of management resources to oversee the integration and
       operation of the acquired businesses.

     If our acquisition program is not successful, our operating results,
financial condition and existing business may be adversely affected.

     Financing for acquisitions may come from several sources, including cash on
hand and proceeds from the incurrence of indebtedness or the issuance of
additional common stock, preferred stock, convertible debt or other securities.
Additional debt would increase our leverage and interest costs, and may rank
senior to or pari passu with the notes.

  WE MAY NOT REALIZE THE ANTICIPATED COST SAVINGS AND OTHER BENEFITS FROM OUR
  ACQUISITION OF RAILTEX AND OUR OTHER ACQUISITIONS.

     Even if we are able to integrate the operations of RailTex and other
acquired businesses into our operations, we may not realize the full benefits of
the cost savings, revenue enhancements or other benefits that we currently
expect to result. The potential cost savings are based on analyses completed by
members of our management. These analyses necessarily involve assumptions as to
future events, including general business and industry conditions, costs to
operate our business and competitive factors, many of which are beyond our
control and may not materialize. While we believe these analyses and their
underlying assumptions to be reasonable, they are estimates which are difficult
to predict and necessarily speculative in nature. If we achieve the expected
benefits, they may not be achieved within the anticipated time frame. Also, the
cost savings and other synergies from these acquisitions may be offset by costs
incurred in integrating the companies, increases in other expenses, operating
losses or problems in the business unrelated to these acquisitions.

  WE FACE COMPETITION FROM OTHER TYPES OF TRANSPORTATION AND FROM OTHER RAIL
  OPERATORS.

     We compete directly with other modes of transportation, including motor
carriers and, to a lesser extent, ships and barges. Competition is based
primarily upon the rate charged and the transit time required, as well as the
quality and reliability of the service provided. While we must build or acquire
and maintain our rail system, trucks are able to use public roadways. Any future
improvements or expenditures materially increasing the quality of these
alternative modes of transportation in the locations in which we operate, or
legislation granting materially greater latitude for motor carriers with respect
to size or weight limitations, could have a material adverse effect on our
results of operations and financial condition.

     In addition, we compete for domestic acquisition opportunities with other
short-line operators and for foreign acquisitions with other U.S. and foreign
rail operators. Some of these competitors have significantly greater resources
than we do and may possess greater local market knowledge as well.

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   24

  OUR BUSINESS MAY BE ADVERSELY AFFECTED BY UNFAVORABLE CONDITIONS IN THE
  AGRICULTURAL INDUSTRY BECAUSE A SUBSTANTIAL PORTION OF OUR RAILROAD TRAFFIC
  CONSISTS OF AGRICULTURAL COMMODITIES.

     Factors that negatively affect the agricultural industry in the regions in
which we operate could have a material adverse effect on our results of
operations and financial condition. These factors include weather conditions,
export and domestic demand and total world supply, and fluctuations in
agricultural prices. A significant portion of our revenues for the year ended
December 31, 1999 and the six months ended June 30, 2000 were derived from the
agricultural industry. We believe that agricultural commodities will continue to
represent a principal component of our rail traffic base in the near future. As
a result, we will continue to be affected by unfavorable conditions affecting
the agricultural industry in general.

  WE ARE SUBJECT TO THE RISKS OF DOING BUSINESS IN FOREIGN COUNTRIES.

     We have railroad operations in Australia, Chile and Canada. We may also
consider acquisitions in other foreign countries. The risks of doing business in
foreign countries include:

     - adverse changes in the economy of those countries;

     - adverse effects of currency exchange controls;

     - restrictions on the withdrawal of foreign investment and earnings;

     - government policies against ownership of businesses by non-nationals; and

     - the potential instability of foreign governments.

     Our operations in foreign countries are also subject to economic
uncertainties, including among others, risk of renegotiation or modification of
existing agreements or arrangements with governmental authorities, exportation
and transportation tariffs, foreign exchange restrictions and changes in
taxation structure.

  BECAUSE SOME OF OUR SIGNIFICANT SUBSIDIARIES TRANSACT BUSINESS IN FOREIGN
  CURRENCIES, FUTURE EXCHANGE RATE FLUCTUATIONS MAY ADVERSELY AFFECT OUR RESULTS
  OF OPERATIONS.

     While our operations are predominantly in U.S. dollars, some of our
significant subsidiaries transact business in foreign currencies, including the
Australian dollar and the Canadian dollar. Changes in the relation of these and
other currencies to the U.S. dollar could affect our revenues, result in
exchange losses and result in the writedown of our investments in those foreign
countries. The impact of future exchange rate fluctuations on our results of
operations cannot be accurately predicted. Historically, we have not engaged in
hedging transactions with respect to foreign currency exchange rates. However,
if circumstances change, we may seek to limit our exposure to the risk of
currency fluctuations by engaging in hedging or other transactions. We cannot
assure you that we will successfully manage our exposure to currency
fluctuations.

  BECAUSE WE DEPEND ON CLASS I RAILROADS FOR OUR NORTH AMERICAN OPERATIONS, OUR
  BUSINESS AND FINANCIAL RESULTS MAY BE ADVERSELY AFFECTED IF OUR RELATIONSHIPS
  WITH CLASS I CARRIERS DETERIORATE.

     The railroad industry in the United States and Canada is dominated by a
small number of Class I carriers that have substantial market control and
negotiating leverage. Almost all of the traffic on our North American railroads
is interchanged with Class I carriers. A decision by any of these Class I
carriers to discontinue transporting commodities or to use alternate modes of
transportation, such as motor carriers, could have a material adverse effect on
our business and results of operations. Our ability to provide rail service to
our customers in North America depends in large part upon our ability to
maintain cooperative relationships with Class I carriers with respect to, among
other matters, freight rates, car supply, reciprocal switching, interchange and
trackage rights. A deterioration in the operations of or service provided by
those interchange partners, or in our relationship with our interchange
partners, would adversely affect our business. In addition, much of the freight
transported by our North American railroads moves on railcars supplied by Class
I carriers. If the number of railcars supplied by Class I carriers is
insufficient, we might not be able to obtain replacement railcars on favorable
terms and shippers may seek alternate forms of transportation.

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   25

     Portions of our North American rail properties are operated under leases,
operating agreements or trackage rights agreements with Class I carriers.
Failure of our railroads to comply with these leases and agreements in all
material respects could result in the loss of operating rights with respect to
those rail properties, which would adversely affect our results of operations
and financial condition. Class I carriers also have traditionally been
significant sources of business for us, as well as sources of potential
acquisition candidates as they continue to divest themselves of branch lines to
smaller rail operators. Because we depend on Class I carriers for our North
American operations, our business and financial results may be adversely
affected if our relationships with those carriers deteriorate.

  WE ARE SUBJECT TO SIGNIFICANT GOVERNMENTAL REGULATION OF OUR RAILROAD
  OPERATIONS. THE FAILURE TO COMPLY WITH GOVERNMENTAL REGULATION COULD HAVE A
  MATERIAL ADVERSE EFFECT ON US.

     We are subject to governmental regulation by a significant number of
foreign, federal, state and local regulatory authorities with respect to our
railroad operations and a variety of health, safety, labor, environmental and
other matters. Our failure to comply with applicable laws and regulations could
have a material adverse effect on us. Governments may change the legislative
framework within which we operate without providing us with any recourse for any
adverse effects that the change may have on our business. Also, some of the
regulations require us to obtain and maintain various licenses, permits and
other authorizations and we cannot assure you that we will continue to be able
to do so.

  WE MAY INCUR SIGNIFICANT EXPENSES IN CONNECTION WITH AUSTRALIA'S OPEN ACCESS
  REGIME.

     In Australia, where a significant portion of our operations are located,
the applicable legislative framework enables third party rail operators to gain
access to the railway infrastructure on which we operate for access fees. As
part of this regime, we have executed and may be required to execute access
agreements governing access to the railway infrastructure. We may be required to
make significant expenditures and to incur significant expenses in order to
comply with the applicable regulatory framework and these access agreements.

  WE MAY BE REQUIRED TO PAY PENALTY FEES UNDER SOME CIRCUMSTANCES TO A THIRD
  PARTY RAIL OPERATOR THAT HAS ACCESS TO THE AUSTRALIAN RAILWAYS.

     Our access agreement with V/Line Passenger in Australia contains penalty
provisions if trains using the railway infrastructure are delayed, early or
cancelled under a variety of circumstances resulting from our actions. The
formulas for calculation of the penalty are complex. The penalties apply unless
the penalty event is primarily due to acts of God, which includes, but is not
limited to, events such as natural disasters, war, changes in applicable laws
and power shortages. We cannot assure you that we will not incur significant
penalties under the Australian access agreement.

  OUR LONG-TERM LEASE OF THE RAILWAY INFRASTRUCTURE IN AUSTRALIA MAY BE
  TERMINATED FOLLOWING SPECIFIED DEFAULTS.

     The director of public transport for the State of Victoria, Australia may
terminate the lease in specified circumstances, including: (1) if we fail to
maintain all necessary accreditations, (2) if we fail to maintain railway
infrastructure and (3) if we fail to maintain insurance. The termination of the
lease would have a material adverse effect on our financial condition, results
of operations and business.

  TERMINATION OF OUR AGREEMENT WITH THE AUSTRALIAN WHEAT BOARD WOULD ADVERSELY
  AFFECT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

     If we fail to perform our obligations under our agreement with the
Australian Wheat Board, they may terminate the agreement by giving us one
month's notice in writing. Before giving us this one month's notice, the
Australian Wheat Board must give us the opportunity to remedy the failure by
giving us six weeks notice of our failure to perform. In addition to terminating
the agreement for our failure to perform, the Wheat Board may terminate the
agreement if we cease to exist in our present form as a result of a

                                       20
   26

reconstruction or merger and a conflict of interest arises as a result. If our
agreement is terminated, for any reason, our financial condition and results of
operations would be adversely affected.

  WE COULD INCUR SIGNIFICANT COSTS FOR VIOLATIONS OF APPLICABLE ENVIRONMENTAL
  LAWS AND REGULATIONS.

     Our railroad and manufacturing operations and real estate ownership are
subject to extensive foreign, federal, state and local environmental laws and
regulations concerning, among other things, emissions to the air, discharges to
waters, and the handling, storage, transportation and disposal of waste and
other materials and cleanup of hazardous material or petroleum releases.
Environmental liability can extend to previously owned or operated properties,
leased properties and properties owned by third parties, as well as to
properties currently owned and used by us. Environmental liabilities may also
arise from claims asserted by adjacent landowners or other third parties in
toxic tort litigation. We may be subject to allegations or findings to the
effect that we have violated, or are strictly liable under, these laws or
regulations. We could incur significant costs as a result. We may be required to
incur significant expenses to investigate and remediate environmental
contamination. Some reports prepared in connection with our recent acquisition
of V/Line Freight and the Toledo, Peoria and Western Railroad Corporation
identified a number of contaminated sites on the properties leased or licensed
to us, which we may be required to remediate. In addition, some transactions,
including the RailTex acquisition, may subject us to various requirements to
investigate and remediate contamination at other properties.

  LOSS OF KEY PERSONNEL COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS.

     Our operations and prospects depend in large part on the performance of our
senior management team. We cannot be sure that we would be able to find
qualified replacements for any of these individuals if their services were no
longer available. The loss of the services of one or more members of our senior
management team, particularly Gary O. Marino, our chairman, president and chief
executive officer, could have a material adverse effect on our business,
financial condition and results of operations.

  SOME OF OUR EMPLOYEES BELONG TO LABOR UNIONS AND STRIKES OR WORK STOPPAGES
  COULD ADVERSELY AFFECT OUR OPERATIONS.

     We are a party to collective bargaining agreements with various labor
unions in the United States, Australia, Chile and Canada. Some of these
agreements expire within the next two years. Our inability to negotiate
acceptable contracts with these unions could result in, among other things,
strikes, work stoppages or other slowdowns by the affected workers. If the
unionized workers were to engage in a strike, work stoppage or other slowdown,
or other employees were to become unionized or the terms and conditions in
future labor agreements were renegotiated, we could experience a significant
disruption of our operations and higher ongoing labor costs.

  WE MAY FACE LIABILITY FOR CASUALTY LOSSES WHICH ARE NOT COVERED BY INSURANCE.

     We have obtained insurance coverage for losses arising from personal injury
and for property damage in the event of derailments or other accidents or
occurrences. However, losses or other liabilities may arise that are not covered
by insurance. In addition, under catastrophic circumstances our liability could
exceed our insurance limits. Insurance is available from a limited number of
insurers and may not continue to be available or, if available, may not be
obtainable on terms acceptable to us.

  IF WE DO NOT COMPLETE OUR ANNOUNCED PLAN TO SELL KALYN/SIEBERT WE MAY BE
  UNABLE TO REPAY OUR ASSET SALE BRIDGE NOTES.

     In November 1999, we announced our intention to sell our trailer
manufacturing business, Kalyn/Siebert. In connection with our acquisition of
RailTex and refinancing of debt in February 2000, we entered into a $55.0
million asset sale bridge note facility that is secured by the assets of
Kalyn/Siebert and is expected to be repaid in part out of the net proceeds of
the sale of Kalyn/Siebert. We used $20.0 million from the net proceeds of the
sale of the outstanding notes and related warrants to repay a portion of the
asset sale bridge

                                       21
   27

notes. To the extent that we are unable to sell Kalyn/Siebert on acceptable
terms or at all, we may need to seek alternative means of financing our
repayment of the remaining asset sale bridge notes. While recourse under the
asset sale bridge notes is limited to the assets and stock of Kalyn/Siebert and
the assets of Kalyn/Siebert Canada, we cannot assure you as to what the ultimate
effect of our failure to fully repay the asset sale bridge notes in a timely
manner would be.

  RISING FUEL COSTS COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS.

     Fuel costs constitute a significant portion of our transportation expenses.
Fuel costs were approximately 12.2% of our historical transportation expenses
for the six months ended June 30, 2000, 13.9% for the year ended December 31,
1999 and 10.4% for the year ended December 31, 1998. Recently, diesel fuel
prices have increased dramatically, and this increase may have a material
adverse effect on our business and results of operations.

     Fuel prices and supplies are influenced significantly by international
political and economic circumstances. If a fuel supply shortage were to arise
from OPEC production curtailments, a disruption of oil imports or otherwise,
higher fuel prices and any price increases would materially affect our operating
results. We do not generally engage in fuel hedge contracts.

                                       22
   28

                                USE OF PROCEEDS

     We will not receive any proceeds from the exchange offer. In consideration
for issuing the registered notes as contemplated in this prospectus, we will
receive in exchange the outstanding notes in like principal amount. The
outstanding notes surrendered in exchange for the registered notes will be
retired and cancelled and cannot be reissued. The issuance of the registered
notes will not result in any increase in our indebtedness.

                                       23
   29

                                 CAPITALIZATION

     The following table shows our capitalization as of June 30, 2000 on an
actual basis and on an as adjusted basis for us and for RailAmerica
Transportation Corp. reflecting the issuance of the outstanding notes and
related warrants and the application of the net proceeds.

     This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Unaudited Pro Forma
Combined Financial Information," "Selected Historical Financial Information" and
the financial statements and the notes to those statements included or
incorporated by reference in this prospectus.



                                                                   AS OF JUNE 30, 2000
                                                   ---------------------------------------------------
                                                                     (IN THOUSANDS)
                                                                       AS ADJUSTED
                                                                       -----------
                                                                  RAILAMERICA,          RAILAMERICA
                                                    ACTUAL          INC.(3)          TRANSPORTATION(4)
                                                                            
Cash and cash equivalents........................  $  9,041         $  9,041             $  8,403
                                                   ========         ========             ========
LONG-TERM DEBT (INCLUDING CURRENT PORTION):
  Senior credit facility
     Revolving credit facility...................  $ 13,014         $ 13,014             $ 13,014
     Term A loan.................................   121,875          121,046              121,046
     Term B loan.................................   203,975          203,023              203,023
  Other senior debt..............................    45,570           45,570               18,693
  Notes offered hereby(1)........................        --          117,180              117,180
  Subordinated bridge notes......................    95,000               --                   --
  Asset sale bridge notes(2).....................    57,063           37,063                   --
  Convertible subordinated debt..................    22,496           22,496                1,790
                                                   --------         --------             --------
          Total debt.............................   558,993          559,392              474,746
                                                   --------         --------             --------
Redeemable convertible preferred stock...........     6,827            6,827
                                                   --------         --------
STOCKHOLDERS' EQUITY:
  Common stock...................................        20               20
  Additional paid-in capital.....................   115,262          120,331
  Retained earnings..............................    22,200           21,288
  Accumulated other comprehensive income.........   (12,504)         (12,504)
  Less: treasury stock (shares at cost)..........    (6,500)          (6,500)
                                                   --------         --------
          Total stockholders' equity.............   118,478          122,635
                                                   --------         --------
          Total capitalization...................  $684,298         $688,854
                                                   ========         ========


- ------------------------
    (1) As adjusted reflects $122.2 million of gross proceeds from the sale of
        the outstanding notes and related warrants less a $5.1 million discount
        associated with the value of those warrants. The discount associated
        with the warrants has been allocated to additional paid-in capital.
    (2) At June 30, 2000, $37.1 million of the asset sale bridge notes are
        included in net liabilities of discontinued operations. For purposes of
        this table, we have included the entire amount of the asset sale bridge
        notes as long term debt.
    (3) Includes approximately $26.9 million of senior debt of Ferronor and $3.7
        million of stockholders' equity attributable to Ferronor.
    (4) The pro forma as adjusted data for RailAmerica Transportation excludes
        approximately $26.9 million of other senior debt of Ferronor. The
        Ferronor debt is non-recourse to RailAmerica Transportation and its
        other subsidiaries.

                                       24
   30

               UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

     The following unaudited pro forma combined financial information gives
effect to the consummation of the acquisition of RailTex and the related
financings and our 1999 acquisitions (each accounted for as a purchase for
financial accounting purposes), and the issuance of the outstanding notes and
related warrants and the application of the net proceeds from that issuance in
each case as if it or they had been consummated; (1) on June 30, 2000, in the
case of the unaudited pro forma combined balance sheet; and (2) on January 1,
1999, July 1, 1999 or January 1, 2000, in the case of the unaudited pro forma
combined statements of operations.

     The following unaudited pro forma combined financial information is
presented for illustrative purposes only and does not purport to be indicative
of RailAmerica's actual financial position or results of operations as of the
date hereof, or as of or for any other future date, and is not necessarily
indicative of what our actual financial position or results of operations would
have been had the acquisition of RailTex been consummated on the
above-referenced dates, nor does it give effect to (1) any transactions other
than the acquisition and those described in the notes to the unaudited pro forma
combined financial information or (2) RailAmerica's or RailTex's results of
operations since December 31, 1999 for the December 31, 1999 income statement or
RailAmerica's or RailTex's results of operations since June 30, 2000 for the
June 30, 2000 income statements.

     The following unaudited pro forma combined financial information is based
upon the historical financial data of RailAmerica, V/Line Freight, RaiLink, the
Toledo, Peoria and Western Railroad and RailTex and should be read in
conjunction with the information appearing in "Use of Proceeds,"
"Capitalization," "Selected Historical Financial Information," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
RailAmerica's audited consolidated financial statements and notes thereto, the
RailTex audited financial statements and notes thereto, and other financial data
included or incorporated by reference in this prospectus.

                                       25
   31

                       RAILAMERICA, INC. AND SUBSIDIARIES

             UNAUDITED PRO FORMA CONSOLIDATING STATEMENTS OF INCOME
                      FOR THE YEAR ENDED DECEMBER 31, 1999
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)



                                                                                TOLEDO,
                                           V/LINE FREIGHT                      PEORIA AND                 PRO FORMA    CONSOLIDATED
                          RAILAMERICA(A)   CORPORATION(B)   RAILLINK LTD.(C)   WESTERN(D)   RAILTEX(E)   ADJUSTMENTS     BALANCES
                          --------------   --------------   ----------------   ----------   ----------   -----------   ------------
                                                                                                  
Total operating
  revenue...............     $125,373         $28,831           $19,982         $ 7,674      $177,845     $  5,747(f)   $ 365,452
                             --------         -------           -------         -------      --------     --------      ---------
Operating expenses:
  Transportation -- railroad..      75,376     31,291            11,888           6,756        94,063       (3,841)(g)    215,533
  Selling, general and
    administrative......       19,550              --             3,915           1,627        36,437       (8,163)(h)     53,366
  Depreciation and
    amortization........        9,179           1,230             2,113             681        16,693          778(i)      30,674
                             --------         -------           -------         -------      --------     --------      ---------
        Total operating
          expenses......      104,105          32,521            17,916           9,064       147,193      (11,226)       299,573
                             --------         -------           -------         -------      --------     --------      ---------
        Operating
          income........       21,268          (3,690)            2,066          (1,390)       30,652       16,973         65,879
Interest expense........      (16,287)           (234)             (662)           (617)      (10,435)      (4,252)(j)    (52,708)
                                                                                                            (2,775)(k)
                                                                                                              (413)(l)
                                                                                                           (13,224)(m)
                                                                                                            (3,809)(n)
Amortization of deferred
  loans costs...........       (4,203)             --                --              --            --        1,987(o)      (2,216)
Other income
  (expense).............        5,739              --               356              18         3,051           --          9,164
Foreign exchange gain...          273              --                --              --            --         (273)(p)         --
Minority interest in
  income of
  subsidiary............       (1,551)             --                --              --            --           --         (1,551)
                             --------         -------           -------         -------      --------     --------      ---------
Income (loss) from
  continuing operations
  before income taxes...        5,239          (3,924)            1,760          (1,989)       23,268       (5,786)        18,568
Provision (benefit) for
  income taxes..........         (787)             --               629            (664)        9,389       (2,733)(q)      5,834
                             --------         -------           -------         -------      --------     --------      ---------
Income (loss) from
  continuing
  operations............     $  6,026         $(3,924)          $ 1,131         $(1,325)     $ 13,879     $ (3,053)     $  12,734
                             ========         =======           =======         =======      ========     ========      =========
Weighted average shares
  outstanding
  Basic.................       11,090                                                                        6,872         17,962
                             ========                                                                     ========      =========
  Diluted...............       11,665                                                                        8,956         20,621
                             ========                                                                     ========      =========
Earnings per share --
  continuing operations
  Basic.................     $   0.45                                                                                   $    0.65
                             ========                                                                                   =========
  Diluted...............     $   0.43                                                                                   $    0.61
                             ========                                                                                   =========


     The accompanying notes are an integral part of the pro forma financial
                                  statements.
                                       26
   32

        NOTES TO UNAUDITED PRO FORMA CONSOLIDATING FINANCIAL INFORMATION
                      FOR THE YEAR ENDED DECEMBER 31, 1999

STATEMENTS OF INCOME:

     (a) Reflects our historical consolidated statement of income for the year
ended December 31, 1999 including the results of Ferronor. For the period,
Ferronor had operating revenue of $19.1 million and EBITDA of $4.9 million. In
addition, the historical consolidated statement of income includes the results
of operation of certain non-core rail lines that we have announced are for sale.
The revenue and EBITDA of these rail lines was $13.1 million and $5.1 million,
respectively for the period.

     (b) Reflects the historical consolidated statement of income for V/Line
Freight for the period from January 1, 1999 to April 30, 1999, the time period
during the year ended December 31, 1999 which was prior to our acquisition of
V/Line Freight.

     (c) Reflects the historical consolidated statement of income for RaiLink
Ltd. for the period from January 1, 1999 to August 1, 1999, the time period
during the year ended December 31, 1999 which was prior to our acquisition of
RaiLink.

     (d) Reflects the historical consolidated statement of income for the
Toledo, Peoria and Western Railroad for the period from January 1, 1999 to
September 1, 1999, the time period during the year ended December 31, 1999 which
was prior to our acquisition of the Toledo, Peoria and Western Railroad.

     (e) Reflects the historical consolidated statement of income for RailTex
the year ended December 31, 1999 prior to our acquisition of RailTex.

     (f) Reflects revenue from track access fees at V/Line Freight for the
period from January 1, 1999 to April 30, 1999, based upon the kilometers
traveled times the agreed upon rate from other railroads with access to V/Line
Freight's tracks, which would have been due to us had we acquired V/Line Freight
on January 1, 1999.

     (g) Reflects adjustment to Transportation -- railroad expenses of $(3.8)
million consisting of the reduction of V/Line Freight expenses resulting from
(i) outsourcing some maintenance functions, (ii) reimbursement of some
maintenance costs from a third party and (iii) capitalization of track
improvements.

     (h) Reflects an adjustment to selling, general and administrative costs of
$(8.2) million consisting of: (A) $(0.4) million related to the elimination of
costs incurred by RaiLink in connection with RailAmerica's acquisition of
RaiLink and expensed by RaiLink during 1999; (B) $(0.9) related to a reduction
in RaiLink costs resulting from (i) elimination of duplicative senior management
positions, (ii) reduction in fuel costs based upon RailAmerica's negotiated
prices and (iii) elimination of fees paid to directors of RaiLink and related
expenses; and (C) $(6.8) million related to a reduction in RailTex costs
resulting from (i) elimination of duplicative management positions as well as
RailTex's Chairman Emeritus, (ii) elimination of fees paid to directors of
RailTex and related costs and (iii) elimination of certain duplicative public
company costs.

     (i) Reflects an adjustment to depreciation and amortization cost of $0.8
million consisting of (A) $1.2 million related to the increased depreciation and
amortization due to the revaluation of V/Line Freight's property, plant and
equipment and infrastructure lease; (B) $(0.3) million related to the decreased
depreciation and amortization due to the revaluation of RaiLink's property,
plant and equipment; (C) $(0.3) million related to the decreased depreciation
and amortization due to the revaluation of Toledo, Peoria and Western Railroad's
property, plant and equipment; (D) $(0.8) million related to the decreased
depreciation and amortization due to the revaluation of RailTex's property,
plant and equipment; and (E) $1.0 million related to the non-cash amortization
of a not-to-compete payment paid to a former RailTex employee.

     (j) Reflects the adjustment to interest expense related to our acquisition
of V/Line Freight for the period prior to the acquisition on April 30, 1999,
assuming the acquisition was funded through the issuance of the

                                       27
   33
        NOTES TO UNAUDITED PRO FORMA CONSOLIDATING FINANCIAL INFORMATION
              FOR THE YEAR ENDED DECEMBER 31, 1999 -- (CONTINUED)

outstanding notes and convertible subordinated debt, less the elimination of
historical interest expense, calculated as follows:



                                             INTEREST        ALLOCATED            INTEREST
                                               RATE      PRINCIPAL AMOUNT         EXPENSE
                                             --------   -------------------   ----------------
                                                                     
Outstanding notes..........................    14.0%       $95.0 million         $    4,433
Convertible subordinated debt..............     8.0%       $ 2.0 million                 53
Less: Historical interest expense on
  extinguished debt........................                                            (234)
                                                                                 ----------
                                                                                 $    4,252
                                                                                 ==========


     (k) Reflects the adjustment to interest expense related to our acquisition
of RaiLink Ltd. for the period prior to the acquisition as of August 1, 1999,
assuming the acquisition was funded through borrowings under our Senior Credit
Facility and the issuance of the convertible subordinated debt less the
elimination of historical interest expense, calculated as follows:



                                             INTEREST        ALLOCATED            INTEREST
                                               RATE      PRINCIPAL AMOUNT         EXPENSE
                                             --------   -------------------   ----------------
                                                                     
Senior Credit Facility.....................    9.3%        $48.6 million         $    2,636
Convertible subordinated debt..............    8.0%        $13.4 million                624
Less: Historical interest expense on
  extinguished debt........................                                            (485)
                                                                                 ----------
                                                                                 $    2,775
                                                                                 ==========


     The effect of a 1/8% increase in interest rates on the Senior Credit
Facility would result in an increase in interest expense of $61,000 for the year
ended December 31, 1999.

     (l) Reflects the adjustment to interest expense related to our acquisition
of Toledo, Peoria and Western Railroad for the period prior to the acquisition
as of September 1, 1999, assuming the acquisition was funded through borrowings
under our Senior Credit Facility and the issuance of the convertible
subordinated debt less the elimination of historical interest expense,
calculated as follows:



                                             INTEREST        ALLOCATED            INTEREST
                                               RATE      PRINCIPAL AMOUNT         EXPENSE
                                             --------   -------------------   ----------------
                                                                     
Senior Credit Facility.....................    9.3%        $ 9.7 million         $      600
Convertible subordinated debt..............    8.0%        $ 8.1 million                430
Less: Historical interest expense on
  extinguished debt........................                                            (617)
                                                                                 ----------
                                                                                 $      413
                                                                                 ==========


     The effect of a 1/8% increase in interest rates on the Senior Credit
Facility would result in an increase in interest expense of $12,000 for the year
ended December 31, 1999.

                                       28
   34
        NOTES TO UNAUDITED PRO FORMA CONSOLIDATING FINANCIAL INFORMATION
              FOR THE YEAR ENDED DECEMBER 31, 1999 -- (CONTINUED)

     (m) Reflects the adjustment to interest expense related to our acquisition
of RailTex resulting from borrowings under our Senior Credit Facility less the
elimination of historical interest expense, calculated as follows:



                                             INTEREST        ALLOCATED            INTEREST
                                               RATE      PRINCIPAL AMOUNT         EXPENSE
                                             --------   -------------------   ----------------
                                                                     
Senior Credit Facility (Term B)............   9.35%       $205.0 million         $   19,578
Senior Credit Facility (Term A)............    9.3%       $ 43.9 million              4,081
Less: Historical interest expense on
  extinguished debt........................                                         (10,435)
                                                                                 ----------
                                                                                 $   13,224
                                                                                 ==========


     The effect of a 1/8% increase in interest rates on our Senior Credit
Facility would result in an increase in interest expense of $311,000 for the
year ended December 31, 1999.

     (n) Reflects the increase in interest expense for the periods subsequent to
the acquisitions described in footnotes (j), (k) and (l), from the replacement
of existing indebtedness with the issuance of the outstanding notes.

     (o) Reflects net increase in amortization of deferred loan costs as a
result of our Senior Credit Facility and bridge loans used to finance the above
acquisitions.

     (p) Reflects the elimination of a foreign exchange loss resulting from the
extinguishment of debt used to finance our acquisition of V/Line Freight.

     (q) Reflects the income tax effect of the pro forma adjustments.

                                       29
   35

                       RAILAMERICA, INC. AND SUBSIDIARIES

             UNAUDITED PRO FORMA CONSOLIDATING STATEMENTS OF INCOME
                     FOR THE SIX MONTHS ENDED JUNE 30, 2000
                   (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)


                                                                             PRO FORMA       CONSOLIDATED
                                               RAILAMERICA(a)   RAILTEX(b)   ADJUSTMENTS      BALANCES
                                                  --------       -------       -------         --------
                                                                                 
Operating revenue............................     $177,047       $14,074       $    --         $191,121
                                                  --------       -------       -------         --------
Operating expenses:
  Transportation -- railroad.................      102,103        10,889            --          112,992
  Selling, general and administrative........       28,750            --          (565)(c)       28,185
  Acquisition related costs..................        1,924            --            --            1,924
  Gain on sale of assets (net)...............       (7,785)           --            --           (7,785)
  Depreciation and amortization..............       14,384         1,480           (77)(d)       15,787
                                                  --------       -------       -------         --------
          Total operating expenses...........      139,376        12,369          (642)         151,103
                                                  --------       -------       -------         --------
          Operating income...................       37,671         1,705           642           40,018
Interest expense.............................      (23,062)         (633)       (1,339)(e)      (26,580)
                                                                                (1,546)(f)
Amortization of deferred loan costs..........       (2,638)           --         1,286(g)        (1,352)
Other income (expense).......................        1,007            --            --            1,007
Foreign exchange loss........................       (3,243)           --         2,979(h)          (264)
                                                  --------       -------       -------         --------
  Income (loss) from continuing operations
     before income taxes.....................        9,735         1,072         2,022           12,829
Provision (benefit) for income taxes.........        3,036           483           511(i)         4,030
                                                  --------       -------       -------         --------
  Income (loss) from continuing operations...     $  6,699       $   589       $ 1,511         $  8,799
                                                  ========       =======       =======         ========
Weighted average shares outstanding
  Basic......................................       17,493                       1,130           18,623
                                                  ========                     =======         ========
  Diluted....................................       17,684                       1,130           18,814
                                                  ========                     =======         ========
Earnings per share -- continuing operations
  Basic......................................     $   0.36                                     $   0.45
                                                  ========                                     ========
  Diluted....................................     $   0.36                                     $   0.45
                                                  ========                                     ========


     The accompanying notes are an integral part of the pro forma financial
                                  statements.
                                       30
   36

        NOTES TO UNAUDITED PRO FORMA CONSOLIDATING FINANCIAL INFORMATION
                  FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2000

STATEMENT OF INCOME:

     (a) Reflects our historical consolidated statement of income for the six
months ended June 30, 2000 including the results of Ferronor. For the period,
Ferronor had operating revenue of $10.3 million and EBITDA of $2.0 million. In
addition, the historical consolidated statement of income includes the results
of operation of certain non-core rail lines that we have announced are for sale.
The revenue and EBITDA of these rail lines was $7.2 million and $2.9 million,
respectively for the period.

     (b) Reflects the historical consolidated statement of income for RailTex
for the month of January 2000, the time period during the six month period ended
June 30, 2000 which was prior to our acquisition of RailTex.

     (c) Reflects an adjustment to selling, general and administrative costs of
$(0.6) million consisting of: a reduction in RailTex costs resulting from (i)
elimination of duplicative management positions as well as RailTex's Chairman
Emeritus, (ii) elimination of fees paid to directors of RailTex and related
costs and (iii) elimination of certain duplicative public company costs.

     (d) Reflects an adjustment to depreciation and amortization cost of $(0.1)
million consisting of (A) the decreased depreciation and amortization due to the
revaluation of RailTex's property, plant and equipment and (B) $0.1 million
related to the non-cash amortization of a not-to-compete payment paid to a
former RailTex employee.

     (e) Reflects the adjustment to interest expense related to our acquisition
of RailTex resulting from borrowings under our Senior Credit Facility less the
elimination of historical interest expense, calculated as follows:



                                                    INTEREST      ALLOCATED        INTEREST
                                                      RATE     PRINCIPAL AMOUNT    EXPENSE
                                                    --------   ----------------    --------
                                                                          
Senior Credit Facility (Term B)...................   9.55%      $205.0 million      $1,631
Senior Credit Facility (Term A)...................    9.3%      $ 43.9 million         341
Less: Historical interest expense on extinguished
  debt............................................                                    (633)
                                                                                    ------
                                                                                    $1,339
                                                                                    ======


     The effect of a 1/8% increase in interest rates on our Senior Credit
Facility would result in an increase in interest expense of $78,000 for the
three months ended March 31, 2000.

     (f) Reflects the increase in interest expense from the replacement of
existing indebtedness with the issuance of the outstanding notes.

     (g) Reflects net decrease in amortization of deferred loan costs as a
result of our Senior Credit Facility and bridge loans used to finance the above
acquisitions.

     (h) Reflects the elimination of a foreign exchange loss resulting from the
extinguishment of debt used to finance our acquisition of V/Line Freight.

     (i) Reflects the income tax effect of the pro forma adjustments.

                                       31
   37

                       RAILAMERICA, INC. AND SUBSIDIARIES

             UNAUDITED PRO FORMA CONSOLIDATING STATEMENTS OF INCOME
                   FOR THE TWELVE MONTHS ENDED JUNE 30, 2000
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)



                                                                               TOLEDO
                                                                             PEORIA AND                 PRO FORMA    CONSOLIDATED
                                         RAILAMERICA(A)   RAILINK LTD.(B)    WESTERN(C)   RAILTEX(D)   ADJUSTMENTS     BALANCES
                                         --------------   ----------------   ----------   ----------   -----------   ------------
                                                                                                   
Operating revenues:
Total operating revenue................     $262,542          $ 2,832         $ 1,912      $101,594      $    --       $368,880
                                            --------          -------         -------      --------      -------       --------
Operating expenses:
  Transportation -- railroad...........      154,127            1,824           2,564        52,156           --        210,671
  Acquisition related costs............        1,924               --              --            --           --          1,924
  Gain on sale of assets, net..........       (7,785)              --              --            --           --         (7,785)
  Selling, general and
    administrative.....................       40,495            1,056             844        22,934       (4,675)(e)     60,653
  Depreciation and amortization........       20,843              314             170         9,980          (14)(f)     31,293
                                            --------          -------         -------      --------      -------       --------
        Total operating expenses.......      209,604            3,194           3,578        85,070       (4,690)       296,756
                                            --------          -------         -------      --------      -------       --------
        Operating income...............       52,938             (362)         (1,666)       16,524        4,690         72,124
Interest expense.......................      (34,961)             (96)           (214)       (5,924)        (395)(g)    (53,997)
                                                                                                             (44)(h)
                                                                                                          (7,877)(i)
                                                                                                          (4,485)(j)
Amortization of deferred loan costs....       (5,853)               0               0             0        2,908(k)      (2,945)
Other income (expense).................        5,729               42               0         2,211                       7,982
Foreign exchange gain (loss)...........       (4,975)               0               0             0        2,979(l)      (1,996)
                                            --------          -------         -------      --------      -------       --------
  Income (loss) from continuing
    operations before income taxes.....       12,878             (416)         (1,880)       12,811       (2,224)        21,168
Provision (benefit) for income taxes...        1,581             (215)           (640)        5,204       (1,188)(m)      4,742
                                            --------          -------         -------      --------      -------       --------
Income (loss) from continuing
  operations...........................     $ 11,297          $  (201)        $(1,240)     $  7,607      $(1,037)      $ 16,424
                                            ========          =======         =======      ========      =======       ========
Weighted average shares outstanding
  Basic................................       14,528                                                       5,541         20,069
                                            ========                                                     =======       ========
  Diluted..............................       17,378                                                       5,541         22,919
                                            ========                                                     =======       ========
Earnings per share -- Continuing
  operations
  Basic................................     $   0.72                                                                   $   0.75
                                            ========                                                                   ========
  Diluted..............................     $   0.62                                                                   $   0.67
                                            ========                                                                   ========


     The accompanying notes are an integral part of the pro forma financial
                                  statements.
                                       32
   38

        NOTES TO UNAUDITED PRO FORMA CONSOLIDATING FINANCIAL INFORMATION
                FOR THE TWELVE MONTH PERIOD ENDED JUNE 30, 2000

INCOME STATEMENT:

     (a) Reflects our historical consolidated statement of income for the twelve
months ended June 30, 2000 including the results of Ferronor. For the period,
Ferronor had operating revenue of $21.4 million and EBITDA of $5.0 million. In
addition, the historical consolidated statement of income includes the results
of operation of certain non-core rail lines that we have announced are for sale.
The revenue and EBITDA of such rail lines was $13.3 million and $5.6 million,
respectively for the period.

     (b) Reflects the historical consolidated statement of income for RaiLink
Ltd. for the period from July 1, 1999 to August 1, 1999, the time period during
the twelve month period ended June 30, 2000 which was prior to our acquisition
of RaiLink.

     (c) Reflects the historical consolidated statement of income for the
Toledo, Peoria and Western Railroad for the period from July 1, 1999 to
September 1, 1999, the time period during the twelve month period ended June 30,
2000 which was prior to our acquisition of the Toledo, Peoria and Western
Railroad.

     (d) Reflects the historical consolidated statement of income for RailTex
for the period from July 1, 1999 to February 1, 2000, the time period during the
twelve month period ended June 30, 2000 which was prior to our acquisition of
RailTex.

     (e) Reflects an adjustment to selling, general and administrative costs of
$(4.7) million consisting of: (A) $(0.1) million related to the elimination of
costs incurred by RaiLink in connection with RailAmerica's acquisition of
RaiLink and expensed by RaiLink during 1999; (B) $(0.7) related to a reduction
in RaiLink costs resulting from (i) elimination of duplicative senior management
positions, (ii) reduction in fuel costs based upon RailAmerica's negotiated
prices and (iii) elimination of fees paid to directors of RaiLink and related
expenses; and (C) $(3.9) related to a reduction in RailTex costs resulting from
(i) elimination of duplicative management positions as well as RailTex's
Chairman Emeritus, (ii) elimination of fees paid to directors of RailTex and
related costs and (iii) elimination of certain duplicative public company costs.

     (f) Reflects an adjustment to depreciation and amortization cost consisting
of (A) $(0.1) related to the decreased depreciation and amortization due to the
revaluation of RaiLink's property, plant and equipment; (B) $(0.1) related to
the decreased depreciation and amortization due to the revaluation of Toledo,
Peoria and Western Railroad's property, plant and equipment; (C) $(0.4) related
to the decreased depreciation and amortization due to the revaluation of
RailTex's property, plant and equipment; and (D) $0.6 million related to the
non-cash amortization of a not-to-compete payment paid to a former RailTex
employee.

     (g) Reflects the adjustment to interest expense related to our acquisition
of RaiLink Ltd. for the period prior to the acquisition on August 1, 1999,
assuming the acquisition was funded through borrowings under our Senior Credit
Facility and the issuance of convertible subordinated debt less the elimination
of historical interest expense, calculated as follows:



                                                    INTEREST      ALLOCATED        INTEREST
                                                      RATE     PRINCIPAL AMOUNT    EXPENSE
                                                    --------   ----------------    --------
                                                                          
Senior Credit Facility............................    9.3%      $ 48.6 million      $  402
Convertible Subordinated debt.....................    8.0%      $ 13.4 million          89
Less: Historical interest expense on extinguished
  debt............................................                                     (96)
                                                                                    ------
                                                                                    $  395
                                                                                    ======


     The effect of a 1/8% increase in interest rates on our Senior Credit
Facility would result in an increase in interest expense of $15,000 for the
period.

     (h) Reflects the adjustment to interest expense related to our acquisition
of the Toledo, Peoria and Western Railroad for the period prior to the
acquisition as of September 1, 1999, assuming the acquisition

                                       33
   39
        NOTES TO UNAUDITED PRO FORMA CONSOLIDATING FINANCIAL INFORMATION
         FOR THE TWELVE MONTH PERIOD ENDED JUNE 30, 2000 -- (CONTINUED)

was funded through borrowings under our Senior Credit Facility and the issuance
of convertible debt less the elimination of historical interest expense,
calculated as follows:



                                                    INTEREST      ALLOCATED        INTEREST
                                                      RATE     PRINCIPAL AMOUNT    EXPENSE
                                                    --------   ----------------    --------
                                                                          
Senior Credit Facility............................    9.3%      $  9.7 million      $ 150
Convertible subordinated debt.....................    8.0%      $  8.1 million        108
Less: Historical interest expense on extinguished
  debt............................................                                   (214)
                                                                                    -----
                                                                                    $  44
                                                                                    =====


     The effect of a 1/8% increase in interest rates on our Senior Credit
Facility would result in an increase in interest expense of $3,000 for the
period.

     (i) Reflects the adjustment to interest expense related to our acquisition
of RailTex for the period prior to the acquisition as of February 1, 2000, as a
result of borrowings under our Senior Credit Facility less the elimination of
historical interest expense. The interest rates and debt balances are as
follows:



                                                   INTEREST      ALLOCATED        INTEREST
                                                     RATE     PRINCIPAL AMOUNT    EXPENSE
                                                   --------   ----------------    --------
                                                                         
Senior Credit Facility (Term B)..................   9.55%      $205.0 million     $11,419
Senior Credit Facility (Term A)..................    9.3%      $ 43.9 million       2,382
Less: Historical interest expense on extinguished
  debt...........................................                                  (5,924)
                                                                                  -------
                                                                                  $ 7,877
                                                                                  =======


     The effect of a 1/8% increase in interest rates on our Senior Credit
Facility would result in an increase in interest expense of $311,000 for the
period.

     (j) Reflects the increase in interest expense for the periods subsequent to
the acquisitions described in footnotes (g), (h) and (i) from the replacement of
existing indebtedness with the issuance of the outstanding notes.

     (k) Reflects the net increase in amortization of deferred loan costs as a
result of our Senior Credit Facility and bridge loans used to finance the above
acquisitions.

     (l) Reflects the elimination of a foreign exchange loss resulting from the
extinguishment of debt used to finance our acquisition of V/Line Freight.

     (m) Reflects the income tax effect of the pro forma adjustments.

                                       34
   40

                       RAILAMERICA, INC. AND SUBSIDIARIES

                UNAUDITED PRO FORMA CONSOLIDATING BALANCE SHEET
                              AS OF JUNE 30, 2000
                                 (IN THOUSANDS)



                                                                          PRO FORMA      CONSOLIDATED
                                                        RAILAMERICA(A)   ADJUSTMENTS       BALANCES
                                                        --------------   -----------     ------------
                                                                                
                                               ASSETS
Cash..................................................    $   9,041       $      --        $  9,041
Accounts and notes receivable.........................       57,056              --          57,056
Inventories...........................................       11,968              --          11,968
Other current assets..................................        7,958              --           7,958
Net assets of discontinued operation..................       19,338              --          19,338
                                                          ---------       ---------        --------
          Total current assets........................      105,361              --         105,361
Property, plant and equipment, net....................      737,238              --         737,238
Investment in affiliates..............................        4,739              --           4,739
Other assets..........................................       21,371           5,000(b)       24,600
                                                                             (1,770)(c)
                                                          ---------       ---------        --------
          Total assets................................    $ 868,709       $   3,229        $871,938
                                                          =========       =========        ========

                                LIABILITIES AND STOCKHOLDERS' EQUITY
Current maturities of long-term debt..................    $  20,553       $      --        $ 20,553
Current portion of asset sale bridge loan.............       37,063              --          37,063
Accounts payable......................................       41,210              --          41,210
Accrued expenses......................................       38,224            (468)(d)      37,756
                                                          ---------       ---------        --------
          Total current liabilities...................      137,050            (468)        136,582
                                                          ---------       ---------        --------
Long-term debt........................................      383,880         (21,781)(d)     479,279
                                                                            117,180(e)
Subordinated debt.....................................       96,790         (95,000)(d)       1,790
Convertible debt......................................       20,706                          20,706
Other liabilities.....................................       28,742                          28,742
Deferred income taxes.................................       66,552            (708)(c)      65,844
Minority interest.....................................        9,684                           9,684
Redeemable convertible preferred stock................        6,827                           6,827
Stockholders' equity
  Common stock........................................           20                              20
  Additional paid in capital..........................      115,262           5,069(e)      120,331
  Retained earnings...................................       22,200          (1,163)(c)      21,137
  Accumulated other comprehensive income..............      (12,504)                        (12,504)
  Less treasury stock.................................       (6,500)                         (6,500)
                                                          ---------       ---------        --------
          Total stockholders' equity..................      118,478           4,006         122,484
                                                          ---------       ---------        --------
          Total liabilities and stockholders'
            equity....................................    $ 868,709       $   3,229        $871,938
                                                          =========       =========        ========


     The accompanying notes are an integral part of the pro forma financial
                                  statements.
                                       35
   41

        NOTES TO UNAUDITED PRO FORMA CONSOLIDATING FINANCIAL INFORMATION

                              AS OF JUNE 30, 2000

BALANCE SHEET:

     (a) Represents our historical balance sheet as of June 30, 2000.

     (b) Represents debt issuance costs related to the outstanding notes.

     (c) Represents the write-off of $1.8 million of debt issuance costs
associated with debt which was refinanced in connection with the issuance of the
outstanding notes and related warrants.

     (d) Represents the portion of outstanding debt that was refinanced in
connection with the issuance of the outstanding notes and related warrants.

     (e) Represents the outstanding notes and the value of warrants issued with
the notes.

                                       36
   42

                   SELECTED HISTORICAL FINANCIAL INFORMATION

     Our selected historical financial information as of and for each of the
five years in the period ended December 31, 1999, have been derived from our
audited consolidated financial statements and notes thereto. Our selected
historical financial information as of and for the six months ended June 30,
1999 and 2000 have been derived from our unaudited consolidated financial
statements and notes thereto. Our results of operations for the six months ended
June 30, 2000 are not indicative of the results to be expected for the full
year. You should read the following selected historical financial information in
conjunction with, "Management's Discussion and Analysis of Financial Condition
and Results of Operations," our audited consolidated financial statements and
notes thereto and the other financial data contained elsewhere or incorporated
by reference in this prospectus.

                                       37
   43

                        SELECTED HISTORICAL CONSOLIDATED
                   FINANCIAL INFORMATION OF RAILAMERICA, INC.
                (IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)



                                                                                                              SIX MONTHS
                                                                    YEAR ENDED DECEMBER 31,                 ENDED JUNE 30,
                                                        -----------------------------------------------   ------------------
                                                         1995     1996      1997      1998       1999      1999       2000
                                                                                               
INCOME STATEMENT DATA:
  Operating revenue...................................  $7,205   $12,020   $24,496   $37,256   $125,372   $39,878   $177,047
  Operating income....................................     541     2,516     3,365     5,497     21,268     6,001     37,671
  Income (loss) from continuing operations before
    income taxes......................................     (40)      777      (127)     (887)     5,239     2,096      9,735
  Income (loss) from continuing operations............     (22)      478       288       113      6,026     1,428      6,699
  Net income (loss)...................................  $  868   $   505   $ 1,939   $ 4,401   $  9,921   $ 3,951   $  4,371
BASIC EARNINGS PER COMMON SHARE:
  Continuing operations...............................  $(0.15)  $  0.10   $  0.02   $  0.01   $   0.45   $  0.09   $   0.36
  Net income per share................................  $ 0.04   $  0.10   $  0.23   $  0.46   $   0.80   $  0.32   $   0.24
DILUTED EARNINGS PER COMMON SHARE:
  Continuing operations...............................  $(0.15)  $  0.09   $  0.02   $  0.01   $   0.43   $  0.08   $   0.36
  Net (loss) income per share.........................  $ 0.04   $  0.10   $  0.22   $  0.45   $   0.77   $  0.31   $   0.23
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
  Basic...............................................   4,554     4,966     8,304     9,553     11,090    10,617     17,493
  Diluted.............................................   4,554     4,966     8,587     9,778     11,665    11,004     17,684
OTHER DATA:
  EBITDA before certain charges (2)(3)(4).............  $1,364   $ 3,609   $ 5,153   $ 8,040   $ 31,098   $ 8,721   $ 52,055
  Cash flows from operations..........................  $3,321   $ 2,206   $ 2,292   $ 5,743   $ 21,500   $13,029   $ 19,305
  Ratio of earnings to fixed charges (5)..............     N/A      1.38      1.18      1.13       1.25   $  1.35   $   1.35




                                                                 AT DECEMBER 31,                       AT JUNE 30, 2000
                                                  ----------------------------------------------   -------------------------
                                                   1995     1996      1997      1998      1999      ACTUAL    AS ADJUSTED(1)
                                                                                         
BALANCE SHEET DATA:
  Working capital (deficit).....................  $  830   $ 2,199   $ 1,407   $10,071   $23,957   $(31,689)    $ (31,221)
        Total assets............................  34,687    65,317    95,235   135,833   443,928    868,709       871,938
  Long-term debt, excluding current
    maturities..................................  15,540    36,273    43,875    62,770   145,016    383,880       362,099
  Subordinated debt, excluding current
    maturities..................................   2,000     2,000     2,000        --   122,449    117,496       139,676
  Redeemable convertible preferred stock........      --        --        --     6,882     8,830      6,827         6,827
  Stockholders' equity..........................  $9,149   $15,992   $26,814   $34,760   $69,466   $118,478     $ 122,635
OPERATING DATA:
  Freight carloads..............................  18,505    25,871    69,140   117,535   154,091    551,332       551,332
  Track mileage.................................     450       930     2,330     2,400     7,650     11,750        11,750
  Number of employees...........................     265       275       542       652     1,697      2,600         2,600


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

(1) Adjusted to give effect to the sale of the outstanding notes and the related
    warrants and the application of the net proceeds from that sale and the
    issuance of the warrants.

(2) EBITDA represents income from continuing operations before provisions for
    income taxes, interest expense and depreciation and amortization. While
    EBITDA should not be construed as a substitute for other historical
    operating data prepared in accordance with GAAP in analyzing our operating
    performance, financial position and cash flows, we have included EBITDA
    because it is commonly used by some investors to analyze and compare
    companies on the basis of operating performance, leverage and liquidity and
    to determine our ability to service debt.

(3) For the year ended December 31, 1999, EBITDA excludes $651,146 of expenses
    associated with the Delaware Valley Railway.

(4) For the six months ended June 30, 2000, EBITDA excludes (1) $1,924,000 of
    acquisition related costs which consisted of (a) 170,000 non-cash
    amortization of a not-to-compete to a former RailTex employee and (b)
    $1,754,000 of other RailTex related acquisition costs, (2) $925,000 non-cash
    amortization of a fuel hedge and (3) $7,785,000 of net gain on sale and
    impairment of assets.

(5) The ratio of earnings to fixed charges is computed by dividing earnings by
    fixed charges. For this purpose, "earnings" include income before taxes and
    fixed charges and "fixed charges" include interest expense, amortization of
    deferred financing fees and costs and a portion of rent expense that is
    representative of the interest factor in these rentals. Fixed charges
    exceeded earnings by approximately $40,000 for the year ended December 31,
    1995.

                                       38
   44

                               THE EXCHANGE OFFER

PURPOSE OF THE EXCHANGE OFFER

     As a condition to the sale of the outstanding notes, we and the initial
purchasers of the outstanding notes entered into the registration rights
agreement. Under the registration rights agreement, we agreed to:

     - file with the SEC an exchange offer registration statement under the
       Securities Act with respect to the registered notes no later than
       November 12, 2000;

     - use our best efforts to cause the exchange offer registration statement
       to be declared effective under the Securities Act no later than February
       10, 2001; and

     - keep the exchange offer open for a period not less than 20 business days
       (or longer if required by applicable law) after the date notice of the
       exchange offer is mailed to holders of the outstanding notes; and

     - cause the exchange offer to be consummated no later than the 30th
       business day after it is declared effective under the Securities Act.

     The exchange offer being made by this prospectus is intended to satisfy our
obligations under the registration rights agreement. You may be entitled to
"shelf" registration rights. In accordance with the registration rights
agreement, we are required to file a shelf registration covering your
outstanding notes for a continuous offering in accordance with Rule 415 of the
Securities Act if:

     - we are not permitted to consummate the exchange offer because the
       exchange offer is not permitted by applicable law or SEC policy; or

     - any holder of outstanding notes which are Transfer Restricted Securities
       notifies us before the 20th business day following the consummation of
       the exchange offer that:

        - it is prohibited by law or SEC policy from participating in the
          exchange offer;

        - it may not resell the registered notes acquired by it in the exchange
          offer to the public without delivering a prospectus, and the
          prospectus (including any amendment or supplement thereto) contained
          in the exchange offer registration statement is not appropriate or
          available for those resales by it; or

        - it is a broker-dealer and holds notes acquired directly from us or any
          of our affiliates.

     In the event that we are obligated to file a shelf registration statement,
we will be required to keep the shelf registration statement effective until the
later of two years from the date the shelf registration is declared effective by
the SEC or the date on which all of the outstanding notes have been sold
thereunder.

     For purposes of the registration rights agreement, "Transfer Restricted
Securities" means each note until the earlier of:

          (1) the date on which that note is exchanged in the exchange offer and
     entitled to be resold to the public by the holder thereof without complying
     with the prospectus delivery requirements of the Securities Act;

          (2) the date on which that note has been disposed of in accordance
     with the shelf registration statement;

          (3) the date on which that note is disposed of by a broker-dealer
     pursuant to the "Plan of Distribution" contemplated by the exchange offer
     registration statement (including delivery of the prospectus contained
     therein); and

          (4) the date on which that note is distributed to the public pursuant
     to Rule 144 under the Securities Act.

                                       39
   45

     The registration rights agreement provides that:

          (1) if we fail to file an exchange offer registration statement with
     the SEC on or before November 12, 2000;

          (2) if the exchange offer registration statement is not declared
     effective before February 10, 2001;

          (3) if the exchange offer is not consummated on or before the 30th
     business day after the exchange offer registration statement is declared
     effective;

          (4) if obligated to file the shelf registration statement and we fail
     to file the shelf registration statement with the SEC on or before the 30th
     day after that filing obligation arises;

          (5) if obligated to file a shelf registration statement and the shelf
     registration statement is not declared effective on or before the 90th day
     after the obligation to file a shelf registration statement arises; or

          (6) if the exchange offer registration statement or the shelf
     registration statement, as the case may be, is declared effective but
     thereafter ceases to be effective or useable in connection with resales of
     the Transfer Restricted Securities, for such time of non-effectiveness or
     non-usability (each, a "Registration Default"),

then we will pay to each holder of Transfer Restricted Securities affected
thereby liquidated damages ("Liquidated Damages") in an amount equal to $0.05
per week per $1,000 in principal amount of the Transfer Restricted Securities
held by such holder for each week or portion thereof that the Registration
Default continues for the first 90 day period immediately following the
occurrence of such Registration Default. The amount of the Liquidated Damages
shall increase by an additional $0.05 per week per $1,000 in principal amount of
Transfer Restricted Securities with respect to each subsequent 90 day period
until all Registration Defaults have been cured, up to a maximum amount of
Liquidated Damages of $0.50 per week per $1,000 in principal amount of Transfer
Restricted Securities. We will not be required to pay Liquidated Damages for
more than one Registration Default at any given time. Following the cure of all
Registration Defaults, the accrual of Liquidated Damages will cease.

     We will pay all accrued Liquidated Damages to holders entitled thereto by
wire transfer to the accounts specified by them or by mailing checks to their
registered address if no such accounts have been specified.

EFFECT OF THE EXCHANGE OFFER

     Based on no-action letters issued by the staff of the SEC to third parties,
we believe that you may offer for resale, resell and otherwise transfer the
registered notes issued to you under the exchange offer without further
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that you can represent that:

     - you are acquiring the registered notes in the ordinary course of your
       business;

     - you are not engaging in and do not intend to engage in a distribution of
       the registered notes;

     - you have no arrangements or understandings with any person to participate
       in the exchange offer for the purpose of distributing the registered
       notes; and

     - you are not an "affiliate" (as defined in Rule 405 of the Securities Act)
       of ours.

     If you are not able to make these representations, you are a "Restricted
Holder." As a Restricted Holder, you will not be able to participate in the
exchange offer, may not rely on the SEC staff positions set forth in the Exxon
Capital Holdings Corporation no-action letter and similar no-action letters and
may only sell your outstanding notes as part of a registration statement
containing the selling security holder information required by Item 507 or 508
of SEC Regulation S-K, as applicable, or under an exemption from the
registration requirements of the Securities Act.

                                       40
   46

     In addition, each broker-dealer, other than a Restricted Holder, that
receives registered notes for its own account in exchange for outstanding notes
which were acquired by such broker-dealer as a result of market-making or other
trading activities (a "Participating Broker-Dealer") may be a statutory
underwriter and must acknowledge in the letter of transmittal that it will
deliver a prospectus meeting the requirements of the Securities Act upon any
resale of those registered notes. The letter of transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
Based upon interpretations by the SEC staff, we believe that a Participating
Broker-Dealer may offer for resale, resell and otherwise transfer registered
notes issued under the exchange offer upon compliance with the prospectus
delivery requirements, but without compliance with the registration
requirements, of the Securities Act. This prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer as
part of their resales. We have agreed that, for a period of one year after the
completion of the exchange offer, we will make this prospectus available to any
broker-dealer for use by the broker-dealer in any resale. For more information,
please see the section in this prospectus entitled "Plan of Distribution."

CONSEQUENCES OF FAILURE TO EXCHANGE

     To the extent outstanding notes are tendered and accepted in the exchange
offer, the principal amount of outstanding notes will decrease with a resulting
decrease in the liquidity in the market for the outstanding notes. In addition,
following completion of the exchange offer, except as provided in the
registration rights agreement, you will not have any further registration rights
and your outstanding notes will continue to be subject to certain restrictions
on transfer. Accordingly, if you do not participate in the exchange offer, your
ability to sell your outstanding notes could be adversely affected. You may
suffer adverse consequences if you fail to exchange your outstanding notes.

TERMS OF THE EXCHANGE OFFER

     Upon the terms and subject to the conditions contained in this prospectus
and in the letter of transmittal, we will accept for exchange any and all
outstanding notes that are validly tendered and not withdrawn prior to 5:00
p.m., New York City time, on the expiration date. We will issue $1,000 principal
amount at maturity of registered notes in exchange for each $1,000 principal
amount at maturity of outstanding notes accepted in the exchange offer. You may
tender some or all of your outstanding notes under the exchange offer. However,
outstanding notes may be tendered only in minimum denominations of $1,000
principal amount and integral multiples of $1,000. As of the date of this
prospectus, an aggregate of $130,000,000 in principal amount at maturity of the
outstanding notes is outstanding. This prospectus, together with the
accompanying letter of transmittal, is first being sent on or about           ,
2000, to the nominee of The Depository Trust Company ("DTC" or the "Depository")
and to others believed to have beneficial ownership in the outstanding notes.

     The form and terms of the registered notes will be substantially identical
to the form and terms of the outstanding notes, except that:

     - the offering of the registered notes has been registered under the
       Securities Act;

     - the registered notes will not be subject to transfer restrictions; and

     - the registered notes will be issued free of any covenants regarding
       registration rights and free of any provision for Liquidated Damages.

     The registered notes will evidence the same debt as the outstanding notes
and will be issued under the same indenture.

     You do not have any appraisal or dissenters rights under law or the
indenture in the exchange offer. We intend to conduct the exchange offer in
accordance with the applicable requirements of the Exchange Act. Outstanding
notes which are not tendered for, or are tendered but not accepted in connection
with, the exchange offer will remain outstanding.

                                       41
   47

     We will be deemed to have accepted validly tendered outstanding notes when,
as and if we have given oral notice, promptly confirmed in writing, or written
notice of the acceptance to the exchange agent. The exchange agent will act as
agent for the tendering holders for the purpose of receiving the registered
notes from us.

     If we do not accept for exchange any tendered outstanding notes because of
an invalid tender, the occurrence of other events described in this prospectus
or otherwise, certificates for any such unaccepted outstanding notes will be
returned to you, without expense, as promptly as practicable after the
expiration date.

     If you tender outstanding notes in the exchange offer, you will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes relating to the exchange of
outstanding notes under the exchange offer. We will pay all charges and
expenses, other than underwriting discounts and commissions and transfer taxes,
as part of the exchange offer. See "--Fees and Expenses."

EXPIRATION DATE, EXTENSIONS, TERMINATION

     The term "expiration date" means 5:00 p.m., New York City time, on
          , 2000, unless we, in our sole discretion, extend the exchange offer,
in which case the term "expiration date" shall mean the latest date and time to
which the exchange offer is extended.

     We have the right, subject to applicable law, in our reasonable discretion,
at any time and from time to time, (1) to extend the exchange offer or (2) to
terminate the exchange offer, if any of the conditions set forth below under
" -- Conditions" shall not have been satisfied by giving oral or written notice
of such extension or termination to the exchange agent. Any such extension or
termination will be followed as promptly as practicable by a public
announcement.

     Any such termination or extension will be followed promptly by oral or
written notice to the exchange agent (any such oral notice to be promptly
confirmed in writing) and by making a public announcement, and that announcement
in the case of an extension will be made no later than 9:00 am, New York City
time, on the next business day after the previously scheduled expiration date.
Without limiting the manner in which we may choose to make any public
announcement, and subject to applicable laws, we shall have no obligation to
publish, advertise or otherwise communicate any such public announcement, other
than by issuing a timely release to an appropriate news agency.

PROCEDURES FOR TENDERING

  Book-Entry Interests

     The outstanding notes were issued as global securities in fully registered
form without interest coupons. Beneficial interests in the global securities,
held by direct or indirect participants in DTC, are shown on, and transfers of
these interests are effected only through, records maintained in book-entry form
by DTC with respect to its participants.

     If you hold your outstanding notes in the form of book-entry interests and
you wish to tender your outstanding notes for exchange pursuant to the exchange
offer, you must transmit to the exchange agent on or prior to the expiration
date either:

          (1) written or facsimile copy of a properly completed and duly
     executed letter of transmittal, including all other documents required by
     the letter of transmittal, to the exchange agent at the address set forth
     on the cover page of the letter of transmittal; or

          (2) computer-generated message transmitted by means of DTC's Automated
     Tender Offer Program system and received by the exchange agent and forming
     a part of a confirmation of book-entry transfer, in which you acknowledge
     and agree to be bound by the terms of the letter of transmittal.

                                       42
   48

     In addition, in order to deliver outstanding notes held in the form of
book-entry interests:

          (A) a timely confirmation of book-entry transfer of those notes into
     the exchange agent's account at DTC pursuant to the procedure for
     book-entry transfers described below under "-- Book-Entry Transfer" must be
     received by the exchange agent prior to the expiration date; or

          (B) you must comply with the guaranteed delivery procedures described
     below.

     THE METHOD OF DELIVERY OF OUTSTANDING NOTES AND THE LETTER OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT YOUR ELECTION AND
RISK. INSTEAD OF DELIVERY BY MAIL, WE RECOMMEND THAT YOU USE AN OVERNIGHT OR
HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. YOU SHOULD NOT SEND
THE LETTER OF TRANSMITTAL OR OUTSTANDING NOTES TO US. YOU MAY REQUEST YOUR
BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY, OR NOMINEE TO EFFECT THE ABOVE
TRANSACTIONS FOR YOU.

  Certificated Outstanding Notes

     Only registered holders of certificated outstanding notes may tender those
notes in the exchange offer. If your outstanding notes are certificated notes
and you wish to tender those notes for exchange pursuant to the exchange offer,
you must transmit to the exchange agent on or prior to the expiration date. a
written or facsimile copy of a properly completed and duly executed letter of
transmittal, including all other required documents, to the address set forth
below under "-- Exchange Agent." In addition, in order to validly tender your
certificated outstanding notes:

          (1) the certificates representing your outstanding notes must be
     received by the exchange agent prior to the expiration date, or

          (2) you must comply with the guaranteed delivery procedures described
     below.

  Procedures Applicable to All Holders

     If you validly tender outstanding notes and you do not withdraw the tender
prior to the expiration date, you will have made an agreement with us in
accordance with the terms and subject to the conditions set forth in this
prospectus and in the letter of transmittal.

     If your outstanding notes are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and you wish to tender your
notes, you should contact the registered holder promptly and instruct the
registered holder to tender on your behalf. If you wish to tender on your own
behalf, you must, prior to completing and executing the letter of transmittal
and delivering your outstanding notes, either make appropriate arrangements to
register ownership of the outstanding notes in your name or obtain a properly
completed bond power from the registered holder. The transfer of registered
ownership may take considerable time.

     Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed by an eligible institution unless:

          (A) outstanding notes tendered in the exchange offer are tendered
     either:

             (1) under "Special Delivery Instructions" on the letter of
        transmittal; or

             (2) for the account of an eligible institution; and

          (B) the box entitled "Special Registration Instructions" on the letter
     of transmittal has not been completed.

     If signatures on a letter of transmittal or a notice of withdrawal are
required to be guaranteed, the guarantee must be by a financial institution,
which includes most banks, savings and loan associations and brokerage houses,
that are participants in the Securities Transfer Agents Medallion Program. the
New York Stock Exchange Medallion Program or the Stock Exchanges Medallion
Program.

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   49

     If the letter of transmittal is signed by a person other than you, your
outstanding notes must be endorsed or accompanied by a properly completed bond
power and signed by you as your name appears on those outstanding notes.

     If the letter of transmittal or any outstanding notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations, or others acting in a fiduciary or representative
capacity, those persons should so indicate when signing. Unless we waive this
requirement, in this instance you must submit with the letter of transmittal
proper evidence satisfactory to us of their authority to act on your behalf.

     We will determine, in our sole discretion, all questions regarding the
validity, form, eligibility, including time of receipt, acceptance and
withdrawal of tendered outstanding notes. This determination will be final and
binding. We reserve the absolute right to reject any and all outstanding notes
not properly tendered or any outstanding notes our acceptance of which would, in
the opinion of our counsel, be unlawful. We also reserve the right to waive any
defects, irregularities or conditions of tender as to particular outstanding
notes. Our interpretation of the terms and conditions of the exchange offer,
including the instructions in the letter of transmittal, will be final and
binding on all parties.

     You must cure any defects or irregularities in connection with tenders of
your outstanding notes within the time period we will determine unless we waive
that defect or irregularity. Although we intend to notify you of defects or
irregularities with respect to your tender of outstanding notes, neither we, the
exchange agent nor any other person will incur any liability for failure to give
this notification. Your tender will not be deemed to have been made and your
notes will be returned to you if:

          (1) you improperly tender your outstanding notes;

          (2) you have not cured any defects or irregularities in your tender;
     and

          (3) we have not waived those defects, irregularities or improper
     tender.

     The exchange agent will return your outstanding notes, unless otherwise
provided in the letter of transmittal, as soon as practicable following the
expiration of the exchange offer.

     By tendering, you will represent to us that, among other things:

          (1) the registered notes to be acquired by you in the exchange offer
     are being acquired in the ordinary course of your business;

          (2) you are not engaging in and do not intend to engage in a
     distribution of the registered notes to be acquired by you in the exchange
     offer;

          (3) you do not have an arrangement or understanding with any person to
     participate in the distribution of the registered notes to be acquired by
     you in the exchange offer; and

          (4) you are not an "affiliate" of ours, as defined under Rule 405 of
     the Securities Act.

     In all cases, issuance of registered notes for outstanding notes that are
accepted for exchange in the exchange offer will be made only after timely
receipt by the exchange agent of certificates for your outstanding notes or a
timely book-entry confirmation of your outstanding notes into the exchange
agent's account at DTC, a properly completed and duly executed letter of
transmittal, or a computer-generated message instead of the letter of
transmittal, and all other required documents. If any tendered outstanding notes
are not accepted for any reason set forth in the terms and conditions of the
exchange offer or if outstanding notes are submitted for a greater principal
amount than you desire to exchange, the unaccepted or non-exchanged outstanding
notes, or outstanding notes in substitution therefor, will be returned without
expense to you. In addition, in the case of outstanding notes tendered by
book-entry transfer into the exchange agent's account at DTC pursuant to the
book-entry transfer procedures described below, the non-exchanged outstanding
notes will be credited to your account maintained with DTC, as promptly as
practicable after the expiration or termination of the exchange offer.

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   50

  Guaranteed Delivery Procedures

     If you desire to tender your outstanding notes and your outstanding notes
are not immediately available or one of the situations described in the
immediately preceding paragraph occurs, you may tender if:

          (1) you tender through an eligible financial institution;

          (2) on or prior to 5:00 p.m., New York City time, on the expiration
     date, the exchange agent receives from an eligible institution, a written
     or facsimile copy of a properly completed and duly executed letter of
     transmittal and notice of guaranteed delivery, substantially in the form
     provided by us; and

          (3) the certificates for all certificated outstanding notes, in proper
     form for transfer, or a book-entry confirmation, and all other documents
     required by the letter of transmittal, are received by the exchange agent
     within three NYSE trading days after the date of execution of the notice of
     guaranteed delivery.

     The notice of guaranteed delivery may be sent by facsimile transmission,
mail or hand delivery. The notice of guaranteed delivery must set forth:

          (1) your name and address;

          (2) the amount of outstanding notes you are tendering; and

          (3) a statement that your tender is being made by the notice of
     guaranteed delivery and that you guarantee that within three NYSE trading
     days after the execution of the notice of guaranteed delivery, the eligible
     institution will deliver the following documents to the exchange agent:

             (A) the certificates for all certificated outstanding notes being
        tendered, in proper form for transfer or a book-entry confirmation of
        tender;

             (B) a written or facsimile copy of the letter of transmittal, or a
        book-entry confirmation instead of the letter of transmittal; and

             (C) any other documents required by the letter of transmittal.

BOOK-ENTRY TRANSFER

     The exchange agent will establish an account with respect to the book-entry
interests at DTC for purposes of the exchange offer promptly after the date of
this prospectus. You must deliver your book-entry interest by book-entry
transfer to the account maintained by the exchange agent at DTC. Any financial
institution that is a participant in DTC's systems may make book-entry delivery
of book-entry interests by causing DTC to transfer the book-entry interests into
the exchange agent's account at DTC in accordance with DTC's procedures for
transfer.

     If one of the following situations occur:

          (1) you cannot deliver a book-entry confirmation of book-entry
     delivery of your book-entry interests into the exchange agent's account at
     DTC; or

          (2) you cannot deliver all other documents required by the letter of
     transmittal to the exchange agent prior to the expiration date;

     then you must tender your book-entry interests according to the guaranteed
delivery procedures discussed above.

WITHDRAWAL OF TENDERS

     Except as otherwise provided herein, tenders of outstanding notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration
date.

                                       45
   51

     To withdraw a tender of outstanding notes in the exchange offer, a written
or facsimile transmission notice of withdrawal must be received by the exchange
agent at its address listed in this prospectus prior to 5:00 p.m., New York City
time, on the expiration date. Any notice of withdrawal must:

     - specify the name of the person having deposited the outstanding notes to
       be withdrawn;

     - identify the outstanding notes to be withdrawn, including the certificate
       number or numbers and principal amount of such outstanding notes;

     - be signed by the holder in the same manner as the original signature on
       the letter of transmittal by which the outstanding notes were tendered,
       including any required signature guarantees, or be accompanied by
       documents of transfer sufficient to have the trustee with respect to the
       outstanding notes register the transfer of the outstanding notes into the
       name of the person withdrawing the tender; and

     - specify the name in which any outstanding notes are to be registered if
       different from that of the person that deposited the outstanding notes to
       be withdrawn.

     If the outstanding notes have been delivered under the book-entry procedure
set forth above under "-- Procedures for Tendering," any notice of withdrawal
must specify the name and number of the participant's account at DTC to be
credited with the withdrawn outstanding notes.

     We will determine, in our sole discretion, all questions as to the
validity, form and eligibility, including time of receipt, of withdrawal
notices. Our determination shall be final and binding on all parties. Any
outstanding notes withdrawn will be deemed not to have been validly tendered for
purposes of the exchange offer and registered notes will not be issued in
exchange for those withdrawn outstanding notes unless the withdrawn outstanding
notes are validly retendered. Properly withdrawn outstanding notes may be
retendered by following one of the procedures described above under
"-- Procedures for Tendering" at any time prior to the expiration date.

     Any outstanding notes that are tendered but not accepted due to withdrawal,
rejection of tender or termination of the exchange offer will be returned as
soon as practicable to the holder without cost to the holder (or, in the case of
outstanding notes tendered by book-entry transfer into the exchange agent's
account at the book-entry transfer facility under the book-entry transfer
procedures described above, these outstanding notes will be credited to an
account maintained with that book-entry transfer facility for the outstanding
notes).

CONDITIONS

     Notwithstanding any other term of the exchange offer, we are not required
to accept for exchange any outstanding notes, and may terminate the exchange
offer as provided in this prospectus before the acceptance of any outstanding
notes, if:

     - the exchange offer will violate applicable law or any applicable
       interpretation of the SEC staff;

     - the outstanding notes are not tendered in accordance with the exchange
       offer;

     - you do not represent that you are acquiring the registered notes in the
       ordinary course of your business, that you are not engaging in and do not
       intend to engage in a distribution of the registered notes, and that you
       have no arrangement or understanding with any person to participate in a
       distribution of the registered notes; or

     - any action or proceeding is instituted or threatened by any governmental
       agency with respect to the exchange offer which would reasonably be
       expected to impair our ability to proceed with the exchange offer.

     These conditions are for our sole benefit and we may assert them regardless
of the circumstances giving rise to any condition or we may waive them in whole
or in part at any time and from time to time in our reasonable discretion. Our
failure at any time to exercise any of the foregoing rights shall not be deemed
a

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waiver of the right and each right shall be deemed an ongoing right which may be
asserted at any time and from time to time.

     If we determine in our reasonable judgment that any of the conditions are
not satisfied, we may (1) refuse to accept any outstanding notes and return all
tendered outstanding notes to the tendering holders (or, in the case of
outstanding notes delivered by book-entry transfer within DTC, credit any
outstanding notes to the account maintained within DTC by the participant in DTC
which delivered the notes), (2) extend the exchange offer and retain all
outstanding notes tendered prior to the expiration of the exchange offer,
subject, however, to the rights of holders to withdraw the tenders of
outstanding notes (see "Withdrawal of Tenders" above) or (3) waive the
unsatisfied conditions with respect to the exchange offer and accept all
properly tendered outstanding notes which have not been withdrawn. If a waiver
constitutes a material change to the exchange offer, we will promptly disclose
the waiver by means of a prospectus supplement that will be distributed to the
registered holders, and we will extend the exchange offer for a period of five
to ten business days, depending upon the significance of the waiver and the
manner of disclosure to the registered holders, if the exchange offer would
otherwise expire during that five to ten business day period.

EXCHANGE AGENT

     Wells Fargo Bank Minnesota, N.A. has been appointed as exchange agent for
the exchange offer. Delivery of letters of transmittal and any other required
documents, questions, requests for assistance, and requests for additional
copies of this prospectus or of the letter of transmittal should be directed to
the exchange agent as follows:

                                                    
By Registered or Certified Mail:                       In Person by Hand Only:
WELLS FARGO BANK MINNESOTA, N.A.                       WELLS FARGO BANK MINNESOTA, N.A.
Corporate Trust Operations                             12th Floor -- Northstar East Building
MAC N9303-121                                          Corporate Trust Services
P.O. Box 1517                                          608 Second Avenue South
Minneapolis, MN 55480                                  Minneapolis, MN

By Regular Mail or Overnight Courier:                  By Facsimile (Eligible Institution Only):
WELLS FARGO BANK MINNESOTA, N.A.                       (616) 667-4927
Corporate Trust Operations                             Attention: Corporate Trust Operations
MAC N9303-121                                          Confirmed by Telephone: (800) 344-5128
Sixth & Marquette Avenue
Minneapolis, MN 55479                                  (Originals of all documents submitted by facsimile
                                                       should be sent promptly by hand, overnight courier or
                                                       registered or certified mail.)



     Delivery to other than the above address or facsimile number will not
constitute a valid delivery of your outstanding notes.

FEES AND EXPENSES

     We will pay expenses of soliciting tenders. The principal solicitation is
being made by mail; however, additional solicitation may be made by facsimile,
telephone or in person by our officers and regular employees.

     We have not retained any dealer-manager as part of the exchange offer and
will not make any payments to brokers, dealers or others soliciting acceptance
of the exchange offer. We will, however, pay the exchange agent reasonable and
customary fees for services and will reimburse it for its reasonable
out-of-pocket expenses under the exchange offer. We will also pay the reasonable
fees and expenses of one firm acting as counsel for the holders of the
outstanding notes. Expenses include fees and expenses of the exchange agent and
trustee, accounting and legal fees and printing costs, among others.

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   53

TRANSFER TAXES

     You must pay all transfer taxes, if any, applicable to the exchange of
outstanding notes under the exchange offer. If satisfactory evidence of payment
of the taxes or exemption therefrom is not submitted with the letter of
transmittal, the amount of the transfer taxes will be billed directly to you.

ACCOUNTING TREATMENT

     The registered notes will be recorded at the same carrying value as the
outstanding notes on the date of the exchange. Accordingly, we will recognize no
gain or loss for accounting purposes. The expenses of the exchange offer and the
unamortized expenses relating to the issuance of the outstanding notes will be
amortized over the term of the registered notes.

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   54

                      DESCRIPTION OF THE REGISTERED NOTES

GENERAL

     The registered notes will be issued under the indenture for the outstanding
notes among RailAmerica Transportation Corp., the guarantors and Wells Fargo
Bank Minnesota, N.A., as trustee. Any outstanding notes that remain outstanding
after the completion of the exchange offer, together with the registered notes
issued in exchange for the outstanding notes, will be treated as a single class
of debt securities under the indenture. Unless otherwise indicated, the
outstanding notes and the registered notes to be issued in the exchange offer
are collectively referred to as the "notes" in this summary description. The
terms of the notes include those stated in the indenture and those made part of
the indenture by reference to the Trust Indenture Act of 1939, as amended. The
notes are subject to all such terms, and holders of the notes are referred to
the indenture and the Trust Indenture Act for a statement thereof. We have filed
a copy of the indenture as an exhibit to the registration statement which
includes this prospectus.

     The following description is a summary of the material provisions of the
indenture. It is not complete and is qualified in its entirety by reference to
the indenture, including the definitions in the indenture of certain terms used
below. We urge you to read the indenture because it, and not this description,
defines your rights as a holder of the notes.

     The definitions of certain terms used in the following summary are set
forth below under "-- Certain Definitions." For purposes of this summary, the
term "RailAmerica Transportation" refers only to RailAmerica Transportation
Corp. and not to any of its subsidiaries.

     The notes:

     - are general unsecured obligations of RailAmerica Transportation;

     - rank junior in right of payment to all secured indebtedness to the extent
       of the assets securing that indebtedness;

     - rank junior in right of payment to all existing and future Senior
       Indebtedness of RailAmerica Transportation including Obligations under
       the Senior Credit Facility;

     - rank equally in right of payment with any future senior subordinated
       Indebtedness of RailAmerica Transportation;

     - rank senior in right of payment to all future subordinated Indebtedness
       of RailAmerica Transportation; and

     - be effectively junior to all liabilities of RailAmerica Transportation's
       non-guarantor subsidiaries.

     The notes will be unconditionally guaranteed on a senior subordinated basis
by RailAmerica Transportation's parent, Palm Beach Rail Holding, Inc., its
indirect parent RailAmerica, Inc. and by each of its Restricted Subsidiaries
that are Domestic Subsidiaries. The guarantees:

     - are general unsecured obligations of the Guarantors;

     - will rank junior in right of payment to all existing and future Guarantor
       Senior Indebtedness of the Guarantors, including borrowings and
       guarantees under the Senior Credit Facility;

     - will rank equally in right of payment with any future senior subordinated
       Indebtedness of the Guarantors; and

     - will rank senior in right of payment to any future subordinated
       Indebtedness of the Guarantors.

     As of June 30, 2000, RailAmerica Transportation and the Guarantors had
outstanding approximately $337.1 million of consolidated Senior Indebtedness and
its non-guarantor subsidiaries had approximately $90.1 million of outstanding
liabilities, including trade payables but excluding intercompany obligations and
obligations represented by guarantees of indebtedness of RailAmerica
Transportation or another Guarantor. The indenture permits RailAmerica
Transportation and its Subsidiaries to incur additional Indebtedness,
                                       49
   55

including Senior Indebtedness, in the future. See "Risk Factors" and "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock."
RailAmerica, Inc. and Palm Beach Rail Holding, Inc. are not subject to the
restrictive covenants contained in the indenture. As a result, you should not
rely on their guarantees in evaluating an investment in the notes.

     As of the date of this prospectus, all of RailAmerica Transportation's
Domestic Subsidiaries will be Restricted Subsidiaries and Guarantors. For the
year ended December 31, 1999 and the six months ended June 30, 2000, these
subsidiaries accounted for 54% and 49% of its pro forma total revenue. So long
as it satisfies the conditions described in the definition of "Unrestricted
Subsidiary," RailAmerica Transportation will be permitted to designate current
or future Subsidiaries as "Unrestricted" Subsidiaries that are not subject to
the restrictive covenants included in the indenture.

     The effect of designating a Subsidiary as an "Unrestricted Subsidiary" will
be

     - an Unrestricted Subsidiary will not be subject to the restrictive
       covenants in the indenture;

     - a Subsidiary that has previously been a Guarantor and that is designated
       an Unrestricted Subsidiary will be removed from its guarantee; and

     - the assets, income, cash flow and other financial results of an
       Unrestricted Subsidiary will not be consolidated with those of
       RailAmerica Transportation for purposes of calculating compliance with
       the restrictive covenants contained in the indenture.

PRINCIPAL, MATURITY AND INTEREST

     - The notes are limited to $130,000,000 in aggregate principal amount and
       will mature on August 15, 2010.

     - The notes bear interest at the rate of 12 7/8% per annum.

     - RailAmerica Transportation will pay interest on the notes in cash in
       arrears on August 15 and February 15 of each year, commencing February
       15, 2001, to holders of record of notes at the close of business on the
       August 1 or February 1 immediately preceding such interest payment date.

     - Interest on the notes will accrue from the most recent date to which
       interest has been paid or, if no interest has been paid, from the date of
       original issuance.

     - Interest will be computed on the basis of a 360-day year of twelve 30-day
       months.

     - The notes will be issued in denominations of $1,000 and integral
       multiples thereof.

     RailAmerica Transportation will pay principal of, premium, if any, and
interest and liquidated damages, if any, on the notes:

     - at the office of the paying agent and registrar in New York, New York;
       or,

     - at RailAmerica Transportation's option, by check mailed to a holder's
       registered address;

     - however, all payments with respect to global notes and certificated
       notes, the holders of which have given wire transfer instructions to
       RailAmerica Transportation, will be paid by wire transfer of immediately
       available funds to the accounts specified by the holders thereof.

     The registrar may require payment of a sum sufficient to cover any transfer
tax or similar governmental charge payable in connection with certain transfers
or exchanges. See "-- Transfer and Exchange." The trustee is acting as paying
agent and registrar. RailAmerica Transportation may change the paying agent or
registrar without prior notice to holders of notes, and RailAmerica
Transportation or any of its Subsidiaries may act as paying agent or registrar.

                                       50
   56

SUBORDINATION

     The payment of Subordinated Note Obligations will be subordinated in right
of payment, as set forth in the indenture, to the prior payment in full in cash
or Cash Equivalents of all Senior Indebtedness, whether outstanding on the date
of the indenture or thereafter incurred.

     Upon any distribution to creditors of RailAmerica Transportation in a
liquidation or dissolution of RailAmerica Transportation or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to
RailAmerica Transportation or its property, an assignment for the benefit of
creditors or any marshaling of the assets and liabilities of RailAmerica
Transportation,

          (1) the holders of Senior Indebtedness will be entitled to receive
     payment in full in cash or Cash Equivalents of all Obligations due in
     respect of such Senior Indebtedness including interest after the
     commencement of any such proceeding whether or not allowable as a claim in
     any such proceeding at the rate specified in the applicable Senior
     Indebtedness, before the holders of notes will be entitled to receive any
     payment with respect to the Subordinated Note Obligations under the notes,
     and

          (2) until all Obligations with respect to Senior Indebtedness are paid
     in full in cash or Cash Equivalents, any distribution to which the holders
     of notes would be entitled shall be made to the holders of Senior
     Indebtedness.

     However, holders of notes may receive and retain Permitted Junior
Securities and payments made from the trust described under "-- Legal Defeasance
and Covenant Defeasance."

     RailAmerica Transportation also may not make any payment upon or in respect
of the Subordinated Note Obligations, except in Permitted Junior Securities or
from the trust described under "-- Legal Defeasance and Covenant Defeasance,"
until all Obligations with respect to Senior Indebtedness have been paid in full
in cash or Cash Equivalents if:

          (1) a default in the payment of the principal (including reimbursement
     obligations in respect of letters of credit) of, premium, if any, or
     interest on or commitment, letter of credit or administrative fees relating
     to, Designated Senior Indebtedness occurs and is continuing beyond any
     applicable period of grace; or

          (2) any other default occurs and is continuing with respect to
     Designated Senior Indebtedness that permits holders of the Designated
     Senior Indebtedness as to which that default relates to accelerate its
     maturity and the trustee receives a notice of that default (a "Payment
     Blockage Notice") from RailAmerica Transportation or the holders of any
     Designated Senior Indebtedness.

     Payments on the notes may and shall be resumed:

          (1) in the case of a payment default, upon the date on which that
     default is cured or waived; and

          (2) in case of a nonpayment default, the earlier of the date on which
     such nonpayment default is cured or waived or 179 days after the date on
     which the applicable Payment Blockage Notice is received by the trustee,
     unless a payment default on Designated Senior Indebtedness then exists.

     No new period of payment blockage for a nonpayment default may be commenced
unless and until 360 days have elapsed since the date of receipt by the trustee
of the immediately prior Payment Blockage Notice. No nonpayment default that
existed or was continuing on the date of delivery of any Payment Blockage Notice
to the trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice unless that default shall have been waived or cured for a period of not
less than 90 days.

     "Designated Senior Indebtedness" means:

          (i) any Indebtedness outstanding under the Senior Credit Facility at
     any time and

          (ii) following the payment in full in cash of all Indebtedness under
     the Senior Credit Facility and the permanent termination of all commitments
     thereunder, any other Senior Indebtedness permitted under

                                       51
   57

     the indenture the principal amount of which is $25 million or more and that
     has been designated by RailAmerica Transportation as "Designated Senior
     Indebtedness."

     "Permitted Junior Securities" means Equity Interests in RailAmerica
Transportation or unsecured debt securities of RailAmerica Transportation that
are subordinated to all Senior Indebtedness (and any debt securities issued in
exchange for Senior Indebtedness) to substantially the same extent as, or to a
greater extent than, the notes are subordinated to Senior Indebtedness.

     "Senior Indebtedness" means all Obligations, if any, and interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on any
Indebtedness of RailAmerica Transportation, whether outstanding on the issue
date or thereafter created, incurred or assumed, unless, in the case of any
particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the notes; provided that
Indebtedness under this sentence shall constitute "Senior Indebtedness" only to
the extent that such Indebtedness is secured by interests in property or assets
and only if the Chief Financial Officer of RailAmerica Transportation or
RailAmerica delivers a certificate to the Trustee at the time of the incurrence
of such Indebtedness stating that, after due inquiry, the Indebtedness is
secured by interests in property and assets which have, and such officer has no
reason to believe that such property and assets will not continue to have, a
fair market value that equals or exceeds the principal amount and one interest
payment on such Indebtedness, giving due regard to the type and amount of any
other Indebtedness secured by such property and assets. Such certificate shall
constitute conclusive evidence, binding for all purposes, that such Indebtedness
is secured. Without limiting the generality of the foregoing, "Senior
Indebtedness" shall also include all Obligations, if any, interest (including
any interest accruing subsequent to the filing of a petition of bankruptcy at
the rate provided for in the documentation with respect thereto, whether or not
such interest is an allowed claim under applicable law) on, and all other
amounts owing in respect of, all monetary obligations (including guarantees
thereof) of every nature of RailAmerica Transportation under the Senior Credit
Facility, including, without limitation, obligations to pay principal and
interest, reimbursement obligations under letters of credit, fees, expenses and
indemnities. "Senior Indebtedness" shall not include

          (i) any Indebtedness of RailAmerica Transportation to a Subsidiary of
     RailAmerica Transportation or any Affiliate of RailAmerica Transportation;

          (ii) Indebtedness to, or guarantees on behalf of, any shareholder,
     director, officer or employee of RailAmerica Transportation or any
     Subsidiary of RailAmerica Transportation (including, without limitation,
     amounts owed for compensation);

          (iii) Indebtedness to trade creditors and other amounts incurred in
     connection with obtaining goods, materials or services;

          (iv) Indebtedness represented by Disqualified Stock;

          (v) any liability for federal, state, local or other taxes owed or
     owing by RailAmerica Transportation;

          (vi) that portion of any Indebtedness incurred in violation of the
     indenture provisions set forth under "-- Limitation on Incurrence of
     Indebtedness and Issuance of Preferred Stock;" and

          (vii) any Indebtedness which is, by its express terms, subordinated in
     right of payment to any other Indebtedness of RailAmerica Transportation.

     "Subordinated Note Obligations" means all Obligations with respect to the
notes, including, without limitation, principal, premium, if any, interest and
liquidated damages, if any, payable pursuant to the terms of the notes
(including, without limitation, upon the acceleration or redemption thereof),
together with and including, without limitation, any amounts received or
receivable upon the exercise of rights of rescission or other rights of action,
including, without limitation, claims for damages, or otherwise.

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   58

     RailAmerica Transportation will promptly notify holders of Senior
Indebtedness if payment of the notes is accelerated because of an Event of
Default.

     As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, holders of notes may recover less ratably than
creditors of RailAmerica Transportation who are holders of Senior Indebtedness.

GUARANTEES

     RailAmerica Transportation's payment obligations under the notes will be
jointly and severally guaranteed by the Guarantors. The guarantee of each
Guarantor will be subordinated to the prior payment in full in cash or Cash
Equivalents of all Guarantor Senior Indebtedness of that Guarantor, including
that Guarantor's borrowings under, or guarantee of, the Senior Credit Facility,
to the same extent that the notes are subordinated to Senior Indebtedness of
RailAmerica Transportation. The obligations of each Guarantor that is a
Subsidiary under its guarantee will be limited so as not to constitute a
fraudulent conveyance under applicable law.

     No Guarantor may consolidate with or merge with or into another person or
entity, whether or not the Guarantor is the surviving Person, unless:

          (1) subject to the provisions of the following paragraph, the Person
     formed by or surviving any such consolidation or merger, if other than
     RailAmerica Transportation or the Guarantor, unconditionally assumes all
     the obligations of the Guarantor pursuant to a supplemental indenture in
     form and substance reasonably satisfactory to the trustee under the
     indenture, the guarantee and the registration rights agreement; and

          (2) immediately after giving effect to such transaction, no Default or
     Event of Default exists.

     In the event of:

          - a sale or other disposition of all of the assets of a Guarantor that
            is a Subsidiary, by way of merger, consolidation or otherwise, if
            the Guarantor applies the Net Proceeds of that sale in accordance
            with the "Asset Sales" provisions of the indenture;

          - a sale or other disposition of all of the capital stock of a
            Guarantor that is a Subsidiary, if the Net Proceeds of that sale are
            applied in accordance with the "Asset Sales" provisions of the
            indenture; or

          - the designation of any Restricted Subsidiary that is a Guarantor as
            an Unrestricted Subsidiary in accordance with the terms of the
            indenture,

     that Guarantor will be released and relieved of any obligations under its
guarantee.

OPTIONAL REDEMPTION

     Except as provided below, the notes will not be redeemable at RailAmerica
Transportation's option prior to August 15, 2005. Thereafter, the notes will be
redeemable, at the option of RailAmerica Transportation, in whole or in part,
upon at least 30, but not more than 60 days notice, at the redemption prices
(expressed as percentages of the principal amount) set forth below, plus any
accrued and unpaid interest and liquidated damages, if any, to the redemption
date if redeemed during the twelve-month period beginning on August 15 of the
years indicated below:



YEAR                                                          PERCENTAGE
- ----                                                          ----------
                                                           
2005........................................................   106.438%
2006........................................................   104.292
2007........................................................   102.146
2008 and thereafter.........................................   100.000


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     Notwithstanding the foregoing, at any time on or before August 15, 2003,
RailAmerica Transportation may (at its option) redeem for cash up to 35% of the
aggregate principal amount of the notes originally issued under the indenture at
a redemption price of 112.875% of the principal amount thereof, in each case
plus accrued and unpaid interest and liquidated damages, if any, to the
redemption date, with the net cash proceeds of an Equity Offering; provided
that:

     - at least 65% of the principal amount of the notes issued under the
       indenture remains outstanding immediately after the occurrence of such
       redemption; and

     - the redemption occurs within 60 days of the date of the closing of such
       Equity Offering.

SELECTION AND NOTICE

     If less than all of the notes are to be redeemed at any time, the trustee
will select the notes for redemption as follows:

          (1) in compliance with the requirements of the principal national
     securities exchange, if any, on which the notes are listed; or

          (2) if the notes are not so listed, on a pro rata basis, by lot or by
     another method the trustee considers fair and appropriate; provided that if
     a partial redemption is made with the proceeds of a Equity Offering,
     selection of the notes or portions thereof for redemption shall be made by
     the trustee only on a pro rata basis or on as nearly a pro rata basis as is
     practicable (subject to DTC procedures), unless such method is otherwise
     prohibited;

     provided that no notes of $1,000 or less shall be redeemed in part.

     Notices of redemption shall be mailed by first class mail at least 30 but
not more than 60 days before the redemption date to each holder of notes to be
redeemed at its registered address. Notices of redemption may not be
conditional.

     If any note is to be redeemed in part only, the notice of redemption that
relates to that note shall state the portion of the principal amount thereof to
be redeemed. A new note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the holder thereof upon cancellation of
the original note. Notes called for redemption become due on the date fixed for
redemption. On and after the redemption date, interest ceases to accrue on notes
or portions of notes called for redemption.

MANDATORY REDEMPTION

     RailAmerica Transportation is not required to make any mandatory redemption
of, or sinking fund payments with respect to, the notes.

REPURCHASE AT THE OPTION OF THE HOLDERS

  Change of Control

     Upon the occurrence of a Change of Control, each holder of notes shall have
the right to require RailAmerica Transportation to purchase all or any part
(equal to $1,000 or an integral multiple thereof) of such holder's notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash equal to 101% of the aggregate principal amount thereof,
plus any accrued and unpaid interest and liquidated damages, if any, to the date
of purchase (the "Change of Control Payment"). Within 60 days following any
Change of Control, RailAmerica Transportation will, or will cause the trustee
to, mail a notice to each holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase notes on the date
specified in that notice, which date shall be no earlier than 30 days and no
later than 60 days from the date that notice is mailed (the "Change of Control
Payment Date"), pursuant to the procedures required by the indenture and
described in that notice.

     RailAmerica Transportation will comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent those laws and regulations are

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applicable in connection with the repurchase of the notes as a result of a
Change of Control. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the indenture relating to a Change
of Control Offer, RailAmerica Transportation will comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations described in the indenture by virtue thereof.

     On the Change of Control Payment Date, RailAmerica Transportation will, to
the extent lawful:

          (1) accept for payment all notes or portions thereof properly tendered
     pursuant to the Change of Control Offer;

          (2) deposit with the paying agent an amount equal to the Change of
     Control Payment in respect of all notes or portions thereof so tendered;
     and

          (3) deliver or cause to be delivered to the trustee the notes so
     accepted together with an Officers' Certificate stating the aggregate
     principal amount of notes or portions thereof being purchased by
     RailAmerica Transportation.

     The paying agent will promptly mail to each holder of notes so tendered the
Change of Control Payment for that holder's notes, and the trustee will promptly
authenticate and mail or cause to be transferred by book-entry to each holder a
new note equal in principal amount to any unpurchased portion of the notes
surrendered, if any; provided that each new note will be in a principal amount
of $1,000 or an integral multiple thereof.

     The indenture provides that, prior to complying with the provisions of this
covenant, but in any event within 90 days following a Change of Control,
RailAmerica Transportation will either repay all outstanding Senior Indebtedness
or obtain the requisite consents, if any, under all agreements governing
outstanding Senior Indebtedness to permit the repurchase of notes required by
this covenant. The indenture requires RailAmerica Transportation to publicly
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date.

     The Change of Control provisions described above will be applicable whether
or not any other provisions of the indenture are applicable. Except as described
above with respect to a Change of Control, the indenture does not contain
provisions that permit the holders of the notes to require that RailAmerica
Transportation repurchase or redeem the notes in the event of a takeover,
recapitalization or similar transaction.

     The Senior Credit Facility prohibits RailAmerica Transportation from
purchasing any notes and also provides that some change of control events, which
may include events not otherwise constituting a Change of Control under the
indenture, with respect to RailAmerica Transportation would constitute a default
thereunder. Any future credit agreements or other agreements relating to Senior
Indebtedness to which RailAmerica Transportation becomes a party may contain
similar restrictions and provisions. In the event a Change of Control occurs at
a time when RailAmerica Transportation is prohibited from purchasing notes,
RailAmerica Transportation could seek the consent of its lenders to the purchase
of notes or could attempt to refinance the borrowings that contain that
prohibition. If RailAmerica Transportation does not obtain such a consent or
repay those borrowings, RailAmerica Transportation will remain prohibited from
purchasing notes. In that case, RailAmerica Transportation's failure to purchase
tendered notes would constitute an Event of Default under the indenture, which
would, in turn, constitute a default under the Senior Credit Facility. In those
circumstances, the subordination provisions in the indenture would likely
restrict payments to the holders of notes.

     RailAmerica Transportation will not be required to make a Change of Control
Offer upon a Change of Control if a third party makes the Change of Control
Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in the indenture applicable to a Change of Control Offer
made by RailAmerica Transportation and purchases all notes validly tendered and
not withdrawn under that Change of Control Offer.

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   61

     In addition, RailAmerica Transportation will not be required to make a
Change of Control Offer, as provided above, if, in connection with or in
contemplation of a Change of Control, it has made an offer to purchase (an
"Alternate Offer") any and all notes validly tendered at a cash price equal to
or greater than the Change of Control offer price and has purchased all notes
properly tendered in accordance with the terms of such Alternate Offer.

     "Change of Control" means the occurrence of any of the following:

          (1) the direct or indirect sale, lease, transfer, conveyance or other
     disposition, other than by way of merger or consolidation, in one or a
     series of related transactions, of all or substantially all of the assets
     of RailAmerica Transportation and its Subsidiaries, taken as a whole, to
     any "person" or "group" (as those terms are used in Section 13(d) of the
     Exchange Act);

          (2) the adoption of a plan for the liquidation or dissolution of
     RailAmerica Transportation or RailAmerica, Inc. (whether or not otherwise
     in compliance with the provisions of the indenture);

          (3) RailAmerica Transportation or RailAmerica, Inc. becoming aware of
     (by way of a report or any other filing pursuant to Section 13(d) of the
     Exchange Act, proxy vote, written notice or otherwise) the acquisition by
     any Person or related group (within the meaning of Section 13(d)(3) or
     Section 14(d)(2) of the Exchange Act, or any successor provision to either
     of the foregoing, including any "group" acting for the purpose of
     acquiring, holding or disposing of securities within the meaning of Rule
     13d-5(b)(1) under the Exchange Act), other than a Permitted Holder, in a
     single transaction or in a series of related transactions, by way of
     merger, consolidation or other business combination or purchase of
     beneficial ownership (within the meaning of Rule 13d-3 under the Exchange
     Act, or any successor provision), directly or indirectly, of 40% or more of
     the total voting power entitled to vote in the election of the board of
     directors of RailAmerica Transportation or of such other Person surviving
     the transaction; or

          (4) the first day on which a majority of the members of the board of
     directors of RailAmerica, Inc. are not Continuing Members.

     The definition of Change of Control includes a phrase relating to the
direct or indirect sale, lease, transfer, conveyance or other disposition of
"all or substantially all" of the assets of RailAmerica Transportation and its
Subsidiaries taken as a whole. Although there is a developing body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
holder of notes to require RailAmerica Transportation to repurchase notes as a
result of a sale, lease, transfer, conveyance or other disposition of less than
all of the assets of RailAmerica Transportation and its Subsidiaries taken as a
whole to another person or group may be uncertain.

     "Continuing Members" means, as of any date of determination, any member of
the board of directors of RailAmerica, Inc., as the case may be, who:

          (1) was a member of RailAmerica, Inc.'s board of directors, as the
     case may be, at the date of the indenture; or

          (2) was nominated for election or elected to RailAmerica, Inc.'s board
     of directors, as the case may be, with the approval of, or whose election
     to the board of directors was ratified by, at least a majority of the
     Continuing Members who were members of RailAmerica, Inc.'s board of
     directors, as the case may be, at the time of that nomination or election.

     "Permitted Holder" means RailAmerica, Inc. and any direct or indirect
wholly-owned subsidiary of RailAmerica, Inc.

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  Asset Sales

     The indenture provides that RailAmerica Transportation will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, consummate an
Asset Sale unless:

          (1) RailAmerica Transportation or the Restricted Subsidiary, as the
     case may be, receives consideration at the time of that Asset Sale at least
     equal to the fair market value (evidenced by an Officers' Certificate
     delivered to the trustee in the case of an Asset Sale with a fair market
     value less than $5.0 million and a resolution of the board of directors set
     forth in an Officers' Certificate delivered to the trustee in the case of
     an Asset Sale with a fair market value greater than or equal to $5.0
     million) of the assets or Equity Interests issued or sold or otherwise
     disposed of; and

          (2) at least 75% of the consideration therefor received by RailAmerica
     Transportation or the Restricted Subsidiary is in the form of cash or Cash
     Equivalents.

     For the purposes of this provision, each of the following shall be deemed
to be cash:

          (i) any liabilities, as shown on RailAmerica Transportation's or the
     Restricted Subsidiary's most recent balance sheet, of RailAmerica
     Transportation or any Restricted Subsidiary (other than contingent
     liabilities and liabilities that are by their terms subordinated to the
     notes or any guarantee thereof) that are assumed by the transferee of any
     such assets pursuant to a customary novation agreement that releases
     RailAmerica Transportation or the Restricted Subsidiary from further
     liability; and

          (ii) any securities, notes or other obligations received by
     RailAmerica Transportation or the Restricted Subsidiary from the transferee
     that are promptly converted (but in any event within 90 days) of their
     receipt by RailAmerica Transportation or the Restricted Subsidiary into
     cash or Cash Equivalents, but only to the extent of the cash or Cash
     Equivalents received.

     Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
RailAmerica Transportation or the Restricted Subsidiary, as the case may be,
shall apply the Net Proceeds, at its option, to:

          (1) repay or purchase Senior Indebtedness or Pari Passu Indebtedness
     and, if the Indebtedness repaid is Indebtedness under a revolving line of
     credit, to correspondingly reduce commitments with respect thereto;
     provided that, if RailAmerica Transportation shall elect to repay or
     purchase Pari Passu Indebtedness, RailAmerica Transportation shall make an
     offer, in accordance with the procedures set forth below for an Asset Sale
     Offer, to all holders of notes to purchase notes at a purchase price equal
     to 100% of the principal amount of the notes, plus accrued and unpaid
     interest and liquidated damages, if any, thereon to the date of purchase
     (any such offer shall be on a ratable basis with the holders of such Pari
     Passu Indebtedness); or

          (2) (a) an investment in property, the making of a capital expenditure
     or the acquisition of assets that are used or useful in a Permitted
     Business; or (b) the acquisition of Capital Stock of any Person primarily
     engaged in a Permitted Business if as a result of the acquisition by
     RailAmerica Transportation or any Restricted Subsidiary thereof, that
     Person becomes a Restricted Subsidiary.

     Pending the final application of any Net Proceeds, RailAmerica
Transportation may temporarily reduce Indebtedness (including revolving
indebtedness under the Senior Credit Facility) or otherwise invest those Net
Proceeds in any manner that is not prohibited by the indenture.

     Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the first sentence of the second preceding paragraph will be deemed
to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
exceeds $15.0 million, RailAmerica Transportation will be required to make an
offer to all holders of notes (an "Asset Sale Offer") to purchase the maximum
principal amount of notes that, together with all Pari Passu Indebtedness which
RailAmerica Transportation is concurrently offering to repay or purchase, may be
purchased out of the Excess Proceeds, at an offer price in cash in an amount
equal to 100% of the principal amount thereof, plus accrued and unpaid interest
and liquidated damages, if any, to the date of purchase, in accordance with the
procedures set forth in the indenture.

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     To the extent that any Excess Proceeds remain after consummation of an
Asset Sale Offer, RailAmerica Transportation may use those Excess Proceeds for
any purpose not otherwise prohibited by the indenture. If the aggregate
principal amount of notes surrendered by holders thereof in connection with an
Asset Sale Offer exceeds the amount of Excess Proceeds, the trustee shall select
the notes to be purchased as set forth under "-- Selection and Notice." Upon
completion of an offer to purchase, the amount of Excess Proceeds shall be reset
at zero.

     RailAmerica Transportation will comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent those laws and regulations are applicable in connection with the
repurchase of the notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
the indenture relating to an Asset Sale Offer, RailAmerica Transportation will
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations described in the indenture by virtue
thereof.

CERTAIN COVENANTS

  Restricted Payments

     The indenture provides that RailAmerica Transportation will not, and will
not permit any Restricted Subsidiary to, directly or indirectly,

          (1) declare or pay any dividend or make any other payment or
     distribution on account of RailAmerica Transportation's or any of its
     Restricted Subsidiaries' Equity Interests (including, without limitation,
     any payment in connection with any merger or consolidation involving
     RailAmerica Transportation) or to the direct or indirect holders of
     RailAmerica Transportation's or any of its Subsidiaries' Equity Interests
     other than

          - dividends or distributions payable in Equity Interests (other than
            Disqualified Stock of RailAmerica Transportation) or

          - dividends or distributions payable by a Restricted Subsidiary to
            RailAmerica Transportation or any Restricted Subsidiary of
            RailAmerica Transportation;

          (2) purchase, redeem or otherwise acquire or retire for value
     (including, without limitation, in connection with any merger or
     consolidation involving RailAmerica Transportation) any Equity Interests of
     RailAmerica Transportation or any direct or indirect parent of RailAmerica
     Transportation (other than any such Equity Interests owned by RailAmerica
     Transportation or any Restricted Subsidiary of RailAmerica Transportation);

          (3) make any principal payment on or with respect to, or purchase,
     defease, redeem, prepay, decrease or otherwise acquire or retire for value,
     prior to any scheduled final maturity, scheduled repayment or scheduled
     sinking fund payment, any Indebtedness of RailAmerica Transportation that
     is subordinate or junior in right of payment to the notes except in
     accordance with the mandatory redemption or repayment provisions set forth
     in the original documentation governing that Indebtedness (but not pursuant
     to any mandatory offer to repurchase upon the occurrence of any event); or

          (4) make any Restricted Investment

(all such payments and other actions set forth in clauses (1) through (4) above
being collectively referred to as "Restricted Payments"), unless, at the time of
and after giving effect to such Restricted Payment:

          (a) no Default or Event of Default shall have occurred and be
     continuing or would occur as a consequence thereof; or

          (b) RailAmerica Transportation would, immediately after such
     Restricted Payment and after giving pro forma effect thereto as if that
     Restricted Payment had been made at the beginning of RailAmerica
     Transportation's most recently completed four full fiscal quarters, have
     been permitted to incur at least $1.00 of additional Indebtedness pursuant
     to the Fixed Charge Coverage Ratio set forth in the first

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     paragraph of the covenant described under the caption "-- Incurrence of
     Indebtedness and Issuance of Preferred Stock;" and

          (c) such Restricted Payment, together with the aggregate amount of all
     other Restricted Payments made by RailAmerica Transportation and its
     Restricted Subsidiaries after the date of the indenture (excluding
     Restricted Payments permitted by clauses (2), (3), (4) and (5) (ii) of the
     next succeeding paragraph), is less than the sum, without duplication, of:

             (1) 50% of the aggregate Consolidated Net Income of RailAmerica
        Transportation for the period (taken as one accounting period) from the
        beginning of the first full fiscal quarter commencing after the date of
        the indenture to the end of RailAmerica Transportation's most recently
        ended fiscal quarter for which internal financial statements are
        available at the time of that Restricted Payment (or, if Consolidated
        Net Income for that period is a deficit, less 100% of the deficit); plus

             (2) 100% of the net cash proceeds received by RailAmerica
        Transportation after the date of the indenture from contributions to
        RailAmerica Transportation's common equity or from the issue or sale
        after the date of the indenture of Equity Interests (other than
        Disqualified Stock) of RailAmerica Transportation or of Disqualified
        Stock or convertible debt securities of RailAmerica Transportation to
        the extent that they have been converted into such Equity Interests,
        other than

             - Equity Interests, Disqualified Stock or convertible debt
               securities sold to a Subsidiary of RailAmerica Transportation;
               and

             - Disqualified Stock or convertible debt securities that have been
               converted into Disqualified Stock.

     PLUS (3) without duplication,

          (i) to the extent that any Restricted Investment that was made after
     the date of the indenture is sold for cash or otherwise liquidated or
     repaid for cash, the lesser of (A) the cash return of capital with respect
     to such Restricted Investment (less the cost of disposition, if any) and
     (B) the initial amount of such Restricted Investment; and

          (ii) the redesignation of Unrestricted Subsidiaries whose assets are
     used or useful in, or which is engaged in, one or more Permitted Business
     as Restricted Subsidiaries (valued, proportionate to RailAmerica
     Transportation's equity interest in that Subsidiary, at the lesser of (a)
     the fair market value of the net assets of that Subsidiary at the time of
     that redesignation and (b) the initial amount of such Restricted
     Investment).

     The foregoing provisions will not prohibit:

          (1) the payment of any dividend within 60 days after the date of
     declaration thereof, if at said date of declaration, such payment would
     comply with all the provisions of the indenture;

          (2) if no Default or Event of Default shall have occurred and be
     continuing, the redemption, repurchase, retirement, defeasance or other
     acquisition of any subordinated Indebtedness or Equity Interests of
     RailAmerica Transportation in exchange for, or out of the net cash proceeds
     of the substantially concurrent sale (other than to a Subsidiary of
     RailAmerica Transportation) of other Equity Interests of RailAmerica
     Transportation (other than any Disqualified Stock); provided that the
     amount of any such net cash proceeds that are utilized for any such
     redemption, repurchase, retirement, defeasance or other acquisition shall
     be excluded from clause (c)(2) of the preceding paragraph;

          (3) if no Default or Event of Default shall have occurred and be
     continuing, the defeasance, redemption, repurchase, retirement or other
     acquisition of subordinated Indebtedness of RailAmerica Transportation with
     the net cash proceeds from a substantially concurrent sale (other than to a
     Subsidiary of RailAmerica Transportation) of, or in exchange for,
     subordinated Indebtedness;

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          (4) the payment of dividends by a Restricted Subsidiary on any class
     of common stock of that Restricted Subsidiary if:

             (i) that dividend is paid pro rata to all holders of that class of
        common stock; and

             (ii) at least a majority of that class of common stock is held by
        RailAmerica Transportation or one or more of its Restricted
        Subsidiaries;

          (5) (i) the payment of amounts to RailAmerica, Inc. (directly or
     through Palm Beach Rail Holding, Inc.) in an amount necessary to enable
     RailAmerica, Inc. to pay: (a) the reasonable fees and expenses of its
     directors, (b) the salaries, wages, employee benefits, insurance and other
     direct expenses incurred in the ordinary course of business of RailAmerica,
     Inc., (c) taxes in the amounts set forth in the Tax Sharing Agreement, (d)
     dividends and mandatory redemption with respect to Series A Convertible
     Preferred Stock of RailAmerica, Inc. that is outstanding on the date of the
     indenture, (e) interest and principal, when due, on RailAmerica, Inc.'s 6%
     junior convertible subordinated debentures due 2004, (f) up to $2.0 million
     per fiscal year to repurchase RailAmerica, Inc. common stock under its
     stock buyback program and (g) its public company expenses, including legal
     fees, directors' and officers' insurance costs, accounting fees, financial
     advisory fees, investor relations costs, directors' fees and printing fees
     and related expenses, in each case of clauses (a), (b) and (g) in an amount
     that substantially reflects the contribution of RailAmerica Transportation
     and its Subsidiaries to the consolidated financial results of RailAmerica
     and its subsidiaries and (ii) the payment of the Net Proceeds from the sale
     of Quebec Railway Corporation to Palm Beach Rail Holding, Inc. to the
     extent used to repay Palm Beach Rail Holding, Inc.'s asset sale bridge
     notes issued on February 4, 2000; and

          (6) if no Default or Event of Default shall have occurred and be
     continuing, additional Restricted Payments in an aggregate amount not to
     exceed $22.0 million; provided, that no more than $20.0 million of
     Restricted Payments made pursuant to this clause (6) may be used to repay
     Palm Beach Rail Holding, Inc.'s asset sale bridge notes issued on February
     4, 2000.

     The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by RailAmerica Transportation or that
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.

     The fair market value of any non-cash Restricted Payment shall be
determined by the board of directors of RailAmerica Transportation whose
resolution with respect thereto shall be delivered to the trustee. The board of
directors' determination must be based on an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if the
fair market value exceeds $5.0 million.

     Not later than the date of making any Restricted Payment (other than a
Restricted Payment made pursuant to section (5)(i)), RailAmerica Transportation
shall deliver to the trustee an Officers' Certificate stating that the
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant "Restricted Payments" were computed.

  Incurrence of Indebtedness and Issuance of Preferred Stock

     The indenture provides that:

          (1) RailAmerica Transportation will not, and will not permit any of
     its Restricted Subsidiaries to, directly or indirectly, create, incur,
     issue, assume, guarantee or otherwise become directly or indirectly liable,
     contingently or otherwise, with respect to (collectively, "incur") any
     Indebtedness (including Acquired Indebtedness); and

          (2) RailAmerica Transportation will not permit any of its Restricted
     Subsidiaries to issue any shares of preferred stock;

     provided that RailAmerica Transportation or any Guarantor may incur
Indebtedness, including Acquired Indebtedness, if the Fixed Charge Coverage
Ratio for RailAmerica Transportation's most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date on

                                       60
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which that additional Indebtedness is incurred would have been at least (x) 2.25
to 1.0 in the case of any such incurrence or issuance occurring on or prior to
the thirty-six month anniversary of the date of the indenture and (y) 2.5 to 1
in the case of any such incurrence or issuance that occurs thereafter, in each
case determined on a consolidated pro forma basis, including a pro forma
application of the net proceeds therefrom, as if the additional Indebtedness had
been incurred at the beginning of that four-quarter period.

     The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Indebtedness"):

          (1) the incurrence by RailAmerica Transportation and any Restricted
     Subsidiary under the Senior Credit Facility; provided that the aggregate
     principal amount of all Indebtedness (with letters of credit being deemed
     to have a principal amount equal to the maximum potential liability of
     RailAmerica Transportation and those Guarantors thereunder) outstanding
     under the Senior Credit Facility (together with any Indebtedness incurred
     pursuant to clause (2) below) does not exceed an amount equal to $380
     million less (x) the amount of term Indebtedness repaid with the proceeds
     of this offering and (y) the aggregate amount of all Net Proceeds of Asset
     Sales that have been applied by RailAmerica Transportation or any of its
     Restricted Subsidiaries since the date of the indenture to repay any term
     Indebtedness under the Senior Credit Facility pursuant to the covenant
     described under the caption "-- Repurchase at the Option of
     Holders -- Asset Sales" and less the aggregate amount of all Net Proceeds
     of Asset Sales applied by RailAmerica Transportation or any of its
     Restricted Subsidiaries to repay any revolving credit Indebtedness under
     the Senior Credit Facility and effect a corresponding commitment reduction
     thereunder pursuant to the covenant described under the caption
     "-- Repurchase at the Option of Holders -- Asset Sales";

          (2) the incurrence by RailAmerica Transportation and its Restricted
     Subsidiaries of Existing Indebtedness;

          (3) the incurrence by RailAmerica Transportation of Indebtedness
     represented by the notes issued in this offering on the date of the
     indenture (and new notes issued in exchange therefor) and the indenture and
     the incurrence by the Guarantors of the guarantees;

          (4) the incurrence by RailAmerica Transportation or any of its
     Restricted Subsidiaries of Indebtedness represented by Capital Expenditure
     Indebtedness, Capital Lease Obligations or other obligations, in each case,
     the proceeds of which are used solely for the purpose of financing all or
     any part of the purchase price or cost of construction or improvement of
     property, plant or equipment (including acquisitions of Capital Stock of a
     Person that becomes a Restricted Subsidiary to the extent of the fair
     market value of the property, plant or equipment so acquired) used in the
     business of RailAmerica Transportation or that Restricted Subsidiary, in an
     aggregate principal amount (or accreted value, as applicable) not to exceed
     $10.0 million outstanding after giving effect to that incurrence;

          (5) Indebtedness arising from agreements of RailAmerica Transportation
     or any Restricted Subsidiary providing for indemnification, adjustment of
     purchase price or similar obligations, in each case, incurred or assumed in
     connection with the disposition of any business, assets or a Subsidiary,
     other than guarantees of Indebtedness incurred by any Person acquiring all
     or any portion of such business, assets or Restricted Subsidiary for the
     purpose of financing that acquisition; provided that:

             (a) that Indebtedness is not reflected on the balance sheet of
        RailAmerica Transportation or any Restricted Subsidiary (contingent
        obligations referred to in a footnote or footnotes to financing
        statements and not otherwise reflected on the balance sheet will not be
        deemed to be reflected on that balance sheet for purposes of this clause
        (a)); and

             (b) the maximum assumable liability in respect of that Indebtedness
        shall at no time exceed the gross proceeds including non-cash proceeds
        (the fair market value of those non-cash proceeds being measured at the
        time received and without giving effect to any subsequent changes in
        value) actually received by RailAmerica Transportation and/or that
        Restricted Subsidiary in connection with that disposition;

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          (6) the incurrence by RailAmerica Transportation or any of its
     Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange
     for, or the net proceeds of which are used to refund, refinance, defease or
     replace Indebtedness (other than intercompany Indebtedness) that was
     permitted by the indenture to be incurred;

          (7) the incurrence by RailAmerica Transportation or any of its
     Restricted Subsidiaries of intercompany Indebtedness between or among
     RailAmerica Transportation and/or any of its Restricted Subsidiaries;
     provided that:

             (a) if RailAmerica Transportation is the obligor on that
        Indebtedness, that Indebtedness is expressly subordinated to the prior
        payment in full in cash of all Obligations with respect to the notes;
        and

             (b) (i) any subsequent issuance or transfer of Equity Interests
        that results in any such Indebtedness being held by a Person other than
        RailAmerica Transportation or a Restricted Subsidiary thereof and

             (ii) any sale or other transfer of any such Indebtedness to a
        Person that is not either RailAmerica or a Restricted Subsidiary thereof
        shall be deemed, in each case, to constitute an incurrence of that
        Indebtedness by RailAmerica Transportation or that Restricted
        Subsidiary, as the case may be, that was not permitted by this clause
        (7);

          (8) the incurrence by RailAmerica Transportation or any of its
     Restricted Subsidiaries of Hedging Obligations that are incurred for the
     purpose of fixing or hedging:

             (a) interest rate risk with respect to any Indebtedness that is
        permitted by the terms of the indenture to be outstanding;

             (b) exchange rate risk with respect to agreements or Indebtedness
        of that Person payable denominated in a currency other than U.S.
        dollars; and

             (c) risk with respect to fluctuations in the cost of raw materials
        (including, without limitation, fuel) used in the ordinary course of
        business;

     PROVIDED that those agreements do not increase the Indebtedness of the
obligor outstanding at any time other than as a result of fluctuations in
foreign currency exchange rates, interest rates or the cost of raw materials or
by reason of fees, indemnities and compensation payable thereunder;

          (9) the guarantee by RailAmerica Transportation or any of its
     Restricted Subsidiaries of Indebtedness of RailAmerica Transportation or
     any Restricted Subsidiary that was permitted to be incurred by another
     provision of this covenant;

          (10) obligations in respect of performance and surety bonds and
     completion guarantees (including related letters of credit), bankers'
     acceptances, workers' compensation claims and payment obligations in
     connection with self-insurance or similar obligations provided by
     RailAmerica Transportation or any Restricted Subsidiary in the ordinary
     course of business and industrial revenue bonds or other similar
     governmental or municipal bonds; and

          (11) the incurrence by RailAmerica Transportation or any of its
     Restricted Subsidiaries of additional Indebtedness in an aggregate
     principal amount (or accreted value, as applicable) outstanding after
     giving effect to that incurrence, including all Permitted Refinancing
     Indebtedness incurred to refund, refinance or replace any Indebtedness
     incurred pursuant to this clause (11), not to exceed $25.0 million.

     For purposes of determining compliance with this covenant:

     - in the event that an item of Indebtedness meets the criteria of more than
       one of the categories of Permitted Indebtedness described in clauses (1)
       through (11) above or is entitled to be incurred pursuant to the first
       paragraph of this covenant, RailAmerica Transportation shall, in its sole
       discretion, classify that item of Indebtedness in any manner that
       complies with this covenant and that item of Indebtedness will be treated
       as having been incurred pursuant to any one of those clauses or
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       pursuant to the first paragraph hereof and RailAmerica Transportation may
       divide and classify an item of Indebtedness under more than one of the
       categories of Permitted Indebtedness described in clauses (1) through
       (11); and

     - accrual of interest or dividends, accretion or amortization of original
       issue discount will not be deemed to be an incurrence of Indebtedness for
       purposes of this covenant.

  Liens

     The indenture provides that RailAmerica Transportation will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly,
create, incur, assume or suffer to exist any Lien, other than a Permitted Lien,
that secures obligations under any Pari Passu Indebtedness or subordinated
Indebtedness of RailAmerica Transportation, on any property or asset now owned
or hereafter acquired by RailAmerica Transportation or any of its Restricted
Subsidiaries, or any income or profits therefrom, or assign or convey any right
to receive income therefrom, unless the notes are equally and ratably secured
with the obligations so secured until such time as those obligations are no
longer secured by a Lien; provided that, in any case involving a Lien securing
subordinated Indebtedness of RailAmerica Transportation, that Lien is
subordinated to the Lien securing the notes at least to the same extent that
such subordinated Indebtedness is subordinated to the notes.

  Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries

     The indenture provides that RailAmerica Transportation will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly, create
or otherwise cause or suffer to exist or become effective, any consensual
encumbrance or restriction on the ability of any of its Restricted Subsidiaries
to:

          (1) (a) pay dividends or make any other distributions to RailAmerica
     Transportation or any of its Restricted Subsidiaries

          (i) on its Capital Stock or

          (ii) with respect to any other interest or participation in, or
     measured by, its profits; or

          (b) pay any Indebtedness owed to RailAmerica Transportation or any
     Restricted Subsidiary,

          (2) make loans or advances to RailAmerica Transportation or any
     Restricted Subsidiary or

          (3) transfer any of its properties or assets to RailAmerica
     Transportation or any Restricted Subsidiary.

     However, the foregoing restrictions will not apply to encumbrances or
restrictions existing under or by reason of:

          (1) Existing Indebtedness as in effect as of the date of the
     indenture;

          (2) the Senior Credit Facility as in effect as of the date of the
     indenture;

          (3) the indenture, the notes and the Guarantees;

          (4) Foreign Credit Facilities; provided that the Indebtedness incurred
     thereunder was permitted by the terms of the indenture to be incurred;

          (5) applicable law and any applicable rule, regulation or order;

          (6) any agreement or instrument governing Indebtedness or Capital
     Stock of a Person acquired by RailAmerica Transportation or any of its
     Restricted Subsidiaries as in effect at the time of that acquisition
     (except to the extent created in contemplation of that acquisition), which
     encumbrance or restriction is not applicable to any Person, or the
     properties or assets of any Person, other than the Person, or the property
     or assets of the Person, so acquired; provided that, in the case of
     Indebtedness, that Indebtedness was permitted by the terms of the indenture
     to be incurred;

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          (7) customary non-assignment provisions in leases entered into in the
     ordinary course of business and consistent with past practices;

          (8) purchase money obligations for property acquired in the ordinary
     course of business that impose restrictions of the nature described in
     clause (6) above on the property so acquired;

          (9) contracts for the sale of assets, including, without limitation,
     customary restrictions with respect to a Subsidiary pursuant to an
     agreement that has been entered into for the sale or disposition of all or
     substantially all of the Capital Stock or assets of the Restricted
     Subsidiary;

          (10) secured Indebtedness otherwise permitted to be incurred pursuant
     to the covenants described under "-- Incurrence of Indebtedness and
     Issuance of Preferred Stock" and "-- Liens" that limit the right of the
     debtor to dispose of the assets securing that Indebtedness;

          (11) restrictions on cash or other deposits or net worth imposed by
     customers under contracts entered into in the ordinary course of business;

          (12) customary provisions in joint venture agreements and other
     similar agreements entered into in the ordinary course of business; and

          (13) Permitted Refinancing Indebtedness of Indebtedness issued,
     assumed or incurred pursuant to an agreement referred to in clauses (1),
     (2), (3), (4) or (6) above; provided that the restrictions contained in the
     agreements governing that Permitted Refinancing Indebtedness are, in the
     good faith judgment of RailAmerica Transportation's board of directors, not
     materially less favorable, taken as a whole, to the holders of the notes
     than those contained in the agreements governing the Indebtedness being
     refinanced.

MERGER, CONSOLIDATION, OR SALES OF ASSETS

     The indenture provides that RailAmerica Transportation may not consolidate
or merge with or into (whether or not RailAmerica Transportation is the
surviving corporation), or, directly or indirectly, sell, assign, transfer,
convey, lease or otherwise dispose of all or substantially all of its properties
or assets in one or more related transactions to, another Person unless:

          (1) RailAmerica Transportation is the surviving corporation or the
     Person formed by or surviving any such consolidation or merger (if other
     than RailAmerica Transportation) or to which that sale, assignment,
     transfer, conveyance or other disposition shall have been made is a
     corporation organized or existing under the laws of the United States, any
     state thereof or the District of Columbia;

          (2) the Person formed by or surviving any such consolidation or merger
     (if other than RailAmerica Transportation) or the Person to which that
     sale, assignment, transfer, conveyance or other disposition shall have been
     made assumes all the obligations of RailAmerica Transportation under the
     registration rights agreement, the notes and the indenture pursuant to a
     supplemental indenture in a form reasonably satisfactory to the trustee;

          (3) immediately after that transaction no Default or Event of Default
     exists; and

          (4) RailAmerica Transportation or the Person formed by or surviving
     any such consolidation or merger (if other than RailAmerica
     Transportation), or to which that sale, assignment, transfer, conveyance or
     other disposition shall have been made, will, at the time of such
     transaction and after giving pro forma effect thereto as if the transaction
     had occurred at the beginning of the applicable four-quarter period, be
     permitted to incur at least $1.00 of additional Indebtedness pursuant to
     the Fixed Charge Coverage Ratio test set forth in the first paragraph of
     the covenant described under the caption "-- Incurrence of Indebtedness and
     Issuance of Preferred Stock."

     The foregoing clause (4) will not prohibit:

          (a) a merger between RailAmerica Transportation and a Wholly Owned
     Subsidiary of RailAmerica, Inc.;

          (b) a merger between RailAmerica Transportation and a Wholly Owned
     Restricted Subsidiary; or
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          (c) a merger between RailAmerica Transportation and an Affiliate
     incorporated solely for the purpose of reincorporating RailAmerica
     Transportation in another State of the United States

so long as, in the case of clauses (a), (b) and (c), the amount of Indebtedness
of RailAmerica Transportation and its Restricted Subsidiaries is not increased
thereby.

  Transactions with Affiliates

     The indenture provides that RailAmerica Transportation will not, and will
not permit any of its Restricted Subsidiaries to, make any payment to, or sell,
lease, transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate of RailAmerica Transportation (each
of the foregoing, an "Affiliate Transaction"), unless:

          (1) that Affiliate Transaction is on terms that are no less favorable
     to RailAmerica Transportation or that Restricted Subsidiary than those that
     would have been obtained in a comparable transaction by RailAmerica
     Transportation or that Restricted Subsidiary with an unrelated Person; and

          (2) RailAmerica Transportation delivers to the trustee:

             (a) with respect to any Affiliate Transaction or series of related
        Affiliate Transactions involving aggregate consideration in excess of
        $1.0 million, a resolution of the board of directors set forth in an
        Officers' Certificate certifying that the relevant Affiliate Transaction
        complies with clause (1) above and that the Affiliate Transaction has
        been approved by a majority of the disinterested members of the board of
        directors; and

             (b) with respect to any Affiliate Transaction or series of related
        Affiliate Transactions involving aggregate consideration in excess of
        $5.0 million, an opinion as to the fairness to the holders of the notes
        of that Affiliate Transaction from a financial point of view issued by
        an accounting, appraisal or investment banking firm of national
        standing.

     Notwithstanding the foregoing, the following items shall not be deemed to
be Affiliate Transactions:

          (1) customary directors' fees, indemnification or similar arrangements
     or any employment agreement or other compensation plan or arrangement
     entered into by RailAmerica Transportation or any of its Restricted
     Subsidiaries in the ordinary course of business (including ordinary course
     loans to employees not to exceed (a) $2.5 million outstanding in the
     aggregate at any time and (b) $0.5 million to any one employee) and
     consistent with the past practice of RailAmerica Transportation or that
     Restricted Subsidiary;

          (2) transactions between or among RailAmerica Transportation and/or
     its Restricted Subsidiaries;

          (3) payments of customary arms'-length fees by RailAmerica
     Transportation or any of its Restricted Subsidiaries to investment banking
     firms, financial consultants and financial advisors made for any financial
     advisory, financing, underwriting or placement services or in respect of
     other investment banking activities, including, without limitation, in
     connection with acquisitions or divestitures that are approved by a
     majority of the board of directors in good faith;

          (4) any agreement as in effect on the date of the indenture or any
     amendment thereto (so long as that amendment is not more disadvantageous to
     the holders of the notes in any material respect than the original
     agreement as in effect on the Closing Date) or any transaction contemplated
     thereby;

          (5) the issuance and sale of Equity Interests (other than Disqualified
     Stock) of RailAmerica Transportation for cash;

          (6) payments pursuant to the Tax Sharing Agreement;

          (7) transactions pursuant to loan documents between RailAmerica de
     Chile, S.A. and RailAmerica Transportation as in effect on the date of the
     indenture; and

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          (8) Restricted Payments that are permitted by the provisions of the
     indenture described under the caption "-- Restricted Payments" and any
     Permitted Investments.

  No Senior Subordinated Indebtedness

     The indenture provides that

     - RailAmerica Transportation will not incur any Indebtedness that would
       rank both (a) senior in right of payment to the notes and (b) subordinate
       in right of payment to any other Indebtedness of RailAmerica
       Transportation; and

     - no Guarantor that is a Restricted Subsidiary will incur any Indebtedness
       that would rank both (a) senior in right of payment to that Guarantor's
       guarantee and (b) subordinate in right of payment to any other
       Indebtedness of such Guarantor.

  Additional Note Guarantees

     If RailAmerica Transportation or any of its Restricted Subsidiaries
acquires or creates another Domestic Subsidiary after the date of the indenture
or if any Foreign Restricted Subsidiary issues a guarantee in favor of the
lenders under the Senior Credit Facility (other than guarantees by Canadian
Subsidiaries of borrowings under the Canadian revolving credit facility and
guarantees by Australian Subsidiaries of borrowings under the Australian
revolving credit facility), such Subsidiary must become a Guarantor and execute
a supplemental indenture and deliver an opinion of counsel to the trustee within
ten business days of the date on which it was acquired or created; provided that
all Subsidiaries that have been properly designated as Unrestricted Subsidiaries
in accordance with the indenture shall not become Guarantors for so long as they
continue to constitute Unrestricted Subsidiaries.

  Designation of Restricted and Unrestricted Subsidiaries

     The board of directors of RailAmerica Transportation may designate any
Restricted Subsidiary of RailAmerica Transportation to be an Unrestricted
Subsidiary if that designation would not cause a Default or an Event of Default.
If a Restricted Subsidiary of RailAmerica Transportation is designated as an
Unrestricted Subsidiary, the aggregate fair market value of all outstanding
Investments owned by RailAmerica Transportation and its Restricted Subsidiaries
in the Subsidiary so designated will be deemed to be an Investment made as of
the time of such designation and will either reduce the amount available for
Restricted Payments under the first paragraph of the covenant described above
under the caption "-- Restricted Payments" or reduce the amount available for
future Investments under one or more clauses of the definition of Permitted
Investments, if applicable, as RailAmerica Transportation shall determine. That
designation will only be permitted if such Investment would be permitted at that
time and if such Restricted Subsidiary otherwise meets the definition of an
Unrestricted Subsidiary. The board of directors may redesignate an Unrestricted
Subsidiary to be a Restricted Subsidiary if the redesignation would not cause a
Default or an Event of Default.

  Business Activities

     RailAmerica Transportation will not, and will not permit any Restricted
Subsidiary to, engage in any business other than Permitted Businesses, except to
such extent as would not be material to RailAmerica Transportation and its
Restricted Subsidiaries taken as a whole.

  Payments for Consent

     RailAmerica Transportation will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration to or for the benefit of any holder of notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the indenture or the notes unless such consideration is offered to be paid or
is paid to all holders of the notes that consent, waive

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or agree to amend in the time frame set forth in the solicitation documents
relating to such consent, waiver or agreement.

  Reports

     The indenture provides that, whether or not required by the rules and
regulations of the SEC, so long as any notes are outstanding, RailAmerica, Inc.
will furnish to the holders of notes, if not then obtainable from the SEC:

          (1) all quarterly and annual financial information that would be
     required to be contained in a filing with the SEC on Forms 10-Q and 10-K of
     RailAmerica, Inc. with appropriate footnotes regarding the results of
     operations and financial position of RailAmerica Transportation or if
     RailAmerica Transportation were required to file those Forms, including a
     "Management's Discussion and Analysis of Financial Condition and Results of
     Operations" and, with respect to the annual information only, a report
     thereon by RailAmerica, Inc.'s certified independent accountants; and

          (2) all current reports that would be required to be filed with the
     SEC on Form 8-K if RailAmerica, Inc. were required to file those reports,
     in each case, within the time periods specified in the SEC's rules and
     regulations.

     In addition, following the consummation of the exchange offer contemplated
by the registration rights agreement, whether or not required by the rules and
regulations of the SEC, RailAmerica, Inc. will file a copy of all the
information and reports referred to in clauses (1) and (2) above with the SEC
for public availability within the time periods specified in the SEC's rules and
regulations (unless the SEC will not accept such a filing) and make that
information available to securities analysts and prospective investors upon
request.

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                 CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS

     This general discussion of certain U.S. federal income and estate tax
considerations with respect to the acquisition, ownership and disposition of a
registered note acquired in exchange for an outstanding note applies to you if
you acquired the outstanding note for cash on its original issuance at its issue
price and if you hold the outstanding note and the registered note as capital
assets within the meaning of section 1221 of the Internal Revenue Code of 1986,
as amended.

     This discussion is based upon the Internal Revenue Code, Treasury
regulations, Internal Revenue Service rulings and pronouncements and judicial
decisions now in effect, each of which is subject to change at any time by
legislative, administrative, or judicial action, possibly with retroactive
effect. The discussion does not discuss every aspect of U.S. federal income and
estate taxation that may be relevant to a particular taxpayer in light of its
personal circumstances or to persons who are otherwise subject to special tax
treatment. For example, special rules not discussed here may apply to you if you
are:

     - a bank or a broker-dealer;

     - an insurance company;

     - a pension or other employee benefit plan;

     - a tax exempt organization or entity;

     - a U.S. expatriate or former long-term resident of the United States;

     - a trader in securities that elects market-to-market accounting treatment;

     - a person holding registered notes as a part of a hedging or conversion
       transaction or a straddle;

     - a hybrid entity or an owner of interests therein; or

     - a holder whose functional currency is not the U.S. dollar.

     In addition, this discussion does not address the effect of any applicable
foreign, state, local or other tax laws. We have not sought and will not seek
any rulings from the Internal Revenue Service concerning the tax consequences of
the acquisition, ownership or disposition of a registered note and, accordingly,
we cannot assure you that the Internal Revenue Service will not successfully
challenge the tax consequences described below. WE URGE YOU TO CONSULT YOUR TAX
ADVISER WITH RESPECT TO THE U.S. FEDERAL INCOME AND ESTATE TAX CONSIDERATIONS
RELEVANT TO ACQUIRING, HOLDING AND DISPOSING OF A REGISTERED NOTE AS WELL AS ANY
TAX CONSIDERATIONS APPLICABLE UNDER THE LAWS OF ANY FOREIGN, STATE, LOCAL OR
OTHER TAXING JURISDICTION.

EXCHANGE OF NOTES

     Your exchange of an outstanding note for a registered note pursuant to the
exchange offer should not be a taxable event for U.S. federal income tax
purposes. Accordingly, you should have the same acquisition date, adjusted
basis, holding period, original issue discount, issue price, adjusted issue
price, stated redemption price at maturity, yield and accrual periods for a
registered note acquired pursuant to the exchange offer as you had for the
outstanding note immediately before the exchange. The tax consequences of
ownership and disposition of a registered note should be the same as the tax
consequences of the ownership and disposition of the outstanding note
surrendered in exchange for it.

     Accordingly, in the following discussion, the U.S. federal income tax
consequences with respect to a registered note assume that the registered note
is treated, for U.S. federal income tax purposes, as the same note as the
outstanding note for which it was issued and that the registered note has the
same acquisition date, adjusted basis, holding period, original issue discount,
issue price, adjusted issue price, stated redemption price at maturity, yield
and accrual periods as the outstanding note had in your hands immediately before
the exchange, and that any amounts that accrue or are paid or payable on an
outstanding note are treated as accruing or as paid or payable on the registered
note.

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U.S. HOLDERS

     If you are a "U.S. Holder," as defined below, this section applies to you.
Otherwise, the section "Non-U.S. Holders" applies to you. You are a U.S. Holder
if you are the beneficial owner of a registered note and you are:

     - a citizen or individual resident (as defined in section 7701(b) of the
       Internal Revenue Code) of the United States;

     - a corporation (or an entity treated as a corporation) created or
       organized in the United States or under the law of the United States, any
       state or the District of Columbia;

     - an estate the income of which is subject to U.S. federal income tax
       regardless of its source; or

     - a trust if (a) a U.S. court is able to exercise primary supervision over
       the administration of the trust and one or more United States persons
       have the authority to control all substantial decisions of the trust or
       (b) the trust was in existence on August 20, 1996 and properly elected to
       continue to be treated as a United States person.

     Stated Interest.  Stated interest on a registered note generally will be
includible in a U.S. Holder's gross income and taxable as ordinary income for
U.S. federal income tax purposes at the time it is paid or accrues in accordance
with the U.S. Holder's regular method of tax accounting.

     Original Issue Discount.  The outstanding notes were issued with original
issue discount, known as OID. As noted above, a U.S. Holder of a registered note
should be subject to the rules on OID in the same manner as if the registered
note were a continuation of the outstanding note for which it is issued. As a
result, each U.S. Holder generally will be required to include in income
(regardless of whether the U.S. Holder uses the cash or an accrual method of
accounting for U.S. federal income tax purposes) in each taxable year, in
advance of the receipt of the corresponding cash payments on a registered note,
that portion of the OID, computed on a constant yield basis, attributable to
each day during the year on which the U.S. Holder holds the registered note.

     The amount of OID with respect to each registered note will be equal to the
excess of (i) the stated redemption price at maturity of the registered note
over (ii) the issue price of the registered note (which, as noted above, is the
same as the issue price of the outstanding note). The stated redemption price at
maturity of a registered note will be equal to the sum of all cash payments
required to be made on the registered note other than payments of qualified
stated interest. Generally, qualified stated interest payments include stated
interest payments that are unconditionally payable in cash or property (other
than debt instruments of the issuer) at least annually at a single fixed or
variable rate that appropriately takes into account the length of intervals
between payments. The issue price of an outstanding note will be equal to the
portion of the issue price of a unit (which constitutes an investment unit for
U.S. federal income tax purposes consisting of an outstanding note and the
warrant) allocable to the note based upon the relative fair market values of the
outstanding note and the warrant comprising the unit on the issue date of the
unit. Because the unit was issued for money, the issue price of the unit was the
first price at which a substantial amount of the units was sold for money. For
purposes of determining the issue price of the units, sales to bond houses,
brokers or similar persons or organizations acting in the capacity as
underwriters, placement agents or wholesalers are ignored. Under Treasury
regulations, we have allocated the issue price of the units between the
outstanding notes and the warrants. We have allocated $901.38 of the issue price
of each unit to the outstanding note and $39.00 to the warrant. Our allocation
of the issue price is binding on you unless you explicitly disclose (on a form
prescribed by the IRS and attached to your timely-filed U.S. federal income tax
return for the taxable year that includes the acquisition date of the unit) that
you have made a different determination. Our allocation, however, is not binding
on the Internal Revenue Service.

     A U.S. Holder of a debt instrument issued with OID generally is required
for U.S. federal income tax purposes to include OID in gross income each year
under a constant yield method, regardless of the holder's

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regular method of tax accounting. The amount of OID includible in income by a
U.S. Holder of a registered note in any taxable year is the sum of the daily
portions of the OID for all days during the taxable year in which the U.S.
Holder holds the registered note. The daily portions of OID required to be
included in a U.S. Holder's gross income in a taxable year will be determined
under a constant yield method by allocating to each day during a taxable year in
which the U.S. Holder holds the registered note a pro rata portion of the OID on
that registered note that is attributable to the accrual period in which that
day is included.

     The amount of the OID attributable to each accrual period is an amount
equal to the excess, if any, of (1) the product of the adjusted issue price of
the registered note at the beginning of that accrual period and the yield to
maturity of the registered note (that is, the discount rate that, when used in
computing the present value of all principal and interest payments to be made
under the registered note in the manner prescribed by Treasury regulations,
produces an amount equal to the issue price of the registered note) over (2) the
amount of any qualified stated interest (defined above) allocable to the accrual
period. The adjusted issue price of a registered note at the beginning of the
first accrual period will be its issue price. Thereafter, the adjusted issue
price at the beginning of any accrual period will be equal to (a) the sum of the
issue price of the registered note and the aggregate amount of OID that accrued
for all prior accrual periods minus (b) the amount of all prior payments (other
than payments of qualified stated interest) made on or before the first day of
the accrual period. If a payment (other than a payment of qualified stated
interest) is made on the first day of an accrual period, the adjusted issue
price at the beginning of that accrual period is reduced by the amount of the
payment. OID allocable to a final accrual period is the difference between the
amount payable at maturity (other than qualified stated interest) and the
adjusted issue price of the registered note at the beginning of the final
accrual period. The calculation of OID for an initial short accrual period may
be determined using any reasonable method.

     The registered notes may be redeemed prior to their stated maturity at our
option. For purposes of computing the yield on the registered notes, we will be
deemed to exercise or not to exercise our option to redeem the registered notes
in a manner that minimizes the yield on the registered notes. We do not
anticipate that our ability to redeem the registered notes will affect the
registered notes' yield to maturity.

     Our failure to file or cause to be declared effective an exchange offer
registration statement or a shelf registration statement, as described under
"Description of the Notes -- Registration Rights; Liquidated Damages," if the
failure occurs, will cause liquidated damages to accrue on the outstanding notes
in the manner described therein. According to the applicable Treasury
regulations, the possibility of a change in the interest rate on the outstanding
notes will not affect the amount or timing of interest income recognized by a
holder of an outstanding note if the likelihood of the change, as of the date
the outstanding notes were issued, was remote. We intend to take the position
that the likelihood of the payment of liquidated damages with respect to the
outstanding notes was remote and do not intend to treat that possibility of a
change in the interest rate as affecting the yield to maturity of the
outstanding notes. Accordingly, any liquidated damages payable to holders of the
outstanding notes if there is a registration default should be includible in
gross income by a U.S. Holder at the time the payment is paid or accrues in
accordance with the U.S. Holder's regular method of tax accounting. Similarly,
we intend to take the position that the likelihood of a redemption or repurchase
if there is a change of control is remote under applicable Treasury regulations
and similarly do not intend to treat that possibility as affecting the yield to
maturity of the outstanding or the registered notes.

     A U.S. Holder may elect to include in gross income, on the constant yield
method, all income on a registered note (including stated interest, OID, de
minimis OID, market discount, de minimis market discount and unstated interest),
as adjusted by any amortizable bond premium or acquisition premium. In applying
the constant-yield method to a registered note with respect to which this
election has been made, the issue price of the registered note will equal the
electing U.S. Holder's adjusted basis in the registered note immediately after
its acquisition, the issue date of the registered note will be the date of its
acquisition by the electing U.S. Holder, and no payments on the registered note
will be treated as payments of qualified stated interest. This election
generally will apply only to the registered note with respect to which it is
made and may not be revoked without the consent of the IRS.

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   76

     Adjusted Tax Basis.  A U.S. Holder's initial tax basis in a registered note
is the amount of the issue price of the unit allocated to the outstanding note.
A U.S. Holder's tax basis in a registered note will be increased by the amount
of OID that the U.S. Holder includes in income pursuant to the foregoing rules
through the day preceding the day of disposition and will be decreased by the
amount of any payments received on the registered note (other than payments of
qualified stated interest).

     We will furnish annually to the Internal Revenue Service and to holders
(other than certain exempt holders, including, in particular, corporations)
information with respect to the OID accruing while registered notes were held by
the holders. The amount of OID that you must include in gross income may differ
from the amount of OID we report to the Internal Revenue Service and to you,
depending on your individual circumstances.

     Sale, Exchange or Retirement of a Registered Note.  Each U.S. Holder
generally will recognize capital gain or loss upon a sale, exchange or
retirement of a registered note measured by the difference, if any, between (1)
the amount of cash and the fair market value of any property received (except to
the extent that the cash or other property is attributable to accrued interest
not previously included in income, which amount will be taxable as ordinary
income) and (2) the holder's adjusted tax basis in the registered note. That
gain or loss will be long-term capital gain or loss if the registered note has
been held for more than one year at the time of the sale, exchange or
retirement. Non-corporate taxpayers are generally subject to a maximum regular
U.S. federal income tax rate of 20 percent on net long-term capital gain. The
deductibility of capital losses is subject to certain limitations.

     Prospective investors should be aware that the resale of a registered note
may be affected by the "market discount" rules of the Internal Revenue Code,
under which a portion of any gain realized on the retirement or other
disposition of a registered note by a subsequent holder that acquires the
registered note at a market discount generally would be treated as ordinary
income to the extent of the market discount that accrues while that holder holds
the registered note.

     Information Reporting and Backup Withholding.  A U.S. Holder of a
registered note may be subject, under certain circumstances, to information
reporting and backup withholding at a rate of 31 percent with respect to certain
reportable payments, including interest on or principal (and premium, if any) of
a registered note and the gross proceeds from a disposition of a registered
note. The backup withholding rules apply if the holder, among other things,

          (1) fails to furnish a social security number or other taxpayer
     identification number, known as a TIN, certified under penalties of perjury
     within a reasonable time after the request therefor,

          (2) furnishes an incorrect TIN,

          (3) fails to report properly the receipt of interest or dividends or

          (4) under certain circumstances, fails to provide a certified
     statement, signed under penalties of perjury, that the TIN furnished is the
     correct number and that the holder is not subject to backup withholding.

     A U.S. Holder who does not provide us with its correct TIN also may be
subject to penalties. Backup withholding will not apply with respect to payments
made to certain holders, including corporations and tax-exempt organizations,
provided their exemptions from backup withholding are properly established. We
will report annually to the IRS and to each U.S. Holder of a registered note the
amount of any reportable payments and the amount of tax withheld, if any, with
respect to those payments.

     Any amounts withheld under the backup withholding rules from a payment to a
U.S. Holder will be allowed as a refund or as a credit against that U.S.
Holder's U.S. federal income tax liability, provided the requisite procedures
are followed.

                                       71
   77

NON-U.S. HOLDERS

     The following discussion is limited to U.S. federal income and estate tax
consequences relevant to a Non-U.S. Holder. As used herein, a Non-U.S. Holder is
a beneficial owner of a registered note that, for U.S. federal income tax
purposes, is (a) a nonresident alien individual, (b) a corporation (or an entity
treated as a corporation) created or organized in or under the law of a country
(or a political subdivision thereof) other than the United States or (c) a
foreign estate or trust, which generally is an estate or trust that is not a
U.S. Holder. For purposes of the withholding tax discussed below (other than
backup withholding), a Non-U.S. Holder includes a nonresident fiduciary of an
estate or trust. This discussion does not address tax consequences relevant to
an expatriate or former long-term resident of the United States or to a person
who holds a registered note through a partnership. A person who holds a
registered note through a hybrid entity (that is, an entity that is fiscally
transparent for U.S. federal income tax purposes but not for foreign tax
purposes) may not be entitled to the benefits of a tax treaty. For example, a
person who is a partner in a foreign partnership or beneficiary of a foreign
trust or estate and who is subject to U.S. federal income tax because of his own
status, for example, as a U.S. resident or a foreign person engaged in trade or
business in the United States, may be subject to U.S. federal income tax even
though the foreign partnership, trust or estate is not itself subject to U.S.
federal income tax. For purposes of the following discussion, U.S. trade or
business income of a Non-U.S. Holder generally means interest or gain on a sale,
exchange or retirement of a registered note if interest or gain is (i)
effectively connected with trade or business conducted by the Non-U.S. Holder
within the United States or (ii) in most cases of a resident of a country with
which the United States has an income tax treaty, attributable to a permanent
establishment (or fixed base) of the Non-U.S. Holder in the United States.

     Interest and OID.  In general, interest (and premium, if any) paid to and
OID paid to or accrued by a Non-U.S. Holder of a registered note will not be
subject to U.S. withholding tax if it qualifies for the portfolio interest
exemption, and it will not otherwise be subject to U.S. federal income tax if it
is not U.S. trade or business income of the Non-U.S. Holder. Interest and OID on
a registered note qualify for the portfolio interest exemption if

          (1) the Non-U.S. Holder of the registered note

             (a) does not own, actually and constructively, 10% or more of the
        total combined voting power of all classes of our stock entitled to
        vote,

             (b) is not a controlled foreign corporation related, directly or
        indirectly, to us through stock ownership and

             (c) is not a bank receiving interest on an extension of credit made
        pursuant to a loan agreement made in the ordinary course of its trade or
        business, and

          (2) either

             (a) the Non-U.S. Holder certifies, under penalties of perjury, to
        us or to the paying agent, as the case may be, that it is a Non-U.S.
        Holder and provides its name and address, or

             (b) a securities clearing organization, bank or other financial
        institution that holds customers' securities in the ordinary course of
        its trade or business and holds the registered note on behalf of the
        Non-U.S. Holder certifies, under penalties of perjury, that it or a
        financial institution between it and the Non-U.S. Holder has received
        such a certificate and furnishes the payer with a copy thereof.

     Treasury regulations that generally will be effective for payments made
after December 31, 2000 provide alternative methods for satisfying the
certification requirement described in (2) above. The new regulations generally
will require, in the case of a registered note held by a foreign partnership,
that the certificate described in (2)(b) above must be provided by the partners
rather than by the foreign partnership and that the partnership must provide
certain information, including a U.S. TIN.

                                       72
   78

     Interest and premium, if any, and OID paid to or accrued by a Non-U.S.
Holder that constitutes U.S. trade or business income will be subject to U.S.
federal income tax on a net income basis at graduated rates in the same manner
that a U.S. taxpayer is subject to tax and will be exempt from the withholding
tax described above. In the case of a Non-U.S. Holder that is a corporation,
U.S. trade or business income under certain circumstances also will be subject
to an additional branch profits tax at a 30 percent rate (or, if applicable, a
lower treaty rate). The gross amount of interest (and premium, if any) and OID
paid to a Non-U.S. Holder that does not qualify for the portfolio interest
exemption and that is not U.S. trade or business income will be subject to
withholding of U.S. federal income tax at the rate of 30 percent, unless a U.S.
income tax treaty reduces or eliminates withholding. To claim the benefit of a
tax treaty or to claim an exemption from withholding because income is U.S.
trade or business income, a Non-U.S. Holder must provide a properly executed
Form W-8BEN or W-8ECI, as applicable, prior to the payment of the income. These
forms must be updated periodically. Under the new Treasury regulations, a
Non-U.S. Holder who is claiming the benefits of a tax treaty may be required to
obtain a U.S. TIN and to provide certain documentary evidence issued by a
foreign governmental authority to prove residence in the foreign country.
Special procedures are provided in the new regulations for payments through
qualified intermediaries. You should consult your own tax adviser regarding the
effect, if any, of the new regulations on you.

     Sale, Exchange or Retirement of a Registered Note.  Subject to the
discussion below of backup withholding, gain recognized by a Non-U.S. Holder on
a sale, exchange or retirement of a registered note generally will not be
subject to U.S. federal income tax unless (i) the gain is U.S. trade or business
income of the Non-U.S. Holder or (ii) subject to certain exceptions, the
Non-U.S. Holder is an individual who holds the registered note as a capital
asset and is present in the United States for 183 days or more in the taxable
year of the disposition. A non-U.S. Holder's initial tax basis in an outstanding
note will be equal to the portion of the holder's tax basis in a unit that is
allocated to the outstanding note as described in "CERTAIN U.S. FEDERAL INCOME
TAX CONSIDERATIONS -- U.S. Holders -- Original Issue Discount." A Non-U.S.
Holder's tax basis in a registered note should be increased by the amount of OID
that accrues on the registered note through the day preceding the day of
disposition pursuant to the rules described in " -- U.S. Holders -- Original
Issue Discount" and will be decreased by the amount of any payments received on
the registered note (other than payments of qualified stated interest).

     You should be aware that the resale of a registered note to a U.S. Holder
may be affected by the market discount rules of the Code, under which a portion
of any gain realized on retirement or other disposition of a registered note by
a subsequent holder that is a U.S. Holder that acquires the registered note at a
market discount generally would be treated as ordinary income to the extent of
the market discount that accrues while the U.S. Holder holds the registered
note.

     Federal Estate Tax.  A registered note that is owned, or treated as owned,
by an individual who is not a citizen of the United States and who is not
domiciled in the United States at the time of death will not be subject to U.S.
federal estate tax, provided the individual did not own, actually and
constructively, ten percent or more of the total combined voting power of all
classes of stock in our company entitled to vote and provided the income on the
registered note was not U.S. trade or business income.

     Information Reporting and Backup Withholding.  We must report annually to
the IRS and to each Non-U.S. Holder any interest or OID that is subject to U.S.
withholding tax (and the amount of tax withheld) and any interest or OID that is
exempt from withholding pursuant to a tax treaty or the portfolio interest
exception. Copies of these information returns also may be made available under
the provisions of a specific treaty or agreement to the tax authorities of the
country in which the Non-U.S. Holder resides.

     Information reporting and backup withholding (at a rate of 31 percent) do
not apply to our payments of principal of or interest on a registered note to a
Non-U.S. Holder if the holder certifies under penalties of perjury that it is
not a U.S. Holder or otherwise establishes an exemption (provided that neither
we nor our paying agent has actual knowledge that the holder is not a Non-U.S.
Holder or that the conditions of any other exemption are not, in fact,
satisfied).

     The payment of the proceeds from the disposition of a registered note to or
through the U.S. office of any broker, U.S. or foreign, is subject to
information reporting and possible backup withholding unless the
                                       73
   79

owner certifies under penalties of perjury that it is not a U.S. Holder or
otherwise establishes an exemption (provided that the broker does not have
actual knowledge that the holder is not a Non-U.S. Holder or that the conditions
of any other exemption are not, in fact, satisfied).

     The proceeds of a disposition of a registered note by a Non-U.S. Holder to
or through a foreign office of a broker will not be subject to backup
withholding. However, information reporting will apply in the case of a "U.S.
related broker" unless the broker has documentary evidence in its files of the
Non-U.S. Holder's foreign status and has no actual knowledge to the contrary or
unless the Non-U.S. Holder otherwise establishes an exemption. A broker is a
"U.S. related broker" if the broker is a United States person, a controlled
foreign corporation for U.S. federal income tax purposes, a foreign person 50
percent or more of whose income from all sources for a designated period is from
activities that are effectively connected with the conduct of trade or business
within the United States or, with respect to payments made after December 31,
2000, a foreign partnership that, at any time during its taxable year, is owned
50 percent or more (by income or capital interest) by United states persons or
is engaged in the conduct of trade or business in the United States. The new
Treasury regulations provide certain presumptions under which a Non-U.S. Holder
will be subject to backup withholding and information reporting unless the
Non-U.S. Holder provides a certification as to its status as a Non-U.S. Holder.

     Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a refund or as a credit against the Non-U.S.
Holder's U.S. federal income tax liability, provided the requisite procedures
are followed.

     THE PRECEDING DISCUSSION OF CERTAIN U.S. FEDERAL INCOME AND ESTATE TAX
CONSEQUENCES IS FOR GENERAL INFORMATION ONLY AND DOES NOT CONSTITUTE TAX ADVICE.
ACCORDINGLY, EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS TAX ADVISER AS TO THE
PARTICULAR TAX CONSEQUENCES TO IT OF ACQUIRING, HOLDING AND DISPOSING OF A
REGISTERED NOTE, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR
FOREIGN TAX LAWS, AND OF ANY PROPOSED CHANGES IN APPLICABLE LAWS.

                                       74
   80

                              PLAN OF DISTRIBUTION

     Each broker-dealer that receives registered notes in exchange for
outstanding notes for its own account pursuant to the exchange offer must
acknowledge that it will deliver a prospectus in connection with any resale of
those registered notes. This prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in connection with resales of
registered notes received in exchange for outstanding notes where those
outstanding notes were acquired as a result of market-making activities or other
trading activities. We have agreed that we will make this prospectus, as amended
or supplemented, available to any broker-dealer for use in connection with any
such resale for a period of one year after consummation of the exchange offer.

     We will not receive any proceeds from any sale of registered notes by
broker-dealers. Registered notes received by broker-dealers for their own
account pursuant to the exchange offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the registered notes or a combination of those
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such registered notes. Any
broker-dealer that effects any resale of registered notes that were received by
it for its own account pursuant to the exchange offer and any broker or dealer
that participates in a distribution of those registered notes may be deemed to
be an "underwriter" within the meaning of the Securities Act and any profit on
any such resale of registered notes and any commissions or concessions received
by any such persons may be deemed to be underwriting compensation under the
Securities Act. The letter of transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.

     For a period of one year after consummation of the exchange offer, we will
promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests those documents
in the letter of transmittal. We have agreed to pay all expenses incident to the
exchange offer, including the expenses of one counsel for the holders of the
outstanding notes, other than commissions or concessions of any brokers or
dealers and will indemnify the holders of the outstanding notes (including any
broker-dealers) against specified liabilities, including liabilities under the
Securities Act.

                      WHERE YOU CAN FIND MORE INFORMATION

     RailAmerica is, and as a result of the exchange offer, RailAmerica
Transportation and the subsidiary guarantors will be subject to the periodic
reporting and other informational requirements of the Exchange Act. Each of us
will file annual, quarterly and special reports and other information with the
SEC. In addition, we have agreed under the indenture that governs the
outstanding notes and the registered notes that, whether or not we are required
to do so by the rules and regulations of the SEC, for so long as any of the
outstanding notes or registered notes remain outstanding, we will furnish to the
holders of any of those securities and file with the SEC, unless the SEC will
not accept such a filing, (i) all quarterly and annual financial information
that would be required to be contained in a filing with the SEC on Forms 10-Q
and 10-K if we were required to file such forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and,
with respect to the annual information only, a report thereon by our certified
independent public accountants and (ii) all reports that would be required to be
filed with the SEC on Form 8-K if we were required to file such reports. In
addition, for so long as any of the outstanding notes or registered notes remain
outstanding, we have agreed to make available to any prospective purchaser or
beneficial owner of any of those securities in connection with any sale thereof
the information required by Rule 144A(d)(4) under the Securities Act.

     We have filed a registration statement on Form S-4 with the SEC to register
under the Securities Act the registered notes. This prospectus constitutes a
part of that registration statement. As allowed by the SEC's rules, this
prospectus does not contain all the information set forth in the registration
statement, some parts of which have been omitted in accordance with the rules
and regulations of the SEC. Please refer to the
                                       75
   81

registration statement and related exhibits and schedules filed therewith for
further information with respect to us and the registered notes offered by this
prospectus. Statements contained herein concerning the provisions of any
document are not necessarily complete and, in each instance, reference is made
to the copy of such document filed as an exhibit to the registration statement
or otherwise filed by us with the SEC and each such statement is qualified in
its entirety by such reference.

     You may read and copy any document we file at the SEC's public reference
rooms located at 450 5th Street, N.W., Washington, D.C. 20549, at Seven World
Trade Center, 13th Floor, New York, New York 10048 and at Northwest Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. Our SEC filings are also available to the public from
commercial document retrieval services and at the web site maintained by the SEC
at: http://www.sec.gov.

     The SEC allows us to "incorporate by reference" some of the documents that
we file with it into this prospectus, which means:

     - incorporated documents are considered part of this prospectus;

     - we can disclose important information to you by referring you to those
       documents; and

     - information that we file with the SEC will automatically update and
       supersede this incorporated information.

     We incorporate by reference the documents listed below, which were filed
with the SEC under the Securities Exchange Act of 1934:

     - our annual report on Form 10-K for the year ended December 31, 1999;

     - our quarterly reports on Form 10-Q for the periods ended March 31, 2000
       and June 30, 2000; and

     - our current reports on Form 8-K filed on (1) May 17, 1999, as amended on
       July 16, 1999, (2) August 6, 1999, as amended on October 5, 1999, (3)
       September 20, 1999, as amended on November 12, 1999, (4) February 4,
       2000, (5) April 18, 2000, (6) August 1, 2000 and (7) September 1, 2000.

     We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus:

     - any reports filed under Sections 13(a) and (c) of the Securities Exchange
       Act;

     - definitive proxy or information statements filed under Section 14 of the
       Securities Exchange Act in connection with any subsequent stockholders'
       meetings; and

     - any reports filed under Section 15(d) of the Securities Exchange Act.

     You should rely only on the information provided in this prospectus or any
prospectus supplement. We have not authorized anyone else to provide you with
different information. We may not make an offer of the registered notes in any
state where the offer is not permitted. The delivery of this prospectus does
not, under any circumstances, mean that there has not been a change in our
affairs since the date of this prospectus. It also does not mean that the
information in this prospectus is correct after this date. You may request a
copy of any filings referred to above (excluding exhibits), at no cost, by
contacting us at the following address:

                               RailAmerica, Inc.
                       5300 Broken Sound Boulevard, N.W.
                           Boca Raton, Florida 33487
                                 (561) 994-6015
                      Attn: Donald D. Redfearn, Secretary

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                                 LEGAL MATTERS

     The validity of the registered notes offered hereby will be passed upon by
Greenberg Traurig, P.A., Miami, Florida.

                                    EXPERTS

     The financial statements as of December 31, 1998 and 1999 and for the three
years in the period ended December 31, 1999, included in this prospectus and
incorporated by reference from RailAmerica's Annual Report on Form 10-K in this
prospectus, except as they relate to Empresa De Transporte Ferrovario S.A., have
been audited by PricewaterhouseCoopers LLP, independent accountants, and,
insofar as they relate to Empresa De Transporte Ferrovario S.A. as of December
31, 1998 and 1999 and for the years then ended, by Arthur Andersen Langton
Clarke, independent accountants. Such financial statements have been so included
in reliance on the reports of such independent accountants given on the
authority of such firms as experts in accounting and auditing.

     The financial statements of V/Line Freight Corporation as of June 30, 1998
and for the year then ended, incorporated into this prospectus by reference from
RailAmerica's Current Report on Form 8-K/A, dated July 16, 1999, have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.

     The financial statements of RaiLink Ltd. as of December 31, 1998 and for
the year then ended, incorporated into this prospectus by reference from
RailAmerica's Current Report on Form 8-K/A, dated October 5, 1999, have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.

     The financial statements of The Toledo, Peoria and Western Railroad
Corporation as of December 31, 1998 and for the year then ended, incorporated
into this prospectus by reference from RailAmerica's Current Report on Form
8-K/A, dated November 12, 1999, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon, and are incorporated
in reliance upon such report, given on the authority of such firm as experts in
accounting and auditing.

     The financial statements of RailTex and schedules included in this
prospectus and incorporated by reference in this prospectus and elsewhere in the
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.

                                       77
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                         INDEX OF FINANCIAL STATEMENTS

     The following consolidated financial statements of RailAmerica, Inc. and
its subsidiaries and of RailTex, Inc. and its subsidiaries are included in this
offering memorandum:



                                                                 PAGES
                                                              -----------
                                                           
RAILAMERICA, INC.
Report of Independent Certified Public Accountants..........      F-2
Consolidated Balance Sheets -- December 31, 1999 and 1998...      F-4
Consolidated Statements of Income -- For the Years Ended
  December 31, 1999, 1998 and 1997..........................      F-5
Consolidated Statement of Stockholders' Equity -- For the
  Years Ended December 31, 1999, 1998 and 1997..............      F-6
Consolidated Statements of Cash Flows -- For the Years Ended
  December 31, 1999, 1998 and 1997..........................      F-8
Notes to Consolidated Financial Statements..................  F-9 - F-39
Consolidated Balance Sheets -- June 30, 2000 and December
  31, 1999 (unaudited)......................................     F-40
Consolidated Statements of Income -- For the three and six
  months ended June 30, 2000 and 1999 (unaudited)...........     F-41
Consolidated Statement of Stockholders' Equity -- For the
  six months ended June 30, 2000 (unaudited)................     F-42
Consolidated Statements of Cash Flows -- For the six months
  ended June 30, 2000 and 1999 (unaudited)..................     F-43
Notes to Consolidated Financial Statements..................  F-44 -F-52

RAILTEX, INC.
Report of Independent Public Accountants....................     F-53
Consolidated Statements of Income for the years ended
  December 31, 1999, 1998 and 1997..........................     F-54
Consolidated Balance Sheets as of December 31, 1999 and
  1998......................................................     F-55
Consolidated Statements of Shareholders' Equity for the
  years ended December 31, 1999, 1998 and 1997..............     F-56
Consolidated Statements of Cash Flows -- For the Years Ended
  December 31, 1999, 1998 and 1997..........................     F-57
Notes to Consolidated Financial Statements..................  F-58 - F-86


                                       F-1
   84

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Stockholders of
RailAmerica, Inc.

     In our opinion, based upon our audits and the report of other auditors, the
accompanying consolidated balance sheets and the related consolidated statements
of income, stockholders' equity and cash flows present fairly, in all material
respects, the financial position of RailAmerica, Inc. and its subsidiaries at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the financial statements of Empresa De
Transporte Ferroviario S.A., a 55% owned subsidiary of the Company, which
statements reflect total assets of $87,555,000 and $74,306,000 as of December
31, 1999 and 1998, respectively, and total revenues of $19,115,000 and
$15,312,000 for the years ended December 31, 1999 and 1998. Those statements
were audited by other auditors whose report thereon has been furnished to us,
and our opinion expressed herein, insofar as it relates to the amounts included
for Empresa De Transporte Ferroviario S.A., is based solely on the report of the
other auditors. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for the opinion expressed above.

PricewaterhouseCoopers LLP

Ft. Lauderdale, Florida
March 15, 2000

                                       F-2
   85

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders of
Ferronor S.A.:

     We have audited the balance sheets of Empresa de Transporte Ferroviario S.A
("Ferronor") as of December 31, 1999 and 1998, and the related statements of
income and cash flows for the years ended December 31, 1999 and 1998 and for the
ten-month period ended December 31, 1997. These financial statements (not
included separately herein) are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

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

     In our opinion, the financial statements referred to above present fairly,
in all material respect, the financial position of Ferronor as of December 31,
1999 and 1998 and the results of its operations and its cash flow for the years
ended December 31, 1999 and 1998 and for the ten-month period ended December 31,
1997 in conformity with generally accepted accounting principles in the United
States of America.

Charles A. Bunce                               ARTHUR ANDERSEN -- LANGTON CLARKE

February 4, 2000
Santiago, Chile

                                       F-3
   86

                       RAILAMERICA, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS

                           DECEMBER 31, 1999 AND 1998



                                                                  1999           1998
                                                              ------------   ------------
                                                                       
                                         ASSETS
Current assets:
  Cash......................................................  $ 11,597,540   $  5,085,402
  Accounts and notes receivable.............................    40,856,772      7,733,238
  Inventories...............................................     9,928,789      3,647,885
  Other current assets......................................     3,500,166      1,480,637
  Net assets of discontinued operation......................    14,995,915     13,882,586
                                                              ------------   ------------
          Total current assets..............................    80,879,182     31,829,748
Property, plant and equipment, net..........................   347,617,262     91,875,650
Notes receivable, less current portion......................     2,122,843      1,284,200
Investment in affiliates....................................     4,666,776      1,938,942
Other assets................................................     8,642,071      4,035,372
                                                              ------------   ------------
          Total assets......................................  $443,928,134   $130,963,912
                                                              ============   ============
                          LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current maturities of long-term debt......................  $ 17,811,326   $  3,557,430
  Accounts payable..........................................    23,731,732      7,004,497
  Accrued expenses..........................................    15,379,461      2,775,962
                                                              ------------   ------------
          Total current liabilities.........................    56,922,519     13,337,889
                                                              ------------   ------------
Long-term debt, less current maturities.....................   145,016,269     62,769,869
Subordinated debt...........................................   100,000,000             --
Convertible subordinated debt...............................    22,448,642             --
Other liabilities...........................................    16,374,169        427,288
Deferred income taxes.......................................    15,382,013      4,848,869
Minority interest...........................................     9,488,693      7,937,992

Commitments and contingencies

Redeemable convertible preferred stock, $0.01 par value, $25
  liquidation value, 1,000,000 shares authorized; 378,400
  and 300,600 outstanding, respectively.....................     8,829,844      6,881,684
Stockholders' equity:
  Common stock, $0.001 par value, 30,000,000 shares
     authorized; 12,610,725 issued and 11,894,136
     outstanding at December 31, 1999; 10,207,477 issued and
     9,631,188 outstanding at December 31, 1998.............        12,611         10,207
  Additional paid-in capital................................    52,304,578     28,277,533
  Retained earnings.........................................    18,170,824      9,285,122
  Accumulated other comprehensive income....................     3,485,717        470,820
  Treasury stock (716,589 and 576,289 shares, respectively,
     at cost)...............................................    (4,507,745)    (3,283,361)
                                                              ------------   ------------
          Total stockholders' equity........................    69,465,985     34,760,321
                                                              ------------   ------------
          Total liabilities and stockholders' equity........  $443,928,134   $130,963,912
                                                              ============   ============


   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                       F-4
   87

                       RAILAMERICA, INC. AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF INCOME
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997



                                                             1999          1998          1997
                                                         ------------   -----------   -----------
                                                                             
Operating revenues:
  Transportation -- railroad...........................  $118,910,941   $30,303,562   $22,023,717
  Other................................................     6,461,383     2,700,421     2,472,188
  Motor Carrier........................................            --     4,252,329            --
                                                         ------------   -----------   -----------
          Total operating revenue......................   125,372,324    37,256,312    24,495,905
                                                         ------------   -----------   -----------
Operating expenses:
  Transportation -- railroad...........................    75,375,742    15,702,487    12,502,153
  Selling, general and administrative..................    19,549,612     9,075,571     6,840,467
  Depreciation and amortization........................     9,179,239     2,543,115     1,788,594
  Motor Carrier........................................            --     4,438,039            --
                                                         ------------   -----------   -----------
          Total operating expenses.....................   104,104,593    31,759,212    21,131,214
                                                         ------------   -----------   -----------
       Operating income................................    21,267,731     5,497,100     3,364,691
Interest and other expense.............................   (20,490,358)   (4,944,113)   (3,641,164)
Other income...........................................     6,012,072       232,070     1,000,382
Minority interest in income of subsidiary..............    (1,550,700)   (1,671,750)     (851,243)
                                                         ------------   -----------   -----------
       Income from continuing operations before income
          taxes........................................     5,238,745      (886,693)     (127,334)
Provision for income taxes.............................      (786,979)   (1,000,000)     (415,000)
                                                         ------------   -----------   -----------
       Income from continuing operations...............     6,025,724       113,307       287,666
Discontinued operations:
  Estimated loss on disposal of discontinued segments
     (net of income tax benefit of $277,000)...........            --            --      (452,402)
  Income from operations of discontinued segments (less
     applicable income tax provisions of $2,300,000,
     $2,500,000, and $1,200,000).......................     3,895,512     4,287,842     2,103,935
                                                         ------------   -----------   -----------
          Net income...................................  $  9,921,236   $ 4,401,149   $ 1,939,199
                                                         ============   ===========   ===========
Net income available to common stockholders............  $  8,885,702   $ 4,401,149   $ 1,939,199
                                                         ============   ===========   ===========
Basic earnings per common share
     Continuing operations.............................  $       0.45   $      0.01   $      0.02
     Discontinued operations...........................          0.35          0.45          0.21
                                                         ------------   -----------   -----------
          Net income...................................  $       0.80   $      0.46   $      0.23
                                                         ============   ===========   ===========
Diluted earnings per common share
     Continuing operations.............................  $       0.43   $      0.01   $      0.02
     Discontinued operations...........................          0.34          0.44          0.20
                                                         ------------   -----------   -----------
          Net income...................................  $       0.77   $      0.45   $      0.22
                                                         ============   ===========   ===========
Weighted average common shares outstanding:
     Basic.............................................    11,089,614     9,552,866     8,303,938
                                                         ============   ===========   ===========
     Diluted...........................................    11,664,871     9,777,866     8,586,938
                                                         ============   ===========   ===========


   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                       F-5
   88

                       RAILAMERICA, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997



                                                           STOCKHOLDERS' EQUITY
                                       -------------------------------------------------------------
                                       NUMBER OF              ADDITIONAL      COMMON
                                         SHARES       PAR       PAID-IN       STOCK       RETAINED
                                         ISSUED      VALUE      CAPITAL     SUBSCRIBED    EARNINGS
                                       ----------   -------   -----------   ----------   -----------
                                                                          
Balance, January 1, 1997.............   6,125,410   $ 6,125   $11,773,036   $2,340,000   $ 2,944,774
  Net income.........................          --        --            --           --     1,939,199
  Issuance of common stock...........   1,720,627     1,721     7,163,206   (2,340,000)           --
  Treasury stock received for sale of
     subsidiaries....................          --        --            --           --            --
  Stock incentive plan issuance......          --        --            --           --            --
  Exercise of stock options..........     202,933       203       747,837           --            --
  Exercise of warrants...............   1,080,594     1,081     3,666,653           --            --
  Cumulative translation.............          --        --            --           --            --
                                       ----------   -------   -----------   ----------   -----------
Balance, December 31, 1997...........   9,129,564     9,130    23,350,732           --     4,883,973
  Net income.........................          --        --            --           --     4,401,149
  Other comprehensive income.........
  Cumulative translation.............          --        --            --           --            --
          Total comprehensive income
  Issuance of common stock...........     138,786       138       677,039           --            --
  Purchase of treasury stock.........          --        --            --           --            --
  Exercise of stock options..........     237,950       238       870,637           --            --
  Tax benefit exercise of options....          --        --       178,000           --            --
  Exercise of warrants...............     167,000       167       934,501           --            --
  Conversion of debt.................     534,177       534     2,266,624           --            --
                                       ----------   -------   -----------   ----------   -----------
Balance, December 31, 1998...........  10,207,477    10,207    28,277,533           --     9,285,122
  Net income.........................          --        --            --           --     9,921,236
  Other comprehensive income.........
  Cumulative translation.............          --        --            --           --            --
          Total comprehensive income
  Issuance of common stock...........   1,437,888     1,438    12,027,787           --            --
  Purchase of treasury stock.........          --        --            --           --            --
  Exercise of stock options..........     141,168       141       580,669           --            --
  Tax benefit exercise of options....          --        --       152,000           --            --
  Conversion of debt.................     563,520       564     3,332,268           --            --
  Conversion of preferred stock......     260,672       261     2,006,244           --            --
  Issuance of warrants...............          --        --     5,928,077           --            --
  Preferred stock dividends and
     accretion.......................          --        --            --           --    (1,035,534)
                                       ----------   -------   -----------   ----------   -----------
Balance, December 31, 1999...........  12,610,725   $12,611   $52,304,578   $       --   $18,170,824
                                       ==========   =======   ===========   ==========   ===========


                                                                     (continued)

                                       F-6
   89

                       RAILAMERICA, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997



                                                                  STOCKHOLDERS' EQUITY
                                                       ------------------------------------------
                                                           OTHER
                                                       COMPREHENSIVE    TREASURY
                                                          INCOME          STOCK          TOTAL
                                                       -------------   -----------    -----------
                                                                             
Balance, January 1, 1997.............................   $    67,441    $(1,139,269)   $15,992,107
  Net income.........................................            --             --      1,939,199
  Issuance of common stock...........................            --             --      4,824,927
  Treasury stock received for sales of
     subsidiaries....................................            --       (479,629)      (479,629)
  Stock incentive plan issuance......................            --        173,516        173,516
  Exercise of stock options..........................            --             --        748,040
  Exercise of warrants...............................            --             --      3,667,734
  Cumulative translation.............................       (52,068)            --        (52,068)
                                                        -----------    -----------    -----------
Balance, December 31, 1997...........................        15,373     (1,445,382)    26,813,826
  Net income.........................................            --             --      4,401,149
  Other comprehensive income.........................
  Cumulative translation.............................       455,447                       455,447
                                                                                      -----------
          Total comprehensive income.................                                   4,856,596
                                                                                      -----------
  Issuance of common stock...........................            --             --        677,177
  Purchase of treasury stock.........................            --     (1,837,979)    (1,837,979)
  Exercise of stock options..........................            --             --        870,875
  Tax benefit exercise of options....................            --             --        178,000
  Exercise of warrants...............................            --             --        934,668
  Conversion of debt.................................            --             --      2,267,158
                                                        -----------    -----------    -----------
Balance, December 31, 1998...........................       470,820     (3,283,361)    34,760,321
  Net income.........................................            --             --      9,921,236
  Other comprehensive income.........................
  Cumulative translation.............................     3,014,897             --      3,014,897
                                                                                      -----------
          Total comprehensive income.................                                  12,936,133
                                                                                      -----------
  Issuance of common stock...........................            --             --     12,029,225
  Purchase of treasury stock.........................            --     (1,224,384)    (1,224,384)
  Exercise of stock options..........................            --             --        580,810
  Tax benefit exercise of options....................            --             --        152,000
  Conversion of debt.................................            --             --      3,332,832
  Conversion of preferred stock......................            --             --      2,006,505
  Issuance of warrants...............................            --             --      5,928,077
  Preferred stock dividends and accretion............            --             --     (1,035,534)
                                                        -----------    -----------    -----------
Balance, December 31, 1999...........................   $ 3,485,717    $(4,507,745)   $69,465,985
                                                        ===========    ===========    ===========


   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                       F-7
   90

                       RAILAMERICA, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997



                                                                  1999           1998           1997
                                                              ------------   ------------   ------------
                                                                                   
Cash flows from operating activities:
  Net income................................................  $  9,921,236   $  4,401,149   $  1,939,199
  Adjustments to reconcile net income to net cash provided
    by operating activities:
      Depreciation and amortization.........................    14,133,502      4,156,546      3,053,728
      Minority interest in income of subsidiary.............     1,550,701      1,671,750        851,243
      Equity interest in earnings of affiliate..............      (230,109)            --             --
      Gain on insurance settlement..........................    (4,069,278)            --             --
      Loss (gain) on sale or disposal of properties.........       118,426        (76,791)      (608,380)
      Write-off of excess of costs over net assets..........            --             --        729,681
      Write-off of deferred acquisition costs...............        38,855        176,179         76,292
      Deferred income taxes.................................     3,401,804        912,967        382,122
      Employee stock grants.................................            --             --         15,188
      Forgiveness of debt...................................            --        (32,809)            --
      Changes in operating assets and liabilities, net of
         acquisitions and dispositions:
         Accounts receivable................................    (2,246,205)      (885,983)    (3,037,697)
         Inventories........................................    (2,270,833)    (6,921,847)    (1,294,501)
         Other current assets...............................    (1,830,526)    (1,157,666)       124,247
         Accounts payable...................................     3,243,680      2,410,602       (606,499)
         Accrued expenses...................................     3,326,059        720,498        714,409
         Other liabilities..................................    (2,294,441)            --             --
         Deposits and other.................................    (1,292,753)       368,476        (47,264)
                                                              ------------   ------------   ------------
           Net cash provided by operating activities........    21,500,118      5,743,071      2,291,768
                                                              ------------   ------------   ------------
Cash flows from investing activities:
  Purchase of property, plant and equipment.................   (51,391,127)   (28,128,546)    (7,455,848)
  Proceeds from sale of properties..........................       165,610      1,806,127        331,654
  Proceeds from sale of equity interest.....................       998,441             --             --
  Acquisitions, net of cash acquired........................    (8,453,218)    (1,757,033)    (7,389,903)
  Deposit on purchase agreement.............................            --     (1,962,067)            --
  Investment in Great Southern Railway......................            --             --       (596,665)
  Loan receivable from Great Southern Railway...............            --             --     (1,193,330)
  Cash held in discontinued.................................      (656,367)      (674,468)          (472)
  Deferred acquisition costs and other......................       638,881       (612,956)      (457,168)
                                                              ------------   ------------   ------------
           Net cash used in investing activities............   (58,697,780)   (31,328,943)   (16,761,732)
                                                              ------------   ------------   ------------
Cash flows from financing activities:
  Proceeds from issuance of long-term debt..................   182,085,208     56,006,737     31,453,500
  Principal payments on long-term debt......................  (150,182,917)   (35,723,969)   (25,449,364)
  Sale of convertible preferred stock.......................     4,095,000      7,515,000             --
  Sale of common stock......................................    11,868,058      1,032,168      8,163,962
  Proceeds from exercise of stock options...................       580,810        870,875        748,041
  Preferred stock dividends paid............................      (843,024)            --             --
  Purchase of treasury stock................................    (1,224,384)    (1,837,979)            --
  Deferred financing costs paid.............................      (333,400)      (603,549)      (286,724)
  Deferred loan costs paid..................................    (2,421,445)      (333,071)      (294,361)
                                                              ------------   ------------   ------------
           Net cash provided by financing activities........    43,623,906     26,926,212     14,335,054
                                                              ------------   ------------   ------------
Effect of exchange rates on cash............................        85,894             --             --
                                                              ------------   ------------   ------------
Net increase (decrease) in cash.............................     6,512,138      1,340,340       (134,910)
Cash, beginning of period...................................     5,085,402      3,745,062      3,879,972
                                                              ------------   ------------   ------------
Cash, end of period.........................................  $ 11,597,540   $  5,085,402   $  3,745,062
                                                              ============   ============   ============


   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                       F-8
   91

                       RAILAMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND PRINCIPLES OF CONSOLIDATION

     The accompanying consolidated financial statements include the accounts of
RailAmerica, Inc. and all of its majority-owned subsidiaries (the "Company").
All significant inter-company balances and transactions have been eliminated.
Certain prior period amounts have been reclassified to conform to the 1999
presentation. The Company announced a plan to sell its trailer manufacturing
operation during 1999 and it is included as a discontinued operation for all
periods reported in these consolidated financial statements.

     All of RailAmerica's consolidated subsidiaries are wholly owned except
Empresa de Transporte Ferrovario, S.A. ("Ferronor") in which the Company has a
55% equity interest. In accordance with the Shareholders' Agreement between
RailAmerica and Andres Pirrazzoli y Cia, Ltda ("APCO"), RailAmerica controls the
appointment of a majority of the Board of Directors of Ferronor, including the
Chairman. APCO maintains certain minority rights under the shareholders
Agreement, such as the right to request the General Manager's removal under
certain circumstances. The Company considered these minority rights in
determining whether to consolidate Ferronor and has concluded that consolidation
is appropriate based upon the Company's ownership position, and its level of
control of the Board of Directors and senior management.

     In July 1999, the Company acquired a 26.3% equity interest in Quebec
Railway Corporation ("QRC") as part of its RaiLink acquisition. The Company
accounts for the investment using the equity method of accounting.

     The Company's principal operations include rail transportation in North
America, Chile and Australia. The Company hauls varied products for its
customers corresponding to their local operating areas, primarily paper and
forest products and agricultural commodities in North America, agricultural
commodities in Australia and iron ore and nitrates in Chile.

USE OF ESTIMATES

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

INVENTORIES

     Inventories, which are recorded at cost, consist of replacement or repair
parts for equipment and track that are charged to property, plant and equipment
when utilized.

CASH AND CASH EQUIVALENTS

     The Company considers all highly liquid instruments purchased with a
maturity of three months or less at the date of purchase to be cash equivalents.

CONCENTRATION OF CREDIT RISK

     The Company maintains its cash in demand deposit accounts which at times
may exceed FDIC insurance limits. As of December 31, 1999, the Company had
approximately $3.4 million of cash in excess of FDIC insurance limits.

                                       F-9
   92
                       RAILAMERICA, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment are recorded at historical cost. Costs
assigned to property purchased as part of an acquisition are based on the fair
value of such assets on the date of acquisition. Improvements are capitalized,
and expenditures for maintenance and repairs are charged to operations as
incurred. Gains or losses on sales and retirements of properties are included in
the determination of the results of operations.

     Depreciation has been computed using the straight-line method based on
estimated useful lives as follows:

                                                           
Buildings and improvements..................................  20-33 years
Railroad track and improvements.............................   3-40 years
Locomotives, transportation and other equipment.............   5-20 years
Office equipment............................................   5-10 years



INCOME TAXES

     The Company utilizes the liability method of accounting for deferred income
taxes. This method requires recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred tax assets
and liabilities are determined based on the difference between the financial and
tax bases of assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse. Deferred tax assets are
also established for the future tax benefits of loss and credit carryovers. The
liability method of accounting for deferred income taxes requires a valuation
allowance against deferred tax assets if, based on the weight of available
evidence, it is more likely than not that some or all of the deferred tax assets
will not be realized.

REVENUE RECOGNITION

     Transportation -- The Company recognizes transportation revenue after
services are provided. For the years ended December 31, 1999, 1998 and 1997,
approximately 27%, 62% and 59%, respectively, of the Company's North American
railroad transportation revenue was derived from interchanging with BNSF and for
the years ended December 31, 1999, 1998 and 1997, and approximately 14%, 30% and
32%, respectively, from interchanging with CSX. For the year ended December 31,
1999, approximately 19% and 25% of the Company's North American transportation
revenue was derived from interchanging with Canadian National Railroad and
Canadian Pacific Railroad, respectively. The Company had two customers in Chile
who each represented more than 10% of the Chilean transportation revenue and two
costumers in Australia which represented 21% and 19%, respectively, of the
Australian transportation revenue.

     Commercial Trailer Sales -- The Company's discontinued trailer
manufacturing operations recognize revenue from the commercial sale of trailers
when title and risk of ownership are transferred to the customer, which
generally is upon shipment or customer pick-up. In certain instances prior to
shipment or customer pick-up, the Company receives full payment for a trailer.
At that time, the Company issues a certificate of title or statement of origin
to the customer and revenue is recognized. In these cases, the customer has made
a fixed, written commitment to purchase, the trailer has been completed and is
available for pick-up or delivery, and the customer has requested the Company to
hold the trailer until the customer determines the most economical means of
taking possession. In such cases, the Company has no further obligation except
to segregate the trailer and hold it for a short period of time, as is customary
in the industry, generally less than one month, until pick-up or delivery.
Trailers are built to customer specifications and no right of return or exchange
privileges are granted.

     Governmental Trailer Sales -- The Company's discontinued trailer
manufacturing operations recognize revenue from the sale of trailers to
governmental agencies when title and risks of ownership are transferred,
                                      F-10
   93
                       RAILAMERICA, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

which is upon completion, inspection and acceptance of trailers by the
governmental agency. At that time, the governmental agency has made a fixed
written commitment to purchase in the form of a contract, the trailer has been
completed and is available for pick-up or delivery, and the governmental agency
has requested the Company to hold the trailer until the governmental agency
determines the appropriate means of taking possession. The Company has no
further obligation except to segregate the trailer and hold it for a short
period of time, as is customary in the industry, generally less than one month,
until pick-up or delivery. The trailers are built to the government's
specifications pursuant to a written contract and are inspected and accepted for
delivery by the governmental agency. The contract terms provide for prepayments
by the government of up to 90% of the trailer's cost. These prepayments are
recorded as advances against the inventory. Sales to governmental agencies
represented 23%, 35% and 37% of the Company's manufacturing revenue for the
years ended December 31, 1999, 1998 and 1997, respectively.

FOREIGN CURRENCY TRANSLATION

     The financial statements and transactions of the Company's foreign
operations are maintained in their functional currency. Assets and liabilities
are translated at current exchange rates in effect at the balance sheet date.
Translation adjustments, which result from the process of translating the
financial statements into United States dollars, are accumulated in the
cumulative translation adjustment account, which is a component of accumulated
other comprehensive income. Revenues and expenses are translated at the average
exchange rate for each period. Gains and losses from foreign currency
transactions are included in net income. The aggregate gain on foreign currency
translation for 1999 was $0.7 million. As a result of a decline in the value of
the Australian dollar against the U.S. dollar, the Company recorded a
transaction loss of approximately $2.6 million during the first quarter of
fiscal year 2000.

     During 1999, Ferronor changed its functional currency from the Chilean Peso
to the U.S. dollar, as the U.S. dollar has become more representative of the
primary economic environment in which Ferronor operates. Factors influencing
this change include the Ferronor's cash flows, sales price, sales market and
financing indicator considerations. This change has been accounted for
prospectively.

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
hedging activities. SFAS No. 133 requires all derivatives to be measured at fair
value and recognized at either assets or liabilities on the balance sheet.
Furthermore, the accounting for changes in the fair value of a derivative (i.e.
gains and losses) depends on the intended use of the derivative.

2.  EARNINGS PER SHARE

     Basic earnings per share is calculated using the weighted average number of
common shares outstanding during the year. For the year ended December 31, 1999,
income from continuing operations is reduced by preferred stock dividends and
accretion for the basic earnings per share computation.

     Diluted earnings per share is calculated using the sum of the weighted
average number of common shares outstanding plus potentially dilutive common
shares arising out of stock options and warrants. Options and warrants totaling
1.8 million were excluded from the diluted earnings per share calculation as the
exercise prices of these options and warrants were greater than the average
market price of the Common Stock. Assumed conversion of $26.5 million of
convertible debt and the convertible preferred stock are anti-dilutive and are
not included in the calculation.

                                      F-11
   94
                       RAILAMERICA, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following is a summary of the net income available for common
stockholders and weighted average shares for the diluted calculation (in
thousands):



                                                               1999     1998     1997
                                                              ------   ------   ------
                                                                       
  Income from continuing operations.........................  $6,026   $  113   $  288
  Preferred stock dividends and accretion...................  (1,036)      --       --
  Interest on convertible debt..............................      42       --       --
                                                              ------   ------   ------
  Income available to common stockholders...................  $5,032   $  113   $  288
                                                              ======   ======   ======
  Weighted average shares outstanding.......................  11,090    9,553    8,304
  Assumed conversion of options and warrants................     379      225      283
  Assumed conversion of convertible debt....................     196       --       --
                                                              ------   ------   ------
  Weighted average shares outstanding.......................  11,665    9,778    8,587
                                                              ======   ======   ======


3.  DISCONTINUED OPERATIONS

     In November 1999, the Company adopted a plan to sell its trailer
manufacturing operations. This business has been accounted for as a discontinued
operation and the results of operations have been excluded from continuing
operations in the consolidated statements of operations for all periods
presented.

     Total revenue for the trailer manufacturing segment was $44.3 million,
$39.9 million and $22.9 million for the years ended December 31, 1999, 1998 and
1997, respectively. Income before income taxes for the trailer manufacturing
segment was $6.2 million, $6.9 million and $3.7 million for the years ended
December 31, 1999, 1998 and 1997, respectively. Total assets in this division as
of December 31, 1999 and 1998 were $28.8 million and $28.1 million respectively.
Total liabilities in this division as of December 31, 1999 and 1998 were $13.9
million and $14.3 million, respectively.

     In March 1997, the Company adopted a formal plan to discontinue its motor
carrier division. The motor carrier division consists of Steel City Carriers and
RailAmerica Intermodal Services, both wholly-owned subsidiaries of the Company.
During the fourth quarter of 1997, the Company re-evaluated the carrying amount
of Steel City Carriers' assets and recorded an impairment charge of
approximately $730,000. This amount was determined based on what the Company
believes it will recover through the final disposition of the remaining assets.

     Operating results of the discontinued operations, as shown below, include
the operations of the Motor Carrier segment for the three months ended March 31,
1998 and the year ended December 31, 1997. The motor carrier operations have
been included in continuing operations for the nine months ended December 31,
1998, since the disposition of the segment was not completed by April 1998.

     Effective December 1, 1998, the Company ceased all motor carrier operations
and leased substantially all of the operating assets of Steel City Carriers,
Ltd. to Laidlaw Carriers, Inc., an operating subsidiary of Ontario, Canada-based
Contrans Corporation. The leases are for a period of 18 to 24 months. In
addition, the Company has entered into an agreement to sell its Ontario real
estate that was previously used in its motor carrier operations.

     Total revenue for the motor carrier segment was $1.8 million and $7.1
million for the three months ended March 31, 1998 and year ended December 31,
1997, respectively. Loss before income taxes for the motor carrier segment was
$0.1 million and $1.1 million for the three months ended March 31, 1998 and year
ended December 31, 1997, respectively.

                                      F-12
   95
                       RAILAMERICA, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4.  ACQUISITIONS

     On September 3, 1999, the Company, through its wholly-owned subsidiary,
Florida Rail Lines, Inc., completed the acquisition of all the outstanding
common stock of The Toledo, Peoria and Western Railroad Corporation ("TPW") from
CSX Transportation, Delaware Ostego Corporation, and other shareholders for an
aggregate purchase price of $18 million (including the repayment of
indebtedness), subject to certain adjustments. The Company funded the
acquisition through its revolving line of credit. TPW is headquartered in East
Peoria, Illinois and provides rail freight services to customers in the midwest
United States and operates over rail lines running from Fort Madison, Iowa
across North Central Illinois to Logansport, Indiana. TPW has certain unsettled
litigation and contingencies outstanding whose ultimate outcome will impact the
purchase price allocation.

     On July 26, 1999, the Company acquired approximately 98% of the outstanding
shares of RaiLink Ltd ("RaiLink"). Through the Company's wholly-owned Canadian
subsidiary, RL Acquisition Corp., the Company commenced an all cash-bid in May
1999 for all of the common shares of RaiLink at a price of CDN$8.75 per share
pursuant to a Pre-Acquisition Agreement dated May 17, 1999 between the Company
and RaiLink. RaiLink had approximately 8.36 million common shares outstanding on
a fully diluted basis, giving the transaction an equity value of approximately
CDN$73.2 million (approximately USD$49.8 million). As more than 90% of the
outstanding shares were acquired under the offer, the Company acquired the
remainder of the shares pursuant to the compulsory acquisition provisions of
applicable Canadian law. A portion of the accrued liabilities assumed
represented severance costs which the Company has accrued in accordance with
EITF No. 95-3, "Recognition of Liabilities in Connection with a Purchase
Business Combination." RaiLink is a regional railway company based in Edmonton,
Alberta and provides freight transportation services to the national railways of
Canada and to a wide variety of shippers. RaiLink and its 26.3% owned affiliate,
Quebec Railway Corporation, currently operate 11 regional railways covering
approximately 2,500 miles of track in Alberta, the Northwest Territories,
Ontario, Quebec and New Brunswick. A portion of the funding for the transaction
was provided by a consortium of banks with National Bank of Canada, as agent,
through the Company's revolving line of credit. The balance of the funding came
from a private offering of the Company's junior convertible subordinated debt.

     On April 30, 1999, the Company, through its wholly owned Australian
subsidiary, Freight Victoria Limited ("Freight Victoria"), completed the
acquisition of the assets and liabilities comprising the railroad freight
business of V/Line Freight Corporation ("VLF"), a corporation established by the
Government of the State of Victoria, Australia. VLF was established in March
1997 as part of Victoria's public transportation privatization process and
assumed many of the activities formerly carried out by the V/Line Freight
business unit of the Public Transportation Corporation of the Government of
Victoria.

     Under the Sale of Assets Agreement (the "Agreement") dated February 22,
1999 by and between the Company, Freight Victoria and VLF, Freight Victoria
acquired all of the locomotives, wagons, motor vehicles, equipment, stock, spare
parts inventory and accounts receivable, certain business, brand and trade names
and trade marks, and the outstanding business contracts of VLF for a purchase
price of AUD$73.4 million in cash (approximately U.S.$49.0 million). The
purchase price has been allocated to assets acquired. In connection with the
acquisition, Freight Victoria also entered into other agreements, including a
primary infrastructure lease (the "Infrastructure Lease") with the Director of
Public Transport of Australia and various facilities leases, access agreements,
maintenance and service agreements and other miscellaneous agreements. Pursuant
to the Infrastructure Lease, Freight Victoria received a 45-year lease of the
non-electrified intrastate Victorian railway tracks and infrastructure.

     Pursuant to certain other agreements, Freight Victoria is responsible for,
among other things, track and rolling stock maintenance, train control, access
to the railway infrastructure by other rail operators and safety and signaling.
Under a letter issued by Freight Victoria in connection with its bid for the VLF
business, Freight Victoria prepaid in cash the net present value of the rental
payments for the Infrastructure Lease
                                      F-13
   96
                       RAILAMERICA, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

totaling AUD$80.8 million (approximately U.S.$54.0 million). Freight Victoria
commenced operations of the rail-based freight business on May 1, 1999.

     In August 1998, the Company, through its newly formed, wholly-owned
subsidiary, VCRR, entered into a long term lease/purchase agreement to operate a
13-mile rail line serving the Port of Hueneme and the Oxnard Harbor District in
Oxnard, California, located approximately 50 miles north of Los Angeles. VCRR's
operations commenced September 1, 1998 and are included in the results of
domestic rail operations as of that date.

     In January 1998, the Company acquired, through its wholly-owned subsidiary
Kalyn, all of the outstanding stock of Canadian truck trailer manufacturer
Fabrex, Inc. and its affiliate, Services Remorques Plus, Inc. (collectively
"Fabrex") for approximately $1.5 million in cash and 70,000 shares of
RailAmerica common stock, $.001 par value ("Common Stock"), and assumption of
approximately $1.0 million of long-term debt. Fabrex's operations have been
combined into KSC, a wholly-owned subsidiary of Kalyn. Fabrex, a manufacturer of
specialty bulk-hauling truck trailers used in the solid waste, agricultural and
construction industries, was founded in 1985 and is located in Trois Rivieres,
Quebec.

     On February 19, 1997, the Company acquired, through its wholly-owned
subsidiary, RailAmerica de Chile, S.A., a majority interest in Ferronor, a 1,400
mile railroad serving northern Chile. The Company was joined in the purchase of
Ferronor by Andres Pirrazzoli y Cia, Ltda ("APCO"). The purchase price paid by
RailAmerica/APCO for substantially all of the stock of Ferronor, was
approximately $12.3 million and was funded 55% by RailAmerica and 45% by APCO.

     All of the above acquisitions were accounted for as purchases and their
results have been included since the date of acquisition. The following
unaudited pro forma summary presents the consolidated results of operations as
if the above referenced acquisitions had occurred at the beginning of 1999 and
1998 and do not purport to be indicative of what would have occurred had the
acquisitions been made as of those dates or of results which may occur in the
future. (In thousands except net income per share)



                                                                1999       1998
                                                              --------   --------
                                                                   
Operating revenue...........................................  $187,607   $167,778
Income from continuing operations...........................  $  5,262   $     46
Earnings per share -- continuing operations
  Basic.....................................................  $   0.37   $  (0.09)
  Diluted...................................................  $   0.36   $  (0.09)


     The significant adjustments related to the above years represent the
inclusion of revenue on new agreements, elimination of certain operating costs,
elimination of costs related to the acquisitions, inclusion of depreciation
differences on the revaluation of property, plant and equipment, additional
interest expense based on an increase in long-term obligations, amortization of
intangible assets and the related income tax effects.

5.  GREAT SOUTHERN RAILWAY LIMITED

     On October 31, 1997, the Company acquired a minority interest, of
approximately 11.4%, in the Great Southern Railway Limited ("GSR"). GSR
completed the acquisition of the assets and business comprising the passenger
rail service of the Australian National Railway Commission. The Company has
invested $0.6 million in equity of GSR, $1.2 million in uncollateralized
subordinated notes (the "Notes"). The Company sold both its interest in the
equity of GSR and the Notes to the majority shareholder of GSR in October 1999.
The Company received $0.9 million in cash and a note for $1.3 million due March
15, 2000. A gain of $0.3 million is included in the 1999 consolidated statement
of income. The remaining note is included in current assets in the consolidated
balance sheet as of December 31, 1999 and was paid in March 2000.

                                      F-14
   97
                       RAILAMERICA, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6.  PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment consist of the following as of December 31,
1999 and 1998 (in thousands):



                                                                1999      1998
                                                              --------   -------
                                                                   
Land........................................................  $ 34,345   $19,301
  Buildings and improvements................................     8,683     5,275
  Railroad track and improvements...........................   186,670    44,700
  Locomotives, transportation and other equipment...........   135,309    31,104
                                                              --------   -------
                                                               365,007   100,380
  Less accumulated depreciation.............................    17,390     8,504
                                                              --------   -------
                                                              $347,617   $91,876
                                                              ========   =======


     Depreciation expense was approximately $9.2 million, $3.0 million and $1.8
million for the years ended December 31, 1999, 1998 and 1997, respectively.

     In January 1999, the Company through a newly formed subsidiary E&N Railway
Company Ltd. ("ENR") acquired certain assets of the Esquimalt and Nanaimo
Railway ("E&N") from the Canadian Pacific Railway ("CPR"). The transaction
included the purchase of a 68-mile section of rail line between Port Alberni,
British Columbia and Nanaimo, British Columbia and the lease of a 113-mile
section of rail line from Victoria-to-Nanaimo and from Parksville-to-Courtenay
on British Columbia's Vancouver Island. The purchase of the assets of the E&N
Railway accounted for approximately $10.8 million of fixed asset additions for
year ended December 31, 1999.

7.  INVESTMENT IN AFFILIATE

     As of December 31, 1999, the Company's recorded investment in QRC was $4.7
million and the Company's underlying equity in net assets of QRC was $4.5
million. The difference is treated as goodwill and is being amortized over a 20
year period. The Company recorded $0.2 million in income, net of amortization,
from this investment in the consolidated statement of operations for 1999.

8.  OTHER ASSETS

     Other assets consist of the following as of December 31, 1999 and 1998 (in
thousands):



                                                               1999     1998
                                                              ------   ------
                                                                 
  Deferred loan costs, net..................................  $6,657   $  608
  Deposits and other........................................   1,985    3,427
                                                              ------   ------
                                                              $8,642   $4,035
                                                              ======   ======


     Deferred loan costs are being amortized utilizing the interest method over
the term of the respective term loans.

9.  RELATED PARTY TRANSACTIONS

     First London Securities Corporation ("First London"), of which Douglas
Nichols, a director of the Company, is President and principal shareholder,
served as the exclusive placement agent for the Company's private placement
which had a final close in January 1999. A portion of the private placement was
received by the Company and closed in December 1998 (see Note 13 Redeemable
Preferred stock). First London received a total of $0.8 million in placement
fees and cost reimbursements during December 1998 and the

                                      F-15
   98
                       RAILAMERICA, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

first quarter of 1999 on this transaction and two-year warrants to purchase
140,727 shares of Common Stock at an exercise price of $8.25 per share.

     During 1997, the Company sold all the outstanding stock of its wholly-owned
subsidiary Gettysburg Scenic Rail Tours, Inc. ("GSRT"), certain railroad
equipment and substantially all the assets of Gettysburg Railway ("GBR") to a
company owned by its Vice Chairman. The sale price for GSRT and the railroad
equipment was $0.5 million, which consisted of cash of $0.1 million and 62,602
shares of the Company's common stock valued at $0.4 million. A gain of
approximately $0.2 million was recognized on the transaction and is included in
other income (expense) in the consolidated income statement for 1997. The sale
price for substantially all of the assets of GBR was $1.45 million, which
consisted of cash of $0.3 million, an $0.8 million promissory note due June 30,
1998 and a $0.35 million mortgage note, at an interest rate of 8.5% with a
maturity of June 30, 2003. The promissory note and mortgage note are
collateralized by the land, buildings and track assets of Gettysburg Railway. A
gain of approximately $0.2 million was recognized on the transaction and is
included in other operating income in the consolidated income statement. The
$800,000 promissory notes maturity date was extended until June 2000.

     As of December 31, 1999, $1.15 million of notes receivable from related
parties is included in notes receivable, less current portions on the
consolidated balance sheet.

                                      F-16
   99
                       RAILAMERICA, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10.  LONG-TERM DEBT

     Long-term debt consists of the following at December 31, 1999 and 1998 (in
thousands):



                                                                1999      1998
                                                              --------   -------
                                                                   
Revolving line of credit. See below.........................  $121,005   $44,207
Various equipment notes, with interest imputed at rates from
  8.12% to 11.63%, due in fixed monthly installments of $114
  (including interest) with varying maturities through
  November 2004. Certain equipment serves as collateral.....     3,381     4,457
Burlington Northern Santa Fe ("BNSF") rail facilities
  installment purchase obligation, annual payments of $250,
  including interest at 10%, maturing in October 2116. If
  car loads at OTVR fall below 7,250 in a year, BNSF will
  credit payments on this debt at a rate of $250 per car....     2,139     2,139
Credit facilities with various financial institutions,
  ranging in monthly interest rates from 0.77% to 1.495%,
  maturing from 30 to 90 days...............................     4,180     1,481
Credit facilities with Banco de Desarrollo, see below.......    10,261     7,782
Credit facility with Banco Security, interest rate of
  0.0928% monthly...........................................     5,102        --
Note payable to Compania Minera del Pacifico, bearing
  interest at LIBOR plus 2.5% due in monthly installments
  (including interest)maturing in 2003. Certain Ferronor
  assets serve as collateral................................     1,765     2,822
Mortgage note payable, bearing interest at 7.85%, due in
  fixed monthly installments of $46 (including interest),
  with a final payment of $4,827 in January 2010. Corporate
  office building serves as collateral......................     6,000        --
Debenture payable, interest at 6.5%, maturing December 31,
  2000. Certain rail line serves as collateral..............     4,085        --
Capital lease obligations...................................     1,042     1,459
Other long-term debt........................................     3,867     1,980
                                                              --------   -------
                                                               162,827    66,327
  Less current maturities...................................    17,811     3,557
                                                              --------   -------
          Long-term debt, less current maturities...........  $145,016   $62,770
                                                              ========   =======


     Ferronor refinanced certain short-term debt as of January 28, 1999 with
Banco de Desarrollo. The refinancing consists of two credit lines. The first
credit line is a $5.0 million facility which bears interest at the interbank
cost (7.08% at December 31, 1999) plus 1.75% with interest to be paid over 120
equal monthly installments and principal to be paid over 96 equal installments
beginning two years from the funding. The second credit line is a $7.7 million
facility which bears interest at LIBOR plus 2.75% and is payable in 120 equal
monthly installments (including interest).

     In February 2000, the Company entered into a credit agreement and two
bridge note facilities in connection with the acquisition of RailTex and the
refinancing of most of the Company's and RailTex's existing debt. The credit
agreement provides (1) a $125 million Term A loan, initially bearing interest at
LIBOR plus 3.00%, (2) a $205 million Term B loan, initially bearing interest at
LIBOR plus 3.25%, and (3) a $50 million revolving credit facility which includes
$30 million of U.S. dollar denominated loans, $10 million of Canadian dollar
denominated loans and $10.0 million of Australian dollar denominated loans with
an initial interest rate of LIBOR plus 3.00%, or a Canadian equivalent. The
loans are provided by a syndicate of banks with Donaldson, Lufkin & Jenrette as
syndication agent and The Bank of Nova Scotia as

                                      F-17
   100
                       RAILAMERICA, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

administrative agent. All of the stock of all the Company's U.S. subsidiaries
serve as collateral for the credit facilities.

     The Term A loans requires principal payments of 5% in 2000, 10% in 2001,
15% in 2002, 20% in 2003, 25% in both 2004 an 2005. The Term B loan requires
principal payments of 1% per year through 2005 and a balloon maturity at
December 31, 2006. The revolving loans mature on December 31, 2005.

     The Company's new credit facilities include covenants which impose
financial and operating restrictions on RailAmerica's ability to, among other
things:

     - incur more debt;

     - pay dividends, redeem or repurchase its stock or make other
       distributions;

     - make acquisitions or investments;

     - use assets as security in other transactions;

     - enter into transactions with affiliates;

     - merge or consolidate with others;

     - dispose of assets or use asset sale proceeds;

     - create liens on its assets; and

     - extend credit.

     The new credit facilities also contain financial covenants that will
require the Company to meet a number of financial ratios and tests.

     In February 2000, the Company, through its wholly-owned subsidiary
RailAmerica Transportation, Inc., issued $95 million of subordinated bridge
notes, under a securities purchase agreement with DLJ Bridge Finance, Inc. These
notes mature on February 4, 2001 and have an initial interest rate of 13% per
annum, which rate increases every three months based on the highest specified
rates. The Company, through its wholly-owned subsidiary Palm Beach Holding, Inc.
issued $55 million of asset sale bridge notes, under a securities purchase
agreement with DLJ Bridge Finance, Inc. These notes mature on February 4, 2001
and have an initial interest rate of 15% per annum, which rate increases every
three months based on the highest of specified rates. The asset sale bridge
notes are collateralized by the assets of Kalyn/Siebert, L.P. and its
subsidiaries, which are discontinued operations held for sale.

     In connection with the issuance of the subordinated bridge notes, the
purchasers of such notes are entitled to receive warrants to purchase common
stock at an exercise price of $7.75 per share commencing in May 2001 to the
extent the subordinated bridge notes are then outstanding. In connection with
the issuance of the asset sale bridge notes, the purchasers of such notes are
entitled to receive warrants to purchase common stock at an exercise price of
$7.75 per share commencing in August 2000 to the extent the asset sale bridge
notes are then outstanding. The maximum number of shares issuable upon exercise
of all these warrants would be 1,604,330, subject to specified anti-dilution
adjustments.

     In connection with the February 2000 debt refinancing, including the
refinancing of RailTex's debt, the Company will record an extraordinary charge
in the first quarter of 2000.

                                      F-18
   101
                       RAILAMERICA, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The aggregate annual maturities of long-term debt are as follows net of
discount amortization taking into effect the above refinancing (in thousands):

                                                           
  2000......................................................  $ 17,811
  2001......................................................    18,827
  2002......................................................    23,938
  2003......................................................    29,324
  2004......................................................    35,309
  Thereafter................................................    37,618
                                                              --------
                                                              $162,827
                                                              ========



     During the years ended December 31, 1999, 1998 and 1997 interest of
approximately $1,386, $465 and $69, respectively, was capitalized.

CAPITAL LEASES

     The Company entered into equipment finance leases for certain tractors,
trailers and other equipment expiring at various times through 2003. These
leases are accounted for as capital leases. The financing of the purchase of the
tractors, trailers and equipment under these capital leases was capitalized
using the interest rate appropriate at the inception of the respective leases.

     Minimum annual lease commitments at December 31, 1999 are as follows (in
thousands):



                                                              CAPITAL   OPERATING
                                                              LEASES     LEASES
                                                              -------   ---------
                                                                  
  2000......................................................  $  427     $ 2,977
  2001......................................................     451       2,631
  2002......................................................     218       2,242
  2003......................................................      75       1,870
  2004......................................................      --       1,033
  Thereafter................................................      --       1,163
                                                              ------     -------
          Total.............................................   1,171     $11,916
                                                                         =======
       Less amount representing interest....................     129
                                                              ------
          Present value of future minimum lease payments....   1,042
     Less current portion...................................     355
                                                              ------
          Noncurrent portion................................  $  687
                                                              ======


     Rental expense under operating leases was approximately $3.4 million, $2.7
million and $0.9 million for the years ended December 31, 1999, 1998 and 1997,
respectively.

11.  SUBORDINATED DEBT

     To facilitate the acquisition of VLF, Freight Victoria obtained a $100
million bridge loan from Barclays Bank PLC under a senior secured loan facility.
Upon the execution of the facility, the Company issued to Barclays Bank PLC
warrants to acquire 750,000 shares of the Company's Common Stock at an exercise
price of $9.75 per share. On November 30, 1999, in accordance with the terms of
the bridge loan the Company issued additional warrants to acquire 50,000 shares
of the Company's Common Stock to Barclays Bank PLC at an exercise price of
$7.7875 per share and increased the interest rate by 200 basis points. The
bridge loan was refinanced in February 2000 in conjunction with the acquisition
of RailTex (see note 10).

                                      F-19
   102
                       RAILAMERICA, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12.  CONVERTIBLE SUBORDINATED DEBT

     In August 1999, the Company issued $22.5 million aggregate principal amount
of its junior convertible subordinated debentures. Interest on the debentures
accrues at the rate of 6% per annum and is payable semi-annually, commencing
January 31, 2000. The debentures are convertible, at the option of the holder,
into shares of RailAmerica at a conversion price of $10, subjected to adjustment
in selected circumstances. The debentures mature on July 31, 2004, are general
unsecured obligations and rank subordinate in right of payment to all senior
indebtedness. At RailAmerica's option, the debentures may be redeemed at par,
plus accrued but unpaid interest thereon to the date of redemption, in whole or
in part, if the closing price of RailAmerica's common stock is above 200% of the
conversion price for 10 consecutive trading days.

     In addition to the bridge loan the Company issued AUD$3 million
(approximately U.S.$2.0 million) in convertible debt to a certain vendor of
Freight Victoria ("Vendor Debt"). The Vendor Debt is convertible into the
Company's common stock at the current market price or convertible into Freight
Victoria stock at the option of the Company. The Company also issued $2.64
million of convertible debt in lieu of cash payments for fees owed to its
investment banker in the transaction. The convertible debt bears interest at 6%,
is convertible into the Company's common stock at $9.83 per share and was
converted in July 1999 into 272,415 shares of common stock.

13.  REDEEMABLE PREFERRED STOCK

     In January 1999, the Company completed a private offering of $11.6 million
of its Series A Convertible Redeemable Preferred Stock ("Preferred Stock"). The
Company sold 464,400 shares of its Preferred Stock at a price of $25 per share.
The Preferred Stock pays annual dividends of 7.5%, is convertible into shares of
the Company's common stock at a price of $8.25 per share and is non-voting. The
Preferred Stock is mandatorily redeemable 5 years from its issuance. The
December 31, 1998 balance sheet includes 300,600 shares which were issued during
1998. The remainder of the shares were issued in January 1999. The carrying
value of the Preferred Stock is the par value less issuance costs. The issuance
costs will be amortized on a straight-line basis over the life of the Preferred
Stock. 86,000 shares of the Preferred Stock were converted in the fourth quarter
of 1999 and 88,000 shares were converted in the first quarter of 2000.

14.  COMMON STOCK TRANSACTIONS

     On August 24, 1998, the Company's Board of Directors authorized a share
repurchase program to buy back up to 1,000,000 shares of its Common Stock
(limited to $2 million per year pursuant to the new credit facilities).
Purchases will be made from time to time in the open market and will continue
until all of such shares are purchased or until the Company determines to
terminate the repurchase program. As of December 31, 1999, the Company had
purchased 445,400 shares with a total cost of $3.1 million. The Company
purchased 172,500 shares with a total cost of $1.1 million in the first quarter
of 2000.

     In March 1999, the Company completed a private placement of approximately
$12.5 million of restricted common stock. Pursuant to the offering, the Company
sold approximately 1.4 million shares of its common stock at a price of $8.8125
per share and issued approximately 212,000 warrants to purchase an equivalent
number of shares of common stock at an exercise price of $10.125 per share
within one year of the transaction's closing date. First London Securities
Corporation, of which Douglas Nichols, a director of the Company, is President
and principal shareholder, acted as placement agent and received approximately
$0.4 million in fees and cost reimbursement and one-year warrants to purchase
141,504 shares of the Company's common stock at an exercise price of $10.125.
All of the warrants issued for this transaction expired on March 3, 2000.

     In August 1999, the Company issued warrants to purchase an aggregate of
676,363 shares of common stock to the investors in the private offering of $22.5
million principal amount of its junior convertible

                                      F-20
   103
                       RAILAMERICA, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

subordinated debentures described in Note 7. The warrants are exercisable during
the five-year period ending August 5, 2004 at an exercise price of $10.50 per
share, subject to adjustment under selected circumstances. Warrants to purchase
200,000 shares of common stock at an exercise price of $10.50 per share during
the two-year period ending July 31, 2001 were issued in connection with the
private offering to the placement agent.

15.  OTHER REVENUE

     Other revenue as of December 31, 1999, 1998 and 1997 consisted of the
following (in thousands):



                                                               1999     1998     1997
                                                              ------   ------   ------
                                                                       
Gain on sale of properties and easements....................  $  266   $  695   $1,251
Rental income...............................................   2,850    1,484      857
Maintenance revenue.........................................   1,703       --       --
Other.......................................................   1,642      521      364
                                                              ------   ------   ------
                                                              $6,461   $2,700   $2,472
                                                              ======   ======   ======


16.  INCOME TAX PROVISION

     Income before income taxes for the years ended December 31, 1999, 1998 and
1997 consists of (in thousands):



                                                              1999      1998      1997
                                                             -------   -------   -------
                                                                        
Domestic...................................................  $(2,978)  $(2,327)  $(1,140)
Foreign Subsidiaries.......................................    8,217     1,440     1,013
                                                             -------   -------   -------
                                                             $ 5,239   $  (887)  $  (127)
                                                             =======   =======   =======


     The provision for income taxes for the years ended December 31, 1999, 1998
and 1997 consists of (in thousands):



                                                               1999      1998    1997
                                                              -------   ------   -----
                                                                        
Federal income taxes:
  Current...................................................  $    15   $  232   $  --
  Deferred..................................................    1,234    1,039     708
                                                              -------   ------   -----
                                                                1,249    1,271     708
                                                              -------   ------   -----
State income taxes:
  Current...................................................      149      281     161
  Deferred..................................................     (106)     (55)    (26)
                                                              -------   ------   -----
                                                                   43      226     135
                                                              -------   ------   -----
Foreign income taxes:
  Current...................................................      857       33      --
  Deferred..................................................    2,197       --    (306)
  Change in tax law.........................................   (2,835)      --      --
                                                              -------   ------   -----
          Total income tax provision........................  $ 1,511   $1,530   $ 537
                                                              =======   ======   =====


                                      F-21
   104
                       RAILAMERICA, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following summarizes the total income tax provisions for each of the
years ended December 31, 1999, 1998 and 1997 (in thousands):

                                                                         
  Continuing operations.....................................  $   (787)  $1,570   $963
  Discontinued operations...................................     2,298      (40)  (426)
                                                              --------   ------   ----
          Total income tax provision........................  $  1,511   $1,530   $537
                                                              ========   ======   ====



     The differences between the U.S. federal statutory tax rate and the
Company's effective rate from continuing operations are as follows (in
thousands):



                                                               1999     1998     1997
                                                              ------   ------   ------
                                                                       
  Income tax provision, at 35%..............................  $1,833   $2,113   $1,259
  Statutory federal Surtax exemption........................     (52)     (60)     (36)
  State income tax, net of federal benefit..................     (48)     147       90
  Benefit due to difference between U.S. &
     Chilean tax rates......................................    (295)    (316)    (192)
  Benefit due to utilization of Chilean net operating loss
     carryforwards..........................................      --     (306)    (152)
  Benefit due to reduction in Canadian tax rate for
     manufacturing companies................................      --      (42)      --
  Benefit due to difference between U.S. &
     Australian tax rates...................................    (266)      --       --
  Net Benefit due to tax law changes in Australia...........  (2,835)      --       --
  Amortization of warrants not deductible...................     602       --       --
  Non-deductible expenses, net..............................     320       45       33
  Other, net................................................     124      107       60
  Valuation allowance.......................................    (170)    (118)     (99)
                                                              ------   ------   ------
                                                              $ (787)  $1,570   $  963
                                                              ======   ======   ======


     The Company joins in the filing of a consolidated U.S. income tax return
with its domestic subsidiaries. For state income tax purposes, the Company and
each of its domestic subsidiaries generally file on a separate return basis in
the states in which they do business. The Company's Canadian subsidiaries file
Canadian and provincial income tax returns. The Company's Chilean and Australian
subsidiaries file income tax returns in their respective jurisdictions.

                                      F-22
   105
                       RAILAMERICA, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The components of deferred income tax assets and liabilities as of December
31, 1999 and 1998 are as follows (in thousands):



                                                                1999      1998
                                                              --------   -------
                                                                   
Deferred tax assets:
  Net operating loss carry forwards.........................  $  7,667   $ 2,798
  Alternative minimum tax credit............................       790       766
  Accrued Expense (net of deferred expense).................     4,478        --
  Other.....................................................       108       205
                                                              --------   -------
          Total deferred assets.............................    13,043     3,769
Less: valuation allowance...................................      (321)     (491)
                                                              --------   -------
          Total deferred assets, net........................    12,722     3,278
Deferred tax liabilities:
  Property, plant and equipment.............................    29,162    11,339
  Minority Investments......................................       836        --
  Installment Sales.........................................       180       181
  Capital Lease Obligation..................................       859        --
  Deferred Revenue..........................................       495        --
                                                              --------   -------
  Net deferred tax liability................................  $(18,810)  $(8,242)
                                                              ========   =======


     The liability method of accounting for deferred income taxes requires a
valuation allowance against deferred tax assets if, based on the weight of
available evidence, it is more likely than not that some or all of the deferred
tax assets will not be realized. It is management's belief that it is more
likely than not that a portion of the deferred tax assets will not be realized.
The Company has established a valuation allowance of $0.3 million at December
31, 1999 and $0.5 million at December 31, 1998, respectively. The valuation
allowance at December 31, 1999 is comprised of $0.2 million, which relates to
prior and current year state net operating losses, and $0.1 million which
relates to prior and current year Chilean net operating losses of Ferronor.

     The following is a summary of net operating loss carryforwards by
jurisdiction as of December 31, 1999 (in thousands):



                                                              AMOUNT    EXPIRATION PERIOD
                                                              -------   -----------------
                                                                  
  U.S. -- Federal...........................................  $ 5,536      2003 - 2019
  U.S. -- State.............................................   16,064      2000 - 2019
  Chile.....................................................    1,069        None
  Australia.................................................   10,938        None
  Canada....................................................    2,741      2004 - 2006
                                                              -------
                                                              $36,348
                                                              =======


     As part of certain acquisitions, the Company acquired net operating loss
carry forwards for federal and state income tax purposes. The utilization of the
acquired tax loss carry forwards is further limited by the Internal Revenue Code
Section 382 to approximately $0.1 million each year. These tax loss carry
forwards expire in the years 2001 through 2010.

     No provision was made in 1999 for U.S. income taxes on undistributed
earnings of the Chilean, Canadian or Australian subsidiaries as it is the
intention of management to utilize those earnings in their respective operations
for an indefinite period of time.

                                      F-23
   106
                       RAILAMERICA, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The provision includes a one-time income tax benefit of $3.4 million due to
legislation passed in Australia during the third quarter of 1999, which permits
the Company's Australian subsidiary to deduct, for income tax purposes, a larger
amount of depreciation than is reported for financial statement purposes.
Additionally, during December 1999, Australian tax regulations were passed which
will ultimately reduce the statutory tax rate in Australia from 36% to 30%. A
one-time income tax provision of $0.6 million was recorded to revalue the
Company's Australian net deferred tax assets due to this rate reduction.

17.  OTHER INCOME

     Included in other income for 1999 was a fourth quarter gain on insurance
settlement of $4.1 million from an accident which destroyed certain locomotives
and railcars in Australia. In addition, other income for 1999 includes $0.7
million in exchange gains from Australia and Chile and $0.3 million in gain on
the sale of the Company's minority interest in GSR.

18.  STOCK OPTIONS

     In July 1992, the Company implemented a stock option plan (the "1992 Plan")
for certain officers, consultants, employees and outside directors of the
Company. The aggregate number of shares which may be issued pursuant to the 1992
Plan is 250,000 shares which are exercisable at date of grant and have a ten
year life.

     Effective January 1, 1995, the Company implemented two new stock option
plans: the 1995 Stock Incentive Plan and the 1995 Non-Employee Director Stock
Option Plan. Each plan calls for 250,000 shares to be reserved for future
issuance. Options granted under the Stock Incentive Plan are exercisable at the
date of grant. Options granted under the Non-Employee Director Stock Option Plan
are 1/3 exercisable at the date of grant, 1/3 exercisable at the first
anniversary of the grant date and 1/3 exercisable at the second anniversary of
the grant date. All the options granted under the Stock Incentive Plan and
Non-Employee Director Stock Option Plan have a ten year life from the date of
grant. In June 1997, the Company's stockholders approved a 750,000 increase in
the number of shares of common stock reserved for issuance pursuant to the
Company's 1995 Stock Incentive Plan, bringing total shares reserved under this
plan to 1,000,000.

     Under an employment agreement dated November 1994, Mr. Marino was granted
ten-year non-qualified options to purchase an aggregate of 350,000 shares of the
Company's common stock at exercise prices ranging from $3.10 to $4.15. Options
to purchase 175,000 shares were immediately exercisable and options to purchase
87,500 shares became exercisable on each of March 1, 1996 and 1997.

     Effective January 1, 1998, Mr. Marino entered into a new employment
agreement with the Company under which he was granted ten-year non-qualified
options to purchase 300,000 shares of common stock of the Company at exercise
prices varying from $7.25 to $9.50. All of the options are immediately
exercisable.

     During June 1998, the Company implemented the 1998 Omnibus Executive
Incentive Compensation Plan ("1998 Plan"). The 1998 Plan supersedes the 1992
Plan and the 1995 Stock Incentive Plan. The 1998 Plan provides for grants of
stock options, stock appreciation rights, restricted stock, deferred stock,
other stock-related awards and performance or annual incentive awards. The
aggregate number of shares to be issued pursuant to the 1998 Plan are 930,000
shares. Options for 76,000 shares of common stock of the Company, at an exercise
price of $6.125, were issued pursuant to the 1998 Plan as of July 1, 1998.
Options for 126,000 shares of common stock of the Company, at an exercise price
of $8.75, were issued pursuant to the 1998 Plan as of April 1999. These options
vest ratably over a three year period on each anniversary date and mature ten
years after the grant date. Options for 725,000 shares of common stock of the
Company, at an exercise price of $9.00, were issued pursuant to the 1998 Plan as
of January 1, 2000. These options are subject to shareholder approval at the
Company's 1999 Annual Shareholders Meeting.

                                      F-24
   107
                       RAILAMERICA, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     In July 1998, the Company issued, options to purchase an aggregate of
150,000 shares of common stock to certain employees at exercise prices equal to
$6.125 per share. The options vest ratably over a three year period on each
anniversary date and mature June 30, 2008. During 1999, the Company issued
options to purchase an aggregate of 25,000 shares of common stock of the Company
at an exercise price of $7.8125, options to purchase 153,500 shares of common
stock of the Company at an exercise price of $8.75 and options to purchase
125,500 shares of common stock of the Company at an exercise price of $9.75. All
of these options vest ratably over a three year period from the date of grant
and mature in ten years from the date of grant.

     The Company has adopted the disclosure-only provisions of Statements of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". Accordingly, no compensation costs have been recognized for the
stock options issued during 1999, 1998 and 1997 as all stock options were
granted with an exercise price at least equal to the market price on the date of
grant. Had compensation cost for the Company's stock options issued been
determined based on the fair value at the grant date for awards in 1999, 1998
and 1997 consistent with the provisions of SFAS No. 123, the Company's net
income and net income per share would have been reduced to the pro forma amounts
indicated below (in thousands except per share information):



                                                               1999     1998     1997
                                                              ------   ------   ------
                                                                       
  Net income -- as reported.................................  $9,921   $4,401   $1,939
                                                              ======   ======   ======
  Net income -- pro forma...................................  $8,972   $3,562   $1,152
                                                              ======   ======   ======
  Basic net income per share -- as reported.................  $ 0.80   $ 0.46   $ 0.23
                                                              ======   ======   ======
  Basic net income (loss) per share -- pro forma............  $ 0.72   $ 0.37   $ 0.14
                                                              ======   ======   ======


     These calculations only take into account the options issued since January
1, 1995. The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1999, 1998 and 1997: dividend yield 0.0%;
expected volatility of 45%-55%; risk-free interest rate of 5.50%-7.8%; and
expected lives of 10 years. The weighted average fair value of options granted
for 1999, 1998 and 1997 were $5.86, $3.97, and $3.08, respectively.

                                      F-25
   108
                       RAILAMERICA, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Information regarding the above options for 1999, 1998 and 1997 is as
follows:



                                                                          WEIGHTED
                                                                          AVERAGE
                                                              NUMBER OF   EXERCISE
                                                               SHARES      PRICE
                                                              ---------   --------
                                                                    
Outstanding at January 1, 1997..............................  1,124,000    $3.74
  Granted...................................................    363,500    $5.00
  Exercised.................................................   (202,933)   $3.69
  Forfeited.................................................    (33,667)   $4.21
                                                              ---------
Outstanding at December 31, 1997............................  1,250,900    $4.10
  Granted...................................................    551,000    $7.35
  Exercised.................................................   (237,950)   $3.66
  Forfeited.................................................    (78,450)   $3.58
                                                              ---------
Outstanding at December 31, 1998............................  1,485,500    $5.40
  Granted...................................................    455,000    $8.97
  Exercised.................................................    (89,667)   $4.35
  Forfeited.................................................    (10,833)   $5.09
                                                              ---------
Outstanding at December 31, 1999............................  1,840,000    $6.34
                                                              =========


     The following table summarizes information about stock options outstanding
at December 31, 1999:



                                                       OPTIONS OUTSTANDING            OPTIONS EXERCISABLE
                                               -----------------------------------   ---------------------
                                                             WEIGHTED
                                                              AVERAGE     WEIGHTED                WEIGHTED
RANGE OF                                                     REMAINING    AVERAGE                 AVERAGE
EXERCISE                                         NUMBER     CONTRACTUAL   EXERCISE     NUMBER     EXERCISE
  PRICE                                        OF OPTIONS      LIFE        PRICE     OF OPTIONS    PRICE
- --------                                       ----------   -----------   --------   ----------   --------
                                                                                   
$3.40-$5.00..................................    836,750       5.92        $4.24       836,750     $4.24
$5.01-$7.00..................................    248,250       8.50        $6.13        80,916     $6.13
$7.01-$9.50..................................    755,000       8.80        $8.74       308,333     $8.36
                                               ---------                             ---------
                                               1,840,000                             1,225,999
                                               =========                             =========


     In January 1995, the Company established an Employee Stock Purchase Plan
open to all full-time employees. Each employee may have payroll deductions as a
percentage of their compensation, not to exceed $25,000 per year. The purchase
price equals 85% of the fair market value of a share of the Company's Common
Stock on January 1 or December 31, of any given year, whichever is lower. For
the years ended December 31, 1999, 1998 and 1997, 16,500, 18,289 and 23,433
shares of common stock, respectively, were sold to employees under this plan.

19.  NONCASH INVESTING AND FINANCING ACTIVITIES

     In April 1999, the Company issued 750,000 warrants, valued at $3.0 million
to purchase shares of its Common Stock as part of the Freight Victoria
acquisition financing. The Company issued an additional 50,000 warrants, valued
at $0.2 million to purchase the Company's Common Stock in November 1999 as part
of the financing. The Company also issued a $2.6 million convertible note in
connection with the Freight Victoria financing. This note was converted into the
Company's stock in July 1999.

     In August 1999, the Company issued 876,363 warrants, valued at $2.7
million, to purchase the Company's Common Stock pursuant to a private offering
of its junior convertible subordinated debentures.

                                      F-26
   109
                       RAILAMERICA, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     During 1999, $0.7 million of convertible notes were converted into the
Company's Common Stock. In addition, $2.0 million of the redeemable convertible
preferred stock was converted into the Company's Common Stock during 1999.

     The Company issued 20,000 shares of common stock to the Company's Chief
Executive Officer for a $95,000 note receivable during 1997. The Company issued
30,000 shares of common stock to the Company's Chief Executive Officer for a
$97,500 note receivable during 1998.



                                                                1999       1998       1997
                                                              ---------   -------   --------
                                                                           
Acquisition of businesses:
     Common stock issued for businesses acquired............  $      --   $   453   $     --
     Warrants issued for business acquired..................      3,031        --         --
     Debt issued for business acquired......................    173,493        --         --
     Acquisition costs accrued..............................        238        31         90
     Details of acquisitions:
       Working capital components, other than cash..........     (7,294)     (801)     2,867
       Property and equipment...............................   (209,624)   (2,482)   (16,071)
       Other assets.........................................     (4,234)     (962)       (31)
       Deferred loan costs..................................     (6,959)       --         --
       Goodwill.............................................         --      (355)        --
       Notes payable and loans payable......................     35,466     1,921        340
       Deferred income taxes payable........................      7,430       440         --
       Minority interest....................................         --        --      5,415
                                                              ---------   -------   --------
               Net cash used in acquisitions................  $  (8,453)  $(1,757)  $ (7,390)
                                                              =========   =======   ========


     Cash paid for interest during 1999, 1998 and 1997 was $16.3 million, $5.7
million and $3.9 million, respectively. Cash paid for income taxes during 1999,
1998 and 1997 was $1.3 million, $0.2 million and $0.2 million, respectively.

20.  FAIR VALUE OF FINANCIAL INSTRUMENTS

     Management believes that the fair value of its long-term debt approximates
its carrying value for the revolving line of credit based on the variable nature
of the financing and for all other long-term debt based on current borrowing
rates available with similar terms and maturities.

21.  PENSION AND OTHER BENEFIT PROGRAMS

     The Company maintains a pension plan for a majority of its Canadian
railroad employees, with both defined benefit and defined contribution
components.

     Defined Benefit -- The defined benefit component applies to approximately
60 employees who transferred employment directly from Canadian Pacific Railway
Company ("CPR") to a subsidiary of RaiLink, Ltd. The defined benefit portion of
the plan is a mirror plan of CPR's defined benefit plan. The employees that
transferred and joined the mirror plan were entitled to transfer or buy back
prior years of service. As part of the arrangement, CPR transferred to the
Company the appropriate value of each employee's pension entitlement.

                                      F-27
   110
                       RAILAMERICA, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following chart summarizes the benefit obligations, assets, funded
status and rate assumptions associated with the defined benefit plan (in
thousands).

                                                           
Change in benefit obligation
  Benefit obligation at August 1, 1999......................  $  2,710
  Service cost..............................................        26
  Interest cost.............................................        79
  Plan participants' contributions..........................        38
                                                              --------
  Benefit obligation at December 31, 1999...................     2,853
                                                              --------
Change in plan assets
  Fair value of plan assets at August 1, 1999...............     2,445
  Actuarial return on plan assets...........................       132
  Employer contributions....................................        37
  Plan participants' contributions..........................        41
                                                              --------
  Fair value of plan assets at December 31, 1999............     2,655
                                                              --------
Funded status...............................................      (198)
  Unrecognized net actuarial loss...........................        --
  Unrecognized prior service costs..........................        --
                                                              --------
  Accrued benefit cost......................................  $   (198)
                                                              ========
Rate Assumptions
  Discount rate.............................................      7.00%
  Expected return on plan assets............................      8.00%
  Rate of compensation increase.............................      4.50%



     Components of net periodic benefit cost for August 1, 1999 to December 31,
1999:

                                                           
Service cost................................................  $ 25
Interest cost...............................................    79
Expected return on plan assets..............................   (82)
Net obligation at date of adoption..........................    17
                                                              ----
Net periodic pension cost...................................  $ 39
                                                              ====



     Freight Victoria's employees participate in the Victorian governments
superannuation funds. The contributions made by Freight Victoria for the period
May 1, 1999 to December 31, 1999 are as follows (in thousands):

                                                           
Victorian Superannuation Fund...............................  $ 62
State Superannuation Fund...................................   647
Transport Fund..............................................   194
Freight Victoria Fund.......................................    53
                                                              ----
          Total contributions...............................  $956
                                                              ====



VICTORIAN SUPERANNUATION FUND (VICSUPER SCHEME)

     1. Contributions are made in accordance with the Superannuation Guarantee
        (Administration) Act of 1992.

                                      F-28
   111
                       RAILAMERICA, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

STATE SUPERANNUATION FUND

     1. Contributions are made in accordance with the actuarial calculations as
        advised by the State Superannuation Fund.

     Defined contribution -- The defined contribution component applies to a
majority of the Company's Canadian railroad employees that are not covered by
the defined benefit component. The Company contributes 3% of a participating
employee's salary to the plan. Pension expense for the period August 1, 1999 to
December 31, 1999 for the defined contribution members was $0.1 million.

PROFIT SHARING PLAN

     The Company maintains a contributory profit sharing plan as defined under
Section 401(k) of the U.S. Internal Revenue Code. The Company made contributions
to this plan at a rate of 50% of the employees contribution up to a maximum
annual contribution of $1,500 per eligible employee. An employee becomes 100%
vested with respect to the employer contributions after completing six years of
service. Employer contributions during the years ended December 31, 1999, 1998
and 1997 were approximately $81,000, $66,000 and $40,000, respectively.

22.  OTHER LIABILITIES

     Other liabilities principally are accrued employee benefits in Australia
and consist of the following at December 31, 1999 and 1998 (in thousands):



                                                             1999     1998
                                                            -------   ----
                                                                
  Long service leave......................................  $ 7,663   $ --
  Annual leave............................................    6,087     --
  Other leave types.......................................    2,182     --
  Deferred revenue........................................      442    427
                                                            -------   ----
                                                            $16,373   $427
                                                            =======   ====


23.  COMMITMENTS AND CONTINGENCIES

     In the ordinary course of conducting its business, the Company becomes
involved in various legal actions and other claims which are pending or could be
asserted against the Company. Litigation is subject to many uncertainties, the
outcome of individual litigated matters is not predictable with assurance, and
it is reasonably possible that some of these matters may be decided unfavorably
to the Company. It is the opinion of management that the ultimate liability, if
any, with respect to these matters will not have a material adverse effect on
the Company's financial position, results of operations or cash flows.

     The Company has a $4.9 million obligation, under certain events of default
or line abandonment occurs, to the Canadian National Railroad in connection with
its Coronado and Bonnyville property. The obligation bears no interest and has
no pre-defined terms of payment or maturity.

24.  SEGMENT INFORMATION

     The Company's continuing operations have been classified into two business
segments: North American rail transportation and International rail
transportation. The North American rail transportation segment includes the
operations of the Company's railroad subsidiaries in the United States and
Canada and the International rail transportation segment includes the operations
of Company's railroad subsidiaries in Chile and Australia. During 1999, the
Company's trailer manufacturing segment was classified as a discontinued
operation and is reported that way for all period presented.

                                      F-29
   112
                       RAILAMERICA, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Business segment information for the year ended December 31, 1999, 1998 and
1997 (dollar amounts in thousands):



                                                                NORTH AMERICAN   INTERNATIONAL
                                                 CONSOLIDATED     RAILROADS        RAILROADS      OTHER
                                                 ------------   --------------   -------------   --------
                                                                                     
YEAR ENDED DECEMBER 31, 1999:
  Revenue......................................    $125,372        $ 40,937        $ 82,473      $  1,962
  Depreciation and amortization................    $  9,179        $  3,594        $  4,660      $    925
  Income (loss) before income taxes............    $  5,239        $  4,275        $  6,897*     $ (5,933)
  Interest expense.............................    $ 16,287        $  5,709        $  9,157      $  1,421
  Total assets.................................    $428,932        $174,343        $214,599      $ 39,990
  Capital expenditures.........................    $ 50,702        $ 22,461        $ 24,946      $  3,295


                                                                                     
YEAR ENDED DECEMBER 31, 1998:
  Revenue......................................    $ 37,256        $ 16,191        $ 15,924      $  5,141
  Depreciation and amortization................    $  2,543        $  1,570        $    706      $    267
  Income (loss) before income taxes............    $   (887)       $  2,072        $  1,754      $ (4,713)
  Interest expense.............................    $  4,479        $  2,822        $    789      $    868
  Total assets.................................    $117,081        $ 53,692        $ 39,780      $ 23,609
  Capital expenditures.........................    $ 24,767        $  6,343        $ 12,807      $  5,617





                                                                NORTH AMERICAN   INTERNATIONAL
                                                 CONSOLIDATED     RAILROADS        RAILROADS      OTHER
                                                 ------------   --------------   -------------   --------
                                                                                     
YEAR ENDED DECEMBER 31, 1997:
  Revenue......................................    $ 24,496        $ 16,014        $  8,062      $    420
  Depreciation and amortization................    $  1,789        $  1,337        $    267      $    185
  Income (loss) before income taxes............    $   (127)       $  2,071        $  1,013      $ (3,211)
  Interest expense.............................    $  3,275        $  2,739        $    341      $    195
  Total assets.................................    $ 83,585        $ 53,134        $ 23,115      $  7,336
  Capital expenditures.........................    $  6,756        $  3,963        $  2,290      $    503


     Geographical segment information for the years ended December 31, 1999,
1998 and 1997 (dollar amounts in thousands):



                                                               UNITED
                                               CONSOLIDATED    STATES    CANADA     CHILE    AUSTRALIA
                                               ------------   --------   -------   -------   ---------
                                                                              
YEAR ENDED DECEMBER 31, 1999:
  Revenue....................................    $125,372     $ 22,720   $20,179   $19,115   $ 63,358
  Depreciation and amortization..............    $  9,179     $  2,428   $ 2,091   $ 1,231   $  3,429
  Income (loss) before income taxes..........    $  5,239     $ (2,978)  $   919   $ 1,473   $  5,825*
  Interest expense...........................    $ 16,287     $  3,926   $ 3,203   $ 1,595   $  7,563
  Total assets...............................    $428,932     $115,295   $99,038   $52,022   $162,577
  Capital expenditures.......................    $ 50,702     $ 13,915   $11,841   $13,389   $ 11,557




                                                                 UNITED
                                                  CONSOLIDATED   STATES    CANADA    CHILE    AUSTRALIA
                                                  ------------   -------   ------   -------   ---------
                                                                               
YEAR ENDED DECEMBER 31, 1998:
  Revenue.......................................    $ 37,256     $17,080   $4,252   $15,924    $   --
  Depreciation and amortization.................    $  2,543     $ 1,837   $   --   $   706    $   --
  Income (loss) before income taxes.............    $   (887)    $(2,327)  $ (142)  $ 1,580    $    2
  Interest expense..............................    $  4,479     $ 3,104   $  109   $ 1,266    $   --
  Total assets..................................    $117,081     $74,628   $2,672   $37,786    $1,995
  Capital expenditures..........................    $ 24,767     $11,747   $  213   $12,807    $   --


                                      F-30
   113
                       RAILAMERICA, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)



                                                                        UNITED
                                                         CONSOLIDATED   STATES     CHILE    AUSTRALIA
                                                         ------------   -------   -------   ---------
                                                                                
YEAR ENDED DECEMBER 31, 1997:
  Revenue..............................................    $ 24,496     $16,434   $ 8,062    $   --
  Depreciation and amortization........................    $  1,789     $ 1,521   $   268    $   --
  Income (loss) before income taxes....................    $   (127)    $(1,140)  $ 1,013    $   --
  Interest expense.....................................    $  3,275     $ 2,933   $   342    $
  Total assets.........................................    $ 83,585     $60,470   $21,261    $1,854
  Capital expenditures.................................    $  6,756     $ 4,466   $ 2,290    $   --


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

* Amount includes $4.1 million casualty gain.

     Identifiable assets consist of $425 million from continuing operations and
$15 million from discontinued operations (not included in above amounts).

25.  SUBSEQUENT EVENTS

     On February 4, 2000, the Company acquired RailTex, Inc. for approximately
$128 million in cash and approximately 6.6 million shares of the Company's
common stock valued at $60.8 million. Railtex, which operates 25 railroads over
4,100 mile of rail lines in North America, became a wholly-owned subsidiary of
the Company. RailTex shareholders received $13.50 in cash and two-thirds of a
share of RailAmerica common stock in exchange for each share of RailTex stock.
In connection with the acquisition, the Company entered into a credit agreement
providing $330 million of senior term loans and $50 million of senior revolving
loans. In addition, a wholly-owned subsidiary of the Company issued $95 million
of subordinated bridge notes and $55 million of asset sale bridge notes.

26.  UNAUDITED QUARTERLY FINANCIAL DATA

     Quarterly financial data for 1999 is as follows (in thousands except per
share amounts):



                                                             FIRST    SECOND     THIRD    FOURTH
                                                            QUARTER   QUARTER   QUARTER   QUARTER
                                                            -------   -------   -------   -------
                                                                              
Operating revenue.........................................  $10,225   $28,088   $38,901   $48,157
Operating income..........................................  $ 1,628   $ 4,373   $ 6,600   $ 8,667
Income from continuing operations.........................  $    54   $ 1,334   $ 2,278   $ 2,375
Net income................................................  $ 1,203   $ 2,748   $ 3,287   $ 2,683
Basic income (loss) from continuing operations per
  share...................................................  $ (0.02)  $  0.10   $  0.18   $  0.18
Diluted income (loss) from continuing operations per
  share...................................................  $ (0.02)  $  0.09   $  0.16   $  0.16


     Quarterly financial data for 1998 is as follows (in thousands except per
share amounts):



                                                             FIRST    SECOND     THIRD    FOURTH
                                                            QUARTER   QUARTER   QUARTER   QUARTER
                                                            -------   -------   -------   -------
                                                                              
Operating revenue.........................................  $ 5,853   $ 9,117   $10,848   $11,439
Operating income..........................................  $   612   $ 1,216   $ 1,581   $ 2,089
Income (loss) from continuing operations..................  $  (172)  $   170   $   193   $   (77)
Net income................................................  $   603   $ 1,332   $ 1,361   $   910
Basic income (loss) from continuing operations per
  share...................................................  $ (0.02)  $  0.02   $  0.02   $ (0.01)
Diluted income (loss) from continuing operations per
  share...................................................  $ (0.02)  $  0.02   $  0.02   $ (0.01)


     The above amounts differ from what was included in the Form 10-Q's filed
throughout the period due to the trailer manufacturing segment being included in
discontinued operations for all periods reported in these consolidated financial
statements.

                                      F-31
   114
                       RAILAMERICA, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

27.  GUARANTOR FINANCIAL STATEMENT INFORMATION

     Set forth are condensed Consolidating Financial Statements of the Company
(Parent), the Guarantor Subsidiaries, Non Guarantor Subsidiaries and the Company
on a consolidated basis.

                          CONSOLIDATING BALANCE SHEET
                              AT DECEMBER 31, 1999



                                                                         NON
                                           COMPANY     GUARANTOR      GUARANTOR
                                           (PARENT)   SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                           --------   ------------   ------------   ------------   ------------
                                                                                    
ASSETS
Current Assets:
  Cash...................................  $ 3,588      $    274       $  7,736       $     --       $ 11,598
  Accounts and notes receivable..........    2,480         7,682         32,401         (1,705)        40,857
  Inventories............................       --           592          9,337             --          9,929
  Other current assets...................      441           379          2,680             --          3,500
  Net assets of discontinued operation...       --            --         14,996             --         14,996
                                           -------      --------       --------       --------       --------
          Total current assets...........    6,509         8,926         67,150         (1,705)        80,879
Property, plant and equipment, net.......      733        88,922        257,963             --        347,617
Notes receivable, less current portion...      725         1,150            248             --          2,123
Investment in affiliates.................       --            --          4,667             --          4,667
Other assets.............................    4,141           521          3,980             --          8,642
Investment in and advances to
  affiliates.............................   66,638       (15,833)        (3,925)       (46,881)            --
                                           -------      --------       --------       --------       --------
          Total assets...................  $78,746      $ 83,686       $330,082       $(48,586)      $443,928
                                           =======      ========       ========       ========       ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Current maturities of long-term debt...  $     5      $  8,805       $  9,001       $     --       $ 17,811
  Accounts payable.......................      777         3,936         19,024             (6)        23,732
  Accrued expenses.......................      842         2,662         11,875             --         15,379
                                           -------      --------       --------       --------       --------
          Total current liabilities......    1,624        15,403         39,901             (6)        56,923
                                           -------      --------       --------       --------       --------
Long-term debt, less current
  maturities.............................   10,708        42,019         93,989         (1,699)       145,016
Subordinated debt........................       --            --        100,000             --        100,000
Convertible subordinated debt............   20,481            --          1,968             --         22,449
Other liabilities........................       --           441         15,933             --         16,374
Deferred income taxes....................   (2,411)       18,649           (856)            --         15,382
Minority interest........................       --            --          4,074          5,415          9,489
Redeemable convertible preferred stock...    8,830            --             --             --          8,830
Stockholders' equity:
  Common stock...........................       13           119         28,259        (28,378)            13
  Additional paid-in capital.............   52,153         3,514         20,556        (23,918)        52,305
  Retained earnings......................   (8,144)        3,542         22,773             --         18,171
  Accumulated other comprehensive
     income..............................       --            --          3,486             --          3,486
  Treasury stock.........................   (4,508)           --             --             --         (4,508)
                                           -------      --------       --------       --------       --------
          Total stockholders' equity.....   39,514         7,174         75,074        (52,296)        69,466
                                           -------      --------       --------       --------       --------
          Total liabilities and
            stockholders' equity.........  $78,746      $ 83,686       $330,082       $(48,586)      $443,928
                                           =======      ========       ========       ========       ========


                                      F-32
   115
                       RAILAMERICA, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                       CONSOLIDATING STATEMENT OF INCOME
                      FOR THE YEAR ENDED DECEMBER 31, 1999



                                                                         NON
                                           COMPANY     GUARANTOR      GUARANTOR
                                           (PARENT)   SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                           --------   ------------   ------------   ------------   ------------
                                                                                    
Operating revenue:
  Transportation -- railroad.............  $    --      $20,257        $98,654          $--          $118,911
  Other..................................       --        2,463          3,998           --             6,461
                                           -------      -------        -------          ---          --------
          Total operating revenue........       --       22,720        102,653           --           125,372
                                           -------      -------        -------          ---          --------
Operating expenses:
  Transportation -- railroad.............       --        9,427         65,949           --            75,376
  Selling, general and administrative....    4,825        4,374         10,351           --            19,550
  Depreciation and amortization..........      108        2,320          6,751           --             9,179
                                           -------      -------        -------          ---          --------
          Total operating expenses.......    4,933       16,121         83,051           --           104,105
                                           -------      -------        -------          ---          --------
          Operating income...............   (4,933)       6,599         19,602           --            21,268
Interest expense.........................   (1,584)      (3,221)       (15,686)          --           (20,490)
Other income.............................       45          116          5,851           --             6,012
Minority interest in income of
  subsidiary.............................       --           --         (1,551)          --            (1,551)
                                           -------      -------        -------          ---          --------
          Income from continuing
            operations before income
            taxes........................   (6,472)       3,494          8,217           --             5,239
Provision for income taxes...............   (2,459)       1,328            345           --              (787)
                                           -------      -------        -------          ---          --------
          Income from continuing
            operations...................   (4,013)       2,166          7,872           --             6,026
Discontinued operations:
     Income from operations of
       discontinued segments.............       --           --          3,896           --             3,896
                                           -------      -------        -------          ---          --------
          Net income.....................  $(4,013)     $ 2,166        $11,768          $--          $  9,921
                                           =======      =======        =======          ===          ========


                                      F-33
   116
                       RAILAMERICA, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                     CONSOLIDATING STATEMENT OF CASH FLOWS
                      FOR THE YEAR ENDED DECEMBER 31, 1999



                                                                                    NON
                                                      COMPANY     GUARANTOR      GUARANTOR
                                                     (PARENT)    SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                                     ---------   ------------   ------------   ------------   ------------
                                                                                               
Cash flows from operating activities:
  Net income (loss)................................  $  (4,013)    $  2,166       $11,768          $--         $   9,921
    Adjustments to reconcile net income to net cash
      provided by operating activities:
      Depreciation and amortization................        855        2,494        10,785           --            14,134
      Minority interest in income of subsidiary....         --           --         1,551           --             1,551
      Equity interest in earnings of affiliate.....         --           --          (230)          --              (230)
      Gain on insurance settlement.................         --           --        (4,069)          --            (4,069)
      Loss (gain) on sale or disposal of
         properties................................         56          407          (345)          --               118
      Write-off of deferred acquisition costs......         39           --            --           --                39
      Deferred income taxes........................      1,918       (9,181)       10,665           --             3,402
      Changes in operating assets and liabilities,
         net of acquisitions and dispositions:
         Accounts receivable.......................        802        5,533        (8,581)          --            (2,246)
         Inventories...............................         --          556        (2,827)          --            (2,271)
         Other current assets......................        175          447        (2,453)          --            (1,831)
         Accounts payable..........................       (359)      (3,965)        7,568           --             3,244
         Accrued expenses..........................       (203)      (1,963)        5,492           --             3,326
         Other liabilities.........................         --           --        (2,294)          --            (2,294)
         Deposits and other........................       (284)           4        (1,014)          --            (1,294)
                                                     ---------     --------       -------          ---         ---------
             Net cash provided by operating
               activities..........................     (1,014)      (3,502)       26,016           --            21,500
                                                     ---------     --------       -------          ---         ---------
Cash flows from investing activities:
  Purchase of property, plant and equipment........       (457)     (13,458)      (37,476)          --           (51,391)
  Proceeds from sale of properties.................         --          166            --           --               166
  Proceeds from sale of equity interest............         --           --           998           --               998
  Acquisitions, net of cash acquired...............         --         (257)       (8,196)          --            (8,453)
  Cash held in discontinued operations.............         --           --          (656)          --              (656)
  Deferred acquisition costs and other.............        639           --            --           --               639
                                                     ---------     --------       -------          ---         ---------
             Net cash used in investing
               activities..........................        182      (13,549)      (45,330)          --           (58,697)
                                                     ---------     --------       -------          ---         ---------
Cash flows from financing activities:
  Proceeds from issuance of long-term debt.........    146,405        8,630             0           --           182,085
  Principal payments on long-term debt.............   (126,473)     (18,445)       (5,265)          --          (150,183)
  Disbursements/receipts on intercompany debt......    (35,636)      32,287        30,399           --                --
  Sale of convertible preferred stock..............      4,095           --            --           --             4,095
  Sale of common stock.............................     11,868           --            --           --            11,868
  Proceeds from exercise of stock options..........        581           --            --           --               581
  Preferred stock dividends paid...................       (843)          --            --           --              (843)
  Purchase of treasury stock.......................     (1,224)          --            --           --            (1,224)
  Deferred financing costs paid....................       (333)          --            --           --              (333)
  Deferred loan costs paid.........................     (2,270)        (152)           --           --            (2,422)
                                                     ---------     --------       -------          ---         ---------
             Net cash provided by financing
               activities..........................      3,830       22,320        25,134           --            43,624
                                                     ---------     --------       -------          ---         ---------
Effect of exchange rates on cash...................         --           --            86           --                86
                                                     ---------     --------       -------          ---         ---------
Net increase (decrease) in cash....................     (4,662)       5,269         5,906           --             6,513
Cash, beginning of period..........................      4,754          230           101           --             5,085
                                                     ---------     --------       -------          ---         ---------
Cash, end of period................................  $      92     $  5,499       $ 6,007          $--         $  11,598
                                                     =========     ========       =======          ===         =========


                                      F-34
   117
                       RAILAMERICA, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                          CONSOLIDATING BALANCE SHEET
                              AT DECEMBER 31, 1998



                                                                         NON
                                           COMPANY     GUARANTOR      GUARANTOR
                                           (PARENT)   SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                           --------   ------------   ------------   ------------   ------------
                                                                                    
                      ASSETS
Current assets:
  Cash...................................  $ 4,754      $   229        $   102        $     --       $  5,085
  Accounts and notes receivable..........      804        4,125          3,511            (707)         7,733
  Inventories............................       --          390          3,258              --          3,648
  Other current assets...................      175          242          1,064              --          1,481
  Net assets of discontinued operation...       --           --             --              --         13,883
                                           -------      -------        -------        --------       --------
          Total current assets...........    5,733        4,986         21,818            (707)        31,830
Property, plant and equipment, net.......      434       56,706         34,736              --         91,876
Notes receivable, less current
  portions...............................      725          311            248              --          1,284
Investment in affiliates.................       --           --          1,939              --          1,939
Other assets.............................    3,429          530             76              --          4,035
Investments in and advances to
  affiliates.............................   28,138       (6,298)        (3,167)        (18,673)            --
                                           -------      -------        -------        --------       --------
          Total assets...................  $38,459      $56,235        $55,650        $(19,380)      $130,964
                                           =======      =======        =======        ========       ========

       LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current maturities of long-term debt...  $   516      $   618        $ 2,423        $     --       $  3,557
  Accounts payable.......................      359        1,235          5,004             406          7,004
  Accrued expenses and income taxes
     payable.............................      204        1,041          1,531              --          2,776
                                           -------      -------        -------        --------       --------
          Total current liabilities......    1,079        2,894          8,958             406         13,337
                                           -------      -------        -------        --------       --------
Long-term debt, less current
  maturities.............................   12,810       38,514         11,446              --         62,770
                                           -------      -------        -------        --------       --------
Other liabilities........................       --          427             --              --            427
Deferred income taxes....................   (1,920)       6,849            (80)             --          4,849
Minority interest........................       --           --          2,523           5,415          7,938
Redeemable convertible preferred stock...    6,882           --             --              --          6,882
Stockholders' equity:
  Common stock...........................       10          119          4,864          (4,983)            10
  Additional paid-in capital.............   28,277        2,663         17,556         (20,218)        28,278
  Retained earnings......................   (5,396)       4,769          9,912              --          9,285
  Cumulative translation adjustment......       --           --            471              --            471
  Less treasury stock....................   (3,283)          --             --              --         (3,283)
                                           -------      -------        -------        --------       --------
          Total stockholders' equity.....   19,608        7,551         32,803         (25,201)        34,761
                                           -------      -------        -------        --------       --------
          Total liabilities and
            stockholders' equity.........  $38,459      $56,235        $55,650        $(19,380)      $130,964
                                           =======      =======        =======        ========       ========


                                      F-35
   118
                       RAILAMERICA, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                       CONSOLIDATING STATEMENT OF INCOME
                      FOR THE YEAR ENDED DECEMBER 31, 1998



                                                                         NON
                                           COMPANY     GUARANTOR      GUARANTOR
                                           (PARENT)   SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                           --------   ------------   ------------   ------------   ------------
                                                                                    
Operating revenues:
  Transportation -- railroad.............  $    --      $15,389        $14,915          $--          $30,304
  Other..................................       --        1,526          1,174           --            2,700
  Motor carrier..........................       --           --          4,252           --            4,252
                                           -------      -------        -------          ---          -------
          Total operating revenue........       --       16,915         20,341           --           37,256
                                           -------      -------        -------          ---          -------
Operating expenses:
  Transportation -- railroad.............       --        6,720          8,982           --           15,702
  Selling, general and administrative....    3,978        3,374          1,724           --            9,076
  Depreciation and amortization..........      104        1,733            706           --            2,543
  Motor carrier..........................       --           --          4,438           --            4,438
                                           -------      -------        -------          ---          -------
          Total operating expenses.......    4,082       11,827         15,850           --           31,759
                                           -------      -------        -------          ---          -------
          Operating income...............   (4,082)       5,088          4,491           --            5,497
  Interest expense.......................     (344)      (3,721)          (879)          --           (4,944)
  Other income (expense).................     (155)         431            (44)          --              232
  Minority interest in income of
     subsidiary..........................       --           --         (1,672)          --           (1,672)
                                           -------      -------        -------          ---          -------
          Income from continuing
            operations before income
            taxes........................   (4,581)       1,798          1,896           --             (887)
  Provision for income taxes.............   (1,741)         551            190           --           (1,000)
                                           -------      -------        -------          ---          -------
          Income from continuing
            operations...................   (2,840)       1,247          1,706           --              113
Discontinued operations
  Loss from operations of discontinued
     Motor Carrier segment...............       --           --          4,288           --            4,288
                                           -------      -------        -------          ---          -------
          Net Income.....................  $(2,840)     $ 1,247        $ 5,994          $--          $ 4,401
                                           =======      =======        =======          ===          =======


                                      F-36
   119
                       RAILAMERICA, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                     CONSOLIDATING STATEMENT OF CASH FLOWS
                      FOR THE YEAR ENDED DECEMBER 31, 1998



                                                                                           NON
                                                             COMPANY     GUARANTOR      GUARANTOR
                                                             (PARENT)   SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                                             --------   ------------   ------------   ------------   ------------
                                                                                                      
Cash flows from operating activities:
  Net income...............................................  $(2,840)     $  1,246       $  5,995         $--          $  4,401
  Adjustments to reconcile net income to net cash provided
    by operating activities:
      Depreciation and amortization........................      388         1,904          1,865          --             4,157
      Minority interest in income of subsidiary............       --            --          1,672          --             1,672
      Sale of properties...................................       --           (84)             7          --               (77)
      Write-off of deferred acquisition costs..............      176            --             --          --               176
      Deferred income taxes................................   (2,102)        2,763            252          --               913
      Forgiveness of debt..................................       --           (33)            --          --               (33)
      Changes in operating assets and liabilities, net of
        acquisitions and dispositions:
        Accounts receivable................................     (254)        1,576         (2,208)         --              (886)
        Inventories........................................       --           (67)        (6,855)         --            (6,922)
        Other current assets...............................      (65)          (43)        (1,050)         --            (1,158)
        Accounts payable...................................       75        (1,033)         3,369          --             2,411
        Accrued expenses...................................      340           303             77          --               720
        Deposits and other.................................      (94)           92            371          --               369
                                                             --------     --------       --------         ---          --------
            Net cash provided by operating activities......   (4,376)        6,624          3,495          --             5,743
                                                             --------     --------       --------         ---          --------
Cash flows from investing activities:
  Purchase of property, plant and equipment................     (132)      (11,615)       (16,382)         --           (28,129)
  Proceeds from sale of properties.........................       --         1,768             38          --             1,806
  Acquisitions, net of cash acquired.......................       --            --         (1,757)         --            (1,757)
  Deposit on purchase agreement............................   (1,962)           --             --          --            (1,962)
  Deferred acquisition costs and other.....................     (606)           (7)          (675)         --            (1,288)
                                                             --------     --------       --------         ---          --------
            Net cash used in investing activities..........   (2,700)       (9,854)       (18,776)         --           (31,330)
                                                             --------     --------       --------         ---          --------
Cash flows from financing activities:
  Proceeds from issuance of long-term debt.................   32,021         8,571         15,415          --            56,007
  Principal payments on debt and capital leases............  (25,241)       (2,961)        (7,522)         --           (35,724)
  Disbursements/receipts on intercompany debt..............   (5,162)       (2,226)         7,388                            --
  Sale convertible preferred stock.........................    7,515            --             --          --             7,515
  Sale of common stock.....................................    1,032            --             --          --             1,032
  Proceeds from exercise of stock options..................      871            --             --          --               871
  Purchase of treasury stock...............................   (1,838)           --             --          --            (1,838)
  Deferred financing costs paid............................     (603)           --             --          --              (603)
  Deferred loan costs paid.................................     (233)         (100)            --          --              (333)
                                                             --------     --------       --------         ---          --------
            Net cash provided by financing activities......    8,362         3,284         15,281          --            26,927
                                                             --------     --------       --------         ---          --------
Net increase (decrease) in cash............................    1,286            54              0          --             1,340
Cash, beginning of period..................................    3,469           175            101          --             3,745
                                                             --------     --------       --------         ---          --------
Cash, end of period........................................  $ 4,755      $    229       $    101         $--          $  5,085
                                                             ========     ========       ========         ===          ========


                                      F-37
   120
                       RAILAMERICA, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                       CONSOLIDATING STATEMENT OF INCOME
                      FOR THE YEAR ENDED DECEMBER 31, 1997
                                 (IN THOUSANDS)



                                                                         NON
                                           COMPANY     GUARANTOR      GUARANTOR
                                           (PARENT)   SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                           --------   ------------   ------------   ------------   ------------
                                                                                    
Operating revenues:
  Transportation -- railroad.............  $    --      $14,737         $7,287          $--          $22,024
  Other..................................       --        1,697            775           --            2,472
                                           -------      -------         ------          ---          -------
          Total operating revenue........       --       16,434          8,062           --           24,496
                                           -------      -------         ------          ---          -------
Operating expenses:
  Transportation -- railroad.............       --        7,389          5,113           --           12,502
  Selling, general and administrative....    3,168        2,535          1,137           --            6,840
  Depreciation and amortization..........       90        1,432            267           --            1,789
                                           -------      -------         ------          ---          -------
          Total operating expenses.......    3,258       11,356          6,517           --           21,131
                                           -------      -------         ------          ---          -------
          Operating income...............   (3,258)       5,078          1,545           --            3,365
  Interest expense.......................      (81)      (2,960)          (600)          --           (3,641)
  Other income (expense).................       78          233            689           --            1,000
  Minority interest in income of
     subsidiary..........................       --           --           (851)          --             (851)
                                           -------      -------         ------          ---          -------
          Income from continuing
            operations before income
            taxes........................   (3,261)       2,351            783           --             (127)
  Provision for income taxes.............     (374)        (125)            84           --             (415)
                                           -------      -------         ------          ---          -------
          Income from continuing
            operations...................   (2,887)       2,476            699           --              288
Discontinued operations
  Estimated loss on disposal of
     discontinued Motor Carrier
     segment.............................       --           --           (453)          --             (453)
  Loss from operations of discontinued
     Motor Carrier segment...............       --           --          2,104           --            2,104
                                           -------      -------         ------          ---          -------
          Net Income.....................  $(2,887)     $ 2,476         $2,350          $--          $ 1,939
                                           =======      =======         ======          ===          =======


                                      F-38
   121
                       RAILAMERICA, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                     CONSOLIDATING STATEMENT OF CASH FLOWS
                      FOR THE YEAR ENDED DECEMBER 31, 1997



                                                                              NON
                                                COMPANY     GUARANTOR      GUARANTOR
                                                (PARENT)   SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                                --------   ------------   ------------   ------------   ------------
                                                                                         
Cash flows from operating activities:
  Net income..................................  $(2,887)      $2,476        $  2,350         $--          $  1,939
  Adjustments to reconcile net income to net
    cash provided by operating activities:
    Depreciation and amortization.............      280        1,624           1,150          --             3,054
    Minority interest in income of
      subsidiary..............................       --           --             851          --               851
    Write-off of excess of cost over net
      assets..................................       --           --             730          --               730
    Write-off of deferred acquisition costs...       76           --              --          --                76
    Sale of properties........................       --         (590)            (18)         --              (608)
    Employee stock grants.....................       15           --              --          --                15
    Deferred income taxes.....................     (197)        (673)          1,252          --               382
    Changes in operating assets and
      liabilities, net of acquisitions and
      dispositions:
      Accounts receivable.....................     (548)        (888)         (1,602)         --            (3,038)
      Inventories.............................       --          (70)         (1,225)         --            (1,295)
      Other current assets....................        2           35              87          --               124
      Accounts payable........................       19          486          (1,111)         --              (606)
      Accrued expenses........................     (152)         304             562          --               714
      Deposits and other......................       48          (19)            (76)         --               (47)
                                                -------       ------        --------         ---          --------
         Net cash provided by operating
           activities.........................   (3,344)       2,685           2,950          --             2,291
                                                -------       ------        --------         ---          --------
Cash flows from investing activities:
  Purchase of property, plant and equipment...     (150)      (4,160)         (3,146)         --            (7,456)
  Acquisitions, net of cash acquired..........       --           --          (7,390)         --            (7,390)
  Investment in Great Southern Railway........       --           --            (597)         --              (597)
  Loan receivable from Great Southern
    Railway...................................       --           --          (1,193)         --            (1,193)
  Proceeds from sales of subsidiaries.........      152          180              --          --               332
  Deferred acquisition costs and other........     (398)         (59)             --          --              (457)
                                                -------       ------        --------         ---          --------
         Net cash used in investing
           activities.........................     (396)      (4,039)        (12,326)         --           (16,761)
                                                -------       ------        --------         ---          --------
Cash flows from financing activities:
  Proceeds from issuance of long-term debt....   18,605        8,866           3,983          --            31,454
  Principal payments on debt and capital
    leases....................................  (15,340)      (4,781)         (5,328)         --           (25,449)
  Disbursements/receipts on intercompany
    debt......................................   (7,859)      (2,961)         10,820          --                --
  Sale of common stock........................    8,164           --              --          --             8,164
  Proceeds from exercise of stock options.....      748           --              --          --               748
  Deferred financing costs paid...............     (287)          --              --          --              (287)
  Deferred loan costs paid....................     (281)         (14)             --          --              (295)
                                                -------       ------        --------         ---          --------
         Net cash provided by financing
           activities.........................    3,750        1,110           9,475          --            14,335
                                                -------       ------        --------         ---          --------
Net (decrease) increase in cash...............       10         (244)             99          --              (135)
Cash, beginning of period.....................    3,460          420              --          --             3,880
                                                -------       ------        --------         ---          --------
Cash, end of period...........................  $ 3,470       $  176        $     99         $--          $  3,745
                                                =======       ======        ========         ===          ========


                                      F-39
   122

                       RAILAMERICA, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
                                  (UNAUDITED)



                                                              JUNE 30,   DECEMBER 31,
                                                                2000         1999
                                                              --------   ------------
                                                                   
                                       ASSETS
Current assets:
  Cash......................................................  $  9,041     $ 11,598
  Accounts and notes receivable.............................    57,056       40,857
  Inventories...............................................    11,968        9,929
  Other current assets......................................     7,958        3,500
  Net assets of discontinued operation......................    19,338       14,996
                                                              --------     --------
          Total current assets..............................   105,361       80,880
Property, plant and equipment, net..........................   737,238      347,617
Investment in affiliates....................................     4,739        4,667
Other assets................................................    21,371       10,765
                                                              --------     --------
          Total assets......................................  $868,709     $443,929
                                                              ========     ========
                        LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current maturities of long-term debt......................  $ 20,553     $ 17,811
  Current portion of asset sale bridge loan.................    37,063           --
  Accounts payable..........................................    41,210       23,732
  Accrued expenses..........................................    38,224       15,379
                                                              --------     --------
          Total current liabilities.........................   137,050       56,922
Long-term debt, less current maturities.....................   383,880      145,016
Subordinated debt, less current maturities..................    96,790      101,968
Convertible subordinated debt...............................    20,706       20,481
Other liabilities...........................................    28,742       16,374
Deferred income taxes.......................................    66,552       15,382
Minority interest...........................................     9,684        9,489
                                                              --------     --------
                                                               743,404      365,632
                                                              --------     --------
Commitments and contingencies
Redeemable convertible preferred stock, $0.01 par value, $25
  liquidation value, 1,000,000 shares authorized; 290,400
  and 378,400 shares outstanding, respectively..............     6,827        8,830
                                                              --------     --------
Stockholders' equity:
  Common stock, $0.001 par value............................        20           13
  Additional paid-in capital................................   115,262       52,305
  Retained earnings.........................................    22,200       18,171
  Accumulated other comprehensive income....................   (12,504)       3,486
  Treasury stock (1,027,839 and 716,589 shares,
     respectively, at cost).................................    (6,500)      (4,508)
                                                              --------     --------
          Total stockholders' equity........................   118,478       69,467
                                                              --------     --------
          Total liabilities and stockholders' equity........  $868,709     $443,929
                                                              ========     ========


   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                      F-40
   123

                       RAILAMERICA, INC. AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF INCOME
           FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
                   (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
                                  (UNAUDITED)



                                                      THREE MONTHS ENDED     SIX MONTHS ENDED
                                                           JUNE 30,              JUNE 30,
                                                     --------------------   -------------------
                                                       2000        1999       2000       1999
                                                     --------    --------   --------    -------
                                                                            
Operating revenue..................................  $ 96,047    $ 28,816   $177,047    $39,878
                                                     --------    --------   --------    -------
Operating expenses:
  Transportation...................................    53,448      17,595    102,103     23,352
  Selling, general and administrative..............    17,511       5,122     28,750      7,805
  Acquisition related costs........................     1,185          --      1,924         --
  Gain on sale and impairment of assets (net)......    (7,785)         --     (7,785)        --
  Depreciation and amortization....................     7,983       1,726     14,384      2,720
                                                     --------    --------   --------    -------
          Total operating expenses.................    72,342      24,443    139,376     33,877
                                                     --------    --------   --------    -------
          Operating income.........................    23,705       4,373     37,671      6,001
Interest expense...................................   (11,456)     (3,071)   (23,062)    (4,388)
Amortization of financing costs....................    (1,490)       (856)    (2,638)      (988)
Minority interest and other income (expense).......       198        (409)     1,007       (534)
Foreign exchange gain (loss).......................       189       2,005     (3,243)     2,005
                                                     --------    --------   --------    -------
          Income from continuing operations before
            income taxes...........................    11,146       2,042      9,735      2,096
Provision for income taxes.........................     3,558         653      3,036        668
                                                     --------    --------   --------    -------
  Income from continuing operations................     7,588       1,389      6,699      1,428
Discontinued operations:
  (Loss) income from operations of discontinued
     segment (net of applicable income tax of
     ($215), $804, ($293) and $1,272,
     respectively).................................       (35)      1,359       (112)     2,523
                                                     --------    --------   --------    -------
          Income before extraordinary item.........     7,553       2,748      6,587      3,951
Extraordinary loss from early extinguishment of
  debt (net of tax)................................        --          --     (2,216)        --
                                                     --------    --------   --------    -------
          Net income...............................  $  7,553    $  2,748   $  4,371    $ 3,951
                                                     ========    ========   ========    =======
- -----------------------------------------------------------------------------------------------
Net income available to common stockholders........  $  7,387    $  2,482   $  4,029    $ 3,444
                                                     ========    ========   ========    =======
Basic earnings per common share
  Continuing operations............................  $   0.40    $   0.10   $   0.36    $  0.09
  Discontinued operations..........................        --        0.12         --       0.23
  Extraordinary item...............................        --          --      (0.13)        --
                                                     --------    --------   --------    -------
          Net income...............................  $   0.40    $   0.22   $   0.24    $  0.32
                                                     ========    ========   ========    =======
Diluted earnings per common share
  Continuing operations............................  $   0.36    $   0.10   $   0.36    $  0.08
  Discontinued operations..........................        --        0.12         --       0.23
  Extraordinary item...............................        --          --      (0.13)        --
                                                     --------    --------   --------    -------
          Net income...............................  $   0.36    $   0.22   $   0.23    $  0.31
                                                     ========    ========   ========    =======
Weighted average common shares outstanding
  Basic............................................    18,516      11,115     17,493     10,617
                                                     ========    ========   ========    =======
  Diluted..........................................    21,883      11,553     17,684     11,004
                                                     ========    ========   ========    =======


   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                      F-41
   124

                       RAILAMERICA, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                     FOR THE SIX MONTHS ENDED JUNE 30, 2000
                                 (IN THOUSANDS)
                                  (UNAUDITED)



                                                                              STOCKHOLDERS' EQUITY
                                                 -------------------------------------------------------------------------------
                                                 NUMBER OF           ADDITIONAL                  OTHER
                                                  SHARES      PAR     PAID-IN     RETAINED   COMPREHENSIVE   TREASURY
                                                  ISSUED     VALUE    CAPITAL     EARNINGS      INCOME        STOCK      TOTAL
                                                 ---------   -----   ----------   --------   -------------   --------   --------
                                                                                                   
Balance, December 31, 1999.....................   12,611      $13     $ 52,305    $18,171      $  3,486      $ (4,508)  $ 69,467
Net income.....................................       --       --           --      4,371            --            --      4,371
Cumulative translation adjustments.............       --       --           --         --       (15,990)           --    (15,990)
                                                                                                                        --------
        Total comprehensive income.............                                                                          (11,619)
                                                                                                                        --------
Issuance of common stock.......................    6,652        7       60,900         --            --            --     60,907
Exercise of stock options......................       --       --            4         --            --            --          4
Conversion of redeemable convertible preferred
  stock........................................      267       --        2,053         --            --            --      2,053
Purchase of treasury stock.....................       --       --           --         --            --        (1,992)    (1,992)
Preferred stock dividends and accretion........       --       --           --       (342)           --            --       (342)
                                                  ------      ---     --------    -------      --------      --------   --------
Balance, June 30, 2000.........................   19,530      $20     $115,262    $22,200      $(12,504)     $ (6,500)  $118,478
                                                  ======      ===     ========    =======      ========      ========   ========


   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                      F-42
   125

                       RAILAMERICA, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
                                 (IN THOUSANDS)
                                  (UNAUDITED)



                                                                2000        1999
                                                              ---------   --------
                                                                    
Cash flows from operating activities:
  Net income................................................  $   4,371   $  3,951
     Adjustments to reconcile net income to net cash
      provided by operating activities:
       Depreciation and amortization........................     18,484      4,316
       Write-off of deferred loan costs.....................      2,498         --
       Interest paid in kind................................      2,063         --
       Minority interest in income of subsidiary............        195        381
       Equity interest in earnings of affiliate.............       (129)        --
       (Gain) loss on sale or disposal of properties........     (7,834)       337
       Deferred income taxes................................    (10,465)     1,629
       Changes in operating assets and liabilities, net of
        acquisitions and dispositions:
          Accounts receivable...............................     13,016        407
          Inventories.......................................     (3,558)       369
          Other current assets..............................      1,322     (1,190)
          Accounts payable..................................     (3,269)     4,826
          Accrued expenses..................................     11,422     (3,577)
          Other liabilities.................................       (133)       166
          Deposits and other................................     (8,678)     1,415
                                                              ---------   --------
               Net cash provided by operating activities....     19,305     13,029
                                                              ---------   --------
Cash flows from investing activities:
  Purchase of property, plant and equipment.................    (23,244)   (25,554)
  Proceeds from sale of properties..........................      9,574        103
  Acquisitions, net of cash acquired........................   (149,969)    (5,206)
  Deposit on purchase agreement.............................         --         --
  Cash held in discontinued operations......................        170         --
  Deferred acquisition costs and other......................     (1,379)      (393)
                                                              ---------   --------
               Net cash used in investing activities........   (164,848)   (31,050)
                                                              ---------   --------
Cash flows from financing activities:
  Proceeds from issuance of long-term debt..................    207,104     51,087
  Principal payments on long-term debt......................    (48,208)   (37,930)
  Sale of convertible preferred stock.......................         --      4,095
  Sale of common stock......................................         --     11,914
  Proceeds from exercise of stock options...................          4        337
  Preferred stock dividends paid............................       (281)      (410)
  Purchase of treasury stock................................     (1,992)      (636)
  Deferred financing costs paid.............................    (13,219)      (810)
                                                              ---------   --------
               Net cash provided by financing activities....    143,408     27,647
                                                              ---------   --------
Net (decrease) increase in cash.............................     (2,135)     9,626
Effect of exchange rates on cash............................       (422)        --
Cash, beginning of period...................................     11,598      5,760
                                                              ---------   --------
Cash, end of period.........................................  $   9,041   $ 15,386
                                                              =========   ========


   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                      F-43
   126

                       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 June 30, 2000 and December
31, 1999, and the results of operations and cash flows for the three and six
months ended June 30, 2000 and 1999. The results of operations for the three and
six months ended June 30, 2000 are not necessarily indicative of the results to
be expected for the full year.

     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 1999
annual report on Form 10-K. Capitalized terms used but not otherwise defined
herein have the meanings set forth in the Company's 1999 annual report on Form
10-K. Certain prior period amounts have been reclassified to conform with the
current period presentation.

2.  EARNINGS PER SHARE

     For the three and six months ended June 30, 2000 and 1999, basic earnings
per share is calculated using the weighted average number of common shares
outstanding during the period. Income from continuing operations is reduced by
preferred stock dividends and accretion for the basic earnings per share
computation.

     For the three months ended June 30, 2000, diluted earnings per share is
calculated using the sum of the weighted average number of common shares
outstanding plus potentially dilutive common shares arising out of stock
options, warrants, convertible debt and convertible preferred stock. Options and
warrants totaling 4.2 million were excluded from the diluted earnings per share
calculation for the six and three months ended June 30, 2000 as the exercise
price of these options and warrants were greater than the average market price
of the Common Stock. Assumed conversion of the redeemable convertible preferred
stock and the $22.5 million of convertible debt are anti-dilutive for the six
months ended June 30, 2000 and 1999 and the three months ended June 30, 1999 and
have been excluded from the weighted average shares outstanding for diluted
earnings per share.

                                      F-44
   127
                       RAILAMERICA, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following is a summary of the income from continuing operations
available for common stockholders and weighted average shares (in thousands):



                                                         THREE MONTHS ENDED     SIX MONTHS ENDED
                                                              JUNE 30,              JUNE 30,
                                                         -------------------   ------------------
                                                           2000       1999      2000       1999
                                                         --------    -------   -------    -------
                                                                              
Income from continuing operations......................  $  7,588    $ 1,389   $ 6,699    $ 1,428
Preferred stock dividends and accretion................      (166)      (266)     (342)      (507)
                                                         --------    -------   -------    -------
Income from continuing operations available to common
  stockholders (basic).................................     7,422      1,123     6,357        921
Interest on convertible debt...........................       288         --        --         --
Preferred stock dividends and accretion................       166         --        --         --
                                                         --------    -------   -------    -------
Income from continuing operations available to common
  stockholders (diluted)...............................  $  7,876    $ 1,123   $ 6,357    $   921
                                                         ========    =======   =======    =======
Weighted average shares outstanding (basic)............    18,516     11,115    17,493     10,617
Assumed conversion of options and warrants.............       122        438       191        387
Assumed conversion of convertible securities...........     3,245         --        --         --
                                                         --------    -------   -------    -------
Weighted average shares outstanding (diluted)..........    21,883     11,553    17,684     11,004
                                                         ========    =======   =======    =======


3.  PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment consist of the following as of June 30, 2000
and December 31, 1999 (in thousands):



                                                                2000       1999
                                                              --------   --------
                                                                   
Land........................................................  $134,164   $ 34,345
Buildings and improvements..................................    13,404      8,683
Railroad track and improvements.............................   429,642    186,670
Locomotives, transportation and other equipment.............   184,303    135,309
                                                              --------   --------
                                                               761,513    365,007
Less accumulated depreciation...............................    24,275     17,390
                                                              --------   --------
                                                              $737,238   $347,617
                                                              ========   ========


     In February 2000, the Company acquired RailTex, Inc. This acquisition
resulted in approximately $390 million of the fixed asset additions.

     The Company recognized a $9.0 million gain on the sale of land of a Texas
railroad in June 2000. In addition, the Company recognized a $0.5 million loss
on sale and an asset impairment charge of $0.8 million in the second quarter of
2000 related to its tractor and trailer fleet. The net effect of these
transactions has been reflected in operating expenses in the consolidated
statement of income.

4.  ACQUISITION

     On February 4, 2000, the Company acquired RailTex, Inc. for $128 million in
cash, assumption of $111 million in debt and 6.6 million shares of the Company's
Common Stock, valued at $60.9 million. RailTex, the operator of 25 railroads and
over 4,100 miles of rail lines in North America, became a wholly-owned
subsidiary of the Company. This transaction was financed through the issuance of
new debt (see Note 6).

     The acquisition of RailTex has been accounted for as a purchase and its
results have been consolidated since the acquisition date. The final purchase
price allocation was based upon the fair value of the net assets acquired. As
part of the purchase price and in accordance with EITF 95-3, "Recognition of
Liabilities in

                                      F-45
   128
                       RAILAMERICA, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Connection with a Purchase Business Combination", the Company recorded
liabilities of $11.2 million which related to severance and change of control
payments to former RailTex employees.

     The following unaudited pro forma summary presents the consolidated results
of operations as if the acquisition of Railtex had occurred at the beginning of
the periods presented and does not purport to be indicative of what would have
occurred had the acquisition been made as of that date or results which may
occur in the future (in thousands except per share data). The six months ended
June 30, 1999 also include the purchases of Freight Australia, which occurred in
April 1999, RaiLink, Ltd., which occurred in July 1999 and Toledo, Peoria and
Western Railroad, which occurred in August 1999 as if these acquisitions had
occurred on January 1, 1999.



                                                              FOR THE SIX MONTHS ENDED
                                                                      JUNE 30,
                                                              ------------------------
                                                                 2000          1999
                                                              ----------    ----------
                                                                      
Operating revenue...........................................   $191,121      $187,332
Income from continuing operations...........................   $  9,122      $  4,495
Net income..................................................   $  6,794      $  7,018
Earnings per share -- continuing operations
  Basic.....................................................   $   0.47      $   0.22
  Diluted...................................................   $   0.47      $   0.21
Earnings per share -- net (loss) income
  Basic.....................................................   $   0.35      $   0.36
  Diluted...................................................   $   0.34      $   0.32


5.  OTHER ASSETS

     Other assets consist of the following as of June 30, 2000 and December 31,
1999 (in thousands):



                                                               2000      1999
                                                              -------   -------
                                                                  
Deferred loan costs.........................................  $13,745   $ 6,657
Notes receivable............................................    1,668     2,123
Deposits and other..........................................    5,958     1,985
                                                              -------   -------
                                                              $21,371   $10,765
                                                              =======   =======


6.  LONG-TERM DEBT

     In February 2000, the Company entered into a credit agreement and two
bridge note facilities in connection with the acquisition of RailTex and the
refinancing of most of the Company's and RailTex's existing debt. The credit
agreement provides (1) a $125 million Term A loan, bearing interest at LIBOR
plus 3.00% (2) a $205 million Term B loan, bearing interest at LIBOR plus 3.25%,
and (3) a $50 million revolving credit facility which includes $30 million of
U.S. dollar denominated loans, $10 million of Canadian dollar denominated loans
and $10 million of Australian dollar denominated loans with an interest rate of
LIBOR plus 3.00%. In May 2000, the Company entered into interest rate swaps
which lock in a blended rate of 10.35% on $212.5 million of this debt for a
three-year period. All of the Stock of all the Company's U.S. subsidiaries,
excluding Kalyn/Siebert I, Inc. (a discontinued operation), and 65% of the stock
of the Company's foreign subsidiaries serve as collateral for the credit
facilities.

     The Term A loan requires principal payments of 5% in 2000, 10% in 2001, 15%
in 2002, 20% in 2003, and 25% in both 2004 and 2005. The Term B loan requires
principal payments of 1% per year through 2005 and a balloon maturity at
December 31, 2006. The revolving loan matures on December 31, 2005.

                                      F-46
   129
                       RAILAMERICA, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The Company's credit facilities include covenants which impose financial
and operating restrictions on the Company's ability to, among other things:
incur more debt; pay dividends, redeem or repurchase its stock or make other
distributions; make acquisitions or investments; use assets as security in other
transactions; enter into transactions with affiliates; merge or consolidate with
others; dispose of assets or use asset sale proceeds; create liens on its
assets; and extend credit. The credit facilities also contain financial
covenants that require the Company to meet a number of financial ratios and
tests.

     The Company, through its wholly-owned subsidiary RailAmerica Transportation
Corp., issued $95 million of subordinated bridge notes, under a securities
purchase agreement with DLJ Bridge Finance, Inc., bearing interest at an initial
rate of 13% per annum, and increasing every three months based on the highest
specified rates. The subordinated bridge note was fully paid off in August 2000
(see note 11). The Company, through its wholly-owned subsidiary Palm Beach Rail
Holding, Inc. issued $55 million of asset sale bridge notes, under a securities
purchase agreement with DLJ Bridge Finance, Inc. These notes mature on February
4, 2001 and have an initial interest rate of 15% per annum, which rate increases
on August 4, 2000 and November 4, 2000 based on the highest of specified rates.
The asset sale bridge notes are collateralized by the assets of Kalyn/Siebert. A
majority of the asset sale bridge notes are included in current liabilities and
the related interest expense is included in discontinued operations as the
proceeds from the sale of Kalyn/Siebert are required to be used to pay down the
asset sale bridge notes. $20 million of these notes were paid in August 2000
(see note 11).

     In connection with the issuance of the asset sale bridge notes, the
purchasers of such notes are entitled to receive warrants to purchase common
stock at an exercise price of $7.75 per share commencing in August 2000 to the
extent the asset sale bridge notes are then outstanding. The maximum number of
shares issuable upon exercise of these warrants is 0.6 million, subject to
specified anti-dilution adjustments. In August 2000, 0.3 million of the warrants
were issued.

     In connection with the February 2000 debt refinancing, including the
refinancing of RailTex's debt, the Company recorded an extraordinary charge of
$2.2 million for early extinguishment of debt, net of income taxes, in the first
quarter of 2000.

7.  NON-CASH INVESTING AND FINANCING ACTIVITIES

     During the first quarter of 2000, $2.2 million of the redeemable
convertible preferred stock was converted into the Company's Common Stock.

     In connection with the RailTex acquisition, the Company refinanced $223
million of its debt and $111 million of debt that it assumed from RailTex using
the credit facilities described in Note 6. The Company also issued 6.6 million
shares of its Common Stock, valued at $60.9 million as part of the purchase
price.

8.  COMMON STOCK

     The Company's common stock issued and outstanding as of June 30, 2000 was
19,530,444 and 18,502,605, respectively, and 12,610,725 and 11,894,136,
respectively, as of December 31, 1999. There are 60,000,000 shares authorized.

     On August 24, 1998, the Company's Board of Directors authorized a share
repurchase program to buy back up to 1,000,000 shares of its Common Stock
(limited to $2 million per year pursuant to the Company's credit facilities).
Purchases will be made from time to time in the open market and will continue
until all of such shares are purchased or until the Company determines to
terminate the repurchase program. During the year 2000, the Company has
purchased 311,250 shares with a total cost of $2.0 million.

     In June 2000, the Company engaged JW Genesis to assist the Company's Board
of Directors in evaluating the issuance of the subordinated debt, and issued
three-year warrants to purchase 150,000 shares of

                                      F-47
   130
                       RAILAMERICA, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the Company's common stock to JW Genesis. Of these warrants, 75,000 are at an
exercise price of $5.50 and 75,000 are at an exercise price of $6.50.

9.  DISCONTINUED OPERATIONS

     In November 1999, the Company adopted a plan to sell its trailer
manufacturing operations, Kalyn/Siebert. This business has been accounted for as
a discontinued operation and the results of operations have been excluded from
continuing operations in the consolidated statements of operations for all
periods presented.

     Total revenue for this business was $21.5 million and $23.0 million for the
six months ended June 30, 2000 and 1999, respectively. Income (loss) before
income taxes for this business was ($0.4 million) and $3.8 million for the six
months ended June 30, 2000 and 1999, respectively. Total assets in this business
as of June 30, 2000 and December 31, 1999 were $29.6 million and $28.8 million,
respectively. Total liabilities in this business as of June 30, 2000 and
December 31, 1999 were $44.8 million, which excluded a majority of the asset
sale bridge notes, and $13.9 million, respectively. Interest of $3.5 million was
allocated to the discontinued operations for the first six months of 2000
relating to the asset sale bridge notes.

10.  SEGMENT INFORMATION

     The Company's continuing operations have been classified into two segments:
North American rail transportation and International rail transportation. The
North American rail transportation segment includes the operations of the
Company's railroad subsidiaries in the United States and Canada and the
international rail transportation segment includes the operations of the
Company's railroad subsidiaries in Chile and Australia. Because the Company's
trailer manufacturing segment was classified as a discontinued operation its net
assets are included in corporate and other.

     Segment information for the six months ended June 30, 2000 and 1999 follows
(in thousands):

SIX MONTHS ENDED JUNE 30, 2000:



                                                     NORTH AMERICAN   INTERNATIONAL   CORPORATE AND
                                      CONSOLIDATED     RAILROADS        RAILROADS         OTHER
                                      ------------   --------------   -------------   -------------
                                                                          
Revenue.............................    $177,047        $112,542        $ 63,600        $    905
Depreciation and amortization.......    $ 14,384        $  9,997        $  3,461        $    926
Operating income (loss).............    $ 37,671        $ 31,824        $ 12,272        $ (6,425)
          Total assets..............    $868,709        $539,133        $108,446        $221,130


SIX MONTHS ENDED JUNE 30, 1999:



                                                     NORTH AMERICAN   INTERNATIONAL   CORPORATE AND
                                      CONSOLIDATED     RAILROADS        RAILROADS         OTHER
                                      ------------   --------------   -------------   -------------
                                                                          
Revenue.............................    $ 39,878        $ 13,018        $ 25,761         $ 1,099
Depreciation and amortization.......    $  2,720        $  1,020        $  1,257         $   443
Operating income (loss).............    $  6,001        $  2,620        $  5,131         $(1,750)
          Total assets..............    $292,631        $ 16,499        $204,382         $71,750


11.  SUBSEQUENT EVENTS

     In August 2000, the Company, through its wholly-owned subsidiary
RailAmerica Transportation Corp., issued 130,000 units each consisting of $1,000
of 12 7/8% senior subordinated notes due 2010 and warrants to purchase 10.857
shares of RailAmerica common stock for $6.60 per share. Warrants issued totaled
1.4 million. The price per unit was $940.38 and gross proceeds were $122.2
million. The Company used the net

                                      F-48
   131
                       RAILAMERICA, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

proceeds of the offering to permanently finance most of the bridge debt incurred
in connection with its acquisition of RailTex (see note 6).

12.  CONTINGENCIES

     In the second quarter of 2000, certain parties filed property damage claims
totaling approximately CND$50 million against the Mackenzie Northern Railway and
others, in connection with fires that allegedly occurred in 1998. We intend to
vigorously defend these claims, and have insurance coverage to approximately
CND$20 million to cover these claims. Because these actions are in their early
stages and the claimants have not yet asserted the legal basis for their claims,
the Company is unable to assess the merits of the claims; however, our insurer
has reserved CND$15 million for these matters. A loss, if any, in excess of our
insurance policy coverage may adversely affect our cash flow and financial
condition.

                                      F-49
   132
                       RAILAMERICA, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13.  GUARANTOR FINANCIAL STATEMENT INFORMATION

     Set forth are condensed Consolidating Financial Statements of the Company
(Parent), the Guarantor Subsidiaries, Non Guarantor Subsidiaries and the Company
on a consolidated basis.

                          CONSOLIDATING BALANCE SHEET
                                AT JUNE 30, 2000



                                                                        NON
                                          COMPANY     GUARANTOR      GUARANTOR
                                          (PARENT)   SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                          --------   ------------   ------------   ------------   ------------
                                                                                   
                      ASSETS
Current Assets:
  Cash..................................  $    272     $    113      $   8,656      $      --       $  9,041
  Accounts and notes receivable.........     1,748       31,441         25,566         (1,699)        57,056
  Inventories...........................        --        2,368          9,600             --         11,968
  Other current assets..................     1,150        3,601          3,207             --          7,958
  Net assets of discontinued
     operation..........................        --           --         19,338             --         19,338
                                          --------     --------      ---------      ---------       --------
          Total current assets..........     3,170       37,523         66,367         (1,699)       105,361
  Property, plant and equipment, net....     1,180      440,881        295,177             --        737,238
  Investment in affiliates..............        --           --          4,739             --          4,739
  Other assets..........................     3,662       14,320          3,389             --         21,371
  Investment in and advances to
     affiliates.........................   111,103      390,669       (117,921)      (383,851)            --
                                          --------     --------      ---------      ---------       --------
          Total assets..................  $119,115     $883,393      $ 251,751      $(385,550)      $868,709
                                          ========     ========      =========      =========       ========
       LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Current maturities of long-term
     debt...............................  $     --     $ 12,874          9,378      $  (1,699)      $ 20,553
  Current portion of asset sale
     bridge.............................        --           --         37,063             --         37,063
  Accounts payable......................       424       23,043         17,743             --         41,210
  Accrued expenses......................     1,025       19,135         18,064             --         38,224
                                          --------     --------      ---------      ---------       --------
          Total current liabilities.....     1,449       55,052         82,248         (1,699)       137,050
Long-term debt, less current
  maturities............................        --      338,489         45,391             --        383,880
Subordinated Debt.......................        --       95,000          1,790             --         96,790
Convertible subordinated debt...........    20,706           --             --             --         20,706
Other liabilities.......................        --       15,589         13,153             --         28,742
Deferred income taxes...................    (5,499)      71,853            198             --         66,552
Minority interest.......................        --           --          4,269          5,415          9,684
Redeemable convertible preferred
  stock.................................     6,827           --             --             --          6,827
Stockholders' equity:
  Common stock..........................        20          973         27,797        (28,770)            20
  Additional paid-in capital............   115,263      311,000         49,495       (360,496)       115,262
  Retained earnings.....................   (13,170)      (4,810)        40,180             --         22,200
  Accumulated other comprehensive
     income.............................        19          247        (12,770)            --        (12,504)
  Treasury stock........................    (6,500)          --             --             --         (6,500)
                                          --------     --------      ---------      ---------       --------
          Total stockholders' equity....    95,632      307,410        104,702       (389,266)       118,478
                                          --------     --------      ---------      ---------       --------
          Total liabilities and
            stockholders' equity........  $119,115     $883,393      $ 251,751      $(385,550)      $868,709
                                          ========     ========      =========      =========       ========


                                      F-50
   133
                       RAILAMERICA, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                       CONSOLIDATING STATEMENT OF INCOME
                     FOR THE SIX MONTHS ENDED JUNE 30, 2000



                                                                         NON
                                           COMPANY     GUARANTOR      GUARANTOR
                                           (PARENT)   SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                           --------   ------------   ------------   ------------   ------------
                                                                                    
Operating revenue........................  $   276      $ 81,480       $95,567         $(276)        $177,047
                                           -------      --------       -------         -----         --------
Operating expenses:
  Transportation.........................       --        41,213        60,890            --          102,103
  Selling, general and administrative....    4,564        15,531         8,931          (276)          28,750
  Acquisition related expenses...........      208         1,716            --            --            1,924
  Gain on sale and impairment of assets
     (net)...............................       --        (9,036)        1,251            --           (7,785)
  Depreciation and amortization..........       62         8,405         5,917            --           14,384
                                           -------      --------       -------         -----         --------
          Total operating expenses.......    4,834        57,829        76,989            --          139,376
                                           -------      --------       -------         -----         --------
          Operating income...............   (4,558)       23,651        18,578            --           37,671
Interest expense.........................     (692)      (18,945)       (3,426)           --          (23,063)
Amortization of financing costs..........     (465)       (1,859)         (314)           --           (2,638)
Minority interest and other income
  (expense)..............................       30           286           692            --            1,008
Foreign exchange loss....................       --            --        (3,243)           --           (3,243)
                                           -------      --------       -------         -----         --------
          Income from continuing
            operations before income
            taxes........................   (5,685)        3,133        12,287            --            9,735
Provision for income taxes...............   (2,232)        1,989         3,279            --            3,036
                                           -------      --------       -------         -----         --------
          Income from continuing
            operations...................   (3,453)        1,144         9,008            --            6,699
Discontinued operations:
  Loss from operations of discontinued
     segment.............................       --            --          (112)           --             (112)
                                           -------      --------       -------         -----         --------
Income (loss) before extraordinary
  item...................................   (3,453)        1,144         8,896                          6,587
Extraordinary loss from early
  extinguishment of debt (net of tax)....   (1,232)          (57)         (927)           --           (2,216)
                                           -------      --------       -------         -----         --------
          Net income.....................  $(4,685)     $  1,087       $ 7,969         $  --         $  4,371
                                           =======      ========       =======         =====         ========


                                      F-51
   134
                       RAILAMERICA, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                     CONSOLIDATING STATEMENT OF CASH FLOWS
                     FOR THE SIX MONTHS ENDED JUNE 30, 2000



                                                                                           NON
                                                             COMPANY     GUARANTOR      GUARANTOR
                                                             (PARENT)   SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                                             --------   ------------   ------------   ------------   ------------
                                                                                                      
Cash flows from operating activities:
  Net income (loss)........................................  $(4,685)    $   1,087       $  7,969           --        $   4,371
  Adjustments to reconcile net income to net cash provided
    by operating activities:
    Depreciation and amortization..........................      542        10,248          7,694           --           18,484
    Write-off of deferred loan costs.......................    1,323            14          1,161           --            2,498
    Interest paid in kind..................................       --            --          2,063           --            2,063
    Minority interest in income of subsidiary..............       --            --            195           --              195
    Equity interest in earnings of affiliate...............       --            --           (129)          --             (129)
    (Gain) loss on sale or disposal of properties..........       --        (9,088)         1,254           --           (7,834)
    Deferred income taxes..................................   (2,936)       (2,125)        (5,404)          --          (10,465)
    Changes in operating assets and liabilities, net of
      acquisitions and dispositions:
      Accounts receivable..................................      700         6,846          5,470           --           13,016
      Inventories..........................................       --        (2,001)        (1,557)          --           (3,558)
      Other current assets.................................     (709)        2,129            (98)          --            1,322
      Accounts payable.....................................     (353)          808         (3,724)          --           (3,269)
      Accrued expenses.....................................      301         6,355          4,766           --           11,422
      Other liabilities....................................       --         1,241         (1,374)          --             (133)
      Deposits and other...................................   (1,034)       (2,641)        (5,003)          --           (8,678)
                                                             -------     ---------       --------        -----        ---------
        Net cash provided by operating activities..........   (6,851)       12,873         13,283           --           19,305
                                                             -------     ---------       --------        -----        ---------
Cash flows from investing activities:
  Purchase of property, plant and equipment................      (27)       (7,951)       (15,266)          --          (23,244)
  Proceeds from sale of properties.........................       --         9,427            147           --            9,574
  Acquisitions, net of cash acquired.......................       --      (149,969)            --           --         (149,969)
  Cash held in discontinued operations.....................       --            --            170           --              170
  Deferred acquisition costs and other.....................   (1,331)          (48)            --           --           (1,379)
                                                             -------     ---------       --------        -----        ---------
        Net cash used in investing activities..............   (1,358)     (148,541)       (14,949)          --         (164,848)
                                                             -------     ---------       --------        -----        ---------
Cash flows from financing activities:
  Proceeds from issuance of long-term debt.................      986       198,766          7,352           --          207,104
  Principal payments on long-term debt.....................  (11,699)      (34,456)        (2,053)          --          (48,208)
  Disbursements/receipts on intercompany debt..............   21,423       (20,636)          (787)          --               --
  Proceeds from exercise of stock options..................        4            --             --           --                4
  Preferred stock dividends paid...........................     (281)           --             --           --             (281)
  Purchase of treasury stock...............................   (1,992)           --             --           --           (1,992)
  Deferred financing costs paid............................      (52)      (11,659)        (1,508)          --          (13,219)
                                                             -------     ---------       --------        -----        ---------
        Net cash provided by financing activities..........    8,389       132,015          3,004           --          143,408
                                                             -------     ---------       --------        -----        ---------
Net (decrease) increase in cash............................      180        (3,653)         1,338           --           (2,135)
Effect of exchange rates on cash...........................       --            --           (422)          --             (422)
Cash, beginning of period..................................       92         3,770          7,736           --           11,598
                                                             -------     ---------       --------        -----        ---------
Cash, end of period........................................  $   272     $     117       $  8,652        $  --        $   9,041
                                                             =======     =========       ========        =====        =========


                                      F-52
   135

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To RailTex, Inc.:

     We have audited the accompanying consolidated balance sheets of RailTex,
Inc. (a Texas corporation), and subsidiaries as of December 31, 1999 and 1998,
and the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of RailTex,
Inc., and subsidiaries as of December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.

Arthur Andersen LLP

San Antonio, Texas
February 17, 2000

                                      F-53
   136

                         RAILTEX, INC. AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF INCOME
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)



                                                              FOR THE YEARS ENDED DECEMBER 31,
                                                              ---------------------------------
                                                                1999        1998        1997
                                                              ---------   ---------   ---------
                                                                             
OPERATING REVENUES..........................................  $177,845    $161,020    $148,791
OPERATING EXPENSES:
  Transportation............................................    57,716      53,485      50,870
  General and administrative................................    36,437      30,855      30,701
  Equipment.................................................    19,256      18,837      17,830
  Maintenance of way........................................    17,091      15,933      13,449
  Depreciation and amortization.............................    16,693      14,258      12,940
                                                              --------    --------    --------
          Total operating expenses..........................   147,193     133,368     125,790
                                                              --------    --------    --------
OPERATING INCOME............................................    30,652      27,652      23,001
INTEREST EXPENSE............................................   (10,435)    (11,236)    (10,527)
OTHER INCOME, NET...........................................     3,051       4,215       4,198
                                                              --------    --------    --------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF A CHANGE
  IN ACCOUNTING PRINCIPLE...................................    23,268      20,631      16,672
INCOME TAXES................................................    (9,389)     (7,853)     (6,048)
                                                              --------    --------    --------
NET INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN
  ACCOUNTING PRINCIPLE......................................    13,879      12,778      10,624
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE (NET
  OF INCOME TAXES)..........................................        --      (1,703)         --
                                                              --------    --------    --------
NET INCOME..................................................  $ 13,879    $ 11,075    $ 10,624
                                                              ========    ========    ========
BASIC EARNINGS PER SHARE:
  NET INCOME BEFORE CUMULATIVE EFFECT
  OF A CHANGE IN ACCOUNTING PRINCIPLE.......................  $   1.49    $   1.39    $   1.16
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE (NET
  OF INCOME TAXES)..........................................        --       (0.19)         --
                                                              --------    --------    --------
  NET INCOME................................................  $   1.49    $   1.20    $   1.16
                                                              ========    ========    ========
WEIGHTED AVERAGE NUMBER OF BASIC SHARES
OF COMMON STOCK OUTSTANDING.................................     9,285       9,205       9,153
DILUTED EARNINGS PER SHARE:
  NET INCOME BEFORE CUMULATIVE EFFECT
  OF A CHANGE IN ACCOUNTING PRINCIPLE.......................  $   1.48    $   1.38    $   1.15
  CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE (NET
     OF INCOME TAXES).......................................        --       (0.18)         --
                                                              --------    --------    --------
  NET INCOME................................................  $   1.48    $   1.20    $   1.15
                                                              ========    ========    ========
WEIGHTED AVERAGE NUMBER OF DILUTED
SHARES OF COMMON STOCK OUTSTANDING..........................     9,388       9,251       9,222


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

                                      F-54
   137
                         RAILTEX, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)



                                                                 DECEMBER 31,
                                                              -------------------
                                                                1999       1998
                                                              --------   --------
                                                                   
                           ASSETS
CURRENT ASSETS:
  Cash and cash equivalents.................................  $  1,801   $  1,243
  Accounts receivable, less doubtful receivables of $884 in
     1999; $844 in 1998.....................................    31,239     35,478
  Prepaid expenses and other current assets.................     1,919      2,387
  Inventories...............................................       852        849
  Deferred tax assets, net..................................     1,569      1,906
                                                              --------   --------
          Total current assets..............................    37,380     41,863
                                                              --------   --------
PROPERTY AND EQUIPMENT, NET.................................   293,971    291,779
                                                              --------   --------
OTHER ASSETS:
  Investments in Brazilian railroad companies...............    21,095     19,994
  Other, net................................................    12,724      8,709
                                                              --------   --------
          Total other assets................................    33,819     28,703
                                                              --------   --------
          Total assets......................................  $365,170   $362,345
                                                              ========   ========
            LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
  Short-term notes payable..................................  $     --   $    215
  Current portion of long-term debt.........................     1,010      8,568
  Accounts payable..........................................    18,000     20,574
  Accrued liabilities.......................................    18,004     17,729
                                                              --------   --------
          Total current liabilities.........................    37,014     47,086
DEFERRED INCOME TAXES, NET..................................    31,272     30,294
LONG-TERM DEBT, LESS CURRENT PORTION........................   111,475    122,982
OTHER LIABILITIES...........................................    13,977      6,835
                                                              --------   --------
          Total liabilities.................................   193,738    207,197
                                                              --------   --------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST IN BRAZILIAN INVESTMENTS..................    11,561     11,000
                                                              --------   --------
SHAREHOLDERS' EQUITY:
  Preferred Stock; $1.00 par value; 10 million shares
     authorized;
     no shares issued or outstanding........................        --         --
  Common Stock; $.10 par value; 30 million shares
     authorized;
     issued and outstanding 9,293,314 in 1999; 9,273,963 in
     1998...................................................       929        927
  Paid-in capital...........................................    86,095     85,115
  Retained earnings.........................................    73,855     59,976
  Deferred compensation.....................................    (1,201)      (948)
  Accumulated other comprehensive income....................       193       (922)
                                                              --------   --------
          Total shareholders' equity........................   159,871    144,148
                                                              --------   --------
          Total liabilities and shareholders' equity........  $365,170   $362,345
                                                              ========   ========


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

                                      F-55
   138
                         RAILTEX, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                 (IN THOUSANDS)



                                           COMMON STOCK
                                      -----------------------                                        ACCUMULATED
                                        SHARES                                                          OTHER           TOTAL
                                      ISSUED AND    $.10 PAR    PAID-IN   RETAINED     DEFERRED     COMPREHENSIVE   SHAREHOLDERS'
                                      OUTSTANDING     VALUE     CAPITAL   EARNINGS   COMPENSATION      INCOME          EQUITY
                                      -----------   ---------   -------   --------   ------------   -------------   -------------
                                                                                               
BALANCE, December 31, 1996..........     9,124        $912      $83,629   $38,277      $    --          $(115)        $122,703
  Comprehensive income:
  Net income........................        --          --           --    10,624           --             --           10,624
  Foreign currency translation......        --          --           --        --           --           (243)            (243)
                                         -----        ----      -------   -------      -------          -----         --------
        Total comprehensive
          income....................        --          --           --    10,624           --           (243)          10,381
  Exercise of stock options.........        37           4          170        --           --             --              174
                                         -----        ----      -------   -------      -------          -----         --------
BALANCE, December 31, 1997..........     9,161         916       83,799    48,901           --           (358)         133,258
  Comprehensive income:
  Net income........................        --          --           --    11,075           --             --           11,075
  Foreign currency translation......        --          --           --        --           --           (564)            (564)
                                         -----        ----      -------   -------      -------          -----         --------
        Total comprehensive
          income....................        --          --           --    11,075           --           (564)          10,511
  Exercise of stock options.........        33           3          326        --           --             --              329
  Restricted stock awards...........        80           8          990        --         (998)            --               --
  Amortization of deferred
    compensation....................        --          --           --        --           50             --               50
                                         -----        ----      -------   -------      -------          -----         --------
BALANCE, December 31, 1998..........     9,274         927       85,115    59,976         (948)          (922)         144,148
  Comprehensive income:
  Net income........................        --          --           --    13,879           --             --           13,879
  Foreign currency translation......        --          --           --        --           --          1,115            1,115
                                         -----        ----      -------   -------      -------          -----         --------
        Total comprehensive
          income....................        --          --           --    13,879           --          1,115           14,994
  Exercise of stock options.........        19           2          129        --           --             --              131
  Performance stock awards..........        --          --          851        --         (851)            --               --
  Amortization of deferred
    compensation....................        --          --           --        --          598             --              598
                                         -----        ----      -------   -------      -------          -----         --------
BALANCE, December 31, 1999..........     9,293        $929      $86,095   $73,855      $(1,201)         $ 193         $159,871
                                         =====        ====      =======   =======      =======          =====         ========


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

                                      F-56
   139
                         RAILTEX, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)



                                                              FOR THE YEARS ENDED DECEMBER 31,
                                                              --------------------------------
                                                                1999        1998        1997
                                                              --------    --------    --------
                                                                             
OPERATING ACTIVITIES:
  Net income................................................  $13,879     $11,075     $10,624
  Adjustments to reconcile net income to net cash provided
     by
     operating activities:
     Cumulative effect of a change in accounting
       principle............................................       --       2,747          --
     Depreciation and amortization..........................   16,693      14,258      12,940
     Deferred income taxes..................................    1,315       5,432       2,182
     Provision for losses on accounts receivable............      427         187         638
     Amortization of deferred financing costs...............      452         388         384
     Gain on sale of assets.................................   (3,041)     (1,867)     (6,771)
     Gain on sale of subsidiary.............................     (511)         --          --
     Gain on sale of minority interest......................       --      (2,045)         --
     Write down of investments..............................       --          --       2,100
     Other..................................................      579          82        (275)
     Changes in working capital:
       Accounts receivable..................................    3,812      (2,565)     (5,975)
       Prepaid expenses and other current assets............      207         (22)        (59)
       Accounts payable and accrued liabilities.............   (1,157)        777      10,109
                                                              -------     -------     -------
            Net cash provided by operating activities.......   32,655      28,447      25,897
                                                              -------     -------     -------
INVESTING ACTIVITIES:
  Purchase of property and equipment........................  (24,919)    (30,320)    (35,507)
  Proceeds from sale of property and equipment..............   12,339       2,288       7,327
  Proceeds from sale of subsidiary..........................      675          --          --
  Purchase of new properties and related equipment and other
     costs..................................................       --     (13,096)    (25,978)
  Investment in Brazilian railroad companies................     (540)         --      (1,362)
  Sale of preferred shares in Brazilian railroad company....       --          --       2,758
  Proceeds from sale of minority interest...................       --      10,861          --
  Organization and acquisition costs........................       18         (79)        (97)
  Decrease (increase) in other long-term assets.............      547      (1,617)       (152)
                                                              -------     -------     -------
            Net cash used in investing activities...........  (11,880)    (31,963)    (53,011)
                                                              -------     -------     -------
FINANCING ACTIVITIES:
  (Decrease) increase in short-term notes payable...........     (215)       (355)        218
  Proceeds from long-term debt..............................      272      21,900      75,000
  Principal payments on long-term debt and capital leases...   (3,469)    (16,687)    (53,398)
  Net (decrease) increase in working capital facilities.....  (16,593)       (750)      4,000
  Deferred financing costs..................................     (848)         (3)       (369)
  Issuance of common stock..................................       76         247          74
                                                              -------     -------     -------
            Net cash (used in) provided by financing
               activities...................................  (20,777)      4,352      25,525
                                                              -------     -------     -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH.....................      560        (163)         51
                                                              -------     -------     -------
NET CHANGE IN CASH AND CASH EQUIVALENTS.....................      558         673      (1,538)
CASH AND CASH EQUIVALENTS, beginning of year................    1,243         570       2,108
                                                              -------     -------     -------
CASH AND CASH EQUIVALENTS, end of year......................  $ 1,801     $ 1,243     $   570
                                                              =======     =======     =======


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

                                      F-57
   140

                         RAILTEX, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  NATURE OF THE COMPANY'S BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

     The accompanying consolidated financial statements include the accounts of
RailTex, Inc. (a Texas corporation) and its wholly-owned subsidiaries.
References to "RailTex" or the "Company" mean RailTex, Inc. and, unless the
context indicates otherwise, its consolidated subsidiaries. All significant
intercompany transactions and accounts have been eliminated in consolidation.

     The Company is an operator of short line railroads in North America. Its
holdings include short line railroads concentrated in the Southeastern, Great
Lakes region, New England and Central United States as well as Eastern Canada.
During 1999, the Company owned investments in two Brazilian railroad companies
which were sold in January 2000 (See Note 5).

     The Company's strategy is to grow through (i) the creation of new business
and improvement in operating performance of newly added and currently operated
properties and (ii) additions to and divestitures from its portfolio of short
line railroad properties, primarily through strategic acquisitions of Class I
railroad branch lines or existing short line properties, and divestiture of
non-strategic lines to smaller, independently operated short line companies.

ESTIMATES IN FINANCIAL STATEMENTS

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

CASH AND CASH EQUIVALENTS AND CONSOLIDATED STATEMENTS OF CASH FLOWS

     All short-term investments which mature in less than 90 days when purchased
are considered cash equivalents. Cash equivalents are stated at cost, which
approximates market value.

     Supplemental disclosures of cash flow information (in thousands):



                                                          FOR THE YEARS ENDED DECEMBER 31,
                                                         ----------------------------------
                                                           1999         1998         1997
                                                         ---------    ---------    --------
                                                                          
Cash paid during the year for:
     Interest..........................................   $10,534      $11,207      $8,962
     Income taxes......................................     7,358        2,514       2,604
Non-cash investing and financing activities:
     Grants............................................     6,652        2,918         352
     Capital leases....................................        31        1,959       1,844
     Tax benefit from exercise of non-qualified stock
       options.........................................        61           76         100
     Amortization of deferred compensation.............       598           50          --
Liabilities and long-term debt assumed in connection
  with the acquisition of railroad companies:
     Fair value of assets acquired.....................        --       15,809          --
     Cash paid for capital stock.......................        --       14,003          --
                                                          -------      -------      ------
     Liabilities and long-term debt assumed............   $    --      $ 1,806      $   --
                                                          =======      =======      ======


                                      F-58
   141
                         RAILTEX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

PROPERTY AND EQUIPMENT

     Property and equipment are carried at historical cost. Acquired railroad
property is recorded at the purchased cost. Major renewals or betterments are
capitalized; routine maintenance and repairs, which do not improve the asset or
extend asset lives, are charged to expense when incurred. Gains or losses on
sales or other dispositions are credited or charged to income. Depreciation is
computed using the straight-line method over periods ranging from 8 to 30 years
for roadway and structures, 3 to 15 years for locomotives and other railroad
equipment and 3 to 10 years for other non-railroad equipment. Leasehold
improvements are amortized over the life of the lease or the service lives of
the improvements, whichever is shorter.

     The Company has adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets To Be Disposed Of."
This statement requires the recognition of an impairment loss on a long-lived
asset held for use when events and circumstances indicate that the estimate of
undiscounted future cash flows expected to be generated by the asset are less
than its carrying amount. The Company recorded an impairment loss totaling
approximately $375,000 related to one of its railroad properties for the year
ended December 31, 1998. For the years ended December 31, 1999 and 1997, no
impairment loss was recorded.

INVESTMENTS IN BRAZILIAN RAILROAD COMPANIES

     Investments in Brazilian railroad companies represent minority interest in
Ferrovia Centro Atlantica, S.A. ("FCA") and America Latina Logistica, S.A.
("ALL"), the parent corporation of Ferrovia Sul Atlantico, S.A. ("FSA"), are
accounted for using the cost method of accounting and are valued at the lower of
cost or market.

OTHER ASSETS

     At December 31, 1999, other assets primarily include a note receivable of
$5.0 million, interest at LIBOR plus 2.0%, goodwill, and deferred financing
costs, while at December 31, 1998, other assets primarily include goodwill and
deferred financing costs. Goodwill is amortized over 30 years. Financing costs
are amortized over the related loan terms using the effective interest method.
Amortization of these costs is included in interest expense. Prior to the
Company's adoption of Statement of Position 98-5 in 1998, "Reporting on the
Costs of Start-up Activities" ("SOP 98-5") (see further discussion below), the
Company capitalized the costs associated with start-up activities, including the
acquisition of new railroads, and these costs were amortized using the
straight-line method over five years. Amortization of goodwill, financing,
organization and acquisition costs totaled approximately $648,000, $478,000 and
$1.6 million for the years ended December 31, 1999, 1998 and 1997, respectively.
Accumulated amortization of these costs was approximately $3.2 million and $2.6
million at December 31, 1999 and 1998, respectively.

DEFERRED GRANT REVENUE

     Included in other liabilities at December 31, 1999 and 1998 is $6.3 million
and $4.4 million, respectively, of deferred grant revenue. Deferred grant
revenue represents economic development funds contributed to the Company by
government entities for track rehabilitation. Deferred grants are being
amortized to income over the life of the assets acquired with the funds.

     Also included in other liabilities at December 31, 1999 and 1998 is $8.0
million and $2.7 million, respectively, of deferred revenue contributed to the
Company by one of its customers for rehabilitation of track used to serve this
customer. The deferred revenue is being amortized to income over 15 years, the
life of the service contract with the customer. The assets acquired are being
depreciated over 30 years. As a result, the Company recognized income, in excess
of depreciation, of approximately $221,000 in 1999. There was no income
recognized in 1998 as the asset had not been placed in service.

                                      F-59
   142
                         RAILTEX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

REVENUE RECOGNITION

     Freight revenues are recognized as shipments initially move onto the
Company's tracks, which, due to the relatively short length of haul, is not
materially different from the recognition of revenues as shipments progress.
Non-freight revenues, including joint facilities, switching, demurrage, car hire
and car repair services, are recognized as the service is performed.

INCOME TAXES

     The Company files consolidated U.S. Federal income tax returns which
include all of its U.S. subsidiaries and separate Canadian federal income tax
returns for each Canadian subsidiary. Deferred income taxes are provided when
certain revenues and expenses are reported in periods which are different for
financial reporting purposes than for income tax reporting purposes.

     Deferred tax liabilities and assets are recorded based on the enacted
income tax rates which are expected to be in effect in the periods in which the
deferred tax liability or asset is expected to be settled or realized. A change
in the tax laws or rates results in adjustments to the deferred tax liabilities
and assets. The effect of such adjustments is included in income in the period
in which the tax laws or rates are changed.

FOREIGN CURRENCY TRANSLATION

     The financial position and results of operations of the Company's Canadian
subsidiaries are measured using the local currency as the functional currency.
Assets and liabilities of operations denominated in foreign currencies are
translated into U.S. dollars at exchange rates in effect at year-end, while
revenues and expenses are translated at average exchange rates prevailing during
the year. The resulting translation gains and losses are charged directly to
foreign currency translation, a component of shareholders' equity, and are not
included in net income until realized through sale or liquidation of the
investment.

CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS AND MAJOR CUSTOMERS

     The Company regularly grants trade credit to all of its customers. In
addition, the Company grants trade credit to other railroads through the routine
interchange of traffic. The Company's accounts receivable are well diversified
except for a concentration of accounts receivable with some Class I railroads.
The Company's management believes these Class I railroads are large, financially
strong companies, and thus believe the Company's exposure to credit risk is
minimal. Approximately 16% and 15% of the Company's accounts receivable were due
from one Class I railroad at December 31, 1999 and 1998, respectively. No other
customer individually accounted for more than 10% of the Company's accounts
receivable balance at December 31, 1999 or 1998.

     During 1999, the Company served more than 1,100 customers who shipped and
received a wide variety of products. Although most of the Company's railroads
have a well-diversified customer base, several have one or two dominant
customers. The Company's largest customer in 1999, 1998 and 1997 was Canadian
National Railways ("CN"), representing 6.7%, 7.0% and 8.1% of operating
revenues, respectively.

PRICE RISK MANAGEMENT ACTIVITIES

     The Company historically has hedged certain anticipated transactions.
Interest rate swaps and diesel fuel price contracts with third parties are used
to hedge interest rates and diesel fuel costs. Hedges of anticipated
transactions are accounted for under the deferral method with gains and losses
on these transactions recognized in interest expense and operating expenses, as
applicable, when the hedged transaction occurs. The Company does not currently
hold or issue financial instruments for trading purposes.

                                      F-60
   143
                         RAILTEX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NEW ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. As issued, this statement is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. Initial application of this
statement was to become effective for the Company's financial statements
beginning January 1, 2000. However, in June 1999, FASB issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities -- Deferral of the Effective Date of FASB Statement No.
133" which delayed for one year the effective date of SFAS 133. The Company
believes the adoption of this statement will not have a material impact on the
financial condition or results of operations of the Company.

     In April 1998, the Accounting Standards Executive Committee issued SOP
98-5. SOP 98-5 requires costs associated with start-up activities to be expensed
as incurred. SOP 98-5 is effective for financial statements for fiscal years
beginning after December 15, 1998. The Company adopted SOP 98-5 for the year
ended December 31, 1998. This adoption resulted in the recognition of a
non-recurring charge of approximately $1,703,000 (net of income taxes) entitled,
"Cumulative effect of a change in accounting principle (net of income taxes)" in
the accompanying consolidated financial statements. Prior to the adoption of SOP
98-5, the Company capitalized the costs associated with start-up activities,
including the acquisition of new railroad properties, and amortized those costs
over five years. Prospectively, the Company's results of operations will reflect
higher costs associated with the acquisition of new railroad properties in the
period of acquisition.

RECLASSIFICATIONS

     Certain reclassifications have been made to the prior year amounts to
conform with the current period presentation.

2.  RELATED PARTY TRANSACTIONS

     The Company purchases, in the normal course of business, various parts for
locomotives and grade crossing signals from certain subsidiaries of Harmon
Industries, Inc., of which the Company's Founder and Chairman Emeritus is a
director. Purchases from subsidiaries of Harmon Industries, Inc. for the years
ended December 31, 1999, 1998 and 1997 totaled approximately $584,000,
$1,200,000 and $462,000, respectively.

            THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.

                                      F-61
   144
                         RAILTEX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3.  EARNINGS PER SHARE

     In 1997, the Company adopted Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("SFAS 128"), which was effective for fiscal years
ending after December 15, 1997. Basic earnings per share is determined by
dividing net income by the weighted average number of shares of common stock
outstanding during the period. Diluted earnings per share is determined by
dividing net income by the weighted average number of shares of common stock and
common stock equivalents outstanding during the period. Stock options with an
exercise price below fair market value for any of the periods presented are
considered common stock equivalents.

     The following is a reconciliation of the numerators and the denominators of
the basic and diluted earnings per share computations (in thousands, except per
share amounts).



                                                        FOR THE YEARS ENDED DECEMBER 31,
                                                        --------------------------------
                                                          1999        1998        1997
                                                        --------    --------    --------
                                                                       
NUMERATOR:
  Net income before cumulative effect of a change in
     accounting principle.............................  $13,879     $12,778     $10,624
  Cumulative effect of a change in accounting
     principle
     (net of income taxes)............................       --      (1,703)         --
                                                        -------     -------     -------
  Net income..........................................  $13,879     $11,075     $10,624
                                                        =======     =======     =======
DENOMINATOR:
  Weighted average number of basic share of common
     stock outstanding................................    9,285       9,205       9,153
EFFECT OF DILUTIVE SECURITIES:
  Stock options.......................................       79          46          69
  Performance stock...................................       24          --          --
                                                        -------     -------     -------
                                                            103          46          69
  Weighted average number of diluted shares of common
     stock outstanding................................    9,388       9,251       9,222
                                                        =======     =======     =======
BASIC EARNINGS PER SHARE:
  Net income before cumulative effect of a change in
     accounting principle.............................  $  1.49     $  1.39     $  1.16
  Cumulative effect of a change in accounting
     principle (net of income taxes)..................       --       (0.19)         --
                                                        -------     -------     -------
          Total.......................................  $  1.49     $  1.20     $  1.16
                                                        =======     =======     =======
DILUTED EARNINGS PER SHARE:
  Net income before cumulative effect of a change in
     accounting principle.............................  $  1.48     $  1.38     $  1.15
  Cumulative effect of a change in accounting
     principle (net of income taxes)..................       --       (0.18)         --
                                                        -------     -------     -------
          Total.......................................  $  1.48     $  1.20     $  1.15
                                                        =======     =======     =======


                                      F-62
   145
                         RAILTEX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4.  PROPERTY AND EQUIPMENT, NET

     Property and equipment, net consisted of the following (in thousands):



                                                                  DECEMBER 31,
                                                              --------------------
                                                                1999        1998
                                                              --------    --------
                                                                    
Roadway and structures......................................  $272,479    $263,541
Locomotives and other railroad equipment....................    67,547      61,831
Office furniture and other equipment........................    14,948      13,751
Equipment and vehicles held under capital leases............     5,733       5,730
Vehicles....................................................     1,167       1,120
                                                              --------    --------
                                                               361,874     345,973
Less accumulated depreciation and amortization..............   (67,903)    (54,194)
                                                              --------    --------
                                                              $293,971    $291,779
                                                              ========    ========


5.  INVESTMENTS IN BRAZILIAN RAILROAD COMPANIES

     At December 31, 1999, the Company owned a 50.5% membership interest
totaling $9.5 million in RailTex Global Investments, LLC, a limited liability
company that owned shares in FCA and ALL. In January 2000, RailTex sold its
interests in FCA and ALL and as a result, the Company no longer owns any
interests in any Brazilian company (See Note 18).

6.  SHORT-TERM NOTES PAYABLE

     At December 31, 1999, the Company had no outstanding unsecured short-term
notes payable to insurance companies. At December 31, 1998, the Company had
outstanding unsecured short-term notes payable to insurance companies totaling
approximately $215,000. The notes bore interest at 7.75% and were due in monthly
installments of principal and interest totaling approximately $37,000 through
June 1999. The weighted average interest rate for the short-term notes payable
was 7.2% for the year ended December 31, 1998.

            THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.

                                      F-63
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                         RAILTEX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7.  LONG-TERM DEBT

     Long-term debt consisted of the following (in thousands):



                                                                  DECEMBER 31,
                                                              --------------------
                                                                1999        1998
                                                              --------    --------
                                                                    
Senior unsecured notes payable to two institutions; interest
  at 7.44%; interest only due semiannually; principal
  balance payable through six annual mandatory prepayments
  beginning July 2007.......................................  $ 50,000    $ 50,000
Senior unsecured notes payable to four institutions;
  interest at 7.23%; interest only due semiannually;
  principal balance due September 2005......................    40,000      40,000
Senior unsecured notes payable to banks; interest is
  variable (LIBOR based weighted average interest rate of
  6.46% on $18.3 million in borrowings and U.S. prime based
  interest rate of 7.75% on $0.3 million in borrowings at
  December 31, 1998); interest due monthly; principal
  partially due through quarterly principal payments through
  April 2002, with remaining balance due April 2002.........        --      18,575
Senior unsecured notes payable to two institutions; interest
  at 9.21%; interest only due semiannually; principal
  balance of $6.9 million and $3.5 million due September
  2005 and October 2005, respectively.......................    10,388       9,756
Senior unsecured subordinated notes; interest at 12.0%;
  interest only due semiannually; principal balance of $2.5
  million and $2.5 million due January 2001 and January
  2002, respectively........................................     5,000       5,000
Senior unsecured notes payable to banks; interest is
  variable (Prime based 8.75% on $1.0 million and LIBOR
  based 7.73% on $3.0 million at December 31, 1999);
  interest payment periods range from one month to six
  months depending on type of loan; all borrowings due April
  2002......................................................     4,000          --
Senior unsecured notes payable to banks; interest is
  variable (LIBOR based weighted average interest rate of
  6.375% at December 31, 1998); interest only due monthly
  through April 1999, when all borrowings become due........        --       2,000
Senior unsecured notes payable to banks; interest is
  variable (90 day Canadian BA rate of 6.145% at December
  31, 1998); interest only due monthly through April 1999,
  when all borrowings become due............................        --       1,951
Capital lease obligations; interest at rates ranging from
  7.25% to 8.5% at December 31, 1999 and 1998; payable in
  variable monthly installments through August 2003.........     2,402       3,513
Other, primarily due to state agencies; interest at rates
  ranging from 5.0% to 7.9% at December 31, 1999 and 1998;
  payable in variable installments through March 2011.......       695         755
                                                              --------    --------
Total long-term debt........................................   112,485     131,550
Less current portion........................................    (1,010)     (8,568)
                                                              --------    --------
Long-term debt, less current portion........................  $111,475    $122,982
                                                              ========    ========


     In April 1999, the Company completed the refinancing and expansion of its
senior revolving credit facility to $175 million. The refinancing and expansion
replaced the Company's previous U.S. and Canadian credit agreements, which
expired in April 1999. The three year agreement consists of a syndicate of ten

                                      F-64
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                         RAILTEX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

banks, led by Chase Bank of Texas, N.A., who serves as administrative agent. The
facility allows for an equivalent of U.S. $20 million to be allocated for use in
Canada. The facility will be used to finance acquisitions, capital expenditures,
working capital and other general corporate purposes. Interest payment periods
range from one month to six months depending on the type of loan. Interest rates
also vary depending on the type of loan. All borrowings become due and payable
in April 2002. The unused portion of the refinanced Senior Bank Facility is
subject to a 0.30% to 0.50% commitment fee based on certain ratios.

     At December 31, 1999 and 1998, the Company had a $300,000 letter of credit
("LOC") outstanding under its credit facilities, in place at the time. This LOC
collateralizes a loan from the State of Michigan that financed specific capital
improvements.

     Covenants contained in the agreements evidencing the Company's senior bank,
senior unsecured and senior subordinated debt prohibit the Company from paying
dividends on its capital stock and limit its ability to incur additional
indebtedness, create liens on its assets, make capital expenditures and
repurchase shares of its capital stock or any outstanding options or other
rights to acquire capital stock of the Company. The Company is also limited in
its ability to make loans, investments or guarantees. Additionally, the Company
is required to maintain a minimum tangible net worth and certain ratios of
leverage and cash flow to interest. At December 31, 1999, the Company was in
compliance with all covenants. As a result of the Company's merger with
RailAmerica, Inc. ("RailAmerica"), all long-term debt, except capital leases,
were paid in full subsequent to December 31, 1999 (See Note 18).

     Maturities of long-term debt were as follows (in thousands):



FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
                                                           
2000........................................................  $  1,010
2001........................................................     3,385
2002........................................................     7,076
2003........................................................       217
2004........................................................        77
Thereafter..................................................   100,720
                                                              --------
          Total.............................................  $112,485
                                                              ========


8.  FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

     The Company historically has hedged certain anticipated transactions.
Interest rate swaps and diesel fuel price collar contracts with third parties
are used to hedge interest rates and diesel fuel costs. Hedges of anticipated
transactions are accounted for under the deferral method with gains and losses
on these transactions recognized in interest expense and operating expenses when
the hedged transaction occurs. The Company does not currently hold or issue
financial instruments for trading purposes.

     The Company is exposed to fluctuations in diesel fuel prices, as an
increase in the price of diesel fuel would result in lower earnings and
increased cash outflows. The Company has entered into several commodity collar
transactions to hedge market risks of diesel fuel prices. The first collar was
effective April 1, 1998 and terminated March 31, 1999 and represented notional
amounts totaling 225,000 gallons per month with a cap price of $0.5600 per
gallon and a floor price of $0.4375 per gallon. The second collar was effective
July 1, 1998 and terminated June 30, 1999 and represented notional amounts
totaling 225,000 gallons per month with a cap price of $0.5600 per gallon and a
floor price of $0.4490 per gallon.

     In February 1999, the Company entered into two additional contracts to
hedge its market risk from diesel fuel prices. The first consisted of three
monthly swap agreements which fix the price of 725,000 gallons of diesel fuel in
April, May and June 1999 at $0.3215, $0.3280 and $0.3375 per gallon,
respectively. The second is a cap which fixes the price of 725,000 gallons of
diesel fuel per month for the period July

                                      F-65
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                         RAILTEX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1999 to June 2000 at $0.4500 per gallon. The cost of the cap was approximately
$209,000, which will be amortized over the period covered by the cap. The cap
which expires in June 2000, hedges approximately 60% of the Company's estimated
monthly diesel fuel consumption.

     At December 31, 1999 and 1998, the Company had not entered into any
interest rate swaps contracts.

9.  DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

     The following methods and assumptions were used to estimate the fair value
of each class of financial instruments held by the Company:

     Current assets and current liabilities:  The carrying value approximates
fair value due to the short maturity of these items.

     Accrued interest payable:  The carrying amount approximates fair value as
the majority of interest payments are made monthly or semiannually.

     Long-term investment:  The carrying value approximates fair value based on
discounted cash flows.

     Long-term debt, senior subordinated debt and senior notes payable:  The
fair value of the Company's long-term debt, senior subordinated debt and senior
notes payable is based on secondary market indicators. Since the Company's debt
is not quoted, estimates are based on each obligation's characteristics,
including remaining maturities, interest rates, credit rating, collateral,
amortization schedule and liquidity. The carrying amount approximates fair
value.

     Commodity collar transactions:  The fair value of commodity collar
transactions is the amount at which they could be settled, based on estimates
obtained from dealers. The unrealized gain on the commodity collar transaction
at December 31, 1999 was approximately $766,000 and the unrealized loss on the
commodity collar transaction at December 31, 1998 was approximately $249,000.

10.  EMPLOYEE BENEFITS

STOCK BASED COMPENSATION

  Stock Options

     In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), was issued. SFAS 123
defines a fair value based method of accounting for employee stock options or
similar equity instruments and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans. Under the fair
value based method, compensation cost is measured at the grant date based on the
value of the award and is recognized over the service period of the award, which
is usually the vesting period. However, SFAS 123 also allows entities to
continue to measure compensation costs for employee stock compensation plans
using the intrinsic value method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). The Company adopted SFAS
123 effective January 1, 1996, and has elected to remain with the accounting
prescribed by APB 25. The Company has made the required disclosures prescribed
by SFAS 123.

     The Company grants non-qualified stock options to outside Directors and key
employees of the Company. In September 1993, the Board of Directors and
shareholders of the Company approved an equity incentive plan ("1993 Plan"). In
June 1996, the 1993 Plan was amended to (i) increase the maximum number of
shares of Common Stock issuable under the 1993 Plan from 750,000 to 1,250,000,
without reduction for the number of shares issued upon exercise of options
granted outside of the 1993 Plan; (ii) extend the exercise period for Outside
Director's Options from two to ten years and increase the number of shares which
may be purchased under Outside Director's Options from 2,000 to 3,000; (iii)
specify 1,250,000 shares as the maximum number of shares issuable under the 1993
Plan to any employee in any year; (iv) permit the 1993

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                         RAILTEX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Plan administrator to specify shorter vesting periods for non-qualified options;
and (v) clarify that cashless exercises of stock rights are permitted under the
1993 Plan. In May 1999, the shareholders of the Company voted to increase the
maximum number of shares of Common Stock issuable under the 1993 Plan from
1,250,000 to 1,650,000, without reduction for the number of shares issued upon
exercise of options granted outside of the 1993 Plan.

     Under the Company's stock option plan, options have been granted to outside
directors and certain key employees of the Company at prices equal to or more
than the fair market value of the Company's stock on the date of grant and
expire 10 years from the date of grant, unless specified otherwise. Stock
options granted to outside directors are exercisable immediately and stock
options granted to key employees vest at a rate of 20% per year, unless
specified otherwise.

     A summary of the status of the Company's 1993 Plan, as amended, for the
years ended December 31, 1999, 1998 and 1997, and changes during the years
ending on those dates is presented below:



                                                                  DECEMBER 31,
                                         ---------------------------------------------------------------
                                                1999                  1998                  1997
                                         -------------------   -------------------   -------------------
                                                    WEIGHTED              WEIGHTED              WEIGHTED
                                                    AVERAGE               AVERAGE               AVERAGE
                                                    EXERCISE              EXERCISE              EXERCISE
                                          SHARES     PRICE      SHARES     PRICE      SHARES     PRICE
                                         --------   --------   --------   --------   --------   --------
                                                                              
Outstanding, beginning of the year.....   854,614    $13.60     581,783    $18.07     743,954    $19.00
Granted................................   215,197     13.46     710,216     13.42     188,973     19.31
Exercised..............................   (19,351)     3.73     (33,039)     7.49     (58,667)     4.71
Forfeited..............................  (105,692)    11.93    (404,346)    20.22    (292,477)    23.93
                                         --------              --------              --------
Outstanding, end of year...............   944,768     13.95     854,614     13.60     581,783     18.07
                                         ========              ========              ========
Options exercisable end of year........   311,416    $13.68     194,654    $13.33     245,940    $13.50
                                         ========    ======    ========    ======    ========    ======
Weighted average fair value of options
  granted during year..................              $ 8.31                $ 8.41                $12.66
                                                     ======                ======                ======


     The following table summarizes the information about the 1993 Plan options
outstanding at December 31, 1999:



                                              OPTIONS OUTSTANDING
                                      ------------------------------------    OPTIONS EXERCISABLE
                                                     WEIGHTED                ----------------------
                                                      AVERAGE     WEIGHTED                 WEIGHTED
                                                     REMAINING    AVERAGE                  AVERAGE
                                        NUMBER      CONTRACTUAL   EXERCISE     NUMBER      EXERCISE
EXERCISE PRICE                        OUTSTANDING      LIFE        PRICE     EXERCISABLE    PRICE
- --------------                        -----------   -----------   --------   -----------   --------
                                                                            
$ 3.74- 8.80........................     94,890        1.83        $ 6.37       94,890      $ 6.37
$10.88-11.94........................    259,205        8.91         11.84       59,491        5.78
$14.00-18.50........................    511,514        7.87         14.47       85,764       14.77
$24.25-27.75........................     79,159        5.49         26.56       71,271       26.60
                                        -------                                -------
                                        944,768        7.35        $13.95      311,416      $13.68
                                        =======                                =======


     In November 1998, the Board of Directors of the Company granted employee
stock options to its current employee option holders other than its then
Chairman of the Board and its Chief Executive Officer at an exercise price of
$11.9375 per share, the then current market value of the Company's common stock.
The options vest over five years in accordance with the Company's 1993 Plan, as
amended. In order to obtain the newly granted stock options the employees were
required to tender all previously granted employee options for cancellation. As
to any employee, the amount of shares included under the new options were
reduced from the number of shares covered by the canceled options by the same
percentage as the new option

                                      F-67
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                         RAILTEX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

exercise price was less than the canceled option exercise price. The reduction
in the number of options outstanding and the reduced exercise price is reflected
in the tables above.

     Because the Company has elected to remain with the accounting prescribed by
APB 25, no compensation cost has been recognized for its 1993 Plan. Had
compensation cost for the Company's stock-based compensation plans been
determined on the fair value of the grant dates for awards under those plans
consistent with the method of SFAS 123, the Company's net income, earnings per
basic share and earnings per diluted share would have decreased to the pro forma
amounts indicated below (in thousands, except per share amounts):



                                                        FOR THE YEARS ENDED DECEMBER 31,
                                                        --------------------------------
                                                          1999        1998        1997
                                                        --------    --------    --------
                                                                       
Net income:
     As reported......................................  $13,879     $11,075     $10,624
     Pro forma........................................   12,378     $ 9,362     $ 9,289
Basic earnings per share:
     As reported......................................  $  1.49     $  1.20     $  1.16
     Pro forma........................................  $  1.33     $  1.02     $  1.01
Diluted earnings per share:
     As reported......................................  $  1.48     $  1.20     $  1.15
     Pro forma........................................  $  1.32     $  1.01     $  1.01


     The fair value of each option grant is estimated on the date of grant using
an option-pricing model similar to Black-Scholes with the following
weighted-average assumptions used for grants in 1999, 1998 and 1997,
respectively:

     Dividend yield of 0.0% for all years; expected volatility of 48.1%, 42.0%
and 42.2%; risk-free interest rates of 7.7%, 5.6% and 6.5%; and expected lives
of 7.6, 10 and 10 years for December 31, 1999, 1998 and 1997, respectively.

  Restricted Stock

     In 1998, the Company, under the 1993 Plan, granted 80,000 restricted shares
in the form of the Company's common stock to key executives. Of the 80,000
restricted shares awarded in 1998, 30,000 vest ratably over three years and
50,000 vest ratably over five years. The restricted shares will also vest in the
event of a change in control or termination, not for cause. The unvested portion
of the restricted shares forfeit if the key executive is terminated for cause
during the restriction period. The awards were recorded at the fair market value
of the Company's common stock on the date of grant as deferred compensation and
will be amortized over the restriction period. For the years ended December 31,
1999 and 1998, the Company recorded compensation expense of approximately
$243,000 and $50,000, respectively. For the year ended December 31, 1999, 20,000
of the 80,000 restricted shares vested.

PERFORMANCE STOCK

     Performance shares were awarded to certain key employees in 1998, through
the 1993 Plan. Employees must be employed by the Company at the end of three
years from the date of the award to receive the performance shares. During the
three-year period, the number of shares to be awarded can increase by a maximum
of 200.0% or decrease to zero as determined by the Company's total shareholder
return as compared to benchmarks, as defined in the plan.

     In addition, the Company, under the 1993, granted performance shares to key
executives in 1999. The performance shares vest over a three-year period
depending on whether certain earnings per share and return on capital targets
are met, as defined. The performance shares cliff vest seven years from the date
of grant. If

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                         RAILTEX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the earnings per share and return on capital targets are met, the executives
must be employed by the Company at the end of three years from the date of the
award to receive the performance shares. If the earnings per share and return on
capital targets are not met, the executive must be employed by the Company at
the end of seven years from the date of the award to receive the performance
shares.

     As of December 31, 1999 and 1998, a total of 56,716 and 20,457 performance
shares were outstanding, respectively. At December 31, 1999, the Company
recorded compensation expense related to the performance shares of approximately
$355,000. There was no compensation expense recorded at December 31, 1998
related to the performance shares.

     On February 4, 2000, the Company was acquired by a wholly-owned subsidiary
of RailAmerica. As a result of the acquisition, all stock options, restricted
stock and performance stock under the 1993 Plan became fully exercisable and
vested. All stock options, restricted stock and performance stock outstanding
immediately prior to closing were canceled. Each stock option holder received an
amount in cash equal to $13.50 minus the exercise price of the stock option plus
two-thirds of a share of RailAmerica stock in exchange for each share of RailTex
stock. Restricted stock and performance stock holders received an amount in cash
of $13.50 per share plus two-thirds of a share of RailAmerica stock in exchange
for each share of RailTex stock (See Note 18).

CASH BASED COMPENSATION

     The Company has various performance-based, cash incentive compensation
programs which include all employees. Total cash incentive compensation of
approximately $5.2 million, $3.6 million and $3.1 million was awarded under the
various incentive compensation programs in 1999, 1998 and 1997, respectively.

RETIREMENT PLANS

     The Company has a 401(k) profit sharing plan ("401(k) Plan") for all
eligible employees of the Company, as defined in the 401(k) Plan document. The
401(k) Plan qualifies under Section 401(k) of the Internal Revenue Code as a
salary reduction plan. Employees may elect to contribute a certain percentage of
their salary on a before-tax basis. Employees are immediately fully vested in
their contributions and begin vesting in employer contributions after one year
of service, as defined in the 401(k) Plan document. The 401(k) Plan is a defined
contribution plan with employer contributions made solely at the discretion of
the Board of Directors.

     Effective July 1, 1995, the 401(k) Plan was amended to provide for a
Company matching contribution for certain employees of RailTex, Inc., the parent
company, who are not covered under the Railroad Retirement and Railroad
Unemployment Insurance Acts ("The Retirement Acts"). The Company matches
employee contributions, for these employees, at the rate of 200.0% on employee
contributions up to 5.0% of eligible compensation. Employees begin vesting in
the employer matching contributions after one year of service. Company matching
contributions to the 401(k) Plan totaled approximately $327,000, $314,000 and
$230,000 in 1999, 1998 and 1997, respectively.

EMPLOYEE OPEN MARKET STOCK PURCHASE PLAN

     The Company had an Employee Open Market Stock Purchase Plan ("Stock
Purchase Plan"), which was canceled in October 1999 when the Company announced
plans to merge with RailAmerica. The purpose of the Stock Purchase Plan was to
allow employees of the Company to participate in the Company's future. The Stock
Purchase Plan was a payroll deduction plan which permits employees who meet
specified length of service requirements to purchase shares, on an after-tax
basis, of the Company's common stock on the open market at prevailing market
prices. The Company paid the brokerage commissions on all purchases and

                                      F-69
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                         RAILTEX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

incurred the administrative expenses associated with the Stock Purchase Plan.
Stock Purchase Plan expenses in 1999, 1998 and 1997 were not material.

EXECUTIVE DEFERRED COMPENSATION

     During 1995, the Company implemented an Executive Deferred Compensation
Plan wherein certain key employees were provided with life insurance protection
in an amount sufficient to provide supplemental income, based upon a percentage
of the employee's base salary, at retirement.

     The Executive Deferred Compensation Plan was funded through the purchase of
split-dollar life insurance contracts. Upon death or retirement, the participant
or the participant's estate was to reimburse the Company for all policy premiums
paid. Also, should employment terminate prior to death or retirement, the
participant could forfeit, at the discretion of the Compensation Committee, any
future rights in the insurance policy. Effective January 1, 1999, the Executive
Deferred Compensation Plan was modified and all split-dollar life insurance
contracts, except two policies for two former executives, were canceled and
replaced with a new Executive Deferred Compensation Plan. Under the new plan,
each executive is entitled to 1% of their gross annual salary as deferred
compensation. Premiums paid for the split dollar life insurance contracts for
1999, 1998 and 1997 were approximately $149,000, $407,000 and $311,000,
respectively. The combined cash surrender value of these policies was
approximately $526,000 and $859,000 at December 31, 1999 and 1998, respectively.

     As a result of RailAmerica's acquisition of RailTex, which was effective
February 4, 2000, the two remaining split-dollar life insurance policies were
transferred to the two former executives and the deferred compensation that had
been accrued through February 4, 2000 under the new Executive Deferred
Compensation Plan was paid to each executive.

POST-RETIREMENT AND POST-EMPLOYMENT BENEFITS

     The Company does not provide post-retirement or post-employment benefits to
its employees.

                                      F-70
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                         RAILTEX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. INCOME TAXES

     Income tax expense consisted of the following (in thousands):



                                                       FOR THE YEARS ENDED DECEMBER 31,
                                                       ---------------------------------
                                                        1999         1998         1997
                                                       -------      -------      -------
                                                                        
United States:
  Federal --
       Current.......................................  $5,181       $1,486       $2,358
       Deferred......................................   1,349        4,672        1,837
                                                       ------       ------       ------
                                                        6,530        6,158        4,195
                                                       ------       ------       ------
  State --
       Current.......................................   1,337         (180)         965
       Deferred......................................    (270)         970           36
                                                       ------       ------       ------
                                                        1,067          790        1,001
                                                       ------       ------       ------
Foreign:
       Current.......................................   1,556          635          543
       Deferred......................................     236          270          309
                                                       ------       ------       ------
                                                        1,792          905          852
                                                       ------       ------       ------
                                                       $9,389       $7,853       $6,048
Tax effect of change in accounting principle.........      --       (1,044)          --
                                                       ------       ------       ------
                                                       $9,389       $6,809       $6,048
                                                       ======       ======       ======


     The following summarizes the estimated tax effect of significant cumulative
temporary differences that are included in the net deferred income tax liability
(in thousands):



                                                                 DECEMBER 31,
                                                              ------------------
                                                               1999       1998
                                                              -------    -------
                                                                   
Differences in property depreciation and amortization.......  $36,488    $33,009
Accruals and reserves not deducted for tax purposes until
  paid or realized..........................................   (1,982)    (1,333)
Federal benefit of state taxes..............................     (724)      (890)
Charitable contribution carryforward........................     (609)    (1,291)
AMT credit carryforward.....................................       --       (993)
Deferred revenue............................................   (3,470)        --
Other items, net............................................       --       (114)
                                                              -------    -------
     Net deferred tax liability.............................  $29,703    $28,388
                                                              =======    =======


     At December 31, 1999 and 1998, there were no valuation allowances against
deferred tax assets.

     The Company has not provided any U.S. deferred income taxes or Canadian
withholding taxes on the undistributed earnings of its Canadian subsidiaries
based on the determination that such earnings will be indefinitely reinvested.
At December 31, 1999, the cumulative undistributed earnings of these
subsidiaries were approximately $10.2 million. If such earnings were not
considered indefinitely reinvested, deferred U.S. and Canadian withholding taxes
would have been provided after consideration of foreign tax credits. However,
determination of the amount of deferred federal income taxes and Canadian
withholding taxes is not practical.

                                      F-71
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                         RAILTEX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The reconciliation of the U.S. statutory tax rate to the effective income
tax rate follows:



                                                              FOR THE YEARS ENDED
                                                                  DECEMBER 31,
                                                              --------------------
                                                              1999    1998    1997
                                                              ----    ----    ----
                                                                     
United States statutory rate................................  35.0%   35.0%   35.0%
Effect of foreign operations................................   1.8     1.0     1.3
State income taxes, net of federal income tax benefit.......   3.0     4.8     5.0
Contribution for tax purposes, net of valuation allowance...    --      --    (5.0)
Reversal of valuation allowance.............................    --    (2.5)     --
Other, net..................................................   0.5    (0.2)     --
                                                              ----    ----    ----
                                                              40.3%   38.1%   36.3%
                                                              ====    ====    ====


12.  LEASES

     Operating lease expense for the years ended December 31, 1999, 1998 and
1997 totaled approximately $5.1 million, $7.6 million and $6.1 million,
respectively.

     The minimum future lease payments for equipment and facilities under
non-cancelable leases are as follows (in thousands):



                                                              OPERATING   CAPITAL
FOR THE YEARS ENDED DECEMBER 31,                               LEASES     LEASES
- --------------------------------                              ---------   -------
                                                                    
2000........................................................   $ 4,285    $1,090
2001........................................................     2,937       902
2002........................................................     2,885       536
2003........................................................     2,752       146
2004........................................................     2,635        --
Thereafter..................................................     7,909        --
                                                               -------    ------
          Total minimum payments............................   $23,403     2,674
                                                               =======
  Less amount representing interest at rates ranging from
     7.25% to 8.5%..........................................                 272
                                                                          ------
  Present value of minimum lease payments...................              $2,402
                                                                          ======


     The Company has entered into various lease agreements covering certain of
its railroad properties. For railroad properties it leases, the Company
ordinarily assumes all operating and financial responsibilities, including
maintenance, payment of property taxes and regulatory compliance, upon
commencement date. Lease payments on three railroad properties leased from one
major railroad are structured to ensure that the Company interchanges an
agreed-upon percentage of outbound carloads with the lessor railroad. Under
these leases, no payments to the lessor are required as long as a minimum
percentage of traffic volume is interchanged with the lessor; therefore, the
Company controls, to some extent, the amounts which may be payable under these
leases. If the minimum percentage of traffic volume interchanged with the lessor
is not met, the amounts which may be payable under these leases could be
significant and have an adverse effect on the Company. These leases are subject
to an initial 20 year term with one or more renewal terms at the Company's
option. In addition, lease payments on five properties leased from two other
major railroads are subject to reduction from the base rate, down to zero,
depending upon the level of traffic interchanged with the lessors. The maximum
aggregate annual base rate lease payments under these leases is approximately
$1.7 million. These leases have initial lease terms of 5 to 20 years and leases
on four of the five properties include purchase options which may be exercised
by the Company after one to three years of operation. To date, no payments have
been required under any of the Company's railroad property leases. Therefore,
the above table does not include any rentals pertaining to the Company's
railroad property leases.

                                      F-72
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                         RAILTEX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13.  COMMITMENTS AND CONTINGENCIES

     The Company has added railroad properties to its portfolio through the
purchase of track and roadbed, lease of such assets and contracts to operate
such assets under management agreements. These arrangements typically relate
only to the physical assets of the railroad property and, except for the
purchases of Central Properties, Inc. ("CPI") and Indiana & Ohio Rail Corp.
("IORC") (See Note 14), which were structured as acquisitions of stock, the
Company typically does not contractually assume any of the operations or
liabilities of the divesting carriers.

     Rail properties operated by the Company under management agreements
typically have initial ten year terms followed by either a purchase option or
one or more renewal terms at the Company's option. These operating contracts
typically require that the Company assume all operating and financial
responsibilities for freight operations on the property, including maintenance,
payment of property taxes and regulatory compliance. Payments by the Company for
the right to conduct rail operations on these properties are typically
calculated as a percentage of revenues from the respective properties.

     In August 1995, the Company entered into a ten year Information Technology
Services Agreement ("ITS Agreement") with Electronic Data Systems Corporation
("EDS"). Under the ITS Agreement, EDS is responsible for the management
information systems of the Company, including developing, obtaining licenses for
and maintaining new software for the Company, coordinating the acquisition and
maintenance of computers and related equipment and coordinating the maintenance
of the Company's existing software. The Company currently pays EDS $2.0 million
annually which is subject to annual escalation based on the Consumer Price
Index. The ITS Agreement is subject to earlier termination under certain limited
conditions.

     The Company maintains insurance to cover costs associated with personal
injury, including death, and property damage, including derailments. The
Company's liability policies, which include third party property damage, are
currently subject to a self-insured retention of $500,000 per occurrence. With
respect to its transportation of hazardous commodities, the Company's liability
policies cover sudden releases of hazardous materials, including expenses
related to evacuation. Personal injuries associated with grade crossing
accidents and damage to property of shippers are also covered under the
Company's liability policies. The Company's property damage policies, which
cover owned/leased property, are currently subject to a self-insured retention
of $150,000 per occurrence.

     The Company's railroad employees are covered by the Federal Employers'
Liability Act ("FELA"), a fault-based system under which injuries and deaths of
railroad employees are settled by negotiation or litigation based on the
comparative negligence of the employee and the employer. FELA-related claims are
covered under the Company's liability insurance policies.

     The Company is currently subject to a number of claims and legal actions
that arose in the ordinary course of business, including FELA claims by its
employees and personal injury claims (including wrongful death claims) by third
parties. The Company believes these claims, taking into account reserves and
applicable insurance, will not have a material adverse effect on the Company.
However, adverse judgments in these claims, individually or in the aggregate, in
excess of related reserves and applicable insurance, could have a materially
adverse effect on the Company's financial condition and results of its
operations.

14.  ACQUISITIONS AND DIVESTITURES

     In September 1999, the Company sold 100% of the stock of the Salt Lake City
Southern Railroad for $675,000.

     In June 1999, the Company sold the assets of the Greenville Northern
Railroad for approximately $1.3 million.

                                      F-73
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                         RAILTEX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     In April 1999, the Company completed the divestiture of the Northeast
Kansas & Missouri Railroad to Union Pacific ("UP") for approximately $3.2
million. The Company also completed the divestiture of the assets of the New
Orleans Lower Coast Railroad to the New Orleans & Gulf Coast Railway Company for
approximately $5.2 million.

     In January 1999, a wholly-owned subsidiary of the Company, the Dallas
Garland and Northeast Railroad ("DGNO") commenced operations on 89 miles of rail
line north of Dallas, Texas ("North Dallas Lines") under a lease arrangement
with UP. The North Dallas Lines connect to and are operated as part of the DGNO.

     In November 1998, a wholly-owned subsidiary of the Company, Goderich-Exeter
Railway ("GEXR") commenced operations on the Guelph Line under a lease
arrangement with CN. The Guelph Line is a 99 mile rail line that operates
between Silver and London, Ontario and connects with the GEXR at Stratford,
Ontario.

     In September 1998, the Company acquired approximately 10 miles of track in
two separate five mile sections from the Burlington Northern and Santa Fe
Railway ("BNSF") for approximately $810,000. One section is in Carthage,
Missouri and the other is in Joplin, Missouri. Both sections are being operated
as part of the Company's Missouri & Northern Arkansas Railroad ("MNAR").

     In June 1998, the Company acquired 100% of the outstanding stock of CPI.
The stock was originally held in a voting trust pending Surface Transportation
Board ("STB") approval, which was received effective July 1998. CPI was a
privately held company which owned 100% of the stock of two railroads in Ohio
and Indiana. The Central Railroad of Indianapolis ("CERA") operates almost 92
miles of rail line in north central Indiana under lease and trackage rights
arrangements. The Central Railroad of Indiana ("CIND") owns and operates 81
miles of rail line between Cincinnati, Ohio and Shelbyville, Indiana. The
purchase price was approximately $14.3 million including an approximately $14.0
million cash payment and the assumption of approximately $266,000 of long-term
debt. The Company began actively operating the two railroads in August 1998.

     The following unaudited pro forma results of operations for the years ended
December 31, 1998 and 1997, assumes the acquisition of the CPI occurred as of
the beginning of the respective periods (in thousands, except per share
amounts).



                                                              FOR THE YEARS ENDED
                                                                  DECEMBER 31,
                                                              --------------------
                                                                1998        1997
                                                              --------    --------
                                                                  (UNAUDITED)
                                                                    
Operating revenues..........................................  $163,953    $155,790
                                                              ========    ========
Net income..................................................  $ 10,214    $ 11,716
                                                              ========    ========
Basic earnings per share....................................  $   1.11    $   1.28
                                                              ========    ========
Diluted earnings per share..................................  $   1.10    $   1.27
                                                              ========    ========


     These pro forma results have been prepared for comparative purposes only
and include certain adjustments such as depreciation expense as a result of a
step-up in the basis of fixed assets and an adjustment of depreciable lives,
additional amortization expense as a result of organization costs and increased
interest expense on acquisition debt. The unaudited pro forma information is not
necessarily indicative of the results that would have occurred had such
transactions actually taken place at the beginning of the periods specified, nor
does such information purport to project the results of operations for any
future date or period.

     In February 1997, a wholly-owned subsidiary of the Indiana & Ohio Rail
Corp., Indiana & Ohio Railway Company ("IORY"), purchased substantially all of
the assets of the former DTI from the Grand

                                      F-74
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                         RAILTEX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Trunk Western Railroad, Inc., a subsidiary of CN. IORY acquired 146 miles of
track for approximately $22.0 million and, with trackage rights, operates over
255 miles of track between Detroit, Michigan and Cincinnati, Ohio. IORY
committed to return the former DTI track to Federal Railroad Administration
Class IV standards, over a three year period. This rehabilitation project was
completed during the year ended December 31, 1998. In addition,$5.0 million of
the purchase price was reimbursed to the Company due to certain levels of
carloadings not achieved within a specified time period, as detailed in the
purchase and sale agreement.

15.  COMPREHENSIVE INCOME

     During 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" which establishes standards
for reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. Comprehensive Income is defined as
the total of net income and all other changes in equity of an enterprise that
result from transactions and other economic events of a reporting period other
than transactions with owners. The Company has chosen to disclose comprehensive
income in the Consolidated Statements of Shareholders' Equity. For purposes of
SFAS 130, the Company's other comprehensive income or loss was comprised of net
currency translation adjustments. Paragraph 9(f) of Statement 109 "prohibits
recognition of a deferred tax liability or asset for differences related to
assets and liabilities that under FASB Statement No. 52, "Foreign Currency
Translation,' are remeasured from the local currency into the functional
currency using historical rates". Therefore, other comprehensive income is not
being shown net of tax.

16.  SEGMENT INFORMATION

     During 1998, the Company adopted SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 establishes new
standards for reporting information about operating segments in annual and
interim financial statements, requiring that public business enterprises report
financial and descriptive information about its reportable segments based on a
management approach. SFAS No. 131 also establishes standards for related
disclosures about products and services, geographic areas and major customers.
In applying the requirements of this statement, each of the Company's geographic
areas described below were determined to be an operating segment as defined by
the statement, but have been aggregated as allowed by the statement for
reporting purposes. As a result, the Company continues to have one reportable
segment, which is the operation of short line railroads.

                                      F-75
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                         RAILTEX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following table presents information about the Company by geographic
area (in thousands). Identifiable Assets include property and equipment,
intangible assets and other long-term assets, excluding organization and
acquisition costs and deferred financing costs.



                                                     FOR THE YEARS ENDED DECEMBER 31,
                                                     --------------------------------
                                                       1999        1998        1997
                                                     --------    --------    --------
                                                                    
Total Revenues:
     United States.................................  $157,640    $146,358    $134,496
     Canada........................................    20,122      13,841      13,855
     Other foreign.................................        83         821         440
                                                     --------    --------    --------
          Total....................................  $177,845    $161,020    $148,791
                                                     ========    ========    ========
Operating Income:
     United States.................................  $ 25,319    $ 23,463    $ 19,225
     Canada........................................     5,320       3,307       3,906
     Other foreign.................................        13         882        (130)
                                                     --------    --------    --------
          Total....................................  $ 30,652    $ 27,652    $ 23,001
                                                     ========    ========    ========
Identifiable Assets:
     United States.................................  $284,220    $280,717    $244,034
     Canada........................................    21,257      18,855      19,293
     Other foreign.................................    21,095      20,133      18,367
                                                     --------    --------    --------
          Total....................................  $326,572    $319,705    $281,694
                                                     ========    ========    ========


     During 1999, the Company served more than 1,100 customers who shipped and
received a wide variety of products. Although most of the Company's railroads
have a well-diversified customer base, several have one or two dominant
customers. The Company's largest customer in 1999, 1998 and 1997 was CN,
representing 6.7%, 7.0% and 8.1% of operating revenues, respectively.

                                      F-76
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                         RAILTEX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

17.  GUARANTOR FINANCIAL STATEMENT INFORMATION

     In anticipation of being a guarantor of debt, below are consolidating
financial statements of the Guarantor Subsidiaries, Non-Guarantor Subsidiaries
and the Company on a consolidated basis. Guarantor Subsidiaries include the
parent company, RailTex, and all U.S. subsidiaries. Non-Guarantor Subsidiaries
include all Canadian subsidiaries. Operating revenue and operating expense
eliminations are due to inter-company leases for locomotives and equipment
between the Guarantor parent and the non-guarantor subsidiaries.

                       CONSOLIDATING STATEMENTS OF INCOME
                                 (IN THOUSANDS)



                                                             FOR THE YEAR ENDED DECEMBER 31, 1999
                                                   ---------------------------------------------------------
                                                    GUARANTOR         NON-
                                                    PARENT AND     GUARANTOR
                                                   SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                                   ------------   ------------   ------------   ------------
                                                                                    
OPERATING REVENUES...............................    $159,238       $ 19,720       $ (1,113)      $177,845
OPERATING EXPENSES:
  Transportation.................................      51,570          7,145           (999)        57,716
  General and administrative.....................      34,688          1,749             --         36,437
  Equipment......................................      16,641          2,632            (17)        19,256
  Maintenance of way.............................      15,130          2,058            (97)        17,091
  Depreciation and amortization..................      15,875            818             --         16,693
                                                     --------       --------       --------       --------
          Total operating expenses...............     133,904         14,402         (1,113)       147,193
                                                     --------       --------       --------       --------
OPERATING INCOME.................................      25,334          5,318             --         30,652
INTEREST EXPENSE.................................      (9,273)        (1,162)            --        (10,435)
INCOME FROM SUBSIDIARIES.........................       2,124             --         (2,124)            --
OTHER INCOME, NET................................       3,291           (240)            --          3,051
                                                     --------       --------       --------       --------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT
  OF A CHANGE IN ACCOUNTING PRINCIPLE............      21,476          3,916         (2,124)        23,268
INCOME TAXES.....................................      (7,597)        (1,792)            --         (9,389)
                                                     --------       --------       --------       --------
NET INCOME BEFORE CUMULATIVE EFFECT OF A
  CHANGE IN ACCOUNTING PRINCIPLE.................      13,879          2,124         (2,124)        13,879
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
  PRINCIPLE (NET OF INCOME TAXES)................          --             --             --             --
                                                     --------       --------       --------       --------
NET INCOME.......................................    $ 13,879       $  2,124       $ (2,124)      $ 13,879
                                                     ========       ========       ========       ========


                                      F-77
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                         RAILTEX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                          CONSOLIDATING BALANCE SHEETS
                                 (IN THOUSANDS)



                                                                     DECEMBER 31, 1999
                                                 ----------------------------------------------------------
                                                  GUARANTOR
                                                  PARENT AND    NON-GUARANTOR
                                                 SUBSIDIARIES   SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                                 ------------   -------------   ------------   ------------
                                                                                   
                    ASSETS
CURRENT ASSETS:
  Cash and cash equivalents....................    $    160        $ 1,641        $     --     $      1,801
  Accounts receivable..........................      29,092          2,147              --           31,239
  Intercompany accounts receivable.............          --          3,384          (3,384)              --
  Prepaid expense and other current assets.....       1,923             (4)             --            1,919
  Inventories..................................         650            202              --              852
  Deferred tax assets, net.....................       1,569             --              --            1,569
                                                   --------        -------        --------     ------------
          Total current assets.................      33,394          7,370          (3,384)          37,380
                                                   --------        -------        --------     ------------
PROPERTY AND EQUIPMENT, NET....................     272,714         21,257              --          293,971
                                                   --------        -------        --------     ------------
OTHER ASSETS:
  Investments in Brazilian railroad
     companies.................................      21,095             --              --           21,095
  Other, net...................................      25,118            116         (12,510)          12,724
                                                   --------        -------        --------     ------------
          Total other assets...................      46,213            116         (12,510)          33,819
                                                   --------        -------        --------     ------------
          Total assets.........................    $352,321        $28,743        $(15,894)    $    365,170
                                                   ========        =======        ========     ============

     LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
  Short-term notes payables....................    $     --        $    --        $     --     $         --
  Current portion of long-term debt............       1,010             --              --            1,010
  Accounts payable.............................      16,384          1,616              --           18,000
  Intercompany accounts payable................       3,384             --          (3,384)              --
  Accrued liabilities..........................      16,191          1,813              --           18,004
                                                   --------        -------        --------     ------------
          Total current liabilities............      36,969          3,429          (3,384)          37,014
                                                   --------        -------        --------     ------------
DEFERRED INCOME TAXES, NET.....................      29,048          2,224              --           31,272
LONG-TERM DEBT, LESS CURRENT PORTION...........     101,088         10,387              --          111,475
OTHER LIABILITIES..............................      13,977             --              --           13,977
                                                   --------        -------        --------     ------------
          Total liabilities....................     181,082         16,040          (3,384)         193,738
                                                   --------        -------        --------     ------------
COMMITMENTS AND CONTINGENCIES

MINORITY INTEREST IN BRAZILIAN
  INVESTMENTS..................................      11,561             --              --           11,561
                                                   --------        -------        --------     ------------
SHAREHOLDERS' EQUITY:
  Preferred Stock..............................          --             --              --               --
  Common Stock.................................         929             73             (73)             929
  Paid-in capital..............................      86,095          2,252          (2,252)          86,095
  Retained earnings............................      73,855         10,185         (10,185)          73,855
  Deferred compensation........................      (1,201)            --              --           (1,201)
  Accumulated other comprehensive income.......          --            193              --              193
                                                   --------        -------        --------     ------------
          Total shareholders' equity...........     159,678         12,703         (12,510)         159,871
                                                   --------        -------        --------     ------------
          Total liabilities and shareholders'
            equity.............................    $352,321        $28,743        $(15,894)    $    365,170
                                                   ========        =======        ========     ============


                                      F-78
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                         RAILTEX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)



                                                                         FOR THE YEAR ENDED DECEMBER 31, 1999
                                                              ----------------------------------------------------------
                                                               GUARANTOR
                                                               PARENT AND    NON-GUARANTOR
                                                              SUBSIDIARIES   SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                                              ------------   -------------   ------------   ------------
                                                                                                
OPERATING ACTIVITIES:
  Net income................................................    $ 13,879        $ 2,124        $ (2,124)    $     13,879
  Adjustments to reconcile net income to net cash provided
    by operating activities:
    Depreciation and amortization...........................      15,875            818              --           16,693
    Deferred income taxes...................................         952            363              --            1,315
    Provision for losses on accounts receivable.............         271            156              --              427
    Amortization of deferred financing costs................         404             48              --              452
    Income from subsidiaries................................      (2,124)            --           2,124               --
    Gain on sale of assets..................................      (3,005)           (36)             --           (3,041)
    Gain on sale of subsidiary..............................        (511)            --              --             (511)
    Other...................................................         566             13              --              579
    Change in working capital:
      Accounts receivable, including intercompany accounts
        receivable..........................................       4,112         (1,100)            800            3,812
      Prepaid expenses and other current assets.............         188             19              --              207
      Accounts payable and accrued liabilities, including
        intercompany accounts payable.......................      (1,641)         1,284            (800)          (1,157)
                                                                --------        -------        --------     ------------
          Net cash provided by operating activities.........      28,966          3,689              --           32,655
                                                                --------        -------        --------     ------------
INVESTING ACTIVITIES:
  Purchase of property and equipment........................     (22,829)        (2,090)             --          (24,919)
  Proceeds from sale of property and equipment..............      12,301             38              --           12,339
  Proceeds from sale of subsidiary..........................         675             --              --              675
  Investment in Brazilian railroad company..................        (540)            --              --             (540)
  Organization and acquisition costs........................          --             18              --               18
  Decrease in other long-term assets........................         547             --              --              547
                                                                --------        -------        --------     ------------
          Net cash used in investing activities.............      (9,846)        (2,034)             --          (11,880)
                                                                --------        -------        --------     ------------
FINANCING ACTIVITIES:
  Decrease in short-term notes payable......................        (215)            --              --             (215)
  Proceeds from long-term debt..............................         272             --              --              272
  Principal payments on long-term debt and capital leases...      (3,469)            --              --           (3,469)
  Net decrease in working capital facilities................     (14,581)        (2,012)             --          (16,593)
  Deferred financing costs..................................        (768)           (80)             --             (848)
  Issuance of common stock..................................          76             --              --               76
                                                                --------        -------        --------     ------------
          Net cash used in financing activities.............     (18,685)        (2,092)             --          (20,777)
                                                                --------        -------        --------     ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH.....................          --            560              --              560
                                                                --------        -------        --------     ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS.....................         435            123              --              558
CASH AND CASH EQUIVALENTS, beginning of year................        (275)         1,518              --            1,243
                                                                --------        -------        --------     ------------
CASH AND CASH EQUIVALENTS, end of year......................    $    160        $ 1,641        $     --     $      1,801
                                                                ========        =======        ========     ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
  Interest..................................................    $  9,347        $ 1,187              --     $     10,534
  Income taxes..............................................       6,734            624              --            7,358
Non-cash investing and financing activities:
  Grants....................................................       6,652             --              --            6,652
  Capital leases............................................          31             --              --               31
  Tax benefit from exercise of non-qualified stock
    options.................................................          61             --              --               61
  Amortization of deferred compensation.....................         598             --              --              598


                                      F-79
   162
                         RAILTEX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                       CONSOLIDATING STATEMENTS OF INCOME
                                 (IN THOUSANDS)



                                                            FOR THE YEAR ENDED DECEMBER 31, 1998
                                                 ----------------------------------------------------------
                                                  GUARANTOR
                                                  PARENT AND    NON-GUARANTOR
                                                 SUBSIDIARIES   SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                                 ------------   -------------   ------------   ------------
                                                                                   
OPERATING REVENUES.............................    $147,943       $ 13,532        $   (455)      $161,020
OPERATING EXPENSES:
  Transportation...............................      48,944          4,911            (370)        53,485
  General and administrative...................      29,680          1,173               2         30,855
  Equipment....................................      16,728          2,117              (8)        18,837
  Maintenance of way...........................      14,730          1,282             (79)        15,933
  Depreciation and amortization................      13,516            742              --         14,258
                                                   --------       --------        --------       --------
          Total operating expenses.............     123,598         10,225            (455)       133,368
                                                   --------       --------        --------       --------
OPERATING INCOME...............................      24,345          3,307              --         27,652
INTEREST EXPENSE...............................     (10,104)        (1,132)             --        (11,236)
INCOME FROM SUBSIDIARIES.......................         987             --            (987)            --
OTHER INCOME, NET..............................       4,427           (212)             --          4,215
                                                   --------       --------        --------       --------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
  EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE...      19,655          1,963            (987)        20,631
INCOME TAXES...................................      (6,948)          (905)             --         (7,853)
                                                   --------       --------        --------       --------
NET INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE
  IN ACCOUNTING PRINCIPLE......................      12,707          1,058            (987)        12,778
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
  PRINCIPLE (NET OF INCOME TAXES)..............      (1,632)           (71)             --         (1,703)
                                                   --------       --------        --------       --------
NET INCOME.....................................    $ 11,075       $    987        $   (987)      $ 11,075
                                                   ========       ========        ========       ========


                                      F-80
   163
                         RAILTEX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                          CONSOLIDATING BALANCE SHEETS
                                 (IN THOUSANDS)



                                                                          DECEMBER 31, 1998
                                                      ----------------------------------------------------------
                                                       GUARANTOR
                                                       PARENT AND    NON-GUARANTOR
                                                      SUBSIDIARIES   SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                                      ------------   -------------   ------------   ------------
                                                                                        
                       ASSETS
CURRENT ASSETS:
  Cash and cash equivalents.........................    $   (275)      $  1,518        $     --       $  1,243
  Accounts receivable...............................      33,137          2,341              --         35,478
  Intercompany accounts receivable..................         337          2,245          (2,582)            --
  Prepaid expense and other current assets..........       2,276            111              --          2,387
  Inventories.......................................         742            107              --            849
  Deferred tax assets, net..........................       1,906             --              --          1,906
                                                        --------       --------        --------       --------
          Total current assets......................      38,123          6,322          (2,582)        41,863
                                                        --------       --------        --------       --------
PROPERTY AND EQUIPMENT, NET.........................     273,029         18,750              --        291,779
                                                        --------       --------        --------       --------
OTHER ASSETS:
  Investments in Brazilian railroad companies.......      19,994             --              --         19,994
  Other, net........................................      18,991            104         (10,386)         8,709
                                                        --------       --------        --------       --------
          Total other assets........................      38,985            104         (10,386)        28,703
                                                        --------       --------        --------       --------
          Total assets..............................    $350,137       $ 25,176        $(12,968)      $362,345
                                                        ========       ========        ========       ========
        LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
  Short-term notes payables.........................    $    215       $     --        $     --       $    215
  Current portion of long-term debt.................       6,617          1,951              --          8,568
  Accounts payable..................................      19,779            795              --         20,574
  Intercompany accounts payable.....................       2,245            337          (2,582)            --
  Accrued liabilities...............................      16,716          1,013              --         17,729
                                                        --------       --------        --------       --------
          Total current liabilities.................      45,572          4,096          (2,582)        47,086
                                                        --------       --------        --------       --------
DEFERRED INCOME TAXES, NET..........................      28,434          1,860              --         30,294
LONG-TERM DEBT, LESS CURRENT PORTION................     113,226          9,756              --        122,982
OTHER LIABILITIES...................................       6,835             --              --          6,835
                                                        --------       --------        --------       --------
          Total liabilities.........................     194,067         15,712          (2,582)       207,197
                                                        --------       --------        --------       --------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST IN BRAZILIAN INVESTMENTS..........      11,000             --              --         11,000
                                                        --------       --------        --------       --------
SHAREHOLDERS' EQUITY:
  Preferred Stock...................................          --             --              --             --
  Common Stock......................................         927             73             (73)           927
  Paid-in capital...................................      85,115          2,252          (2,252)        85,115
  Retained earnings.................................      59,976          8,061          (8,061)        59,976
  Deferred compensation.............................        (948)            --              --           (948)
  Accumulated other comprehensive income............          --           (922)             --           (922)
                                                        --------       --------        --------       --------
          Total shareholders' equity................     145,070          9,464         (10,386)       144,148
                                                        --------       --------        --------       --------
          Total liabilities and shareholders'
            equity..................................    $350,137       $ 25,176        $(12,968)      $362,345
                                                        ========       ========        ========       ========


                                      F-81
   164
                         RAILTEX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                     CONSOLIDATING STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)



                                                                         FOR THE YEAR ENDED DECEMBER 31, 1998
                                                              ----------------------------------------------------------
                                                               GUARANTOR
                                                               PARENT AND    NON-GUARANTOR
                                                              SUBSIDIARIES   SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                                              ------------   -------------   ------------   ------------
                                                                                                
OPERATING ACTIVITIES:
  Net Income................................................    $ 11,075       $    987        $   (987)      $ 11,075
  Adjustments to reconcile net income to net cash provided
    by operating activities:
    Cumulative effect of a change in accounting principle...       2,633            114              --          2,747
    Depreciation and amortization...........................      13,516            742              --         14,258
    Deferred income taxes...................................       5,161            271              --          5,432
    Provision for losses on accounts receivable.............         155             32              --            187
    Amortization of deferred financing costs................         351             37              --            388
    Income from subsidiaries................................        (987)            --             987             --
    Gain on sale of assets..................................      (1,867)            --              --         (1,867)
    Gain on sale of minority interest.......................      (2,045)            --              --         (2,045)
    Other...................................................          32             50              --             82
    Change in working capital:
      Accounts receivable, including intercompany accounts
        payable.............................................        (871)          (665)         (1,029)        (2,565)
      Prepaid expenses and other current assets.............          24            (46)             --            (22)
      Accounts payable and accrued liabilities, including
        intercompany accounts payable.......................       1,299         (1,551)          1,029            777
                                                                --------       --------        --------       --------
          Net cash provided by operating activities.........      28,476            (29)             --         28,447
                                                                --------       --------        --------       --------
INVESTING ACTIVITIES:
  Purchase of property and equipment........................     (28,597)        (1,723)             --        (30,320)
  Proceeds from sale of property and equipment..............       2,288             --              --          2,288
  Purchase of new properties and related equipment and other
    costs...................................................     (13,096)            --              --        (13,096)
  Proceeds from sale of minority interest...................      10,861             --              --         10,861
  Organization and acquisition costs........................         (58)           (21)             --            (79)
  Increase in other long-term assets........................      (1,637)            20              --         (1,617)
                                                                --------       --------        --------       --------
          Net cash used in investing activities.............     (30,239)        (1,724)             --        (31,963)
                                                                --------       --------        --------       --------
FINANCING ACTIVITIES:
  Decrease in short-term notes payable......................        (355)            --              --           (355)
  Proceeds from long-term debt..............................      21,900             --              --         21,900
  Principal payments on long-term debt and capital leases...     (16,687)            --              --        (16,687)
  Net decrease in working capital facilities................      (2,000)         1,250              --           (750)
  Deferred financing costs..................................          --             (3)             --             (3)
  Issuance of common stock..................................         247             --              --            247
                                                                --------       --------        --------       --------
          Net cash provided by financing activities.........       3,105          1,247              --          4,352
                                                                --------       --------        --------       --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH.....................          --           (163)             --           (163)
                                                                --------       --------        --------       --------
NET CHANGE IN CASH AND CASH EQUIVALENTS.....................       1,342           (669)             --            673
CASH AND CASH EQUIVALENTS, beginning of year................      (1,617)         2,187              --            570
                                                                --------       --------        --------       --------
CASH AND CASH EQUIVALENTS, end of year......................    $   (275)      $  1,518        $     --       $  1,243
                                                                ========       ========        ========       ========


                                                                     (continued)
                                      F-82
   165
                         RAILTEX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

             CONSOLIDATING STATEMENTS OF CASH FLOWS -- (CONTINUED)
                                 (IN THOUSANDS)



                                                                         FOR THE YEAR ENDED DECEMBER 31, 1998
                                                              ----------------------------------------------------------
                                                               GUARANTOR
                                                               PARENT AND    NON-GUARANTOR
                                                              SUBSIDIARIES   SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                                              ------------   -------------   ------------   ------------
                                                                                                
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
  Interest..................................................    $ 10,100       $  1,107        $     --       $ 11,207
  Income taxes..............................................       1,816            698              --          2,514
Non-cash investing and financing activities:
  Grants....................................................       2,918             --              --          2,918
  Capital Leases............................................       1,959             --              --          1,959
  Tax benefit from exercise of non-qualified stock
    options.................................................          76             --              --             76
  Amortization of deferred compensation.....................          50             --              --             50
Liabilities and long-term debt assumed in connection with
  the acquisition of railroad companies:
  Fair value of assets acquired.............................      15,809             --              --         15,809
  Cash paid for capital stock...............................      14,003             --              --         14,003
                                                                --------       --------        --------       --------
  Liabilities and long-term debt assumed....................    $  1,806       $     --        $     --       $  1,806
                                                                ========       ========        ========       ========


                                      F-83
   166
                         RAILTEX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                       CONSOLIDATING STATEMENTS OF INCOME
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)



                                                                 FOR THE YEAR ENDED DECEMBER 31, 1997
                                                      ----------------------------------------------------------
                                                       GUARANTOR
                                                       PARENT AND    NON-GUARANTOR
                                                      SUBSIDIARIES   SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                                      ------------   -------------   ------------   ------------
                                                                                        
OPERATING REVENUES..................................    $135,625       $ 13,611        $   (445)      $148,791
OPERATING EXPENSES:
  Transportation....................................      46,434          4,809            (373)        50,870
  General and administrative........................      29,753            961             (13)        30,701
  Equipment.........................................      15,776          2,062              (8)        17,830
  Maintenance of Way................................      12,444          1,056             (51)        13,449
  Depreciation and amortization.....................      12,124            816              --         12,940
                                                        --------       --------        --------       --------
          Total operating expenses..................     116,531          9,704            (445)       125,790
                                                        --------       --------        --------       --------
OPERATING INCOME....................................      19,094          3,907              --         23,001
INTEREST EXPENSE....................................      (8,616)        (1,911)             --        (10,527)
INCOME FROM SUBSIDIARIES............................         975             --            (975)            --
OTHER INCOME, NET...................................       4,367           (169)             --          4,198
                                                        --------       --------        --------       --------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF
  A CHANGE IN ACCOUNTING PRINCIPLE..................      15,820          1,827            (975)        16,672
INCOME TAXES........................................      (5,196)          (852)             --         (6,048)
                                                        --------       --------        --------       --------
NET INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN
  ACCOUNTING PRINCIPLE..............................      10,624            975            (975)        10,624
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
  PRINCIPLE (NET OF INCOME TAXES)...................          --             --              --             --
                                                        --------       --------        --------       --------
NET INCOME..........................................    $ 10,624       $    975        $   (975)      $ 10,624
                                                        ========       ========        ========       ========


                                      F-84
   167
                         RAILTEX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                     CONSOLIDATING STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)



                                                                         FOR THE YEAR ENDED DECEMBER 31, 1997
                                                              ----------------------------------------------------------
                                                               GUARANTOR
                                                               PARENT AND    NON-GUARANTOR
                                                              SUBSIDIARIES   SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                                              ------------   -------------   ------------   ------------
                                                                                                
OPERATING ACTIVITIES:
  Net Income................................................    $ 10,624       $    975        $   (975)      $ 10,624
  Adjustments to reconcile net income to net cash provided
    by operating activities:
    Depreciation and amortization...........................      12,124            816              --         12,940
    Deferred income taxes...................................       1,942            240              --          2,182
    Provision for losses on accounts receivable.............         637              1              --            638
    Amortization of deferred financing costs................         335             49              --            384
    Income from subsidiaries................................        (975)            --             975             --
    Gain on sale of assets..................................      (6,771)            --              --         (6,771)
    Write down of investments...............................       2,100             --              --          2,100
    Other...................................................        (272)            (3)             --           (275)
    Change in working capital:
      Accounts receivable, including intercompany accounts
        receivable..........................................      (4,999)          (501)           (475)        (5,975)
      Prepaid expenses and other current assets.............        (126)            67              --            (59)
      Accounts payable and accrued liabilities, including
        intercompany accounts payable.......................       9,576             58             475         10,109
                                                                --------       --------        --------       --------
          Net cash provided by operating activities.........      24,195          1,702              --         25,897
                                                                --------       --------        --------       --------
INVESTING ACTIVITIES:
  Purchase of property and equipment........................     (34,199)        (1,308)             --        (35,507)
  Proceeds from sale of property and equipment..............       7,327             --              --          7,327
  Purchase of new properties and related equipment and other
    costs...................................................     (25,978)            --              --        (25,978)
  Investment in Brazilian railroad companies................      (1,362)            --              --         (1,362)
  Sale of preferred shares in Brazilian railroad company....       2,758             --              --          2,758
  Organization and acquisition costs........................         (53)           (44)             --            (97)
  Increase in other long-term assets........................        (167)            15              --           (152)
                                                                --------       --------        --------       --------
          Net cash used in investing activities.............     (51,674)        (1,337)             --        (53,011)
                                                                --------       --------        --------       --------
FINANCING ACTIVITIES
  Increase in short-term notes payable......................         218             --              --            218
  Proceeds from long-term debt..............................      74,790            210              --         75,000
  Principal payments on long-term debt and capital leases...     (52,456)          (942)             --        (53,398)
  Net Increase in working capital facilities................       4,000             --              --          4,000
  Deferred financing costs..................................        (367)            (2)             --           (369)
  Issuance of common stock..................................          74             --              --             74
                                                                --------       --------        --------       --------
          Net cash provided by financing activities.........      26,259           (734)             --         25,525
                                                                --------       --------        --------       --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH.....................          --             51              --             51
                                                                --------       --------        --------       --------
NET CHANGE IN CASH AND CASH EQUIVALENTS.....................      (1,220)          (318)             --         (1,538)
CASH AND CASH EQUIVALENTS, beginning of year................        (397)         2,505              --          2,108
                                                                --------       --------        --------       --------
CASH AND CASH EQUIVALENTS, end of year......................    $ (1,617)      $  2,187        $     --       $    570
                                                                ========       ========        ========       ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
  Interest..................................................    $  7,069       $  1,893              --       $  8,962
  Income taxes..............................................       1,678            926              --          2,604
Non-cash investing and financing activities
  Grants....................................................         352             --              --            352
  Capital Leases............................................       1,844             --              --          1,844
  Tax benefit from exercise of non-qualified stock
    options.................................................         100             --              --            100


                                      F-85
   168
                         RAILTEX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

18.  SUBSEQUENT EVENTS

     In January 2000, RailTex Global Investments, LLC ("LLC"), a limited
liability company in which the Company owns a 50.5% membership interest, sold
all of its shares in FCA to existing shareholders for U.S. $6.4 million. Also in
January, RailTex International Holdings, Inc. ("RIHI"), a wholly-owned
subsidiary of RailTex, sold all of its remaining membership interest in the LLC
and, thus, indirectly, the LLC's shares in America Latina Logistica, S.A.
("ALL"), the parent corporation of FSA, to Global Environmental Fund ("GEF") for
U.S. $3.4 million. Concurrent with the sale of RailTex's ALL shares to GEF,
RailTex's obligations to repurchase any of the Brazilian interests previously
sold to GEF terminated. The Company received total proceeds on both of these
transactions of U.S. $9.8 million, which were used to reduce its senior credit
facilities and for general corporate purposes. RailTex recorded a gain of U.S.
$130,000, or $0.01 per share, from these transactions in the month of January
2000.

     On February 4, 2000, RailAmerica acquired all of the outstanding stock of
RailTex for approximately $325 million, including the assumption of all of the
Company's outstanding long-term debt. Each outstanding share of common stock of
the Company was converted into the right to receive (i) $13.50 in cash, and (ii)
0.666667 shares of common stock, par value $0.001 per share of RailAmerica
common stock. As a result of the acquisition, RailTex became a wholly-owned
operating subsidiary of RailAmerica.

                                      F-86
   169

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

                               (RailAmerica logo)

                        RAILAMERICA TRANSPORTATION CORP.

                               OFFER TO EXCHANGE

                                  $130,000,000

                                ALL OUTSTANDING

                       12 7/8% SENIOR SUBORDINATED NOTES
                                    DUE 2010

                                      FOR

                                   REGISTERED
                       12 7/8% SENIOR SUBORDINATED NOTES
                                    DUE 2010

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

                                   PROSPECTUS

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

                                           , 2000

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

We have not authorized any dealer, sales representative or any other person to
give any information or to make any representations not contained in this
prospectus or the accompanying letter of transmittal. This prospectus and the
accompanying letter of transmittal do not offer to sell or buy any securities in
any jurisdiction where it is unlawful
- --------------------------------------------------------------------------------
   170

                                    PART II

                   INFORMATION NOT REQUIRED IN THE PROSPECTUS

ITEM 20.  INDEMNIFICATION OF OFFICERS AND DIRECTORS

     The Registrant has authority under Section 145 of the Delaware General
Corporation Law to indemnify its directors and officers to the extent provided
for in such statute. The Registrant's Certificate of Incorporation provides for
indemnification of the Registrant's officers and directors to the extent
permitted under the Delaware General Corporation Law.

     The Registrant's Certificates of Incorporation limits the liability of
Directors to the maximum extent permitted by Delaware General Corporation Law.
Delaware law provides that the directors of a corporation will not be personally
liable to such corporation or its stockholders for monetary damages for breach
of their fiduciary duties as directors, except for liability (i) for any breach
of their duty of loyalty to the corporation or its stockholders; (ii) for acts
or omissions not in good faith or which involve intentional misconduct of a
knowing violation of law; (iii) for unlawful payments of dividends or unlawful
stock repurchases or redemptions as provided in Section 174 of the Delaware
General Corporation Law; or (iv) for any transaction from which the director
derives an improper personal benefit. The Registrant's Certificate of
Incorporation provides that the Registrant shall indemnify its Directors and
officers to the fullest extent permitted by Delaware law and requires the
Registrant to advance expenses to such Directors and officers to defend any
action for which rights of indemnification are provided in the Certificate of
Incorporation, and also permits the Board of Directors to grant such rights to
its employees and agents.

     Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim of indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

ITEM 21.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

     (a) Exhibits



EXHIBITS  DESCRIPTION
- --------  -----------
       
1.1       Purchase Agreement, dated August 9, 2000, between
          RailAmerica Transportation Corp., RailAmerica, Inc., the
          Guarantors named therein, Donaldson, Lufkin & Jenrette
          Securities Corporation, Barclays Bank PLC and Scotia Capital
          (USA) Inc.
3.1       Certificate of Incorporation of RailAmerica Transportation
          Corp.
3.2       By-laws of RailAmerica Transportation Corp.
4.1       Indenture, dated as of August 14, 2000, between RailAmerica
          Transportation Corp., the Guarantors named therein and Wells
          Fargo Bank Minnesota, N.A.
4.2       Notes Registration Rights Agreement, dated as of August 14,
          2000, between RailAmerica Transportation Corp., the
          Guarantors named therein, Donaldson Lufkin & Jenrette
          Securities Corporation, Barclays Bank PLC and Scotia Capital
          (USA) Inc.
5.1       Opinion of Greenberg Traurig, P.A.*
21.1      Subsidiaries of RailAmerica Transportation Corp.*
23.1      Consent of Greenberg Traurig, P.A. (to be contained in
          exhibit 5.1)
23.2      Consent of PricewaterhouseCoopers LLP (RailAmerica, Inc.)
23.3      Consent of Arthur Andersen Langton Clarke (Ferronor)


                                      II-1
   171



EXHIBITS  DESCRIPTION
- --------  -----------
       
23.4      Consent of PricewaterhouseCoopers LLP (V/Line Freight
          Corporation)
23.5      Consent of PricewaterhouseCoopers LLP (RaiLink Ltd.)
23.6      Consent of Ernst & Young LLP (The Toledo, Peoria and Western
          Railroad Corporation)
23.7      Consent of Arthur Andersen LLP (RailTex, Inc.)
24.1      Power of Attorney (filed with the signature page)
25.1      Statement of Eligibility of Trustee*
99.1      Form of Letter of Transmittal with respect to Exchange
          Offer*
99.2      Form of Notice of Guaranteed Delivery*


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

* To be filed by amendment.

ITEM 22.  UNDERTAKINGS

     1. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

     2. The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.

     The registrant undertakes that every prospectus (i) that is filed pursuant
to the immediately preceding paragraph, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.

     3. The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.

     4. The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this registration statement when it became effective.

                                      II-2
   172

                                   SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, hereunto duly authorized, in the City of Boca Raton,
Florida, on September 5, 2000.

                                          RAILAMERICA TRANSPORTATION CORP.

                                          By:
                                            ------------------------------------
                                              Gary O. Marino
                                              Chairman, President and Chief
                                              Executive Officer

     The following direct and indirect parents and subsidiaries of registrant
may guarantee the notes and are co-registrants under this registration
statement.

         NAME OF CO-REGISTRANT
         ------------------------------------------

         RAILAMERICA, INC.
         PALM BEACH RAIL HOLDING, INC.
         AUSTIN & NORTHWESTERN RAILROAD COMPANY, INC.
         BOSTON CENTRAL FREIGHT RAILROADS, INC.
         CASCADE AND COLUMBIA RIVER RAILROAD COMPANY, INC.
         CENTRAL OREGON & PACIFIC RAILROAD, INC.
         CENTRAL RAILROAD COMPANY OF INDIANA
         CONNECTICUT SOUTHERN RAILROAD, INC.
         DAKOTA RAIL, INC.
         DALLAS, GARLAND & NORTHEASTERN RAILROAD, INC.
         DALLAS, GARLAND & NORTHEASTERN RAILROAD, INC.
         DELAWARE VALLEY RAILWAY COMPANY, INC.
         FLORIDA RAIL LINES, INC.
         GEORGIA SOUTHWESTERN RAILROAD, INC.
         HURON AND EASTERN RAILWAY COMPANY, INC.
         INDIANA & OHIO CENTRAL RAILROAD, INC.
         INDIANA & OHIO RAIL CORP.
         INDIANA & OHIO RAILWAY COMPANY
         INDIANA SOUTHERN RAILROAD, INC.
         MARKSMAN CORP.
         MID-MICHIGAN RAILROAD, INC.
         MISSOURI & NORTHERN ARKANSAS RAILROAD COMPANY, INC.
         NEW ENGLAND CENTRAL RAILROAD, INC.
         NEW ORLEANS LOWER COAST RAILROAD COMPANY, INC.
         NORTH CAROLINA AND VIRGINIA RAILROAD COMPANY, INC.
         OTTER TAIL VALLEY RAILROAD COMPANY, INC.
         PITTSBURGH INDUSTRIAL RAILROAD, INC.
         PLAINVIEW TERMINAL COMPANY
         PRAIRIE HOLDINGS CORPORATION
         RAIL OPERATING SUPPORT GROUP, INC.
         RAILAMERICA AUSTRALIA, INC.
         RAILAMERICA EQUIPMENT CORPORATION
         RAILAMERICA INTERMODAL SERVICES, INC.
         RAILINK ACQUISITION INC.
         RAILTEX ACQUISITION CORP.
         RAILTEX DISTRIBUTION SERVICES, INC.
         RAILTEX, INC.
         RAILTEX INTERNATIONAL HOLDINGS, INC.
         RAILTEX LOGISITICS, INC.
         RAILTEX SERVICES CO., INC.
         SAGINAW VALLEY RAILWAY COMPANY, INC.
         SAN DIEGO & IMPERIAL VALLEY RAILROAD COMPANY, INC.
         SOUTH CAROLINA CENTRAL RAILROAD COMPANY, INC.
         SOUTH CENTRAL TENNESSEE RAILROAD CORP., INC.
         THE TOLEDO, PEORIA & WESTERN RAILROAD CORPORATION
         TOLEDO, PEORIA & WESTERN RAILWAY CORPORATION
         VENTURA COUNTY RAILROAD CO., INC.
         WEST TEXAS AND LUBBOCK RAILROAD COMPANY, INC.

                                          as Guarantors

                                          By:
                                            ------------------------------------
                                              Gary O. Marino
                                              President and Chief Executive
                                              Officer

                                      II-3
   173

                               POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Gary O. Marino and Donald D. Redfearn his
true and lawful attorneys-in-fact, each acting alone, with full powers of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments, including any
post-effective amendments, to this Registration Statement, and to file the same,
with exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact or their substitutes, each acting alone, may lawfully do
or cause to be done by virtue hereof.

     Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.



                      SIGNATURE                                   TITLE                     DATE
                      ---------                                   -----                     ----
                                                                               

                 /s/ GARY O. MARINO                      Chairman, President and     September 5, 2000
- -----------------------------------------------------    Chief Executive Officer
                   Gary O. Marino                          (Principal Executive
                                                               Officer)(1)

               /s/ DONALD D. REDFEARN                      Chief Administrative      September 5, 2000
- -----------------------------------------------------    Officer, Executive Vice
                 Donald D. Redfearn                      President, Secretary and
                                                               Director(1)

                  /s/ BENNETT MARKS                     Chief Financial Officer(1)   September 5, 2000
- -----------------------------------------------------
                    Bennett Marks

                 /s/ JOHN H. MARINO                            Director(2)           September 5, 2000
- -----------------------------------------------------
                   John H. Marino

               /s/ DOUGLAS R. NICHOLS                          Director(2)           September 5, 2000
- -----------------------------------------------------
                 Douglas R. Nichols

                 /s/ RICHARD RAMPELL                           Director(2)           September 5, 2000
- -----------------------------------------------------
                   Richard Rampell

                /s/ CHARLES SWINBURN                           Director(2)           September 5, 2000
- -----------------------------------------------------
                  Charles Swinburn

                /s/ JOHN M. SULLIVAN                           Director(2)           September 5, 2000
- -----------------------------------------------------
                  John M. Sullivan

               /s/ FERD C. MEYER, JR.                          Director(2)           September 5, 2000
- -----------------------------------------------------
                 Ferd C. Meyer, Jr.

               /s/ WILLIAM G. PAGONIS                          Director(2)           September 5, 2000
- -----------------------------------------------------
                 William G. Pagonis


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

(1) Holds such office(s) at the Registrant and all Guarantors.
(2) Holds such office at RailAmerica, Inc. only.

                                      II-4

EX-1.1

   1
                                                                    EXHIBIT 1.1

                        RAILAMERICA TRANSPORTATION CORP.

                                RAILAMERICA, INC.

                                       AND

                           THE GUARANTORS NAMED HEREIN

                           130,000 Units Consisting of

             $130,000,000 12 7/8% Senior Subordinated Notes due 2010
                       of RailAmerica Transportation Corp.

            and Warrants to Purchase 1,411,414 Shares of Common Stock
                              of RailAmerica, Inc.

                               Purchase Agreement

                                 August 9, 2000





                          DONALDSON, LUFKIN & JENRETTE
                             SECURITIES CORPORATION

                                       and

                                BARCLAYS BANK PLC

                                       AND

                            SCOTIA CAPITAL (USA) INC.


   2
                           130,000 Units Consisting of

             $130,000,000 12 7/8% Senior Subordinated Notes due 2010
                       of RailAmerica Transportation Corp.

            and Warrants to Purchase 1,411,414 Shares of Common Stock
                              of RailAmerica, Inc.

                               PURCHASE AGREEMENT

                                                                 August 9, 2000

DONALDSON, LUFKIN & JENRETTE
     SECURITIES CORPORATION

BARCLAYS BANK PLC
SCOTIA CAPITAL (USA) INC.
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172

Dear Sirs:

                  RailAmerica Transportation Corp., a Delaware corporation (the
"COMPANY"), proposes to issue and sell to Donaldson, Lufkin & Jenrette
Securities Corporation, Barclays Bank PLC and Scotia Capital (USA) Inc. (each,
an "INITIAL PURCHASER" and, collectively, the "INITIAL PURCHASERS") 130,000
Units (the "UNITS") consisting of an aggregate of $130,000,000 in principal
amount of 12 7/8% Senior Subordinated Notes due 2010 of the Company (the "SERIES
A NOTES") and Warrants (the "WARRANTS") to purchase 1,411,414 shares of common
stock, par value $0.001 per share (the "WARRANT SHARES"), of RailAmerica, Inc.,
a Delaware corporation ("RAILAMERICA"), at an initial exercise price of $6.60
per share, subject to the terms and conditions set forth herein. The Series A
Notes are to be issued pursuant to the provisions of an indenture (the
"Indenture"), to be dated as of the Closing Date (as defined below), among the
Company, the Guarantors (as defined below) and Wells Fargo Bank Minnesota, N.A.,
as trustee (the "TRUSTEE"). The Warrants will be issued pursuant to a warrant
agreement (the "WARRANT AGREEMENT"), to be dated as of the Closing Date, by and
between RailAmerica and Wells Fargo Bank Minnesota, N.A., as warrant agent (the
"WARRANT AGENT"). The Series A Notes and the Series B Notes (as defined below)
issuable in exchange therefor are collectively referred to herein as the
"NOTES." The Notes will be guaranteed (the "GUARANTEES") by RailAmerica and each
of the other Guarantors set forth on the signature pages hereof (each, a
"GUARANTOR" and, collectively, the "Guarantors"). The Units, the Series A Notes,
the Guarantees and the Warrants are collectively referred to herein as "INITIAL
SECURITIES." The Initial Securities and the Warrant Shares are collectively
referred to herein as the "SECURITIES." The Company and RailAmerica are
sometimes collectively referred to herein as the "ISSUERS."




   3

                  1. OFFERING MEMORANDUM. The Units will be offered and sold to
the Initial Purchasers pursuant to one or more exemptions from the registration
requirements under the Securities Act of 1933, as amended (the "Act"). The
Company and the Guarantors have prepared a preliminary offering memorandum,
dated July 19, 2000 (the "PRELIMINARY OFFERING MEMORANDUM"), and a final
offering memorandum, dated August 9, 2000 (the "OFFERING MEMORANDUM"), relating
to the Units.

                  Upon original issuance thereof, and until such time as the
same is no longer required pursuant to the Indenture or the Warrant Agreement,
the Units, the Notes or the Warrants (and all securities issued in exchange
therefor, in substitution thereof or upon conversion thereof) shall bear the
following legend:

                  "THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED
         UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
         ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
         TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
         BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE NEXT SENTENCE. BY
         ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER:

                  (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
                  BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)(A
                  "QIB"), (B) IT HAS ACQUIRED THIS SECURITY IN AN OFFSHORE
                  TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE
                  SECURITIES ACT, OR (C) IT IS AN INSTITUTIONAL "ACCREDITED
                  INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF
                  REGULATION D UNDER THE SECURITIES ACT) (AN "IAI"),

                  (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS
                  SECURITY EXCEPT (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES,
                  (B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB
                  PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN
                  A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN
                  OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR
                  904 OF REGULATION S UNDER THE SECURITIES ACT, (D) IN A
                  TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
                  SECURITIES ACT, (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER,
                  FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
                  REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF THE
                  SECURITIES (THE FORM OF WHICH CAN BE OBTAINED FROM THE
                  TRUSTEE) AND IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE
                  PRINCIPAL AMOUNT OF SECURITIES LESS THAN $250,000, AN OPINION
                  OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN
                  COMPLIANCE WITH THE




                                      -2-
   4

                  SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL
                  ACCEPTABLE TO THE COMPANY), (F) IN ACCORDANCE WITH ANOTHER
                  EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
                  ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE
                  COMPANY) OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION
                  STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE
                  SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
                  APPLICABLE JURISDICTION, AND

                  (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS
                  SECURITY OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE
                  SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.

                  AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED
         STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S
         UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING
         THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN
         VIOLATION OF THE FOREGOING."

                  2. AGREEMENTS TO SELL AND PURCHASE. On the basis of the
representations, warranties and covenants contained in this Agreement, and
subject to the terms and conditions contained herein, the Company agrees to
issue and sell to the Initial Purchasers, and each Initial Purchaser agrees,
severally and not jointly, to purchase from the Company, the number of Units set
forth opposite the name of such Initial Purchaser on Schedule A hereto at a
purchase price equal to $916.87 per Unit (the "PURCHASE PRICE").

                  3. TERMS OF OFFERING. The Initial Purchasers have advised the
Issuers that the Initial Purchasers will make offers (the "EXEMPT RESALES") of
the Initial Securities purchased hereunder on the terms set forth in the
Offering Memorandum, as amended or supplemented, solely to (i) persons whom the
Initial Purchasers reasonably believe to be "qualified institutional buyers" as
defined in Rule 144A under the Act ("QIBS") and (ii) persons permitted to
purchase the Initial Securities in offshore transactions in reliance upon
Regulation S under the Act (each, a "REGULATION S PURCHASER") (such persons
specified in clauses (i) and (ii) being referred to herein as the "ELIGIBLE
PURCHASERS"). The Initial Purchasers will offer the Initial Securities to
Eligible Purchasers initially at a price equal to $940.38 per Unit. Such price
may be changed at any time without notice.

                  Holders (including subsequent transferees) of the Series A
Notes will have the registration rights set forth in the registration rights
agreement (the "NOTES REGISTRATION RIGHTS AGREEMENT"), to be dated the Closing
Date, in substantially the form of EXHIBIT A hereto, for so long as such Series
A Notes constitute "TRANSFER RESTRICTED SECURITIES" (as defined in the Notes
Registration Rights Agreement). Pursuant to the Notes Registration Rights
Agreement, the Company and the Guarantors will agree to file with the Securities
and Exchange Commission (the "COMMISSION") under the circumstances set forth
therein, (i) a registration statement under the Act (the "EXCHANGE OFFER
REGISTRATION



                                      -3-
   5

STATEMENT") relating to the Company's 12 7/8% Senior Subordinated Notes, Series
B (the "SERIES B NOTES"), to be offered in exchange for the Series A Notes (such
offer to exchange being referred to as the "EXCHANGE OFFER") and the Guarantees
thereof and (ii) a shelf registration statement pursuant to Rule 415 under the
Act (the "SHELF REGISTRATION Statement" and, together with the Exchange Offer
Registration Statement and any registration statement required to be filed by
the Warrant Registration Rights Agreement (as defined below), the "REGISTRATION
STATEMENTS") relating to the resale by certain holders of the Series A Notes and
to use their best efforts to cause such Registration Statements to be declared
and remain effective and usable for the periods specified in the Notes
Registration Rights Agreement and to consummate the Exchange Offer.

                  Holders (including subsequent transferees) of Warrants and
Warrant Shares will have the registration rights with respect to the Warrants
and Warrant Shares set forth in a registration rights agreement (the "WARRANT
REGISTRATION RIGHTS AGREEMENT") between RailAmerica and the Initial Purchasers
to be dated as of the Closing Date, in substantially the form of EXHIBIT B
hereto. This Agreement, the Indenture, the Notes, the Guarantees, the Warrant
Agreement, the Warrant Registration Rights Agreement and the Notes Registration
Rights Agreement are hereinafter sometimes referred to collectively as the
"OPERATIVE DOCUMENTS."

                  4. DELIVERY AND PAYMENT.

                           (a) Delivery of, and payment of the Purchase Price
for, the Units shall be made at the offices of Cahill Gordon & Reindel at 80
Pine Street, New York, New York 10005, or such other location as may be mutually
acceptable. Such delivery and payment shall be made at 9:00 a.m. New York City
time, on August 14, 2000 or at such other time on the same date or such other
date as shall be agreed upon by the Initial Purchasers and the Company in
writing. The time and date of such delivery and the payment for the Units are
herein called the "CLOSING DATE."

                           (b) One or more of the Initial Securities in
definitive global form, registered in the name of Cede & Co., as nominee of the
Depository Trust Company ("DTC"), and in such denomination or denominations and
registered in such name or names as the Initial Purchasers request upon notice
to the Company at least 36 hours prior to the Closing Date (collectively, the
"GLOBAL SECURITIES"), shall be delivered by the Issuers to the Initial
Purchasers (or as the Initial Purchasers direct) in each case with any transfer
taxes thereon duly paid by the Issuers against payment by the Initial Purchasers
of the Purchase Price thereof by wire transfer in same day funds to the order of
the Company. The Global Securities shall be made available to the Initial
Purchasers for inspection not later than 9:30 a.m., New York City time, on the
business day immediately preceding the Closing Date.

                  5. AGREEMENTS OF THE COMPANY AND THE GUARANTORS. Each of the
Issuers and the Guarantors hereby agrees with the Initial Purchasers as follows:

                           (a) To advise the Initial Purchasers promptly and, if
requested by the Initial Purchasers, confirm such advice in writing, (i) of the
issuance by any state securities commission of any stop order suspending the
qualification or exemption from qualification of any Initial Securities for
offering or sale in any jurisdiction designated by the Initial Purchasers
pursuant to Section 5(e)




                                      -4-
   6

hereof, or the initiation of any proceeding by any state securities commission
or any other federal or state regulatory authority for such purpose and (ii) of
the happening of any event during the period referred to in Section 5(c) below
that makes any statement of a material fact made in the Preliminary Offering
Memorandum or the Offering Memorandum untrue or that requires any additions to
or changes in the Preliminary Offering Memorandum or the Offering Memorandum in
order to make the statements therein not misleading. The Issuers and the
Guarantors shall use their best efforts to prevent the issuance of any stop
order or order suspending the qualification or exemption of any Initial
Securities under any state securities or Blue Sky laws and, if at any time any
state securities commission or other federal or state regulatory authority shall
issue an order suspending the qualification or exemption of any Initial
Securities under any state securities or Blue Sky laws, the Issuers and the
Guarantors shall use their best efforts to obtain the withdrawal or lifting of
such order at the earliest possible time.

                           (b) To furnish the Initial Purchasers and those
persons identified by the Initial Purchasers to the Company as many copies of
the Preliminary Offering Memorandum and the Offering Memorandum, and any
amendments or supplements thereto, as the Initial Purchasers may reasonably
request. Subject to the Initial Purchasers' compliance with its representations
and warranties and agreements set forth in Section 7 hereof, the Issuers consent
to the use of the Preliminary Offering Memorandum and the Offering Memorandum,
and any amendments and supplements thereto required pursuant hereto, by the
Initial Purchasers in connection with Exempt Resales.

                           (c) During such period as in the reasonable opinion
of counsel for the Initial Purchasers an Offering Memorandum is required by law
to be delivered in connection with Exempt Resales by the Initial Purchasers and
in connection with market-making activities of the Initial Purchasers for so
long as any Initial Securities are outstanding, (i) not to make any amendment or
supplement to the Offering Memorandum of which the Initial Purchasers shall not
previously have been advised or to which the Initial Purchasers shall reasonably
object after being so advised and (ii) to prepare promptly upon the Initial
Purchasers' reasonable request, any amendment or supplement to the Offering
Memorandum that may be necessary or advisable in connection with such Exempt
Resales or such market-making activities.

                           (d) If, during the period referred to in Section 5(c)
above, any event shall occur or condition shall exist as a result of which, in
the reasonable opinion of counsel to the Initial Purchasers, it becomes
necessary to amend or supplement the Offering Memorandum in order to make the
statements therein, in the light of the circumstances when such Offering
Memorandum is delivered to an Eligible Purchaser, not misleading, or if, in the
reasonable opinion of counsel to the Initial Purchasers, it is necessary to
amend or supplement the Offering Memorandum to comply with any applicable law,
forthwith to prepare an appropriate amendment or supplement to such Offering
Memorandum so that the statements therein, as so amended or supplemented, will
not, in the light of the circumstances when it is so delivered, be misleading,
or so that such Offering Memorandum will comply with applicable law, and to
furnish to the Initial Purchasers and such other persons as the Initial
Purchasers may designate such number of copies thereof as the Initial Purchasers
may reasonably request.



                                      -5-
   7

                           (e) Prior to the sale of all Initial Securities
pursuant to Exempt Resales as contemplated hereby, to cooperate with the Initial
Purchasers and counsel to the Initial Purchasers in connection with the
registration or qualification of the Initial Securities for offer and sale to
the Initial Purchasers and pursuant to Exempt Resales under the securities or
Blue Sky laws of such jurisdictions as the Initial Purchasers may request and to
continue such registration or qualification in effect so long as required for
Exempt Resales and to file such consents to service of process or other
documents as may be necessary in order to effect such registration or
qualification; PROVIDED, HOWEVER, that neither the Issuers nor any Guarantor
shall be required in connection therewith to qualify as a foreign corporation in
any jurisdiction in which it is not now so qualified or to take any action that
would subject it to general consent to service of process or taxation, other
than as to matters and transactions relating to the Preliminary Offering
Memorandum, the Offering Memorandum or Exempt Resales, in any jurisdiction in
which it is not now so subject.

                           (f) So long as the Securities are outstanding, (i) to
mail and make generally available as soon as practicable after the end of each
fiscal year to the record holders of the Notes a financial report of the
Issuers, the Guarantors and their respective subsidiaries on a consolidated
basis (and a similar financial report of all unconsolidated subsidiaries, if
any), all such financial reports to include a consolidated balance sheet, a
consolidated statement of operations, a consolidated statement of cash flows and
a consolidated statement of stockholders' equity as of the end of and for such
fiscal year, together with comparable information as of the end of and for the
preceding year, certified by the Issuers' independent public accountants and
(ii) to mail and make generally available as soon as practicable after the end
of each quarterly period (except for the last quarterly period of each fiscal
year) to such holders, a consolidated balance sheet, a consolidated statement of
operations and a consolidated statement of cash flows (and similar financial
reports of all unconsolidated subsidiaries, if any) as of the end of and for
such period, and for the period from the beginning of such year to the close of
such quarterly period, together with comparable information for the
corresponding periods of the preceding year.

                           (g) So long as the Securities are outstanding, to
furnish to the Initial Purchasers as soon as available copies of all reports or
other communications furnished by the Issuers or any of the Guarantors to its
public security holders or furnished to or filed with the Commission or any
national securities exchange on which any class of securities of the Issuers or
any of the Guarantors is listed and such other publicly available information
concerning the Issuers and/or their subsidiaries as the Initial Purchasers may
reasonably request.

                           (h) So long as any of the Securities remain
outstanding and are "restricted securities" and during any period in which the
Company and the Guarantors are not subject to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), to make
available to any holder of such Securities in connection with any sale thereof
and any prospective purchaser of such Securities from such holder, the
information of the Issuers ("RULE 144A INFORMATION") required by Rule 144A(d)(4)
under the Act.

                           (i) Whether or not the transactions contemplated in
this Agreement are consummated or this Agreement is terminated, to pay or cause
to be paid all expenses incident to the




                                      -6-
   8

performance of the obligations of the Issuers and the Guarantors under this
Agreement, including: (i) the fees, disbursements and expenses of counsel to the
Issuers and the Guarantors and accountants of the Issuers and the Guarantors in
connection with the sale and delivery of the Initial Securities to the Initial
Purchasers and pursuant to Exempt Resales, and all other fees and expenses in
connection with the preparation, printing, filing and distribution of the
Preliminary Offering Memorandum, the Offering Memorandum and all amendments and
supplements to any of the foregoing (including financial statements), including
the mailing and delivering of copies thereof to the Initial Purchasers and
persons designated by it in the quantities specified herein, (ii) all costs and
expenses related to the transfer and delivery of the Initial Securities to the
Initial Purchasers and pursuant to Exempt Resales, including any transfer or
other taxes payable thereon, (iii) all costs of printing or producing this
Agreement, the other Operative Documents and any other agreements or documents
in connection with the offering, purchase, sale or delivery of the Initial
Securities, (iv) all expenses in connection with the registration or
qualification of the Initial Securities for offer and sale under the securities
or Blue Sky laws of the several states and all costs of printing or producing
any preliminary and supplemental Blue Sky memoranda in connection therewith
(including the filing fees and reasonable fees and disbursements of counsel for
the Initial Purchasers in connection with such registration or qualification and
memoranda relating thereto), (v) the cost of printing certificates representing
the Initial Securities, (vi) all expenses and listing fees in connection with
the application for quotation of the Initial Securities in the National
Association of Securities Dealers, Inc. ("NASD") Automated Quotation System -
PORTAL ("PORTAL"), (vii) the fees and expenses of the Trustee, the Warrant Agent
and Trustee's and Warrant Agent's counsel in connection with the Indenture, the
Notes, the Warrant Agreement and the Guarantees, (viii) the costs and charges of
any transfer agent, registrar and/or depositary (including DTC), (ix) any fees
charged by rating agencies for the rating of the Securities, (x) all costs and
expenses of the Exchange Offer and any Registration Statement, as set forth in
the Warrant Registration Rights Agreement and the Notes Registration Rights
Agreement, and (xi) all other costs and expenses incident to the performance of
the obligations of the Issuers and the Guarantors hereunder for which provision
is not otherwise made in this Section.

                           (j) To use their best efforts to effect the inclusion
of the Units (and following separation of the Units, the Notes and the Warrants)
in PORTAL and to maintain the listing of the Units (and following separation of
the Units, the Notes and the Warrants) on PORTAL for so long as such Securities
are outstanding.

                           (k) To obtain the approval of DTC for "book-entry"
transfer of the Units (and following separation of the Units, the Notes and the
Warrants), and to comply with all of its agreements set forth in the
representation letters of the Issuers and the Guarantors to DTC relating to the
approval of the Units (and following separation of the Units, the Notes and the
Warrants) by DTC for "book-entry" transfer.

                           (l) During the period beginning on the date hereof
and continuing to and including the Closing Date, not to offer, sell, contract
to sell or otherwise transfer or dispose of any securities of the Issuers or any
Guarantor or any warrants, rights or options to purchase or otherwise acquire
securities of the Issuers or any Guarantor substantially similar to the
Securities (other than the Initial Securities and other than the issuance of
securities upon the exercise of options, warrants and



                                      -7-
   9

other convertible securities outstanding on the date hereof), without the prior
written consent of the Initial Purchasers.

                           (m) Not to sell, offer for sale or solicit offers to
buy or otherwise negotiate in respect of any security (as defined in the Act)
that would be integrated with the sale of the Initial Securities to the Initial
Purchasers or pursuant to Exempt Resales in a manner that would require the
registration of any such sale of the Initial Securities under the Act.

                           (n) Not to voluntarily claim, and to actively resist
any attempts to claim, the benefit of any usury laws against the holders of any
Securities.

                           (o) To comply with all of its agreements set forth in
the Notes Registration Rights Agreement and the Warrant Registration Rights
Agreement and to comply with all applicable federal and state securities laws in
connection therewith.

                           (p) To use its best efforts to do and perform all
things required or necessary to be done and performed under this Agreement by it
prior to the Closing Date and to satisfy all conditions precedent to the
delivery of the Initial Securities.

                  6. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE ISSUERS
AND THE GUARANTORS. As of the date hereof, each of the Issuers and the
Guarantors represents and warrants to, and agrees with, the Initial Purchasers
that:

                           (a) The Preliminary Offering Memorandum and the
Offering Memorandum do not, and any supplement or amendment to them will not,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading,
except that the representations and warranties contained in this paragraph (a)
shall not apply to statements in or omissions from the Preliminary Offering
Memorandum or the Offering Memorandum (or any supplement or amendment thereto)
based upon information relating to the Initial Purchasers furnished to the
Issuers in writing by the Initial Purchasers expressly for use therein. No stop
order preventing the use of the Preliminary Offering Memorandum or the Offering
Memorandum, or any amendment or supplement thereto, or any order asserting that
any of the transactions contemplated by this Agreement are subject to the
registration requirements of the Act, has been issued.

                           (b) Each of the Issuers, the Guarantors and their
respective subsidiaries has been duly incorporated, is validly existing as a
corporation in good standing under the laws of its jurisdiction of incorporation
and has the corporate power and authority to carry on its business as described
in the Preliminary Offering Memorandum and the Offering Memorandum and to own,
lease and operate its properties, and each is duly qualified and is in good
standing as a foreign corporation authorized to do business in each jurisdiction
in which the nature of its business or its ownership or leasing of property
requires such qualification, except where the failure to be so qualified would
not have a material adverse effect on the business, prospects, financial
condition or results of operations of the Issuers, the Guarantors and their
subsidiaries, taken as a whole (a "MATERIAL ADVERSE EFFECT").



                                      -8-
   10

                           (c) All outstanding shares of capital stock of
RailAmerica have been duly authorized and validly issued and are fully paid,
nonassessable and not subject to any preemptive or similar rights; all
outstanding shares of capital stock of the Company are owned, indirectly, by
RailAmerica. RailAmerica has the authorized, issued and outstanding
capitalization set forth in the Offering Memorandum under the heading
"Capitalization" and "Description of Capital Stock".

                           (d) The entities listed on Schedule B hereto are the
only subsidiaries, direct or indirect, of the Company. All of the outstanding
shares of capital stock of each of the Company's subsidiaries have been duly
authorized and validly issued and are fully paid and nonassessable, and are
owned by the Company, directly or indirectly through one or more subsidiaries,
free and clear of any security interest, claim, lien, encumbrance or adverse
interest of any nature (each, a "LIEN") other than Permitted Liens (as defined
in the Indenture).

                           (e) This Agreement has been duly authorized, executed
and delivered by the Issuers and each of the Guarantors.

                           (f) The Indenture has been duly authorized by the
Company and each of the Guarantors and, on the Closing Date, will have been
validly executed and delivered by the Company and each of the Guarantors. When
the Indenture has been duly executed and delivered by the Company and each of
the Guarantors, the Indenture will be a valid and binding agreement of the
Company and each Guarantor (assuming the due authorization, execution and
delivery thereof by the Trustee), enforceable against the Company and each
Guarantor in accordance with its terms except as (i) the enforceability thereof
may be limited by bankruptcy, insolvency or similar laws affecting creditors'
rights generally and (ii) rights of acceleration and the availability of
equitable remedies may be limited by equitable principles of general
applicability. On the Closing Date, the Indenture will conform in all material
respects to the requirements of the Trust Indenture Act of 1939, as amended (the
"TIA" or "TRUST INDENTURE ACT"), and the rules and regulations of the Commission
applicable to an indenture which is qualified thereunder.

                           (g) RailAmerica has all requisite corporate power and
authority to execute, deliver and perform its obligations under the Warrant
Agreement. The Warrant Agreement has been duly and validly authorized by
RailAmerica and, when executed and delivered by RailAmerica (assuming the due
authorization, execution and delivery thereof by the Warrant Agent), will
constitute a valid and legally binding agreement of RailAmerica, enforceable
against RailAmerica in accordance with its terms, except that the enforcement
thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors' rights
generally and (ii) rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability.

                           (h) RailAmerica has all requisite corporate power and
authority to execute, deliver and perform its obligations under the Warrants and
the Warrant Shares. The Warrants and the Warrant Shares have been duly and
validly authorized for issuance and sale by RailAmerica. The Warrants are in the
form contemplated by the Warrant Agreement and, when issued, authenticated and
delivered by RailAmerica against payment by the Initial Purchasers in accordance
with the




                                      -9-
   11

terms of this Agreement and the Warrant Agreement, will constitute valid and
legally binding obligations of RailAmerica, entitled to the benefits of the
Warrant Agreement and enforceable against RailAmerica in accordance with their
terms, except that the enforcement thereof may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally and (ii) rights of acceleration
and the availability of equitable remedies may be limited by equitable
principles of general applicability. When issued in accordance with the terms
and conditions contained in the Warrant Agreement, upon exercise of the
Warrants, the Warrant Shares will be duly authorized, validly issued, fully paid
and nonassessable and will not be subject to any preemptive or similar rights.
Prior to the Closing Date, the Warrant Shares shall have been duly reserved for
issuance in accordance with the terms of the Warrants and the Warrant Agreement.
On the Closing Date, the Warrants and the Warrant Shares will conform as to
legal matters to the descriptions thereof contained in the Offering Memorandum.

                           (i) RailAmerica has all requisite corporate power and
authority to execute, deliver and perform its obligations under the Warrant
Registration Rights Agreement. The Warrant Registration Rights Agreement has
been duly and validly authorized by RailAmerica and, when duly executed and
delivered by RailAmerica, will constitute a valid and legally binding agreement
of RailAmerica, enforceable against RailAmerica in accordance with its terms,
except that (A) the enforceability thereof may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally and (ii) rights of acceleration
and the availability of equitable remedies may be limited by equitable
principles of general applicability and (B) any rights to indemnity or
contribution thereunder may be limited by federal and state securities laws and
public policy considerations. On the Closing Date, the Warrant Registration
Rights Agreement will conform as to legal matters to the description thereof in
the Offering Memorandum.

                           (j) The Series A Notes have been duly authorized and,
on the Closing Date, will have been validly executed and delivered by the
Company. When the Series A Notes have been issued, executed and authenticated in
accordance with the provisions of the Indenture and delivered to and paid for by
the Initial Purchasers in accordance with the terms of this Agreement, the
Series A Notes will be entitled to the benefits of the Indenture and will be
valid and binding obligations of the Company, enforceable in accordance with
their terms except as (i) the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights generally and
(ii) rights of acceleration and the availability of equitable remedies may be
limited by equitable principles of general applicability. On the Closing Date,
the Series A Notes will conform as to legal matters to the description thereof
contained in the Offering Memorandum.

                           (k) On the Closing Date, the Series B Notes will have
been duly authorized by the Company. When the Series B Notes are issued,
executed and authenticated in accordance with the terms of the Exchange Offer
and the Indenture, the Series B Notes will be entitled to the benefits of the
Indenture and will be the valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, except as (i)
the enforceability thereof may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally and (ii) rights of



                                      -10-
   12

acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability.

                           (l) The Guarantee to be endorsed on the Series A
Notes by each Guarantor has been duly authorized by such Guarantor and, on the
Closing Date, will have been duly executed and delivered by each such Guarantor.
When the Series A Notes have been issued, executed and authenticated in
accordance with the Indenture and delivered to and paid for by the Initial
Purchasers in accordance with the terms of this Agreement, the Guarantee of each
Guarantor endorsed thereon will be entitled to the benefits of the Indenture and
will be the valid and binding obligation of such Guarantor, enforceable against
such Guarantor in accordance with its terms, except as (i) the enforceability
thereof may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and (ii) rights of acceleration and the availability
of equitable remedies may be limited by equitable principles of general
applicability. On the Closing Date, the Guarantees to be endorsed on the Series
A Notes will conform as to legal matters to the description thereof contained in
the Offering Memorandum.

                           (m) The Guarantee to be endorsed on the Series B
Notes by each Guarantor has been duly authorized by such Guarantor and, when
issued, will have been duly executed and delivered by each such Guarantor. When
the Series B Notes have been issued, executed and authenticated in accordance
with the terms of the Exchange Offer and the Indenture, the Guarantee of each
Guarantor endorsed thereon will be entitled to the benefits of the Indenture and
will be the valid and binding obligation of such Guarantor, enforceable against
such Guarantor in accordance with its terms, except as (i) the enforceability
thereof may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and (ii) rights of acceleration and the availability
of equitable remedies may be limited by equitable principles of general
applicability. When the Series B Notes are issued, authenticated and delivered,
the Guarantees to be endorsed on the Series B Notes will conform as to legal
matters to the description thereof in the Offering Memorandum.

                           (n) The Notes Registration Rights Agreement has been
duly authorized by the Company and each of the Guarantors and, on the Closing
Date, will have been duly executed and delivered by the Company and each of the
Guarantors. When the Notes Registration Rights Agreement has been duly executed
and delivered, the Notes Registration Rights Agreement will be a valid and
binding agreement of the Company and each of the Guarantors, enforceable against
the Company and each Guarantor in accordance with its terms except as (i) the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and (ii) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability. On the Closing Date, the Notes Registration Rights
Agreement will conform as to legal matters to the description thereof in the
Offering Memorandum.

                           (o) None of the Issuers, the Guarantors or any of
their respective subsidiaries is in violation of its respective charter or
by-laws or in default in the performance of any obligation, agreement, covenant
or condition contained in any indenture, loan agreement, mortgage, lease or
other agreement or instrument that is material to the Issuers, the Guarantors
and their respective subsidiaries, taken as a whole, to which the Issuers, the
Guarantors or any of their respective subsidiaries



                                      -11-
   13

is a party or by which the Issuers, the Guarantors or any of their respective
property is bound, except in each case for such violations or defaults as could
not reasonably be expected to have a Material Adverse Effect.

                           (p) The execution, delivery and performance of this
Agreement and the other Operative Documents by the Issuers and each of the
Guarantors, compliance by the Issuers and each of the Guarantors with all
provisions hereof and thereof and the consummation of the transactions
contemplated hereby and thereby will not (i) require any consent, approval,
authorization or other order of, or qualification with, any court or
governmental body or agency (except such as may be required under the securities
or Blue Sky laws of the various states or under the Act), (ii) conflict with or
constitute a breach of any of the terms or provisions of, or a default under,
the charter or by-laws of either Issuer, the Guarantors or any of their
respective subsidiaries or any indenture, loan agreement, mortgage, lease or
other agreement or instrument that is material to the Issuers, the Guarantors or
their respective subsidiaries, taken as a whole, to which either Issuer, the
Guarantors or their respective subsidiaries is a party or by which either
Issuer, the Guarantors or any of their respective subsidiaries or their
respective property is bound (other than such conflicts, breaches or defaults as
have been waived), (iii) violate or conflict with any applicable law or any
rule, regulation, judgment, order or decree of any court or any governmental
body or agency having jurisdiction over either Issuer, the Guarantors or any of
their respective subsidiaries or their respective property, (iv) result in the
imposition or creation of (or the obligation to create or impose) a Lien under,
any agreement or instrument to which either Issuer, the Guarantors or any of
their respective subsidiaries is a party or by which either Issuer, the
Guarantors or any of their respective subsidiaries or their respective property
is bound, or (v) result in the termination, suspension or revocation of any
Authorization (as defined below) of either Issuer, the Guarantors or any of
their respective subsidiaries or result in any other impairment of the rights of
the holder of any such Authorization which could reasonably be expected, singly
or in the aggregate, to have a Material Adverse Effect.

                           (q) Other than as disclosed in the Offering
Memorandum, there are no legal or governmental proceedings pending or, to the
best knowledge of the Issuers, threatened to which the Issuers, the Guarantors
or any of their respective subsidiaries is or could be a party or to which any
of their respective property is or could be subject, which might result, singly
or in the aggregate, in a Material Adverse Effect.

                           (r) Except as disclosed in the Offering Memorandum,
to the best knowledge of the Issuers, none of the Issuers, the Guarantors or any
of their respective subsidiaries has violated any foreign, federal, state or
local law or regulation relating to the protection of human health and safety,
the environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), any provisions of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or any provisions of the
Foreign Corrupt Practices Act or the rules and regulations promulgated
thereunder, except for such violations which, singly or in the aggregate, would
not have a Material Adverse Effect.

                           (s) Except as disclosed in the Offering Memorandum,
to the best knowledge of the Issuers, there are no costs or liabilities
associated with Environmental Laws (including,



                                      -12-
   14

without limitation, any capital or operating expenditures required for clean-up,
closure of properties or compliance with Environmental Laws or any
Authorization, any related constraints on operating activities and any potential
liabilities to third parties) which would, singly or in the aggregate, have a
Material Adverse Effect.

                           (t) The Issuers, the Guarantors and their respective
subsidiaries are insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as are prudent and customary
in the businesses in which they are engaged; and none of the Issuers, the
Guarantors or any of their respective subsidiaries (i) has received notice from
any insurer or agent of such insurer that substantial capital improvements or
other material expenditures will have to be made in order to continue such
insurance or (ii) has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers at a cost that would not have a Material
Adverse Effect.

                           (u) The Issuers, the Guarantors and their respective
subsidiaries have (i) in the case of real property, good and marketable fee
title, leasehold, easement, right of way or other similar estate which is
sufficient to permit such person to operate as railroads and other business as
currently operated or carried on without undue charge or expense, and (ii) in
the case of owned personal property, good and marketable title to such personal
property owned by them, in each case, which are material to the business of the
Issuers, the Guarantors and their respective subsidiaries, and in each case,
free and clear of all Liens and defects, except such as are described in the
Offering Memorandum or such as do not materially affect the value of such
property and do not interfere with the use made and proposed to be made of such
property by the Issuers, the Guarantors and their respective subsidiaries; and
any real property and buildings held under lease by the Issuers, the Guarantors
and their respective subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Issuers, the Guarantors and their respective subsidiaries, in each case except
as described in the Offering Memorandum.

                           (v) Each of the Issuers, the Guarantors and their
respective subsidiaries has such permits, licenses, consents, exemptions,
franchises, authorizations and other approvals (each, an "AUTHORIZATION") of,
and has made all filings with and notices to, all governmental or regulatory
authorities and self-regulatory organizations and all courts and other
tribunals, including without limitation, under any applicable Environmental
Laws, as are necessary to own, lease, license and operate its respective
properties and to conduct its business, except where the failure to have any
such Authorization or to make any such filing or notice would not, singly or in
the aggregate, have a Material Adverse Effect. Each such Authorization is valid
and in full force and effect and each of the Issuers, the Guarantors and their
respective subsidiaries is in compliance with all the terms and conditions
thereof and with the rules and regulations of the authorities and governing
bodies having jurisdiction with respect thereto; and no event has occurred
(including, without limitation, the receipt of any notice from any authority or
governing body) that allows or, after notice or lapse of time or both, would
allow, revocation, suspension or termination of any such Authorization or
results or, after notice or lapse of time or both, would result in any other
impairment of the rights of the holder of any such Authorization; and such
Authorizations contain no restrictions that are burdensome to the Issuers, the




                                      -13-
   15

Guarantors or any of their respective subsidiaries; except where such failure to
be valid and in full force and effect or to be in compliance, the occurrence of
any such event or the presence of any such restriction would not, singly or in
the aggregate, have a Material Adverse Effect.

                           (w) There is no (i) unfair labor practice complaint,
grievance or arbitration proceeding pending or, to the best knowledge of the
Issuers, threatened against either Issuer, the Guarantors or their respective
subsidiaries before the National Labor Relations Board or any state, local or
foreign labor relations board, (ii) strike, labor dispute, slowdown or stoppage
pending or threatened against either Issuer, the Guarantors or their respective
subsidiaries or (iii) union representation question existing with respect to the
employees of the Issuers, the Guarantors or their respective subsidiaries,
except in the case of clauses (i), (ii) and (iii) for such actions which, singly
or in the aggregate, would not have a Material Adverse Effect.

                           (x) The Issuers, the Guarantors and their respective
subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. This
representation tracks the requirements of Section 13(b)(2) under the Exchange
Act.

                           (y) The accountants, PricewaterhouseCoopers, L.L.P.,
Arthur Andersen Langton Clarke and Arthur Andersen LLP, that have certified the
financial statements and supporting schedules included in the Preliminary
Offering Memorandum and the Offering Memorandum are independent public
accountants with respect to the Issuers, the Guarantors and their respective
subsidiaries, as required by the Act and the Exchange Act. The historical
financial statements, together with related schedules and notes, set forth in
the Preliminary Offering Memorandum and the Offering Memorandum comply as to
form in all material respects with the requirements applicable to registration
statements on Form S-1 under the Act, it being understood and agreed that the
historical financial statements included in the Offering Memorandum do not
include all the historical financial statements which would be required in a
registration statement on Form S-1.

                           (z) The historical financial statements, together
with related schedules and notes forming part of the Offering Memorandum (and
any amendment or supplement thereto), present fairly the consolidated financial
position, results of operations and changes in financial position of the
Issuers, the Guarantors and their respective subsidiaries on the basis stated in
the Offering Memorandum at the respective dates or for the respective periods to
which they apply; such statements and related schedules and notes have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, except as disclosed
therein; and the other financial and statistical information and data set forth
in the Offering Memorandum (and any amendment or supplement thereto) are, in all
material respects, accurately presented and prepared



                                      -14-
   16

on a basis consistent with such financial statements and the books and records
of the Issuers and the Guarantors.

                           (aa) The PRO FORMA financial statements included in
the Preliminary Offering Memorandum and the Offering Memorandum have been
prepared on a basis consistent with the historical financial statements of the
Issuers, the Guarantors and their respective subsidiaries and give effect to
assumptions used in the preparation thereof on a reasonable basis and in good
faith and present fairly the historical and proposed transactions contemplated
by the Preliminary Offering Memorandum and the Offering Memorandum; and such PRO
FORMA financial statements comply as to form in all material respects with the
requirements applicable to PRO FORMA financial statements included in
registration statements on Form S-1 under the Act. The other PRO FORMA financial
and statistical information and data included in the Offering Memorandum are, in
all material respects, accurately presented and prepared on a basis consistent
with the PRO FORMA financial statements.

                           (bb) Neither Issuer is and, after giving effect to
the offering and sale of the Initial Securities and the application of the net
proceeds thereof as described in the Offering Memorandum, neither will be an
"investment company," as such term is defined in the Investment Company Act of
1940, as amended.

                           (cc) None of the Issuers, the Guarantors or any of
their respective subsidiaries nor any agent thereof acting on their behalf has
taken, and none of them will take, any action that might cause this Agreement or
the issuance or sale of the Initial Securities to violate Regulation G (12
C.F.R. Part 207), Regulation T (12 C.F.R. Part 220), Regulation U (12 C.F.R.
Part 221) or Regulation X (12 C.F.R. Part 224) of the Board of Governors of the
Federal Reserve System.

                           (dd) No "nationally recognized statistical rating
organization" as such term is defined for purposes of Rule 436(g)(2) under the
Act (i) has imposed (or has informed either Issuer, any Guarantor or any of
their respective subsidiaries that it is considering imposing) any condition
(financial or otherwise) on either Issuer's, any Guarantor's or any of their
respective subsidiaries' retaining any rating assigned to either Issuer, any
Guarantor or any of their respective subsidiaries or any securities of the
Issuers, any Guarantor or any of their respective subsidiaries or (ii) has
indicated to the Issuers, any Guarantor or any of their respective subsidiaries
that it is considering (a) the downgrading, suspension, or withdrawal of, or any
review for a possible change that does not indicate the direction of the
possible change in, any rating so assigned or (b) any change in the outlook for
any rating of either Issuer, any Guarantor or any of their respective
subsidiaries or any securities of the Issuers, any Guarantor or any of their
respective subsidiaries.

                           (ee) No action has been taken and no law, statute,
rule or regulation or order has been enacted, adopted or issued by any
governmental agency or body which prevents the execution, delivery and
performance of any of the Operative Documents, the issuance of the Initial
Securities, or suspends the sale of the Initial Securities in any jurisdiction
referred to in Section 5(e); and no injunction, restraining order or other order
or relief of any nature by a federal or state court or other tribunal of
competent jurisdiction has been issued with respect to the Issuers, the
Guarantors or their



                                      -15-
   17

respective subsidiaries which would prevent or suspend the issuance or sale of
the Initial Securities in any jurisdiction referred to in Section 5(e).

                           (ff) Since the respective dates as of which
information is given in the Offering Memorandum other than as set forth in the
Offering Memorandum (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement), (i) there has not occurred any
material adverse change or any development involving a prospective material
adverse change in the condition, financial or otherwise, or the earnings,
business, management or operations of the Issuers, the Guarantors and their
respective subsidiaries taken as a whole, (ii) there has not been any material
adverse change or any development involving a prospective material adverse
change in the capital stock or in the long-term debt of the Issuers, the
Guarantors or any of their respective subsidiaries and (iii) none of the
Issuers, the Guarantors or any of their respective subsidiaries has incurred any
material liability or obligation, direct or contingent.

                           (gg) Each of the Preliminary Offering Memorandum and
the Offering Memorandum, as of its date, contains all the information specified
in, and meeting the requirements of, Rule 144A(d)(4) under the Act.

                           (hh) When the Initial Securities are issued and
delivered pursuant to this Agreement, the Initial Securities will not be of the
same class (within the meaning of Rule 144A under the Act) as any security of
either Issuer or the Guarantors that is listed on a national securities exchange
registered under Section 6 of the Exchange Act or that is quoted in a United
States automated inter-dealer quotation system.

                           (ii) No form of general solicitation or general
advertising (as defined in Regulation D under the Act) was used by either
Issuer, the Guarantors or their respective subsidiaries or any of their
respective representatives (other than the Initial Purchasers, as to whom the
Issuers, the Guarantors and their respective subsidiaries make no
representation) in connection with the offer and sale of the Initial Securities
contemplated hereby, including, but not limited to, articles, notices or other
communications published in any newspaper, magazine, or similar medium or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or general advertising. No
securities of the same class as the Initial Securities have been issued and sold
by the Issuers within the six-month period immediately prior to the date hereof.

                           (jj) Prior to the effectiveness of any Registration
Statement, the Indenture is not required to be qualified under the TIA.

                           (kk) None of the Issuers, the Guarantors or any of
their respective subsidiaries or any of their respective affiliates or any
person acting on its or their behalf (other than the Initial Purchasers, as to
whom the Issuers, the Guarantors and their respective subsidiaries make no
representation) has engaged or will engage in any directed selling efforts
within the meaning of Regulation S under the Act ("REGULATION S") with respect
to the Initial Securities.



                                      -16-
   18

                           (ll) Assuming the accuracy of the Initial Purchasers'
representations and warranties and agreements set forth in Section 7 hereof, the
Initial Securities offered and sold in reliance on Regulation S have been and
will be offered and sold only in offshore transactions.

                           (mm) The sale of the Initial Securities pursuant to
Regulation S is not part of a plan or scheme to evade the registration
provisions of the Act.

                           (nn) The Issuers, the Guarantors and their respective
subsidiaries and their respective affiliates and all persons acting on their
behalf (other than the Initial Purchasers, as to whom the Issuers, the
Guarantors and their respective subsidiaries make no representation) have
complied with and will comply with the offering restrictions requirements of
Regulation S in connection with the offering of the Initial Securities outside
the United States and in connection therewith, the Offering Memorandum will
contain the disclosure required by Rule 902(h).

                           (oo) The Initial Securities sold in reliance on
Regulation S will be represented upon issuance by a temporary global security
that may not be exchanged for definitive securities until the expiration of the
40-day restricted period referred to in Rule 903(c)(3) of the Act in the case of
the Series A Notes and until the expiration of the one year restricted period in
the case of the Warrants, and only upon certification of beneficial ownership of
such Series A Notes and Warrants by non-U.S. persons or U.S. persons who
purchased such Series A Notes and Warrants in transactions that were exempt from
the registration requirements of the Act.

                           (pp) No registration under the Act of the Initial
Securities is required for the sale of the Initial Securities to the Initial
Purchasers as contemplated hereby or for the Exempt Resales assuming the
accuracy of the Initial Purchasers' representations and warranties and
agreements set forth in Section 7 hereof.

                           (qq) Each certificate signed by any officer of the
Issuers or any Guarantor and delivered to the Initial Purchasers or counsel for
the Initial Purchasers shall be deemed to be a representation and warranty by
the Issuers or such Guarantor to the Initial Purchasers as to the matters
covered thereby.

                           (rr) The statistical and market-related data included
in the Offering Memorandum are based on or derived from sources which the
Issuers reasonably believe to be reliable and accurate or represent the Issuers'
good faith estimates that, in the case of market-related data, are made on the
basis of data derived from such sources.

                  The Issuers acknowledge that the Initial Purchasers and, for
purposes of the opinions to be delivered to the Initial Purchasers pursuant to
Section 9 hereof, counsel to the Issuers and the Guarantors and counsel to the
Initial Purchasers will rely upon the accuracy and truth of the foregoing
representations and hereby consents to such reliance.

                  7. INITIAL PURCHASERS' REPRESENTATIONS AND WARRANTIES. Each
Initial Purchaser represents and warrants to, and agrees with, the Issuers and
the Guarantors (as to itself only):




                                      -17-
   19

                           (a) Such Initial Purchaser is a QIB, with such
knowledge and experience in financial and business matters as is necessary in
order to evaluate the merits and risks of an investment in the Initial
Securities.

                           (b) Such Initial Purchaser (A) is not acquiring the
Initial Securities with a view to any distribution thereof or with any present
intention of offering or selling any of the Initial Securities in a transaction
that would violate the Act or the securities laws of any state of the United
States or any other applicable jurisdiction and (B) will be reoffering and
reselling the Initial Securities only to (x) QIBs in reliance on the exemption
from the registration requirements of the Act provided by Rule 144A, and/or (y)
in offshore transactions in reliance upon Regulation S under the Act.

                           (c) Such Initial Purchaser agrees that no form of
general solicitation or general advertising (within the meaning of Regulation D
under the Act) has been or will be used by such Initial Purchaser or any of its
representatives in connection with the offer and sale of the Initial Securities
pursuant hereto, including, but not limited to, articles, notices or other
communications published in any newspaper, magazine or similar medium or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or general advertising.

                           (d) Such Initial Purchaser agrees that, in connection
with Exempt Resales, such Initial Purchaser will solicit offers to buy the
Initial Securities only from, and will offer to sell the Initial Securities only
to, Eligible Purchasers. Each Initial Purchaser further agrees that it will
offer to sell the Initial Securities only to, and will solicit offers to buy the
Initial Securities only from (A) Eligible Purchasers that the Initial Purchasers
reasonably believes are QIBs and (B) Regulation S Purchasers, in each case, that
agree that (x) the Initial Securities purchased by them may be resold, pledged
or otherwise transferred within the time period referred to under Rule 144(k)
(taking into account the provisions of Rule 144(d) under the Act, if applicable)
under the Act, as in effect on the date of the transfer of such Initial
Securities, only (I) to the Company or any of its subsidiaries, (II) to a person
whom the seller reasonably believes is a QIB purchasing for its own account or
for the account of a QIB in a transaction meeting the requirements of Rule 144A
under the Act, (III) in an offshore transaction (as defined in Rule 902 under
the Act) meeting the requirements of Rule 904 of the Act, (IV) in a transaction
meeting the requirements of Rule 144 under the Act, (V) to an institutional
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Act (an "ACCREDITED INSTITUTION"), that, prior to such transfer, furnishes the
Trustee a signed letter containing certain representations and agreements
relating to the registration of transfer of such Initial Securities (the form of
which is substantially the same as EXHIBIT D to the Indenture) and, if such
transfer is in respect of an aggregate principal amount of Initial Securities
less than $250,000, an opinion of counsel reasonably acceptable to the Issuers
that such transfer is in compliance with the Act, (VI) in accordance with
another exemption from the registration requirements of the Act (and based upon
an opinion of counsel reasonably acceptable to the Issuers) or (VII) pursuant to
an effective registration statement and, in each case, in accordance with the
applicable securities laws of any state of the United States or any other
applicable jurisdiction and (y) they will deliver to each person to whom such
Initial Securities or an interest therein is transferred a notice substantially
to the effect of the foregoing.



                                      -18-
   20

                           (e) Such Initial Purchaser and its affiliates or any
person acting on its or their behalf have not engaged or will not engage in any
directed selling efforts within the meaning of Regulation S with respect to the
Initial Securities.

                           (f) The Initial Securities offered and sold by such
Initial Purchaser pursuant hereto in reliance on Regulation S have been and will
be offered and sold only in offshore transactions.

                           (g) The sale of the Initial Securities offered and
sold by such Initial Purchaser pursuant hereto in reliance on Regulation S is
not part of a plan or scheme to evade the registration provisions of the Act.

                           (h) Such Initial Purchaser agrees that it has not
offered or sold and will not offer or sell the Initial Securities in the United
States or to, or for the benefit or account of, a U.S. person (other than a
distributor), in each case, as defined in Rule 902 under the Act (i) as part of
its distribution at any time and (ii) otherwise until 40 days after the later of
the commencement of the offering of the Initial Securities pursuant hereto and
the Closing Date, other than in accordance with Regulation S of the Act or
another exemption from the registration requirements of the Act. Such Initial
Purchaser agree that, during such 40-day restricted period in the case of Series
A Notes and during such one year restricted period in the case of Warrants, it
will not cause any advertisement with respect to the Initial Securities
(including any "tombstone" advertisement) to be published in any newspaper or
periodical or posted in any public place and will not issue any circular
relating to the Initial Securities, except such advertisements as permitted by
and include the statements required by Regulation S.

                           (i) Such Initial Purchaser agrees that, at or prior
to confirmation of a sale of Initial Securities by it to any distributor, dealer
or person receiving a selling concession, fee or other remuneration during the
40-day restricted period referred to in Rule 903(c)(3) under the Act in the case
of Series A Notes and during such one year restricted period in the case of
Warrants, it will send to such distributor, dealer or person receiving a selling
concession, fee or other remuneration a confirmation or notice to substantially
the following effect:

                  "The Securities covered hereby have not been registered under
                  the U.S. Securities Act of 1933, as amended (the "SECURITIES
                  ACT"), and may not be offered and sold within the United
                  States or to, or for the account or benefit of, U.S. persons
                  (i) as part of your distribution at any time or (ii) otherwise
                  until 40 days after the later of the commencement of the
                  Offering and the Closing Date in the case of Series A Notes or
                  until one year after the later of the commencement of the
                  Offering and the Closing Date in the case of Warrants, except
                  in either case in accordance with Regulation S under the
                  Securities Act (or Rule 144A or to Accredited Institutions in
                  transactions that are exempt from the registration
                  requirements of the Securities Act), and in connection with
                  any subsequent sale by you of the Securities covered hereby in
                  reliance on Regulation S during the period referred to above
                  to any distributor, dealer or person receiving a selling
                  concession, fee or



                                      -19-
   21

                  other remuneration, you must deliver a notice to substantially
                  the foregoing effect. Terms used above have the meanings
                  assigned to them in Regulation S."

                           (j) Such Initial Purchaser agrees that the Initial
Securities offered and sold in reliance on Regulation S will be represented upon
issuance by a global security that may not be exchanged for definitive
securities until the expiration of the 40-day restricted period referred to in
Rule 903(c)(3) of the Act in the case of the Series A Notes and until the
expiration of the one year restricted period in the case of Warrants and only
upon certification of beneficial ownership of such Initial Securities by
non-U.S. persons or U.S. persons who purchased such Initial Securities in
transactions that were exempt from the registration requirements of the Act.

                           Such Initial Purchaser acknowledges that the Issuers
and the Guarantors and, for purposes of the opinions to be delivered to each
Initial Purchaser pursuant to Section 9 hereof, counsel to the Issuers and the
Guarantors and counsel to the Initial Purchasers will rely upon the accuracy and
truth of the foregoing representations and such Initial Purchaser hereby
consents to such reliance.

                  8. INDEMNIFICATION.

                           (a) The Issuers and the Guarantors agree, jointly and
severally, to indemnify and hold harmless the Initial Purchasers, their
directors, their officers and each person, if any, who controls such Initial
Purchaser within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, from and against any and all losses, claims, damages, liabilities
and judgments (including, without limitation, any legal or other expenses
incurred by the Initial Purchasers, their directors, their officers or control
persons in connection with investigating or defending any matter, including any
action, that could give rise to any such losses, claims, damages, liabilities or
judgments) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Offering Memorandum (or any amendment or
supplement thereto), the Preliminary Offering Memorandum or any Rule 144A
Information provided by the Issuers, the Guarantors or their respective
subsidiaries to any holder or prospective purchaser of Initial Securities
pursuant to Section 5(h) or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which
made, except insofar as such losses, claims, damages, liabilities or judgments
are caused by any such untrue statement or omission or alleged untrue statement
or omission based upon information relating to the Initial Purchasers furnished
in writing to the Issuers by such Initial Purchaser; PROVIDED HOWEVER, that the
foregoing indemnity agreement with respect to any Preliminary Offering
Memorandum shall not inure to the benefit of any Initial Purchaser who failed to
deliver a Final Offering Memorandum, as then amended or supplemented, (so long
as the Final Offering Memorandum and any amendment or supplement thereto was
provided by the Issuers to the several Initial Purchasers in the requisite
quantity and on a timely basis to permit proper delivery on or prior to the
Closing Date) to the person asserting any losses, claims, damages, liabilities
or judgments caused by any untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Offering Memorandum, or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, if
such material misstatement or omission or alleged



                                      -20-
   22

material misstatement or omission was cured in the Final Offering Memorandum, as
so amended or supplemented.

                           (b) The Initial Purchasers agree, severally and not
jointly, to indemnify and hold harmless the Issuers and the Guarantors and their
respective directors and officers and each person, if any, who controls (within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act) the
Issuers or the Guarantors, to the same extent as the foregoing indemnity from
the Issuers and the Guarantors to the Initial Purchasers but only with reference
to information relating to such Initial Purchaser furnished in writing to the
Issuers by such Initial Purchaser expressly for use in the Preliminary Offering
Memorandum or the Offering Memorandum and not with respect to the information
provided by any other Initial Purchaser.

                           (c) In case any action shall be commenced involving
any person in respect of which indemnity may be sought pursuant to Section 8(a)
or 8(b) (the "INDEMNIFIED PARTY"), the indemnified party shall promptly notify
the person against whom such indemnity may be sought (the "INDEMNIFYING PARTY")
in writing and the indemnifying party shall assume the defense of such action,
including the employment of counsel reasonably satisfactory to the indemnified
party and the payment of all fees and expenses of such counsel, as incurred
(except that in the case of any action in respect of which indemnity may be
sought pursuant to both Sections 8(a) and 8(b), the Initial Purchasers shall not
be required to assume the defense of such action pursuant to this Section 8(c),
but may employ separate counsel and participate in the defense thereof, but the
fees and expenses of such counsel, except as provided below, shall be at the
expense of the Initial Purchasers). Any indemnified party shall have the right
to employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
the indemnified party unless (i) the employment of such counsel shall have been
specifically authorized in writing by the indemnifying party, (ii) the
indemnifying party shall have failed to assume the defense of such action or
employ counsel reasonably satisfactory to the indemnified party or (iii) the
named parties to any such action (including any impleaded parties) include both
the indemnified party and the indemnifying party, and the indemnified party
shall have been advised by such counsel that there may be one or more legal
defenses available to it which are different from or additional to those
available to the indemnifying party (in which case the indemnifying party shall
not have the right to assume the defense of such action on behalf of the
indemnified party). In any such case, the indemnifying party shall not, in
connection with any one action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (in addition to any local counsel) for all indemnified parties
and all such fees and expenses shall be reimbursed as they are incurred. Such
firm shall be designated in writing by Donaldson, Lufkin & Jenrette Securities
Corporation, in the case of the parties indemnified pursuant to Section 8(a),
and by the Issuers, in the case of parties indemnified pursuant to Section 8(b).
The indemnifying party shall indemnify and hold harmless the indemnified party
from and against any and all losses, claims, damages, liabilities and judgments
by reason of any settlement of any action (i) effected with the indemnifying
party's written consent or (ii) effected without the indemnifying party's
written consent if the settlement is entered into more than twenty business days
after the indemnifying party shall have received a request from the indemnified
party for reimbursement for the fees and expenses of counsel (in any case where
such fees and expenses are at the



                                      -21-
   23

expense of the indemnifying party) and, prior to the date of such settlement,
the indemnifying party shall have failed to comply with such reimbursement
request. No indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement or compromise of, or consent to the
entry of judgment with respect to, any pending or threatened action in respect
of which the indemnified party is or could have been a party and indemnity or
contribution may be or could have been sought hereunder by the indemnified
party, unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability on claims that
are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.

                           (d) To the extent the indemnification provided for in
this Section 8 is unavailable to an indemnified party or insufficient in respect
of any losses, claims, damages, liabilities or judgments referred to therein,
then each indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Issuers and the Guarantors, on the one hand, and the Initial Purchasers, on the
other hand, from the offering of the Initial Securities or (ii) if the
allocation provided by clause 8(d)(i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause 8(d)(i) above but also the relative fault of the Issuers
and the Guarantors, on the one hand, and the Initial Purchasers, on the other
hand, in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative benefits received by the Issuers and the
Guarantors, on the one hand and the Initial Purchasers, on the other hand, shall
be deemed to be in the same proportion as the total net proceeds from the
offering of the Initial Securities (after underwriting discounts and
commissions, but before deducting expenses) received by the Issuers, and the
total discounts and commissions received by the Initial Purchasers bear to the
total price to investors of the Initial Securities, in each case as set forth in
the table on the cover page of the Offering Memorandum. The relative fault of
the Issuers and the Guarantors, on the one hand, and the Initial Purchasers, on
the other hand, shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Issuers or the Guarantors, on the one hand, or the Initial Purchasers, on the
other hand, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.

                  The Issuers, the Guarantors, and the Initial Purchasers agree
that it would not be just and equitable if contribution pursuant to this Section
8(d) were determined by pro rata allocation (even if the Initial Purchasers were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, liabilities or judgments
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any reasonable legal or other
expenses incurred by such indemnified party in connection with investigating or
defending any matter, including any action, that could have given rise to such
losses, claims, damages, liabilities or judgments. Notwithstanding the
provisions of this Section 8, the Initial Purchasers shall not be required to




                                      -22-
   24

contribute any amount in excess of the amount by which the total discounts and
commissions received by such Initial Purchasers exceeds the amount of any
damages which the Initial Purchasers have otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Initial Purchasers'
obligations to contribute pursuant to this Section 8(d) are several in
proportion to the respective amount of Initial Securities purchased by each of
the Initial Purchasers hereunder and not joint.

                           (e) The remedies provided for in this Section 8 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.

                  9. CONDITIONS OF INITIAL PURCHASERS' OBLIGATIONS. The
obligations of the Initial Purchasers to purchase the Units under this Agreement
are subject to the satisfaction of each of the following conditions:

                           (a) All the representations and warranties of the
Issuers and the Guarantors contained in this Agreement shall be true and correct
in all material respects on the Closing Date with the same force and effect as
if made on and as of the Closing Date;

                           (b) On or after the date hereof, (i) there shall not
have occurred any downgrading, suspension or withdrawal of, nor shall any notice
have been given of any potential or intended downgrading, suspension or
withdrawal of, or of any review (or of any potential or intended review) for a
possible change that does not indicate the direction of the possible change in,
any rating of either Issuer or any Guarantor or any securities of the Issuers or
any Guarantor (including, without limitation, the placing of any of the
foregoing ratings on credit watch with negative or developing implications or
under review with an uncertain direction) by any "nationally recognized
statistical rating organization" as such term is defined for purposes of Rule
436(g)(2) under the Act, (ii) there shall not have occurred any adverse change,
nor shall any notice have been given of any potential or intended adverse
change, in the outlook for any rating of either Issuer or any Guarantor or any
securities of the Issuers or any Guarantor by any such rating organization and
(iii) no such rating organization shall have given notice that it has assigned
(or is considering assigning) a lower rating to the Units than that on which the
Units were marketed;

                           (c) Since the respective dates as of which
information is given in the Offering Memorandum other than as set forth in the
Offering Memorandum (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement), (i) there shall not have occurred any
change or any development involving a prospective change in the condition,
financial or otherwise, or the earnings, business, management or operations of
the Issuers, the Guarantors, and their respective subsidiaries, taken as a
whole, (ii) there shall not have been any change or any development involving a
prospective change in the capital stock or in the long-term debt of either
Issuer, the Guarantors or any of their respective subsidiaries and (iii) none of
the Issuers, the Guarantors or any of their respective subsidiaries shall have
incurred any liability or obligation, direct or contingent,



                                      -23-
   25

the effect of which, in any such case described in clause 9(c)(i), 9(c)(ii) or
9(c)(iii), in your judgment, is material and adverse and, in your judgment,
makes it impracticable to market the Initial Securities on the terms and in the
manner contemplated in the Offering Memorandum;

                           (d) You shall have received on the Closing Date a
certificate dated the Closing Date, signed by the President and the Chief
Financial Officer of the Issuers and each of the Guarantors, confirming the
matters set forth in Sections 6(ff), 9(a) and 9(b) and stating that each of the
Issuers and the Guarantors has complied in all material respects with all the
agreements and satisfied all of the conditions herein contained and required to
be complied with or satisfied on or prior to the Closing Date;

                           (e) You shall have received on the Closing Date an
opinion (satisfactory to you and counsel for the Initial Purchasers), dated the
Closing Date, of Greenberg Traurig, P.A., counsel for the Issuers and the
Guarantors, to the effect that;

                                    (i) each of the Issuers and the Guarantors
         has been duly incorporated, is validly existing as a corporation in
         good standing under the laws of its jurisdiction of incorporation and
         has the corporate power and authority to carry on its business as
         described in the Offering Memorandum and to own, lease and operate its
         properties;

                                    (ii) each of the Issuers and the Guarantors
         is duly qualified and is in good standing as a foreign corporation
         authorized to do business in each jurisdiction in which the nature of
         its business or its ownership or leasing of property requires such
         qualification, except where the failure to be so qualified would not
         have a Material Adverse Effect;

                                    (iii) all the outstanding shares of capital
         stock of RailAmerica have been duly authorized and validly issued and
         are fully paid and nonassessable and were not issued in violation of
         any preemptive or similar rights expressly created by law or the
         certificate of incorporation or bylaws (or similar organizational
         documents) of RailAmerica; to such counsel's knowledge, all outstanding
         shares of capital stock of the Company are owned, indirectly, by
         RailAmerica. RailAmerica has the authorized and to such counsel's
         knowledge issued and outstanding capitalization set forth in the
         Offering Memorandum under the heading "Capitalization" and "Description
         of Capital Stock";

                                    (iv) the Warrants are in the form
         contemplated by the Warrant Agreement and, when issued, authenticated
         and delivered by RailAmerica against payment by the Initial Purchasers
         in accordance with the terms of this Agreement and the Warrant
         Agreement, will constitute valid and legally binding obligations of
         RailAmerica, entitled to the benefits of the Warrant Agreement and
         enforceable against RailAmerica in accordance with their terms, except
         that the enforcement thereof may be subject to (i) bankruptcy,
         insolvency, reorganization, moratorium or other similar laws now or
         hereafter in effect relating to creditors' rights generally and (ii)
         rights of acceleration and the availability of equitable remedies may
         be limited by equitable




                                      -24-
   26

         principles of general applicability. When issued in accordance with the
         terms and conditions contained in the Warrant Agreement, upon exercise
         of the Warrants, the Warrant Shares will be duly authorized, validly
         issued, fully paid and nonassessable and will not be subject to any
         preemptive or similar rights expressly created by law or the
         certificate of incorporation or by-laws of RailAmerica;

                                    (v) all of the outstanding shares of capital
         stock of each of the Company's subsidiaries have been duly authorized
         and validly issued and are fully paid and nonassessable, and to such
         counsel's knowledge are owned directly or indirectly by the Company;

                                    (vi) the Series A Notes have been duly
         authorized and, when executed and authenticated in accordance with the
         provisions of the Indenture and delivered to and paid for by the
         Initial Purchasers in accordance with the terms of this Agreement, will
         be entitled to the benefits of the Indenture and will be valid and
         binding obligations of the Company, enforceable in accordance with
         their terms except as (x) the enforceability thereof may be limited by
         bankruptcy, insolvency or similar laws affecting creditors' rights
         generally and (y) rights of acceleration and the availability of
         equitable remedies may be limited by equitable principles of general
         applicability;

                                    (vii) the Guarantees have been duly
         authorized and, when the Series A Notes are executed and authenticated
         in accordance with the provisions of the Indenture and delivered to and
         paid for by the Initial Purchasers in accordance with the terms of this
         Agreement, the Guarantees endorsed thereon will be entitled to the
         benefits of the Indenture and will be valid and binding obligations of
         the Guarantors, enforceable in accordance with their terms except as
         (x) the enforceability thereof may be limited by bankruptcy, insolvency
         or similar laws affecting creditors' rights generally and (y) rights of
         acceleration and the availability of equitable remedies may be limited
         by equitable principles of general applicability;

                                    (viii) the Indenture has been duly
         authorized, executed and delivered by the Company and each Guarantor
         and is a valid and binding agreement of the Company and each Guarantor,
         enforceable against the Company and each Guarantor in accordance with
         its terms except as (x) the enforceability thereof may be limited by
         bankruptcy, insolvency or similar laws affecting creditors' rights
         generally and (y) rights of acceleration and the availability of
         equitable remedies may be limited by equitable principles of general
         applicability;

                                    (ix) the Warrant Agreement has been duly
         authorized, executed and delivered by RailAmerica and is a valid and
         binding agreement of RailAmerica, enforceable against RailAmerica in
         accordance with its terms except as (x) the enforceability thereof may
         be limited by bankruptcy, insolvency or similar laws affecting
         creditors' rights generally and (y) rights of acceleration and the
         availability of equitable remedies may be limited by equitable
         principles of general applicability;




                                      -25-
   27

                                    (x) this Agreement has been duly authorized,
         executed and delivered by the Issuers and the Guarantors;

                                    (xi) the Notes Registration Rights Agreement
         has been duly authorized, executed and delivered by the Company and the
         Guarantors and is a valid and binding agreement of the Company and each
         Guarantor, enforceable against the Company and each Guarantor in
         accordance with its terms, except as (x) the enforceability thereof may
         be limited by bankruptcy, insolvency or similar laws affecting
         creditors' rights generally, (y) rights of acceleration and the
         availability of equitable remedies may be limited by equitable
         principles of general applicability and (z) any rights to
         indemnification or contribution thereunder may be limited by federal
         and state securities laws and public policy considerations;

                                    (xii) the Warrant Registration Rights
         Agreement has been duly authorized, executed and delivered by
         RailAmerica and is a valid and binding agreement of RailAmerica,
         enforceable against RailAmerica in accordance with its terms, except as
         (x) the enforceability thereof may be limited by bankruptcy, insolvency
         or similar laws affecting creditors' rights generally, (y) rights of
         acceleration and the availability of equitable remedies may be limited
         by equitable principles of general applicability and (z) any rights to
         indemnification or contribution thereunder may be limited by federal
         and state securities laws and public policy considerations;

                                    (xiii) the Series B Notes have been duly
         authorized;

                                    (xiv) the statements under the captions
         "Description of the Units," "Description of the Notes," "Description of
         the Warrants," "Description of Capital Stock," "Plan of Distribution"
         and "Business - Regulation" in the Offering Memorandum, insofar as such
         statements constitute a summary of the legal matters, documents or
         proceedings referred to therein, fairly present in all material
         respects such legal matters, documents and proceedings;

                                    (xv) such counsel is of the opinion ascribed
         to it in the Offering Memorandum under the caption "Certain United
         States Federal Income Tax Considerations";

                                    (xvi) to the best of such counsel's
         knowledge, neither the Issuers, the Guarantors or any of their
         respective subsidiaries is in violation of its respective charter or
         by-laws and neither the Issuers, the Guarantors or any of their
         respective subsidiaries is in default in the performance of any
         obligation, agreement, covenant or condition contained in any
         indenture, loan agreement, mortgage, lease or other agreement or
         instrument that is material to the Issuers, the Guarantors and their
         respective subsidiaries, taken as a whole, to which either Issuer, the
         Guarantors or any of their respective subsidiaries is a party or by
         which either Issuer, the Guarantors or any of their



                                      -26-
   28

         respective subsidiaries or their respective property is bound, except
         for those which would not result, singly or in the aggregate, in a
         Material Adverse Effect;

                                    (xvii) the execution, delivery and
         performance of this Agreement and the other Operative Documents by the
         Issuers and each of the Guarantors, the compliance by the Issuers and
         each of the Guarantors with all provisions hereof and thereof and the
         consummation of the transactions contemplated hereby and thereby will
         not (i) require any consent, approval, authorization or other order of,
         or qualification with, any court or governmental body or agency (except
         such as may be required under the securities or Blue Sky laws of the
         various states), (ii) conflict with or constitute a breach of any of
         the terms or provisions of, or a default under, the charter or by-laws
         of the Issuers, the Guarantors or any of their respective subsidiaries
         or any indenture, loan agreement, mortgage, lease or other agreement or
         instrument known to such counsel that is material to the Issuers, the
         Guarantors or any of their respective subsidiaries, taken as a whole,
         to which the Issuers, the Guarantors or any of their respective
         subsidiaries is a party or by which the Issuers, the Guarantors or any
         of their respective subsidiaries or their respective property is bound
         (other than such breaches or defaults as shall have been waived), (iii)
         violate or conflict with any applicable law or any rule, regulation,
         judgment, order or decree known to such counsel of any court or any
         governmental body or agency having jurisdiction over either Issuer, the
         Guarantors or any of their respective subsidiaries or their respective
         property, (iv) result in the imposition or creation of (or the
         obligation to create or impose) a Lien under, any agreement or
         instrument known to such counsel to which the Issuers, the Guarantors
         or any of their respective subsidiaries is a party or by which the
         Issuers, the Guarantors or any of their respective subsidiaries or
         their respective property is bound, or (v) result in the termination,
         suspension or revocation of any Authorization (as defined below) known
         to such counsel of the Issuers, the Guarantors or any of their
         respective subsidiaries or result in any other impairment of the rights
         of the holder of any such Authorization, except in each case for those
         which might not result, singly or in the aggregate, in a Material
         Adverse Effect;

                                    (xviii) except as disclosed in the Offering
         Memorandum, such counsel does not know of any legal or governmental
         proceedings pending or threatened to which the Issuers, the Guarantors
         or any of their respective subsidiaries is or could be a party or to
         which any of their respective property is or could be subject, which
         might result, singly or in the aggregate, in a Material Adverse Effect;

                                    (xix) none of the Issuers, the Guarantors
         and their respective subsidiaries is and, after giving effect to the
         offering and sale of the Initial Securities and the application of the
         net proceeds thereof as described in the Offering Memorandum, will be,
         an "investment company" as such term is defined in the Investment
         Company Act of 1940, as amended;



                                      -27-
   29

                                    (xx) the Indenture complies as to form in
         all material respects with the requirements of the TIA and the rules
         and regulations of the Commission applicable to an indenture that is
         qualified thereunder. Assuming the accuracy of the representations and
         warranties and agreements of the Initial Purchasers in Section 7 of the
         Purchase Agreement and of the Issuers and their Subsidiaries in Section
         6 thereof, it is not necessary in connection with the offer, sale and
         delivery of the Initial Securities to the Initial Purchasers in the
         manner contemplated by this Agreement or in connection with the Exempt
         Resales to qualify the Indenture under the TIA;

                                    (xxi) no registration under the Act of the
         Initial Securities is required for the sale of the Initial Securities
         to the Initial Purchasers as contemplated by this Agreement or for the
         Exempt Resales assuming (i) that each Initial Purchaser is a QIB or a
         Regulation S Purchaser, (ii) the accuracy of, and compliance with, the
         Initial Purchasers' representations and agreements contained in Section
         7 of this Agreement, and (iii) the accuracy of the representations of
         the Issuers, their subsidiaries and the Guarantors set forth in
         Sections 6(ii), (kk), (ll) and (mm) of this Agreement; and

                                    (xxii) such counsel has no reason to believe
         that, as of the date of the Offering Memorandum or as of the Closing
         Date, the Offering Memorandum, as amended or supplemented, if
         applicable (except for the financial statements and other financial
         data included therein, as to which such counsel need not express any
         belief) contains any untrue statement of a material fact or omits to
         state a material fact necessary in order to make the statements
         therein, in the light of the circumstances under which they were made,
         not misleading.

                  The opinion of Greenberg Traurig, P.A., described in Section
9(e) above shall be rendered to you at the request of the Issuers and the
Guarantors and shall so state therein. In giving such opinion with respect to
the matters covered by Section 9(e)(xxii), Greenberg Traurig, P.A. may state
that their opinion and belief are based upon their participation in the
preparation of the Offering Memorandum and any amendments or supplements thereto
and review and discussion of the contents thereof, but are without independent
check or verification except as specified;

                           (f) The Initial Purchasers shall have received on the
Closing Date an opinion, dated the Closing Date, of Cahill Gordon & Reindel,
counsel for the Initial Purchasers, in form and substance reasonably
satisfactory to the Initial Purchasers;

                           (g) The Initial Purchasers shall have received, at
the time this Agreement is executed and at the Closing Date, letters dated the
date hereof or the Closing Date, as the case may be, in form and substance
satisfactory to the Initial Purchasers from PricewaterhouseCoopers, L.L.P.,
Arthur Andersen Langton Clarke and Arthur Andersen LLP, independent public
accountants, containing the information and statements of the type ordinarily
included in accountants' "comfort letters" to the Initial Purchasers with
respect to the financial statements and certain financial information contained
in the Offering Memorandum;



                                      -28-
   30

                           (h) The Units shall have been approved by the NASD
for trading and duly listed in PORTAL;

                           (i) The Initial Purchasers shall have received a
counterpart, conformed as executed, of the Indenture which shall have been
entered into by the Company, the Guarantors and the Trustee;

                           (j) On the Closing Date, the Initial Purchasers shall
have received the Warrant Registration Rights Agreement executed by RailAmerica
and such agreement shall be in full force and effect at all times from and after
the Closing Date;

                           (k) The Company and the Guarantors shall have
executed the Notes Registration Rights Agreement and the Initial Purchasers
shall have received an original copy thereof, duly executed by the Company and
the Guarantors; and

                           (l) Neither the Company nor the Guarantors shall have
failed at or prior to the Closing Date to perform or comply in all material
respects with any of the agreements herein contained and required to be
performed or complied with by the Company or the Guarantors, as the case may be,
at or prior to the Closing Date.

                  10. EFFECTIVENESS OF AGREEMENT AND TERMINATION. This Agreement
shall become effective upon the execution and delivery of this Agreement by the
parties hereto.

                  This Agreement may be terminated at any time on or prior to
the Closing Date by the Initial Purchasers by written notice to the Issuers if
any of the following has occurred: (i) any outbreak or escalation of hostilities
or other national or international calamity or crisis or change in economic
conditions or in the financial markets of the United States or elsewhere that,
in the Initial Purchasers' judgment, is material and adverse and, in the Initial
Purchasers' judgment, makes it impracticable to market the Initial Securities on
the terms and in the manner contemplated in the Offering Memorandum, (ii) the
suspension or material limitation of trading in securities or other instruments
on the New York Stock Exchange, the American Stock Exchange, the Chicago Board
of Options Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade
or the Nasdaq National Market or limitation on prices for securities or other
instruments on any such exchange or the Nasdaq National Market, (iii) the
suspension of trading of any securities of either Issuer or any Guarantor on any
exchange or in the over-the-counter market, (iv) the enactment, publication,
decree or other promulgation of any federal or state statute, regulation, rule
or order of any court or other governmental authority which in your opinion
materially and adversely affects, or will materially and adversely affect, the
business, prospects, financial condition or results of operations of either
Issuer and its subsidiaries, taken as a whole, (v) the declaration of a banking
moratorium by either federal or New York State authorities or (vi) the taking of
any action by any federal, state or local government or agency in respect of its
monetary or fiscal affairs which in your opinion has a material adverse effect
on the financial markets in the United States.

                  11. MISCELLANEOUS. Notices given pursuant to any provision of
this Agreement shall be addressed as follows: (i) if to the Issuers or any
Guarantor, to RailAmerica Transportation



                                      -29-
   31

Corp. and RailAmerica, Inc., 5300 Broken Sound Boulevard, N.W., Boca Raton,
Florida 33487, Attention: General Counsel, and (ii) if to the Initial
Purchasers, Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park
Avenue, New York, New York 10172, Attention: Syndicate Department, or in any
case to such other address as the person to be notified may have requested in
writing.

                  The respective indemnities, contribution agreements,
representations, warranties and other statements of the Issuers, the Guarantors
and the Initial Purchasers set forth in or made pursuant to this Agreement shall
remain operative and in full force and effect, and will survive delivery of and
payment for the Initial Securities, regardless of (i) any investigation, or
statement as to the results thereof, made by or on behalf of the Initial
Purchasers, the officers or directors of the Initial Purchasers, any person
controlling the Initial Purchasers, the Issuers, any Guarantor, the officers or
directors of the Issuers or any Guarantor, or any person controlling the Issuers
or any Guarantor, (ii) acceptance of the Initial Securities and payment for them
hereunder and (iii) termination of this Agreement.

                  If for any reason the Initial Securities are not delivered by
or on behalf of the Issuers as provided herein (other than as a result of any
termination of this Agreement pursuant to Section 10), the Issuers and each
Guarantor, jointly and severally, agree to reimburse the Initial Purchasers for
all out-of-pocket expenses (including the fees and disbursements of counsel)
incurred by them. Notwithstanding any termination of this Agreement, the Issuers
shall be liable for all expenses which they have agreed to pay pursuant to
Section 5(i) hereof. The Issuers and each Guarantor also agree, jointly and
severally, to reimburse the Initial Purchasers and their officers, directors and
each person, if any, who controls such Initial Purchasers within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act for any and all fees and
expenses (including without limitation the fees and expenses of counsel)
incurred by them in connection with enforcing their rights under this Agreement
(including without limitation its rights under Section 8).

                  Except as otherwise provided, this Agreement has been and is
made solely for the benefit of and shall be binding upon the Issuers, the
Guarantors, the Initial Purchasers, the Initial Purchasers' directors and
officers, any controlling persons referred to herein, the directors of the
Company and the Guarantors and their respective successors and assigns, all as
and to the extent provided in this Agreement, and no other person shall acquire
or have any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include a purchaser of any of the Initial Securities from the
Initial Purchasers merely because of such purchase.

                  This Agreement shall be governed and construed in accordance
with the laws of the State of New York.

                  This Agreement may be signed in various counterparts which
together shall constitute one and the same instrument.




                                      -30-
   32
                  Please confirm that the foregoing correctly sets forth the
agreement among the Company, the Guarantors and the Initial Purchasers.


                                  Very truly yours,

                                  RAILAMERICA TRANSPORTATION CORP.



                                  By: /s/ Donald Redfearn
                                      ------------------------------------------
                                      Name:  Donald Redfearn
                                      Title: Executive Vice President

                                  RAILAMERICA, INC.,
                                  as Guarantor



                                  By: /s/ Donald Redfearn
                                      ------------------------------------------
                                  Name:  Donald Redfearn
                                  Title: Chief Administrative Officer, Executive
                                         Vice President and Secretary




                                      S-1
   33

                                  AUSTIN & NORTHWESTERN RAILROAD COMPANY, INC.
                                  BOSTON CENTRAL FREIGHT RAILROAD, INC.
                                  CASCADE AND COLUMBIA RIVER RAILROAD
                                    COMPANY, INC.
                                  CENTRAL OREGON & PACIFIC RAILROAD, INC.
                                  CENTRAL RAILROAD COMPANY OF INDIANA
                                  CENTRAL RAILROAD COMPANY OF INDIANAPOLIS
                                  CONNECTICUT SOUTHERN RAILROAD, INC.
                                  DAKOTA RAIL, INC.
                                  DALLAS, GARLAND & NORTHEASTERN RAILROAD, INC.
                                  DALLAS, GARLAND & NORTHEASTERN RAILROAD, INC.
                                  DELAWARE VALLEY RAILWAY COMPANY, INC.
                                  FLORIDA RAIL LINES, INC.
                                  GEORGIA SOUTHWESTERN RAILROAD, INC.
                                  HURON AND EASTERN RAILWAY COMPANY, INC.
                                  INDIANA & OHIO CENTRAL RAILROAD, INC.
                                  INDIANA & OHIO RAIL CORP.
                                  INDIANA & OHIO RAILWAY COMPANY
                                  INDIANA SOUTHERN RAILROAD, INC.
                                  MARKSMAN CORP.
                                  MID-MICHIGAN RAILROAD, INC.
                                  MINNESOTA NORTHERN RAILROAD, INC.
                                  MISSOURI & NORTHERN ARKANSAS RAILROAD
                                    COMPANY, INC.
                                  NEW ENGLAND CENTRAL RAILROAD, INC.
                                  NEW ORLEANS LOWER COAST RAILROAD COMPANY, INC.
                                  NORTH CAROLINA AND VIRGINIA RAILROAD
                                    COMPANY, INC.
                                  OTTER TAIL VALLEY RAILROAD COMPANY, INC.
                                  PALM BEACH RAIL HOLDING, INC.
                                  PITTSBURG INDUSTRIAL RAILROAD, INC.
                                  PLAINVIEW TERMINAL COMPANY
                                  PRAIRIE HOLDINGS CORPORATION
                                  RAIL OPERATING SUPPORT GROUP, INC.
                                  RAILAMERICA AUSTRALIA, INC.




                                      S-2
   34

                                  RAILAMERICA EQUIPMENT CORPORATION
                                  RAILAMERICA INTERMODAL SERVICES, INC.
                                  RAILINK ACQUISITION, INC.
                                  RAILTEX ACQUISITION CORP.
                                  RAILTEX DISTRIBUTION SERVICES, INC.
                                  RAILTEX, INC.
                                  RAILTEX INTERNATIONAL HOLDINGS, INC.
                                  RAILTEX LOGISITICS, INC.
                                  RAILTEX SERVICES CO., INC.
                                  SAGINAW VALLEY RAILWAY COMPANY, INC.
                                  SAN DIEGO & IMPERIAL VALLEY RAILROAD
                                    COMPANY, INC.
                                  SOUTH CAROLINA CENTRAL RAILROAD COMPANY, INC.
                                  SOUTH CENTRAL TENNESSEE RAILROAD CORP., INC.
                                  ST. CROIX VALLEY RAILROAD COMPANY
                                  THE TOLEDO, PEORIA & WESTERN RAILROAD
                                    CORPORATION
                                  TOLEDO, PEORIA & WESTERN RAILWAY CORPORATION
                                  VENTURA COUNTY RAILROAD CO., INC.
                                  WEST TEXAS AND LUBBOCK RAILROAD COMPANY, INC.,
                                    as Guarantors



                                  By: /s/ Donald Redfearn
                                      ------------------------------------------
                                      Name:  Donald Redfearn
                                      Title: Executive Vice President,
                                             On behalf of each of the
                                             above-named entities





                                      S-3
   35
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION




By: /s/ Steven D. Smith
    ------------------------------------
    Name:  Steven D. Smith
    Title: Senior Vice President



BARCLAYS BANK PLC



By: /s/ Joseph S. Muratore
    ------------------------------------
    Name:  Joseph S. Muratore
    Title: Director



SCOTIA CAPITAL (USA) INC.



By: /s/ Amil V. Sobinoffino
    ------------------------------------
    Name:  Amil V. Sobinoffino
    Title: Managing Director





                                      S-4
   36

                                   SCHEDULE A

                                                                     Number of
Initial Purchasers                                                     Units
- ------------------                                                   ----------
DONALDSON, LUFKIN & JENRETTE
       SECURITIES CORPORATION........................................  130,000
BARCLAYS BANK PLC....................................................        0
SCOTIA CAPITAL (USA) INC. ...........................................        0
                                                                       -------
             Total...................................................  130,000
                                                                       =======

   37


                                   SCHEDULE B

                                  Subsidiaries

Austin & Northwestern Railroad Company, Inc.
Boston Central Freight Railroads, Inc.
Cascade and Columbia River Railroad Company, Inc.
Central Oregon & Pacific Railroad, Inc.
Central Railroad Company of Indiana
Central Railroad Company of Indianapolis
Connecticut Southern Railroad, Inc.
Dakota Rail, Inc.
Dallas, Garland & Northeastern Railroad, Inc.
Dallas, Garland & Northeastern Railroad, Inc.
Delaware Valley Railway Company, Inc.
Florida Rail Lines, Inc.
Georgia Southwestern Railroad, Inc.
Huron and Eastern Railway Company, Inc.
Indiana & Ohio Central Railroad, Inc.
Indiana & Ohio Rail Corp.
Indiana & Ohio Railway Company
Indiana Southern Railroad, Inc.
Marksman Corp.
Mid-Michigan Railroad, Inc.
Minnesota Northern Railroad, Inc.
Missouri & Northern Arkansas Railroad Company, Inc.
New England Central Railroad, Inc.
New Orleans Lower Coast Railroad Company, Inc.
North Carolina and Virginia Railroad Company, Inc.
Otter Tail Valley Railroad Company, Inc.
Palm Beach Rail Holding, Inc.
Pittsburg Industrial Railroad, Inc.
Plainview Terminal Company
Prairie Holdings Corporation
Rail Operating Support Group, Inc.
RailAmerica Australia, Inc.
RailAmerica Equipment Corporation
RailAmerica Intermodal Services, Inc.
RaiLink Acquisition, Inc.
RailTex Acquisition Corp.
RailTex Distribution Services, Inc.
RailTex, Inc.





   38

RailTex International Holdings, Inc.
RailTex Logisitics, Inc.
RailTex Services Co., Inc.
Saginaw Valley Railway Company, Inc.
San Diego & Imperial Valley Railroad Company, Inc.
South Carolina Central Railroad Company, Inc.
South Central Tennessee Railroad Corp., Inc.
St. Croix Valley Railroad Company
The Toledo, Peoria & Western Railroad Corporation
Toledo, Peoria & Western Railway Corporation
Ventura County Railroad Co., Inc.
West Texas and Lubbock Railroad Company, Inc.


   39





                                                                      EXHIBIT A



                   Form of Notes Registration Rights Agreement


   40


                                                                      EXHIBIT B



                  Form of Warrant Registration Rights Agreement

EX-3.1

   1
                                                                    EXHIBIT 3.1

                          CERTIFICATE OF INCORPORATION
                                       OF
                        RAILAMERICA TRANSPORTATION CORP.

         I, the undersigned natural person of the age of eighteen years or more,
acting as Incorporator of a corporation under the Delaware General Corporation
Law, do hereby adopt the following Certificate of Incorporation for such
corporation.

                                    ARTICLE I

         The name of the corporation is RailAmerica Transportation Corp.
(hereinafter called the "Corporation").

                                   ARTICLE II

         The period of its duration shall be perpetual.

                                   ARTICLE III

         The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, City of Wilmington, County of New Castle, and the
name of its registered agent at such address is Corporation Service Company, c/o
Dale Moore.

                                   ARTICLE IV

         The purpose for which the Corporation is formed is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of Delaware.

                                    ARTICLE V

         The capital stock authorized, the par value thereof, and the
characteristics of such stock shall be as follows:

         Number of Shares                  Par Value               Class of
           Authorized                      Per Share                 Stock
         ----------------                  ---------               --------
         1,000                             $.01                     Common




   2

                                   ARTICLE VI

         The name of the Incorporator is Jaret Davis and the address of the
Incorporator is 1221 Brickell Avenue, Miami, Florida 33131.

                                   ARTICLE VII

         The Board of Directors of the Corporation shall consist of at least one
director, with the exact number to be fixed from time to time in the manner
provided in the bylaws of the Corporation. The number of directors constituting
the initial Board of Directors is two and the names and addresses of the members
of the initial Board of Directors, who are to serve as the Corporation's
directors until their successors are duly elected and qualified are:

Gary O. Marino                                 Donald D. Redfearn
5300 Broken Sound Blvd., N.W.                  5300 Broken Sound Blvd., N.W.
Boca Raton, Florida 33487                      Boca Raton, Florida 33487

                                  ARTICLE VIII

         No director of the Corporation shall be liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or that involve intentional misconduct or a knowing violation of
law, (iii) under ss.174 of the Delaware General Corporation Law, or (iv) for any
transaction from which the director derived an improper personal benefit. It is
the intent that this provision be interpreted to provide the maximum protection
against liability afforded to directors under the Delaware General Corporation
Law in existence either now or hereafter.

                                   ARTICLE IX

         This Corporation shall indemnify and shall advance expenses on behalf
of its officers and directors to the fullest extent not prohibited by law in
existence either now or hereafter.

                                   ARTICLE X

         The directors of the Corporation shall have the power to adopt, amend
or repeal the bylaws of the Corporation.

         IN WITNESS WHEREOF, the undersigned, being the Incorporator named
above, for the purpose of forming a corporation pursuant to the General
Corporation Law of the State of Delaware, has signed this Certificate of
Incorporation this 27th day of January, 2000.


                                       /s/ Jaret Davis
                                       ----------------------------------------
                                       Jaret Davis




                                      -2-

EX-3.2

   1
                                                                    EXHIBIT 3.2


                        RAILAMERICA TRANSPORTATION CORP.

                                     BYLAWS

                                    ARTICLE I

                                     OFFICES

         1.1 The principal office of the corporation shall be located in Boca
Raton, Florida.

         1.2 The corporation may also have offices at such other places both
within and without the State of Delaware as the board of directors may from time
to time determine or the business of the corporation may require.

                                   ARTICLE II

                            MEETINGS OF SHAREHOLDERS

         2.1 Meetings of shareholders for any purpose may be held at such time
and place within or without the State of Florida or the State of Delaware as
shall be stated in the notice of the meeting or in a duly executed waiver of
notice thereof.

         2.2 The annual meeting of shareholders shall be held annually at such
date and time as shall be designated from time to time by the board of directors
and stated in the notice of meeting.

         2.3 Special meetings of the shareholders for any purpose or purposes
may be called by the president and shall be called by the president or secretary
at the request in writing of a majority of the board of directors, or at the
request in writing of shareholders owning ten percent (10%) of all the shares
entitled to vote at the meetings. A request for a special meeting shall state
the purpose or purposes of the proposed meeting, and business transacted at any
special meeting of shareholders shall be limited to the purposes stated in the
notice.

         2.4 Written notice stating the place, day and hour of the meeting and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called, shall be delivered not less than ten (10) nor more than sixty (60)
days before the date of the meeting, either personally or by mail, by or at the
direction of the president, the secretary or the officer or persons calling the
meeting, to each shareholder of record entitled to vote at such meeting.

         2.5 With respect to any matter, the holders of a majority of the shares
issued and outstanding and entitled to vote thereon, present in person or
represented by proxy, shall



   2

constitute a quorum at all meetings of the shareholders for the transaction of
business except as otherwise provided by statute or by the articles of
incorporation. If, however, a quorum shall not be present or represented at any
meeting of the shareholders, the shareholders entitled to vote thereat, present
in person or represented by proxy, shall have power to adjourn the meeting until
such time and to such place as may be determined by a vote of the holders of a
majority of the shares at that meeting, without notice other than announcement
at the meeting, until a quorum shall be present or represented. At such
adjourned meeting, provided a quorum shall be present or represented thereat,
any business may be transacted which might have been transacted if the meeting
had been held in accordance with the original notice thereof.

         2.6 If a quorum is present at any meeting, the vote of the holders of a
majority of the shares entitled to vote, present in person or represented by
proxy, shall decide any question brought before such meeting, unless the
question is one upon which a different vote is required by law or by the
articles of incorporation.

         2.7 Each outstanding share having voting power shall be entitled to one
vote on each matter submitted to a vote at a meeting of shareholders. A
shareholder may vote either in person or by proxy executed in writing by the
shareholder or by his duly authorized attorney-in-fact.

         2.8 Any action required or which may be taken at a meeting of the
shareholders may be taken without a meeting if a consent in writing, setting
forth the action so taken, shall be signed by all or less than all, if the
articles of incorporation so provide, the shareholders entitled to vote with
respect to the subject matter thereof. Whenever action by shareholders is
proposed to be taken by consent in writing without a meeting of the
shareholders, the board of directors may fix a record date for the purpose of
determining shareholders entitled to consent to that action, which record date
shall not precede, and shall not be more than ten (10) days after, the date upon
which the resolution fixing the record date is adopted by the board of
directors. If no record date has been fixed by the board of directors and the
prior action of the board of directors is not required by the Delaware General
Corporation Law, the record date for determining shareholders entitled to
consent to action in writing without a meeting shall be the first date on which
a signed written consent setting forth the action taken or proposed to be taken
is delivered to the corporation by delivery to its registered office, its
principal place of business, or an officer or agent of the corporation having
custody of the books in which proceedings of the meetings of shareholders are
recorded. Delivery shall be by hand or by certified or registered mail, return
receipt requested. Delivery to the corporation's principal place of business
shall be addressed to the president or the principal executive officer of the
corporation. If no record date shall have been fixed by the board of directors
and prior action of the board of directors is required by the Delaware General
Corporation Law, the record date for determining shareholders entitled to
consent to action in writing without a meeting shall be at the close of business
on the date on which the board of directors adopts a resolution taking the prior
action.




                                       2
   3

                                   ARTICLE III

                                    DIRECTORS

         3.1 The number of directors which shall constitute the whole board of
directors shall be not less than one. Such number of directors shall from time
to time be fixed and determined by the directors and shall be set forth in the
notice of any meeting of shareholders held for the purpose of electing
directors. The director(s) shall be elected at the annual meeting of
shareholders, except as provided in Section 3.2 or 3.3, and each director
elected shall hold office until his successor shall be elected and qualify.
Directors need not be residents of Delaware or shareholders of the corporation.

         3.2 Any vacancy occurring in the board of directors may be filled by a
majority of the remaining directors, if any, though less than a quorum of the
board of directors. If a vacancy occurs in the board of directors and no other
directors exist to elect someone to fill such vacancy, such vacancy shall be
filled by election at a special meeting of shareholders. A director elected to
fill a vacancy shall be elected for the unexpired term of his predecessor in
office.

         3.3 The number of directors may be increased or decreased from time to
time by amendment to these bylaws but no decrease shall have the effect of
shortening the term of any incumbent director. Any directorship to be filled by
reason of an increase in the number of directors may be filled by the board of
directors for a term of office continuing only until the next election of one or
more directors by the shareholders; provided that the board of directors may not
fill more than two such directorships during the period between any two
successive annual meetings of shareholders.

         3.4 Any director may be removed either for or without cause at any
special meeting of shareholders duly called and held for such purpose.

                       MEETINGS OF THE BOARD OF DIRECTORS

         3.5 Meetings of the board of directors, regular or special, may be held
either within or without the State of Delaware.

         3.6 The first meeting of each newly elected board of directors shall be
held at such time and place as shall be fixed by the vote of the shareholders at
the annual meeting and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present. In the event that the shareholders fail to fix the time and
place of such first meeting, it shall be held without notice immediately
following the annual meeting of shareholders, and at the same place, unless by
the unanimous consent of the directors then elected and serving such time or
place shall be changed.



                                       3
   4

         3.7 Regular meetings of the board of directors may be held upon such
notice, or without notice, and at such time and at such place as shall from time
to time be determined by the board.

         3.8 Special meetings of the board of directors may be called by the
chairman of the board of directors or the president and shall be called by the
secretary on the written request of two directors. Notice of each special
meeting of the board of directors shall be given to each director at least two
days before the date of the meeting.

         3.9 Attendance of a director at any meeting shall constitute a waiver
of notice of such meeting, except where a director attends for the express
purpose of objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened. Except as may be otherwise provided
by law or by the articles of incorporation or by these bylaws, neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the board of directors need be specified in the notice or waiver of notice of
such meeting.

         3.10 At all meetings of the board of directors a majority of the
directors shall constitute a quorum for the transaction of business and the act
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the board of directors, unless otherwise specifically
provided by law, the articles of incorporation or these bylaws. If a quorum
shall not be present thereat the directors may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.

         3.11 The board of directors, by resolution passed by a majority of the
full board, may from time to time designate a member or members of the board of
directors to constitute committees, including an executive committee, which
shall in each case consist of one or more directors and shall have and may
exercise such powers, as the board of directors may determine and specify in the
respective resolutions appointing them. A majority of all the members of any
such committee may determine its action and fix the time and place of its
meetings, unless the board of directors shall otherwise provide. The board of
directors shall have power at any time to change the number, subject as
aforesaid, and members of any such committee, to fill vacancies and to discharge
any such committee.

         3.12 Any action required or permitted to be taken at a meeting of the
board of directors or any committee may be taken without a meeting if a consent
in writing, setting forth the action so taken, is signed by all the members of
the board of directors or committee, as the case may be.

         3.13 By resolution of the board of directors, the directors may be paid
their expenses, if any, of attendance at each meeting of the board of directors
and may be paid a fixed sum for attendance at each meeting of the board of
directors or a stated salary as director. No such payment shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor.



                                       4
   5

                                   ARTICLE IV

                                     NOTICES

         4.1 Any notice to directors or shareholders shall be in writing and
shall be delivered personally or mailed to the directors or shareholders at
their respective addresses appearing on the records of the corporation. Notice
by mail shall be deemed to be given at the time when the same shall be deposited
in the United States mail, postage prepaid. Notice to directors may also be
given by telegram, telecopy or fax.

         4.2 Whenever any notice is required to be given under the provisions of
the statutes or of the articles of incorporation or of these bylaws, a waiver
thereof in writing signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice.

                                    ARTICLE V

                                    OFFICERS

         5.1 The officers of the corporation shall be elected by the board of
directors and shall consist of a president and a secretary. The board of
directors may also establish the positions of chairman of the board, treasurer,
vice president, an assistant president, assistant vice presidents, and one or
more assistant secretaries and assistant treasurers. Two or more offices may be
held by the same person.

         5.2 The board of directors shall elect officers of the corporation,
none of whom need be a member of the board of directors. The board of directors
shall have the power to enter into contracts for the employment and compensation
of officers for such terms as the board of directors deems advisable.

         5.3 The board of directors may appoint such other officers and
assistant officers and agents as it shall deem necessary, who shall hold their
offices for such terms and shall have such authority and exercise such powers
and perform such duties as shall be determined from time to time by the board of
directors by resolution not inconsistent with these bylaws.

         5.4 The salaries of all officers and agents of the corporation shall be
fixed by the board of directors.

         5.5 The officers of the corporation shall hold office until their
successors are elected or appointed and qualify, or until their death or until
their resignation or removal from office. Any officer elected or appointed by
the board of directors may be removed at any time by the board of directors, but
such removal shall be without prejudice to the contract rights, if any, of the
person so removed. Election or appointment of an officer or agent shall not of
itself create



                                       5
   6

contract rights. Any vacancy occurring in any office of the corporation by
death, resignation, removal or otherwise shall be filled by the board of
directors.

                     THE CHAIRMAN OF THE BOARD OF DIRECTORS

         5.6 The chairman of the board of directors, if one be elected, shall
preside at all meetings of the board of directors and shall have such other
powers and duties as may from time to time be prescribed by the board of
directors, upon written directions given to him pursuant to resolutions duly
adopted by the board of directors.

                                  THE PRESIDENT

         5.7 The president shall be the chief executive officer of the
corporation, shall have general and active management of the business of the
corporation and shall see that all orders and resolutions of the board of
directors are carried into effect. He shall preside at all meetings of the
shareholders.

                               THE VICE PRESIDENTS

         5.8 The vice presidents in the order of their seniority, unless
otherwise determined by the board of directors, shall, in the absence or
disability of the president, perform the duties and have the authority and
exercise the powers of the president. They shall perform such other duties and
have such other authority and powers as the board of directors may from time to
time prescribe or as the president may from time to time delegate.

                     THE SECRETARY AND ASSISTANT SECRETARIES

         5.9 The secretary shall attend all meetings of the board of directors
and all meetings of shareholders and record all of the proceedings of the
meetings of the board of directors and of the shareholders in a minute book to
be kept for that purpose and shall perform like duties for the standing
committees when required. He shall give, or cause to be given, notice of all
meetings of the shareholders and special meetings of the board of directors, and
shall perform such other duties as may be prescribed by the board of directors
or president, under whose supervision he shall act. He shall keep in safe
custody the seal of the corporation and, when authorized by the board of
directors, shall affix the seal to any instrument requiring it and, when so
affixed, it shall be attested by his signature or by the signature of an
assistant secretary or of the treasurer.

         5.10 The assistant secretaries in the order of their seniority, unless
otherwise determined by the board of directors, shall, in the absence or
disability of the secretary, perform the duties and exercise the powers of the
secretary. They shall perform such other duties and




                                       6
   7

have such other powers as the board of directors may from time to time prescribe
or as the President may from time to time delegate.

                     THE TREASURER AND ASSISTANT TREASURERS

         5.11 The treasurer shall have custody of the corporate funds and
securities and shall keep full and accurate accounts and records of receipts,
disbursements and other transactions in books belonging to the corporation, and
shall deposit all moneys and other valuable effects in the name and to the
credit of the corporation in such depositories as may be designated by the board
of directors.

         5.12 The treasurer shall disburse the funds of the corporation as may
be ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render the president and the board of directors, at its
regular meetings, or when the president or board of directors so requires, an
account of all his transactions as treasurer and of the financial condition of
the corporation.

         5.13 If required by the board of directors, the treasurer shall give
the corporation a bond of such type, character and amount as the board of
directors may require.

         5.14 The assistant treasurers in the order of their seniority, unless
otherwise determined by the board of directors, shall, in the absence or
disability of the treasurer, perform the duties and exercise the powers of the
treasurer. They shall perform such other duties and have such other powers as
the board of directors may from time to time prescribe or the president may from
time to time delegate.

                                   ARTICLE VI

                        CERTIFICATES REPRESENTING SHARES

         6.1 The shares of the corporation shall be represented by certificates
signed by the president and may be sealed with the seal of the corporation or a
facsimile thereof.

         6.2 The signature of the president upon a certificate may be a
facsimile if the certificate is countersigned by a transfer agent, or registered
by a registrar, other than the corporation itself or an employee of the
corporation. In case the president who has signed or whose facsimile signature
has been placed upon such certificate shall have ceased to be president before
such certificate is issued, it may be issued by the corporation at the date of
its issue.



                                       7
   8

                                LOST CERTIFICATES

         6.3 The board of directors may direct a new certificate to be issued in
place of any certificate theretofore issued by the corporation alleged to have
been lost or destroyed. When authorizing such issue of a new certificate, the
board of directors, in its discretion and as a condition precedent to the
issuance thereof, may prescribe such terms and conditions as it deems expedient
and may require such indemnities as it deems adequate to protect the corporation
from any claim that may be made against it with respect to any such certificate
alleged to have been lost or destroyed.

         6.4 Upon surrender to the corporation or the transfer agent of the
corporation of a certificate representing shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, a new
certificate shall be issued to the person entitled thereto and the old
certificate cancelled and the transaction recorded upon the share transfer
records of the corporation.

                        CLOSING OF SHARE TRANSFER RECORDS

         6.5 For the purpose of determining shareholders entitled to notice of
or to vote at any meeting of shareholders, or any adjournment thereof, or
entitled to receive payment of any dividend, or in order to make a determination
of shareholders for any other proper purpose, other than determining
shareholders entitled to consent to action by shareholders proposed to be taken
without a meeting under section 2.8, the board of directors may provide that the
share transfer records shall be closed for a stated period but not to exceed, in
any case, sixty (60) days. If the share transfer records shall be closed for the
purpose of determining shareholders entitled to notice of or to vote at a
meeting of shareholders, such records shall be closed for at least ten (10) days
immediately preceding such meeting. In lieu of closing the share transfer
records, the board of directors may fix in advance a date as the record date for
any such determination of shareholders, such date in any case to be not more
than sixty (60) days and, in case of a meeting of shareholders, not less than
ten (10) days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken. If the share transfer records are
not closed and no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or shareholders
entitled to receive payment of a dividend, the date on which notice of the
meeting is mailed or the date on which the resolution of the board of directors
declaring such dividend is adopted, as the case may be, shall be the record date
for such determination of shareholders. When a determination of shareholders
entitled to vote at any meeting of shareholders has been made as provided in
this section, such determination shall be applied to any adjournment thereof
except where the determination has been made through the closing of the share
transfer records and the stated period of closing has expired.



                                       8
   9

                             REGISTERED SHAREHOLDERS

         6.6 The corporation shall be entitled to recognize the exclusive right
of a person registered on its records as the owner of shares to receive
dividends, and to vote as such owner, and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of Delaware.

                              LIST OF SHAREHOLDERS

         6.7 The officer or agent having charge of the share transfer records
shall make, at least ten (10) days before each meeting of shareholders, a
complete list of the shareholders entitled to vote at such meeting, arranged in
alphabetical order, with the address of each and the number of shares held by
each, which list, for a period of ten (10) days prior to such meeting, shall be
kept on file at the registered office or principal place of business of the
corporation and shall be subject to inspection by any shareholder at any time
during usual business hours. Such list shall also be produced and kept open at
the time and place of the meeting and shall be subject to the inspection of any
shareholder during the whole time of the meeting. The original share ledger or
transfer record, or a duplicate thereof, shall be prima facie evidence as to who
are the shareholders entitled to examine such list or share ledger or transfer
record or to vote at any meeting of shareholders.

                                   ARTICLE VII

                               GENERAL PROVISIONS

                                    DIVIDENDS

         7.1 Subject to the provisions of the articles of incorporation relating
thereto, if any, dividends may be declared by the board of directors, in its
discretion, at any regular or special meeting, pursuant to law. Dividends may be
paid in cash, in property or in the corporation's own shares, subject to any
provisions of the articles of incorporation.

         7.2 Before payment of any dividend, there may be set aside out of any
funds of the corporation available for dividends such sum or sums as the
directors, from time to time in their absolute discretion, think proper as a
reserve fund for meeting contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.



                                       9
   10

                                     CHECKS

         7.3 All checks or demands for money and notes of the corporation shall
be signed by such officer or officers or such other person or persons as the
board of directors may from time to time designate.

                                   FISCAL YEAR

         7.4 The fiscal year of the corporation shall be fixed by resolution of
the board of directors.


                                      SEAL

         7.5 The corporate seal shall be in such form as may be prescribed by
the board of directors. The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or in any manner reproduced.

                                BOOKS AND RECORDS

         7.6 The corporation shall keep correct and complete books and records
of account and shall keep minutes of the proceedings of its shareholders and
board of directors, and shall keep at its registered office or principal place
of business, or at the office of its transfer agent or registrar, a record of
its shareholders, giving the names and addresses of all shareholders and the
number and class of the shares held by each.

                                  ARTICLE VIII

                                   AMENDMENTS

         8.1 The bylaws may be altered, amended, or repealed or new bylaws may
be adopted by a majority of the whole board of directors at any regular or
special meeting.



                                       10
   11

                                   ARTICLE IX

                          INDEMNIFICATION OF DIRECTORS
                         OFFICERS, EMPLOYEES AND AGENTS

         9.1 The corporation shall indemnify directors, officers, employees, and
agents of the corporation to the fullest extent required by Section 145 of the
Delaware General Corporation Law and may indemnify such persons to the fullest
extent permitted by Section 145 of the Delaware General Corporation Law, subject
in each case to restrictions, if any, in the Certificate of Incorporation. The
corporation shall have the power to purchase and maintain at its cost and
expense insurance on behalf of such persons to the fullest extent permitted by
Section 145 of the Delaware General Corporation Law.

         9.2 ADVANCE PAYMENT. The right to indemnification conferred in this
Article IX shall include the right to be paid or reimbursed by the corporation
for the reasonable expenses incurred by a person of the type entitled to be
indemnified under Section 9.1 who was, is or is threatened to be made a named
defendant or respondent in a proceeding in advance of the final disposition of
the proceeding and without any determination as to the person's ultimate
entitlement to indemnification; PROVIDED, HOWEVER, that the payment of such
expenses incurred by any such person in advance of the final disposition of a
proceeding, shall be made only upon delivery to the corporation of a written
affirmation by such director or officer of his or her good faith belief that he
or she has met the standard of conduct necessary for indemnification under this
Article IX and a written undertaking, by or on behalf of such person, to repay
all amounts so advanced if it shall ultimately be determined that such
indemnified person is not entitled to be indemnified under this Article IX or
otherwise.

         9.3 INDEMNIFICATION OF EMPLOYEES AND AGENTS. The corporation, by
adoption of a resolution of the board of directors, may indemnify and advance
expenses to an employee or agent of the corporation to the same extent and
subject to the same conditions under which it may indemnify and advance expenses
to directors and officers under this Article IX; and, the corporation may
indemnify and advance expenses to persons who are not or were not directors,
officers, employees or agents of the corporation while serving at the request of
the corporation as a director, officer, partner, venturer, proprietor, trustee,
employee, agent or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other enterprise against any liability asserted against him and
incurred by him in such a capacity or arising out of his status as such a person
to the same extent that it may indemnify and advance expenses to directors under
this Article IX.

         9.4 APPEARANCE AS A WITNESS. Notwithstanding any other provision of
this Article IX, the. corporation may pay or reimburse expenses incurred by a
director or officer in connection with his or her appearance as a witness or
other participation in a proceeding at a time when he or she is not a named
defendant or respondent in the proceeding.



                                       11
   12

         9.5 NONEXCLUSIVITY OF RIGHTS. The right to indemnification and the
advancement and payment of expenses conferred in this Article IX shall not be
exclusive of any other right which a director or officer or other person
indemnified pursuant to Section 9.3 of this Article IX may have or hereafter
acquire under any law (common or statutory), provision of the articles of
incorporation of the corporation or these bylaws, agreement, vote of
shareholders or disinterested directors or otherwise.

         9.6 INSURANCE. The corporation may purchase and maintain insurance, at
its expense, to protect itself and any person who is or was serving as a
director, officer, employee or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, partner, venturer,
proprietor, trustee, employee, agent or similar functionary of another foreign
or domestic corporation, partnership, joint venture, proprietorship, employee
benefit plan, trust or other enterprise against any expense, liability or loss,
whether or not the corporation would have the power to indemnify such person
against such expense, liability or loss under this Article IX.

         9.7 SHAREHOLDER NOTIFICATION. To the extent required by law, any
indemnification of or advance of expenses to a director or officer in accordance
with this Article IX shall be reported in writing to the shareholders with or
before the notice or waiver of notice of the next shareholders' meeting or with
or before the next submission to shareholders of a consent to action without a
meeting and, in any case, within the 12-month period immediately following the
date of the indemnification or advance.

         9.8 SAVINGS CLAUSE. If this Article IX or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify and hold harmless each director,
officer or any other person indemnified pursuant to this Article IX as to costs,
charges and expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement with respect to any action, suit or proceeding, whether
civil, criminal, administrative or investigative, to the full extent permitted
by any applicable portion of this Article IX that shall not have been
invalidated and to the fullest extent permitted by applicable law.



                                       12

EX-4.1

   1
                                                                    EXHIBIT 4.1

===============================================================================






                                    INDENTURE

                           DATED AS OF AUGUST 14, 2000

                                     BETWEEN

                  RAILAMERICA TRANSPORTATION CORP., AS ISSUER,

                                       AND

                           THE GUARANTORS NAMED HEREIN

                                       AND

                  WELLS FARGO BANK MINNESOTA, N.A., AS TRUSTEE

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

                                  $130,000,000

              12-7/8% SENIOR SUBORDINATED NOTES DUE 2010, SERIES A

              12-7/8% SENIOR SUBORDINATED NOTES DUE 2010, SERIES B

===============================================================================




   2



                              CROSS-REFERENCE TABLE



Trust Indenture                                                                  Indenture
   Act Section                                                                     Section
- ---------------                                                                  ----------
                                                                             
ss. 310(a)(1)..............................................................       7.10
      (a)(2)...............................................................       7.10
      (a)(3)...............................................................       N.A.
      (a)(4)...............................................................       N.A.
      (a)(5)...............................................................       7.08, 7.10.
      (b)..................................................................       7.08; 7.10; 13.02
      (c)..................................................................       N.A.
ss. 311(a).................................................................       7.11
      (b)..................................................................       7.11
      (c)..................................................................       N.A.
ss.312(a)..................................................................       2.05
      (b)..................................................................       13.03
      (c)..................................................................       13.03
ss.313(a)..................................................................       7.06
      (b)(1)...............................................................       7.06
      (b)(2)...............................................................       7.06
      (c)..................................................................       7.06; 13.02
      (d)..................................................................       7.06
ss.314(a)..................................................................       4.11; 4.12; 13.02
      (b)..................................................................       N.A.
      (c)(1)...............................................................       13.04
      (c)(2)...............................................................       13.04
      (c)(3)...............................................................       N.A.
      (d)..................................................................       N.A.
      (e)..................................................................       13.05
      (f)..................................................................       N.A.
ss.315(a)..................................................................       7.01(b)
      (b)..................................................................       7.05; 13.02
      (c)..................................................................       7.01(a)
      (d)..................................................................       7.01(c)
      (e)..................................................................       6.11
ss.316(a)(last sentence)...................................................       2.09
      (a)(1)(A)............................................................       6.05
      (a)(1)(B)............................................................       6.04
      (a)(2)...............................................................       N.A.
      (b)..................................................................       6.07
      (c)..................................................................       10.04
ss.317(a)(1)...............................................................       6.08
      (a)(2)...............................................................       6.09
      (b)..................................................................       2.04
ss.318(a)..................................................................       13.01


- ----------------
N.A. means Not Applicable.
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a
      part of the Indenture.


   3

                                TABLE OF CONTENTS



                                                                                                            Page
                                                                                                            ----
                                                                                                      
                                                ARTICLE ONE

                                   DEFINITIONS AND INCORPORATION BY REFERENCE

SECTION 1.01.       DEFINITIONS...............................................................................1
SECTION 1.02.       INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT........................................19
SECTION 1.03.       RULES OF CONSTRUCTION....................................................................19

                                                ARTICLE TWO

                                               THE SECURITIES

SECTION 2.01.       FORM AND DATING..........................................................................20
SECTION 2.02.       EXECUTION AND AUTHENTICATION.............................................................22
SECTION 2.03.       REGISTRAR AND PAYING AGENT...............................................................24
SECTION 2.04.       PAYING AGENT TO HOLD ASSETS IN TRUST.....................................................25
SECTION 2.05.       SECURITYHOLDER LISTS.....................................................................25
SECTION 2.06.       TRANSFER AND EXCHANGE....................................................................25
SECTION 2.07.       REPLACEMENT SECURITIES...................................................................30
SECTION 2.08.       OUTSTANDING SECURITIES...................................................................31
SECTION 2.09.       TREASURY SECURITIES......................................................................31
SECTION 2.10.       TEMPORARY SECURITIES.....................................................................31
SECTION 2.11.       CANCELLATION.............................................................................31
SECTION 2.12.       DEFAULTED INTEREST.......................................................................32
SECTION 2.13.       CUSIP NUMBER.............................................................................32
SECTION 2.14.       DEPOSIT OF MONEYS........................................................................32


                                               ARTICLE THREE

                                                 REDEMPTION

SECTION 3.01.       NOTICES TO TRUSTEE.......................................................................32
SECTION 3.02.       SELECTION OF SECURITIES TO BE REDEEMED...................................................32
SECTION 3.03.       NOTICE OF REDEMPTION.....................................................................33
SECTION 3.04.       EFFECT OF NOTICE OF REDEMPTION...........................................................34
SECTION 3.05.       DEPOSIT OF REDEMPTION PRICE..............................................................34
SECTION 3.06.       SECURITIES REDEEMED IN PART..............................................................34
SECTION 3.07.       MANDATORY REDEMPTION.....................................................................34





                                      -i-
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                                                                                                            Page
                                                                                                            ----
                                                                                                      
SECTION 3.08.       OFFER TO PURCHASE BY APPLICATION OF ASSET SALE OFFER AMOUNT..............................34


                                               ARTICLE FOUR

                                                COVENANTS

SECTION 4.01.       PAYMENT OF SECURITIES....................................................................36
SECTION 4.02.       MAINTENANCE OF OFFICE OR AGENCY..........................................................36
SECTION 4.03.       TRANSACTIONS WITH AFFILIATES.............................................................37
SECTION 4.04.       LIMITATION ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.................38
SECTION 4.05.       LIMITATION ON CERTAIN ASSET SALES........................................................41
SECTION 4.06.       LIMITATION ON RESTRICTED PAYMENTS........................................................43
SECTION 4.07.       CORPORATE EXISTENCE......................................................................45
SECTION 4.08.       PAYMENT OF TAXES AND OTHER CLAIMS........................................................46
SECTION 4.09.       NOTICE OF DEFAULTS.......................................................................46
SECTION 4.10.       MAINTENANCE OF PROPERTIES AND INSURANCE..................................................46
SECTION 4.11.       COMPLIANCE CERTIFICATE...................................................................47
SECTION 4.12.       PROVISION OF FINANCIAL INFORMATION.......................................................47
SECTION 4.13.       WAIVER OF STAY, EXTENSION OR USURY LAWS..................................................47
SECTION 4.14.       CHANGE OF CONTROL........................................................................48
SECTION 4.15.       LIMITATION ON SENIOR SUBORDINATED INDEBTEDNESS...........................................50
SECTION 4.16.       LIMITATIONS ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES.50
SECTION 4.17.       DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES..................................51
SECTION 4.18.       LIMITATION ON LIENS......................................................................51
SECTION 4.19.       ADDITIONAL SECURITY GUARANTEES...........................................................52
SECTION 4.20.       BUSINESS ACTIVITIES......................................................................52
SECTION 4.21.       PAYMENTS FOR CONSENT.....................................................................52


                                                ARTICLE FIVE

                                        MERGERS; SUCCESSOR CORPORATION

SECTION 5.01.       MERGERS, CONSOLIDATION AND SALE OF ASSETS................................................53
SECTION 5.02.       SUCCESSOR CORPORATION SUBSTITUTED........................................................54

                                                ARTICLE SIX

                                      EVENTS OF DEFAULT AND REMEDIES

SECTION 6.01.       EVENTS OF DEFAULT........................................................................54
SECTION 6.02.       ACCELERATION.............................................................................56
SECTION 6.03.       OTHER REMEDIES...........................................................................57





                                      -ii-
   5




                                                                                                            Page
                                                                                                            ----
                                                                                                      
SECTION 6.04.       WAIVER OF PAST DEFAULT...................................................................57
SECTION 6.05.       CONTROL BY MAJORITY......................................................................57
SECTION 6.06.       LIMITATION ON SUITS......................................................................58
SECTION 6.07.       RIGHTS OF HOLDERS TO RECEIVE PAYMENT.....................................................58
SECTION 6.08.       COLLECTION SUIT BY TRUSTEE...............................................................58
SECTION 6.09.       TRUSTEE MAY FILE PROOFS OF CLAIM.........................................................59
SECTION 6.10.       PRIORITIES...............................................................................59
SECTION 6.11.       UNDERTAKING FOR COSTS....................................................................59


                                               ARTICLE SEVEN

                                                 TRUSTEE

SECTION 7.01.       DUTIES OF TRUSTEE........................................................................60
SECTION 7.02.       RIGHTS OF TRUSTEE........................................................................61
SECTION 7.03.       INDIVIDUAL RIGHTS OF TRUSTEE.............................................................62
SECTION 7.04.       TRUSTEE'S DISCLAIMER.....................................................................62
SECTION 7.05.       NOTICE OF DEFAULTS.......................................................................62
SECTION 7.06.       REPORTS BY TRUSTEE TO HOLDERS............................................................62
SECTION 7.07.       COMPENSATION AND INDEMNITY...............................................................63
SECTION 7.08.       REPLACEMENT OF TRUSTEE...................................................................64
SECTION 7.09.       SUCCESSOR TRUSTEE BY MERGER, ETC.........................................................64
SECTION 7.10.       ELIGIBILITY; DISQUALIFICATION............................................................65
SECTION 7.11.       PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY........................................65


                                               ARTICLE EIGHT

                                       SUBORDINATION OF SECURITIES

SECTION 8.01.       SECURITIES SUBORDINATED TO SENIOR INDEBTEDNESS...........................................65
SECTION 8.02.       NO PAYMENT ON SECURITIES IN CERTAIN CIRCUMSTANCES........................................65
SECTION 8.03.       PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC...........................................66
SECTION 8.04.       SUBROGATION..............................................................................67
SECTION 8.05.       OBLIGATIONS OF COMPANY UNCONDITIONAL.....................................................67
SECTION 8.06.       NOTICE TO TRUSTEE........................................................................68
SECTION 8.07.       RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT...........................68
SECTION 8.08.       TRUSTEE'S RELATION TO SENIOR INDEBTEDNESS................................................69
SECTION 8.09.       SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF THE COMPANY OR HOLDERS
                      OF SENIOR INDEBTEDNESS.................................................................69

SECTION 8.10.       SECURITYHOLDERS AUTHORIZE TRUSTEE TO EFFECTUATE SUBORDINATION OF SECURITIES..............69
SECTION 8.11.       THIS ARTICLE NOT TO PREVENT EVENTS OF DEFAULT............................................69
SECTION 8.12.       TRUSTEE'S COMPENSATION NOT PREJUDICED....................................................70
SECTION 8.13.       NO WAIVER OF SUBORDINATION PROVISIONS....................................................70





                                     -iii-
   6




                                                                                                            Page
                                                                                                            ----
                                                                                                      
SECTION 8.14.       SUBORDINATION PROVISIONS NOT APPLICABLE TO COLLATERAL HELD IN TRUST FOR
                      SECURITYHOLDERS; PAYMENTS MAY BE PAID PRIOR TO DISSOLUTION.............................70

SECTION 8.15.       ACCELERATION OF SECURITIES...............................................................70

                                               ARTICLE NINE

                                   DISCHARGE OF INDENTURE; DEFEASANCE

SECTION 9.01.       DISCHARGE OF INDENTURE...................................................................71
SECTION 9.02.       LEGAL DEFEASANCE.........................................................................71
SECTION 9.03.       COVENANT DEFEASANCE......................................................................71
SECTION 9.04.       CONDITIONS TO LEGAL DEFEASANCE OR COVENANT DEFEASANCE....................................72
SECTION 9.05.       DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER
                      MISCELLANEOUS PROVISIONS...............................................................73

SECTION 9.06.       REINSTATEMENT............................................................................74
SECTION 9.07.       MONEYS HELD BY PAYING AGENT..............................................................74
SECTION 9.08.       MONEYS HELD BY TRUSTEE...................................................................74

                                               ARTICLE TEN

                                 AMENDMENTS, SUPPLEMENTS AND WAIVERS

SECTION 10.01.      WITHOUT CONSENT OF HOLDERS...............................................................75
SECTION 10.02.      WITH CONSENT OF HOLDERS..................................................................75
SECTION 10.03.      COMPLIANCE WITH TRUST INDENTURE ACT......................................................77
SECTION 10.04.      REVOCATION AND EFFECT OF CONSENTS........................................................77
SECTION 10.05.      NOTATION ON OR EXCHANGE OF SECURITIES....................................................77
SECTION 10.06.      TRUSTEE TO SIGN AMENDMENTS, ETC..........................................................78


                                                 ARTICLE ELEVEN

                                                   GUARANTEE

SECTION 11.01.      UNCONDITIONAL GUARANTEE..................................................................78
SECTION 11.02.      SEVERABILITY.............................................................................79
SECTION 11.03.      LIMITATION OF GUARANTOR'S LIABILITY......................................................79
SECTION 11.04.      SUBORDINATION OF SUBROGATION AND OTHER RIGHTS............................................79
SECTION 11.05.      DELIVERY OF GUARANTEE....................................................................79





                                      -iv-
   7



                                                                                                            Page
                                                                                                            ----
                                                                                                      
                                               ARTICLE TWELVE

                                        SUBORDINATION OF GUARANTEE

SECTION 12.01.      GUARANTEE OBLIGATIONS SUBORDINATED TO GUARANTOR SENIOR INDEBTEDNESS......................79
SECTION 12.02.      NO PAYMENT ON GUARANTEE IN CERTAIN CIRCUMSTANCES.........................................80
SECTION 12.03.      PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC...........................................80
SECTION 12.04.      SUBROGATION..............................................................................81
SECTION 12.05.      OBLIGATIONS OF GUARANTOR UNCONDITIONAL...................................................82
SECTION 12.06.      NOTICE TO TRUSTEE........................................................................82
SECTION 12.07.      RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT...........................83
SECTION 12.08.      TRUSTEE'S RELATION TO GUARANTOR SENIOR INDEBTEDNESS......................................83
SECTION 12.09.      SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF THE GUARANTOR OR HOLDERS OF
                      GUARANTOR SENIOR INDEBTEDNESS..........................................................83
SECTION 12.10.      SECURITYHOLDERS AUTHORIZE TRUSTEE TO EFFECTUATE SUBORDINATION OF GUARANTEE...............84
SECTION 12.11.      THIS ARTICLE NOT TO PREVENT EVENTS OF DEFAULT............................................84
SECTION 12.12.      TRUSTEE'S COMPENSATION NOT PREJUDICED....................................................84
SECTION 12.13.      NO WAIVER OF GUARANTEE SUBORDINATION PROVISIONS..........................................84
SECTION 12.14.      SUBORDINATION PROVISIONS NOT APPLICABLE TO COLLATERAL HELD IN TRUST FOR SECURITYHOLDERS;
                      PAYMENTS MAY BE PAID PRIOR TO DISSOLUTION..............................................84

                                              ARTICLE THIRTEEN

                                               MISCELLANEOUS

SECTION 13.01.      TRUST INDENTURE ACT CONTROLS.............................................................85
SECTION 13.02.      NOTICES..................................................................................85
SECTION 13.03.      COMMUNICATIONS BY HOLDERS WITH OTHER HOLDERS.............................................86
SECTION 13.04.      CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.......................................86
SECTION 13.05.      STATEMENTS REQUIRED IN CERTIFICATE OR OPINION............................................87
SECTION 13.06.      RULES BY TRUSTEE, PAYING AGENT, REGISTRAR................................................87
SECTION 13.07.      GOVERNING LAW............................................................................87
SECTION 13.08.      NO RECOURSE AGAINST OTHERS...............................................................87
SECTION 13.09.      SUCCESSORS...............................................................................88
SECTION 13.10.      COUNTERPART ORIGINALS....................................................................88
SECTION 13.11.      SEVERABILITY.............................................................................88
SECTION 13.12.      NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS............................................88
SECTION 13.13.      LEGAL HOLIDAYS...........................................................................88





                                      -v-
   8







                                                                                                            Page
                                                                                                            ----
                                                                                                      
SIGNATURES..................................................................................................S-1

EXHIBIT A         Form of Series A Security.................................................................A-1
EXHIBIT B         Form of Series B Security.................................................................B-1
EXHIBIT C         Form of Legend for Global Securities......................................................C-1
EXHIBIT D         Form of Transfer Certificate..............................................................D-1
EXHIBIT E         Form of certification to be given by the holders of beneficial interest in a temporary
                   Regulation S global security to Euroclear or Clearstream.................................E-1

EXHIBIT F         Form of certification to be given by Euroclear operator or Clearstream Banking,
                    Societe Anonyme, Luxembourg.............................................................F-1

EXHIBIT G         Form of certification to be given by transferee of beneficial interest in a temporary
                    Regulation S global security............................................................G-1

EXHIBIT H         Form of certification for transfer or exchange of restricted global security to
                    permanent Regulation S global security..................................................H-1

EXHIBIT I         Form of certification for transfer or exchange of temporary Regulation S global
                    security or permanent Regulation S global security to restricted global security........I-1

EXHIBIT J-1       Form of certification for transfer or exchange of non-global restricted security to
                    restricted global security.............................................................J-1-1

EXHIBIT J-2       Form of certification for transfer or exchange of non-global restricted security to
                    permanent Regulation S global security or temporary Regulation S global security.......J-2-1

EXHIBIT K-1       Form of certification for transfer or exchange of non-global permanent Regulation S
                    security to restricted global security.................................................K-1-2

EXHIBIT K-2       Form of certification for transfer or exchange of non-global permanent Regulation S
                    security to permanent Regulation S global security.....................................K-2-1


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

NOTE: This Table of Contents shall not, for any purpose, be deemed to be a part
      of the Indenture.



                                      -iv-
   9



                  INDENTURE dated as of August 14, 2000, between RailAmerica
Transportation Corp., a Delaware corporation (the "COMPANY"), a subsidiary of
RailAmerica, Inc. ("RAILAMERICA"), the Guarantors set forth on the signature
page hereof, (the "GUARANTORS") and Wells Fargo Bank Minnesota, N.A., a National
Banking Association, as trustee (the "TRUSTEE").

                  Each party hereto agrees as follows for the benefit of each
other party and for the equal and ratable benefit of the Holders of the
Securities:

                                   ARTICLE ONE

                   DEFINITIONS AND INCORPORATION BY REFERENCE

SECTION 1.01. DEFINITIONS.

                  "ACQUIRED INDEBTEDNESS" means, with respect to any specified
Person, (i) Indebtedness of any other Person existing at the time that other
Person is merged with or into or becomes a Subsidiary of that specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, that other Person merging with or into or becoming a
Subsidiary of that specified Person; and (ii) Indebtedness secured by a Lien
encumbering an asset acquired by that specified Person at the time that asset is
acquired by that specified Person.

                  "AFFILIATE" of any specified Person means any other Person
which, directly or indirectly, controls or is controlled by or is under direct
or indirect common control with, that specified Person. For purposes of this
definition, "control," when used with respect to any Person, means the power to
direct the management and policies of that Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.

                  "AFFILIATE TRANSACTION" see Section 4.03.

                  "AGENT" means any Registrar, Paying Agent or co-Registrar.

                  "AGENT MEMBER" means any member of, or participant in, the
Depositary.

                  "ALTERNATE OFFER" see Section 4.14.

                  "APPLICABLE PROCEDURES" see Section 2.06(g).

                  "ASSET SALE" means: (i) the sale, lease (other than operating
leases entered into in the ordinary course of business), conveyance, disposition
or other transfer (a "DISPOSITION") of any properties, assets or rights
(including, without limitation, by way of a sale and leaseback); PROVIDED that
the sale, lease, conveyance or other Disposition of all or substantially all of
the assets of the Company and its Subsidiaries taken as a whole will be governed
by the provisions of this Indenture described under Section 4.14 and/or the
provisions described under Section 5.01 and not by the provisions of Section
4.05; and (ii) the issuance, sale or transfer by the Company or any of its
Restricted Subsidiaries of Equity Interests of any of the Company's Restricted
Subsidiaries, in the case of either clause (i) or (ii), whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess of $2.5 million; or (b) for Net Proceeds in excess of $2.5
million.



   10
                                      -2-


Notwithstanding the foregoing, the following items shall not be deemed to be
Asset Sales: (i) a Disposition of assets by the Company to a Restricted
Subsidiary or by a Restricted Subsidiary to the Company or to another Restricted
Subsidiary; (ii) a Disposition of Equity Interests by a Restricted Subsidiary to
the Company or to another Restricted Subsidiary; (iii) the sale or other
Disposition of cash or Cash Equivalents; (iv) foreclosures on assets; (v) any
sale of Equity Interests in, or Indebtedness or other securities of, an
Unrestricted Subsidiary; (vi) for purposes of the provisions of this Indenture
described under Section 4.05 only, a Permitted Investment or a Restricted
Payment that is permitted under Section 4.06; (vii) any exchange of like
property pursuant to Section 1031 of the Internal Revenue Code of 1986, as
amended, for use in a Permitted Business; (viii) sales of damaged, worn-out or
obsolete equipment or assets that, in the Company's reasonable judgment, are no
longer either used or useful in the business of the Company or its Restricted
Subsidiaries; and (ix) Permitted Contributions.

                  "ASSET SALE OFFER" see Section 4.05.

                  "ASSET SALE OFFER AMOUNT" see Section 4.05.

                  "BANKRUPTCY LAW" see Section 6.01.

                  "BOARD OF DIRECTORS" means the Company's board of directors or
any authorized committee of such board of directors.

                  "BOOK-ENTRY SECURITY" means a Security represented by a Global
Security and registered in the name of the nominee of the Depository.

                  "BUSINESS DAY" means a day (other than a Saturday or Sunday)
on which the Depository and banks in New York, and banks in the city in which
the Corporate Trust Office of the Trustee is located, are open for business.

                  "CAPITAL EXPENDITURE INDEBTEDNESS" means Indebtedness incurred
by any Person to finance the purchase or construction of any property or assets
acquired or constructed by that Person which have a useful life of more than one
year so long as (i) the purchase or construction price for that property or
assets is included in "addition to property, plant or equipment" in accordance
with GAAP; (ii) the acquisition or construction of that property or assets is
not part of any acquisition of a Person or line of business; and (iii) that
Indebtedness is incurred within 90 days of the acquisition or completion of
construction of that property or assets.

                  "CAPITAL LEASE OBLIGATION" means, at the time any
determination thereof is to be made, the amount of the liability in respect of a
capital lease that would at that time be required to be capitalized on a balance
sheet in accordance with GAAP.

                  "CAPITAL STOCK" means: (i) in the case of a corporation, any
and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock; (ii) in the case of an
association or business entity, any and all shares, interests, participations,
rights or other equivalents (however designated) of corporate stock; (iii) in
the case of a partnership or limited liability company, partnership or
membership interests (whether general or limited); and (iv) any other interest
or participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person.

                  "CASH EQUIVALENTS" means: (i) Government Securities; (ii) any
certificate of deposit maturing not more than 365 days after the date of
acquisition issued by, or demand deposit or time deposit of, an Eligible



   11
                                      -3-


Institution; (iii) commercial paper maturing not more than 365 days after the
date of acquisition of an issuer (other than an Affiliate of the Company) with a
rating, at the time as of which any investment therein is made, of "A-3" (or
higher) according to S&P or "P-2 (or higher) according to Moody's or carrying an
equivalent rating by a nationally recognized rating agency if both of the two
named rating agencies cease publishing ratings of investments; (iv) any bankers'
acceptances of money market deposit accounts issued by an Eligible Institution;
and (v) any fund investing exclusively in investments of the types described in
clauses (i) through (iv) above.

                  "CERTIFICATED SECURITIES" see Section 2.01.

                  "CHANGE OF CONTROL" means the occurrence of any of the
following: (i) the direct or indirect sale, lease, transfer, conveyance or other
Disposition, other than by way of merger or consolidation, in one or a series of
related transactions, of all or substantially all of the assets of the Company
and its Subsidiaries, taken as a whole, to any "person" or "group" (as those
terms are used in Section 13(d) of the Exchange Act); (ii) the adoption of a
plan for the liquidation or dissolution of the Company or RailAmerica (whether
or not otherwise in compliance with the provisions of this Indenture); (iii) the
Company or RailAmerica becoming aware of (by way of a report or any other filing
pursuant to Section 13(d) of the Exchange Act, proxy vote, written notice or
otherwise) the acquisition by any Person or related group (within the meaning of
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any successor
provision to either of the foregoing, including any "group" acting for the
purpose of acquiring, holding or disposing of securities within the meaning of
Rule 13d-5(b)(1) under the Exchange Act), other than a Permitted Holder, in a
single transaction or in a series of related transactions, by way of merger,
consolidation or other business combination or purchase of beneficial ownership
(within the meaning of Rule 13d-3 under the Exchange Act, or any successor
provision), directly or indirectly, of 40% or more of the total voting power
entitled to vote in the election of the Board of Directors of the Company or of
such other Person surviving the transaction; or (iv) the first day on which a
majority of the members of the board of directors of RailAmerica are not
Continuing Members.

                  "CHANGE OF CONTROL OFFER" see Section 4.14.

                  "CHANGE OF CONTROL PAYMENT" see Section 4.14.

                  "CHANGE OF CONTROL PAYMENT DATE" see Section 4.14.

                  "CHANGE OF CONTROL TRIGGER DATE" see Section 4.14.

                  "CLEARSTREAM" means Clearstream Banking, Societe Anonyme,
Luxembourg (or any successor securities clearing agency).

                  "CLOSING DATE" means the date the Securities are first issued
by the Company and authenticated by the Trustee under this Indenture.

                  "CODE" means the Internal Revenue Act of 1984, as amended.

                  "COMMISSION" means the Securities and Exchange Commission.

                  "COMPANY" means the Person named as the "Company" in the first
paragraph of this Indenture until a successor shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor.


   12
                                      -4-


                  "COMPANY REQUEST" or "COMPANY ORDER" means a written request
or order signed in the name of the Company by its Chairman of the Board, its
Chief Executive Officer, its President, its Chief Financial Officer, a Vice
President or its Treasurer, and by an Assistant Treasurer, its Secretary or an
Assistant Secretary, and delivered to the Trustee.

                  "CONSOLIDATED CASH FLOW" means, with respect to any specified
Person for any period, the Consolidated Net Income of such Person for such
period, PLUS (i) an amount equal to any extraordinary loss plus any net loss
realized by such Person or any of its Restricted Subsidiaries in connection with
an Asset Sale, to the extent such losses were deducted in computing such
Consolidated Net Income; PLUS (ii) provision for taxes based on income or
profits of such Person and its Restricted Subsidiaries for such period, to the
extent that such provision for taxes was deducted in computing such Consolidated
Net Income; PLUS (iii) Consolidated Interest Expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued and whether or
not capitalized (including, without limitation, amortization of debt issuance
costs and original issue discount, noncash interest payments, the interest
component of any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations, commissions, discounts and
other fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net of the effect of all payments made or received
pursuant to Hedging Obligations), to the extent that any such expense was
deducted in computing such Consolidated Net Income; PLUS (iv) depreciation,
amortization (including amortization of goodwill and other intangibles, but
excluding amortization of prepaid cash expenses that were paid in a prior
period) and other noncash expenses (excluding any such noncash expense to the
extent that it represents an accrual of or reserve for cash expenses in any
future period or amortization of a prepaid cash expense that was paid in a prior
period) of such Person and its Restricted Subsidiaries for such period to the
extent that such depreciation, amortization and other noncash expenses were
deducted in computing such Consolidated Net Income; MINUS (v) noncash items or
nonrecurring items increasing such Consolidated Net Income for such period,
other than the accrual of revenue in the ordinary course of business, in each
case, on a consolidated basis and determined in accordance with GAAP.

                  "CONSOLIDATED INTEREST EXPENSE" means, with respect to any
Person for any period, the sum of, without duplication, (i) the interest expense
of such Person and its Restricted Subsidiaries for such period, on a
consolidated basis, determined in accordance with GAAP (including, without
limitation, amortization of debt issuance costs and original issue discount on
any Indebtedness, all non-cash interest payments, the interest component of all
payments associated with Capital Lease Obligations, commissions, discounts and
other fees and charges incurred in respect of letters of credit or bankers'
acceptance financings, and net payments, if any, pursuant to Hedging
Obligations) plus, in the case of the Company, the interest expense of
RailAmerica relating to its 6% junior convertible subordinated debentures due
2004; (ii) the consolidated capitalized interest of the Person and its
Restricted Subsidiaries for that period, whether paid or accrued; and (iii) any
interest expense on Indebtedness of another Person that is Guaranteed by such
Person or one of its Restricted Subsidiaries or secured by a Lien on assets of
such Person or one of its Restricted Subsidiaries, whether or not such Guarantee
or Lien is called upon.

                  "CONSOLIDATED NET INCOME" means, with respect to any Person
for any period, the aggregate of the Net Income of that Person and its
Restricted Subsidiaries for that period, on a consolidated basis, determined in
accordance with GAAP; PROVIDED that (i) the Net Income of any Person that is not
a Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be excluded except that: (a) the Company's equity in the net
income of any such Person for such period shall be included in such Consolidated
Net Income up to the aggregate amount of cash actually distributed by such
Person during such period to the Company or a Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution made to a Restricted Subsidiary, to the limitations contained in
clause (ii) below) and (b) the Company's equity


   13
                                      -5-


in a net loss of any such Person for such period shall be included in
determining such Consolidated Net Income; (ii) the Net Income of any Restricted
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Restricted Subsidiary of that Net
Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement, contract, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
that Restricted Subsidiary or its stockholders except that the Company's equity
in a net loss of any such Restricted Subsidiary for such period shall be
included in determining such Consolidated Net Income; (iii) unrealized gains or
losses due solely to fluctuations in currency values and the related tax effects
according to GAAP shall be excluded; (iv) the Net Income of any Person acquired
in a pooling of interests transaction for any period prior to the date of that
acquisition shall be excluded; (v) one-time noncash charges recorded in
accordance with GAAP resulting from any merger, recapitalization or acquisition
transaction shall be excluded; (vi) the cumulative effect of a change in
accounting principles shall be excluded; and (vii) the restoration to income of
any contingency reserve, except to the extent that provision for such reserve
was made out of Consolidated Net Income accrued at any time following the
Closing Date.

                  "CONTINUING MEMBERS" means, as of any date of determination,
any member of the board of directors of RailAmerica, as the case may be, who:
(i) was a member of RailAmerica's board of directors, as the case may be, at the
date of this Indenture; or (ii) was nominated for election or elected to
RailAmerica's Board of Directors, as the case may be, with the approval of, or
whose election to the Board of Directors was ratified by, at least a majority of
the Continuing Members who were members of RailAmerica's Board of Directors, as
the case may be, at the time of that nomination or election.

                  "CORPORATE TRUST OFFICE OF THE TRUSTEE" shall be at the
address of the Trustee specified in Section 13.02 or such other address as the
Trustee may give notice to the Company.

                  "COVENANT DEFEASANCE OPTION" see Section 9.03.

                  "CUSTODIAN" see Section 6.01.

                  "DEFAULT" means any event that is, or after the giving of
notice or passage of time or both would be, an Event of Default.

                  "DEFEASANCE TRUST" see Section 9.04.

                  "DEPOSITORY" means, with respect to the Securities issued in
the form of one or more Global Securities, The Depository Trust Company ("DTC")
or another Person designated as Depository by the Company, which must be a
clearing agency registered under the Exchange Act.

                  "DEPOSITORY SECURITIES CERTIFICATION" see Section 2.01.

                  "DESIGNATED GUARANTOR SENIOR INDEBTEDNESS" means (i) the
guarantee by the Guarantors of any Indebtedness outstanding under the Senior
Credit Facility and (ii) any other Guarantor Senior Indebtedness of the
Guarantors the principal amount of which is $25,000,000 or more.

                  "DESIGNATED SENIOR INDEBTEDNESS" means (i) any Indebtedness
outstanding under the Senior Credit Facility at any time and (ii) following the
payment in full in cash of all Indebtedness under the Senior Credit Facility and
the permanent termination of all commitments thereunder, any other Senior
Indebtedness


   14
                                      -6-


permitted under this Indenture the principal amount of which is $25 million or
more and that has been designated by the Company as "Designated Senior
Indebtedness."

                  "DISPOSITION" see definition of Asset Sale.

                  "DISQUALIFIED STOCK" means any Capital Stock that, by its
terms (or by the terms of any security into which it is convertible, or for
which it is exchangeable), or upon the happening of any event (other than any
event solely within the control of the issuer thereof), matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is exchangeable for Indebtedness (except to the extent exchangeable at the
option of that Person subject to the terms of any debt instrument to which that
Person is a party) or redeemable at the option of the holder thereof, in whole
or in part, on or prior to the date on which the Securities mature; PROVIDED
that any Capital Stock that would constitute Disqualified Stock solely because
the holders thereof have the right to require the Company to repurchase that
Capital Stock upon the occurrence of a Change of Control or an Asset Sale shall
not constitute Disqualified Stock if the terms of that Capital Stock provide
that the Company may not repurchase or redeem any such Capital Stock pursuant to
those provisions unless that repurchase or redemption complies with the covenant
described under Section 4.06; and PROVIDED FURTHER, that, if that Capital Stock
is issued to any plan for the benefit of employees of the Company or its
Subsidiaries or by any such plan to those employees, that Capital Stock shall
not constitute Disqualified Stock solely because it may be required to be
repurchased by the Company in order to satisfy applicable statutory or
regulatory obligations.

                  "DOMESTIC SUBSIDIARY" means a Subsidiary that is organized
under the laws of the United States or any State, district or territory thereof.

                  "ELIGIBLE INSTITUTION" means a commercial banking institution
organized under the laws of the United States of America or any state thereof or
the District of Columbia or any U.S. branch of a foreign bank that has combined
capital and surplus not less than $500.0 million or its equivalent in foreign
currency, whose short-term debt is rated "A-3" or higher according to Standard &
Poor's Rating Group ("S&P") or "P-2" or higher according to Moody's Investors
Service, Inc. ("MOODY'S") or carrying an equivalent rating by a nationally
recognized rating agency if both of the two named rating agencies cease
publishing ratings of investments.

                  "EQUITY INTERESTS" means Capital Stock and all warrants,
options or other rights to acquire Capital Stock (but excluding any debt
security that is convertible into, or exchangeable for, Capital Stock).

                  "EQUITY OFFERING" means (i) any issuance of Equity Interests,
other than Disqualified Stock, by the Company, and (ii) any issuance of Equity
Interests by RailAmerica to the extent of proceeds that are received by the
Company as a contribution to the common equity of the Company, excluding
issuances of common stock pursuant to employee benefit plans of the Company or
otherwise as compensation to employees of the Company.

                  "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.

                  "EUROCLEAR" means the Euroclear Clearance System (or any
successor securities clearing agency).

                  "EVENT OF DEFAULT" see Section 6.01.

                  "EXCESS PROCEEDS" see Section 4.05.


   15
                                      -7-


                  "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated by the Commission thereunder.

                  "EXISTING INDEBTEDNESS" means Indebtedness of the Company and
its Restricted Subsidiaries (other than Indebtedness under the Senior Credit
Facility) in existence on the date of this Indenture, until those amounts are
repaid.

                  "FINAL MATURITY DATE" means August 15, 2010.

                  "FIXED CHARGE COVERAGE RATIO" means, with respect to any
Person and its Restricted Subsidiaries for any period, the ratio of the
Consolidated Cash Flow of such Person and its Restricted Subsidiaries for such
period to the Fixed Charges of such Person and its Restricted Subsidiaries for
such period. In the event that the specified Person or any of its Restricted
Subsidiaries incurs, assumes, guarantees, repays, repurchases or redeems any
Indebtedness (other than ordinary working capital borrowings) or issues,
repurchases or redeems preferred stock subsequent to the commencement of the
period for which the Fixed Charge Coverage Ratio is being calculated and on or
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "CALCULATION DATE"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, guarantee, repayment, repurchase or redemption of Indebtedness, or
such issuance, repurchase or redemption of preferred stock, and the use of the
proceeds therefrom as if the same had occurred at the beginning of the
applicable reference period. In addition, for the purposes of making the
computation referred to above: (i) acquisitions that have been made by the
Company or any of its Restricted Subsidiaries, including through mergers or
consolidations and including any related financing transactions and Asset Sales,
during the applicable period or subsequent to such applicable period and on or
prior to the Calculation Date shall be deemed to have occurred on the first day
of the reference period, and the Fixed Charge Coverage Ratio for such period
shall be calculated after giving pro forma effect to any such acquisitions and
Asset Sales and Consolidated Cash Flow for such period shall be calculated
without giving effect to clause (iv) of the proviso set forth in the definition
of Consolidated Net Income; and (ii) the Consolidated Cash Flow attributable to
discontinued operations, as determined in accordance with GAAP, and operations
of businesses disposed of prior to the Calculation Date shall be excluded; and
(iii) the Fixed Charges attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of or prior to
the Calculation Date, shall be excluded, but only to the extent that the
obligations giving rise to such Fixed Charges will not be obligations of the
specified Person or any of its Restricted Subsidiaries following the Calculation
Date. For purposes of this definition, whenever pro forma effect is to be given
to an acquisition of assets, the amount of income or earnings relating thereto
and the amount of Consolidated Interest Expense associated with any Indebtedness
incurred in connection therewith, the pro forma calculations shall be determined
in accordance with Article 11 of Regulation S-X under the Securities Act.

                  "FIXED CHARGES" means, with respect to any specified Person
for any period, the sum, without duplication, of: (i) the Consolidated Interest
Expense of such Person; PLUS (ii) the product of (a) all dividends, whether paid
or accrued and whether or not in cash, on any series of Preferred Stock of such
Person or any of its Restricted Subsidiaries (and in the case of the Company,
all such dividends with respect to Series A Convertible Preferred Stock of
RailAmerica), other than dividends on Equity Interests payable solely in Equity
Interests of the Company (other than Disqualified Stock), times (b) a fraction,
the numerator of which is one and the denominator of which is one minus the then
current combined effective federal, state and local statutory tax rate of such
Person, expressed as a decimal, in each case, on a consolidated basis and in
accordance with GAAP.

                  "FOREIGN CREDIT FACILITY" means a working capital facility
available to a Foreign Restricted Subsidiary; PROVIDED that the Indebtedness
incurred under such facility is denominated and payable in U.S.


   16
                                      -8-


dollars or the local currencies of the jurisdictions of the operations of the
Foreign Restricted Subsidiary incurring such Indebtedness.

                  "FOREIGN RESTRICTED SUBSIDIARY" means a Restricted Subsidiary
whose jurisdiction of incorporation or formation is other than the United
States, any state thereof or the District of Columbia.

                  "GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect from time to time.

                  "GLOBAL SECURITY" means a security evidencing all or a portion
of the Securities issued to the Depository or its nominee in accordance with
Section 2.01 and bearing the legend set forth in EXHIBIT C hereto.

                  "GOVERNMENT SECURITIES" means marketable direct obligations
issued by, or unconditionally guaranteed by, the United States government or, in
the case of Investments held by a Foreign Restricted Subsidiary, the government
of the country in which such Foreign Restricted Subsidiary was incorporated or
formed, or issued by any agency or instrumentality thereof and backed by the
full faith and credit of the United States or such other country, in each case
maturing within one year from the date of acquisition thereof.

                  "GOVERNMENTAL AUTHORITY" means the government of the United
States, any other nation or any political subdivision thereof, whether state or
local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government.

                  "GUARANTEE" means a Guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit or reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.

                  "GUARANTEED OBLIGATIONS" see Section 11.01.

                  "GUARANTOR SENIOR INDEBTEDNESS" means, with respect to the
Guarantors, the Guarantors' Guarantee of RailAmerica's obligations under the
Senior Credit Facility and any other Indebtedness of the Guarantors (including,
without limitation, in the case of Palm Beach Rail Holding, Inc., Indebtedness
evidenced by the asset sale bridge notes issued on February 4, 2000) (other than
as otherwise provided in this definition), whether outstanding on the issue date
or thereafter created, incurred or assumed, unless, in the case of any
particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the Guarantee.
Notwithstanding the foregoing, "Guarantor Senior Indebtedness" will not include
(i) Indebtedness evidenced by the Guarantee of the Securities; (ii) Indebtedness
of the Guarantors that is subordinate or junior in right of payment to any other
Indebtedness of the Guarantors; (iii) Indebtedness of the Guarantors which, when
incurred and without respect to any other election under Section 1111(b) of
Title 11, United States Code, is without recourse to the Guarantors; (iv)
Indebtedness which is represented by Disqualified Stock of the Guarantors; (v)
any liability for foreign, federal, state, local or other taxes owed or owing by
the Guarantors; (vi) Indebtedness of the Guarantors to a Subsidiary or any other
Affiliate of the Guarantors or any of such Affiliate's subsidiaries; (vii) that
portion of any Indebtedness which, when incurred, is issued in violation of this
Indenture; and (viii) trade payables owed or owing by the Guarantors.


   17
                                      -9-


                  "GUARANTORS" means (i) RailAmerica, (ii) Palm Beach Rail
Holding, Inc., (iii) each Restricted Subsidiary of the Company as of the date of
this Indenture that is a Domestic Subsidiary and (iv) any other Subsidiary that
executes a guarantee in accordance with the provisions of this Indenture.

                  "GUARANTOR PAYMENT BLOCKAGE PERIOD" see Section 12.02(a).

                  "GUARANTOR PAYMENT BLOCKAGE NOTICE" see Section 12.02(a).

                  "HEDGING OBLIGATIONS" means, with respect to any Person, the
Obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements, and (ii) other
agreements or arrangements designed to protect such Person against fluctuations,
or otherwise to establish financial hedges in respect of, exchange rates,
currency rates, commodity prices or interest rates.

                  "HOLDER," "HOLDER OF SECURITIES," "SECURITYHOLDERS" or other
similar terms mean the registered holder of any Security.

                  "INDEBTEDNESS" means, with respect to any Person, any
indebtedness of that Person in respect of borrowed money or evidenced by bonds,
notes, debentures or similar instruments or letters of credit (or reimbursement
agreements in respect thereof) or bankers' acceptances or representing Capital
Lease Obligations or the balance deferred and unpaid of the purchase price of
any property or representing any Hedging Obligations, except any such balance
that constitutes an accrued expense, trade payable or customer contract advance,
if and to the extent any of the foregoing Indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance sheet
of that Person prepared in accordance with GAAP, as well as all Indebtedness of
others secured by a Lien on any asset of that Person (whether or not that
Indebtedness is assumed by that Person) and, to the extent not otherwise
included, the Guarantee by that Person of any Indebtedness of any other Person
and all Disqualified Stock issued by such Person with the amount of Indebtedness
represented by such Disqualified Stock being equal to the greater of its
voluntary or involuntary liquidation preference and its maximum fixed repurchase
price, but excluding accrued dividends, if any. For purposes hereof, the
"maximum fixed repurchase price" of any Disqualified Stock which does not have a
fixed repurchase price shall be calculated in accordance with the terms of such
Disqualified Stock as if such Disqualified Stock were purchased on any date on
which Indebtedness shall be required to be determined pursuant to this
Indenture, and if such price is based upon, or measured by, the fair market
value of such Disqualified Stock, such fair market value shall be determined
reasonably and in good faith by the Board of Directors of the issuer of such
Disqualified Stock. The amount of any Indebtedness outstanding as of any date
shall be: (i) the accreted value thereof, in the case of any Indebtedness that
does not require current payments of interest; and (ii) the principal amount
thereof (together with any interest thereon that is more than 30 days past due),
in the case of any other Indebtedness.

                  "INDENTURE" means this Indenture as amended or supplemented
from time to time.

                  "INDIRECT PARTICIPANT" means a person who holds a beneficial
interest in a Global Security through a participant of DTC, Euroclear or
Clearstream.

                  "INITIAL PURCHASERS" means Donaldson, Lufkin & Jenrette
Securities Corporation, Barclays Bank PLC and Scotia Capital (USA) Inc.

                  "INSTITUTIONAL ACCREDITED INVESTOR" means an institution that
is an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3)
or (7) under the Securities Act.


   18
                                      -10-


                  "INTEREST PAYMENT DATE" means each semiannual interest payment
date on August 15 and February 15 of each year, commencing February 15, 2001.

                  "INTEREST RECORD DATE" for the interest payable on any
Interest Payment Date (except a date for payment of defaulted interest) means
the August 1 or February 1 (whether or not a Business Day), as the case may be,
immediately preceding such Interest Payment Date.

                  "INVESTMENTS" means, with respect to any Person, all
investments by that Person in other Persons, including Affiliates, in the forms
of direct or indirect loans (including guarantees by the referent Person of, and
liens on any assets of the referent Person securing, Indebtedness or other
obligations of other Persons), advances or capital contributions (excluding (i)
commission, travel and similar advances to officers and employees made in the
ordinary course of business and (ii) extensions of trade credit on commercially
reasonable terms in accordance with normal trade practices), purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP; PROVIDED that
an investment by the Company for consideration consisting of common equity
securities of the Company shall not be deemed to be an Investment. If
RailAmerica or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted Subsidiary
of the Company such that, after giving effect to any such sale or disposition,
that Person is no longer a Subsidiary of the Company, the Company shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Equity Interests of that Restricted
Subsidiary not sold or disposed of in an amount determined as provided in the
final three paragraphs of Section 4.06.

                  "ISSUE" means create, issue, assume, Guarantee, incur or
otherwise become directly or indirectly liable for any Indebtedness or Capital
Stock, as applicable; PROVIDED that any Indebtedness or Capital Stock of a
Person existing at the time such Person becomes a Restricted Subsidiary (whether
by merger, consolidation, acquisition or otherwise) shall be deemed to be issued
by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary.
For this definition, the terms "issuing," "issuer," "issuance" and "issued" have
meanings correlative to the foregoing.

                  "LEGAL DEFEASANCE OPTION" see Section 9.02.

                  "LIEN" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law (including any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to sell or give a
security interest in and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).

                  "LIQUIDATED DAMAGES" has the meaning provided in the
Registration Rights Agreement.

                  "NET INCOME" means, with respect to any Person, the net income
(loss) of that Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however (i) any
gain (or loss), together with any related provision for taxes on that gain (or
loss), realized in connection with (a) any Asset Sale, including, without
limitation, dispositions pursuant to sale and leaseback transactions; or (b) the
extinguishment of any Indebtedness of that Person or any of its Restricted
Subsidiaries; and (ii) any extraordinary or nonrecurring gain (or loss),
together with any related provision for taxes on that extraordinary or
nonrecurring gain (or loss).


   19
                                      -11-


                  "NET PROCEEDS" means the aggregate cash proceeds received by
the Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of,
without duplication, (i) the direct costs relating to that Asset Sale,
including, without limitation, legal, accounting and investment banking fees,
and sales commissions, recording fees, title transfer fees and appraiser fees
and cost of preparation of assets for sale, and any relocation expenses incurred
as a result thereof; (ii) taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements); (iii) amounts required to be applied to the repayment of
Indebtedness (other than revolving credit Indebtedness incurred pursuant to the
Senior Credit Facility) secured by a Lien on the asset or assets that were the
subject of that Asset Sale; and (iv) any reserve established in accordance with
GAAP or any amount placed in escrow, in either case for adjustment in respect of
the sale price of such asset or assets until such time as that reserve is
reversed or that escrow arrangement is terminated, in which case Net Proceeds
shall include only the amount of the reserve so reversed or the amount returned
to the Company or its Restricted Subsidiaries from that escrow arrangement, as
the case may be.

                  "NEW YORK PRESENTING AGENT" see Section 4.02.

                  "NON-GLOBAL PERMANENT REGULATION S SECURITY" see Section 2.01.

                  "NON-RECOURSE DEBT" means Indebtedness (i) no default with
respect to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (ii) as to which the lenders have been notified in
writing that they will not have any recourse to the stock (other than the stock
of an Unrestricted Subsidiary pledged by the Company to secure debt of that
Unrestricted Subsidiary) or assets of the Company or any of its Restricted
Subsidiaries; PROVIDED that in no event shall Indebtedness of any Unrestricted
Subsidiary fail to be Non-Recourse Debt solely as a result of any Default
provisions contained in a guarantee thereof by the Company or any of its
Restricted Subsidiaries if the Company or that Restricted Subsidiary was
otherwise permitted to incur that Guarantee pursuant to this Indenture.

                  "NON-U.S. PERSON" means a Person who is not a U.S. Person, as
defined in Regulation S.

                  "OBLIGATIONS" means, with respect to any Indebtedness, any
principal, interest, premiums, penalties, fees, indemnifications, reimbursement
obligations, damages and other liabilities payable to the holder of such
Indebtedness under the documentation governing such Indebtedness.

                  "OFFER PERIOD" see Section 3.08.

                  "OFFERING" means the offering of the Securities by the
Company.

                  "OFFICER" means the Chairman, the Chief Executive Officer, the
President, any Vice President, the Chief Financial Officer, or the Secretary of
the Company.

                  "OFFICERS' CERTIFICATE" means, with respect to any Person, a
certificate signed by the Chief Executive Officer, the President or any Vice
President and the Chief Financial Officer or any Treasurer of such Person that
shall comply with the applicable provisions of this Indenture.


   20
                                      -12-


                  "OPINION OF COUNSEL" means a written opinion from legal
counsel who is reasonably acceptable to the Trustee. The counsel may be an
employee of or counsel to the Company or the Trustee.

                  "OTHER COMPANY INDEBTEDNESS GUARANTEE" see Section 4.19.

                  "OWNER SECURITIES CERTIFICATION" see Section 2.01.

                  "PARI PASSU INDEBTEDNESS" means Indebtedness of the Company
that ranks equally in right of payment to the Securities.

                  "PAYING AGENT" see Section 2.03.

                  "PAYMENT BLOCKAGE NOTICE" see Section 8.02(a).

                  "PAYMENT BLOCKAGE PERIOD" see Section 8.02(a).

                  "PAYMENT DEFAULT" see Section 6.01.

                  "PERMANENT REGULATION S GLOBAL SECURITY" see Section 2.01.

                  "PERMITTED BUSINESS" means the transportation business or any
business reasonably related, incidental or ancillary thereto.

                  "PERMITTED CONTRIBUTION" means contributions of properties or
assets in a transaction in which RailAmerica is entitled, in accordance with the
Internal Revenue Code of 1986, as amended, to receive an income tax deduction on
its consolidated federal income tax return; PROVIDED that the amount of any such
income tax deduction is at least equal to the fair market value of such
properties and assets less the amount of any liabilities, as shown on the
Company's most recent balance sheet, that are assumed by the transferee of any
such properties or assets pursuant to a customary novation agreement that
releases the Company and its Restricted Subsidiaries from further liability
(such determination shall be evidenced by an Officers' Certificate delivered to
the Trustee in the case of property and assets with a fair market value less
than or equal to $1.0 million, by a resolution of the board of directors of
RailAmerica delivered to the Trustee in the case of property and assets with a
fair market value greater than $1.0 million, but less than or equal to $5.0
million, or by an opinion delivered to the Trustee of an accounting, appraisal
or investment banking firm of national standing in the case of property and
assets with a fair market value greater than $5.0 million).

                  "PERMITTED HOLDER" means RailAmerica and any direct or
indirect wholly-owned subsidiary of RailAmerica.

                  "PERMITTED INDEBTEDNESS" see Section 4.04.

                  "PERMITTED INVESTMENTS" means (i) any Investment in the
Company or in any Restricted Subsidiary of the Company; (ii) any Investment in
cash or Cash Equivalents; (iii) any Investment by the Company or any Restricted
Subsidiary of the Company in a Person if, as a result of that Investment, (a)
that Person becomes a Restricted Subsidiary of the Company; or (b) that Person
is merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to or is liquidated into, the Company or a
Restricted Subsidiary of the Company; (iv) any Investment made as a result of
the receipt of non-cash consideration from an Asset Sale that was made pursuant
to and in compliance with Section 4.05; (v) any investment acquired


   21
                                      -13-


solely in exchange for Equity Interests (other than Disqualified Stock) of the
Company; (vi) Investments in the Securities; (vii) loans and advances to
officers, directors and employees for business-related and other similar
investments, in each case incurred in the ordinary course of business for bona
fide business purposes not in excess of $1.0 million at any one time
outstanding; (viii) Hedging Obligations permitted to be incurred under Section
4.04; (ix) Investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers; (x) repurchases
of Equity Interests of the Company deemed to occur upon the exercise of stock
options if such Equity Interests represent a portion of the exercise price
thereof; (xi) Investments made by the Company or any Restricted Subsidiary in
connection with purchase price adjustments, contingent purchase price payments
or other earnout payments required in connection with Investments otherwise
permitted under this Indenture; and (xii) Investments in securities received in
settlement of trade obligations in the ordinary course of business.

                  "PERMITTED JUNIOR SECURITIES" means Equity Interests in the
Company or unsecured debt securities of the Company that are subordinated to all
Senior Indebtedness (and any debt securities issued in exchange for Senior
Indebtedness) to substantially the same extent as, or to a greater extent than,
the Securities are subordinated to Senior Indebtedness.

                  "PERMITTED LIENS" means (i) Liens on property of a Person
existing at the time that Person is merged into or consolidated with the Company
or any Restricted Subsidiary; PROVIDED that those Liens were not incurred in
contemplation of that merger or consolidation and do not secure any property or
assets of the Company or any Restricted Subsidiary other than the property or
assets subject to the Liens prior to that merger or consolidation; (ii) Liens
existing on the date of this Indenture; (iii) Liens securing Indebtedness
consisting of purchase money Indebtedness, mortgage financings, industrial
revenue bonds or other monetary obligations, in each case incurred solely for
the purpose of financing all or any part of the purchase price or cost of
construction or installation of assets used in the business of the Company or
its Restricted Subsidiaries, or repairs, additions or improvements to those
assets; PROVIDED that (a) those Liens secure Indebtedness in an amount not in
excess of the original purchase price or the original cost of any such assets or
repair, addition or improvement thereto (plus an amount equal to the reasonable
fees and expenses in connection with the incurrence of that Indebtedness); (b)
those Liens do not extend to any other assets of the Company or its Restricted
Subsidiaries (and, in the case of repairs, additions or improvements to any such
assets, that Lien extends only to the assets (and improvements thereto or
thereon) repaired, added to or improved); (c) the Incurrence of that
Indebtedness is permitted under Section 4.04; and (d) those Liens attach within
365 days of that purchase, construction, installation, repair, addition or
improvement; (iv) Liens securing Capital Lease Obligations permitted pursuant to
clause (iv) of the definition of "Permitted Indebtedness"; (v) Liens to secure
any refinancings, renewals, extensions, modifications or replacements
(collectively, "REFINANCING") (or successive refinancings), in whole or in part,
of any Indebtedness secured by Liens referred to in clauses (i) through (iv)
above so long as that Lien does not extend to any other property (other than
improvements thereto); (vi) Liens securing letters of credit entered into in the
ordinary course of business and consistent with past business practice; (vii)
Liens securing Indebtedness of the Company or any of its Restricted Subsidiaries
owing to a Governmental Authority; and (viii) Liens securing (a) Indebtedness
(including all Obligations) under the Senior Credit Facility or a Foreign Credit
Facility or (b) Hedging Obligations payable to a lender under the Senior Credit
Facility or an Affiliate thereof or to a Person that was a lender or Affiliate
thereof at the time the contract was entered into to the extent such Hedging
Obligations are secured by Liens on assets also securing Indebtedness (including
all Obligations) under the Senior Credit Facility or a Foreign Credit Facility;
PROVIDED that in the case of a Foreign Credit Facility, the Indebtedness
incurred thereunder was permitted by the terms of this Indenture to be incurred.

                  "PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of
the Company or any of its Restricted Subsidiaries issued within 60 days after
repayment of, in exchange for, or the net proceeds of which

   22
                                      -14-


are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Restricted Subsidiaries incurred in
accordance with Section 4.04 (other than pursuant to clauses (i), (iv), (v),
(vii), (viii), (ix), (x) and (xi) of the definition of "Permitted Indebtedness";
PROVIDED that (i) the principal amount (or accreted value, if applicable) of
that Permitted Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable) of, plus marked-based or other premium, if any,
and accrued interest on the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses incurred
in connection therewith); (ii) that Permitted Refinancing Indebtedness has a
final maturity date no earlier than the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; (iii) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is subordinated in right of
payment to the Securities, that Permitted Refinancing Indebtedness is
subordinated in right of payment to the Securities on terms at least as
favorable, taken as a whole, to the Holders of Securities as those contained in
the documentation governing the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred
either by the Company or by the Restricted Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.

                  "PERSON" means any individual, corporation, partnership,
limited liability company, joint venture, association, joint-stock company,
trust, unincorporated organization or government (including any agency or
political subdivision thereof).

                  "PREFERRED STOCK" of any Person means Capital Stock of such
Person of any class or classes (however designated) that ranks prior, as to the
payment of dividends or as to the distribution of assets upon any voluntary or
involuntary liquidation, dissolution or winding up of such Person, to shares of
Capital Stock of any other class of such Person.

                  "PRINCIPAL" of a debt security means the principal of the
security, plus, when appropriate, the premium, if any, on the security.

                  "PRIVATE PLACEMENT LEGEND" means the legend initially set
forth on the Securities in the form set forth on EXHIBIT A hereto.

                  "PURCHASE AGREEMENT" means the Purchase Agreement dated as of
August 9, 2000 between the Company, the Guarantors and the Initial Purchasers.

                  "PURCHASE DATE" see Section 3.08.

                  "QUALIFIED INSTITUTIONAL BUYER" or "QIB" means a "qualified
institutional buyer" as that term is defined in Rule 144A under the Securities
Act.

                  "REDEMPTION DATE," when used with respect to any Security to
be redeemed, means the date fixed for such redemption pursuant to this
Indenture.

                  "REDEMPTION PRICE," when used with respect to any Security to
be redeemed, means the price fixed for such redemption pursuant to this
Indenture as set forth in the form of Security annexed hereto as EXHIBIT A.


   23
                                      -15-


                  "REGISTERED EXCHANGE OFFER" means the offer to exchange the
Series B Securities for all of the outstanding Series A Securities in accordance
with the Registration Rights Agreement.

                  "REGISTER" see Section 2.03.

                  "REGISTRAR" see Section 2.03.

                  "REGISTRATION" means the registration of the Registered
Exchange Offer by the Company and the Guarantors or other registration of the
Securities under the Securities Act pursuant to and in accordance with the terms
of the Registration Rights Agreement.

                  "REGISTRATION RIGHTS AGREEMENT" means the Notes Registration
Rights Agreement dated as of August 14, 2000 between the Company, the Guarantors
and the Initial Purchasers.

                  "REGISTRATION STATEMENT" means the registration statement(s)
as defined and described in the Registration Rights Agreement.

                  "REGULATION S" means Regulation S under the Securities Act.

                  "RESTRICTED GLOBAL SECURITY" see Section 2.01.

                  "RESTRICTED INVESTMENT" means an Investment other than a
Permitted Investment.

                  "RESTRICTED PAYMENTS" see Section 4.06.

                  "RESTRICTED PERIOD" see Section 2.01.

                  "RESTRICTED SECURITY" has the meaning set forth in Rule
144(a)(3) under the Securities Act; PROVIDED, that the Trustee shall be entitled
to request and conclusively rely upon an Opinion of Counsel with respect to
whether any Security is a Restricted Security

                  "RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of
the referent Person that is not an Unrestricted Subsidiary.

                  "RULE 144A" means Rule 144A under the Securities Act.

                  "SEC" means the Securities and Exchange Commission.

                  "SECURITIES" means, collectively, the Series A Securities and
the Series B Securities, which should be treated as a single class of
securities, as amended or supplemented from time to time in accordance with the
terms hereof, that are issued pursuant to this Indenture.

                  "SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated by the Commission thereunder.

                  "SENIOR CREDIT FACILITY" means that certain Credit Agreement,
dated as of February 4, 2000, among the Company and certain of its Subsidiaries,
as borrowers, the Guarantors named therein, DLJ Capital Funding, Inc., as lead
arranger and syndication agent, The Bank of Nova Scotia, as administrative
agent, ING


   24
                                      -16-


(U.S.) Capital LLC and Fleet National Bank, as documentation agents, and various
financial institutions party thereto, including any related notes, guarantees,
letters of credit, collateral documents, instruments, rate protection or hedging
arrangements and agreements executed in connection therewith, and, in each case,
as amended, modified, renewed, refunded, replaced or refinanced from time to
time, including any agreement (i) extending or shortening the maturity of any
Indebtedness incurred thereunder or contemplated thereby; (ii) adding or
deleting lenders, borrowers or guarantors thereunder; (iii) increasing the
amount of Indebtedness incurred thereunder or available to be borrowed
thereunder; PROVIDED that on the date that Indebtedness is incurred it would not
be prohibited under Section 4.04; or (iv) otherwise altering the terms and
conditions thereof. Indebtedness under the Senior Credit Facility outstanding on
the date on which Securities are first issued and authenticated under this
Indenture shall be deemed to have been incurred on that date in reliance on the
first paragraph in Section 4.04.

                  "SENIOR INDEBTEDNESS" means all Obligations, if any, and
interest (including any interest accruing subsequent to the filing of a petition
of bankruptcy at the rate provided for in the documentation with respect
thereto, whether or not such interest is an allowed claim under applicable law)
on any Indebtedness of the Company, whether outstanding on the issue date or
thereafter created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Securities; PROVIDED that Indebtedness
under this sentence shall constitute "Senior Indebtedness" only to the extent
that such Indebtedness is secured by interests in property or assets and only if
the Chief Financial Officer of the Company or RailAmerica delivers a certificate
to the Trustee at the time of the incurrence of such Indebtedness stating that,
after due inquiry, the Indebtedness is secured by interests in property and
assets which have, and such officer has no reason to believe that such property
and assets will not continue to have, a fair market value that equals or exceeds
the principal amount and one interest payment on such Indebtedness, giving due
regard to the type and amount of any other Indebtedness secured by such property
and assets. Such certificate shall constitute conclusive evidence, binding for
all purposes, that such Indebtedness is secured. Without limiting the generality
of the foregoing, "Senior Indebtedness" shall also include all Obligations, if
any, interest (including any interest accruing subsequent to the filing of a
petition of bankruptcy at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other amounts owing in respect of, all monetary
obligations (including guarantees thereof) of every nature of the Company under
the Senior Credit Facility, including, without limitation, obligations to pay
principal and interest, reimbursement obligations under letters of credit, fees,
expenses and indemnities. "Senior Indebtedness" shall not include (i) any
Indebtedness of the Company to a Subsidiary of the Company or any Affiliate of
the Company; (ii) Indebtedness to, or Guarantees on behalf of, any shareholder,
director, officer or employee of the Company or any Subsidiary of the Company
(including, without limitation, amounts owed for compensation); (iii)
Indebtedness to trade creditors and other amounts incurred in connection with
obtaining goods, materials or services; (iv) Indebtedness represented by
Disqualified Stock; (v) any liability for federal, state, local or other taxes
owed or owing by the Company; (vi) that portion of any Indebtedness incurred in
violation of provisions set forth under Section 4.04 of this Indenture; and
(vii) any Indebtedness which is, by its express terms, subordinated in right of
payment to any other Indebtedness of the Company.

                  "SERIES A SECURITIES" means the 12-7/8% Senior Subordinated
Notes due 2010 of the Company issued pursuant to this Indenture and sold
pursuant to the Purchase Agreement.

                  "SERIES B SECURITIES" means the 12-7/8% Senior Subordinated
Notes due 2010 of the Company to be issued in exchange for the Series A
Securities pursuant to the Registered Exchange Offer and the Registration Rights
Agreement.


   25
                                      -17-


                  "SIGNIFICANT SUBSIDIARY" means any Subsidiary of the Company
that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of
Regulation S-X under the Securities Act.

                  "STATED FINAL MATURITY" means August 15, 2010.

                  "STATED MATURITY" means, with respect to any installment of
interest or principal on any series of Indebtedness, the date on which that
payment of interest or principal was scheduled to be paid in the original
documentation governing that Indebtedness, and shall not include any contingent
obligations to repay, redeem or repurchase any of that interest or principal
prior to the date originally scheduled for the payment thereof.

                  "SUBORDINATED NOTE OBLIGATIONS" means all Obligations with
respect to the Securities, including, without limitation, principal, premium, if
any, interest and Liquidated Damages, if any, payable pursuant to the terms of
the Securities (including, without limitation, upon the acceleration or
redemption thereof), together with and including, without limitation, any
amounts received or receivable upon the exercise of rights of rescission or
other rights of action, including, without limitation, claims for damages, or
otherwise.

                  "SUBSIDIARY" means, with respect to any Person, (i) any
corporation, association or other business entity of which more than 50% of the
total voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
that Person or one or more of the other Subsidiaries of that Person (or a
combination thereof); and (ii) any partnership or limited liability company: (a)
the sole general partner of the managing general partner or managing member of
which is that Person or a Subsidiary of that Person; or (b) the only general
partners or managing members of which are that Person or one or more
Subsidiaries of that Person (or any combination thereof).

                  "TAX SHARING AGREEMENT" means the Tax Sharing Agreement, dated
as of February 4, 2000, by and among the Company and its Restricted
Subsidiaries.

                  "TEMPORARY REGULATION S GLOBAL SECURITY" see Section 2.01.

                  "TIA" means the Trust Indenture Act of 1939 (15 U.S. Code
ss.ss. 77aaa-77bbbb), as amended, as in effect on the date of this Indenture,
except as provided in Section 10.03.

                  "TRANSFEREE SECURITIES CERTIFICATION" see Section 2.06(g).

                  "TRUST OFFICER" means any officer within the corporate trust
department (or any successor group) of the Trustee including any vice president,
assistant vice president, assistant secretary or any other officer or assistant
officer of the Trustee customarily performing functions similar to those
performed by the persons who at that time shall be such officers, and also
means, with respect to a particular corporate trust matter, any other officer to
whom such trust matter is referred because of his knowledge of and familiarity
with the particular subject.

                  "TRUSTEE" means the party named as such in this Indenture
until a successor replaces it in accordance with the provisions of this
Indenture and thereafter means such successor.

                  "UCC" means the Uniform Commercial Code as in effect from time
to time in the State of New York.


   26
                                      -18-


                  "UNRESTRICTED SUBSIDIARY" means, initially, Empresa de
Transporte Ferrovario, S.A. and any Subsidiary that is designated by the Board
of Directors of the Company as an Unrestricted Subsidiary (and any Subsidiary of
an Unrestricted Subsidiary) pursuant to board resolution, but only to the extent
that that Subsidiary and each of its Subsidiaries (i) has no Indebtedness other
than Non-Recourse Debt; (ii) is not party to any agreement, contract,
arrangement or understanding with the Company or any Restricted Subsidiary of
the Company, unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or that Restricted Subsidiary
than those that might be obtained at the time from Persons who are not
Affiliates of the Company; and (iii) is a Person with respect to which neither
the Company nor any of its Restricted Subsidiaries has any direct or indirect
obligation (a) to subscribe for additional Equity Interests (other than
Investments described in clauses (x) and (xi) of the definition of Permitted
Investments); or (b) to maintain or preserve that Person's financial condition
or to cause that Person to achieve any specified levels of operating results.

                  Any such designation by the Board of Directors shall be
evidenced to the Trustee by filing with the Trustee a certified copy of the
board resolution giving effect to that designation and an Officers' Certificate
certifying that designation complied with the foregoing conditions and was
permitted under Section 4.06 of this Indenture. If, at any time, any
Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of this Indenture and any Indebtedness of that
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the
Company as of that date (and, if that Indebtedness is not permitted to be
incurred as of that date under Section 4.04 of this Indenture, the Company shall
be in default of that provision).

                  The Board of Directors of the Company may at any time
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED
that the designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of the Company of any outstanding Indebtedness of that
Unrestricted Subsidiary and that designation shall only be permitted if (i) that
Indebtedness is permitted under Section 4.04 of this Indenture; (ii) no Default
or Event of Default would be in existence following that designation; and (iii)
if any such Subsidiary is a Domestic Subsidiary, it shall execute a supplemental
indenture to become a Guarantor with respect to the Securities.

                  "U.S. PERSON" means a "U.S. person" as defined in Rule 902
under the Securities Act.

                  "WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any
Indebtedness or Disqualified Stock at any date, the number of years obtained by
dividing (i) the sum of the products obtained by multiplying (a) the amount of
each then remaining installment, sinking fund, serial maturity or other required
payments of principal or, in the case of Disqualified Stock, liquidation
preference, including payment at final maturity, in respect thereof; by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
that date and the making of that payment; by (ii) the then outstanding principal
amount of that Indebtedness or Disqualified Stock.

                  "WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means a
Restricted Subsidiary of that Person all the outstanding Equity Interests or
other ownership interests of which (other than directors' qualifying shares)
shall at the time be owned by that Person or by one or more Wholly Owned
Restricted Subsidiaries of that Person or by that Person and one or more Wholly
Owned Restricted Subsidiaries of that Person.

                  "WHOLLY OWNED SUBSIDIARY" of any Person means a Subsidiary of
that Person all of the outstanding Equity Interests or other ownership interests
of which (other than directors' qualifying shares) shall at the time be owned by
that Person or by one or more Wholly Owned Subsidiaries of that Person. SECTION



   27
                                      -19-


1.02. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.

                  Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture. The
following TIA terms used in this Indenture have the following meanings:

                  "INDENTURE SECURITIES" means the Securities.

                  "INDENTURE SECURITY HOLDER" means a Securityholder.

                  "INDENTURE TO BE QUALIFIED" means this Indenture.

                  "INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the
Trustee.

                  "OBLIGOR" on the indenture securities means the Company or any
other obligor on the Securities.

                  All other TIA terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by Commission
rule and not otherwise defined herein have the meanings assigned to them
therein.

SECTION 1.03. RULES OF CONSTRUCTION.

                  Unless the context otherwise requires:

                    (1) a term has the meaning assigned to it;

                    (2) an accounting term not otherwise defined has the meaning
         assigned to it in accordance with generally accepted accounting
         principles in effect from time to time, and any other reference in this
         Indenture to "generally accepted accounting principles" refers to GAAP;

                    (3) "or" is not exclusive;

                    (4) words in the singular include the plural, and words in
         the plural include the singular;

                    (5) provisions apply to successive events and transactions;
         and

                    (6) "herein," "hereof" and other words of similar import
         refer to this Indenture as a whole and not to any particular Article,
         Section or other subdivision.



   28
                                      -20-


                                   ARTICLE TWO

                                 THE SECURITIES

SECTION 2.01. FORM AND DATING.

                  The Securities and the Trustee's certificate of authentication
with respect thereto shall be substantially in the form of Exhibit A or Exhibit
B hereto, as the case may be. The Securities may have notations, legends or
endorsements (including notations relating to the Guarantees) required by law,
stock exchange rule or usage. The Company and the Trustee shall approve the form
of the Securities and any notation, legend or endorsement (including notations
relating to the Guarantees) on them. Each Security shall be dated the date of
its authentication, shall bear interest from the applicable date which shall be
payable on each Interest Payment Date as long as such Security is outstanding
and shall be payable on the Final Maturity Date.

                  The terms and provisions contained in the Securities shall
constitute, and are hereby expressly made, a part of this Indenture and, to the
extent applicable, the Company and the Trustee, by their execution and delivery
of this Indenture, expressly agree to such terms and provisions and to be bound
thereby.

                  Securities offered and sold in their initial distribution to
Qualified Institutional Buyers in reliance on Rule 144A and to Institutional
Accredited Investors, if any, shall, unless the applicable Holder requests
Securities in the form of physical, certified Securities in registered form
("Certificated Securities"), which shall be substantially in the form of Exhibit
A, be issued in the form of one or more Global Securities (collectively, and
together with their successor securities, the "RESTRICTED GLOBAL SECURITY") in
fully registered form without interest coupons, substantially in the form of
Exhibit A, with such applicable legends as provided for in Exhibit A and Exhibit
C, which shall be registered in the name of the Depository or its nominee and
deposited with the Trustee, as custodian for the Depository, duly executed by
the Company and authenticated by the Trustee as hereinafter provided, for credit
by the Depository to the respective accounts of beneficial owners of the
Securities represented thereby (or such other accounts as they may direct). The
aggregate principal amount of the Restricted Global Security may be increased or
decreased from time to time by adjustments made on the records of the Trustee,
as custodian for the Depository, in connection with a corresponding decrease or
increase in the aggregate principal amount of the Temporary Regulation S Global
Security or the Permanent Regulation S Global Security, as hereinafter provided
in Section 2.06.

                  Securities offered and sold in offshore transactions in
reliance on Regulation S shall initially be in the form of one or more temporary
registered, global book-entry Global Securities without interest coupons which
shall be registered in the name of the Depository or its nominee and deposited
with the Trustee, as custodian for the Depository, duly executed by the Company
and authenticated by the Trustee as hereinafter provided, for credit by the
Depository to the respective accounts of the beneficial owners of the Securities
represented thereby (or such other accounts as they may direct), provided that
upon such deposit all such Securities shall be credited to or through accounts
maintained at the Depository by or on behalf of Euroclear or Clearstream. Until
such time as the Restricted Period (as defined below) shall have expired, such
temporary Global Securities, together with their successor securities which are
Global Securities other than the Restricted Global Security, shall be referred
to herein as a "TEMPORARY REGULATION S GLOBAL SECURITY." During the Restricted
Period, beneficial interests in the Temporary Regulation S Global Securities may
be held only through Euroclear or Clearstream, and pursuant to DTC's procedures,
Indirect Participants that hold a beneficial interest in the Temporary
Regulation S Global Securities will not be able to transfer such interest to a
person that takes delivery thereof in the form of an interest in the Restricted
Global Security. Within a reasonable time after the Restricted


   29
                                      -21-


Period shall have expired and the certifications referred to below in the next
succeeding paragraph shall have been provided, interests in such Temporary
Regulation S Global Securities shall be exchanged (as initiated by the
beneficial owners of interests therein) for interests in like Global Securities,
referred to herein collectively as the "PERMANENT REGULATION S GLOBAL SECURITY,"
or for interests in the form of Certificated Securities which shall be
substantially in the form of Exhibit A, referred to herein collectively as the
"NON-GLOBAL PERMANENT REGULATION S SECURITY," each substantially in the form of
Security set forth in Exhibit A, with such applicable legends as are provided
for in Exhibit A or Exhibit C. Such Permanent Regulation S Global Securities
shall be registered in the name of the Depository or its nominee and deposited
with the Trustee, as custodian for the Depository, duly executed by the Company
and authenticated by the Trustee as hereinafter provided, for credit to the
respective accounts of the beneficial owners of the Securities represented
thereby (or such other accounts as they may direct). The aggregate principal
amount of the Temporary Regulation S Global Security or the Permanent Regulation
S Global Security may be increased or decreased from time to time by adjustments
made on the records of the Trustee, as custodian for the Depository, as
hereinafter provided. As used herein, the term "RESTRICTED PERIOD" means the
period of 40 days commencing on the day after the later of (a) the offering date
and (b) the date of this Indenture; provided that promptly after the occurrence
of the date described in clause (a), the Company shall give written notice
thereof to the Trustee, identifying therein the day on which the Restricted
Period expires.

                  Interests in a Temporary Regulation S Global Security may be
exchanged for interests in a Permanent Regulation S Global Security only after
(a) the expiration of the Restricted Period, (b) delivery by a beneficial owner
of an interest therein to Euroclear or Clearstream of a written certification
(an "OWNER SECURITIES CERTIFICATION") substantially in the form of Exhibit E
hereto, and (c) upon delivery by Euroclear or Clearstream to the Trustee of a
written certification (a "DEPOSITORY SECURITIES CERTIFICATION") substantially in
the form attached hereto as Exhibit F. Upon receipt by the Trustee of the
Depository Securities Certification and the notification from the Depository
described in clause (iv) of the next succeeding paragraph, the Trustee will
exchange the portion of the Temporary Regulation S Global Security covered by
such certification for interests in a Permanent Regulation S Global Security.
The delivery by such Holder of a beneficial interest in such Temporary
Regulation S Global Security of such certification shall constitute an
irrevocable instruction by such holder to Euroclear or Clearstream, as the case
may be, to exchange such Holder's beneficial interest in the Temporary
Regulation S Global Security for a beneficial interest in the Permanent
Regulation S Global Security upon the expiration of the Restricted Period in
accordance with the next succeeding paragraph.

                  Upon:

                    (i)    the expiration of the Restricted Period;

                    (ii)   receipt by Euroclear or Clearstream, as the case may
                           be, of Owner Securities Certifications described in
                           the preceding paragraph;

                    (iii)  receipt by the Depository of:

                           (1) written instructions given in accordance with the
                  Applicable Procedures from an Agent Member directing the
                  Depository to credit or cause to be credited to a specified
                  Agent Member's account a beneficial interest in a Permanent
                  Regulation S Global Security in a principal amount equal to
                  that of the beneficial interest in a corresponding Temporary
                  Regulation S Global Security for which the necessary
                  certifications have been delivered; and


   30
                                      -22-


                           (2) a written order given in accordance with the
                  Applicable Procedures containing information regarding the
                  account of the Agent Member, and the Euroclear or Clearstream
                  account for which such Agent Member's account is held, to be
                  credited with, and the account of the Agent Member to be
                  debited for, such beneficial interest; and

                    (iv)   receipt by the Trustee of notification from the
                           Depository in accordance with the Applicable
                           Procedures requesting the exchange of a principal
                           amount of the Temporary Regulation S Global Security
                           identified therein for the same amount of the
                           Permanent Regulation S Global Security and from
                           Euroclear or Clearstream, as the case may be, of
                           Depository Securities Certifications,

the Trustee, as Registrar, shall, or shall instruct the Depository to, reduce
the principal amount of such Temporary Regulation S Global Security, and to
increase the principal amount of such Permanent Regulation S Global Security, by
the principal amount of the beneficial interest in such Temporary Regulation S
Global Security to be so transferred, and the Depository shall credit or cause
to be credited to the account of the person specified in such instructions a
beneficial interest in such Permanent Regulation S Global Security having a
principal amount equal to the amount by which the principal amount of such
Temporary Regulation S Global Security was reduced upon such transfer.

SECTION 2.02. EXECUTION AND AUTHENTICATION.

                  Two Officers, or an Officer and an Assistant Secretary, shall
sign, or one Officer shall sign and one Officer or an Assistant Secretary (each
of whom shall, in each case, have been duly authorized by all requisite
corporate actions) shall attest to, the Securities for the Company by manual or
facsimile signature.

                  If an Officer whose signature is on a Security was an Officer
at the time of such execution but no longer holds that office at the time the
Trustee authenticates the Security, the Security shall be valid nevertheless.
Each execution of a Security by the Company shall be accompanied by the
execution of a Guarantee by the Guarantors (and by any Restricted Subsidiary
that guarantees Indebtedness of the Company pursuant to Section 4.19).

                  A Security shall not be valid until an authorized signatory of
the Trustee manually signs the certificate of authentication on the Security.
The signature shall be conclusive evidence that the Security has been
authenticated under this Indenture.

                  Upon receipt of a written order of the Company in the form of
an Officers' Certificate, the Trustee shall authenticate Series A Securities for
original issue in the aggregate principal amount not to exceed $130,000,000. The
Officers' Certificate shall specify the amount of Securities to be
authenticated, the series of Securities and the date on which the Securities are
to be authenticated. The aggregate principal amount of Securities outstanding at
any time may not exceed $130,000,000, except as provided in Section 2.07.

                  The Series A Securities may be exchanged for Series B
Securities pursuant to the terms of the Registered Exchange Offer. The Trustee
shall authenticate Series B Securities only in exchange for a like principal
amount of Series A Securities, in accordance with the following procedures:

                    (i)    The Company shall present the Trustee with an
                           Officers' Certificate certifying the following:



   31
                                      -23-


                           (a) that, upon issuance of the Series B Securities,
                  the transactions contemplated by the Registered Exchange Offer
                  shall have been consummated;

                           (b) the principal amount of Series A Securities
                  properly tendered in the Registered Exchange Offer that are
                  represented by a Global Security, and the aggregate principal
                  amount of Series B Securities in the form of a Global Security
                  that shall be exchanged therefor, together with any
                  registration or participant information and delivery
                  instructions for each such Holder; and

                           (c) the principal amount of Series A Securities
                  properly tendered in the Registered Exchange Offer that are
                  represented by Certificated Securities; the aggregate
                  principal amount of Series B Securities in definitive form
                  that shall be issued in exchange therefor, and with respect to
                  each Holder of such Certificated Securities, such Holder's
                  name; the principal amount properly tendered in the Exchange
                  Offer by each such Holder; the amount of Series B Securities
                  in definitive form to be issued to such Holder; the name and
                  address to which such definitive securities shall be
                  registered and sent to each such Holder; and applicable
                  delivery instructions.

                   (ii)    If requested by the Holders of at least a majority in
                           principal amount of the outstanding Series A
                           Securities, the Company shall deliver to the Trustee
                           an Opinion of Counsel for the Company as to the
                           following matters:

                           (a) the Series B Securities have been duly authorized
                  and, when executed and authenticated in accordance with the
                  provisions of this Indenture and delivered in exchange for
                  Series A Securities in accordance with this Indenture and the
                  Registered Exchange Offer, will be entitled to the benefits of
                  this Indenture and will be valid and binding obligations of
                  the Company, enforceable in accordance with their terms except
                  as (x) the enforceability thereof may be limited by
                  bankruptcy, insolvency or similar laws affecting creditors'
                  rights generally and (y) rights of acceleration and the
                  availability of equitable remedies may be limited by equitable
                  principles of general applicability; and

                           (b) when the Series B Securities are executed and
                  authenticated in accordance with the provisions of this
                  Indenture and delivered in exchange for Series A Securities in
                  accordance with this Indenture and the Registered Exchange
                  Offer, the Guarantees endorsed thereon will be entitled to the
                  benefits of this Indenture and will be valid and binding
                  obligations of the Guarantors, enforceable in accordance with
                  their terms except as (x) the enforceability thereof may be
                  limited to bankruptcy, insolvency or similar laws affecting
                  creditors' rights generally and (y) rights of acceleration and
                  the availability of equitable remedies may be limited by
                  equitable principles of general applicability.

                    (iii)  The Trustee, upon receipt of such Officers'
                           Certificate and, if applicable, the Opinion of
                           Counsel, shall authenticate (A) a Global Security for
                           Series B Securities in an aggregate principal amount
                           equal to the aggregate principal amount of Series A
                           Securities represented by a Global Security indicated
                           in such Officers' Certificate as having been properly
                           tendered and (B) Certificated Securities for Series B
                           Securities in an aggregate principal amount equal to
                           the aggregate principal amount of Series A Securities
                           registered in the names of the Holders and
                           represented by Certificated Securities indicated in
                           such Officers' Certificate as having been properly
                           tendered.


   32
                                      -24-


                    (iv)   If the principal amount of the Global Security for
                           the Series B Securities is less than the principal
                           amount of the Global Security for the Series A
                           Securities, the Trustee shall make an endorsement on
                           such Global Security for Series A Securities
                           indicating a reduction in the principal amount
                           represented thereby.

                    (v)    The Trustee shall deliver such Certificated
                           Securities for Series B Securities to the Holders
                           thereof as indicated in such Officers' Certificate.

                  Upon receipt of a written order of the Company in the form of
an Officers' Certificate, the Trustee shall authenticate Securities in
substitution for Securities originally issued to reflect any name change of the
Company.

                  The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate Securities. Unless otherwise provided
in the appointment, an authenticating agent may authenticate Securities whenever
the Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company and Affiliates of the Company.

                  The Securities shall be issuable only in registered form
without coupons in denominations of $1,000 and any integral multiple thereof.

SECTION 2.03. REGISTRAR AND PAYING AGENT.

                  The Company shall maintain an office or agency where (a)
Securities may be presented or surrendered for registration of transfer or for
exchange ("REGISTRAR"), (b) Securities may be presented or surrendered for
payment ("PAYING Agent") and (c) notices and demands in respect of the
Securities and this Indenture may be served. The Registrar shall keep a register
(the "REGISTER") of the Securities and of their transfer and exchange. The
Company, upon notice to the Trustee, may appoint one or more co-Registrars and
one or more additional Paying Agents. The term "PAYING AGENT" includes any
additional Paying Agent. Except as provided herein, the Company, or any
Subsidiary may act as Paying Agent, Registrar or co-Registrar.

                  The Company shall enter into an appropriate agency agreement
with any Agent not a party to this Indenture, which shall incorporate the
provisions of the TIA. The agreement shall implement the provisions of this
Indenture that relate to such Agent. The Company shall notify the Trustee of the
name and address of any such Agent. If the Company fails to maintain a Registrar
or Paying Agent, or fails to give the foregoing notice, the Trustee shall act as
such and shall be entitled to appropriate compensation in accordance with
Section 7.07.

                  The Company initially appoints the Trustee as Registrar and
Paying Agent until such time as the Trustee has resigned or a successor has been
appointed. The Company may appoint a different Registrar or Paying Agent without
prior notice to Holders of the Securities.

SECTION 2.04. PAYING AGENT TO HOLD ASSETS IN TRUST.

                  The Company shall require each Paying Agent other than the
Trustee to agree in writing that each Paying Agent shall hold in trust for the
benefit of Holders or the Trustee all assets held by the Paying Agent for the
payment of principal of or premium, if any, or interest or Liquidated Damages,
if any, on the Securities, and shall notify the Trustee of any Default by the
Company in making any such payment. The Company at any


   33
                                      -25-


time may require a Paying Agent to distribute all assets held by it to the
Trustee and account for any assets disbursed and the Trustee may at any time
during the continuance of any payment Default, upon written request to a Paying
Agent, require such Paying Agent to distribute all assets held by it to the
Trustee and to account for any assets distributed. Upon distribution to the
Trustee of all assets that shall have been delivered by the Company to the
Paying Agent (if other than the Company), the Paying Agent shall have no further
liability for such assets. If the Company, any Subsidiary or any of their
respective Affiliates acts as Paying Agent, it shall, on or before each due date
of the principal of or interest on the Securities, segregate and hold in trust
for the benefit of the Persons entitled thereto a sum sufficient to pay the
principal or premium, if any, or, interest or Liquidated Damages, if any, so
becoming due until such sums shall be paid to such Persons or otherwise disposed
of as herein provided and will promptly notify the Trustee of its action or
failure so to act.

SECTION 2.05. SECURITYHOLDER LISTS.

                  The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of Holders. If the Trustee is not the Registrar, the Company shall
furnish to the Trustee before each Interest Record Date and at such other times
as the Trustee may request in writing, a list as of such date and in such form
as the Trustee may reasonably require of the names and addresses of Holders,
which list may be conclusively relied upon by the Trustee.

SECTION 2.06. TRANSFER AND EXCHANGE.

                  (a) An entire Global Security may be exchanged for
Certificated Securities if (i) the Company delivers to the Trustee notice from
DTC (x) that it is unwilling or unable to continue as Depositary for the Global
Securities and the Company thereupon fails to appoint a successor Depository
within 90 days or (y) that DTC has ceased to be a clearing agency registered
under the Exchange Act, (ii) the Company, at its option, notifies the Trustee in
writing that it elects to cause the issuance of Certificated Securities or (iii)
there shall have occurred and be continuing a Default or an Event of Default
with respect to the Securities. In addition, beneficial interests in a Global
Security may, subject to the restrictions on the transferability of the
Securities set forth herein and upon delivery of a certificate in the form of
Exhibit D, be exchanged for Certificated Securities upon request but only upon
at least 20 days' prior written notice given to the Trustee by or on behalf of
the Depository (in accordance with the Depository's customary procedures) and
will bear the applicable legends set forth in Exhibit A. The Company shall duly
execute and deliver to the Trustee upon request Certificated Securities for such
purpose (or from time to time shall provide to the Trustee an inventory of duly
executed Certificated Securities for such purpose).

                  (b) If any Global Security is to be exchanged for other
Securities or cancelled in whole, it shall be surrendered by or on behalf of the
Depository or its nominee to the Trustee, as Registrar, for exchange or
cancellation as provided in this Article Two. If any Global Security is to be
exchanged for other Securities or cancelled in part, or if another Security is
to be exchanged in whole or in part for a beneficial interest in any Global
Security, such Global Security shall be so surrendered for exchange or
cancellation as provided in this Article Two or, if the Trustee is acting as
custodian for the Depository or its nominee (or is party to a similar
arrangement) with respect to such Global Security, the principal amount thereof
shall be reduced or increased by an amount equal to the portion thereof to be so
exchanged or cancelled, or the principal amount of such other Security to be so
exchanged for a beneficial interest therein, as the case may be, in each case by
means of an appropriate adjustment made on the records of the Trustee, whereupon
the Trustee, in accordance with the Applicable Procedures, shall instruct the
Depository or its authorized representatives to make a corresponding adjustment
to its records (including by crediting or debiting any Agent Member's account as
necessary to reflect any transfer or exchange of a beneficial interest). Upon
any such surrender or adjustment of a Global Security,


   34
                                      -26-


the Company shall execute and the Trustee shall, subject to this Article Two,
authenticate and deliver any Securities issuable in exchange for such Global
Security (or any portion thereof) to or upon the order of, and registered in
such names as may be directed by, the Depository or its authorized
representative. Upon the request of the Trustee in connection with the
occurrence of any of the events specified in the preceding paragraph or in
paragraph (r) below, the Company shall promptly make available to the Trustee a
reasonable supply of Securities that are not in the form of Global Securities.
The Trustee shall be entitled to rely upon any order, direction or request of
the Depository or its authorized representative which is given or made pursuant
to this Article Two if such order, direction or request is given or made in
accordance with the Applicable Procedures.

                  (c) Subject to the provisions in the legends required by this
Indenture, the registered Holder may grant proxies and otherwise authorize any
Person, including Agent Members and Persons who may hold interests in Agent
Members, to take any action that such Holder is entitled to take under this
Indenture.

                  (d) Neither Agent Members nor any other Person on whose behalf
Agent Members may act shall have any rights under this Indenture with respect to
any Global Security held on their behalf by the Depository or under the Global
Security, and the Depository may be treated by the Company, the Trustee and any
agent of the Company or the Trustee as the absolute owner of such Global
Security for all purposes whatsoever. Nothing herein shall prevent the Company,
the Trustee or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depository
or impair, as between the Depository and its Agent Members, the operation of
customary practices governing the exercise of the rights of a Holder of any
Security. With respect to any Global Security deposited with the Trustee as
custodian for the Depository for credit to their respective accounts (or to such
other accounts as they may direct) at Euroclear or Clearstream, the provisions
of the "Operating Procedures of the Euroclear System" and the "Terms and
Conditions Governing Use of Euroclear," and the "Management Regulations" and
"Instructions to Participants" of Clearstream, respectively, shall be applicable
to such Global Security.

                  (e) Upon presentation for transfer or exchange of any Security
at the office of the Trustee, as Registrar, or at the office of the New York
Presenting Agent located in The City of New York, accompanied by a written
instrument of transfer or exchange in the form approved by the Company (it being
understood that, until notice to the contrary is given to holders of Securities,
the Company shall be deemed to have approved the form of instrument of transfer
or exchange, if any, printed on any Security), executed by the registered
Holder, in person or by such Holder's attorney thereunto duly authorized in
writing, and upon compliance with this Section 2.06, such Security shall be
transferred upon the Register, and a new Security shall be authenticated and
issued in the name of the transferee. Notwithstanding any provision to the
contrary herein or in the Securities, transfers of a Global Security, in whole
or in part, and transfers of interests therein of the kind described in this
Section 2.06, shall only be made in accordance with this Section 2.06. Transfers
and exchanges subject to this Section 2.06 shall also be subject to the other
provisions of this Indenture that are not inconsistent with this Section 2.06.

                  (f) GENERAL. A Global Security may be transferred, in whole
and not in part, only to another nominee of DTC or to a successor of DTC, or its
nominee in certain limited circumstances as described below, and no such
transfer to any such other Person may be registered; PROVIDED, HOWEVER, that
this paragraph (f) shall not prohibit any transfer of a Security that is issued
in exchange for a Global Security but is not itself a Global Security. No
transfer of a Security to any Person shall be effective under this Indenture or
the Securities unless and until such Security has been registered in the name of
such Person. Nothing in this paragraph (f) shall prohibit or render ineffective
any transfer of a beneficial interest in a Global Security effected in
accordance with the other provisions of this Section 2.06.


   35
                                      -27-


                  (g) TEMPORARY REGULATION S GLOBAL SECURITY. If the holder of a
beneficial interest in a Temporary Regulation S Global Security wishes at any
time to transfer such interest to a Person who wishes to take delivery thereof
in the form of a beneficial interest in such Temporary Regulation S Global
Security, such transfer may be effected, subject to the rules and procedures of
the Depository, Euroclear and Clearstream, in each case to the extent applicable
and as in effect from time to time (the "APPLICABLE PROCEDURES"), only in
accordance with this paragraph (g). In order to effect such a transfer, the
transferring beneficial owner of an interest in a Temporary Regulation S Global
Security shall deliver to Euroclear or Clearstream, as the case may be, an Owner
Securities Certification, and the transferee of such beneficial interest in the
Temporary Regulation S Global Security shall deliver to Euroclear or
Clearstream, as the case may be, a written certification (a "TRANSFEREE
SECURITIES CERTIFICATION") substantially in the form of Exhibit G hereto.

                  (h) RESTRICTED GLOBAL SECURITY TO TEMPORARY REGULATION S
GLOBAL SECURITY. Prior to the expiration of the Restricted Period, a holder of a
beneficial interest in the Restricted Global Security will not be permitted to
transfer its interests to any person that takes delivery thereof in the form of
an interest in the Temporary Regulation S Global Securities.

                  (i) RESTRICTED GLOBAL SECURITY TO PERMANENT REGULATION S
GLOBAL SECURITY. If the holder of a beneficial interest in the Restricted Global
Security wishes at any time after the expiration of the Restricted Period to
transfer such interest to a Person who wishes to take delivery thereof in the
form of a beneficial interest in the Permanent Regulation S Global Security,
such transfer may be effected, subject to the Applicable Procedures, only in
accordance with this paragraph (i). Upon receipt by the Trustee, as Registrar,
after the expiration of the Restricted Period of (A) written instructions given
by or on behalf of the Depository in accordance with the Applicable Procedures
directing the Trustee to credit or cause to be credited to a specified Agent
Member's account a beneficial interest in the Permanent Regulation S Global
Security in a specified principal amount and to cause to be debited from another
specified Agent Member's account a beneficial interest in the Restricted Global
Security in an equal principal amount and (B) a certificate in substantially the
form set forth in Exhibit H signed by or on behalf of the holder of such
beneficial interest in the Restricted Global Security, the Trustee, as
Registrar, shall reduce the principal amount of a Restricted Global Security and
increase the principal amount of the Permanent Regulation S Global Security by
such specified principal amount. Beneficial interests in the Restricted Global
Security may not be transferred to the Permanent Regulation S Global Security
prior to expiration of the Restricted Period.

                  (j) TEMPORARY REGULATION S GLOBAL SECURITY OR PERMANENT
REGULATION S GLOBAL SECURITY TO RESTRICTED GLOBAL SECURITY. Prior to the
expiration of the Registered Period, an Indirect Participant who holds an
interest in the Temporary Regulation S Global Security through Euroclear or
Clearstream will not be permitted to transfer its interest to a U.S. Person who
takes delivery in the form of an interest in Restricted Global Securities. If
the holder of a beneficial interest in the Permanent Regulation S Global
Security at any time wishes after the expiration of the Restricted Period to
transfer such interest to a Person who wishes to take delivery thereof in the
form of a beneficial interest in the Restricted Global Security, such transfer
may be effected, subject to the Applicable Procedures, only in accordance with
this paragraph (j) and paragraph (n) below. Upon receipt by the Trustee, as
Registrar, of (A) written instructions given by or on behalf of the Depository
in accordance with the Applicable Procedures directing the Trustee to credit or
cause to be credited to a specified Agent Member's account a beneficial interest
in the Restricted Global Security in a specified principal amount and to cause
to be debited from another specified Agent Member's account a beneficial
interest in the Permanent Regulation S Global Security in an equal principal
amount and (B) a certificate in substantially the form set forth in Exhibit I
signed by or on behalf of the holder of such beneficial interest in the
Permanent Regulation S Global Security, the Trustee, as Registrar, shall,
subject to paragraph (n) below, reduce the principal amount of such Permanent


   36
                                      -28-


Regulation S Global Security and increase the principal amount of the Restricted
Global Security by such specified principal amount.

                  (k) NON-GLOBAL RESTRICTED SECURITY TO GLOBAL SECURITY. If the
holder of a Restricted Security (other than a Global Security) wishes at any
time to transfer all or any portion of such Security to a Person who wishes to
take delivery thereof in the form of a beneficial interest in the Restricted
Global Security, the Temporary Regulation S Global Security or the Permanent
Regulation S Global Security, such transfer may be effected, subject to the
Applicable Procedures, only in accordance with this paragraph (k) and paragraph
(n) below. Upon receipt by the Trustee, as Registrar, of (A) such Restricted
Security and written instructions given by or on behalf of such Holder as
provided in this Section 2.06 directing the Trustee to credit or cause to be
credited to a specified Agent Member's account a beneficial interest in the
Restricted Global Security, the Temporary Regulation S Global Security or the
Permanent Regulation S Global Security, as the case may be, in a specified
principal amount equal to the principal amount of the Restricted Security (or
portion thereof) to be so transferred, and (B) an appropriately completed
certificate substantially in the form set forth in Exhibit J-1 hereto, if the
specified account is to be credited with a beneficial interest in the Restricted
Global Security, or Exhibit J-2 hereto, if the specified account is to be
credited with a beneficial interest in the Temporary Regulation S Global
Security or the Permanent Regulation S Global Security, signed by or on behalf
of such Holder, then the Trustee, as Registrar, shall, subject to paragraph (n)
below, cancel such Restricted Security (and issue a new Restricted Security in
respect of any untransferred portion thereof) as provided in this Section 2.06
and increase the principal amount of the Restricted Global Security, Temporary
Regulation S Global Security or Permanent Regulation S Global Security, as the
case may be, by the specified principal amount.

                  (l) NON-GLOBAL PERMANENT REGULATION S SECURITY TO RESTRICTED
GLOBAL SECURITY OR PERMANENT REGULATION S GLOBAL SECURITY. If the Holder of a
Non-Global Permanent Regulation S Security wishes at any time to transfer all or
any portion of such Security to a Person who wishes to take delivery thereof in
the form of a beneficial interest in the Restricted Global Security or the
Permanent Regulation S Global Security, as the case may be, such transfer may be
effected only in accordance with this paragraph (l) and subject to the
Applicable Procedures. Upon receipt by the Trustee, as Registrar, of (A) such
Non-Global Permanent Regulation S Security and instructions given by or on
behalf of such Holder as provided in this Section 2.06 directing the Trustee to
credit or cause to be credited to a specified Agent Member's account a
beneficial interest in the Restricted Global Security or the Permanent
Regulation S Global Security, as the case may be, in a principal amount equal to
the principal amount of the Non-Global Permanent Regulation S Security (or
portion thereof) to be so transferred, and (B)(i) with respect to a transfer
which is to be delivered in the form of a beneficial interest in the Restricted
Global Security, a certificate in substantially the form set forth in Exhibit
K-1, signed by or on behalf of such Holder, and (ii) with respect to a transfer
which is to be delivered in the form of a beneficial interest in the Permanent
Regulation S Global Security, a certificate in substantially the form set forth
in Exhibit K-2, signed by or on behalf of such Holder, then the Trustee, as
Registrar, shall, subject to paragraph (n) below, cancel such Non-Global
Permanent Regulation S Security (and issue a new Non-Global Permanent Regulation
S Security in respect of any untransferred portion thereof) as provided in this
Section 2.06 and increase the principal amount of the Restricted Global Security
or the Permanent Regulation S Global Security, as the case may be, by the
specified principal amount.

                  (m) OTHER EXCHANGES. Securities that are not Global Securities
may be exchanged (on transfer or otherwise) for Securities that are not Global
Securities or for beneficial interests in a Global Security (if any is then
outstanding) only in accordance with such procedures, which shall be
substantially consistent with the provisions of paragraphs (f) through (l) above
(including the certification requirements intended to insure that transfers of
beneficial interests in a Global Security comply with Rule 144A under the
Securities Act, Rule 144 under the Securities Act or Regulation S, as the case
may be) and any Applicable Procedures, as may be from time to


   37
                                      -29-


time adopted by the Company and the Trustee. The Trustee shall be entitled to
request and receive, from time to time, instructions as to such procedures
adopted or approved by the Company.

                  (n) INTERESTS IN TEMPORARY REGULATION S GLOBAL SECURITY TO BE
HELD THROUGH EUROCLEAR OR CLEARSTREAM. Until the expiration of the Restricted
Period, beneficial interests in any Temporary Regulation S Global Security may
be held only in or through accounts maintained at the Depository by Euroclear or
Clearstream (or by Agent Members acting for the account thereof).

                  (o) When Certificated Securities are presented to the
Registrar or a co-Registrar with a request to register the transfer of such
Certificated Securities or to exchange such Certificated Securities for an equal
principal amount of Certificated Securities of other authorized denominations,
the Registrar or co-Registrar shall register the transfer or make the exchange
as requested if its requirements for such transaction are met; PROVIDED,
HOWEVER, that the Securities surrendered for transfer or exchange shall be duly
endorsed or accompanied by a written instrument of transfer in form satisfactory
to the Company and the Registrar or co-Registrar, duly executed by the Holder
thereof or his attorney duly authorized in writing. To permit registrations of
transfers and exchanges, the Company shall execute and the Trustee shall
authenticate Certificated Securities at the Registrar's or co-Registrar's
request. No service charge shall be made for any registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
transfer tax or similar governmental charge payable in connection therewith
(other than any such transfer taxes or similar governmental charge payable upon
exchanges or transfers pursuant to Sections 2.02, 2.10, 3.06, 4.05, 4.14 or
10.05). The Registrar or co-Registrar shall not be required to register the
transfer of or exchange of any Security (i) during a period between (a) the date
the Trustee receives notice of a redemption from the Company and the date the
Securities to be redeemed are selected by the Trustee or (b) an Interest Record
Date and the next succeeding Interest Payment Date or (ii) selected for
redemption in whole or in part pursuant to Article Three hereof, except the
unredeemed portion of any Security being redeemed in part, or tendered pursuant
to an offer therefor. The Company is not required to transfer or exchange: (i)
any Security selected for redemption or tendered, or (ii) any Security during
the period between (a) the date the Trustee receives notice of a redemption from
the Company and the date the Securities to be redeemed are selected by the
Trustee or (b) a record date and the next succeeding Interest Payment Date.

                  (p) If a Series A Security is a Restricted Security and a
Certificated Security, then as provided in this Indenture and subject to the
limitations herein set forth, the Holder, provided it is a Qualified
Institutional Buyer, may exchange such Security for a Book-Entry Security by
instructing the Trustee (by completing the Transferee Certificate in the form of
Exhibit D hereto) to arrange for such Series A Security to be represented by a
beneficial interest in a Global Security in accordance with the customary
procedures of the Depository.

                  (q) Upon any exchange provided for in Section 2.06(a), the
Company shall execute and the Trustee shall authenticate and deliver to the
person specified by the Depository a new Certificated Security registered in
such names and in such authorized denominations as the Depository, pursuant to
the instructions of the beneficial owner of the Securities requesting the
exchange, shall instruct the Trustee. Thereupon, the beneficial ownership of
such Global Security shown on the records maintained by the Depository or its
nominee shall be reduced by the amounts so exchanged and an appropriate
endorsement shall be made by or on behalf of the Trustee on the Global Security.
Any such exchange shall be effected through the Depository in accordance with
the procedures of the Depository therefor.

                  (r) Notwithstanding the foregoing, no Global Security shall be
registered for transfer or exchange, or authenticated and delivered in the name
of a person other than the Depository for such Global Security or its nominee
until (i) the Depository notifies the Company that it is unwilling or unable to
continue as Depository for such Global Security or if at any time the Depository
ceases to be a clearing agency registered under


   38
                                      -30-


the Exchange Act, and a successor depository is not appointed by the Company
within 30 days, (ii) the Company executes and delivers to the Trustee a Company
Order that all such Global Securities shall be exchangeable or (iii) there shall
have occurred and be continuing an Event of Default. Upon the occurrence in
respect of any Global Security representing the Series A Securities of any one
or more of the conditions specified in clause (i), (ii) or (iii) of the
preceding sentence, such Global Security may be registered for transfer or
exchange for Series A Securities registered in the names of, authenticated and
delivered to, such persons as the Trustee or the Depository, as the case may be,
shall direct.

                  (s) Except as provided above, any Security authenticated and
delivered upon registration of transfer of, or in exchange for, or in lieu of,
any Global Security shall also be a Global Security and bear the legend
specified in Exhibit C.

                  (t) Neither the Trustee, the Registrar nor any Paying Agent
shall have any responsibility or liability for the accuracy of the books and
records of, or for any actions or omissions of, the Depository, Euroclear,
Clearstream or any Agent Member.

                  (u) Notwithstanding anything contained herein to the contrary,
neither the Trustee nor the Registrar shall be responsible for ascertaining
whether any transfer complies with the registration provisions of or exemptions
from the Securities Act, applicable state securities laws, ERISA, the Code or
the Investment Company Act; PROVIDED, HOWEVER, that if a certificate is
specifically required by the express terms of this Section 2.06 to be delivered
to a Trustee by a purchaser or transferee of a Note, the Trustee shall be under
a duty to receive and examine the same to determine whether it conforms on its
face to the requirements of this Indenture and shall promptly notify the party
delivering the same if such certificate does not conform.

SECTION 2.07. REPLACEMENT SECURITIES.

                  If a mutilated Security is surrendered to the Trustee or if
the Holder of a Security claims that the Security has been lost, destroyed or
wrongfully taken, the Company shall issue and the Trustee shall authenticate a
replacement Security if the Company's and the Trustee's requirements for
replacement of Securities are met. Such Holder must provide an indemnity bond or
other indemnity, sufficient in the judgment of both the Company and the Trustee,
to protect the Company, the Trustee and any Agent from any loss which any of
them may suffer if a Security is replaced and evidence to their satisfaction of
the apparent loss, destruction or theft of such Security. The Company may charge
such Holder for its reasonable out-of-pocket expenses in replacing a Security,
including reasonable fees and expenses of counsel.

                  Every replacement Security is an additional obligation of the
Company.

SECTION 2.08. OUTSTANDING SECURITIES.

                  Securities outstanding at any time are all the Securities that
have been authenticated by the Trustee except those canceled by it, those
delivered to it for cancellation and those described in this Section 2.08 as not
outstanding. Subject to Section 2.09, a Security does not cease to be
outstanding because the Company or any of its Affiliates holds the Security.

                  If a Security is replaced pursuant to Section 2.07 (other than
a mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a BONA FIDE purchaser. A mutilated Security ceases to be outstanding
upon surrender of such Security and replacement thereof pursuant to Section
2.07.


   39
                                      -31-


                  If on a Redemption Date or the Final Maturity Date the Paying
Agent holds money sufficient to pay all of the principal and interest due on the
Securities payable on that date, then on and after that date such Securities
cease to be outstanding and interest on them ceases to accrue.

SECTION 2.09. TREASURY SECURITIES.

                  In determining whether the Holders of the required principal
amount of Securities have concurred in any direction, waiver or consent,
Securities owned by the Company, the Guarantors or any of their respective
Affiliates shall be disregarded, except that, for the purposes of determining
whether the Trustee shall be protected in relying on any such direction, waiver
or consent, only Securities that a Trust Officer of the Trustee actually knows
are so owned shall be disregarded.

                  The Trustee may require an Officers' Certificate listing
Securities owned by the Company, the Guarantors or, to the knowledge of the
Officers signing such Officers' Certificate, their respective Affiliates.

SECTION 2.10. TEMPORARY SECURITIES.

                  Until definitive Securities are ready for delivery, the
Company may prepare and the Trustee shall authenticate temporary Securities.
Temporary Securities shall be substantially in the form of definitive Securities
but may have variations that the Company considers appropriate for temporary
Securities. Without unreasonable delay, the Company shall prepare and the
Trustee shall authenticate upon receipt of a Company Order pursuant to Section
2.02 definitive Securities in exchange for temporary Securities.

SECTION 2.11. CANCELLATION.

                  The Company at any time may deliver Securities to the Trustee
for cancellation. The Registrar and the Paying Agent shall forward to the
Trustee any Securities surrendered to them for transfer, exchange or payment.
The Trustee, or at the direction of the Trustee, the Registrar or the Paying
Agent, and no one else, shall cancel all Securities surrendered for transfer,
exchange, payment or cancellation. Such canceled Securities shall be disposed of
in accordance with applicable securities laws. Subject to Section 2.07, the
Company may not issue new Securities to replace Securities that it has paid or
delivered to the Trustee for cancellation. If the Company or the Guarantors
shall acquire any of the Securities, such acquisition shall not operate as a
redemption or satisfaction of the Indebtedness represented by such Securities
unless and until the same are surrendered to the Trustee for cancellation
pursuant to this Section 2.11.

SECTION 2.12. DEFAULTED INTEREST.

                  If the Company defaults in a payment of principal of or
interest on the Securities, it shall pay interest on overdue principal and on
overdue installments of interest (without regard to any applicable grace
periods) from time to time on demand at the rate per annum borne by the
Securities, to the extent lawful.

SECTION 2.13. CUSIP NUMBER.

                  The Company in issuing the Securities will use a "CUSIP"
number, and the Trustee shall use the CUSIP number in notices of redemption or
exchange as a convenience to Holders; PROVIDED that any such notice may state
that no representation is made as to the correctness or accuracy of the CUSIP
number printed in the notice or on the Securities and that reliance may be
placed only on the other identification numbers printed on the Securities. The
Company shall promptly notify the Trustee of any changes in CUSIP numbers.


   40
                                      -32-


SECTION 2.14. DEPOSIT OF MONEYS.

                  Prior to 10:00 a.m. New York City time on each Interest
Payment Date, Redemption Date and the Final Maturity Date, the Company shall
deposit with the Paying Agent in immediately available funds money sufficient to
make cash payments, if any, due on such Interest Payment Date, Redemption Date
or Final Maturity Date, as the case may be, in a timely manner which permits the
Paying Agent to remit payment to the Holders on such Interest Payment Date,
Redemption Date or Final Maturity Date, as the case may be.

                                  ARTICLE THREE

                                   REDEMPTION

SECTION 3.01. NOTICES TO TRUSTEE.

                  If the Company wants to redeem Securities pursuant to
paragraph 6 or 7 of the Securities at the applicable redemption price set forth
therein, it shall notify the Trustee in writing of the Redemption Date and the
principal amount of Securities to be redeemed. The Company shall give such
notice to the Trustee at least 45 days before the Redemption Date (unless a
shorter notice shall be agreed to by the Trustee in writing), together with an
Officers' Certificate stating that such redemption will comply with the
conditions contained herein.

SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED.

                  If less than all of the Securities are to be redeemed pursuant
to paragraph 6 of the Securities, the Trustee shall select the Securities to be
redeemed (1) in compliance with the requirements of the principal national
securities exchange, if any, on which the Securities are listed or, (2) if the
Securities are not then listed on a national securities exchange, on a PRO RATA
basis, by lot or by any other method as the Trustee shall deem fair and
appropriate; PROVIDED that if a partial redemption is made with the proceeds of
an Equity Offering, selection of the Securities or portions thereof for
redemption shall be made by the Trustee only on a pro rata basis as is
practicable (subject to DTC procedures), unless such method is otherwise
prohibited; PROVIDED that, in each case, no securities of $1,000 or less shall
be redeemed in part. Selection of the Securities to be redeemed pursuant to
paragraph 7 of the Securities shall be made by the Trustee only on a PRO RATA
basis or on as nearly a PRO RATA basis as is practicable (subject to the
procedures of the Depository) based on the aggregate principal amount of
Securities held by each Holder. The Trustee shall make the selection from the
Securities then outstanding, subject to redemption and not previously called for
redemption.

                  The Trustee may select for redemption pursuant to paragraph 6
or 7 of the Securities portions of the principal amount of Securities that have
denominations equal to or larger than $1,000 principal amount. Securities and
portions of them the Trustee so selects shall be in amounts of $1,000 principal
amount or integral multiples thereof. Provisions of this Indenture that apply to
Securities called for redemption also apply to portions of Securities called for
redemption.

SECTION 3.03. NOTICE OF REDEMPTION.

                  Subject to the provisions of Section 3.08, at least 30 days
but not more than 60 days before a Redemption Date, the Company shall mail a
notice of redemption by first-class mail to each Holder at such Holder's
registered address whose Securities are to be redeemed. Notices of redemption
may not be conditional.


   41
                                      -33-


                  Each notice of redemption shall identify the Securities to be
redeemed (including, but subject to the provisions of Section 2.13, the CUSIP
number thereon) and shall state:

                    (i)    the Redemption Date;

                   (ii)    the redemption price;

                  (iii)    the name and address of the Paying Agent to which the
                           Securities are to be surrendered for redemption;

                   (iv)    that Securities called for redemption must be
                           surrendered to the Paying Agent to collect the
                           redemption price;

                    (v)    the paragraph of the Securities and/or Section of
                           this Indenture pursuant to which the Securities
                           called for redemption are being redeemed;

                   (vi)    that, unless the Company defaults in making the
                           redemption payment, interest on Securities called for
                           redemption ceases to accrue on and after the
                           Redemption Date and the only remaining right of the
                           Holders is to receive payment of the redemption price
                           upon surrender to the Paying Agent; and

                  (vii)    if any Security is being redeemed in part, the
                           portion of the principal amount of such Security to
                           be redeemed and that, after the Redemption Date, upon
                           surrender of such Security, a new Security or
                           Securities in principal amount equal to the
                           unredeemed portion thereof will be issued.

                  At the Company's written request, the Trustee shall give the
notice of redemption on behalf of the Company, in the Company's name and at the
Company's expense.

SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.

                  Once a notice of redemption is mailed, Securities called for
redemption become due and payable on the Redemption Date and at the redemption
price specified in such notice. Upon surrender to the Paying Agent, such
Securities shall be paid at the redemption price, plus accrued interest thereon,
if any, to the Redemption Date, but interest installments whose maturity is on
or prior to such Redemption Date shall be payable to the Holders of record at
the close of business on the relevant Interest Record Date.

SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.

                  At least one Business Day before the Redemption Date, the
Company shall deposit with the Paying Agent (or if the Company is its own Paying
Agent, shall, on or before the Redemption Date, segregate and hold in trust)
money sufficient to pay the redemption price of and accrued interest and
Liquidated Damages, if any, on all Securities to be redeemed on that date other
than Securities or portions thereof called for redemption on that date which
have been delivered by the Company to the Trustee for cancellation.

                  If any Security surrendered for redemption in the manner
provided in the Securities shall not be so paid on the Redemption Date due to
the failure of the Company to deposit with the Paying Agent money sufficient to
pay the redemption price thereof, the principal and accrued and unpaid interest,
if any, thereon

   42
                                      -34-


shall, until paid or duly provided for, bear interest as provided in Sections
2.12 and 4.01 with respect to any payment default.

SECTION 3.06. SECURITIES REDEEMED IN PART.

                  Upon surrender of a Security that is redeemed in part, the
Trustee shall authenticate for the Holder a new Security equal in principal
amount to the unredeemed portion of the Security surrendered.

SECTION 3.07. MANDATORY REDEMPTION.

                  The Company is not required to make any mandatory redemption
of, or sinking fund payments with respect to, the Securities.

SECTION 3.08. OFFER TO PURCHASE BY APPLICATION OF ASSET SALE OFFER AMOUNT.

                  In the event that the Company shall be required to commence an
Asset Sale Offer pursuant to Section 4.05, it shall follow the procedures
specified below.

                  The Asset Sale Offer shall remain open for a period of 20
Business Days following its commencement or such longer period as may be
required by applicable law (the "OFFER PERIOD"). No later than five Business
Days after the termination of the Offer Period (the "PURCHASE DATE"), the
Company shall purchase the Asset Sale Offer Amount except as provided in Section
3.02 or, if Securities in an aggregate principal amount less than the Asset Sale
Offer Amount have been tendered, all Securities validly tendered in response to
the Asset Sale Offer. Payment for any Securities so purchased shall be made in
the same manner as interest payments are made.

                  If the Purchase Date is on or after an Interest Record Date
and on or before the related Interest Payment Date, any accrued and unpaid
interest shall be paid to the Person in whose name a Security is registered at
the close of business on such record date, and no additional interest shall be
payable to Holders who tender Securities pursuant to the Asset Sale Offer.

                  Upon the commencement of an Asset Sale Offer, the Company
shall send, by first-class mail, a notice of such Asset Sale Offer to the
Trustee and each of the Holders. The notice shall contain all instructions and
materials necessary to enable such Holders to tender Securities pursuant to the
Asset Sale Offer. The Asset Sale Offer shall be made to all Holders. The notice,
which shall govern the terms of the Asset Sale Offer, shall state:

                           (a) that the Asset Sale Offer is being made pursuant
         to this Section 3.08 and Section 4.05 and the length of time the Asset
         Sale Offer shall remain open;

                           (b) the Asset Sale Offer Amount, the purchase price
         and the Purchase Date;

                           (c) that any Security not validly tendered or
         accepted for payment shall continue to accrue interest;

                           (d) that, unless the Company defaults in making such
         payment, any Security accepted for payment pursuant to the Asset Sale
         Offer shall cease to accrue interest after the Purchase


   43
                                      -35-


         Date and the only remaining right of the Holder is to receive payment
         of the purchase price upon surrender of the applicable Security to the
         Paying Agent;

                           (e) that Holders electing to have a portion of a
         Security purchased pursuant to an Asset Sale Offer may only elect to
         have such Security purchased in integral multiples of $1,000;

                           (f) that Holders electing to have a Security
         purchased pursuant to any Asset Sale Offer shall be required to
         surrender the Security, with the form entitled "Option of Holder to
         Elect Purchase" on the reverse of the Security completed, or transfer
         by book-entry transfer, to the Company, a depositary, if appointed by
         the Company, or a Paying Agent at the address specified in the notice
         at least three days before the Purchase Date;

                           (g) that Holders shall be entitled to withdraw their
         election if the Company, the depositary or the Paying Agent, as the
         case may be, receives, not later than the expiration of the Offer
         Period, a telegram, telex, facsimile transmission or letter setting
         forth the name of the Holder, the principal amount of the Security the
         Holder delivered for purchase and a statement that such Holder is
         withdrawing his election to have such Security purchased;

                           (h) that, if the aggregate principal amount of
         Securities surrendered by Holders exceeds the Asset Sale Offer Amount,
         the Company shall select the Securities to be purchased on a PRO RATA
         basis (based on amounts tendered and with such adjustments as may be
         deemed appropriate by the Company so that only Securities in
         denominations of $1,000, or integral multiples thereof, shall be
         purchased); and

                           (i) that Holders whose Securities were purchased only
         in part shall be issued a new Security or Securities in principal
         amount equal to the unpurchased portion of the Securities surrendered
         (or transferred by book-entry transfer) in the name of the Holder
         thereof upon cancellation of the original Security.

                  On or before the Purchase Date, the Company shall, to the
extent lawful, accept for payment, on a PRO RATA basis to the extent necessary
and, except as provided in Section 3.02, the Asset Sale Offer Amount of
Securities or portions thereof validly tendered pursuant to the Asset Sale
Offer, or if less than the Asset Sale Offer Amount has been validly tendered,
all Securities or portions thereof validly tendered, and shall deliver to the
Trustee an Officers' Certificate stating that such Securities or portions
thereof were accepted for payment by the Company in accordance with the terms of
this Section 3.08. The Company, the Depository or the Paying Agent, as the case
may be, shall promptly (but in any case not later than five days after the
Purchase Date) mail or deliver to each tendering Holder an amount equal to the
purchase price of the Securities tendered by such Holder and accepted by the
Company for purchase, and the Company shall promptly issue a new Security, and
the Trustee, upon written request from the Company shall authenticate and mail
or deliver such new Security to such Holder, in a principal amount equal to any
unpurchased portion of the Security surrendered. Any Security not so accepted
shall be promptly mailed or delivered by the Company to the Holder thereof. The
Company shall publicly announce the results of the Asset Sale Offer on the
Purchase Date.

                  Other than as specifically provided in this Section 3.08, any
purchase pursuant to this Section 3.08 and Section 4.05 shall be made pursuant
to the provisions of Sections 3.01 through 3.06.


   44
                                      -36-


To the extent that the provisions of any securities laws or regulations conflict
with this Section 3.08 or Section 4.05, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under this Section 3.08 or Section 4.05.

                                  ARTICLE FOUR

                                    COVENANTS

SECTION 4.01. PAYMENT OF SECURITIES.

                  The Company shall pay the principal of and premium, if any,
and interest and Liquidated Damages, if any, on the Securities in the manner
provided in the Securities and the Registration Rights Agreement. An installment
of principal, premium, interest or Liquidated Damages shall be considered paid
on the date due if the Trustee or Paying Agent (other than the Company, a
Subsidiary or an Affiliate of the Company) holds on that date money designated
for and sufficient to pay the installment in full and is not prohibited from
paying such money to the Holders of the Securities pursuant to the terms of this
Indenture. The Trustee shall not be responsible for knowing the amount of
Liquidated Damages due unless the Trustee shall have been notified by the
Company thereof.

                  The Company shall pay interest on overdue principal at the
same rate per annum borne by the Securities. The Company shall pay interest on
overdue installments of interest at the same rate per annum borne by the
Securities, to the extent lawful, as provided in Section 2.12.

SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.

                  The Company shall maintain in the Borough of Manhattan, The
City of New York, an office or agency (which may be an office or agent of the
Trustee, Registrar or co-registrar) where Securities may be surrendered for
payment or for registration of transfer or exchange and where notices and
demands to or upon the Company in respect of the Securities and this Indenture
may be presented (the "NEW YORK PRESENTING AGENT"). The Company may also from
time to time designate one or more other offices or agencies where the
Securities may be presented or surrendered for any or all such purposes and may
from time to time rescind such designations; PROVIDED, HOWEVER, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in the Borough of Manhattan, The City
of New York for such purposes. The Company shall give prompt written notice to
the Trustee of the location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
address of the Trustee set forth in Section 13.02 hereof. The Company hereby
initially designates Wells Fargo Bank Minnesota, N.A., at its address at The
Depository Trust Company, 1st Floor, TADS Department, 55 Water Street, New York,
New York 10041, for such purposes.

SECTION 4.03. TRANSACTIONS WITH AFFILIATES.

                  The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding,


   45
                                      -37-


loan, advance or Guarantee with, or for the benefit of, any Affiliate of the
Company (each of the foregoing, an "AFFILIATE TRANSACTION") unless:

                  (i)      that Affiliate Transaction is on terms that are no
                           less favorable to the Company or that Restricted
                           Subsidiary than those that would have been obtained
                           in a comparable transaction by the Company or that
                           Restricted Subsidiary with an unrelated Person; and

                  (ii)     the Company delivers to the Trustee:

                           (a)      with respect to any Affiliate Transaction or
                                    series of related Affiliate Transactions
                                    involving aggregate consideration in excess
                                    of $1.0 million, a resolution of the Board
                                    of Directors set forth in an Officers'
                                    Certificate certifying that the relevant
                                    Affiliate Transaction complies with clause
                                    (i) above and that the Affiliate Transaction
                                    has been approved by a majority of the
                                    disinterested members of the Board of
                                    Directors; and

                           (b)      with respect to any Affiliate Transaction or
                                    series of related Affiliate Transactions
                                    involving aggregate consideration in excess
                                    of $5.0 million, an opinion as to the
                                    fairness to the Holders of the Securities of
                                    that Affiliate Transaction from a financial
                                    point of view issued by an accounting,
                                    appraisal or investment banking firm of
                                    national standing.

                  Notwithstanding the foregoing, the following items shall not
be deemed to be Affiliate Transactions:

                  (i)      customary directors' fees, indemnification or similar
                           arrangements or any employment agreement or other
                           compensation plan or arrangement entered into by the
                           Company or any of its Restricted Subsidiaries in the
                           ordinary course of business (including ordinary
                           course loans to employees not to exceed (1) $2.5
                           million outstanding in the aggregate at any time and
                           (2) $0.5 million to any one employee) and consistent
                           with the past practice of the Company or that
                           Restricted Subsidiary;

                  (ii)     transactions between or among the Company and/or its
                           Restricted Subsidiaries;

                  (iii)    payments of customary arms'-length fees by the
                           Company or any of its Restricted Subsidiaries to
                           investment banking firms, financial consultants and
                           financial advisors made for any financial advisory,
                           financing, underwriting or placement services or in
                           respect of other investment banking activities,
                           including, without limitation, in connection with
                           acquisitions or divestitures that are approved by a
                           majority of the Board of Directors in good faith;

                  (iv)     any agreement as in effect on the date of this
                           Indenture or any amendment thereto (so long as that
                           amendment is not more disadvantageous to the Holders
                           of the Securities in any material respect than the
                           original agreement as in effect on the Closing Date)
                           or any transaction contemplated thereby;


   46
                                      -38-


                  (v)      the issuance and sale of Equity Interests (other than
                           Disqualified Stock) of the Company for cash;

                  (vi)     payments pursuant to the Tax Sharing Agreement;

                  (vii)    transactions pursuant to loan documents between
                           RailAmerica de Chile, S.A. and the Company as in
                           effect on the date of this Indenture; and

                  (viii)   Restricted Payments that are permitted by the
                           provisions of this Indenture described under Section
                           4.06 and any Permitted Investments.

SECTION 4.04. LIMITATION ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED
              STOCK.

                  The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, Guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "INCUR") any
Indebtedness (including Acquired Indebtedness); and the Company will not permit
any of its Restricted Subsidiaries to issue any shares of Preferred Stock;

                  PROVIDED that the Company or any Guarantor may incur
         Indebtedness, including Acquired Indebtedness, if the Fixed Charge
         Coverage Ratio for the Company's most recently ended four full fiscal
         quarters for which internal financial statements are available
         immediately preceding the date on which that additional Indebtedness is
         incurred would have been at least (x) 2.25 to 1.0 in the case of any
         such incurrence or issuance occurring on or prior to the thirty-six
         month anniversary of the date of the indenture and (y) 2.5 to 1 in the
         case of any such incurrence or issuance that occurs thereafter, in each
         case determined on a consolidated pro forma basis, including a pro
         forma application of the net proceeds therefrom, as if the additional
         Indebtedness had been incurred at the beginning of that four-quarter
         period.

                  The provisions of the first paragraph of this Section 4.04
will not apply to the incurrence of any of the following items of Indebtedness
(collectively, "PERMITTED INDEBTEDNESS"):

                  (i)      the incurrence by the Company and any Restricted
                           Subsidiary under the Senior Credit Facility; PROVIDED
                           that the aggregate principal amount of all
                           Indebtedness (with letters of credit being deemed to
                           have a principal amount equal to the maximum
                           potential liability of the Company and those
                           Guarantors thereunder) outstanding under the Senior
                           Credit Facility (together with any Indebtedness
                           incurred pursuant to clause (ii) below) does not
                           exceed an amount equal to $380 million LESS (x) the
                           amount of term Indebtedness repaid with the proceeds
                           of the initial offering of the Series A Securities
                           and (y) the aggregate amount of all Net Proceeds of
                           Asset Sales that have been applied by the Company or
                           any of its Restricted Subsidiaries since the date of
                           this Indenture to repay any term Indebtedness under
                           the Senior Credit Facility pursuant to Section 4.05
                           of this Indenture and LESS the aggregate amount of
                           all Net Proceeds of Asset Sales applied by the
                           Company or any of its Restricted Subsidiaries to
                           repay any revolving credit Indebtedness under the
                           Senior Credit Facility and effect a corresponding
                           commitment reduction thereunder pursuant to Section
                           4.05 of this Indenture;


   47
                                      -39-


                  (ii)     the incurrence by the Company and its Restricted
                           Subsidiaries of Existing Indebtedness;

                  (iii)    the incurrence by the Company of Indebtedness
                           represented by the Securities issued in the initial
                           offering of the Series A Securities on the date of
                           this Indenture (and new Securities issued in exchange
                           therefor) and this Indenture and the incurrence by
                           the Guarantors of the Guarantees;

                  (iv)     the incurrence by the Company or any of its
                           Restricted Subsidiaries of Indebtedness represented
                           by Capital Expenditure Indebtedness, Capital Lease
                           Obligations or other obligations, in each case, the
                           proceeds of which are used solely for the purpose of
                           financing all or any part of the purchase price or
                           cost of construction or improvement of property,
                           plant or equipment (including acquisitions of Capital
                           Stock of a Person that becomes a Restricted
                           Subsidiary to the extent of the fair market value of
                           the property, plant or equipment so acquired) used in
                           the business of the Company or that Restricted
                           Subsidiary, in an aggregate principal amount (or
                           accreted value, as applicable) not to exceed $10.0
                           million outstanding after giving effect to that
                           incurrence;

                  (v)      Indebtedness arising from agreements of the Company
                           or any Restricted Subsidiary providing for
                           indemnification, adjustment of purchase price or
                           similar obligations, in each case, incurred or
                           assumed in connection with the disposition of any
                           business, assets or a Subsidiary, other than
                           Guarantees of Indebtedness incurred by any Person
                           acquiring all or any portion of such business, assets
                           or Restricted Subsidiary for the purpose of financing
                           that acquisition; PROVIDED that:

                                    (1) that Indebtedness is not reflected on
                           the balance sheet of the Company or any Restricted
                           Subsidiary (contingent obligations referred to in a
                           footnote or footnotes to financing statements and not
                           otherwise reflected on the balance sheet will not be
                           deemed to be reflected on that balance sheet for
                           purposes of this clause (1)); and

                                    (2) the maximum assumable liability in
                           respect of that Indebtedness shall at no time exceed
                           the gross proceeds including non-cash proceeds (the
                           fair market value of those non-cash proceeds being
                           measured at the time received and without giving
                           effect to any subsequent changes in value) actually
                           received by the Company and/or that Restricted
                           Subsidiary in connection with that disposition;

                  (vi)     the incurrence by the Company or any of its
                           Restricted Subsidiaries of Permitted Refinancing
                           Indebtedness in exchange for, or the net proceeds of
                           which are used to refund, refinance, defease or
                           replace Indebtedness (other than intercompany
                           Indebtedness) that was permitted by this Indenture to
                           be incurred;

                  (vii)    the incurrence by the Company or any of its
                           Restricted Subsidiaries of intercompany Indebtedness
                           between or among the Company and/or any of its
                           Restricted Subsidiaries; PROVIDED that:

                                    (1) if the Company is the obligor on that
                           Indebtedness, that Indebtedness is expressly
                           subordinated to the prior payment in full in cash of
                           all Obligations with respect to the Securities; and


   48
                                      -40-


                                    (2) (i) any subsequent issuance or transfer
                           of Equity Interests that results in any such
                           Indebtedness being held by a Person other than the
                           Company or a Restricted Subsidiary thereof and (ii)
                           any sale or other transfer of any such Indebtedness
                           to a Person that is not either RailAmerica or a
                           Restricted Subsidiary thereof shall be deemed, in
                           each case, to constitute an incurrence of that
                           Indebtedness by the Company or that Restricted
                           Subsidiary, as the case may be, that was not
                           permitted by this clause (vii);

                  (viii)   the incurrence by the Company or any of its
                           Restricted Subsidiaries of Hedging Obligations that
                           are incurred for the purpose of fixing or hedging:

                                    (1) interest rate risk with respect to any
                           Indebtedness that is permitted by the terms of this
                           Indenture to be outstanding;

                                    (2) exchange rate risk with respect to
                           agreements or Indebtedness of that Person payable
                           denominated in a currency other than U.S. dollars;
                           and

                                    (3) risk with respect to fluctuations in the
                           cost of raw materials (including, without limitation,
                           fuel) used in the ordinary course of business;

                  PROVIDED that those agreements do not increase the
                  Indebtedness of the obligor outstanding at any time other than
                  as a result of fluctuations in foreign currency exchange
                  rates, interest rates or the cost of raw materials or by
                  reason of fees, indemnities and compensation payable
                  thereunder;

                  (ix)     the Guarantee by the Company or any of its Restricted
                           Subsidiaries of Indebtedness of the Company or any
                           Restricted Subsidiary that was permitted to be
                           incurred by another provision of this Section 4.04;

                  (x)      obligations in respect of performance and surety
                           bonds and completion guarantees (including related
                           letters of credit), bankers' acceptances, workers'
                           compensation claims and payment obligations in
                           connection with self-insurance or similar obligations
                           provided by the Company or any Restricted Subsidiary
                           in the ordinary course of business and industrial
                           revenue bonds or other similar governmental or
                           municipal bonds; and

                  (xi)     the incurrence by the Company or any of its
                           Restricted Subsidiaries of additional Indebtedness in
                           an aggregate principal amount (or accreted value, as
                           applicable) outstanding after giving effect to that
                           incurrence, including all Permitted Refinancing
                           Indebtedness incurred to refund, refinance or replace
                           any Indebtedness incurred pursuant to this clause
                           (xi), not to exceed $25.0 million.

                  For purposes of determining compliance with this Section 4.04:

                  o        in the event that an item of Indebtedness meets the
                           criteria of more than one of the categories of
                           Permitted Indebtedness described in clauses (i)
                           through (xi) above or is entitled to be incurred
                           pursuant to the first paragraph of this Section 4.04,
                           the Company shall, in its sole discretion, classify
                           that item of Indebtedness in any manner that


   49
                                      -41-


                           complies with this Section 4.04 and that item of
                           Indebtedness will be treated as having been incurred
                           pursuant to any one of those clauses or pursuant to
                           the first paragraph hereof and the Company may divide
                           and classify an item of Indebtedness under more than
                           one of the categories of Permitted Indebtedness
                           described in clauses (i) through (xi); and

                  o        accrual of interest or dividends, accretion or
                           amortization of original issue discount will not be
                           deemed to be an incurrence of Indebtedness for
                           purposes of this Section 4.04.

SECTION 4.05. LIMITATION ON CERTAIN ASSET SALES.

                  The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, consummate an Asset Sale unless:

                    (1) the Company or the Restricted Subsidiary, as the case
         may be, receives consideration at the time of that Asset Sale at least
         equal to the fair market value (evidenced by an Officers' Certificate
         delivered to the Trustee in the case of an Asset Sale with a fair
         market value less than $5.0 million and a resolution of the Board of
         Directors set forth in an Officers' Certificate delivered to the
         Trustee in the case of an Asset Sale with a fair market value greater
         than or equal to $5.0 million) of the assets or Equity Interests issued
         or sold or otherwise disposed of; and

                    (2) at least 75% of the consideration therefor received by
         the Company or the Restricted Subsidiary is in the form of cash or Cash
         Equivalents.

         For the purposes of this Section 4.05, each of the following shall be
deemed to be cash:

                  (i)      any liabilities, as shown on the Company's or the
                           Restricted Subsidiary's most recent balance sheet, of
                           the Company or any Restricted Subsidiary (other than
                           contingent liabilities and liabilities that are by
                           their terms subordinated to the Securities or any
                           Guarantee thereof) that are assumed by the transferee
                           of any such assets pursuant to a customary novation
                           agreement that releases the Company or the Restricted
                           Subsidiary from further liability; and

                  (ii)     any securities, notes or other obligations received
                           by the Company or the Restricted Subsidiary from the
                           transferee that are promptly converted (but in any
                           event within 90 days) of their receipt by the Company
                           or the Restricted Subsidiary into cash or Cash
                           Equivalents, but only to the extent of the cash or
                           Cash Equivalents received.

                  Within 360 days after the receipt of any Net Proceeds from an
Asset Sale, the Company or the Restricted Subsidiary, as the case may be, shall
apply the Net Proceeds, at its option, to:

                  (1) repay or purchase Senior Indebtedness or Pari Passu
         Indebtedness and, if the Indebtedness repaid is Indebtedness under a
         revolving line of credit, to correspondingly reduce commitments with
         respect thereto; PROVIDED that, if the Company shall elect to repay or
         purchase Pari Passu Indebtedness, the Company shall make an offer, in
         accordance with the procedures set forth in Section 3.08 of this
         Indenture, to all Holders of Securities to purchase Securities at a
         purchase price equal to 100% of the principal amount of the Securities,
         plus accrued and unpaid interest and Liquidated Damages, if


   50
                                      -42-


         any, thereon to the date of purchase (any such offer shall be on a
         ratable basis with the holders of such Pari Passu Indebtedness); or

                  (2) (a) an investment in property, the making of a capital
         expenditure or the acquisition of assets that are used or useful in a
         Permitted Business; or (b) the acquisition of Capital Stock of any
         Person primarily engaged in a Permitted Business if as a result of the
         acquisition by the Company or any Restricted Subsidiary thereof, that
         Person becomes a Restricted Subsidiary.

                  Pending the final application of any Net Proceeds, the Company
may temporarily reduce Indebtedness (including revolving indebtedness under the
Senior Credit Facility) or otherwise invest those Net Proceeds in any manner
that is not prohibited by this Indenture.

                  Any Net Proceeds from Asset Sales that are not applied or
invested as provided in the first sentence of the second preceding paragraph
will be deemed to constitute "EXCESS PROCEEDS." When the aggregate amount of
Excess Proceeds exceeds $15.0 million, the Company will be required to make an
offer to all Holders of Securities (an "ASSET SALE OFFER") to purchase the
maximum principal amount of Securities (the "ASSET SALE OFFER AMOUNT") that,
together with all Pari Passu Indebtedness which the Company is concurrently
offering to repay or purchase, may be purchased out of the Excess Proceeds, at
an offer price in cash in an amount equal to 100% of the principal amount
thereof, plus accrued and unpaid interest and liquidated damages, if any, to the
date of purchase, in accordance with the procedures set forth in Section 3.08.

                  To the extent that any Excess Proceeds remain after
consummation of an Asset Sale Offer, the Company may use those Excess Proceeds
for any purpose not otherwise prohibited by this Indenture. If the aggregate
principal amount of Securities surrendered by Holders thereof in connection with
an Asset Sale Offer exceeds the amount of Excess Proceeds, the Trustee shall
select the Securities to be purchased as set forth under Section 3.02. Upon
completion of an offer to purchase, the amount of Excess Proceeds shall be reset
at zero.

                  The Company will comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent those laws and regulations are applicable in connection with the
repurchase of the Securities pursuant to an Asset Sale Offer. To the extent that
the provisions of any securities laws or regulations conflict with the
provisions of this Indenture relating to an Asset Sale Offer, the Company will
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations described in this Indenture by virtue
thereof.

SECTION 4.06. LIMITATION ON RESTRICTED PAYMENTS.

                  The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, (1) declare or pay any dividend or make
any other payment or distribution on account of the Company's or any of its
Restricted Subsidiaries' Equity Interests (including, without limitation, any
payment in connection with any merger or consolidation involving the Company) or
to the direct or indirect holders of the Company's or any of its Subsidiaries'
Equity Interests other than (x) dividends or distributions payable in Equity
Interests (other than Disqualified Stock of the Company) or (y) dividends or
distributions payable by a Restricted Subsidiary to the Company or any
Restricted Subsidiary of the Company; (2) purchase, redeem or otherwise acquire
or retire for value (including, without limitation, in connection with any
merger or consolidation involving the Company) any Equity Interests of the
Company or any direct or indirect parent of the Company (other than any such
Equity Interests owned by the Company or any Restricted Subsidiary of the
Company); (3) make any principal payment on or with respect to, or purchase,
defease, redeem, prepay, decrease or otherwise acquire or retire for value,
prior to any scheduled final maturity, scheduled repayment or scheduled sinking
fund payment, any


   51
                                      -43-


Indebtedness of the Company that is subordinate or junior in right of payment to
the Securities except in accordance with the mandatory redemption or repayment
provisions set forth in the original documentation governing that Indebtedness
(but not pursuant to any mandatory offer to repurchase upon the occurrence of
any event); or (4) make any Restricted Investment (all such payments and other
actions set forth in clauses (1) through (4) above being collectively referred
to as "RESTRICTED PAYMENTS"), unless, at the time of and after giving effect to
such Restricted Payment:

                  (a) no Default or Event of Default shall have occurred and be
         continuing or would occur as a consequence thereof; and

                  (b) the Company would, immediately after such Restricted
         Payment and after giving pro forma effect thereto as if that Restricted
         Payment had been made at the beginning of the Company's most recently
         completed four full fiscal quarters, have been permitted to incur at
         least $1.00 of additional Indebtedness pursuant to the Fixed Charge
         Coverage Ratio set forth in the first paragraph of Section 4.04 of this
         Indenture; and

                  (c) such Restricted Payment, together with the aggregate
         amount of all other Restricted Payments made by the Company and its
         Restricted Subsidiaries after the date of this Indenture (excluding
         Restricted Payments permitted by clauses (2), (3), (4) and (5) (ii) of
         the next succeeding paragraph), is less than the sum, without
         duplication, of:

                    (1) 50% of the aggregate Consolidated Net Income of the
         Company for the period (taken as one accounting period) from the
         beginning of the first full fiscal quarter commencing after the date of
         this Indenture to the end of the Company's most recently ended fiscal
         quarter for which internal financial statements are available at the
         time of that Restricted Payment (or, if Consolidated Net Income for
         that period is a deficit, less 100% of the deficit); plus

                    (2) 100% of the net cash proceeds received by the Company
         after the date of this Indenture from contributions to the Company's
         common equity or from the issue or sale after the date of this
         Indenture of Equity Interests (other than Disqualified Stock) of the
         Company or of Disqualified Stock or convertible debt securities of the
         Company to the extent that they have been converted into such Equity
         Interests, other than (x) Equity Interests, Disqualified Stock or
         convertible debt securities sold to a Subsidiary of the Company; and
         (y) Disqualified Stock or convertible debt securities that have been
         converted into Disqualified Stock; PLUS

                    (3) without duplication, (i) to the extent that any
         Restricted Investment that was made after the date of this Indenture is
         sold for cash or otherwise liquidated or repaid for cash, the lesser of
         (A) the cash return of capital with respect to such Restricted
         Investment (less the cost of disposition, if any) and (B) the initial
         amount of such Restricted Investment; and (ii) the redesignation of
         Unrestricted Subsidiaries whose assets are used or useful in, or which
         is engaged in, one or more Permitted Business as Restricted
         Subsidiaries (valued, proportionate to the Company's equity interest in
         that Subsidiary, at the lesser of (a) the fair market value of the net
         assets of that Subsidiary at the time of that redesignation and (b) the
         initial amount of such Restricted Investment).

                  The foregoing provisions will not prohibit:


   52
                                      -44-


                  (1)      the payment of any dividend within 60 days after the
                           date of declaration thereof, if at said date of
                           declaration, such payment would comply with all the
                           provisions of this Indenture;

                  (2)      if no Default or Event of Default shall have occurred
                           and be continuing, the redemption, repurchase,
                           retirement, defeasance or other acquisition of any
                           subordinated Indebtedness or Equity Interests of the
                           Company in exchange for, or out of the net cash
                           proceeds of the substantially concurrent sale (other
                           than to a Subsidiary of the Company) of other Equity
                           Interests of the Company (other than any Disqualified
                           Stock); PROVIDED that the amount of any such net cash
                           proceeds that are utilized for any such redemption,
                           repurchase, retirement, defeasance or other
                           acquisition shall be excluded from clause (c)(2) of
                           the preceding paragraph;

                  (3)      if no Default or Event of Default shall have occurred
                           and be continuing, the defeasance, redemption,
                           repurchase, retirement or other acquisition of
                           subordinated Indebtedness of the Company with the net
                           cash proceeds from a substantially concurrent sale
                           (other than to a Subsidiary of the Company) of, or in
                           exchange for, subordinated Indebtedness;

                  (4)      the payment of dividends by a Restricted Subsidiary
                           on any class of common stock of that Restricted
                           Subsidiary if:

                           (i)      that dividend is paid pro rata to all
                                    holders of that class of common stock; and

                           (ii)     at least a majority of that class of common
                                    stock is held by the Company or one or more
                                    of its Restricted Subsidiaries;

                  (5)      (i) the payment of amounts to RailAmerica (directly
                           or through Palm Beach Rail Holding, Inc.) in an
                           amount necessary to enable RailAmerica to pay: (a)
                           the reasonable fees and expenses of its directors,
                           (b) the salaries, wages, employee benefits, insurance
                           and other direct expenses incurred in the ordinary
                           course of business of RailAmerica, (c) taxes in the
                           amounts set forth in the Tax Sharing Agreement, (d)
                           dividends and mandatory redemption with respect to
                           Series A Convertible Preferred Stock of RailAmerica
                           that is outstanding on the date of this Indenture,
                           (e) interest and principal, when due, on
                           RailAmerica's 6% junior convertible subordinated
                           debentures due 2004, (f) up to $2.0 million per
                           fiscal year to repurchase RailAmerica common stock
                           under its stock buyback program and (g) its public
                           company expenses, including legal fees, directors'
                           and officers' insurance costs, accounting fees,
                           financial advisory fees, investor relations costs,
                           directors' fees and printing fees and related
                           expenses, in each case of clauses (a), (b) and (g) in
                           an amount that substantially reflects the
                           contribution of the Company and its Subsidiaries to
                           the consolidated financial results of RailAmerica and
                           its subsidiaries and (ii) the payment of the Net
                           Proceeds from the sale of Quebec Railway Corporation
                           to Palm Beach Rail Holding, Inc. to the extent used
                           to repay Palm Beach Rail Holding, Inc.'s asset sale
                           bridge notes issued on February 4, 2000; and


   53
                                      -45-


                  (6)      if no Default or Event of Default shall have occurred
                           and be continuing, additional Restricted Payments in
                           an aggregate amount not to exceed $22.0 million;
                           PROVIDED, that no more than $20.0 million of
                           Restricted Payments made pursuant to this clause (6)
                           may be used to repay Palm Beach Rail Holding, Inc.'s
                           asset sale bridge notes issued on February 4, 2000.

                  The amount of all Restricted Payments (other than cash) shall
be the fair market value on the date of the Restricted Payment of the asset(s)
or securities proposed to be transferred or issued by the Company or that
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.

                  The fair market value of any non-cash Restricted Payment shall
be determined by the Board of Directors of the Company whose resolution with
respect thereto shall be delivered to the Trustee. The Board of Directors'
determination must be based on an opinion or appraisal issued by an accounting,
appraisal or investment banking firm of national standing if the fair market
value exceeds $5.0 million.

                  Not later than the date of making any Restricted Payment
(other than a Restricted Payment made pursuant to Subsection (5)(i)), the
Company shall deliver to the Trustee an Officers' Certificate stating that the
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this Section 4.06 were computed.

SECTION 4.07. CORPORATE EXISTENCE.

                  Subject to Article Five, the Company and the Guarantors shall
do or shall cause to be done all things necessary to preserve and keep in full
force and effect their respective corporate existence and the corporate,
partnership or other existence of each Restricted Subsidiary in accordance with
the respective organizational documents of each of them (as the same may be
amended from time to time) and the rights (charter and statutory) and material
franchises of the Company, the Guarantors and the Restricted Subsidiaries;
PROVIDED, HOWEVER, that the Company and the Guarantors shall not be required to
preserve any such right or franchise, or the corporate existence of any
Restricted Subsidiary, if the Board of Directors or the board of directors of
the Guarantors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company, the Guarantors and the
Restricted Subsidiaries, taken as a whole, and that the loss thereof is not, and
will not be, adverse in any material respect to the Holders.

SECTION 4.08. PAYMENT OF TAXES AND OTHER CLAIMS.

                  The Company and the Guarantors shall pay or discharge or cause
to be paid or discharged, before the same shall become delinquent, (1) all
material taxes, assessments and governmental charges levied or imposed upon the
Company, the Guarantors or any Restricted Subsidiary or upon the income, profits
or property of the Company, the Guarantors or any Restricted Subsidiary and (2)
all lawful claims for labor, materials and supplies which, in each case, if
unpaid, might by law become a material liability, or Lien upon the property, of
the Company, the Guarantors or any Restricted Subsidiary; PROVIDED, HOWEVER,
that neither the Company nor the Guarantors shall be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings and for which appropriate provision has been made.


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                                      -46-


SECTION 4.09. NOTICE OF DEFAULTS.

                  (a) In the event that any Indebtedness of the Company, the
Guarantors or any of their Subsidiaries is declared due and payable before its
maturity because of the occurrence of any default (or any event which, with
notice or lapse of time, or both, would constitute such a default) under such
Indebtedness, the Company or the Guarantors shall promptly give written notice
to the Trustee of such declaration, the status of such default or event and what
action the Company or the Guarantors is taking or proposes to take with respect
thereto.

                  (b) Upon becoming aware of any Default or Event of Default,
the Company or the Guarantors shall promptly deliver an Officers' Certificate to
the Trustee specifying the Default or Event of Default.

SECTION 4.10. MAINTENANCE OF PROPERTIES AND INSURANCE.

                  (a) The Company and the Guarantors shall cause all material
properties owned by or leased to either of them or any Restricted Subsidiary and
used or useful in the conduct of their business or the business of any
Restricted Subsidiary to be maintained and kept in normal condition, repair and
working order and supplied with all necessary equipment and shall cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company or the Guarantors may be
necessary, so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; PROVIDED, HOWEVER, that
nothing in this Section 4.10 shall prevent the Company, the Guarantors or any
Restricted Subsidiary from discontinuing the use, operation or maintenance of
any of such properties, or disposing of any of them, if such discontinuance or
disposal is, in the judgment of the Board of Directors or of the board of
directors of the Guarantors or Restricted Subsidiary concerned, or of an officer
(or other agent employed by the Company, the Guarantors or any Restricted
Subsidiary) of the Company, the Guarantors or such Restricted Subsidiary having
managerial responsibility for any such property, desirable in the conduct of the
business of the Company, the Guarantors or any Restricted Subsidiary, and if
such discontinuance or disposal is not adverse in any material respect to the
Holders.

                  (b) The Company and the Guarantors shall maintain, and shall
cause the Restricted Subsidiaries to maintain, insurance with responsible
carriers against such risks and in such amounts, and with such deductibles,
retentions, self-insured amounts and co-insurance provisions, as are customarily
carried by similar businesses of similar size, including property and casualty
loss, and workers' compensation insurance.

SECTION 4.11. COMPLIANCE CERTIFICATE.

                  The Company shall deliver to the Trustee within 90 days after
the close of each fiscal year a certificate signed by the principal executive
officer, principal financial officer or principal accounting officer stating
that a review of the activities of the Company has been made under the
supervision of the signing officers with a view to determining whether a Default
or Event of Default has occurred and whether or not the signers know of any
Default or Event of Default by the Company that occurred during such fiscal
year. If they do know of such a Default or Event of Default, the certificate
shall describe all such Defaults or Events of Default, their status and the
action the Company is taking or proposes to take with respect thereto.

SECTION 4.12. PROVISION OF FINANCIAL INFORMATION.

                  Whether or not required by the rules and regulations of the
SEC, so long as any Securities are outstanding, RailAmerica shall furnish to the
Holders of Securities, if not then obtainable from the SEC:


   55
                                      -47-


                    (1) all quarterly and annual financial information that
         would be required to be contained in a filing with the SEC on Forms
         10-Q and 10-K of RailAmerica with appropriate footnotes regarding the
         results of operations and financial position of the Company or if the
         Company were required to file those Forms, including a "Management's
         Discussion and Analysis of Financial Condition and Results of
         Operations" and, with respect to the annual information only, a report
         thereon by RailAmerica's certified independent accountants; and

                    (2) all current reports that would be required to be filed
         with the SEC on Form 8-K if RailAmerica were required to file those
         reports, in each case, within the time periods specified in the SEC's
         rules and regulations.

         In addition, following the consummation of the exchange offer
contemplated by the Registration Rights Agreement, whether or not required by
the rules and regulations of the SEC, RailAmerica will file a copy of all the
information and reports referred to in clauses (1) and (2) above with the SEC
for public availability within the time periods specified in the SEC's rules and
regulations (unless the SEC will not accept such a filing) and make that
information available to securities analysts and prospective investors upon
request. The Company shall at all times comply with TIA ss. 314(a).

         In addition, RailAmerica and the Guarantors agree that, for so long as
any Securities remain outstanding, they will furnish to the Holders and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.

SECTION 4.13. WAIVER OF STAY, EXTENSION OR USURY LAWS.

                  The Company and the Guarantors covenant (to the extent that
they may lawfully do so) that they shall not at any time insist upon, plead, or
in any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law, which would prohibit or forgive the
Company or such Guarantor from paying all or any portion of the principal of
and/or interest, if any, on the Securities as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
performance of this Indenture; and (to the extent that they may lawfully do so)
each of the Company and the Guarantor hereby expressly waives all benefit or
advantage of any such law, and covenants that it shall not hinder, delay or
impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law had
been enacted.

SECTION 4.14. CHANGE OF CONTROL.

                  (a) Upon the occurrence of a Change of Control (the date of
such occurrence being the "CHANGE OF CONTROL TRIGGER DATE"), each Holder of
Securities shall have the right to require the Company to purchase all or any
part (equal to $1,000 or an integral multiple thereof) of such Holder's
Securities pursuant to the offer described below (the "CHANGE OF CONTROL OFFER")
at an offer price in cash equal to 101% of the aggregate principal thereof, plus
any accrued and unpaid interest and Liquidated Damages, if any, to the date of
purchase (the "CHANGE OF CONTROL PAYMENT").

                  Within 60 days following any Change of Control, the Company
will, or will cause the Trustee to, mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Securities on the date specified in that notice, which date shall
be no earlier than 30 days and no later than 60 days from the date that notice
is mailed (the "CHANGE OF CONTROL PAYMENT DATE"),


   56
                                      -48-


pursuant to the procedures required by this Indenture and described in that
notice. Such notice shall state among other things:

                  (i)      that a Change of Control Offer is being made, the
                           length of time the Change of Control Offer shall
                           remain open and that all Securities tendered for
                           payment will be accepted for payment, and otherwise
                           subject to the terms and conditions set forth
                           therein;

                  (ii)     the purchase price and the Change of Control Payment
                           Date (which shall be no earlier than 30 days and no
                           later than 60 days from the date such notice is
                           mailed);

                  (iii)    that any Security not tendered will continue to
                           accrue interest;

                  (iv)     that any Security accepted for payment pursuant to
                           the Change of Control Offer shall cease to accrue
                           interest on and after the Change of Control Payment
                           Date;

                  (v)      that Holders accepting the Change of Control Offer
                           will be required to surrender the Securities to the
                           Paying Agent specified in the notice prior to the
                           close of business on the third Business Day preceding
                           the Change of Control Payment Date;

                  (vi)     that Holders will be entitled to withdraw their
                           acceptance if the Paying Agent receives, not later
                           than the close of business on the third Business Day
                           preceding the Change of Control Payment Date, a
                           telegram, telex, facsimile transmission or letter
                           setting forth the name of the Holder, the principal
                           amount of the Securities delivered for purchase and a
                           statement that such Holder is withdrawing his
                           election to have such Securities purchased;

                  (vii)    that Holders whose Securities are being purchased
                           only in part will be issued new Securities equal in
                           principal amount to the unpurchased portion of the
                           Securities surrendered;

                  (viii)   any other procedures that a Holder must follow to
                           accept a Change of Control Offer or effect withdrawal
                           of such acceptance; and

                  (ix)     the name and address of the Paying Agent.

                  (b) On the Change of Control Payment Date, the Company shall,
to the extent lawful, (1) accept for payment all Securities or portions thereof
properly tendered pursuant to the Change of Control Offer; (2) deposit with the
Paying Agent an amount equal to the Change of Control Payment in respect of all
Securities or portions thereof so tendered; and (3) deliver or cause to be
delivered to the Trustee the Securities so accepted together with an Officers'
Certificate stating the aggregate principal amount of Securities or portions
thereof being purchased by the Company. The Paying Agent will promptly mail to
each Holder of Securities so tendered the Change of Control Payment for that
Holder's Securities, and the Trustee will promptly authenticate and mail or
cause to be transferred by book-entry to each Holder a new Security equal in
principal amount to any unpurchased portion of the Securities surrendered, if
any; PROVIDED that each new Security will be in a principal amount of $1,000 or
an integral multiple thereof. The Company shall publicly announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.


   57
                                      -49-


                  Prior to complying with the provisions of this Section 4.14,
but in any event within 90 days following a Change of Control, the Company shall
either repay all outstanding Senior Indebtedness or obtain the requisite
consents, if any, under all agreements governing outstanding Senior Indebtedness
to permit the repurchase of Securities required by this Section 4.14.

                  The Change of Control provisions described above will be
applicable whether or not any other provisions of this Indenture are applicable.
Except as described above with respect to a Change of Control, this Indenture
does not contain provisions that permit the Holders of the Securities to require
that RailAmerica or the Company repurchase or redeem the Securities in the event
of a takeover, recapitalization or similar transaction.

                  The Company shall not be required to make a Change of Control
Offer upon a Change of Control if a third party makes the Change of Control
Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in this Indenture applicable to a Change of Control Offer
made by the Company and purchases all Securities validly tendered and not
withdrawn under that Change of Control Offer.

                  The Company will not be required to make a Change of Control
Offer, as provided above, if, in connection with or in contemplation of a Change
of Control, it has made an offer to purchase (an "ALTERNATE OFFER") any and all
Securities validly tendered at a cash price equal to or greater than the Change
of Control offer price and has purchased all Securities properly tendered in
accordance with the terms of such Alternate Offer.

                  The Company will comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent those laws and regulations are applicable in connection with the
repurchase of the Securities as a result of a Change of Control. To the extent
that the provisions of any securities laws or regulations conflict with the
provisions of this Indenture relating to a Change of Control Offer, the Company
will comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations described in this Indenture by virtue
thereof.

SECTION 4.15. LIMITATION ON SENIOR SUBORDINATED INDEBTEDNESS.

                  (a) The Company shall not incur any Indebtedness that would
rank both (1) senior in right of payment to the Securities and (2) subordinate
in right of payment to any other Indebtedness of the Company; and

                  (b) no Guarantor that is a Restricted Subsidiary will incur
any Indebtedness that would rank both (1) senior in right of payment to that
Guarantor's Guarantee and (2) subordinate in right of payment to any other
Indebtedness of such Guarantor.

SECTION 4.16. LIMITATIONS ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
              RESTRICTED SUBSIDIARIES.

                  The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective, any consensual encumbrance or restriction
on the ability of any of its Restricted Subsidiaries to:

                  (1) (a) pay dividends or make any other distributions to the
         Company or any of its Restricted Subsidiaries (i) on its Capital Stock
         or (ii) with respect to any other interest or participation in, or
         measured by, its profits; or



   58
                                      -50-


                      (b) pay any Indebtedness owed to the Company or any
         Restricted Subsidiary,

                  (2) make loans or advances to the Company or any Restricted
         Subsidiary or

                  (3) transfer any of its properties or assets to the Company or
         any Restricted Subsidiary.

                  The foregoing restrictions will not apply to encumbrances or
restrictions existing under or by reason of:

                  (1) Existing Indebtedness as in effect as of the date of this
         Indenture;

                  (2) the Senior Credit Facility as in effect as of the date of
         this Indenture;

                  (3) this Indenture, the Securities and the Guarantees;

                  (4) Foreign Credit Facilities; PROVIDED that the Indebtedness
         incurred thereunder was permitted by the terms of this Indenture to be
         incurred;

                  (5) applicable law and any applicable rule, regulation or
         order;

                  (6) any agreement or instrument governing Indebtedness or
         Capital Stock of a Person acquired by the Company or any of its
         Restricted Subsidiaries as in effect at the time of that acquisition
         (except to the extent created in contemplation of that acquisition),
         which encumbrance or restriction is not applicable to any Person, or
         the properties or assets of any Person, other than the Person, or the
         property or assets of the Person, so acquired; PROVIDED that, in the
         case of Indebtedness, that Indebtedness was permitted by the terms of
         this Indenture to be incurred;

                  (7) customary non-assignment provisions in leases entered into
         in the ordinary course of business and consistent with past practices;

                  (8) purchase money obligations for property acquired in the
         ordinary course of business that impose restrictions of the nature
         described in clause (6) above on the property so acquired;

                  (9) contracts for the sale of assets, including, without
         limitation, customary restrictions with respect to a Subsidiary
         pursuant to an agreement that has been entered into for the sale or
         disposition of all or substantially all of the Capital Stock or assets
         of the Restricted Subsidiary;

                  (10) secured Indebtedness otherwise permitted to be incurred
         pursuant to Sections 4.04 and 4.18 of this Indenture that limit the
         right of the debtor to dispose of the assets securing that
         Indebtedness;

                  (11) restrictions on cash or other deposits or net worth
         imposed by customers under contracts entered into in the ordinary
         course of business;

                  (12) customary provisions in joint venture agreements and
         other similar agreements entered into in the ordinary course of
         business; and


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                                      -51-


                  (13) Permitted Refinancing Indebtedness of Indebtedness
         issued, assumed or incurred pursuant to an agreement referred to in
         clauses (1), (2), (3), (4) or (6) above; PROVIDED that the restrictions
         contained in the agreements governing that Permitted Refinancing
         Indebtedness are, in the good faith judgment of the Company's Board of
         Directors, not materially less favorable, taken as a whole, to the
         Holders of the Securities than those contained in the agreements
         governing the Indebtedness being refinanced.

SECTION 4.17. DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES.

                  The Board of Directors of the Company may designate any
Restricted Subsidiary of the Company to be an Unrestricted Subsidiary if that
designation would not cause a Default or an Event of Default. If a Restricted
Subsidiary of the Company is designated as an Unrestricted Subsidiary, the
aggregate fair market value of all outstanding Investments owned by the Company
and its Restricted Subsidiaries in the Subsidiary so designated will be deemed
to be an Investment made as of the time of such designation and will either
reduce the amount available for Restricted Payments under the first paragraph of
Section 4.06 in this Indenture or reduce the amount available for future
Investments under one or more clauses of the definition of Permitted
Investments, if applicable, as the Company shall determine. That designation
will only be permitted if such Investment would be permitted at that time and if
such Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary. The Board of Directors may redesignate an Unrestricted Subsidiary to
be a Restricted Subsidiary if the redesignation would not cause a Default or an
Event of Default.

SECTION 4.18. LIMITATION ON LIENS.

                  The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien, other than a Permitted Lien, that secures obligations
under any Pari Passu Indebtedness or subordinated Indebtedness of the Company,
on any property or asset now owned or hereafter acquired by the Company or any
of its Restricted Subsidiaries, or any income or profits therefrom, or assign or
convey any right to receive income therefrom, unless the Securities are equally
and ratably secured with the obligations so secured until such time as those
obligations are no longer secured by a Lien; PROVIDED that, in any case
involving a Lien securing subordinated Indebtedness of the Company, that Lien is
subordinated to the Lien securing the Securities at least to the same extent
that such subordinated Indebtedness is subordinated to the Securities.

SECTION 4.19. ADDITIONAL SECURITY GUARANTEES.

                  If the Company or any of its Restricted Subsidiaries acquires
or creates another Domestic Subsidiary after the date of this Indenture or if
any Foreign Restricted Subsidiary issues a Guarantee in favor of the lenders
under the Senior Credit Facility (other than Guarantees by Canadian Subsidiaries
of borrowings under the Canadian revolving credit facility and Guarantees by
Australian Subsidiaries of borrowings under the Australian revolving credit
facility), such Subsidiary must become a Guarantor and execute a supplemental
indenture (the "OTHER COMPANY INDEBTEDNESS GUARANTEE") and deliver an Opinion of
Counsel to the Trustee within ten Business Days of the date on which it was
acquired or created or such other Guarantee is issued; PROVIDED that all
Subsidiaries that have been properly designated as Unrestricted Subsidiaries in
accordance with this Indenture shall not become Guarantors for so long as they
continue to constitute Unrestricted Subsidiaries.

                  Each Guarantee of the Securities created by a Restricted
Subsidiary pursuant to the provisions described in the foregoing paragraph shall
be in form and substance satisfactory to the Trustee and shall provide, among
other things, that it will be automatically and unconditionally released and
discharged upon (i) any sale,


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                                      -52-


exchange or transfer permitted by this Indenture of (a) all of the Company's
Capital Stock in such Restricted Subsidiary or (b) the sale of all or
substantially all of the assets of the Restricted Subsidiary and upon the
application of the Net Proceeds from such sale in accordance with the
requirements of Section 4.05 or (ii) the release or discharge of the Other
Company Indebtedness Guarantee that resulted in the creation of such Guarantee
of the Securities.

SECTION 4.20. BUSINESS ACTIVITIES.

                  The Company shall not, and shall not permit any Restricted
Subsidiary to, engage in any business other than Permitted Businesses, except to
such extent as would not be material to the Company and its Restricted
Subsidiaries taken as a whole.

SECTION 4.21. PAYMENTS FOR CONSENT.

                  The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration to or for the benefit of any Holder of Securities for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of this Indenture or the Securities unless such consideration is offered to be
paid or is paid to all Holders of the Securities that consent, waive or agree to
amend in the time frame set forth in the solicitation documents relating to such
consent, waiver or agreement.

                                  ARTICLE FIVE

                         MERGERS; SUCCESSOR CORPORATION

SECTION 5.01. MERGERS, CONSOLIDATION AND SALE OF ASSETS.

                  The Company shall not consolidate or merge with or into
(whether or not the Company is the surviving corporation), or, directly or
indirectly, sell, assign, transfer, convey, lease or otherwise dispose of all or
substantially all of its properties or assets in one or more related
transactions to, another Person unless:

                  (1) the Company is the surviving corporation or the Person
         formed by or surviving any such consolidation or merger (if other than
         the Company) or to which that sale, assignment, transfer, conveyance or
         other disposition shall have been made is a corporation organized or
         existing under the laws of the United States, any state thereof or the
         District of Columbia;

                  (2) the Person formed by or surviving any such consolidation
         or merger (if other than the Company) or the Person to which that sale,
         assignment, transfer, conveyance or other disposition shall have been
         made assumes all the obligations of the Company under the Registration
         Rights Agreement, the Securities and this Indenture pursuant to a
         supplemental indenture in a form reasonably satisfactory to the
         Trustee;

                  (3) immediately after that transaction no Default or Event of
         Default exists; and

                  (4) the Company or the Person formed by or surviving any such
         consolidation or merger (if other than the Company), or to which that
         sale, assignment, transfer, conveyance or other disposition


   61
                                      -53-


         shall have been made, will, at the time of such transaction and after
         giving pro forma effect thereto as if the transaction had occurred at
         the beginning of the applicable four-quarter period, be permitted to
         incur at least $1.00 of additional Indebtedness pursuant to the Fixed
         Charge Coverage Ratio test set forth in the first paragraph of Section
         4.04 of this Indenture.

                  The foregoing clause (4) will not prohibit:

                           (a)      a merger between the Company and a Wholly
                                    Owned Subsidiary of RailAmerica;

                           (b)      a merger between the Company and a Wholly
                                    Owned Restricted Subsidiary; or

                           (c)      a merger between the Company and an
                                    Affiliate incorporated solely for the
                                    purpose of reincorporating the Company in
                                    another State of the United States

so long as, in the case of clauses (a), (b) and (c), the amount of Indebtedness
of the Company and its Restricted Subsidiaries is not increased thereby.

                  No Guarantor may consolidate with or merge with or into
another person or entity, whether or not the Guarantor is the surviving Person,
unless:

                  (1) subject to the provisions of the following paragraph, the
         Person formed by or surviving any such consolidation or merger, if
         other than the Company or the Guarantor, unconditionally assumes all
         the obligations of the Guarantor pursuant to a supplemental indenture
         in form and substance reasonably satisfactory to the Trustee under this
         Indenture, the Guarantee and the Registration Rights Agreement; and

                  (2) immediately after giving effect to such transaction, no
         Default or Event of Default exists.

In the event of:

                  o        a sale or other disposition of all of the assets of a
                           Guarantor that is a Subsidiary, by way of merger,
                           consolidation or otherwise, if the Guarantor applies
                           the Net Proceeds of that sale in accordance with
                           Section 4.05 of this Indenture;

                  o        a sale or other disposition of all of the capital
                           stock of a Guarantor that is a Subsidiary, if the Net
                           Proceeds of that sale are applied in accordance with
                           Section 4.05 of this Indenture; or

                  o        the designation of any Restricted Subsidiary that is
                           a Guarantor as an Unrestricted Subsidiary in
                           accordance with the terms of this Indenture,

         that Guarantor will be released and relieved of any obligations under
its Guarantee.

SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.

                  (a) In the event of any Disposition of the Company or the
Guarantors in accordance with Section 5.01, the successor corporation formed by
such consolidation or into which the Company or the Guarantors


   62
                                      -54-


is merged or to which such Disposition is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company or the
Guarantors under this Indenture with the same effect as if such successor
corporation had been named as the Company or the Guarantors herein, and
thereafter the predecessor corporation shall be relieved of all Obligations and
covenants under this Indenture and the Securities.

                                   ARTICLE SIX

                         EVENTS OF DEFAULT AND REMEDIES

SECTION 6.01. EVENTS OF DEFAULT.

                  Each of the following shall be an "EVENT OF DEFAULT" for
purposes of this Indenture:

                  (i)      a default for 30 days in the payment when due of
                           interest on, or Liquidated Damages with respect to,
                           the Securities (whether or not prohibited by the
                           subordination provisions of this Indenture);

                  (ii)     a default in payment when due of principal or
                           premium, if any, on the Securities (whether or not
                           prohibited by the subordination provisions of this
                           Indenture);

                  (iii)    failure by the Company or any of its Restricted
                           Subsidiaries for 30 days after receipt of notice from
                           the Trustee or Holders of at least 25% in principal
                           amount of the Securities then outstanding to comply
                           with the provisions of Section 4.04, 4.05, 4.06, 4.14
                           or 5.01;

                  (iv)     failure by the Company for 60 days after notice from
                           the Trustee or the Holders of at least 25% in
                           principal amount of the Securities then outstanding
                           to comply with any of its other agreements in this
                           Indenture or the Securities;

                  (v)      a default under any mortgage, indenture or instrument
                           under which there may be issued or by which there may
                           be secured or evidenced any Indebtedness for money
                           borrowed by the Company or any of its Restricted
                           Subsidiaries (or the payment of which is Guaranteed
                           by the Company or any of its Restricted
                           Subsidiaries), whether that Indebtedness or Guarantee
                           now exists, or is created after the date of this
                           Indenture, which default:

                                    (a) is caused by a failure to pay
                           Indebtedness at its stated final maturity (after
                           giving effect to any applicable grace period provided
                           in that Indebtedness) (a "PAYMENT DEFAULT"); or

                                    (b) results in the acceleration of that
                           Indebtedness prior to its stated final maturity and,
                           in each case, the principal amount of any such
                           Indebtedness, together with the principal amount of
                           any other such Indebtedness under which there has
                           been a Payment Default or the maturity of which has
                           been so accelerated, aggregated $10.0 million or
                           more;


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                                      -55-


                  (vi)     failure by the Company or any of its Subsidiaries to
                           pay final judgments aggregating in excess of $10.0
                           million (net of any amounts with respect to which a
                           reputable and creditworthy insurance company has
                           acknowledged liability in writing), which judgments
                           are not paid, discharged or stayed within a period of
                           60 days after such judgment or judgments become final
                           and non-appealable;

                  (vii)    except as permitted by this Indenture, any Guarantee
                           shall be held in any judicial proceeding to be
                           unenforceable or invalid or shall cease for any
                           reason to be in full force and effect or any
                           Guarantor, or any Person acting on behalf of any
                           Guarantor, shall deny or disaffirm its obligations
                           under its Guarantee;

                  (viii)   the Company, the Guarantors or any of its Significant
                           Subsidiaries pursuant to or within the meaning of any
                           Bankruptcy Law: (I) commences a voluntary case, (II)
                           consents to the entry of an order for relief against
                           it in an involuntary case, (III) consents to the
                           appointment of a Custodian of it or for all or
                           substantially all of its property, (IV) makes a
                           general assignment for the benefit of its creditors,
                           or (V) generally is not paying its debts as they
                           become due; and

                  (ix)     a court of competent jurisdiction enters an order or
                           decree under any Bankruptcy Law that: (I) is for
                           relief against the Company, the Guarantors or any of
                           its Significant Subsidiaries in an involuntary case,
                           (II) appoints a Custodian of the Company, the
                           Guarantors or any of its Significant Subsidiaries or
                           for all or substantially all of the property of the
                           Company, the Guarantors or any of its Significant
                           Subsidiaries, or (III) orders the liquidation of the
                           Company, the Guarantors or any of its Significant
                           Subsidiaries, and the order or decree remains
                           unstayed and in effect for 60 days.

                  The term "BANKRUPTCY LAW" means Title 11, U.S. Code, or any
similar Federal or state law for the relief of debtors. The term "CUSTODIAN"
means any receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law.

                  In the case of any Event of Default pursuant to paragraph (i)
or (ii) above occurring by reason of any willful action (or inactions) taken (or
not taken) by or on behalf of the Company with the intention of avoiding payment
of the premium that the Company would have to pay pursuant to a redemption of
Securities as described under Article Three, an equivalent premium shall also
become and be immediately, due and payable to the extent permitted by law.

SECTION 6.02. ACCELERATION.

                  If any Event of Default (other than an Event of Default
specified in clauses (viii) and (ix) above with respect to events of bankruptcy
or insolvency with respect to the Company or any Subsidiary that is a
Significant Subsidiary) occurs and is continuing, the Holders of at least 25% in
principal amount of the then outstanding Securities may direct the Trustee to
declare all the Securities to be due and payable immediately. Upon any such
declaration, the Securities shall become due and payable immediately. However,
so long as any Indebtedness permitted to be incurred pursuant to the Senior
Credit Facility shall be outstanding, that acceleration shall not be effective
until the earlier of:

                  (1) an acceleration of any such Indebtedness under the Senior
         Credit Facility; and


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                                      -56-


                    (2) five Business Days after receipt by the Company and the
         administrative agent under the Senior Credit Facility of written notice
         of that acceleration.

                  Notwithstanding the foregoing, in the case of an Event of
Default specified in clauses (viii) and (ix) above with respect to events of
bankruptcy or insolvency with respect to the Company or any Subsidiary that is a
Significant Subsidiary, all outstanding Securities will become due and payable
without further action or notice. Holders of the Securities may not enforce this
Indenture or the Securities except as provided in this Indenture.

                  The Holders of a majority in aggregate principal amount of the
then outstanding Securities by written notice to the Trustee may on behalf of
all of the Holders rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree and if all existing
Events of Default (except nonpayment of principal, interest or premium or
Liquidated Damages, if any, that has become due solely because of the
acceleration) have been cured or waived; PROVIDED that, in the event of a
declaration of acceleration of the Securities because an Event of Default has
occurred and is continuing as a result of the acceleration of any Indebtedness
described in clause (v) above, the declaration of acceleration of the Securities
shall be automatically annulled if the Holders of any Indebtedness described in
that clause (v) have rescinded the declaration of acceleration in respect of
that Indebtedness within 30 days of the date of that declaration and if:

                  (1) the annulment of the acceleration of the Securities would
         not conflict with any judgment or decree of a court of competent
         jurisdiction; and

                  (2) all existing Events of Default (except non-payment of
         principal or interest on the Securities that became due solely because
         of the acceleration of the Securities) have been cured or waived.

SECTION 6.03. OTHER REMEDIES.

                  If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of or interest and Liquidated Damages, if any, on the
Securities or to enforce the performance of any provision of the Securities or
this Indenture.

                  The Trustee may maintain a proceeding even if it does not
possess any of the Securities or does not produce any of them in the proceeding.
A delay or omission by the Trustee or any Securityholder in exercising any right
or remedy maturing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.

SECTION 6.04. WAIVER OF PAST DEFAULT.

                  Subject to Sections 2.09, 6.07 and 10.02, prior to the
declaration of acceleration of the Securities, the Holders of not less than a
majority in aggregate principal amount of the outstanding Securities by written
notice to the Trustee may waive an existing Default or Event of Default and its
consequences under this Indenture, except a continuing Default or Event of
Default in the payment of principal of or premium, if any, or interest or
Liquidated Damages, if any, on any Security or a Default or Event of Default in
respect of any term or provision of this Indenture that may not be amended or
modified without the consent of each Holder affected as provided in Section
10.02 (and except for any failure to pay any amount owing to the Trustee, or
waiver of any covenant or other provision for the personal protection of the
Trustee, without the Trustee's consent). The Company shall deliver to the
Trustee an Officers' Certificate stating that the requisite percentage of
Holders have

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                                      -57-


consented to such waiver and attaching copies of such consents. In case of any
such waiver, the Company, the Trustee and the Holders shall be restored to their
former positions and rights hereunder and under the Securities, respectively.
This paragraph of this Section 6.04 shall be in lieu of ss. 316(a)(1)(B) of the
TIA and such ss. 316(a)(1)(B) of the TIA is hereby expressly excluded from this
Indenture and the Securities, as permitted by the TIA.

                  Upon any such waiver, such Default shall cease to exist and be
deemed to have been cured and not to have occurred, and any Event of Default
arising therefrom shall be deemed to have been cured and not to have occurred
for every purpose of this Indenture and the Securities, but no such waiver shall
extend to any subsequent or other Default or Event of Default or impair any
right consequent thereon.

SECTION 6.05. CONTROL BY MAJORITY.

                  Subject to Section 2.09, the Holders of a majority in
principal amount of the outstanding Securities may direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on it. However, the Trustee may refuse
to follow any direction that conflicts with law or this Indenture, that the
Trustee determines may be unduly prejudicial to the rights of another
Securityholder, or that may involve the Trustee in personal liability; PROVIDED,
HOWEVER, that the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction. The trustee may withhold from
Holders of the Securities notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest. In the
event the Trustee takes any action or follows any direction pursuant to this
Indenture, the Trustee shall be entitled to indemnification satisfactory to it
in its sole discretion against any loss or expense caused by taking such action
or following such direction. This Section 6.05 shall be in lieu of ss.
316(a)(1)(A) of the TIA, and such ss. 316(a)(1)(A) of the TIA is hereby
expressly excluded from this Indenture and the Securities, as permitted by the
TIA.

SECTION 6.06. LIMITATION ON SUITS.

                  A Securityholder may not pursue any remedy with respect to
this Indenture or the Securities unless:

                  (i)      the Holder gives to the Trustee written notice of a
                           continuing Event of Default;

                  (ii)     the Holders of at least 25% in aggregate principal
                           amount of the outstanding Securities make a written
                           request to the Trustee to pursue a remedy;

                  (iii)    such Holder or Holders offer and, if requested,
                           provide to the Trustee indemnity satisfactory to the
                           Trustee against any loss, liability or expense;

                  (iv)     the Trustee does not comply with the request within
                           60 days after receipt of the request and the offer
                           and, if requested, the provision of indemnity; and

                  (v)      during such 60-day period the Holders of a majority
                           in principal amount of the outstanding Securities do
                           not give the Trustee a direction which, in the
                           opinion of the Trustee, is inconsistent with the
                           request.


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                                      -58-


                  A Securityholder may not use this Indenture to prejudice the
rights of another Securityholder or to obtain a preference or priority over such
other Securityholder.

SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT.

                  Notwithstanding any other provision of this Indenture, the
right of any Holder to receive payment of principal of or interest or Liquidated
Damages, if any, on a Security, on or after the respective due dates expressed
in the Security, or to bring suit for the enforcement of any such payment on or
after such respective dates, shall not be impaired or affected without the
consent of the Holder.

SECTION 6.08. COLLECTION SUIT BY TRUSTEE.

                  If an Event of Default in payment of principal or premium, if
any, or interest or Liquidated Damages, if any, specified in Section 6.01(i) or
(ii) occurs and is continuing, the Trustee may recover judgment in its own name
and as trustee of an express trust against the Company or the Guarantors or any
other obligor on the Securities for the whole amount of principal and premium,
if any, and accrued interest remaining unpaid, and Liquidated Damages, if any,
together with interest overdue on principal and to the extent that payment of
such interest is lawful, interest on overdue installments of interest, in each
case at the rate PER ANNUM borne by the Securities and such further amount as
shall be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.

SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.

                  The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Securityholders allowed in any judicial proceedings relative to the Company or
the Guarantors (or any other obligor upon the Securities), any of their
respective creditors or any of their respective property and shall be entitled
and empowered to collect and receive any monies or other property payable or
deliverable on any such claims and to distribute the same, and any Custodian in
any such judicial proceedings is hereby authorized by each Securityholder to
make such payments to the Trustee and, in the event that the Trustee shall
consent to the making of such payments directly to the Securityholders, to pay
to the Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agent and counsel, and any other
amounts due the Trustee under Section 7.07. Nothing herein contained shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt on
behalf of any Securityholder any plan of reorganization, arrangement, adjustment
or composition affecting the Securities or the rights of any Holder thereof, or
to authorize the Trustee to vote in respect of the claim of any Securityholder
in any such proceeding.

SECTION 6.10. PRIORITIES.

                  If the Trustee collects any money or property pursuant to this
Article Six, subject to the provisions of Articles Eight and Twelve, it shall
pay out the money or property in the following order:

                  First: to the Trustee for amounts due under Section 7.07;

                  Second: to Holders for amounts due and unpaid on the
         Securities for principal, premium, if any, or Liquidated Damages, if
         any, and interest, ratably, without preference or priority of any kind,
         according to the amounts due and payable on the Securities for
         principal and interest, respectively; and


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                                      -59-


                  Third: to the Company or, to the extent the Trustee collects
         any amount from the Guarantors, to the Guarantors.

                  The Trustee, upon prior written notice to the Company, may fix
a record date and payment date for any payment to Securityholders pursuant to
this Section 6.10.

SECTION 6.11. UNDERTAKING FOR COSTS.

                  In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as Trustee, a court in its discretion may require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees and expenses, against any party litigant in the suit,
having due regard to the merits and good faith of the claims or defenses made by
the party litigant. This Section 6.11 shall not apply to a suit by the Trustee,
a suit by a Holder or group of Holders of more than 10% in aggregate principal
amount of the outstanding Securities, or to any suit instituted by any Holder
for the enforcement or the payment of the principal of or interest or premium or
Liquidated Damages, if any, on any Securities on or after the respective due
dates expressed in the Security.

                                  ARTICLE SEVEN

                                     TRUSTEE

SECTION 7.01. DUTIES OF TRUSTEE.

                  (a) If a Default or Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture and use the same degree of care and skill in their exercise
as a prudent Person would exercise or use under similar circumstances in the
conduct of his own affairs.

                  (b) Except during the continuance of a Default or Event of
Default:

                    (1) The Trustee shall not be liable except for the
         performance of such duties as are specifically set forth herein; and

                    (2) In the absence of bad faith on its part, the Trustee may
         conclusively rely, as to the truth of the statements and the
         correctness of the opinions expressed therein, upon certificates or
         opinions conforming to the requirements of this Indenture; however, in
         the case of any such certificates or opinions which by any provision
         hereof are specifically required to be furnished to the Trustee, the
         Trustee shall examine such certificates and opinions to determine
         whether or not they conform to the requirements of this Indenture.

                  (c) The Trustee shall not be relieved from liability for its
own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:

                    (1) This paragraph does not limit the effect of paragraph
(b) of this Section 7.01;


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                                      -60-


                    (2) The Trustee shall not be liable for any error of
         judgment made in good faith by a Trust Officer, unless it is proved
         that the Trustee was negligent in ascertaining the pertinent facts; and

                    (3) The Trustee shall not be liable with respect to any
         action it takes or omits to take in good faith in accordance with a
         direction received by it pursuant to Section 6.05.

                  (d) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder or to take or omit to take any
action under this Indenture or take any action at the request or direction of
Holders if it shall have reasonable grounds for believing that repayment of such
funds is not assured to it or it does not receive from such Holders an indemnity
satisfactory to it in its sole discretion against such risk, liability, loss,
fee or expense which might be incurred by it in compliance with such request or
direction.

                  (e) Every provision of this Indenture that in any way relates
to the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section
7.01.

                  (f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.

SECTION 7.02. RIGHTS OF TRUSTEE.

                  Subject to Section 7.01:

                  (a) The Trustee may rely on any document believed by it to be
         genuine and to have been signed or presented by the proper person. The
         Trustee need not investigate any fact or matter stated in the document.

                  (b) Before the Trustee acts or refrains from acting, it may
         require an Officers' Certificate and/or an Opinion of Counsel or both,
         which shall conform to the provisions of Section 13.05. The Trustee
         shall not be liable for any action it takes or omits to take in good
         faith in reliance on such Officers' Certificate or Opinion of Counsel.

                  (c) The Trustee may act through attorneys and agents of its
         selection and shall not be responsible for the misconduct or negligence
         of any agent or attorney (other than an agent who is an employee of the
         Trustee) appointed with due care.

                  (d) The Trustee shall not be liable for any action it takes or
         omits to take in good faith which it reasonably believes to be
         authorized or within its rights or powers conferred upon it by this
         Indenture.

                  (e) The Trustee may consult with counsel and the advice or
         opinion of such counsel as to matters of law shall be full and complete
         authorization and protection from liability in respect of any action
         taken, omitted or suffered by it hereunder in good faith and in
         accordance with the advice or opinion of such counsel.

                  (f) Any request or direction of the Company mentioned herein
         shall be sufficiently evidenced by a Company Request or Company Order
         and any request or direction of the Guarantors mentioned herein shall
         be sufficiently evidenced if signed by an officer of the Guarantors.


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                                      -61-


                  (g) The Trustee shall be under no obligation to exercise any
         of the rights or powers vested in it by this Indenture at the request
         or direction of any of the Securityholders pursuant to this Indenture,
         unless such Securityholders shall have offered to the Trustee
         reasonable security or indemnity against the costs, expenses and
         liabilities which might be incurred by it in compliance with such
         request or direction.

                  (h) The Trustee shall not be bound to make any investigation
         into the facts or matters stated in any resolution, certificate,
         statement, instrument, opinion, report, notice, request, direction,
         consent, order, bond, debenture, security, other evidence of
         indebtedness or other paper or document, but the Trustee, in its
         discretion, may make such further inquiry or investigation into such
         facts or matters as it may see fit, and, if the Trustee shall determine
         to make such further inquiry or investigation, it shall be entitled to
         examine the books, records and premises of the Company or the
         Guarantors, personally or by agent or attorney.

                  (i) The Trustee shall not be deemed to have notice of any
         Event of Default unless a Trust Officer of the Trustee has actual
         knowledge thereof or unless the Trustee shall have received written
         notice thereof at the Corporate Trust Office of the Trustee, and such
         notice references the Securities and this Indenture.

                  (j) Permissive rights or powers available to the Trustee
         hereunder shall not be assumed to be mandatory duties or obligations.

SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.

                  The Trustee in its individual or any other capacity may become
the owner or pledgee of Securities and may otherwise deal with the Company or
its Affiliates with the same rights it would have if it were not Trustee,
subject to Section 7.10 hereof. Any Agent may do the same with like rights.
However, the Trustee is subject to Sections 7.10 and 7.11.

SECTION 7.04. TRUSTEE'S DISCLAIMER.

                  The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture or the
Securities, it shall not be accountable for the Company's use of the proceeds
from the Securities, and it shall not be responsible for any statement of the
Company or the Guarantors in this Indenture or any document issued in connection
with the sale of Securities or any statement in the Securities other than the
Trustee's certificate of authentication.

SECTION 7.05. NOTICE OF DEFAULTS.

                  The Company shall deliver to the Trustee annually a statement
regarding compliance with this Indenture and, upon an Officer of the Company
becoming aware of any Default or Event of Default, a statement specifying such
Default or Event of Default. If a Default or an Event of Default occurs and is
continuing and the Trustee knows of such Default or Event of Default, the
Trustee shall mail to each Securityholder notice of the Default or Event of
Default within 90 days after the occurrence thereof. Except in the case of a
Default or an Event of Default (except a Default or Event of Default relating to
the payment of principal or interest) on any Security or a Default or Event of
Default in complying with Section 5.01 hereof, the Trustee may withhold the
notice if and so long as a committee of its Trust Officers in good faith
determines that withholding the notice is in the interest of Securityholders.
This Section 7.05 shall be in lieu of the proviso to ss. 315(b) of the TIA and



   70
                                      -62-


such proviso to ss. 315(b) of the TIA is hereby expressly excluded from this
Indenture and the Securities, as permitted by the TIA.

SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS.

                  If required by TIA ss. 313(a), within 60 days after each
August 1 beginning with August 1, 2001 following the date of this Indenture, the
Trustee shall mail to each Securityholder a report dated as of such August 1
that complies with TIA ss. 313(a). The Trustee also shall comply with TIA ss.
313(b), (c) and (d).

                  A copy of each such report at the time of its mailing to
Securityholders shall be filed with the Commission and each stock exchange, if
any, on which the Securities are listed.

                  The Company shall promptly notify the Trustee in writing if
the Securities become listed on any stock exchange or of any delisting thereof.

SECTION 7.07. COMPENSATION AND INDEMNITY.

                  The Company and the Guarantors, jointly and severally, shall
pay to the Trustee from time to time such compensation as the Company and the
Trustee shall from time to time agree in writing for its services. The Trustee's
compensation shall not be limited by any law on compensation of a trustee of an
express trust. The Company and the Guarantors shall reimburse the Trustee upon
request for all reasonable disbursements, expenses and advances (including fees,
disbursements and expenses of its agents and counsel) incurred or made by it in
addition to the compensation for its services except any such disbursements,
expenses and advances as may be attributable to the Trustee's negligence or bad
faith. Such expenses shall include the reasonable compensation, disbursements
and expenses of the Trustee's agents, accountants, experts and counsel and any
taxes or other expenses incurred by a trust created pursuant to Section 9.01
hereof.

                  The Company and the Guarantors, jointly and severally, shall
indemnify the Trustee for, and hold it harmless against any and all loss,
damage, claims, liability or expense, including taxes (other than franchise
taxes imposed on the Trustee and taxes based upon, measured by or determined by
the income of the Trustee), arising out of or in connection with the acceptance
or administration of the trust or trusts hereunder, including the costs and
expenses of defending itself against any claim or liability in connection with
the exercise or performance of any of its powers or duties hereunder, except to
the extent that such loss, damage, claim, liability or expense is due to its own
negligence or bad faith. The Trustee shall notify the Company promptly of any
claim asserted against the Trustee for which it may seek indemnity. However, the
failure by the Trustee to so notify the Company shall not relieve the Company or
the Guarantors of their respective obligations hereunder. The Company and the
Guarantors shall defend the claim and the Trustee shall cooperate in the defense
(and may employ its own counsel) at the Company's and the Guarantors' expense;
PROVIDED, HOWEVER, that the Company's and the Guarantors' reimbursement
obligation with respect to counsel employed by the Trustee will be limited to
the reasonable fees and expenses of such counsel.

                  The Company and the Guarantors need not pay for any settlement
made without their written consent, which consent shall not be unreasonably
withheld. The Company and the Guarantors need not reimburse any expense or
indemnify against any loss or liability incurred by the Trustee as a result of
the violation of this Indenture by the Trustee.

                  To secure the Company's and the Guarantors' payment
obligations in this Section 7.07, the Trustee shall have a Lien prior to the
Securities against all money or property held or collected by the Trustee, in



   71
                                      -63-


its capacity as Trustee, except money or property held in trust to pay principal
of or premium, if any, or interest or Liquidated Damages, if any, on particular
Securities or the purchase price or redemption price of any Securities to be
purchased pursuant to an Asset Sale Offer or Change of Control Offer or
redeemed.

                  When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(viii) or (ix) occurs, the expenses
(including the reasonable fees and expenses of its agents and counsel) and the
compensation for the services shall be preferred over the status of the Holders
in a proceeding under any Bankruptcy Law and are intended to constitute expenses
of administration under any Bankruptcy Law. The Company's and the Guarantors'
obligations under this Section 7.07 and any claim arising hereunder shall
survive the resignation or removal of any Trustee, the discharge of the
Company's and the Guarantor's obligations pursuant to Article Nine and any
rejection or termination under any Bankruptcy Law.

SECTION 7.08. REPLACEMENT OF TRUSTEE.

                  The Trustee may resign at any time by so notifying the Company
in writing. The Holders of a majority in principal amount of the outstanding
Securities may remove the Trustee by so notifying the Trustee and the Company in
writing and may appoint a successor Trustee with the Company's consent. The
Company may remove the Trustee if:

                  (1)      the Trustee fails to comply with Section 7.10;

                  (2)      the Trustee is adjudged a bankrupt or an insolvent
                           under any Bankruptcy Law;

                  (3)      a custodian or other public officer takes charge of
                           the Trustee or its property; or

                  (4)      the Trustee becomes incapable of acting.

                  If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason (the Trustee in such event being referred
to herein as the retiring Trustee), the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office, the
Holders of a majority in principal amount of the Securities may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.

                  A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. As promptly as
practicable after that, the retiring Trustee shall transfer, after payment of
all sums then owing to the Trustee pursuant to Section 7.07, all property held
by it as Trustee to the successor Trustee, subject to the Lien provided in
Section 7.07, the resignation or removal of the retiring Trustee shall become
effective, and the successor Trustee shall have the rights, powers and duties of
the Trustee under this Indenture. A successor Trustee shall mail notice of its
succession to each Securityholder.

                  If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company or the Holders of at least 10% in principal amount of the outstanding
Securities may petition, at the expense of the Company, any court of competent
jurisdiction for the appointment of a successor Trustee.

                  If the Trustee fails to comply with Section 7.10, any
Securityholder may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.


   72
                                      -64-


                  Notwithstanding replacement of the Trustee pursuant to this
Section 7.08, the Company's and the Guarantor's obligations under Section 7.07
shall continue for the benefit of the retiring Trustee.

SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.

                  If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation or banking corporation, the resulting, surviving or transferee
corporation or banking corporation without any further act shall be the
successor Trustee.

                  In case at the time such successor or successors by merger,
conversion or consolidation to the Trustee shall succeed to the trusts created
by this Indenture any of the Securities shall have been authenticated but not
delivered, any such successor to the Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Securities so
authenticated; and in case at that time any of the Securities shall not have
been authenticated, any successor to the Trustee may authenticate such
Securities either in the name of any predecessor hereunder or in the name of the
successor to the Trustee; and in all such cases such certificates shall have the
full force which it is anywhere in the Securities or in this Indenture provided
that the certificate of the Trustee shall have.

SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.

                  This Indenture shall always have a Trustee which shall be
eligible to act as Trustee under TIA ss.ss. 310(a)(1) and 310(a)(2). The Trustee
shall have a combined capital and surplus of at least $50,000,000 as set forth
in its most recent published annual report of condition. If the Trustee has or
shall acquire any "conflicting interest" within the meaning of TIA ss. 310(b),
the Trustee and the Company shall comply with the provisions of TIA ss. 310(b);
PROVIDED, HOWEVer, that there shall be excluded from the operation of TIA ss.
310(b)(1) any indenture or indentures under which other securities or
certificates of interest or participation in other securities of the Company are
outstanding if the requirements for such exclusion set forth in TIA ss.
310(b)(1) are met. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section 7.10, the Trustee shall resign
immediately in the manner and with the effect hereinbefore specified in this
Article Seven.

SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.

                  The Trustee shall comply with TIA ss. 311(a), excluding any
creditor relationship listed in TIA ss. 311(b). A Trustee who has resigned or
been removed shall be subject to TIA ss. 311(a) to the extent indicated therein.

                                  ARTICLE EIGHT

                           SUBORDINATION OF SECURITIES

SECTION 8.01. SECURITIES SUBORDINATED TO SENIOR INDEBTEDNESS.

                  The Company and the Guarantors covenant and agree, and the
Trustee and each Holder of the Securities by his acceptance thereof likewise
covenant and agree, that all Securities shall be issued subject to the
provisions of this Article Eight; and each person holding any Security, whether
upon original issue or upon transfer, assignment or exchange thereof, accepts
and agrees that all payments of the principal of and interest

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and Liquidated Damages, if any, on the Securities by the Company or the
Guarantors shall, to the extent and in the manner set forth in this Article
Eight, be subordinated and junior in right of payment to the prior payment in
full in cash or Cash Equivalents of all amounts payable under Senior
Indebtedness, whether outstanding on the date of the Indenture or thereafter
incurred.

SECTION 8.02. NO PAYMENT ON SECURITIES IN CERTAIN CIRCUMSTANCES.

                  (a) The Company may not make any payment or distribution to
the Trustee or any Holder upon or in respect of the Subordinated Note
Obligations (except that Holders of Securities may receive payments in Permitted
Junior Securities or made from the defeasance trust described under Section
9.04) until all Obligations with respect to Senior Indebtedness have been paid
in full in cash or Cash Equivalents, if (i) a default in the payment of the
principal (including reimbursement obligations in respect to letters of credit)
of, premium, if any, or interest on or commitment, letter of credit or
administrative fees relating to, Designated Senior Indebtedness occurs and is
continuing beyond any applicable period of grace or (ii) any other default
occurs and is continuing with respect to Designated Senior Indebtedness that
permits holders of the Designated Senior Indebtedness as to which such default
relates to accelerate its maturity and the Trustee receives a written notice
(with a copy to the Company) of such other default (a "PAYMENT BLOCKAGE NOTICE")
from the Company or the holders of any Designated Senior Indebtedness. Payments
on the Securities may and shall be resumed (a) in the case of a payment default,
upon the date on which such default is cured or waived and (b) in case of a
nonpayment default, the earlier of the date on which such nonpayment default is
cured or waived or 179 days after the date on which the applicable Payment
Blockage Notice is received by the Trustee (such period being referred to herein
as the "PAYMENT BLOCKAGE PERIOD"), unless a payment default on Designated Senior
Indebtedness then exists. No new Payment Blockage Period may be commenced unless
and until 360 days have elapsed since the date of receipt by the Trustee of the
immediately prior Payment Blockage Notice. No nonpayment default that existed or
was continuing on the date of delivery of any Payment Blockage Notice to the
Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice
unless such default shall have been waived or cured for a period of not less
than 90 days.

                  (b) In the event that, notwithstanding the foregoing, any
payment shall be received by the Trustee or any Holder when such payment is
prohibited by Section 8.02(a), such payment shall be held in trust for the
benefit of, and shall be paid over or delivered to, the holders of Designated
Senior Indebtedness or their respective representatives, or to the trustee or
trustees under any indenture pursuant to which any of such Designated Senior
Indebtedness may have been issued, as their respective interests may appear, but
only to the extent that, upon notice from the Trustee to the holders of
Designated Senior Indebtedness that such prohibited payment has been made, the
holders of the Designated Senior Indebtedness (or their representative or
representatives or a trustee) notify the Trustee in writing of the amounts then
due and owing on the Designated Senior Indebtedness, if any, and only the
amounts specified in such notice to the Trustee shall be paid to the holders of
Designated Senior Indebtedness.

SECTION 8.03. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC.

                  (a) Upon any distribution to creditors of the Company in a
liquidation or dissolution of the Company or in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to the Company or its
property, an assignment for the benefit of creditors or any marshaling of the
assets and liabilities of the Company, (1) the holders of Senior Indebtedness
shall be entitled to receive payment in full in cash or Cash Equivalents of all
Obligations due in respect of such Senior Indebtedness (including interest after
the commencement of any such proceeding, whether or not allowable as a claim in
any such proceeding, at the rate specified in the applicable Senior
Indebtedness) before the Holders of Securities shall be entitled to receive any


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payment with respect to the Subordinated Note Obligations under the Securities,
and (2) until all Obligations with respect to Senior Indebtedness are paid in
full in cash or Cash Equivalents, any distribution to which the Holders of
Securities would be entitled shall be made to holders of Senior Indebtedness.
However, Holders of Securities may receive and retain Permitted Junior
Securities and payments made from the defeasance trust described in Section
9.04.

                  (b) In the event that, notwithstanding the foregoing provision
prohibiting such payment or distribution, any payment or distribution of assets
or securities of the Company of any kind or character, whether in cash, property
or securities, shall be received by the Trustee or any Holder of Securities at a
time when such payment or distribution is prohibited by Section 8.03(a) and
before all obligations in respect of Senior Indebtedness are paid in full in
cash or Cash Equivalents, or payment provided for, such payment or distribution
shall be received and held in trust for the benefit of, and shall be paid over
or delivered to, the holders of Senior Indebtedness (PRO RATA to such holders on
the basis of the respective amounts of Senior Indebtedness held by such holders)
or their respective representatives, or to the trustee or trustees or agent or
agents under any indenture pursuant to which any of such Senior Indebtedness may
have been issued, as their respective interests may appear, for application to
the payment of Senior Indebtedness remaining unpaid until all such Senior
Indebtedness has been paid in full in cash after giving effect to any prior or
concurrent payment, distribution or provision therefor to or for the holders of
such Senior Indebtedness.

                  The consolidation of the Company with, or the merger of the
Company with or into, another corporation or the liquidation or dissolution of
the Company following the conveyance or transfer of its property as an entirety,
or substantially as an entirety, to another corporation upon the terms and
conditions provided in Article Five shall not be deemed a dissolution,
winding-up, liquidation or reorganization for the purposes of this Section 8.03
if such other corporation shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions stated in Article Five.

SECTION 8.04. SUBROGATION.

                  Upon the payment in full in cash or Cash Equivalents of all
Senior Indebtedness, or provision for payment, the Holders of the Securities
shall be subrogated to the rights of the holders of Senior Indebtedness to
receive payments or distributions of cash, property or securities of the Company
made on such Senior Indebtedness until the principal of and interest and
Liquidated Damages, if any, on the Securities shall be paid in full in cash;
and, for the purposes of such subrogation, no payments or distributions to the
holders of the Senior Indebtedness of any cash, property or securities to which
the Holders of the Securities or the Trustee on their behalf would be entitled
except for the provisions of this Article Eight, and no payment over pursuant to
the provisions of this Article Eight to the holders of Senior Indebtedness by
Holders of the Securities or the Trustee on their behalf shall, as between the
Company, its creditors other than holders of Senior Indebtedness, and the
Holders of the Securities, be deemed to be a payment by the Company to or on
account of the Senior Indebtedness. It is understood that the provisions of this
Article Eight are and are intended solely for the purpose of defining the
relative rights of the Holders of the Securities, on the one hand, and the
holders of the Senior Indebtedness, on the other hand.

                  If any payment or distribution to which the Holders of the
Securities would otherwise have been entitled but for the provisions of this
Article Eight shall have been applied, pursuant to the provisions of this
Article Eight, to the payment of all amounts payable under Senior Indebtedness,
then and in such case, the Holders of the Securities shall be entitled to
receive from the holders of such Senior Indebtedness any payments or
distributions received by such holders of Senior Indebtedness in excess of the
amount required to make payment in full, or provision for payment, of such
Senior Indebtedness.


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SECTION 8.05. OBLIGATIONS OF COMPANY UNCONDITIONAL.

                  Nothing contained in this Article Eight or elsewhere in this
Indenture or in the Securities is intended to or shall impair, as between the
Company and the Holders of the Securities, the obligation of the Company, which
is absolute and unconditional, to pay to the Holders of the Securities the
principal of and interest and Liquidated Damages, if any, on the Securities as
and when the same shall become due and payable in accordance with their terms,
or is intended to or shall affect the relative rights of the Holders of the
Securities and creditors of the Company other than the holders of the Senior
Indebtedness, nor shall anything herein or therein prevent the Holder of any
Security or the Trustee on their behalf from exercising all remedies otherwise
permitted by applicable law upon default under this Indenture, subject to the
rights, if any, under this Article Eight of the holders of the Senior
Indebtedness in respect of cash, property or securities of the Company received
upon the exercise of any such remedy.

                  Without limiting the generality of the foregoing, nothing
contained in this Article Eight shall restrict the right of the Trustee or the
Holders of Securities to take any action to declare the Securities to be due and
payable prior to their stated maturity pursuant to Section 6.01 or to pursue any
rights or remedies hereunder; PROVIDED, HOWEVER, that all Senior Indebtedness
then due and payable shall first be paid in full before the Holders of the
Securities or the Trustee are entitled to receive any direct or indirect payment
from the Company of principal of or interest or Liquidated Damages, if any, on
the Securities.

SECTION 8.06. NOTICE TO TRUSTEE.

                  The Company shall give prompt written notice to the Trustee of
any fact known to the Company which would prohibit the making of any payment to
or by the Trustee in respect of the Securities pursuant to the provisions of
this Article Eight. The Trustee shall not be charged with knowledge of the
existence of any event of default with respect to any Senior Indebtedness or of
any other facts which would prohibit the making of any payment to or by the
Trustee unless and until the Trustee shall have received notice in writing at
its Corporate Trust Office to that effect signed by an Officer of the Company,
or by a holder of Senior Indebtedness or trustee or agent therefor; and prior to
the receipt of any such written notice, the Trustee shall, subject to Article
Seven, be entitled to assume that no such facts exist; PROVIDED that if the
Trustee shall not have received the notice provided for in this Section 8.06 at
least two Business Days prior to the date upon which by the terms of this
Indenture any moneys shall become payable for any purpose (including, without
limitation, the payment of the principal of or interest or Liquidated Damages,
if any, on any Security), then, regardless of anything herein to the contrary,
the Trustee shall have full power and authority to receive any moneys from the
Company and to apply the same to the purpose for which they were received, and
shall not be affected by any notice to the contrary which may be received by it
on or after such prior date. Nothing contained in this Section 8.06 shall limit
the right of the holders of Senior Indebtedness to recover payments as
contemplated by Section 8.03. The Trustee shall be entitled to rely on the
delivery to it of a written notice by a Person representing himself or itself to
be a holder of any Senior Indebtedness (or a trustee on behalf of, or other
representative of, such holder) to establish that such notice has been given by
a holder of such Senior Indebtedness or a trustee or representative on behalf of
any such holder.

                  In the event that the Trustee determines in good faith that
any evidence is required with respect to the right of any Person as a holder of
Senior Indebtedness to participate in any payment or distribution pursuant to
this Article Eight, the Trustee may request such Person to furnish evidence to
the reasonable satisfaction of the Trustee as to the amount of Senior
Indebtedness held by such Person, the extent to which such Person is entitled to
participate in such payment or distribution and any other facts pertinent to the
rights of such Person


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                                      -68-


under this Article Eight, and if such evidence is not furnished, the Trustee may
defer any payment to such Person pending judicial determination as to the right
of such Person to receive such payment.

SECTION 8.07. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT.

                  Upon any payment or distribution of assets or securities
referred to in this Article Eight, the Trustee and the Holders of the Securities
shall be entitled to rely upon any order or decree made by any court of
competent jurisdiction in which bankruptcy, dissolution, winding-up, liquidation
or reorganization proceedings are pending, or upon a certificate of the
receiver, trustee in bankruptcy, liquidating trustee, agent or other person
making such payment or distribution, delivered to the Trustee or to the Holders
of the Securities for the purpose of ascertaining the Persons entitled to
participate in such distribution, the holders of the Senior Indebtedness and
other Indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article Eight.

SECTION 8.08. TRUSTEE'S RELATION TO SENIOR INDEBTEDNESS.

                  The Trustee and any Paying Agent shall be entitled to all the
rights set forth in this Article Eight with respect to any Senior Indebtedness
which may at any time be held by it in its individual or any other capacity to
the same extent as any other holder of Senior Indebtedness, and nothing in this
Indenture shall deprive the Trustee or any Paying Agent of any of its rights as
such holder.

                  With respect to the holders of Senior Indebtedness, the
Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article Eight, and no implied
covenants or obligations with respect to the holders of Senior Indebtedness
shall be read into this Indenture against the Trustee. The Trustee shall not be
deemed to owe any fiduciary duty to the holders of Senior Indebtedness (except
as provided in Section 8.03(b)). The Trustee shall not be liable to any such
holders if the Trustee shall in good faith mistakenly pay over or distribute to
Holders of Securities or to the Company or to any other person cash, property or
securities to which any holders of Senior Indebtedness shall be entitled by
virtue of this Article Eight or otherwise.

SECTION 8.09. SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF THE
              COMPANY OR HOLDERS OF SENIOR INDEBTEDNESS.

                  No right of any present or future holders of any Senior
Indebtedness to enforce subordination as provided herein shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to act, in good faith, by any such holder,
or by any noncompliance by the Company with the terms of this Indenture,
regardless of any knowledge thereof which any such holder may have or otherwise
be charged with. The provisions of this Article Eight are intended to be for the
benefit of, and shall be enforceable directly by, the holders of Senior
Indebtedness.

SECTION 8.10. SECURITYHOLDERS AUTHORIZE TRUSTEE TO EFFECTUATE SUBORDINATION OF
              SECURITIES.

                  Each Holder of Securities by his acceptance of such Securities
authorizes and expressly directs the Trustee on its or his behalf to take such
action as may be necessary or appropriate to effectuate the subordination
provided in this Article Eight, and appoints the Trustee its or his
attorney-in-fact for such purposes, including, in the event of any dissolution,
winding-up, liquidation or reorganization of the Company (whether in bankruptcy,
insolvency, receivership, reorganization or similar proceedings or upon an
assignment for the


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                                      -69-


benefit of creditors or otherwise) tending towards liquidation of the business
and assets of the Company, the filing of a claim for the unpaid balance of its
or his Securities in the form required in those proceedings.

SECTION 8.11. THIS ARTICLE NOT TO PREVENT EVENTS OF DEFAULT.

                  The failure to make a payment on account of principal of or
interest or Liquidated Damages, if any, on the Securities by reason of any
provision of this Article Eight shall not be construed as preventing the
occurrence of an Event of Default specified in clause (i) or (ii) of Section
6.01.

SECTION 8.12. TRUSTEE'S COMPENSATION NOT PREJUDICED.

                  Nothing in this Article Eight shall apply to amounts due to
the Trustee pursuant to other sections in this Indenture.

SECTION 8.13. NO WAIVER OF SUBORDINATION PROVISIONS.

                  Without in any way limiting the generality of Section 8.09,
the holders of Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Holders of the Securities
and without impairing or releasing the subordination provided in this Article
Eight or the obligations hereunder of the Holders of the Securities to the
holders of Senior Indebtedness, do any one or more of the following: (a) change
the manner, place or terms of payment or extend the time of payment of, or renew
or alter, Senior Indebtedness or any instrument evidencing the same or any
agreement under which Senior Indebtedness is outstanding or secured; (b) sell,
exchange, release or otherwise deal with any property pledged, mortgaged or
otherwise securing Senior Indebtedness; (c) release any Person liable in any
manner for the collection of Senior Indebtedness; and (d) exercise or refrain
from exercising any rights against the Company and any other Person.

SECTION 8.14. SUBORDINATION PROVISIONS NOT APPLICABLE TO COLLATERAL HELD IN
              TRUST FOR SECURITYHOLDERS; PAYMENTS MAY BE PAID PRIOR TO
              DISSOLUTION.

                  All money and Government Securities deposited in trust with
the Trustee pursuant to and in accordance with Article Nine shall be for the
sole benefit of the Holders and shall not be subject to this Article Eight.

                  Nothing contained in this Article Eight or elsewhere in this
Indenture shall prevent (i) the Company, except under the conditions described
in Section 8.02, from making payments of principal of and interest and
Liquidated Damages, if any, on the Securities, or from depositing with the
Trustee any moneys for such payments or from effecting a termination of the
Company's and the Guarantor's obligations under the Securities and this
Indenture as provided in Article Nine, or (ii) the application by the Trustee of
any moneys deposited with it for the purpose of making such payments of
principal of and interest and Liquidated Damages, if any, on the Securities, to
the Holders entitled thereto unless at least two Business Days prior to the date
upon which such payment becomes due and payable, the Trustee shall have received
the written notice provided for in Section 8.02(b) or in Section 8.06. The
Company shall give prompt written notice to the Trustee of any dissolution,
winding-up, liquidation or reorganization of the Company.


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SECTION 8.15. ACCELERATION OF SECURITIES.

                  If payment of the Securities is accelerated because of an
Event of Default, the Company shall promptly notify holders of the Senior
Indebtedness of the acceleration.

                                  ARTICLE NINE

                       DISCHARGE OF INDENTURE; DEFEASANCE

SECTION 9.01. DISCHARGE OF INDENTURE.

                  The Company and the Guarantors may terminate their Obligations
under the Securities, the Guarantees and this Indenture, except the obligations
referred to in the last paragraph of this Section 9.01, if there shall have been
cancelled by the Trustee or delivered to the Trustee for cancellation all
Securities theretofore authenticated and delivered (other than any Securities
that are asserted to have been destroyed, lost or stolen and that shall have
been replaced as provided in Section 2.07) and the Company has paid all sums
payable by it hereunder or deposited all required sums with the Trustee.

                  After such delivery the Trustee upon request shall acknowledge
in writing the discharge of the Company's and the Guarantors' Obligations under
the Securities, the Guarantees and this Indenture except for those surviving
obligations specified below.

                  Notwithstanding the satisfaction and discharge of this
Indenture, the obligations of the Company and the Guarantors in Sections 7.07,
9.05 and 9.06 hereof shall survive.

SECTION 9.02. LEGAL DEFEASANCE.

                  The Company may at its option and at any time by resolution of
the Board of Directors, be discharged from its Obligations with respect to the
outstanding Securities and this Indenture and the Guarantors discharged from
their Obligations under the Guarantee and this Indenture on the date the
conditions set forth in Section 9.04 below are satisfied (hereinafter, the
"LEGAL DEFEASANCE OPTION"). For this purpose, exercise of such Legal Defeasance
Option means that the Company shall be deemed to have paid and discharged the
entire indebtedness represented by the Securities and to have satisfied all its
other Obligations under such Securities and this Indenture insofar as such
Securities are concerned (and the Trustee, at the expense of the Company, shall,
subject to Section 9.06 hereof, execute proper instruments acknowledging the
same), except for the following which shall survive until otherwise terminated
or discharged hereunder: (A) the rights of Holders of outstanding Securities to
receive solely from the trust funds described in Section 9.04 hereof and as more
fully set forth in such Section, payments in respect of the principal of,
premium, if any, and interest and Liquidated Damages, if any, on such Securities
when such payments are due, (B) the Company's obligations with respect to such
Securities under Article Two and Section 4.02, (C) the rights, powers, trusts,
duties, and immunities of the Trustee hereunder (including claims of, or
payments to, the Trustee under or pursuant to Section 7.07 hereof), and the
Company's obligations in connection therewith and (D) this Article Nine. Subject
to compliance with this Article Nine, the Company may exercise its Legal
Defeasance Option under this Section 9.02 with respect to the Securities
notwithstanding the prior exercise of its option under Section 9.03 below with
respect to the Securities. If the Company exercises its Legal Defeasance Option,
payment of the Securities may not be accelerated because of an Event of Default
with respect thereto.


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                                      -71-


SECTION 9.03. COVENANT DEFEASANCE.

                  At the option of the Company, pursuant to a resolution of the
Board of Directors, the Company and the Guarantors shall be released from their
respective Obligations under Sections 4.03 through 4.21, clauses (3) and (4) of
paragraph (a) of Section 5.01, and paragraphs (iii), (iv), (v) and (vi) of
Section 6.01, with respect to the outstanding Securities on and after the date
the conditions set forth in Section 9.04 hereof are satisfied (hereinafter,
"COVENANT DEFEASANCE OPTION"). For this purpose, exercise of such Covenant
Defeasance Option means that the Company and the Guarantors may omit to comply
with and shall have no liability in respect of any term, condition or limitation
set forth in any such specified Section or portion thereof, whether directly or
indirectly by reason of any reference elsewhere herein to any such specified
Section or portion thereof or by reason of any reference in any such specified
Section or portion thereof to any other provision herein or in any other
document, but the remainder of this Indenture and the Securities shall be
unaffected thereby. In the event Covenant Defeasance occurs, certain events (not
including non-payment with respect to the Securities, bankruptcy, receivership,
rehabilitation and insolvency events) described under Section 6.01 will no
longer constitute an Event of Default with respect to the Securities. If the
Company exercises the Covenant Defeasance Option, payment of the Securities
shall not be accelerated because of an Event of Default specified in paragraphs
(iii), (iv), (v) or (vi) of Section 6.01 or because of the Company's failure to
comply with clauses (3) and (4) under paragraph (a) of Section 5.01.

SECTION 9.04. CONDITIONS TO LEGAL DEFEASANCE OR COVENANT DEFEASANCE.

                  The following shall be the conditions to application of
Section 9.02 or Section 9.03 hereof to the outstanding Securities:

                  (1) the Company must irrevocably deposit with the Trustee (or
         another trustee satisfying the requirements of Section 7.10 who shall
         agree to comply with the provisions of this Article Nine applicable to
         it) as funds in trust (the "DEFEASANCE TRUST") for the purpose of
         making the following payments, specifically pledged as security for,
         and dedicated solely to, the benefit of the Holders of the Securities,
         cash in United States dollars, non-callable Government Securities, or a
         combination thereof, in those amounts as will be sufficient, in the
         opinion of a nationally recognized firm of independent public
         accountants, to pay the principal of, premium, if any, and interest and
         Liquidated Damages, if any, on the outstanding Securities on the stated
         maturity or on the applicable redemption date, as the case may be, and
         the Company must specify whether the Securities are being defeased to
         maturity or to a particular redemption date;

                  (2) in the case of an election under Section 9.02 above, the
         Company shall have delivered to the Trustee an opinion of counsel in
         the United States reasonably acceptable to the Trustee confirming that:

                           (a) the Company has received from, or there has been
                  published by, the Internal Revenue Service a ruling; or

                           (b) since the date of this Indenture, there has been
                  a change in the applicable federal income tax law,

                  in either case to the effect that, and based thereon that
                  Opinion of Counsel shall confirm that, subject to customary
                  assumptions and exclusions, the Holders of the outstanding
                  Securities will not recognize income, gain or loss for federal
                  income tax purposes as a result of that Legal


   80
                                      -72-


                  Defeasance Option and will be subject to federal income tax on
                  the same amounts, in the same manner and at the same times as
                  would have been the case if that Legal Defeasance Option had
                  not occurred;

                  (3) in the case of an election under Section 9.03 above, the
         Company shall have delivered to the Trustee an Opinion of Counsel in
         the United States reasonably acceptable to the Trustee confirming that,
         subject to customary assumptions and exclusions, the Holders of the
         outstanding Securities will not recognize income, gain or loss for
         federal income tax purposes as a result of that Covenant Defeasance
         Option and will be subject to federal income tax on the same amounts,
         in the same manner and at the same times as would have been the case if
         that Covenant Defeasance Option had not occurred;

                  (4) no Default or Event of Default shall have occurred and be
         continuing on the date of that deposit (other than a Default or Event
         of Default resulting from the borrowing of funds to be applied to that
         deposit);

                  (5) such Legal Defeasance Option or Covenant Defeasance Option
         shall not result in a breach or violation of, or constitute a default
         under, any material agreement or instrument (other than this Indenture)
         to which the Company or any of its Subsidiaries is a party or by which
         the Company or any of its Subsidiaries is bound;

                  (6) the Company must have delivered to the Trustee an Opinion
         of Counsel to the effect that, subject to customary assumptions and
         exclusions, after the 91st day following the deposit, the trust funds
         will not be subject to the effect of Section 547 of the United States
         Bankruptcy Code or any analogous New York State law provision or any
         other applicable federal or New York bankruptcy, insolvency,
         reorganization or similar laws affecting creditors' rights generally;

                  (7) the Company must deliver to the Trustee an Officers'
         Certificate stating that the deposit under clause (1) was not made by
         the Company with the intent of preferring the Holders of Securities
         over the other creditors of the Company with the intent of defeating,
         hindering, delaying or defrauding creditors of the Company or others;
         and

                  (8) the Company must deliver to the Trustee an Officers'
         Certificate and an Opinion of Counsel (which opinion may be subject to
         customary assumptions and exclusions), each stating that all conditions
         precedent provided for relating to the Legal Defeasance Option or the
         Covenant Defeasance Option have been complied with.

SECTION 9.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
              OTHER MISCELLANEOUS PROVISIONS.

                  All money and Government Securities (including the proceeds
thereof) deposited with the Trustee pursuant to Section 9.04 hereof in respect
of the outstanding Securities shall be held in trust and applied by the Trustee,
in accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any Paying Agent as the Trustee may
determine, to the Holders of such Securities, of all sums due and to become due
thereon in respect of principal, premium, if any, accrued interest and
Liquidated Damages, if any, but such money need not be segregated from other
funds except to the extent required by law.

                  The Company and the Guarantors shall pay and indemnify the
Trustee against any tax, fee or other charge imposed on or assessed against the
Government Securities deposited pursuant to Section 9.04


   81
                                      -73-


hereof or the principal, premium, if any, and interest received in respect
thereof other than any such tax, fee or other charge which by law is for the
account of the Holders of the outstanding Securities.

                  Anything in this Article Nine to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or Government Securities held by it as provided in Section
9.04 which, in the opinion of a nationally-recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee, are in excess of the amount thereof which would then be required to be
deposited to effect an equivalent Legal Defeasance Option or Covenant Defeasance
Option.

SECTION 9.06. REINSTATEMENT.

                  If the Trustee or Paying Agent is unable to apply any money or
Government Securities in accordance with Section 9.01, 9.02 or 9.03 by reason of
any legal proceeding or by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, the Company's and the Guarantors' Obligations under this Indenture,
the Securities and the Guarantees shall be revived and reinstated as though no
deposit had occurred pursuant to this Article Nine until such time as the
Trustee or Paying Agent is permitted to apply all such money or Government
Securities in accordance with Section 9.01; PROVIDED, HOWEVER, that if the
Company or the Guarantors has made any payment of principal of, premium, if any,
accrued interest or Liquidated Damages, if any, on any Securities because of the
reinstatement of their Obligations, the Company or the Guarantors, as the case
may be, shall be subrogated to the rights of the Holders of such Securities to
receive such payment from the money or Government Securities held by the Trustee
or Paying Agent.

SECTION 9.07. MONEYS HELD BY PAYING AGENT.

                  In connection with the satisfaction and discharge of this
Indenture, all moneys then held by any Paying Agent under the provisions of this
Indenture shall, upon demand of the Company, be paid to the Trustee, or if
sufficient moneys have been deposited pursuant to Section 9.01 hereof, to the
Company (or, if such moneys had been deposited by the Guarantors, to such
Guarantors), and thereupon such Paying Agent shall be released from all further
liability with respect to such moneys.

SECTION 9.08. MONEYS HELD BY TRUSTEE.

                  Any moneys deposited with the Trustee or any Paying Agent or
then held by the Company or the Guarantors in trust for the payment of the
principal of, or premium, if any, interest or Liquidated Damages, if any, on any
Security that are not applied but remain unclaimed by the Holder of such
Security for two years after the date upon which the principal of, or premium,
if any, interest or Liquidated Damages, if any, on such Security shall have
respectively become due and payable shall be repaid to the Company (or, if
appropriate, the Guarantors) upon Company Request, or if such moneys are then
held by the Company or the Guarantors in trust, such moneys shall be released
from such trust; and the Holder of such Security entitled to receive such
payment shall thereafter, as an unsecured general creditor, look only to the
Company and the Guarantors for the payment thereof, and all liability of the
Trustee or such Paying Agent with respect to such trust money shall thereupon
cease; PROVIDED, HOWEVER, that the Trustee or any such Paying Agent, before
being required to make any such repayment, may, at the expense of the Company
and the Guarantors, either mail to each Securityholder affected, at the address
shown in the Register, or cause to be published once a week for two successive
weeks, in a newspaper published in the English language, customarily published
each Business Day and of general circulation in The City of New York, New York,
a notice that such money remains unclaimed and that, after a date specified


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therein, which shall not be less than 30 days from the date of such mailing or
publication, any unclaimed balance of such moneys then remaining will be repaid
to the Company or the Guarantors. After payment to the Company or the Guarantors
or the release of any money held in trust by the Company or the Guarantors, as
the case may be, Securityholders entitled to the money must look only to the
Company and the Guarantors for payment as general creditors unless applicable
abandoned property law designates another Person.

                                   ARTICLE TEN

                       AMENDMENTS, SUPPLEMENTS AND WAIVERS

SECTION 10.01. WITHOUT CONSENT OF HOLDERS.

                  Notwithstanding Section 10.02, the Company and the Guarantors,
when authorized by a resolution of the Board of Directors and the board of
directors of the Guarantors, and the Trustee may amend or supplement this
Indenture, the Guarantees or the Securities without notice to or consent of any
Securityholder:

                  (i)      to cure any ambiguity, defect or inconsistency;

                  (ii)     to provide for uncertificated Securities in addition
                           to or in place of Certificated Securities;

                  (iii)    to provide for the assumption of the Company's
                           obligations to Holders of Securities in the case of a
                           merger or consolidation or sale of all or
                           substantially all of the assets of the Company or to
                           provide the assumption of any Guarantor's obligations
                           under its Guarantee in the case of a merger or
                           consolidation of that Guarantor;

                  (iv)     to make any change that would provide any additional
                           rights or benefits to the Holders of Securities or
                           that does not materially adversely affect the legal
                           rights under this Indenture of any such Holder;

                  (v)      to comply with requirements of the SEC in order to
                           effect or maintain the qualification of this
                           Indenture under the Trust Indenture Act;

                  (vi)     to provide for Guarantees of the Securities; or

                  (vii)    to evidence and provide acceptance of the appointment
                           of a successor Trustee under this Indenture.

PROVIDED, HOWEVER, that the Company has delivered to the Trustee an Opinion of
Counsel stating that such amendment or supplement complies with the provisions
of this Section 10.01.

SECTION 10.02. WITH CONSENT OF HOLDERS.

                  Subject to Section 6.07, the Company and the Guarantors, when
authorized by a resolution of the Boards of Directors and the board of directors
of the Guarantors, and the Trustee may amend or supplement this Indenture, the
Securities and the Guarantees with the written consent of the Holders of at
least a majority in


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                                      -75-


principal amount of the then outstanding Securities and any existing default or
compliance with any provision of this Indenture, the Guarantee or the Securities
may be waived with consent of the holders of a majority in principal amount of
the then outstanding Securities. Subject to Section 6.07, the Holders of a
majority in principal amount of the outstanding Securities may waive compliance
by the Company or the Guarantors with any provision of this Indenture or the
Securities. Consents obtained in connection with a purchase of, or tender offer
or exchange offer for, Securities shall be included for those purposes. However,
without the consent of each Securityholder affected, an amendment or waiver,
with respect to any Securities held by a non-consenting Holder, including a
waiver pursuant to Section 6.04, may not:

                  (i) reduce the principal amount of any Securities whose
         Holders must consent to an amendment or supplement to this Indenture or
         a waiver under this Indenture;

                  (ii) reduce the principal of or change the fixed maturity of
         any Security or alter the provisions with respect to the redemption of
         the Securities (other than the provisions described under Sections 4.05
         and 4.14);

                  (iii) reduce the rate of or extend the time for payment of
         interest on any Security;

                  (iv) waive a Default or Event of Default in the payment of
         principal of or premium, if any, or interest or Liquidated Damages, if
         any, on the Securities (except a rescission of acceleration of the
         Securities by the Holders of at least a majority in aggregate principal
         amount of the Securities and a waiver of the payment default that
         resulted from that acceleration);

                  (v) make any Security payable in money other than that stated
         in the Securities;

                  (vi) make any change in the provisions of this Indenture
         relating to waivers of past Defaults or the rights of Holders of
         Securities to receive payments of principal of, or interest or premium
         or Liquidated Damages, if any, on, the Securities;

                  (vii) release any Guarantor from its obligations under its
         Guarantee or this Indenture, except in accordance with the terms of
         this Indenture;

                  (viii) after the Company's obligation to purchase Securities
         arises thereunder, amend, change or modify in any material respect the
         obligation of the Company to make and consummate a Change of Control
         Offer in the event of a Change of Control or make and consummate an
         Asset Sale Offer with respect to any Asset Sale that has been
         consummated or, after such Change of Control has occurred or such Asset
         Sale has been consummated, modify any of the provisions or definitions
         with respect thereto;

                  (ix) modify or change any provision of this Indenture or the
         related definitions affecting the subordination or ranking of the
         Securities or any Guarantee in a manner which adversely affects the
         Holders; or

                  (x) make any change in the foregoing amendment and waiver
         provisions.

                  An amendment under this Section 10.02 may not make any change
under Article Eight, Article Nine, Article Eleven or Article Twelve hereof that
adversely affects in any material respect the rights of any


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                                      -76-


holder of Senior Indebtedness then outstanding unless the holders of such Senior
Indebtedness (or any representative thereof authorized to give a consent) shall
have consented to such change.

                  It shall not be necessary for the consent of the Holders under
this Section 10.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.

                  After an amendment, supplement or waiver under this Section
10.02 becomes effective, the Company shall mail to the Holders affected thereby
a notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental indenture.

SECTION 10.03. COMPLIANCE WITH TRUST INDENTURE ACT.

                  Every amendment to or supplement of this Indenture or the
Securities shall comply with the TIA as then in effect.

SECTION 10.04. REVOCATION AND EFFECT OF CONSENTS.

                  Until an amendment or waiver becomes effective, a consent to
it by a Holder is a continuing consent by the Holder and every subsequent Holder
of that Security or portion of that Security that evidences the same debt as the
consenting Holder's Security, even if notation of the consent is not made on any
Security. Subject to the following paragraph, any such Holder or subsequent
Holder may revoke the consent as to such Holder's Security or portion of such
Security by notice to the Trustee or the Company received before the date on
which the Trustee receives an Officers' Certificate certifying that the Holders
of the requisite principal amount of Securities have consented (and not
theretofore revoked such consent) to the amendment, supplement or waiver.

                  The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Holders of Securities entitled to
consent to any amendment, supplement or waiver. If a record date is fixed, then,
notwithstanding the last sentence of the immediately preceding paragraph, those
persons who were Holders of Securities at such record date (or their duly
designated proxies), and only those persons, shall be entitled to consent to
such amendment, supplement or waiver or to revoke any consent previously given,
whether or not such Persons continue to be Holders of such Securities after such
record date. No such consent shall be valid or effective for more than 90 days
after such record date.

                  After an amendment, supplement or waiver becomes effective, it
shall bind every Securityholder, unless it makes a change described in any of
clauses (i) through (vi) of Section 10.02. In that case the amendment,
supplement or waiver shall bind each Holder of a Security who has consented to
it and every subsequent Holder of a Security or portion of a Security that
evidences the same debt as the consenting Holder's Security.

SECTION 10.05. NOTATION ON OR EXCHANGE OF SECURITIES.

                  If an amendment, supplement or waiver changes the terms of a
Security, the Trustee may require the Holder of the Security to deliver it to
the Trustee. The Trustee may place an appropriate notation on the Security about
the changed terms and return it to the Holder. Alternatively, if the Company or
the Trustee so determines, the Company in exchange for the Security shall issue
and the Trustee shall authenticate a new Security


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                                      -77-


that reflects the changed terms. Failure to make the appropriate notation or
issue a new Security shall not affect the validity and effect of such amendment,
supplement or waiver.

SECTION 10.06. TRUSTEE TO SIGN AMENDMENTS, ETC.

                  The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of
any amendment, supplement or waiver authorized pursuant to this Article Ten is
authorized or permitted by this Indenture and that such amendment, supplement or
waiver constitutes the legal, valid and binding obligation of the Company and
the Guarantors, enforceable in accordance with its terms (subject to customary
exceptions). The Trustee may, but shall not be obligated to, execute any such
amendment, supplement or waiver which affects the Trustee's own rights, duties
or immunities under this Indenture or otherwise. In signing any amendment,
supplement or waiver, the Trustee shall be entitled to receive an indemnity
reasonably satisfactory to it.

                                 ARTICLE ELEVEN

                                    GUARANTEE

SECTION 11.01. UNCONDITIONAL GUARANTEE.

                  The Guarantors, jointly and severally, hereby irrevocably and
unconditionally Guarantee to each Holder of a Security authenticated by the
Trustee and to the Trustee and its successors and assigns that: the principal of
and premium, if any, interest or Liquidated Damages, if any, on the Securities
will be promptly paid in full when due, subject to any applicable grace period,
whether on the Final Maturity Date, by acceleration, call for redemption, upon a
Change of Control Offer, upon an Asset Sale Offer or otherwise, and interest on
the overdue principal and interest on any overdue interest on the Securities and
expenses, indemnification or otherwise, and all other obligations of the Company
(all such obligations guaranteed by the Guarantors being called herein the
"GUARANTEED OBLIGATIONS"), to the Holders or the Trustee hereunder or under the
Securities will be promptly paid in full or performed, all in accordance with
the terms hereof and thereof; subject, however, to the limitations set forth in
Section 11.03. The Guarantors hereby agree that their obligations hereunder
shall be unconditional and continuing, irrespective of the validity, regularity
or enforceability of the Securities or this Indenture, the absence of any action
to enforce the same, any waiver or consent by any Holder of the Securities with
respect to any provisions hereof or thereof, the recovery of any judgment
against the Company, any action to enforce the same or any other circumstance
which might otherwise constitute a legal or equitable discharge or defense of
the Guarantors and shall (a) remain in full force and effect until payment in
full of all the Guaranteed Obligations, (b) be binding upon the Guarantors and
its successors, transferees and assigns and (c) inure to the benefit of and be
enforceable by the Trustee, the Holders of the Securities and their successors,
transferees and assigns. The Guarantors hereby waive diligence, presentment,
demand of payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Company, any right to require a proceeding first against the
Company, protest, notice and all demands whatsoever and covenants that the
Guarantees will not be discharged except by complete performance of the
Guaranteed Obligations, and this Guarantee. If any Holder or the Trustee is
required by any court or otherwise to return to the Company, the Guarantors, or
any Custodian, trustee, liquidator or other similar official acting in relation
to the Company or the Guarantors, any amount paid by the Company or the
Guarantors to the Trustee or such Holder, the Guarantees, to the extent
theretofore discharged, shall be reinstated in full force and effect. The
Guarantors further agrees that, as between the Guarantors, on the one hand, and
the Holders and the Trustee, on the other hand, (x) the maturity of the
Guaranteed Obligations


   86
                                      -78-


hereby may be accelerated as provided in Article Six for the purpose of these
Guarantees, notwithstanding any stay, injunction or other prohibition preventing
such acceleration in respect of the Guaranteed Obligations, and (y) in the event
of any acceleration of the Guaranteed obligations as provided in Article Six,
such Guaranteed Obligations (whether or not due and payable) shall forthwith
become due and payable by the Guarantors for the purpose of these Guarantees.

SECTION 11.02. SEVERABILITY.

                  In case any provision of these Guarantees shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.

SECTION 11.03. LIMITATION OF GUARANTOR'S LIABILITY.

                  The Guarantors and, by its acceptance of a Security issued
hereunder, each Holder and the Trustee hereby confirm that it is the intention
of all such parties that the Guarantee by the Guarantors pursuant to their
Guarantee not constitute a fraudulent transfer or conveyance for purposes of any
Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent
Transfer Act or any similar U.S. federal or state or other applicable law. To
effectuate the foregoing intention, the Holders and the Guarantors hereby
irrevocably agree that the obligations of the Guarantors under the Guarantee
shall be limited to the maximum amount as will, after giving effect to all other
contingent and fixed liabilities of the Guarantors, result in the obligations of
the Guarantors under the Guarantee not constituting such fraudulent transfer or
conveyance.

SECTION 11.04. SUBORDINATION OF SUBROGATION AND OTHER RIGHTS.

                  The Guarantors hereby agree that any claim against the Company
that arises from the payment, performance or enforcement of the Guarantors'
obligations under the Guarantee or this Indenture, including, without
limitation, any right of subrogation, shall be subject and subordinate to, and
no payment with respect to any such claim of the Guarantors shall be made
before, the payment in full in cash or Cash Equivalents of all outstanding
Securities in accordance with the provisions provided therefor in this
Indenture.

SECTION 11.05. DELIVERY OF GUARANTEE.

                  The delivery of any Security by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of the Guarantee
set forth in Section 11.01 on behalf of the Guarantors.

                                 ARTICLE TWELVE

                           SUBORDINATION OF GUARANTEE

SECTION 12.01. GUARANTEE OBLIGATIONS SUBORDINATED TO GUARANTOR SENIOR
               INDEBTEDNESS.

                  The Guarantors covenant and agree, and the Trustee and each
Holder of the Securities by its or his acceptance thereof likewise covenants and
agrees, that the Guarantees shall be issued subject to the provisions of this
Article Twelve; and each person holding any Security, whether upon original
issue or upon transfer, assignment or exchange thereof, accepts and agrees that
all payments of the principal of and interest and Liquidated Damages, if any, on
the Securities pursuant to the Guarantees made by or on behalf of the Guarantors


   87
                                      -79-


shall, to the extent and in the manner set forth in this Article Twelve, be
subordinated and junior in right of payment to the prior payment in full in cash
or Cash Equivalents of all amounts payable under Guarantor Senior Indebtedness
of the Guarantor, including that Guarantor's borrowings under, or Guarantee of,
the Senior Credit Facility, to the same extent that the Securities are
subordinated to Senior Indebtedness of the Company as set forth in Article
Eight.

SECTION 12.02. NO PAYMENT ON GUARANTEE IN CERTAIN CIRCUMSTANCES.

                  (a) The Guarantors may not make any payment or distribution to
the Trustee or any Holder upon or in respect of the Guaranteed Obligations
(except that Holders of Securities may receive payments in Permitted Junior
Securities or made from the defeasance trust described under Section 9.04) until
all Obligations with respect to Designated Guarantor Senior Indebtedness have
been paid in full in cash or Cash Equivalents, if (i) a default in the payment
of the principal (including reimbursement obligations in respect to letters of
credit) of, premium, if any, or interest on or commitment letter of credit or
administrative fees relating to, Designated Guarantor Senior Indebtedness occurs
and is continuing beyond any applicable period of grace or (ii) any other
default occurs and is continuing with respect to Designated Guarantor Senior
Indebtedness that permits holders of the Designated Guarantor Senior
Indebtedness as to which such default relates to accelerate its maturity and the
Trustee receives a written notice (with a copy to the Guarantors) of such other
default (a "GUARANTOR PAYMENT BLOCKAGE NOTICE") from the Guarantors or the
holders of any Designated Guarantor Senior Indebtedness. Payments on the
Securities may and shall be resumed (a) in the case of a payment default, upon
the date on which such default is cured or waived and (b) in case of a
nonpayment default, the earlier of the date on which such nonpayment default is
cured or waived or 179 days after the date on which the applicable Guarantor
Payment Blockage Notice is received by the Trustee (such period being referred
to herein as the "GUARANTOR PAYMENT BLOCKAGE PERIOD"), unless a payment default
on Designated Guarantor Senior Indebtedness then exists. No new Guarantor
Payment Blockage Period may be commenced unless and until 360 days have elapsed
since the date of the receipt by the Trustee of the immediately prior Guarantor
Payment Blockage Notice. No nonpayment default that existed or was continuing on
the date of delivery of any Guarantor Payment Blockage Notice to the Trustee
shall be, or be made, the basis for a subsequent Guarantor Payment Blockage
Notice unless such default shall have been waived or cured for a period of not
less than 90 days.

                  (b) In the event that, notwithstanding the foregoing, any
payment shall be received by the Trustee or any Holder when such payment is
prohibited by Section 12.02(a), such payment shall be held in trust for the
benefit of, and shall be paid over or delivered to, the holders of such
Designated Guarantor Senior Indebtedness or their respective representatives, or
to the trustee or trustees under any indenture pursuant to which any of such
Designated Guarantor Senior Indebtedness may have been issued, as their
respective interests may appear, but only to the extent that, upon notice from
the Trustee to the holders of such Designated Guarantor Senior Indebtedness that
such prohibited payment has been made, the holders of such Designated Guarantor
Senior Indebtedness (or their representative or representatives or a trustee)
notify the Trustee in writing of the amounts then due and owing on such
Designated Guarantor Senior Indebtedness, if any, and only the amounts specified
in such notice to the Trustee shall be paid to the holders of such Designated
Guarantor Senior Indebtedness.

SECTION 12.03. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC.

                  (a) Upon any distribution to creditors of the Guarantors in a
liquidation or dissolution of the Guarantors or in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to the Guarantors or
their property, an assignment for the benefit of creditors or any marshaling of
the assets and liabilities of the Guarantors, (1) the holders of Guarantor
Senior Indebtedness shall be entitled to receive payment

   88
                                      -80-


in full in cash or Cash Equivalents of all Obligations due in respect of such
Guarantor Senior Indebtedness (including interest after the commencement of any
such proceeding, whether or not allowable as a claim in any such proceeding, at
the rate specified in the applicable Guarantor Senior Indebtedness) before the
Holders of the Securities pursuant to the Guarantees shall be entitled to
receive any payment with respect to the Subordinated Note Obligations under the
Securities, and (2) until all Obligations with respect to Guarantor Senior
Indebtedness are paid in full in cash or Cash Equivalents, any distribution to
which the Holders of Securities pursuant to the Guarantees would be entitled
shall be made to holders of Guarantor Senior Indebtedness.

                  (b) In the event that, notwithstanding the foregoing provision
prohibiting such payment or distribution, any payment or distribution of assets
or securities of the Guarantors of any kind or character, whether in cash,
property or securities, shall be received by the Trustee or any Holder of
Securities at a time when such payment or distribution is prohibited by Section
12.03(a) and before all Obligations in respect of the Guarantor Senior
Indebtedness are paid in full in cash, or payment provided for, such payment or
distribution shall be received and held in trust for the benefit of, and shall
be paid over or delivered to, the holders of the Guarantor Senior Indebtedness
(PRO RATA to such holders on the basis of the respective amounts of Guarantor
Senior Indebtedness held by such holders) or their respective representatives,
or to the trustee or trustees or agent or agents under any indenture pursuant to
which any of Guarantor Senior Indebtedness may have been issued, as their
respective interests may appear, for application to the payment of the Guarantor
Senior Indebtedness remaining unpaid until all Guarantor Senior Indebtedness has
been paid in full in cash after giving effect to any prior or concurrent
payment, distribution or provision therefor to or for the holders of Guarantor
Senior Indebtedness; provided that the Trustee shall be entitled to receive from
the holders of Guarantor Senior Indebtedness written notice of the amounts owing
on the Guarantor Senior Indebtedness.

                  The consolidation of the Guarantors with, or the merger of the
Guarantors with or into, another corporation or the liquidation or dissolution
of the Guarantors following the conveyance or transfer of its property as an
entirety, or substantially as an entirety, to another corporation upon the terms
and conditions provided in Article Five shall not be deemed a dissolution,
winding-up, liquidation or reorganization for the purposes of this Section 12.03
if such other corporation shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions stated in Article Five.

SECTION 12.04. SUBROGATION.

                  Upon the payment in full in cash of all Guarantor Senior
Indebtedness of the Guarantors, or provision for payment, the Holders of the
Securities shall be subrogated to the rights of the holders of Guarantor Senior
Indebtedness to receive payments or distributions of cash, property or
securities of the Guarantors made on Guarantor Senior Indebtedness until the
principal of and premium, if any, and interest and Liquidated Damages, if any,
on the Securities shall be paid in full in cash; and, for the purposes of such
subrogation, no payments or distributions to the holders of Guarantor Senior
Indebtedness of any cash, property or securities to which the Holders of the
Securities or the Trustee on their behalf would be entitled except for the
provisions of this Article Twelve, and no payment over pursuant to the
provisions of this Article Twelve to the holders of the Guarantor Senior
Indebtedness by Holders of the Securities or the Trustee on their behalf shall,
as between the Guarantors, its creditors other than holders of the Guarantor
Senior Indebtedness, and the Holders of the Securities, be deemed to be a
payment by the Guarantors to or on account of the Guarantor Senior Indebtedness.
It is understood that the provisions of this Article Twelve are and are intended
solely for the purpose of defining the relative rights of the Holders of the
Securities, on the one hand, and the holders of Guarantor Senior Indebtedness,
on the other hand.


   89
                                      -81-


                  If any payment or distribution to which the Holders of the
Securities would otherwise have been entitled but for the provisions of this
Article Twelve shall have been applied, pursuant to the provisions of this
Article Twelve, to the payment of all amounts payable under Guarantor Senior
Indebtedness, then and in such case, the Holders of the Securities shall be
entitled to receive from the holders of such Guarantor Senior Indebtedness any
payments or distributions received by such holders of Guarantor Senior
Indebtedness in excess of the amount required to make payment in full, or
provision for payment, of such Guarantor Senior Indebtedness.

SECTION 12.05. OBLIGATIONS OF GUARANTOR UNCONDITIONAL.

                  Nothing contained in this Article Twelve or elsewhere in this
Indenture or in the Securities or the Guarantee is intended to or shall impair,
as between the Guarantors and the Holders of the Securities, the obligation of
the Guarantors, which is absolute and unconditional, to pay to the Holders of
the Securities the principal of and premium, if any, or interest and Liquidated
Damages, if any, on the Securities as and when the same shall become due and
payable in accordance with the terms of the Guarantee, or is intended to or
shall affect the relative rights of the Holders of the Securities and creditors
of the Guarantor other than the holders of Guarantor Senior Indebtedness, nor
shall anything herein or therein prevent the Holder of any Security or the
Trustee on their behalf from exercising all remedies otherwise permitted by
applicable law upon default under this Indenture, subject to the rights, if any,
under this Article Twelve of the holders of Guarantor Senior Indebtedness in
respect of cash, property or securities of the Guarantors received upon the
exercise of any such remedy.

                  Without limiting the generality of the foregoing, nothing
contained in this Article Twelve shall restrict the right of the Trustee or the
Holders of Securities to take any action to declare the Securities to be due and
payable prior to their stated maturity pursuant to Section 6.01 or to pursue any
rights or remedies hereunder; PROVIDED, HOWEVER, that all Guarantor Senior
Indebtedness of the Guarantor then due and payable shall first be paid in full
before the Holders of the Securities or the Trustee are entitled to receive any
direct or indirect payment from such Guarantors of principal of or premium, if
any, or interest or Liquidated Damages, if any, on the Securities pursuant to
such Guarantors' Guarantee.

SECTION 12.06. NOTICE TO TRUSTEE.

                  The Company and the Guarantors shall give prompt written
notice to the Trustee of any fact known to the Company or the Guarantors which
would prohibit the making of any payment to or by the Trustee in respect of the
Securities pursuant to the provisions of this Article Twelve. The Trustee shall
not be charged with knowledge of the existence of any event of default with
respect to any Guarantor Senior Indebtedness or of any other facts which would
prohibit the making of any payment to or by the Trustee unless and until the
Trustee shall have received notice in writing at its Corporate Trust Office to
that effect signed by an Officer of the Company or the Guarantors, or by a
holder of Guarantor Senior Indebtedness or trustee or agent therefor; and prior
to the receipt of any such written notice, the Trustee shall, subject to Article
Seven, be entitled to assume that no such facts exist; PROVIDED that if the
Trustee shall not have received the notice provided for in this Section 12.06 at
least two Business Days prior to the date upon which by the terms of this
Indenture any moneys shall become payable for any purpose (including, without
limitation, the payment of the principal of or premium, if any, or interest or
Liquidated Damages, if any, on any Security), then, regardless of anything
herein to the contrary, the Trustee shall have full power and authority to
receive any moneys from the Guarantors and to apply the same to the purpose for
which they were received, and shall not be affected by any notice to the
contrary which may be received by it on or after such prior date. Nothing
contained in this Section 12.06 shall limit the right of the holders of
Guarantor Senior Indebtedness to recover payments as contemplated by Section
12.03.


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                                      -82-


The Trustee shall be entitled to rely on the delivery to it of a written notice
by a Person representing himself or itself to be a holder of any Guarantor
Senior Indebtedness (or a trustee on behalf of, or other representative of, such
holder) to establish that such notice has been given by a holder of Guarantor
Senior Indebtedness or a trustee or representative on behalf of any such holder.

                  In the event that the Trustee determines in good faith that
any evidence is required with respect to the right of any Person as a holder of
Guarantor Senior Indebtedness to participate in any payment or distribution
pursuant to this Article Twelve, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Guarantor Senior Indebtedness held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution and any other
facts pertinent to the rights of such Person under this Article Twelve, and if
such evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.

SECTION 12.07. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT.

                  Upon any payment or distribution of assets or securities of
the Guarantors referred to in this Article Twelve, the Trustee and the Holders
of the Securities shall be entitled to rely upon any order or decree made by any
court of competent jurisdiction in which bankruptcy, dissolution, winding-up,
liquidation or reorganization proceedings are pending, or upon a certificate of
the receiver, trustee in bankruptcy, liquidating trustee, agent or other person
making such payment or distribution, delivered to the Trustee or to the Holders
of the Securities for the purpose of ascertaining the Persons entitled to
participate in such distribution, the holders of Guarantor Senior Indebtedness
and other Indebtedness of the Guarantors, the amount thereof or payable thereon,
the amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article Twelve.

SECTION 12.08. TRUSTEE'S RELATION TO GUARANTOR SENIOR INDEBTEDNESS.

                  The Trustee and any Paying Agent shall be entitled to all the
rights set forth in this Article Twelve with respect to any Guarantor Senior
Indebtedness which may at any time be held by it in its individual or any other
capacity to the same extent as any other holder of Guarantor Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee or any
Paying Agent of any of its rights as such holder.

                  With respect to the holders of Guarantor Senior Indebtedness,
the Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article Twelve, and no implied
covenants or obligations with respect to the holders of Guarantor Senior
Indebtedness shall be read into this Indenture against the Trustee. The Trustee
shall not be deemed to owe any fiduciary duty to the holders of Guarantor Senior
Indebtedness (except as provided in Section 12.03(b)). The Trustee shall not be
liable to any such holders if the Trustee shall in good faith mistakenly pay
over or distribute to Holders of Securities or to the Company or to any other
person cash, property or securities to which any holders of Guarantor Senior
Indebtedness shall be entitled by virtue of this Article Twelve or otherwise.

SECTION 12.09. SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF THE
               GUARANTOR OR HOLDERS OF GUARANTOR SENIOR INDEBTEDNESS.

                  No right of any present or future holders of any Guarantor
Senior Indebtedness to enforce subordination as provided herein shall at any
time in any way be prejudiced or impaired by any act or failure to act on the
part of the Guarantors or by any act or failure to act, in good faith, by any
such holder, or by any noncompliance by the Guarantors with the terms of this
Indenture, regardless of any knowledge thereof which any


   91
                                      -83-


such holder may have or otherwise be charged with. The provisions of this
Article Twelve are intended to be for the benefit of, and shall be enforceable
directly by, the holders of Guarantor Senior Indebtedness.

SECTION 12.10. SECURITYHOLDERS AUTHORIZE TRUSTEE TO EFFECTUATE SUBORDINATION OF
               GUARANTEE.

                  Each Holder of Securities by its or his acceptance of such
Securities authorizes and expressly directs the Trustee on its or his behalf to
take such action as may be necessary or appropriate to effectuate the
subordination provided in this Article Twelve, and appoints the Trustee its or
his attorney-in-fact for such purposes, including, in the event of any
dissolution, winding-up, liquidation or reorganization of the Guarantors
(whether in bankruptcy, insolvency, receivership, reorganization or similar
proceedings or upon an assignment for the benefit of creditors or otherwise)
tending towards liquidation of the business and assets of such Guarantor, the
filing of a claim for the unpaid balance of its or his Securities in the form
required in those proceedings.

SECTION 12.11. THIS ARTICLE NOT TO PREVENT EVENTS OF DEFAULT.

                  The failure to make a payment on account of principal of or
premium, if any, or interest or Liquidated Damages, if any, on the Securities by
reason of any provision of this Article Twelve shall not be construed as
preventing the occurrence of an Event of Default specified in clauses (i) or
(ii) of Section 6.01.

SECTION 12.12. TRUSTEE'S COMPENSATION NOT PREJUDICED.

                  Nothing in this Article Twelve shall apply to amounts due to
the Trustee pursuant to other sections in this Indenture.

SECTION 12.13. NO WAIVER OF GUARANTEE SUBORDINATION PROVISIONS.

                  Without in any way limiting the generality of Section 12.09,
the holders of Guarantor Senior Indebtedness may, at any time and from time to
time, without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Holders of the Securities
and without impairing or releasing the subordination provided in this Article
Twelve or the obligations hereunder of the Holders of the Securities to the
holders of Guarantor Senior Indebtedness, do any one or more of the following:
(a) change the manner, place or terms of payment or extend the time of payment
of, or renew or alter, Guarantor Senior Indebtedness or any instrument
evidencing the same or any agreement under which Guarantor Senior Indebtedness
is outstanding or secured; (b) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing Guarantor Senior
Indebtedness; (c) release any Person liable in any manner for the collection of
Guarantor Senior Indebtedness; and (d) exercise or refrain from exercising any
rights against the Guarantors and any other Person.

SECTION 12.14. SUBORDINATION PROVISIONS NOT APPLICABLE TO COLLATERAL HELD IN
               TRUST FOR SECURITYHOLDERS; PAYMENTS MAY BE PAID PRIOR TO
               DISSOLUTION.

                  All money and Government Securities deposited in trust with
the Trustee pursuant to and in accordance with Article Nine shall be for the
sole benefit of the Holders and shall not be subject to this Article Twelve.

                  Nothing contained in this Article Twelve or elsewhere in this
Indenture shall prevent (i) the Guarantors, except under the conditions
described in Section 12.02, from making payments of principal of and premium, if
any, and interest and Liquidated Damages, if any, on the Securities, or from
depositing with the


   92
                                      -84-


Trustee any moneys for such payments, or (ii) the application by the Trustee of
any moneys deposited with it for the purpose of making such payments of
principal of and premium, if any, and interest and Liquidated Damages, if any,
on the Securities, to the Holders entitled thereto unless at least two Business
Days prior to the date upon which such payment becomes due and payable, the
Trustee shall have received the written notice provided for in Section 12.02(b)
or in Section 12.06. The Guarantors shall give prompt written notice to the
Trustee of any dissolution, winding-up, liquidation or reorganization of the
Guarantors.

                                ARTICLE THIRTEEN

                                  MISCELLANEOUS

SECTION 13.01. TRUST INDENTURE ACT CONTROLS.

                  This Indenture is subject to the provisions of the TIA that
are required to be a part of this Indenture, and shall, to the extent
applicable, be governed by such provisions. If any provision of this Indenture
modifies any TIA provision that may be so modified, such TIA provision shall be
deemed to apply to this Indenture as so modified. If any provision of this
Indenture excludes any TIA provision that may be so excluded, such TIA provision
shall be excluded from this Indenture.

                  The provisions of TIA ss.ss. 310 through 317 that impose
duties on any Person (including the provisions automatically deemed included
unless expressly excluded by this Indenture) are a part of and govern this
Indenture, whether or not physically contained herein.

SECTION 13.02.      NOTICES.

                  Any notice or communication shall be sufficiently given if in
writing and delivered in person, by facsimile and confirmed by overnight
courier, or mailed by first-class mail addressed as follows:

                  if to the Company or to the Guarantors:

                           RailAmerica Transportation Corp.
                           5300 Broken Sound Boulevard, N.W.
                           Boca Raton, Florida  33487

                           Attention:   Mark Phariss
                                        Vice President and
                                        General Counsel

                           Facsimile:   (561) 994-3929
                           Telephone:  (561) 994-6015

                  with a copy to:


   93
                                      -85-


                           Greenberg Traurig P.A.
                           1221 Brickell Avenue
                           Miami, Florida  33131

                           Attention:  Fern Watts

                           Facsimile:    (305) 579-0717
                           Telephone:    (305) 579-0692

                  if to the Trustee:

                           Well Fargo Bank Minnesota, N.A.
                           Sixth & Marquette

                           MAC N9303-120
                           Minneapolis, Minnesota 55479

                           Attention:  Corporate Trust Services

                           Facsimile:    (612) 667-9825
                           Telephone:    (612) 667-4456

                  The Company or the Trustee by notice to the other may
designate additional or different addresses for subsequent notices or
communications.

                  Any notice or communication mailed, first-class, postage
prepaid, to a Holder including any notice delivered in connection with TIA ss.
310(b), TIA ss. 313(c), TIA ss. 314(a) and TIA ss. 315(b), shall be mailed to it
or him at its or his address as set forth in the Register and shall be
sufficiently given to it or him if so mailed within the time prescribed. To the
extent required by the TIA, any notice or communication shall also be mailed to
any Person described in TIA ss. 313(c).

                  Failure to mail a notice or communication to a Securityholder
or any defect in it shall not affect its sufficiency with respect to other
Securityholders. Except for a notice to the Trustee, which is deemed given only
when received, if a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.

SECTION 13.03. COMMUNICATIONS BY HOLDERS WITH OTHER HOLDERS.

                  Securityholders may communicate pursuant to TIA ss. 312(b)
with other Securityholders with respect to their rights under this Indenture or
the Securities. The Company, the Trustee, the Registrar and any other Person
shall have the protection of TIA ss. 312(c).

SECTION 13.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.

                  Upon any request or application by the Company or the
Guarantors to the Trustee to take or refrain from taking any action under this
Indenture, the Company or the Guarantors shall furnish to the Trustee at the
request of the Trustee:


   94
                                      -86-


                    (1) an Officers' Certificate in form and substance
         satisfactory to the Trustee stating that, in the opinion of the
         signers, all conditions precedent, if any, provided for in this
         Indenture relating to the proposed action have been complied with; and

                    (2) an Opinion of Counsel in form and substance satisfactory
         to the Trustee stating that, in the opinion of such counsel, all such
         conditions precedent have been complied with.

SECTION 13.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.

                  Each Officers' Certificate or Opinion of Counsel with respect
to compliance with a condition or covenant provided for in this Indenture shall
include:

                  (1) a statement that the Person making such certificate or
         opinion has read such covenant or condition;

                  (2) a brief statement as to the nature and scope of the
         examination or investigation upon which the statements or opinions
         contained in such certificate or opinion are based;

                  (3) a statement that, in the opinion of such Person, he has
         made such examination or investigation as is necessary to enable him to
         express an informed opinion as to whether or not such covenant or
         condition has been complied with; and

                  (4) a statement as to whether or not, in the opinion of such
         person, such condition or covenant has been complied with; PROVIDED,
         HOWEVER, that with respect to matters of fact an Opinion of Counsel may
         rely on an Officers' Certificate or certificates of public officials.

SECTION 13.06. RULES BY TRUSTEE, PAYING AGENT, REGISTRAR.

                  The Trustee may make reasonable rules for action by or at a
meeting of Securityholders. The Paying Agent or Registrar may make reasonable
rules for its functions.

SECTION 13.07. GOVERNING LAW.

                  The laws of the State of New York shall govern this Indenture,
the Securities and the Guarantee without regard to principles of conflicts of
law.

SECTION 13.08. NO RECOURSE AGAINST OTHERS.

                  A director, officer, employee or stockholder, as such, of the
Company or the Guarantors shall not have any liability for any Obligations of
the Company or the Guarantors or any other Subsidiary of the Company under the
Securities, the Guarantee or this Indenture or for any claim based on, in
respect of or by reason of such Obligations or the creation of any such
Obligation. Each Securityholder by accepting a Security waives and releases all
such liability, and such waiver and release is part of the consideration for
issuance of the Securities. The foregoing waiver may not be effective to waive
liabilities under the federal securities laws.


   95
                                      -87-


SECTION 13.09. SUCCESSORS.

                  All agreements of the Company in this Indenture and the
Securities shall bind its successor. All agreements of the Guarantors in this
Indenture and the Guarantee shall bind its successor. All agreements of the
Trustee in this Indenture shall bind its successor.

SECTION 13.10. COUNTERPART ORIGINALS.

                  The parties may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together represent the
same agreement.

SECTION 13.11. SEVERABILITY.

                  In case any provision in this Indenture, in the Securities or
in the Guarantee shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby, and a Holder shall have no claim therefor against
any party hereto.

SECTION 13.12. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.

                  This Indenture may not be used to interpret another indenture,
loan or debt agreement of the Company, the Guarantors or a Subsidiary. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture.

SECTION 13.13. LEGAL HOLIDAYS.

                  If a payment date is a not a Business Day at a place of
payment, payment may be made at that place on the next succeeding Business Day,
and no interest shall accrue for the intervening period.

                            [Signature Pages Follow]



   96
                                      S-1


                                   SIGNATURES

                  IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed as of the date first written above.


                           RAILAMERICA TRANSPORTATION CORP.



                            By: /s/ Bennett Marks
                                ------------------------------------------------
                                Name: Bennett Marks
                                Title: Senior Vice President and Chief Financial
                                       Officer



                            RAILAMERICA, INC.,
                                as Guarantor



                            By: /s/ Bennett Marks
                                ------------------------------------------------
                                Name:  Bennett Marks
                                Title: Senior Vice President and Chief Financial
                                       Officer



   97
                                      S-2




                                  AUSTIN & NORTHWESTERN RAILROAD COMPANY, INC.
                                  BOSTON CENTRAL FREIGHT RAILROAD, INC.
                                  CASCADE AND COLUMBIA RIVER RAILROAD COMPANY,
                                    INC.
                                  CENTRAL OREGON & PACIFIC RAILROAD, INC.
                                  CENTRAL RAILROAD COMPANY OF INDIANA
                                  CENTRAL RAILROAD COMPANY OF INDIANAPOLIS
                                  CONNECTICUT SOUTHERN RAILROAD, INC.
                                  DAKOTA RAIL, INC.
                                  DALLAS, GARLAND & NORTHEASTERN RAILROAD, INC.
                                  DALLAS, GARLAND & NORTHEASTERN RAILROAD, INC.
                                  DELAWARE VALLEY RAILWAY COMPANY, INC.
                                  FLORIDA RAIL LINES, INC.
                                  GEORGIA SOUTHWESTERN RAILROAD, INC.
                                  HURON AND EASTERN RAILWAY COMPANY, INC.
                                  INDIANA & OHIO CENTRAL RAILROAD, INC.
                                  INDIANA & OHIO RAIL CORP.
                                  INDIANA & OHIO RAILWAY COMPANY
                                  INDIANA SOUTHERN RAILROAD, INC.
                                  MARKSMAN CORP.
                                  MID-MICHIGAN RAILROAD, INC.
                                  MINNESOTA NORTHERN RAILROAD, INC.
                                  MISSOURI & NORTHERN ARKANSAS RAILROAD COMPANY,
                                    INC.
                                  NEW ENGLAND CENTRAL RAILROAD, INC.
                                  NEW ORLEANS LOWER COAST RAILROAD COMPANY, INC.
                                  NORTH CAROLINA AND VIRGINIA RAILROAD COMPANY,
                                    INC.
                                  OTTER TAIL VALLEY RAILROAD COMPANY, INC.
                                  PALM BEACH RAIL HOLDING, INC.
                                  PITTSBURG INDUSTRIAL RAILROAD, INC.
                                  PLAINVIEW TERMINAL COMPANY
                                  PRAIRIE HOLDINGS CORPORATION
                                  RAIL OPERATING SUPPORT GROUP, INC.
                                  RAILAMERICA AUSTRALIA, INC.
                                  RAILAMERICA EQUIPMENT CORPORATION
                                  RAILAMERICA INTERMODAL SERVICES, INC.
                                  RAILINK ACQUISITION, INC.
                                  RAILTEX ACQUISITION CORP.
                                  RAILTEX DISTRIBUTION SERVICES, INC.
                                  RAILTEX, INC.
                                  RAILTEX INTERNATIONAL HOLDINGS, INC.
                                  RAILTEX LOGISITICS, INC.



   98
                                      S-3


                                  RAILTEX SERVICES CO., INC.
                                  SAGINAW VALLEY RAILWAY COMPANY, INC.
                                  SAN DIEGO & IMPERIAL VALLEY RAILROAD COMPANY,
                                    INC.
                                  SOUTH CAROLINA CENTRAL RAILROAD COMPANY, INC.
                                  SOUTH CENTRAL TENNESSEE RAILROAD CORP., INC.
                                  ST. CROIX VALLEY RAILROAD COMPANY
                                  THE TOLEDO, PEORIA & WESTERN RAILROAD
                                    CORPORATION
                                  TOLEDO, PEORIA & WESTERN RAILWAY CORPORATION
                                  VENTURA COUNTY RAILROAD CO., INC.
                                  WEST TEXAS AND LUBBOCK RAILROAD COMPANY, INC.,
                                  as Guarantors

                                  By: /s/ Mark Phariss
                                      ------------------------------------------
                                      Name: Mark Phariss
                                      Title: Vice President, General Counsel and
                                             Assistant Secretary

                                             On behalf of each of the
                                             above-named entities



   99
                                      S-4



                                  WELLS FARGO BANK MINNESOTA, N.A.,
                                    as Trustee

                                  By: /s/ Timothy P. Mowdy
                                      ------------------------------------------
                                      Name:  Timothy P. Mowdy
                                      Title: Corporate Trust Officer


   100
                                                                     EXHIBIT A

                           [FORM OF SERIES A SECURITY]

[LEGEND FOR RESTRICTED SECURITY]

THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY
NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES
OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN
THE NEXT SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN,
THE HOLDER: (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT HAS ACQUIRED
THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE
SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED
IN RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT (AN
"IAI"), (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS SECURITY
EXCEPT (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE
SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) IN
AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF
REGULATION S UNDER THE SECURITIES ACT, (D) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (E) TO AN IAI THAT, PRIOR TO
SUCH TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATION AND AGREEMENTS RELATING TO THE TRANSFER OF THE SECURITIES (THE
FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND IF SUCH TRANSFER IS IN
RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF SECURITIES LESS THAN $250,000, AN
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE
WITH THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY), (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY) OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (3)
AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY OR AN INTEREST
HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS
USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE
MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE
INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY
TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING.

[LEGEND FOR TEMPORARY REGULATION S GLOBAL SECURITY]

THIS SECURITY IS A TEMPORARY REGULATION S GLOBAL SECURITY WITHIN THE MEANING OF
THE INDENTURE REFERRED TO HEREINAFTER. EXCEPT IN THE CIRCUMSTANCES DESCRIBED IN
SECTION 2.06 OF THE INDENTURE, INTERESTS IN THIS TEMPORARY REGULATION S GLOBAL
SECURITY MAY NOT BE OFFERED OR SOLD TO




                                      A-1
   101

A U.S. PERSON OR FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON PRIOR TO THE
EXPIRATION OF THE RESTRICTED PERIOD (AS DEFINED IN THE INDENTURE), AND NO
TRANSFER OR EXCHANGE OF AN INTEREST IN THIS TEMPORARY REGULATION S GLOBAL
SECURITY MAY BE MADE FOR AN INTEREST IN A RESTRICTED GLOBAL SECURITY OR IN A
PERMANENT REGULATION S GLOBAL SECURITY UNTIL AFTER THE LATER OF THE DATE OF
EXPIRATION OF THE RESTRICTED PERIOD AND THE DATE ON WHICH THE OWNER SECURITIES
CERTIFICATION AND THE DEPOSITORY SECURITIES CERTIFICATION RELATING TO SUCH
INTEREST HAVE BEEN PROVIDED IN ACCORDANCE WITH THE TERMS OF THE INDENTURE, TO
THE EFFECT THAT THE BENEFICIAL OWNER OR OWNERS OF SUCH INTEREST ARE NOT U.S.
PERSONS.

[LEGEND RELATING TO ORIGINAL ISSUE DISCOUNT]

                  FOR PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED, AND THE RULES AND REGULATIONS THEREUNDER, THIS
SECURITY IS BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT; FOR EACH $1,000 PRINCIPAL
AMOUNT OF THIS SECURITY, (1) THE ISSUE PRICE IS $901.38; (2) THE AMOUNT OF THE
ORIGINAL ISSUE DISCOUNT IS $98.62; (3) THE ISSUE DATE IS AUGUST 14, 2000; AND
(4) THE YIELD TO MATURITY IS 14.795% (COMPOUNDED SEMI-ANNUALLY).




                                      A-2
   102


                        RAILAMERICA TRANSPORTATION CORP.
                        12 7/8% Senior Subordinated Note
                          due August 15, 2010, Series A

                                                                CUSIP No.:

No. [         ]         $[            ]

                  RAILAMERICA TRANSPORTATION CORP., a Delaware corporation (the
"COMPANY", which term includes any successor corporation), for value received
promises to pay to [ ] or registered assigns, the principal sum of [ ] Dollars,
on August 15, 2010.

                  Interest Payment Dates: August 15 and February 15, commencing
on February 15, 2001.

                  Interest Record Dates: August 1 and February 1.

                  Reference is made to the further provisions of this Security
contained herein, which will for all purposes have the same effect as if set
forth at this place.

                  IN WITNESS WHEREOF, the Company has caused this Security to be
signed manually or by facsimile by its duly authorized officer.


                                   RAILAMERICA TRANSPORTATION CORP.



                                   By:
                                      -----------------------------------------
                                      Name:
                                      Title:

Attest:
       ------------------------
       Name:
       Title:





                                      A-3
   103


                [FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]

                  This is one of the 12 7/8% Senior Subordinated Notes due 2010,
Series A, described in the within-mentioned Indenture.


Dated:



                                    WELLS FARGO BANK MINNESOTA, N.A.,
                                        as Trustee



                                    By:
                                       -----------------------------------------
                                       Authorized Signatory





                                      A-4
   104


                              (REVERSE OF SECURITY)

                        RAILAMERICA TRANSPORTATION CORP.

                        12 7/8% Senior Subordinated Note
                          due August 15, 2010, Series A

1. INTEREST.

                  RAILAMERICA TRANSPORTATION CORP., a Delaware corporation (the
"COMPANY"), promises to pay interest on the principal amount of this Security at
the rate per annum shown above. Cash interest on the Securities will accrue from
the most recent date to which interest has been paid or, if no interest has been
paid, from August 14, 2000. The Company will pay interest semi-annually in
arrears on each Interest Payment Date, commencing February 15, 2001. Interest
will be computed on the basis of a 360-day year of twelve 30-day months.

                  The Company shall pay interest on overdue principal from time
to time on demand at the rate borne by the Securities and on overdue
installments of interest (without regard to any applicable grace periods) to the
extent lawful.

2. METHOD OF PAYMENT.

                  The Company shall pay interest on the Securities (except
defaulted interest) to the Persons who are the registered Holders at the close
of business on the Interest Record Date immediately preceding the Interest
Payment Date even if the Securities are canceled on registration of transfer or
registration of exchange after such Interest Record Date. Holders must surrender
Securities to a Paying Agent to collect principal payments. The Company shall
pay principal and premium, if any, and interest and Liquidated Damages, if any,
in money of the United States that at the time of payment is legal tender for
payment of public and private debts ("U.S. LEGAL TENDER"). However, the Company
may pay principal and premium, if any, and interest and Liquidated Damages, if
any, by wire transfer of Federal funds (provided that the Paying Agent shall
have received wire instructions on or prior to the relevant Interest Record
Date), or interest by check payable in such U.S. Legal Tender. The Company may
deliver any such interest payment to the Paying Agent or to a Holder at the
Holder's registered address.

3. PAYING AGENT AND REGISTRAR.

                  Initially, Wells Fargo Bank Minnesota, N.A. (the "TRUSTEE")
will act as Paying Agent and Registrar. The Company may change any Paying Agent
or Registrar without notice to the Holders. The Company or any of its
Subsidiaries may, subject to certain exceptions, act as Registrar.

4. INDENTURE AND GUARANTEES.

                  The Company issued the Securities under an Indenture, dated as
of August 14, 2000 (the "INDENTURE"), among the Company, each of the Guarantors
named in the Indenture (the "GUARANTORS"), and the Trustee. Capitalized terms
herein are used as defined in the Indenture unless otherwise defined herein. The
terms of the Securities include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C.
ss.ss. 77aaa-77bbbb) (tHE "TIA"), as in effect on the date of the Indenture
until such time as the Indenture is qualified under the TIA, and thereafter as
in effect on the date on which the Indenture is qualified under the TIA.
Notwithstanding anything to the contrary herein, the Securities are



                                      A-5
   105

subject to
all such terms, and holders of Securities are referred to the Indenture and the
TIA for a statement of them. The Securities are general obligations of the
Company limited in aggregate principal amount to $130,000,000.

5. REGISTRATION RIGHTS.

                  Pursuant to the Notes Registration Rights Agreement, dated as
of August 14, 2000 (the "REGISTRATION RIGHTS AGREEMENT"), among the Company, the
Guarantors and the Initial Purchasers of the Series A Securities, the Company
and the Guarantors will be obligated to consummate an exchange offer pursuant to
which the Holder of this Security shall have the right to exchange this Security
for 12 7/8% Senior Subordinated Notes due 2010, Series B, of the Company (the
"SERIES B SECURITIES"), which have been registered under the Securities Act, in
like principal amount and having identical terms as the Series A Securities. The
Holders of Series A Securities shall be entitled to receive certain additional
payments in the event such exchange offer is not consummated and upon certain
other conditions, all pursuant to and in accordance with the terms of the
Registration Rights Agreement. The Series A Securities and the Series B
Securities are together referred to herein as the "SECURITIES."

6. OPTIONAL REDEMPTION.

                  The Securities will be redeemable at the option of the
Company, in whole or in part, at any time or from time to time, on or after
August 15, 2005 at the redemption prices (expressed as a percentage of principal
amount) set forth below, plus accrued and unpaid interest and Liquidated Damages
thereon, if any, to the Redemption Date if redeemed during the twelve-month
period commencing on August 15 of the years set forth below:

Year                                                       Percentage
- ----                                                       ----------

2005                                                        106.438%
2006                                                        104.292%
2007                                                        102.146%
2008 and thereafter                                         100.000%

7. OPTIONAL REDEMPTION UPON CERTAIN EQUITY ISSUANCES.

                  At any time, or from time to time, prior to August 15, 2003,
the Company may redeem up to 35% of the originally issued principal amount of
Securities at a redemption price equal to 112.875% of the principal amount of
the Securities so redeemed, plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the Redemption Date, with the net proceeds of one or
more Equity Offerings; PROVIDED, HOWEVER, that at least 65% of the originally
issued principal amount of Securities remains outstanding immediately after
giving effect to any such redemption and PROVIDED, FURTHER, that such redemption
will occur within 60 days of the date of the Closing of such Equity Offering.

8. NOTICE OF REDEMPTION.

                  Notice of redemption will be mailed by first-class mail at
least 30 days but not more than 60 days before the Redemption Date to each
Holder of Securities to be redeemed at its registered address. The Trustee may
select for redemption portions of the principal amount of Securities that have
denominations equal to or larger than $1,000 principal amount. Securities and
portions of them the Trustee so selects shall be in amounts of $1,000 principal
amount or integral multiples thereof.

                  If any Security is to be redeemed in part only, the notice of
redemption that relates to such Security shall state the portion of the
principal amount thereof to be redeemed. A new Security in a principal






                                      A-6
   106

amount equal to the unredeemed portion thereof will be issued in the name of the
Holder thereof upon cancellation of the original Security. On and after the
Redemption Date, interest will cease to accrue on Securities or portions thereof
called for redemption so long as the Company has deposited with the Paying Agent
for the Securities funds in satisfaction of the redemption price pursuant to the
Indenture.

9. CHANGE OF CONTROL OFFER.

                  Upon the occurrence of a Change of Control, the Company will
be required to offer to purchase all outstanding Securities at a purchase price
equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the Change of Control
Purchase Date.

10. LIMITATION ON DISPOSITION OF ASSETS.

                  The Company is, subject to certain conditions, obligated to
make an offer to purchase Securities at a purchase price equal to 100% of the
aggregate principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the Asset Sale Purchase Date.

11. SUBORDINATION.

                  The Indebtedness evidenced by the Securities is, to the extent
and in the manner provided in the Indenture, subordinated and subject in right
payment to the prior payment in full in cash of all Senior Indebtedness as
defined in the Indenture, and this Security is issued subject to such
provisions. Each Holder of this Security, by accepting the same, (a) agrees to
and shall be bound by such provisions, (b) authorizes and directs the Trustee,
on behalf of such Holder, to take such action as may be necessary or appropriate
to effectuate the subordination as provided in the Indenture and (c) appoints
the Trustee attorney-in-fact of such Holder for such purpose.

12. DENOMINATIONS; TRANSFER; EXCHANGE.

                  The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer or exchange of Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer or
exchange of any Securities or portions thereof selected for redemption, except
the unredeemed portion of any security being redeemed in part.

13. PERSONS DEEMED OWNERS.

                  The registered Holder of a Security shall be treated as the
owner of it for all purposes.

14. UNCLAIMED FUNDS.

                  If funds for the payment of principal or premium, if any, or
interest or Liquidated Damages, if any, remain unclaimed for two years, the
Trustee and the Paying Agent will repay the funds to the Company at its written
request. After that, all liability of the Trustee and such Paying Agent with
respect to such funds shall cease.



                                      A-7
   107

15. LEGAL DEFEASANCE AND COVENANT DEFEASANCE.

                  The Company and the Guarantors may be discharged from their
obligations under the Indenture, the Securities and the Guarantee except for
certain provisions thereof, and may be discharged from obligations to comply
with certain covenants contained in the Indenture, the Securities and the
Guarantee, in each case upon satisfaction of certain conditions specified in the
Indenture.

16. AMENDMENT; SUPPLEMENT; WAIVER.

                  Subject to certain exceptions, the Indenture, the Securities
and the Guarantee may be amended or supplemented with the written consent of the
Holders of at least a majority in aggregate principal amount of the Securities
then outstanding, and any existing Default or Event of Default or compliance
with any provision may be waived with the consent of the Holders of a majority
in aggregate principal amount of the Securities then outstanding. Without notice
to or consent of any Holder, the parties thereto may amend or supplement the
Indenture, the Securities and the Guarantee to, among other things, cure any
ambiguity, defect or inconsistency, provide for uncertificated Securities in
addition to or in place of Certificated Securities or comply with any
requirements of the Commission in connection with the qualification of the
Indenture under the TIA, or make any other change that does not materially
adversely affect the rights of any Holder of a Security.

17. RESTRICTIVE COVENANTS.

                  The Indenture contains certain covenants that, among other
things, limit the ability of the Company and the Restricted Subsidiaries to make
Restricted Payments, to incur Indebtedness, to create Liens, to sell assets, to
permit restrictions on dividends and other payments by Restricted Subsidiaries
to the Company, to consolidate, merge or sell all or substantially all of its
assets or to engage in transactions with Affiliates. The limitations are subject
to a number of important qualifications and exceptions. The Company must
annually report to the Trustee on compliance with such limitations.

18. DEFAULTS AND REMEDIES.

                  If an Event of Default occurs and is continuing, the Trustee
or the Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately in
the manner and with the effect provided in the Indenture. Holders of Securities
may not enforce the Indenture, the Securities or the Guarantee except as
provided in the Indenture. The Trustee is not obligated to enforce the
Indenture, the Securities or the Guarantee unless it has received indemnity
satisfactory to it. The Indenture permits, subject to certain limitations
therein provided, Holders of a majority in aggregate principal amount of the
Securities then outstanding to direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Holders of Securities notice of certain
continuing Defaults or Events of Default if it determines that withholding
notice is in their interest.

19. TRUSTEE DEALINGS WITH COMPANY.

                  The Trustee under the Indenture, in its individual or any
other capacity, may become the owner or pledgee of Securities and may otherwise
deal with the Company, its Subsidiaries or their respective Affiliates as if it
were not the Trustee.

20. NO RECOURSE AGAINST OTHERS.

                  No stockholder, director, officer or employee of the Company
shall have any liability for any Obligation of the Company under the Securities
or the Indenture, or for any claim based on, in respect of, or by reason of,
such Obligations or their creation. Each Holder of a Security by accepting a
Security waives and releases all such liability. The waiver and release are part
of the consideration for the issuance of the Securities.



                                      A-8
   108

21. AUTHENTICATION.

                  This Security shall not be valid until the Trustee or
authenticating agent signs the certificate of authentication on this Security.

22. ABBREVIATIONS AND DEFINED TERMS.

                  Customary abbreviations may be used in the name of a Holder of
a Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).

23. CUSIP NUMBERS.

                  Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, the Company has caused CUSIP numbers
to be printed on the Securities as a convenience to the Holders of the
Securities. No representation is made as to the accuracy of such numbers as
printed on the Securities and reliance may be placed only on the other
identification numbers printed hereon.

24. GOVERNING LAW.

                  The laws of the State of New York shall govern the Indenture,
this Security and the Guarantee without regard to principles of conflicts of
laws.




                                      A-9
   109


              [FORM OF NOTATION ON SECURITY RELATING TO GUARANTEE]

                          SENIOR SUBORDINATED GUARANTEE

                  Each of the Guarantors named below (the "GUARANTORS") has
unconditionally and irrevocably guaranteed on a senior subordinated basis (such
guarantee being referred to herein as the "GUARANTEE") (i) the due and punctual
payment of the principal of and interest or premium or Liquidated Damages, if
any, on the Securities, whether on the Final Maturity Date, by acceleration,
call for redemption, upon a Change of Control Offer, upon an Asset Sale Offer or
otherwise, the due and punctual payment of interest on the overdue principal and
interest, if any, on the Securities and expenses, indemnification or otherwise,
and the due and punctual performance of all other obligations of the Company to
the Holders or the Trustee all in accordance with the terms set forth in Article
Eleven and Article Twelve of the Indenture and (ii) in case of any extension of
time of payment or renewal of any Securities or any of such other obligations,
that the same will be promptly paid in full when due or performed in accordance
with the terms of the extension or renewal, whether at stated maturity, by
acceleration or otherwise.

                  The obligations of the Guarantors to the Holders and to the
Trustee pursuant to the Guarantee and the Indenture are expressly set forth and
are expressly subordinated and subject in right of payment to the prior payment
in full of all Guarantor Senior Indebtedness of the Guarantors, to the extent
and in the manner provided, in Article Eleven and Article Twelve of the
Indenture, and reference is hereby made to such Indenture for the precise terms
of the Guarantee therein made.

                  No director, officer, employee or stockholder, as such, of any
Guarantor shall have any liability under the Guarantee by reason of such
person's status as director, officer, employee or stockholder. Each holder of a
Security by accepting a Security waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of the
Guarantee Indebtedness.

                  The Guarantee shall not be valid or obligatory for any purpose
until the certificate of authentication on the Securities upon which the
Guarantee is noted shall have been executed by the Trustee under the Indenture
by the manual signature of one of its authorized officers.

                          RAILAMERICA, INC.
                          AUSTIN & NORTHWESTERN RAILROAD COMPANY, INC.
                          BOSTON CENTRAL FREIGHT RAILROAD, INC.
                          CASCADE AND COLUMBIA RIVER RAILROAD COMPANY, INC.
                          CENTRAL OREGON & PACIFIC RAILROAD, INC.
                          CENTRAL RAILROAD COMPANY OF INDIANA
                          CENTRAL RAILROAD COMPANY OF INDIANAPOLIS
                          CONNECTICUT SOUTHERN RAILROAD, INC.
                          DAKOTA RAIL, INC.
                          DALLAS, GARLAND & NORTHEASTERN RAILROAD, INC.
                          DALLAS, GARLAND & NORTHEASTERN RAILROAD, INC.
                          DELAWARE VALLEY RAILWAY COMPANY, INC.
                          FLORIDA RAIL LINES, INC.
                          GEORGIA SOUTHWESTERN RAILROAD, INC.
                          HURON AND EASTERN RAILWAY COMPANY, INC.
                          INDIANA & OHIO CENTRAL RAILROAD, INC.
                          INDIANA & OHIO RAIL CORP.


                                      A-10
   110

                          INDIANA & OHIO RAILWAY COMPANY
                          INDIANA SOUTHERN RAILROAD, INC.
                          MARKSMAN CORP.
                          MID-MICHIGAN RAILROAD, INC.
                          MINNESOTA NORTHERN RAILROAD, INC.
                          MISSOURI & NORTHERN ARKANSAS RAILROAD COMPANY, INC.
                          NEW ENGLAND CENTRAL RAILROAD, INC.
                          NEW ORLEANS LOWER COAST RAILROAD COMPANY, INC.
                          NORTH CAROLINA AND VIRGINIA RAILROAD COMPANY, INC.
                          OTTER TAIL VALLEY RAILROAD COMPANY, INC.
                          PALM BEACH RAIL HOLDING, INC.
                          PITTSBURG INDUSTRIAL RAILROAD, INC.
                          PLAINVIEW TERMINAL COMPANY
                          PRAIRIE HOLDINGS CORPORATION
                          RAIL OPERATING SUPPORT GROUP, INC.
                          RAILAMERICA AUSTRALIA, INC.
                          RAILAMERICA EQUIPMENT CORPORATION
                          RAILAMERICA INTERMODAL SERVICES, INC.
                          RAILINK ACQUISITION, INC.
                          RAILTEX ACQUISITION CORP.
                          RAILTEX DISTRIBUTION SERVICES, INC.
                          RAILTEX, INC.
                          RAILTEX INTERNATIONAL HOLDINGS, INC.
                          RAILTEX LOGISITICS, INC.
                          RAILTEX SERVICES CO., INC.
                          SAGINAW VALLEY RAILWAY COMPANY, INC.
                          SAN DIEGO & IMPERIAL VALLEY RAILROAD COMPANY, INC.
                          SOUTH CAROLINA CENTRAL RAILROAD COMPANY, INC.
                          SOUTH CENTRAL TENNESSEE RAILROAD CORP., INC.
                          ST. CROIX VALLEY RAILROAD COMPANY
                          THE TOLEDO, PEORIA & WESTERN RAILROAD CORPORATION
                          TOLEDO, PEORIA & WESTERN RAILWAY CORPORATION
                          VENTURA COUNTY RAILROAD CO., INC.
                          WEST TEXAS AND LUBBOCK RAILROAD COMPANY, INC.,
                            as Guarantors

                          By:
                              --------------------------------------------------
                              Name:
                              Title:





                                      A-11
   111
                                 ASSIGNMENT FORM

I or we assign and transfer this Security to

_______________________________________________________________________________


_______________________________________________________________________________
(Print or type name, address and zip code of assignee or transferee)


_______________________________________________________________________________
(Insert Social Security or other identifying number of assignee or transferee)

and irrevocably appoint________________________________________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.

Dated:___________________            Signed:___________________________________
                                            (Signed exactly as name appears
                                            on the other side of this Security)

Signature Guarantee: __________________________________________________________
                         Participant in a recognized Signature Guarantee
                         Medallion Program (or other signature guarantor
                         program reasonably acceptable to the Trustee)




                                      A-12
   112

                       OPTION OF HOLDER TO ELECT PURCHASE

                  If you want to elect to have this Security purchased by the
Company pursuant to Section 4.05 or Section 4.14 of the Indenture, check the
appropriate box:

Section 4.05 [   ]
Section 4.14 [   ]

                  If you want to elect to have only part of this Security
purchased by the Company pursuant to Section 4.05 or Section 4.14 of the
Indenture, state the amount: $_____________

Dated:___________________    Your Signature:____________________________________
                                            (Signed exactly as name appears
                                            on the other side of this Security)

Signature Guarantee: ___________________________________________________________
                         Participant in a recognized Signature Guarantee
                         Medallion Program (or other signature guarantor
                         program reasonably acceptable to the Trustee)




                                      A-13
   113
                                                                       EXHIBIT B


                           (FORM OF SERIES B SECURITY)

                        RAILAMERICA TRANSPORTATION CORP.

                        12 7/8% Senior Subordinated Note

                          due August 15, 2010, Series B

                                                              CUSIP No.:
No. [   ]                                                              $[     ]

                  RAILAMERICA TRANSPORTATION CORP., a Delaware corporation (the
"COMPANY", which term includes any successor corporation), for value received
promises to pay to [ ] or registered assigns, the principal sum of [ ] Dollars,
on August 15, 2010.

                  Interest Payment Dates: August 15 and February 15, commencing
on February 15, 2001.

                  Interest Record Dates: August 1 and February 1.

                  Reference is made to the further provisions of this Security
contained herein, which will for all purposes have the same effect as if set
forth at this place.

                  IN WITNESS WHEREOF, the Company has caused this Security to be
signed manually or by facsimile by its duly authorized officer.


                                   RAILAMERICA TRANSPORTATION CORP.




                                   By:
                                       ----------------------------------------
                                       Name:
                                       Title:

Attest:
        --------------------------
        Name:
        Title:




                                      B-1
   114

                [FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]

                  This is one of the 12 7/8% Senior Subordinated Notes due 2010,
Series B, described in the within-mentioned Indenture.

Dated:

                                        WELLS FARGO BANK MINNESOTA, N.A.,
                                           as Trustee



                                        By:
                                           ------------------------------------
                                           Authorized Signatory




                                      B-2
   115
                              (REVERSE OF SECURITY)

                        RAILAMERICA TRANSPORTATION CORP.

                        12 7/8% Senior Subordinated Note

                          due August 15, 2010, Series B

1. INTEREST.

                  RAILAMERICA TRANSPORTATION CORP., a Delaware corporation (the
"COMPANY"), promises to pay interest on the principal amount of this Security at
the rate per annum shown above. Cash interest on the Securities will accrue from
the most recent date to which interest has been paid or, if no interest has been
paid, from August 14, 2000. The Company will pay interest semi-annually in
arrears on each Interest Payment Date, commencing February 15, 2001. Interest
will be computed on the basis of a 360-day year of twelve 30-day months.

                  The Company shall pay interest on overdue principal from time
to time on demand at the rate borne by the Securities and on overdue
installments of interest (without regard to any applicable grace periods) to the
extent lawful.

2. METHOD OF PAYMENT.

                  The Company shall pay interest on the Securities (except
defaulted interest) to the persons who are the registered Holders at the close
of business on the Interest Record Date immediately preceding the Interest
Payment Date even if the Securities are canceled on registration of transfer or
registration of exchange after such Interest Record Date. Holders must surrender
Securities to a Paying Agent to collect principal payments. The Company shall
pay principal and premium, if any, and interest and Liquidated Damages, if any,
in money of the United States that at the time of payment is legal tender for
payment of public and private debts ("U.S. LEGAL TENDER"). However, the Company
may pay principal and premium, if any, and interest and Liquidated Damages, if
any, by wire transfer of Federal funds (provided that the Paying Agent shall
have received wire instructions on or prior to the relevant Interest Record
Date), or interest by check payable in such U.S. Legal Tender. The Company may
deliver any such interest payment to the Paying Agent or to a Holder at the
Holder's registered address.

3. PAYING AGENT AND REGISTRAR.

                  Initially, Wells Fargo Bank Minnesota, N.A. (the "TRUSTEE")
will act as Paying Agent and Registrar. The Company may change any Paying Agent
or Registrar without notice to the Holders. The Company or any of its
Subsidiaries may, subject to certain exceptions, act as Registrar.

4. INDENTURE AND GUARANTEES.

                  The Company issued the Securities under an Indenture, dated as
of August 14, 2000 (the "INDENTURE"), among the Company, each of the Guarantors
named in the Indenture (the "GUARANTORS"), and the Trustee. Capitalized terms
herein are used as defined in the Indenture unless otherwise defined herein. The
terms of the Securities include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C.
ss.ss. 77aaa-77bbbb) (tHE "TIA"), as in effect on the date of the Indenture
until such time as the Indenture is qualified under the TIA, and thereafter as
in effect on the date on which the Indenture is qualified under the TIA.
Notwithstanding anything to the contrary herein, the Securities are



                                      B-3
   116

subject to all such terms, and Holders of Securities are referred to the
Indenture and the TIA for a statement of them. The Securities are general
obligations of the Company limited in aggregate principal amount to
$130,000,000.

5. EXCHANGE OFFER.

                  The Series B Securities were issued pursuant to an exchange
offer pursuant to which 12 7/8% Senior Subordinated Notes due 2010, Series A, of
the Company (the "SERIES A SECURITIES"), in like principal amount and having
substantially identical terms as the Series B Securities, were exchanged for the
Series B Securities. The Series A Securities and the Series B Securities are
together referred to herein as the "SECURITIES."

6. OPTIONAL REDEMPTION.

                  The Securities will be redeemable at the option of the
Company, in whole or in part, at any time or from time to time, on or after
August 15, 2005 at the redemption prices (expressed as a percentage of principal
amount) set forth below, plus accrued and unpaid interest and Liquidated Damages
thereon, if any, to the Redemption Date if redeemed during the twelve-month
period commencing on August 15 of the years set forth below:

Year                                                      Percentage
- ----                                                      ----------

2005                                                        106.438%
2006                                                        104.292%
2007                                                        102.146%
2008 and thereafter                                         100.000%

7. OPTIONAL REDEMPTION UPON CERTAIN EQUITY ISSUANCES.

                  At any time, or from time to time, prior to August 15, 2003,
the Company may redeem up to 35% of the originally issued principal amount of
Securities at a redemption price equal to 112.875% of the principal amount of
the Securities so redeemed, plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the redemption date, with the net proceeds of one or
more Equity Offerings; PROVIDED, HOWEVER, that at least 65% of the originally
issued principal amount of Securities remains outstanding immediately after
giving effect to any such redemption and PROVIDED, FURTHER, that such redemption
will occur within 60 days of the date of the Closing of such Equity Offering.

8. NOTICE OF REDEMPTION.

                  Notice of redemption will be mailed by first-class mail at
least 30 days but not more than 60 days before the Redemption Date to each
Holder of Securities to be redeemed at its registered address. The Trustee may
select for redemption portions of the principal amount of Securities that have
denominations equal to or larger than $1,000 principal amount. Securities and
portions of them the Trustee so selects shall be in amounts of $1,000 principal
amount or integral multiples thereof.

                  If any Security is to be redeemed in part only, the notice of
redemption that relates to such Security shall state the portion of the
principal amount thereof to be redeemed. A new Security in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Security. On and after the Redemption
Date, interest will cease to accrue on Securities or portions thereof called for
redemption so long as the Company has deposited with the Paying Agent for the
Securities funds in satisfaction of the redemption price pursuant to the
Indenture.




                                      B-4
   117

9. CHANGE OF CONTROL OFFER.

                  Upon the occurrence of a Change of Control, the Company will
be required to offer to purchase all outstanding Securities at a purchase price
equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the Change of Control
Purchase Date.

10. LIMITATION ON DISPOSITION OF ASSETS.

                  The Company is, subject to certain conditions, obligated to
make an offer to purchase Securities at a purchase price equal to 100% of the
aggregate principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the Asset Sale Purchase Date.

11. SUBORDINATION.

                  The Indebtedness evidenced by the Securities is, to the extent
and in the manner provided in the Indenture, subordinated and subject in right
of payment to the prior payment in full in cash of all Senior Indebtedness as
defined in the Indenture, and this Security is issued subject to such
provisions. Each Holder of this Security, by accepting the same, (a) agrees to
and shall be bound by such provisions, (b) authorizes and directs the Trustee,
on behalf of such Holder, to take such action as may be necessary or appropriate
to effectuate the subordination as provided in the Indenture and (c) appoints
the Trustee attorney-in-fact of such Holder for such purpose.

12. DENOMINATIONS; TRANSFER; EXCHANGE.

                  The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer or exchange of Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer or
exchange of any Securities or portions thereof selected for redemption, except
the unredeemed portion of any security being redeemed in part.

13. PERSONS DEEMED OWNERS.

                  The registered Holder of a Security shall be treated as the
owner of it for all purposes.

14. UNCLAIMED FUNDS.

                  If funds for the payment of principal or premium, if any, or
interest or Liquidated Damages, if any, remain unclaimed for two years, the
Trustee and the Paying Agent will repay the funds to the Company at its written
request. After that, all liability of the Trustee and such Paying Agent with
respect to such funds shall cease.

15. LEGAL DEFEASANCE AND COVENANT DEFEASANCE.

                  The Company and the Guarantors may be discharged from their
obligations under the Indenture, the Securities and the Guarantee except for
certain provisions thereof, and may be discharged from obligations to comply
with certain covenants contained in the Indenture, the Securities and the
Guarantee, in each case upon satisfaction of certain conditions specified in the
Indenture.



                                      B-5
   118

16. AMENDMENT; SUPPLEMENT; WAIVER.

                  Subject to certain exceptions, the Indenture, the Securities
and the Guarantee may be amended or supplemented with the written consent of the
Holders of at least a majority in aggregate principal amount of the Securities
then outstanding, and any existing Default or Event of Default or compliance
with any provision may be waived with the consent of the Holders of a majority
in aggregate principal amount of the Securities then outstanding. Without notice
to or consent of any Holder, the parties thereto may amend or supplement the
Indenture, the Securities and the Guarantee to, among other things, cure any
ambiguity, defect or inconsistency, provide for uncertificated Securities in
addition to or in place of Certificated Securities or comply with any
requirements of the Commission in connection with the qualification of the
Indenture under the TIA, or make any other change that does not materially
adversely affect the rights of any Holder of a Security.

17. RESTRICTIVE COVENANTS.

                  The Indenture contains certain covenants that, among other
things, limit the ability of the Company and the Restricted Subsidiaries to make
Restricted Payments, to incur Indebtedness, to create Liens, to sell assets, to
permit restrictions on dividends and other payments by Restricted Subsidiaries
to the Company, to consolidate, merge or sell all or substantially all of its
assets or to engage in transactions with Affiliates. The limitations are subject
to a number of important qualifications and exceptions. The Company must
annually report to the Trustee on compliance with such limitations.

18. DEFAULTS AND REMEDIES.

                  If an Event of Default occurs and is continuing, the Trustee
or the Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately in
the manner and with the effect provided in the Indenture. Holders of Securities
may not enforce the Indenture, the Securities or the Guarantee except as
provided in the Indenture. The Trustee is not obligated to enforce the
Indenture, the Securities or the Guarantee unless it has received indemnity
satisfactory to it. The Indenture permits, subject to certain limitations
therein provided, Holders of a majority in aggregate principal amount of the
Securities then outstanding to direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Holders of Securities notice of certain
continuing Defaults or Events of Default if it determines that withholding
notice is in their interest.

19. TRUSTEE DEALINGS WITH COMPANY.

                  The Trustee under the Indenture, in its individual or any
other capacity, may become the owner or pledgee of Securities and may otherwise
deal with the Company, its Subsidiaries or their respective Affiliates as if it
were not the Trustee.

20. NO RECOURSE AGAINST OTHERS.

                  No stockholder, director, officer or employee of the Company
shall have any liability for any Obligation of the Company under the Securities
or the Indenture, or for any claim based on, in respect of, or by reason of,
such Obligations or their creation. Each Holder of a Security by accepting a
Security waives and releases all such liability. The waiver and release are part
of the consideration for the issuance of the Securities.

21. AUTHENTICATION.

                  This Security shall not be valid until the Trustee or
authenticating agent signs the certificate of authentication on this Security.




                                      B-6
   119
22. ABBREVIATIONS AND DEFINED TERMS.

                  Customary abbreviations may be used in the name of a Holder of
a Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).

23. CUSIP NUMBERS.

                  Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, the Company has caused CUSIP numbers
to be printed on the Securities as a convenience to the Holders of the
Securities. No representation is made as to the accuracy of such numbers as
printed on the Securities and reliance may be placed only on the other
identification numbers printed hereon.

24. GOVERNING LAW.

                  The laws of the State of New York shall govern the Indenture,
this Security and the Guarantee without regard to principles of conflicts of
laws.




                                      B-7
   120

              [FORM OF NOTATION ON SECURITY RELATING TO GUARANTEE]

                          SENIOR SUBORDINATED GUARANTEE

                  Each of the Guarantors named below (the "GUARANTORS") has
unconditionally and irrevocably guaranteed on a senior subordinated basis (such
guarantee being referred to herein as the "GUARANTEE") (i) the due and punctual
payment of the principal of and interest or premium or Liquidated Damages, if
any, on the Securities, whether on the Final Maturity Date, by acceleration,
call for redemption, upon a Change of Control Offer, upon an Asset Sale Offer or
otherwise, the due and punctual payment of interest on the overdue principal and
interest, if any, on the Securities and expenses, indemnification or otherwise,
and the due and punctual performance of all other obligations of the Company to
the Holders or the Trustee all in accordance with the terms set forth in Article
Eleven and Article Twelve of the Indenture and (ii) in case of any extension of
time of payment or renewal of any Securities or any of such other obligations,
that the same will be promptly paid in full when due or performed in accordance
with the terms of the extension or renewal, whether at stated maturity, by
acceleration or otherwise.

                  The obligations of the Guarantors to the Holders and to the
Trustee pursuant to the Guarantee and the Indenture are expressly set forth and
are expressly subordinated and subject in right of payment to the prior payment
in full of all Guarantor Senior Indebtedness of the Guarantor, to the extent and
in the manner provided, in Article Eleven and Article Twelve of the Indenture,
and reference is hereby made to such Indenture for the precise terms of the
Guarantee therein made.

                  No director, officer, employee or stockholder, as such, of any
Guarantor shall have any liability under the Guarantee by reason of such
person's status as director, officer, employee or stockholder. Each holder of a
Security by accepting a Security waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of the
Guarantee Indebtedness.

                  The Guarantee shall not be valid or obligatory for any purpose
until the certificate of authentication on the Securities upon which the
Guarantee is noted shall have been executed by the Trustee under the Indenture
by the manual signature of one of its authorized officers.

                           RAILAMERICA, INC.
                           AUSTIN & NORTHWESTERN RAILROAD COMPANY, INC.
                           BOSTON CENTRAL FREIGHT RAILROAD, INC.
                           CASCADE AND COLUMBIA RIVER RAILROAD COMPANY, INC.
                           CENTRAL OREGON & PACIFIC RAILROAD, INC.
                           CENTRAL RAILROAD COMPANY OF INDIANA
                           CENTRAL RAILROAD COMPANY OF INDIANAPOLIS
                           CONNECTICUT SOUTHERN RAILROAD, INC.
                           DAKOTA RAIL, INC.
                           DALLAS, GARLAND & NORTHEASTERN RAILROAD, INC.
                           DALLAS, GARLAND & NORTHEASTERN RAILROAD, INC.
                           DELAWARE VALLEY RAILWAY COMPANY, INC.
                           FLORIDA RAIL LINES, INC.
                           GEORGIA SOUTHWESTERN RAILROAD, INC.
                           HURON AND EASTERN RAILWAY COMPANY, INC.
                           INDIANA & OHIO CENTRAL RAILROAD, INC.
                           INDIANA & OHIO RAIL CORP.





                                      B-8
   121
                           INDIANA & OHIO RAILWAY COMPANY
                           INDIANA SOUTHERN RAILROAD, INC.
                           MARKSMAN CORP.
                           MID-MICHIGAN RAILROAD, INC.
                           MINNESOTA NORTHERN RAILROAD, INC.
                           MISSOURI & NORTHERN ARKANSAS RAILROAD COMPANY, INC.
                           NEW ENGLAND CENTRAL RAILROAD, INC.
                           NEW ORLEANS LOWER COAST RAILROAD COMPANY, INC.
                           NORTH CAROLINA AND VIRGINIA RAILROAD COMPANY, INC.
                           OTTER TAIL VALLEY RAILROAD COMPANY, INC.
                           PALM BEACH RAIL HOLDING, INC.
                           PITTSBURG INDUSTRIAL RAILROAD, INC.
                           PLAINVIEW TERMINAL COMPANY
                           PRAIRIE HOLDINGS CORPORATION
                           RAIL OPERATING SUPPORT GROUP, INC.
                           RAILAMERICA AUSTRALIA, INC.
                           RAILAMERICA EQUIPMENT CORPORATION
                           RAILAMERICA INTERMODAL SERVICES, INC.
                           RAILINK ACQUISITION, INC.
                           RAILTEX ACQUISITION CORP.
                           RAILTEX DISTRIBUTION SERVICES, INC.
                           RAILTEX, INC.
                           RAILTEX INTERNATIONAL HOLDINGS, INC.
                           RAILTEX LOGISITICS, INC.
                           RAILTEX SERVICES CO., INC.
                           SAGINAW VALLEY RAILWAY COMPANY, INC.
                           SAN DIEGO & IMPERIAL VALLEY RAILROAD COMPANY, INC.
                           SOUTH CAROLINA CENTRAL RAILROAD COMPANY, INC.
                           SOUTH CENTRAL TENNESSEE RAILROAD CORP., INC.
                           ST. CROIX VALLEY RAILROAD COMPANY
                           THE TOLEDO, PEORIA & WESTERN RAILROAD CORPORATION
                           TOLEDO, PEORIA & WESTERN RAILWAY CORPORATION
                           VENTURA COUNTY RAILROAD CO., INC.
                           WEST TEXAS AND LUBBOCK RAILROAD COMPANY, INC.,
                               as Guarantors

                           By:
                               ------------------------------------------------
                               Name:
                               Title:




                                      B-9
   122

                                 ASSIGNMENT FORM

I or we assign and transfer this Security to

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

- --------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee or transferee)

(Insert Social Security or other identifying number of assignee or transferee)

and irrevocably appoint_________________________________________________________

agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.

Dated:___________________           Signed: ___________________________________
                                            (Signed exactly as name appears
                                            on the other side of this Security)

Signature Guarantee: __________________________________________________________
                         Participant in a recognized Signature Guarantee
                         Medallion Program (or other signature guarantor
                         program reasonably acceptable to the Trustee)




                                      B-10
   123

                       OPTION OF HOLDER TO ELECT PURCHASE

                  If you want to elect to have this Security purchased by the
Company pursuant to Section 4.05 or Section 4.14 of the Indenture, check the
appropriate box:

Section 4.05 [      ]
Section 4.14 [      ]

                  If you want to elect to have only part of this Security
purchased by the Company pursuant to Section 4.05 or Section 4.14 of the
Indenture, state the amount: $_____________

Dated:___________________    Your Signature:___________________________________
                                            (Signed exactly as name appears
                                            on the other side of this Security)

Signature Guarantee: __________________________________________________________
                         Participant in a recognized Signature Guarantee
                         Medallion Program (or other signature guarantor
                         program reasonably acceptable to the Trustee)






                                      B-11
   124
                                                                      EXHIBIT C


                      FORM OF LEGEND FOR GLOBAL SECURITIES

                  Any Global Security authenticated and delivered hereunder
shall bear a legend (which would be in addition to any other legends required in
the case of a Restricted Security) in substantially the following form:

                  THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
         INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A
         DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS
         SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A
         PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED
         CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS
         SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE
         DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE
         DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY
         BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
         INDENTURE.

                  UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
         REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION
         ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER,
         EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
         NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
         AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO.
         OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
         OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
         OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
         OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.





                                      C-1
   125
                                                                       EXHIBIT D



                            Form of Certificate To Be

                          Delivered in Connection with

                 Transfers to Institutional Accredited Investors

                                                         ---------------, ----
RailAmerica Transportation Corp.
Wells Fargo Bank Minnesota, N.A.
Sixth & Marquette
MAC N9303-120
Minneapolis, Minnesota 55479

Attention: Corporate Trust Services

         Re:      RailAmerica Transportation Corp. (the "COMPANY")
                  Indenture (the "INDENTURE") relating to 12 7/8% Senior
                  Subordinated Notes due 2010, Series A, OR 12 7/8% Senior
                  Subordinated Notes Due 2010, Series B

Ladies and Gentlemen:

                  In connection with our proposed purchase of 12 7/8% Senior
Subordinated Notes due 2010, Series A, or 12 7/8% Senior Subordinated Notes due
2010, Series B (the "SECURITIES"), of the Company, we confirm that:

                  1. We have received such information as we deem necessary in
         order to make our investment decision.

                  2. We understand that any subsequent transfer of the
         Securities is subject to certain restrictions and conditions set forth
         in the Indenture and the undersigned agrees to be bound by, and not to
         resell, pledge or otherwise transfer the Securities except in
         compliance with, such restrictions and conditions and the Securities
         Act of 1933, as amended (the "SECURITIES ACT").

                  3. We understand that the offer and sale of the Securities
         have not been registered under the Securities Act, and, unless so
         registered, may not be offered, sold orotherwise transferred within the
         United States or to, or for the account or benefit of, U.S. persons
         except as permitted in the following sentence. We agree, on our own
         behalf and on behalf of any investor account for which we are acting as
         hereinafter stated, that if we should sell any Securities, we will do
         so only (A) to the Company or any subsidiary thereof, (B) inside the
         United States in accordance with Rule 144A under the Securities Act to
         a "qualified institutional buyer" (as defined therein), (C) to an
         institutional "accredited investor" within the meaning of subparagraph
         (a)(1), (a)(2), (a)(3) or (a)(7) of Rule 501 under the Securities Act
         that is acquiring the Securities for its own account or for the account
         of such an institutional "accredited investor", for investment purposes
         and not with a view to, or for offer or sale in connection with, any
         distribution in violation of the Securities Act, (D) pursuant to offers
         and sales that occur outside the United States within the meaning of
         Regulation S under the Securities Act, (E) in accordance with another
         exemption from the registration requirements of the Securities Act, or
         (F) pursuant to an effective registration statement under the
         Securities Act, subject in each of the foregoing cases to any
         requirement of law that the disposition of our property or the property
         of such investor account or accounts be at all times within our or
         their control and to compliance with any applicable state securities
         laws. The foregoing restrictions on resale will not apply subsequent to
         the Resale Restriction Termination Date.





                                      D-1
   126

         If any resale or other transfer of the Securities is proposed to be
         made pursuant to clause (f) above prior to the Resale Restriction
         Termination Date, the transferor shall deliver a letter from the
         transferee substantially in the form of this letter to the Trustee
         under the Indenture pursuant to which the Securities were issued (the
         "Trustee") which shall provide, among other things, that the transferee
         is an institutional "accredited investor" within the meaning of
         subparagraph (a)(1), (a)(2), (a)(3) or (a)(7) of Rule 501 under the
         Securities Act and that it is acquiring such Securities for investment
         purposes and not for distribution in violation of the Securities Act.
         The Trustee and the Company reserve the right prior to any offer, sale
         or other transfer prior to the Resale Restriction Termination Date of
         the Securities pursuant to clause (b), (c), (d), or (e) above to
         require the delivery of a written opinion of counsel, certifications,
         and or other information satisfactory to the Company and the Trustee.

                  4. We understand that, on any proposed resale of Securities,
         we will be required to furnish to the Trustee and the Company such
         certification, legal opinions and other information as the Trustee and
         the Company may reasonably require to confirm that the proposed sale
         complies with the foregoing restrictions. We further understand that
         the Securities purchased by us will bear a legend to the foregoing
         effect.

                  5. We are an institutional "accredited investor" (as defined
         in Rule 501(a)(1), (a)(2), (a)(3) or (a)(7) of Regulation D under the
         Securities Act) purchasing for our own account or for the account of
         such an institutional "accredited investor", and we are acquiring the
         Securities for investment purposes and not with a view to, or for offer
         or sale in connection with, any distribution in violation of the
         Securities Act and we have such knowledge and experience in financial
         and business matters as to be capable of evaluating the merits and
         risks of our investment in the Securities, and we and any accounts for
         which we are acting are each able to bear the economic risk of our or
         its investment for an indefinite period.

                  6. We are acquiring the Securities purchased by us for our
         account or for one or more accounts (each of which is an institutional
         "accredited investor") as to each of which we exercise sole investment
         discretion.

                  You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceeding or official inquiry
with respect to the matters covered hereby.


                                          Very truly yours,

                                           [Name of Transferee]




                                            By:
                                               ---------------------------------
                                                [Authorized Signatory]





                                      D-2
   127
                                                                      EXHIBIT E


                [FORM OF CERTIFICATION TO BE GIVEN BY HOLDERS OF
                       BENEFICIAL INTEREST IN A TEMPORARY
                          REGULATION S GLOBAL SECURITY
                          TO EUROCLEAR OR CLEARSTREAM]

                         OWNER SECURITIES CERTIFICATION
                        RAILAMERICA TRANSPORTATION CORP.

                   12 7/8% SENIOR SUBORDINATED NOTES DUE 2010

                                  CUSIP NO. U

                  Reference is hereby made to the Indenture, dated as of August
14, 2000 (the "INDENTURE"), by and among RailAmerica Transportation Corp., as
Issuer, each of the Guarantors named in the Indenture, as Guarantors, and Wells
Fargo Bank Minnesota, N.A., as Trustee. Capitalized terms used but not defined
herein shall have the meanings given to them in this Indenture.

                  This is to certify that, as of the date hereof, $      of the
above-captioned Securities (the "Securities") are beneficially owned by non-U.S.
person(s). As used in this paragraph, the term "U.S. person" has the meaning
given to it by Regulation S under the Securities Act of 1933, as amended.

                  We undertake to advise you promptly by tested telex on or
prior to the date on which you intend to submit your certification relating to
the Securities held by you for our account in accordance with your operating
procedures if any applicable statement herein is not correct on such date, and
in the absence of any such notification it may be assumed that this
certification applies as of such date.

                  We understand that this certificate is required in connection
with certain securities laws of the United States. In connection therewith, if
administrative or legal proceedings are commenced or threatened in connection
with which this certificate is or would be relevant, we irrevocably authorize
you to produce this certificate to any interested party in such proceedings.
This certificate and the statements contained herein are made for your benefit
and the benefit of the Issuer, the Guarantors and the Initial Purchasers.

                                  Dated: __________, ____



                                  By:
                                     -------------------------------------------
                                     As, or as agent for, the beneficial
                                     owner(s) of the Securities to which
                                     this certificate relates.





                                      E-1
   128
                                                                      EXHIBIT F


                       [FORM OF CERTIFICATION TO BE GIVEN
                          BY THE EUROCLEAR OPERATOR OR
                CLEARSTREAM BANKING, SOCIETE ANONYME, LUXEMBOURG]

                       DEPOSITORY SECURITIES CERTIFICATION
                        RAILAMERICA TRANSPORTATION CORP.

                   12 7/8% SENIOR SUBORDINATED NOTES DUE 2010

                                  CUSIP NO. U

                  Reference is hereby made to the Indenture, dated as of August
14, 2000 (the "INDENTURE"), by and among RailAmerica Transportation Corp., as
Issuer, each of the Guarantors named in the Indenture, as Guarantors, and Wells
Fargo Bank Minnesota, N.A., as Trustee. Capitalized terms used but not defined
herein shall have the meanings given to them in this Indenture.

                  This is to certify that, with respect to U.S.$      principal
amount of the above-captioned Securities (the "SECURITIES"), except as set forth
below, we have received in writing, by tested telex or by electronic
transmission, from member organizations appearing in our records as persons
being entitled to a portion of the principal amount of the Securities (our
"MEMBER ORGANIZATIONS"), certifications with respect to such portion,
substantially to the effect set forth in this Indenture.(1)

                  We further certify (i) that we are not making available
herewith for exchange (or, if relevant, exercise of any rights or collection of
any interest) any portion of the Temporary Regulation S Global Security excepted
in such certifications and (ii) that as of the date hereof we have not received
any notification from any of our Member Organizations to the effect that the
statements made by such Member Organizations with respect to any portion of the
part submitted herewith for exchange (or, if relevant, exercise of any rights or
collection of any interest) are no longer true and cannot be relied upon as of
the date hereof.

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

(1) Unless Mortan Guaranty Trust Company of New York, London Branch is otherwise
    informed by the Agent, the long form certificate set out in the Operating
    Procedures will be deemed to meet the requirements of this sentence.





                                      F-1
   129
                  We understand that this certification is required in
connection with certain securities laws of the United States. In connection
therewith, if administrative or legal proceedings are commenced or threatened in
connection with which this certification is or would be relevant, we irrevocably
authorize you to produce this certification to any interested party in such
proceedings. This certificate and the statements contained herein are made for
your benefit and the benefit of the Issuer, the Guarantor and the Initial
Purchaser.

                                Dated: ___________, ____

                                Yours faithfully,


                                [MORGAN GUARANTY TRUST COMPANY OF
                                NEW YORK, as operator of the Euroclear System]

                                or

                                CLEARSTREAM BANKING, SOCIETE ANONYME, LUXEMBOURG




                                By:
                                   --------------------------------------------




                                      F-2
   130

                                                                      EXHIBIT G

                      [FORM OF CERTIFICATION TO BE GIVEN BY
                     TRANSFEREE OF BENEFICIAL INTEREST IN A
                     TEMPORARY REGULATION S GLOBAL SECURITY]

                       TRANSFEREE SECURITIES CERTIFICATION
                        RAILAMERICA TRANSPORTATION CORP.

                   12 7/8% SENIOR SUBORDINATED NOTES DUE 2010

                                  CUSIP NO. U

                  Reference is hereby made to the Indenture, dated as of August
14, 2000 (the "INDENTURE"), by and among RailAmerica Transportation Corp., as
Issuer, each of the Guarantors named in the Indenture, as Guarantors, and Wells
Fargo Bank Minnesota, N.A., as Trustee. Capitalized terms used but not defined
herein shall have the meanings given to them in this Indenture.

                  For purposes of acquiring a beneficial interest in the
Temporary Regulation S Global Security, the undersigned certifies that it is not
a U.S. Person as defined by Regulation S under the Securities Act of 1933, as
amended.

                  We undertake to advise you promptly by tested telex on or
prior to the date on which you intend to submit your certification relating to
the Securities held by you in which we intend to acquire a beneficial interest
in accordance with your operating procedures if any applicable statement herein
is not correct on such date, and in the absence of any such notification it may
be assumed that this certification applies as of such date.

                  We understand that this certificate is required in connection
with certain securities laws of the United States. In connection therewith, if
administrative or legal proceedings are commenced or threatened in connection
with which this certificate is or would be relevant, we irrevocably authorize
you to produce this certificate to any interested party in such proceeding. This
certificate and the statements contained herein are made for your benefit and
the benefit of the Issuer, the Guarantors and the Initial Purchasers.


                                Dated: _____________, ____



                                By:
                                    --------------------------------------------
                                    As, or as agent for, the beneficial acquiror
                                    of the Securities to which
                                    this certificate relates.




                                      G-1
   131

                                                                      EXHIBIT H

                FORM OF CERTIFICATION FOR TRANSFER OR EXCHANGE OF
                          RESTRICTED GLOBAL SECURITY TO
                     PERMANENT REGULATION S GLOBAL SECURITY

Wells Fargo Bank Minnesota, N.A.
as Trustee
Sixth & Marquette
MAC N9303-120
Minneapolis, Minnesota 55479

Attention:  Corporate Trust Services

                  Re:      RailAmerica Transportation Corp.
                           12 7/8% Senior Subordinated Notes
                           due 2010 (the "Securities")

                  Reference is hereby made to the Indenture, dated as of August
14, 2000 (the "INDENTURE"), by and among RailAmerica Transportation Corp., as
Issuer, each of the Guarantors named in the Indenture, as Guarantors, and Wells
Fargo Bank Minnesota, N.A., as Trustee. Capitalized terms used but not defined
herein shall have the meanings given to them in this Indenture.

                  This letter relates to U.S.$____________ aggregate principal
amount of Securities which are held in the form of the Restricted Global
Security (CUSIP No. ) with the Depository in the name of [insert name of
transferor] (the "TRANSFEROR"). The Transferor has requested a transfer of such
beneficial interest in the Securities to a Person who will take delivery thereof
in the form of an equal aggregate principal amount of Securities evidenced by
the Permanent Regulation S Global Security (CUSIP No. ).

                  In connection with such request, and in respect of such
Securities, the Transferor does hereby certify that such transfer has been
effected in accordance with the transfer restrictions set forth in the
Securities and,

                  (1) with respect to transfers made in reliance on Regulation S
under the Securities Act of 1933, as amended (the "SECURITIES ACT"), the
Transferor does hereby certify that:

                  (A) the offer of the Securities was not made to a person in
         the United States;

                  [(B) (at the time the buy order was originated, the transferee
         was outside the United States or the Transferor and any person acting
         on its behalf reasonably believed that the transferee was outside the
         United States;]

                  [(B) the transaction was executed in, on or through the
         facilities of a designated offshore securities market and neither the
         Transferor nor any person acting on our behalf knows that the
         transaction was pre-arranged with a buyer in the United States;](1)


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

(1) Insert one of these two provisions, which come from the definition of
    "offshore trhsnactions" in Regulation S.



                                      H-1
   132

                  (C) no directed selling efforts have been made in
         contravention of the requirements of Rule 903(b) or 904(b) of
         Regulation S, as applicable; and

                  (D) the transaction is not part of a plan or scheme to evade
         the registration requirements of the Securities Act; and

                  (2) with respect to transfers made in reliance on Rule 144
under the Securities Act, the Transferor does hereby certify that the Securities
are being transferred in a transaction permitted by Rule 144 under the
Securities Act.

                  We understand that this certificate is required in connection
with certain securities laws of the United States. In connection therewith, if
administrative or legal proceedings are commenced or threatened in connection
with which this certificate is or would be relevant, we irrevocably authorize
you to produce this certificate to any interested party in such proceeding. This
certificate and the statements contained herein are made for your benefit and
the benefit of the Issuer, the Guarantors and the Initial Purchasers.

                                 [Insert Name of Transferor]




                                  By:
                                      ------------------------------------------
                                      Name:
                                      Title:

Dated:
       -------------------------------------
cc:  RailAmerica Transportation Corp.







                                      H-2
   133
                                                                       EXHIBIT I

                FORM OF CERTIFICATION FOR TRANSFER OR EXCHANGE OF
                    PERMANENT REGULATION S GLOBAL SECURITY TO
                           RESTRICTED GLOBAL SECURITY

Wells Fargo Bank Minnesota, N.A.
as Trustee
Sixth & Marquette
MAC N9303-120
Minneapolis, Minnesota 55479

Attention:  Corporate Trust Services

                  Re:      RailAmerica Transportation Corp.
                           12 7/8% Senior Subordinated Notes
                           due 2010 (the "Securities")

                  Reference is hereby made to the Indenture, dated as of August
14, 2000 (the "INDENTURE"), by and among RailAmerica Transportation Corp., as
Issuer, each of the Guarantors named in the Indenture, as Guarantors, and Wells
Fargo Bank Minnesota, N.A., as Trustee. Capitalized terms used but not defined
herein shall have the meanings given to them in this Indenture.

                  This letter relates to U.S.$ principal amount of Securities
which are evidenced by an aggregate [Permanent Regulation S Global Security
(CUSIP No. )] and held with the Depository through [Euroclear] [Clearstream]
(Common Code ) in the name of [insert name of transferor] (the "TRANSFEROR").
The Transferor has requested a transfer of such beneficial interest in
Securities to a person that will take delivery thereof in the form of an equal
principal amount of Securities evidenced by a Restricted Global Security of the
same series and of like tenor as the Securities (CUSIP No. ).

                  In connection with such request and in respect of such
Securities, the Transferor does hereby certify that such transfer is being
effected pursuant to and in accordance with Rule 144A under the Securities Act
and, accordingly, the Transferor does hereby further certify that the Securities
are being transferred to a person that the Transferor reasonably believes is
purchasing the Securities for its own account, or for one or more accounts with
respect to which such person exercises sole investment discretion, and such
person and each such account is a "qualified institutional buyer" within the
meaning of Rule 144A, in each case in a transaction meeting the requirements of
Rule 144A and in accordance with any applicable securities laws of any state of
the United States.




                                      I-1
   134
                  This certificate and the statements contained herein are made
for your benefit and the benefit of the Issuer, the Guarantors and the Initial
Purchasers.


                                  [Insert Name of Transferor]

                                  By:
                                     ------------------------------------------
                                     Name:
                                     Title:



Dated:
       -------------------------------------

cc:  RailAmerica Transportation Corp.






                                      I-2
   135
                                                                    EXHIBIT J-1


                       FORM OF CERTIFICATION FOR TRANSFER
                OR EXCHANGE OF NON-GLOBAL RESTRICTED SECURITY TO
                           RESTRICTED GLOBAL SECURITY

Wells Fargo Bank Minnesota, N.A.
as Trustee
Sixth & Marquette
MAC N9303-120
Minneapolis, Minnesota 55479

Attention:  Corporate Trust Services

                  Re:      RailAmerica Transportation Corp.
                           12 7/8% Senior Subordinated Notes
                           due 2010 (the "Securities")

                  Reference is hereby made to the Indenture, dated as of August
14, 2000 (the "INDENTURE"), by and among RailAmerica Transportation Corp., as
Issuer, each of the Guarantors named in the Indenture, as Guarantors, and Wells
Fargo Bank Minnesota, N.A., as Trustee. Capitalized terms used but not defined
herein shall have the meanings given to them in this Indenture.

                  This letter relates to $ principal amount of Restricted
Securities held in definitive form (CUSIP No.      ) by [insert name of
transferor] (the "TRANSFEROR"). The Transferor has requested an exchange or
transfer of such Securities.

                  In connection with such request and in respect of such
Securities, the Transferor does hereby certify that (i) such Securities are
owned by the Transferor and are being exchanged without transfer or (ii) such
transfer has been effected pursuant to and in accordance with Rule 144A or Rule
144 under the United States Securities Act of 1933, as amended (the "SECURITIES
ACT") and accordingly the Transferor does hereby further certify that:

                  (1) if the transfer has been effected pursuant to Rule 144A:

                          (A) the Securities are being transferred to a person
                 that the Transferor reasonably believes is purchasing the
                 Securities for its own account, or for one or more accounts
                 with respect to which such Person exercises sole investment
                 discretion;

                          (B) such Person and each such account is a "qualified
                 institutional buyer" within the meaning of Rule 144A; and

                          (C) the Securities have been transferred in a
                 transaction meeting the requirements of Rule 144A and in
                 accordance with any applicable securities laws of any state of
                 the United States; or

                  (2) if the transfer has been effected pursuant to Rule 144:






                                     J-1-1
   136

                           (A) more than two years has elapsed since the date of
                  the closing of the initial placement of the Securities
                  pursuant to the Purchase Agreement; and

                           (B) the Securities have been transferred in a
                  transaction permitted by Rule 144 and made in accordance with
                  any applicable securities laws of any state of the United
                  States.

                  We understand that this certificate is required in connection
with certain securities laws of the United States. In connection therewith, if
administrative or legal proceedings are commenced or threatened in connection
with which this certificate is or would be relevant, we irrevocably authorize
you to produce this certificate to any interested party in such proceeding. This
certificate and the statements contained herein are made for your benefit and
the benefit of the Issuer, the Guarantor and the Initial Purchaser.

                                Dated: _____________, ____


                                [Insert Name of Transferor]




                                By:
                                   --------------------------------------------
                                   Name:
                                   Title:

cc:  RailAmerica Transportation Corp.





                                     J-1-2
   137

                                                                   EXHIBIT J-2

                       FORM OF CERTIFICATION FOR TRANSFER
                OR EXCHANGE OF NON-GLOBAL RESTRICTED SECURITY TO
                     PERMANENT REGULATION S GLOBAL SECURITY
                    OR TEMPORARY REGULATION S GLOBAL SECURITY

Wells Fargo Bank Minnesota, N.A.
as Trustee
Sixth & Marquette
MAC N9303-120
Minneapolis, Minnesota 55479

Attention:  Corporate Trust Services

                  Re:      RailAmerica Transportation Corp.
                           12 7/8% Senior Subordinated Notes
                           due 2010 (the "Securities")

                  Reference is hereby made to the Indenture, dated as of August
14, 2000 (the "INDENTURE"), by and among RailAmerica Transportation Corp., as
Issuer, each of the Guarantors named in the Indenture, as Guarantors, and Wells
Fargo Bank Minnesota, N.A., as Trustee. Capitalized terms used but not defined
herein shall have the meanings given to them in this Indenture.

                  This letter relates to $        principal amount of Restricted
Securities held in definitive form (CUSIP No. ) by [insert name of transferor]
(the "TRANSFEROR"). The Transferor has requested an exchange or transfer of such
Securities.

                  In connection with such request and in respect of such
Securities, the Transferor does hereby certify that (i) such Securities are
owned by the Transferor and are being exchanged without transfer or (ii) such
transfer has been effected pursuant to and in accordance with (a) Rule 903 or
Rule 904 under the Securities Act of 1933, as amended (the "SECURITIES ACT"), or
(b) Rule 144 under the Securities Act, and accordingly the Transferor does
hereby further certify that:

                  (1) if the transfer has been effected pursuant to Rule 903 or
         Rule 904:

                           (A) the offer of the Securities was not made to a
                  person in the United States;

                           (B) either;

                  (i) at the time the buy order was originated, the transferee
         was outside the United States or the Transferor and any person acting
         on its behalf reasonably believed that the transferee was outside the
         United States, or

                  (ii) the transaction was executed in, on or through the
         facilities of a designated offshore securities market and neither the
         Transferor nor any person acting on its behalf knows that the
         transaction was pre-arranged with a buyer in the United States;





                                     J-2-1
   138

                           (C) no directed selling efforts have been made in
                  contravention of the requirements of Rule 903(b) or 904(b) of
                  Regulation S, as applicable;

                           (D) the transaction is not part of a plan or scheme
                  to evade the registration requirements of the Act; and

                           (E) if such transfer is to occur during the
                  Restricted Period, upon completion of the transaction, the
                  beneficial interest being transferred as described above was
                  held with the Depository through [Euroclear] [Clearstream]; or

                  (2) if the transfer has been effected pursuant to Rule 144:

                           (A) more than two years has elapsed since the date of
                  the closing of the initial placement of the Securities
                  pursuant to the Purchase Agreement; and

                           (B) the Securities have been transferred in a
                  transaction permitted by Rule 144 and made in accordance with
                  any applicable securities laws of any state of the United
                  States.

                  We understand that this certificate is required in connection
with certain securities laws of the United States. In connection therewith, if
administrative or legal proceedings are commenced or threatened in connection
with which this certificate is or would be relevant, we irrevocably authorize
you to produce this certificate to any interested party in such proceeding. This
certificate and the statements contained herein are made for your benefit and
the benefit of the Issuer, the Guarantors and the Initial Purchasers.

                                  Dated: ____________, ____


                                  [Insert Name of Transferor]



                                  By:
                                     ------------------------------------------
                                     Name:
                                     Title:



cc:  RailAmerica Transportation Corp.




                                     J-2-2
   139
                                                                    EXHIBIT K-1

                       FORM OF CERTIFICATION FOR TRANSFER
                OR EXCHANGE OF NON-GLOBAL PERMANENT REGULATION S
                     SECURITY TO RESTRICTED GLOBAL SECURITY

Wells Fargo Bank Minnesota, N.A.
as Trustee
Sixth & Marquette
MAC N9303-120
Minneapolis, Minnesota 55479

Attention:  Corporate Trust Services

                  Re:      RailAmerica Transportation Corp.
                           12 7/8% Senior Subordinated Notes
                           due 2010 (the "Securities")

                  Reference is hereby made to the Indenture, dated as of August
14, 2000 (the "INDENTURE"), by and among RailAmerica Transportation Corp., as
Issuer, each of the Guarantors named in the Indenture, as Guarantors, and Wells
Fargo Bank Minnesota, N.A., as Trustee. Capitalized terms used but not defined
herein shall have the meanings given to them in this Indenture.

                  This letter relates to $        principal amount of Restricted
Securities held in definitive form (CUSIP No. ) by [insert name of transferor]
(the "TRANSFEROR"). The Transferor has requested an exchange or transfer of such
Securities.

                  In connection with such request and in respect of such
Securities, the Transferor does hereby certify that (i) such Securities are
owned by the Transferor and are being exchanged without transfer or (ii) such
transfer has been effected pursuant to and in accordance with Rule 144A under
the Securities Act, and accordingly the Transferor does hereby further certify
that the Securities are being transferred to a person that the Transferor
reasonably believes is purchasing the Securities for its own account, or for one
or more accounts with respect to which such Person exercises sole investment
discretion, and such Person and each such account is a "qualified institutional
buyer" within the meaning of Rule 144A, in each case in a transaction meeting
the requirements of Rule 144A and in accordance with any applicable securities
laws of any state of the United States.



                                     K-1-1
   140


                  We understand that this certificate is required in connection
with certain securities laws of the United States. In connection therewith, if
administrative or legal proceedings are commenced or threatened in connection
with which this certificate is or would be relevant, we irrevocably authorize
you to produce this certificate to any interested party in such proceeding. This
certificate and the statements contained herein are made for your benefit and
the benefit of the Issuer, the Guarantors and the Initial Purchasers.



                               Dated: _______________, ____


                               [Insert Name of Transferor]




                                By:
                                   --------------------------------------------
                                   Name:
                                   Title:



cc:  RailAmerica Transportation Corp.




                                     K-1-2
   141
                                                                    EXHIBIT K-2

                       FORM OF CERTIFICATION FOR TRANSFER
                OR EXCHANGE OF NON-GLOBAL PERMANENT REGULATION S
               SECURITY TO PERMANENT REGULATION S GLOBAL SECURITY

Wells Fargo Bank Minnesota, N.A.
as Trustee
Sixth & Marquette
MAC N9303-120
Minneapolis, Minnesota 55479

Attention:  Corporate Trust Services

                  Re:      RailAmerica Transportation Corp.
                           12 7/8% Senior Subordinated Notes
                           due 2010 (the "Securities")

                  Reference is hereby made to the Indenture, dated as of August
14, 2000 (the "INDENTURE"), by and among RailAmerica Transportation Corp., as
Issuer, each of the Guarantors named in the Indenture, as Guarantors, and Wells
Fargo Bank Minnesota, N.A., as Trustee. Capitalized terms used but not defined
herein shall have the meanings given to them in this Indenture.

                  This letter relates to $______________ principal amount of
Restricted Securities held in definitive form (CUSIP No. ) by [insert name of
transferor] (the "TRANSFEROR"). The Transferor has requested an exchange or
transfer of such Securities.

                  In connection with such request and in respect of such
Securities, the Transferor does hereby certify that (i) such Securities are
owned by the Transferor and are being exchanged without transfer or (ii) such
transfer has been effected pursuant to and in accordance with (a) Rule 903 or
Rule 904 under the Securities Act of 1933, as amended (the "SECURITIES ACT"), or
(b) Rule 144 under the Securities Act, and accordingly the Transferor does
hereby further certify that:

                  (1) if the transfer has been effected pursuant to Rule 903 or
         Rule 904:

                  (A) the offer of the Securities was not made to a person in
         the United States;

                  (B) either;

                           (i) at the time the buy order was originated, the
                  transferee was outside the United States or the Transferor and
                  any person acting on its behalf reasonably believed that the
                  transferee was outside the United States, or

                           (ii) the transaction was executed in, on or through
                  the facilities of a designated offshore securities market and
                  neither the Transferor nor any person acting on its behalf
                  knows that the transaction was pre-arranged with a buyer in
                  the United States;






                                     K-2-1
   142

                  (C) no directed selling efforts have been made in
         contravention of the requirements of Rule 903(b) or 904 (b) of
         Regulation S, as applicable;

                  (D) the transaction is not part of a plan or scheme to evade
         the registration requirements of the Act; and

                  (E) if such transfer is to occur during the Restricted Period,
         upon completion of the transaction, the beneficial interest being
         transferred as described above was held with the Depository through
         [Euroclear] [Clearstream]; or

                  (2) if the transfer has been effected pursuant to Rule 144:

                  (A) more than two years has elapsed since the date of the
         closing of the initial placement of the Securities pursuant to the
         Purchase Agreement; and

                  (B) the Securities have been transferred in a transaction
         permitted by Rule 144 and made in accordance with any applicable
         securities laws of any state of the United States.

                  We understand that this certificate is required in connection
with certain securities laws of the United States. In connection therewith, if
administrative or legal proceedings are commenced or threatened in connection
with which this certificate is or would be relevant, we irrevocably authorize
you to produce this certificate to any interested party in such proceeding. This
certificate and the statements contained herein are made for your benefit and
the benefit of the Issuer, Guarantors and the Initial Purchasers.


                              Dated: ______________, ____

                              [Insert Name of Transferor]



                              By:
                                  ---------------------------------------------
                                  Name:
                                  Title:



cc:  RailAmerica Transportation Corp.




                                     K-2-2

EX-4.2

   1
                                                                   EXHIBIT 4.2


===============================================================================








                       NOTES REGISTRATION RIGHTS AGREEMENT

                           Dated as of August 14, 2000

                                  by and among

                        RAILAMERICA TRANSPORTATION CORP.

                           THE GUARANTORS NAMED HEREIN

                                       and

                          DONALDSON, LUFKIN & JENRETTE
                             SECURITIES CORPORATION

                                       and

                                BARCLAYS BANK PLC

                                       and

                            SCOTIA CAPITAL (USA) INC.

===============================================================================


   2

                  This Notes Registration Rights Agreement (this "AGREEMENT") is
made and entered into as of August 14, 2000, by and among RailAmerica
Transportation Corp., a Delaware corporation (the "COMPANY"), the Guarantors set
forth on the signature page hereof (the "GUARANTORS"), and Donaldson, Lufkin and
Jenrette Securities Corporation, Barclays Bank PLC and Scotia Capital (USA) Inc.
(the "INITIAL PURCHASERS"). The Initial Purchasers have agreed to purchase the
Company's 12 7/8% Senior Subordinated Notes due 2010 (the "SERIES A NOTES")
pursuant to the Purchase Agreement (as defined below).

                  This Agreement is made pursuant to the Purchase Agreement,
dated as of August 9, 2000 (the "PURCHASE AGREEMENT"), by and among the Company,
the Guarantors and the Initial Purchasers. In order to induce the Initial
Purchasers to purchase the Series A Notes, the Company has agreed to provide the
registration rights set forth in this Agreement. The execution and delivery of
this Agreement is a condition to the obligations of the Initial Purchasers set
forth in Section 2 of the Purchase Agreement. Capitalized terms used herein and
not otherwise defined shall have the meaning assigned to them in the Indenture,
dated the date hereof, between the Company and Wells Fargo Bank Minnesota, N.A.
as Trustee, relating to the Series A Notes and the Series B Notes (the
"INDENTURE").

                  The parties hereby agree as follows:

SECTION 1. DEFINITIONS

                  As used in this Agreement, the following capitalized terms
shall have the following meanings:

                  ACT:  The Securities Act of 1933, as amended.

                  ADVICE:  As defined in Section 6(d) hereof.

                  AFFILIATE:  As defined in Rule 144 of the Act.

                  BOARD OF DIRECTORS: The Board of Directors of the Company, or
any authorized committee of the Board of Directors of the Company.

                  BROKER-DEALER: Any broker or dealer registered under the
Exchange Act.

                  BROKER-DEALER TRANSFER RESTRICTED SECURITIES: Series B Notes
that are acquired by a Broker-Dealer in the Exchange Offer in exchange for
Series A Notes that such Broker-Dealer acquired for its own account as a result
of market making activities or other trading activities (other than Series A
Notes acquired directly from the Company or any of its Affiliates).

                  BUSINESS DAY: Any day except a Saturday, Sunday or other day
in the City of New York, or in the city of the corporate trust office of the
Trustee, on which banks are authorized to close.

                  CERTIFICATED SECURITIES: Definitive Notes, as defined in the
Indenture.

                  CLOSING DATE:  The date hereof.

                  COMMISSION:  The Securities and Exchange Commission.



   3

                  CONSUMMATE: An Exchange Offer shall be deemed "Consummated"
for purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Series B Notes to be issued in the Exchange Offer, (b) the
maintenance of such Exchange Offer Registration Statement continuously effective
and the keeping of the Exchange Offer open for a period not less than the
minimum period required pursuant to Section 3(b) hereof and (c) the delivery by
the Company to the Registrar of Series B Notes in the same aggregate principal
amount as the aggregate principal amount of Series A Notes tendered by Holders
thereof pursuant to the Exchange Offer.

                  CONSUMMATION DEADLINE:  As defined in Section 3(b) hereof.

                  DAMAGES PAYMENT DATE: With respect to the Series A Notes, each
Interest Payment Date.

                  EFFECTIVENESS DEADLINE: As defined in Sections 3(a) and 4(a)
hereof.

                  EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.

                  EXCHANGE OFFER: The exchange and issuance by the Company of a
principal amount of Series B Notes (which shall be registered pursuant to the
Exchange Offer Registration Statement) equal to the outstanding principal amount
of Series A Notes that are tendered by Holders in connection with such exchange
and issuance.

                  EXCHANGE OFFER REGISTRATION STATEMENT: The Registration
Statement relating to the Exchange Offer.

                  EXEMPT RESALES: The transactions in which the Initial
Purchasers propose to sell the Series A Notes (i) to certain "qualified
institutional buyers," as such term is defined in Rule 144A under the Act, and
(ii) to persons permitted to purchase the Series A Notes in offshore
transactions in reliance on Regulation S under the Act.

                  FILING DEADLINE: As defined in Sections 3(a) and 4(a) hereof.

                  GLOBAL SECURITIES: As defined in the Indenture.

                  HOLDERS: As defined in Section 2 hereof.

                  INDEMNIFIED HOLDER: As defined in Section 8(a) hereof.

                  INDENTURE: The Indenture, dated the Closing Date, among the
Company, the Guarantors and Wells Fargo Bank Minnesota, N.A., as trustee (the
"TRUSTEE"), pursuant to which the Notes are to be issued, as such Indenture is
amended or supplemented from time to time in accordance with the terms thereof.

                  INTEREST PAYMENT DATE: As defined in the Indenture and the
Notes.

                  LIQUIDATED DAMAGES: As defined in Section 5 hereof.

                  NASD: National Association of Securities Dealers, Inc.

                  NOTES: The Series A Notes and the Series B Notes.




                                       2
   4

                  PERSON: An individual, partnership, corporation, trust,
unincorporated organization, or a government or agency or political subdivision
thereof.

                  PROSPECTUS: The prospectus included in a Registration
Statement at the time such Registration Statement is declared effective, as
amended or supplemented by any prospectus supplement and by all other amendments
thereto, including post-effective amendments, and all material incorporated by
reference into such Prospectus.

                  RECORD HOLDER: With respect to any Damages Payment Date, each
Person who is a Holder of Notes on the record date with respect to the Interest
Payment Date on which such Damages Payment Date shall occur.

                  REGISTRAR: As defined in the Indenture.

                  REGISTRATION DEFAULT: As defined in Section 5 hereof.

                  REGISTRATION STATEMENT: Any registration statement of the
Company and the Guarantors relating to (a) an offering of Series B Notes
pursuant to an Exchange Offer or (b) the registration for resale of Transfer
Restricted Securities pursuant to the Shelf Registration Statement, in each
case, (i) that is filed pursuant to the provisions of this Agreement and (ii)
including the Prospectus included therein, all amendments and supplements
thereto (including post-effective amendments) and all exhibits and material
incorporated by reference therein.

                  REGULATION S: Regulation S promulgated under the Act.

                  RESTRICTED BROKER-DEALER: Any Broker-Dealer that holds
Broker-Dealer Transfer Restricted Securities.

                  RULE 144: Rule 144 promulgated under the Act.

                  SERIES B NOTES: The Company's 12 7/8% Senior Subordinated
Notes due 2010 to be issued pursuant to the Indenture (i) in the Exchange Offer
or (ii) as contemplated by Section 4 hereof.

                  SHELF REGISTRATION STATEMENT: As defined in Section 4 hereof.

                  SUSPENSION NOTICE: As defined in Section 6(d) hereof.

                  TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section
77aaa-77bbbb) as in effect on the date of the Indenture.

                  TRANSFER RESTRICTED SECURITIES: Each Note, until the earliest
to occur of (a) the date on which such Note is exchanged in the Exchange Offer
and entitled to be resold to the public by the Holder thereof without complying
with the prospectus delivery requirements of the Act, (b) the date on which such
Note has been disposed of in accordance with a Shelf Registration Statement, (c)
the date on which such Note is disposed of by a Broker-Dealer pursuant to the
"Plan of Distribution" contemplated by the Exchange Offer Registration Statement
(including delivery of the Prospectus contained therein) and (d) the date on
which such Note is distributed to the public pursuant to Rule 144 under the Act.



                                       3
   5

                  UNDERWRITTEN REGISTRATION or UNDERWRITTEN OFFERING: A
registration in which securities of the Company are sold to an underwriter for
reoffering to the public.

SECTION 2. HOLDERS

                  A Person is deemed to be a holder of Transfer Restricted
Securities (each, a "HOLDER") whenever such Person owns Transfer Restricted
Securities.

SECTION 3. REGISTERED EXCHANGE OFFER

                  (a) Unless the Exchange Offer shall not be permitted by
applicable federal law or applicable interpretation of the staff of the
Commission (after the procedures set forth in Section 6(a)(i) below have been
complied with), the Company and the Guarantors shall (i) cause to be filed with
the Commission as soon as practicable after the Closing Date, but in no event
later than 90 days after the Closing Date (such 90th day being a "FILING
DEADLINE"), the Exchange Offer Registration Statement, (ii) use their best
efforts to cause such Exchange Offer Registration Statement to become effective
at the earliest practicable time, but in no event later than 180 days after the
Closing Date (such 180th day being the "EFFECTIVENESS DEADLINE"), (iii) in
connection with the foregoing, (A) file all pre-effective amendments to such
Exchange Offer Registration Statement as may be necessary in order to cause such
Exchange Offer Registration Statement to become effective, (B) file, if
applicable, a post-effective amendment to such Exchange Offer Registration
Statement pursuant to Rule 430A under the Act and (C) cause all necessary
filings, if any, in connection with the registration and qualification of the
Series B Notes to be made under the state Blue Sky or securities laws of such
jurisdictions as are necessary to permit Consummation of the Exchange Offer,
PROVIDED, HOWEVER, that the Company shall not be required in connection
therewith to register or qualify as a foreign corporation in any jurisdiction
where such registration would result in any adverse effect to the Company, and
(iv) upon the effectiveness of such Exchange Offer Registration Statement,
commence and use their best efforts to Consummate the Exchange Offer. The
Exchange Offer shall be on the appropriate form permitting registration of the
Series B Notes to be offered in exchange for the Series A Notes that are
Transfer Restricted Securities and to permit sales of Broker-Dealer Transfer
Restricted Securities by Restricted Broker-Dealers as contemplated by Section
3(c) below.

                  (b) The Company and the Guarantors shall use their respective
best efforts to cause the Exchange Offer Registration Statement to be effective
continuously, and shall keep the Exchange Offer open for a period of not less
than the minimum period required under applicable federal and state securities
laws to Consummate the Exchange Offer; PROVIDED, HOWEVER, that in no event shall
such period be less than 20 Business Days. The Company and the Guarantors shall
cause the Exchange Offer to comply with all applicable federal and state
securities laws. No securities other than the Series B Notes (and the subsidiary
guarantees thereof) shall be included in the Exchange Offer Registration
Statement. The Company and the Guarantors shall use their respective best
efforts to cause the Exchange Offer to be Consummated on the earliest
practicable date after the Exchange Offer Registration Statement has become
effective, but in no event later than 30 Business Days thereafter (such 30th day
being the "CONSUMMATION DEADLINE").

                  (c) The Company shall include a "Plan of Distribution" section
in the Prospectus contained in the Exchange Offer Registration Statement and
indicate therein that any Restricted Broker-Dealer who holds Series A Notes that
are Transfer Restricted Securities and that were acquired for the account of
such Broker-Dealer as a result of market-making activities or other trading
activities, may



                                       4
   6

exchange such Series A Notes (other than Transfer Restricted Securities acquired
directly from the Company or any Affiliate of the Company) pursuant to the
Exchange Offer; however, such Broker-Dealer may be deemed to be an "underwriter"
within the meaning of the Act and must, therefore, deliver a prospectus meeting
the requirements of the Act in connection with its initial sale of each Series B
Note received by such Broker-Dealer in the Exchange Offer, which prospectus
delivery requirement may be satisfied by the delivery by such Broker-Dealer of
the Prospectus contained in the Exchange Offer Registration Statement. Such
"Plan of Distribution" section shall also contain all other information with
respect to such sales of Broker-Dealer Transfer Restricted Securities by
Restricted Broker-Dealers that the Commission may require in order to permit
such sales pursuant thereto, but such "Plan of Distribution" shall not name any
such Broker-Dealer or disclose the amount of Notes held by any such
Broker-Dealer, except to the extent required by the Commission as a result of a
change in policy, rules or regulations after the date of this Agreement.

                  To the extent necessary to ensure that the prospectus
contained in the Exchange Offer Registration Statement is available for sales of
Series B Notes by Broker-Dealers, the Company and the Guarantors shall use their
respective best efforts to keep the Exchange Offer Registration Statement
continuously effective, supplemented and amended as required by and subject to
the provisions of Sections 6(a) and 6(c) hereof and in conformity with the
requirements of this Agreement, the Act and the policies, rules and regulations
of the Commission as announced from time to time, for a period of 180 days from
the Consummation Deadline or such shorter period as will terminate when all
Transfer Restricted Securities covered by such Registration Statement have been
sold pursuant thereto.

                  The Company and the Guarantors shall promptly provide
sufficient copies of the latest version of such Prospectus to such
Broker-Dealers promptly upon request at any time in order to facilitate such
sales.

SECTION 4. SHELF REGISTRATION

                  (a) SHELF REGISTRATION. If (i) the Company and the Guarantors
are not required to file an Exchange Offer Registration Statement with respect
to the Series B Notes or not permitted to Consummate the Exchange Offer because
the Exchange Offer is not permitted by applicable law or the applicable
interpretations of the staff of the Commission (after the procedures set forth
in Section 6(a)(i) below have been complied with) or (ii) if any Holder of
Transfer Restricted Securities shall notify the Company within 20 Business Days
following the Consummation of the Exchange Offer that (A) such Holder was
prohibited by law or Commission policy from participating in the Exchange Offer
or (B) such Holder may not resell the Series B Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and the Prospectus
contained in the Exchange Offer Registration Statement is not appropriate or
available for such resales by such Holder or (C) such Holder is a Broker-Dealer
and holds Series A Notes acquired directly from the Company or any of its
Affiliates, then the Company and the Guarantors shall: (x) cause to be filed on
or prior to 30 days after the earlier of (i) the date on which the Company
determines that it is not required to file the Exchange Offer Registration
Statement or not permitted to Consummate the Exchange Offer pursuant to clause
(a)(i) above and (ii) the date on which the Company receives the notice
specified in clause (a)(ii) above (such 30th day after such earlier date, a
"FILING DEADLINE"), a shelf registration statement pursuant to Rule 415 under
the Act (which may be an amendment to the Exchange Offer Registration Statement
(in either event, the "SHELF REGISTRATION STATEMENT")), relating to all Transfer
Restricted Securities and (y) shall use their respective best efforts to cause
such Shelf Registration Statement to become effective on or prior to 90 days
after the Filing Deadline for the Shelf Registration Statement (such 90th day
the "EFFECTIVENESS DEADLINE"). If, after the Company has filed an Exchange



                                       5
   7

Offer Registration Statement that satisfies the requirements of Section 3(a)
above, the Company is required to file and make effective a Shelf Registration
Statement solely because the Exchange Offer shall not be permitted under
applicable federal law, then the filing of the Exchange Offer Registration
Statement shall be deemed to satisfy the requirements of clause (x) above. Such
an event shall have no effect on the requirements of clause (y) above. The
Company and the Guarantors shall use their respective best efforts to keep the
Shelf Registration Statement discussed in this Section 4(a) continuously
effective, supplemented and amended as required by and subject to the provisions
of Sections 6(b) and (c) hereof to the extent necessary to ensure that it is
available for sales of Transfer Restricted Securities by the Holders thereof
entitled to the benefit of this Section 4(a) and to ensure that it conforms with
the requirements of this Agreement, the Act and the policies, rules and
regulations of the Commission as announced from time to time for a period of at
least two years (as extended pursuant to Section 6(d)) following the Closing
Date, or such shorter period as will terminate when all Transfer Restricted
Securities covered by such Shelf Registration Statement have been sold pursuant
thereto.

                  (b) PROVISION BY HOLDERS OF CERTAIN INFORMATION IN CONNECTION
WITH THE SHELF REGISTRATION STATEMENT. No Holder of Transfer Restricted
Securities may include any of its Transfer Restricted Securities in any Shelf
Registration Statement pursuant to this Agreement unless and until such Holder
furnishes to the Company in writing, within 20 days after receipt of a request
therefor, such information specified in item 507 or 508 of Regulation S-K, as
applicable, or such other information as the Company may reasonably request
under the Act for use in connection with any Shelf Registration Statement or
Prospectus or preliminary Prospectus included therein or in any application to
the NASD. No Holder of Transfer Restricted Securities shall be entitled to
Liquidated Damages pursuant to Section 5 hereof unless and until such Holder
shall have provided all such information. Each selling Holder as to which any
Shelf Registration Statement is being effected agrees to furnish promptly
additional information required to be disclosed in order to make the information
previously furnished to the Company by such Holder not materially misleading.

SECTION 5. LIQUIDATED DAMAGES

                  If (i) any Registration Statement required by this Agreement
is not filed with the Commission on or prior to the applicable Filing Deadline,
(ii) any such Registration Statement has not been declared effective by the
Commission on or prior to the applicable Effectiveness Deadline, (iii) the
Exchange Offer has not been Consummated on or before the 30th day after the
Exchange Offer Registration Statement is first declared effective by the
Commission or (iv) any Registration Statement required by this Agreement is
filed and declared effective but shall thereafter during the period such
Registration Statement is required to be maintained effective pursuant hereto
cease to be effective or fail to be usable for its intended purpose without
being succeeded promptly by a post-effective amendment to such Registration
Statement that cures such failure and that is itself declared effective
immediately (each such event referred to in clauses (i) through (iv), a
"REGISTRATION DEFAULT"), then the Company and the Guarantors hereby jointly and
severally agree to pay liquidated damages (the "LIQUIDATED DAMAGES") to each
Holder of Transfer Restricted Securities with respect to the first 90-day period
immediately following the occurrence of such Registration Default, in an amount
equal to $.05 per week per $1,000 in principal amount of Transfer Restricted





                                       6
   8

Securities held by such Holder for each week or portion thereof that a
Registration Default continues (whether or not more than one Registration
Default shall exist at such time). The amount of the Liquidated Damages shall
increase by an additional $.05 per week (whether or not more than one
Registration Default shall exist at such time ) per $1,000 in principal amount
of Transfer Restricted Securities with respect to each subsequent 90-day period
until all Registration Defaults have been cured, up to a maximum amount of
Liquidated Damages of $.50 per week per $1,000 in principal amount of Transfer
Restricted Securities. Notwithstanding anything to the contrary set forth
herein, (1) upon filing of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of (i) above, (2)
upon the effectiveness of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of (ii) above, (3)
upon Consummation of the Exchange Offer, in the case of (iii) above, or (4) upon
the filing of a post-effective amendment to the Registration Statement or an
additional Registration Statement that causes the Exchange Offer Registration
Statement (and/or, if applicable, the Shelf Registration Statement) to again be
declared effective or made usable in the case of (iv) above, the Liquidated
Damages payable with respect to the Transfer Restricted Securities as a result
of such clause (i), (ii), (iii) or (iv), as applicable, shall cease to accrue.

                  All accrued Liquidated Damages shall be paid to Holders of
Transfer Restricted Securities that are in the form of Global Securities by wire
transfer of immediately available funds or by federal funds check and to Holders
of Transfer Restricted Securities that are in the form of Certificated
Securities by wire transfer to the account specified by them or by mailing
checks to their registered addresses on each Damages Payment Date. All
obligations of the Company and the Guarantors set forth in the preceding
paragraph that are outstanding with respect to any Transfer Restricted Security
at the time such security ceases to be a Transfer Restricted Security shall
survive until such time as all such obligations with respect to such security
shall have been satisfied in full.

SECTION 6. REGISTRATION PROCEDURES

                  (a) EXCHANGE OFFER REGISTRATION STATEMENT. In connection with
the Exchange Offer, the Company and the Guarantors shall (x) comply with all
applicable provisions of Section 6(c) below, (y) use their respective best
efforts to effect such exchange and to permit the resale of Series B Notes by
Broker-Dealers that tendered in the Exchange Offer Series A Notes that such
Broker-Dealer acquired for its own account as a result of its market making
activities or other trading activities (other than Series A Notes acquired
directly from the Company or any of its Affiliates) being sold in accordance
with the intended method or methods of distribution thereof, and (z) comply with
all of the following provisions:

                           (i) If, following the date hereof there has been
         announced a change in Commission policy with respect to exchange offers
         such as the Exchange Offer, such that in the reasonable opinion of
         counsel to the Company there is a substantial question as to whether
         the Exchange Offer is permitted by applicable federal law, the Company
         and the Guarantors hereby agree to seek a no-action letter or other
         favorable decision from the Commission allowing the Company and the
         Guarantors to Consummate an Exchange Offer for such Transfer Restricted
         Securities. The Company and the Guarantors hereby agree to pursue the
         issuance of such a decision to the Commission staff level. In
         connection with the foregoing, the Company and the Guarantors hereby
         agree to take all such other actions as are requested by the Commission
         or otherwise reasonably required in connection with the issuance of
         such decision, including without limitation (A) participating in
         telephonic conferences with the Commission, (B) delivering to the
         Commission staff an analysis prepared by counsel to the Company setting
         forth the legal bases, if any, upon which such counsel has concluded
         that such an Exchange Offer should be permitted and (C) diligently
         pursuing a resolution (which need not be favorable) by the Commission
         staff of such submission.

                           (ii) As a condition to its participation in the
         Exchange Offer pursuant to the terms of this Agreement, each Holder of
         Transfer Restricted Securities (including, without




                                       7
   9

         limitation, any Holder who is a Broker-Dealer) shall furnish, upon the
         request of the Company, prior to the Consummation of the Exchange
         Offer, a written representation to the Company and the Guarantors
         (which may be contained in the letter of transmittal contemplated by
         the Exchange Offer Registration Statement) to the effect that (A) it is
         not an Affiliate of the Company, (B) it is not engaged in, and does not
         intend to engage in, and has no arrangement or understanding with any
         Person to participate in, a distribution of the Series B Notes to be
         issued in the Exchange Offer and (C) it is acquiring the Series B Notes
         in its ordinary course of business. As a condition to its participation
         in the Exchange Offer each Holder shall acknowledge and agree that any
         Broker-Dealer and any such Holder using the Exchange Offer to
         participate in a distribution of the Series B Notes shall acknowledge
         and agree that, if the resales are of Series B Notes obtained by such
         Holder in exchange for Series A Notes acquired directly by such Holder
         directly from the Company or an Affiliate thereof, it (1) could not
         under Commission policy as in effect on the date of this Agreement rely
         on the position of the Commission enunciated in MORGAN STANLEY AND CO.,
         INC. (available June 5, 1991) and EXXON CAPITAL HOLDINGS CORPORATION
         (available May 13, 1988), as interpreted in the Commission's letter to
         SHEARMAN & STERLING dated July 2, 1993, and similar no-action letters
         (including, if applicable, any no-action letter obtained pursuant to
         clause (i) above), and (2) must comply with the registration and
         prospectus delivery requirements of the Act in connection with a
         secondary resale transaction and that such a secondary resale
         transaction must be covered by an effective registration statement
         containing the selling security holder information required by Item 507
         or 508, as applicable, of Regulation S-K.

                           (iii) To the extent required by the Commission, prior
         to effectiveness of the Exchange Offer Registration Statement, the
         Company and the Guarantors shall provide a supplemental letter to the
         Commission (A) stating that the Company and the Guarantors are
         registering the Exchange Offer in reliance on the position of the
         Commission enunciated in EXXON CAPITAL HOLDINGS CORPORATION (available
         May 13, 1988), MORGAN STANLEY AND CO., INC. (available June 5, 1991),
         as interpreted in the Commission's letter to SHEARMAN & STERLING dated
         July 2, 1993, and, if applicable, any no-action letter obtained
         pursuant to clause (i) above, (B) including a representation that
         neither the Company nor the Guarantors has entered into any arrangement
         or understanding with any Person to distribute the Series B Notes to be
         received in the Exchange Offer and that, to the best of the Company's
         and the Guarantors' information and belief, each Holder participating
         in the Exchange Offer is acquiring the Series B Notes in its ordinary
         course of business and has no arrangement or understanding with any
         Person to participate in the distribution of the Series B Notes
         received in the Exchange Offer and (C) any other undertaking or
         representation required by the Commission as set forth in any no-action
         letter obtained pursuant to clause (i) above, if applicable.

                  (b) SHELF REGISTRATION STATEMENT. In connection with the Shelf
Registration Statement, the Company and the Guarantors shall

                           (i) comply with all the provisions of Section 6(c)
         below and shall use their respective best efforts to effect such
         registration to permit the sale of the Transfer Restricted Securities
         being sold in accordance with the intended method or methods of
         distribution thereof (as indicated in the information furnished to the
         Company pursuant to Section 4(b) hereof), and pursuant thereto the
         Company and the Guarantors will prepare and file with the Commission a
         Registration Statement relating to the registration on any appropriate
         form under the Act, which form shall be available for the sale of the
         Transfer Restricted Securities



                                       8
   10

         in accordance with the intended method or methods of distribution
         thereof within the time periods and otherwise in accordance with the
         provisions hereof.

                           (ii) issue, upon the request of any Holder or
         purchaser of Series A Notes covered by any Shelf Registration Statement
         contemplated by this Agreement, Series B Notes having an aggregate
         principal amount equal to the aggregate principal amount of Series A
         Notes sold pursuant to the Shelf Registration Statement and surrendered
         to the Company for cancellation; the Company shall register Series B
         Notes on the shelf Registration for this purpose and issue the Series B
         Notes to the purchaser(s) of securities subject to the Shelf
         Registration Statement in the names as such purchaser(s) shall
         designate.

                  (c) GENERAL PROVISIONS. In connection with any Registration
Statement required by this Agreement to permit the sale or resale of Transfer
Restricted Securities (including, without limitation, any Exchange Offer
Registration Statement, to the extent that the same are required to be available
to permit sales of Broker-Dealer Transfer Restricted Securities by Restricted
Broker-Dealers), the Company and the Guarantors shall:

                           (i) use their respective best efforts to keep such
         Registration Statement continuously effective and provide all requisite
         financial statements for the period specified in Section 3 or 4 of this
         Agreement, as applicable. Upon the occurrence of any event that would
         cause any such Registration Statement (including the Prospectus
         contained therein) (A) to contain an untrue statement of material fact
         or omit to state any material fact necessary to make the statements
         therein not misleading or (B) not to be effective and usable for resale
         of Transfer Restricted Securities during the period required by this
         Agreement, the Company and the Guarantors shall file promptly an
         appropriate amendment to such Registration Statement, (1) in the case
         of clause (A), correcting any such misstatement or omission, and (2) in
         the case of clauses (A) and (B), use their respective best efforts to
         cause such amendment to be declared effective and such Registration
         Statement and the related Prospectus to become usable for their
         intended purpose(s) as soon as practicable thereafter;

                           (ii) prepare and file with the Commission such
         amendments and post-effective amendments to the Registration Statement
         as may be necessary to keep the Registration Statement effective for
         the applicable period set forth in Section 3 or 4 hereof, or such
         shorter period as will terminate when all Transfer Restricted
         Securities covered by such Registration Statement have been sold; cause
         the Prospectus to be supplemented by any required Prospectus
         supplement, and as so supplemented to be filed pursuant to Rule 424
         under the Act, and to comply fully with Rules 424, 430A and 462, as
         applicable, under the Act in a timely manner; and comply with the
         provisions of the Act with respect to the disposition of all securities
         covered by such Registration Statement during the applicable period in
         accordance with the intended method or methods of distribution by the
         sellers thereof set forth in such Registration Statement or supplement
         to the Prospectus;

                           (iii) advise each Holder promptly and, if requested
         by such Holder, confirm such advice in writing, (A) when the Prospectus
         or any Prospectus supplement or post-effective amendment has been
         filed, and, with respect to any applicable Registration Statement or
         any post-effective amendment thereto, when the same has become
         effective, (B) of any request by the Commission for amendments to the
         Registration Statement or amendments or supplements to the Prospectus
         or for additional information relating thereto, (C) of



                                       9
   11

         the issuance by the Commission of any stop order suspending the
         effectiveness of the Registration Statement under the Act or of the
         suspension by any state securities commission of the qualification of
         the Transfer Restricted Securities for offering or sale in any
         jurisdiction, or the initiation of any proceeding for any of the
         preceding purposes, (D) of the existence of any fact or the happening
         of any event that makes any statement of a material fact made in the
         Registration Statement, the Prospectus, any amendment or supplement
         thereto or any document incorporated by reference therein untrue, or
         that requires the making of any additions to or changes in the
         Registration Statement in order to make the statements therein not
         misleading, or that requires the making of any additions to or changes
         in the Prospectus in order to make the statements therein, in the light
         of the circumstances under which they were made, not misleading. If at
         any time the Commission shall issue any stop order suspending the
         effectiveness of the Registration Statement, or any state securities
         commission or other regulatory authority shall issue an order
         suspending the qualification or exemption from qualification of the
         Transfer Restricted Securities under state securities or Blue Sky laws,
         the Company and the Guarantors shall use their respective best efforts
         to obtain the withdrawal or lifting of such order at the earliest
         possible time;

                           (iv) subject to Section 6(c)(i), if any fact or event
         contemplated by Section 6(c)(iii)(D) above shall exist or have
         occurred, prepare a supplement or post-effective amendment to the
         Registration Statement or related Prospectus or any document
         incorporated therein by reference or file any other required document
         so that, as thereafter delivered to the purchasers of Transfer
         Restricted Securities, the Prospectus will not contain an untrue
         statement of a material fact or omit to state any material fact
         necessary to make the statements therein, in the light of the
         circumstances under which they were made, not misleading;

                           (v) furnish to the Initial Purchasers and each
         selling Holder named in any Registration Statement or Prospectus in
         connection with such exchange or sale, if any, before filing with the
         Commission, copies of any Registration Statement or any Prospectus
         included therein or any amendments or supplements to any such
         Registration Statement or Prospectus (including all documents
         incorporated by reference after the initial filing of such Registration
         Statement), which documents will be subject to the review and comment
         of such Holders in connection with such sale, if any, for a period of
         at least five Business Days, and the Company will not file any such
         Registration Statement or Prospectus or any amendment or supplement to
         any such Registration Statement or Prospectus (including all such
         documents incorporated by reference) to which such Holders shall
         reasonably object within five Business Days after the receipt thereof.
         A Holder shall be deemed to have reasonably objected to such filing if
         such Registration Statement, amendment, Prospectus or supplement, as
         applicable, as proposed to be filed, contains a material misstatement
         or omission or fails to comply with the applicable requirements of the
         Act;

                           (vi) promptly after the filing of any document that
         is to be incorporated by reference into a Registration Statement or
         Prospectus, make available copies of such document to each Holder in
         connection with such exchange or sale, if any, make the Company's and
         the Guarantors' representatives available for discussion of such
         document and other customary due diligence matters;

                           (vii) make available, at reasonable times, for
         inspection by each Holder participating in any disposition pursuant to
         such Registration Statement and any attorney or



                                       10
   12

         accountant retained by such Holders, all financial and other records
         and pertinent corporate documents and properties of the Company and the
         Guarantors and cause the Company's and the Guarantors' officers,
         directors and employees to supply all information reasonably requested
         by any such Holder, attorney or accountant in connection with such
         Registration Statement or any post-effective amendment thereto
         subsequent to the filing thereof and prior to its effectiveness;
         PROVIDED that any information that is reasonably and in good faith
         designated by the Company in writing as confidential at the time of
         delivery of such information shall be kept confidential by such
         Persons, unless (i) disclosure of such information is required by court
         or administrative order or is necessary to respond to inquiries of
         regulatory authorities, (ii) disclosure of such information is required
         by law (including any disclosure requirements pursuant to federal
         securities laws in connection with the filing of such Registration
         Statement or the use of any Prospectus, except if the Company obtains
         "confidential treatment" for any document or information in accordance
         with the rules of the Commission), (iii) such information becomes
         generally available to the public other than as a result of a
         disclosure or failure to safeguard such information by such Person or
         (iv) such information becomes available to such Person from a source
         other than the Company and its subsidiaries and such source is not
         known, after due inquiry, by such Person to be bound by a
         confidentiality agreement;

                           (viii) if requested by any Holders in connection with
         such exchange or sale, promptly include in any Registration Statement
         or Prospectus, pursuant to a supplement or post-effective amendment if
         necessary, such information as such Holders may reasonably request to
         have included therein, including, without limitation, information
         relating to the "Plan of Distribution" of the Transfer Restricted
         Securities and the use of the Registration Statement or Prospectus for
         market-making activities; and make all required filings of such
         Prospectus supplement or post-effective amendment as soon as
         practicable after the Company is notified of the matters to be included
         in such Prospectus supplement or post-effective amendment;

                           (ix) furnish to each Holder in connection with such
         exchange or sale, without charge, at least one copy of the Registration
         Statement, as first filed with the Commission, and of each amendment
         thereto, including all documents incorporated by reference therein and
         all exhibits (including exhibits incorporated therein by reference);

                           (x) deliver to each Holder without charge, as many
         copies of the Prospectus (including each preliminary Prospectus) and
         any amendment or supplement thereto as such Persons reasonably may
         request; the Company and the Guarantors hereby consent to the use (in
         accordance with law) of the Prospectus and any amendment or supplement
         thereto by each of the Holders in connection with the offering and the
         sale of the Transfer Restricted Securities covered by the Prospectus or
         any amendment or supplement thereto and all market-making activities of
         the Initial Purchasers, as the case may be;

                           (xi) upon the request of any Holder, enter into such
         agreements (including an underwriting agreement) and make such
         representations and warranties and take all such other actions in
         connection therewith in order to expedite or facilitate the disposition
         of the Transfer Restricted Securities pursuant to any applicable
         Registration Statement contemplated by this Agreement as may be
         reasonably requested by any Holder of Transfer Restricted Securities in
         connection with any sale or resale pursuant to any applicable





                                       11
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         Registration Statement contemplated by this Agreement. In such
         connection and also in connection with any market-making activities by
         the Initial Purchasers, whether or not an underwriting agreement is
         entered into and whether or not the registration is an Underwritten
         Registration, the Company and the Guarantors shall:

                                    (A) upon the request of any Holder, furnish
                  (or in the case of paragraphs (2) and (3), use their best
                  efforts to furnish) to each Holder upon the effectiveness of
                  the Shelf Registration Statement and to each Restricted
                  Broker-Dealer upon Consummation of the Exchange Offer:

                                             (1) a certificate, dated the date
                           of Consummation of the Exchange Offer or the date of
                           effectiveness of the Shelf Registration Statement, as
                           the case may be, signed on behalf of the Company and
                           the Guarantors by (x) the President or any Vice
                           President and (y) a principal financial or accounting
                           officer of the Company and such Guarantor,
                           confirming, as of the date thereof, the matters set
                           forth in paragraphs (a), (b) and (c) of Section 9 of
                           the Purchase Agreement and such other similar matters
                           as such Holders and/or Restricted Broker Dealers may
                           reasonably request;

                                             (2) an opinion, dated the date of
                           Consummation of the Exchange Offer or the date of
                           effectiveness of the Shelf Registration Statement, as
                           the case may be, of counsel for the Company and the
                           Guarantors covering matters similar to those set
                           forth in paragraph (e) of Section 9 of the Purchase
                           Agreement and such other matter as the Holders and/or
                           Restricted Broker Dealers may reasonably request, and
                           in any event including a statement to the effect that
                           such counsel has participated in conferences with
                           officers and other representatives of the Company and
                           the Guarantors and representatives of the independent
                           public accountants for the Company and the Guarantors
                           and has considered the matters required to be stated
                           therein and the statements contained therein,
                           although such counsel has not independently verified
                           the accuracy, completeness or fairness of such
                           statements; and that such counsel advises that, on
                           the basis of the foregoing (relying as to materiality
                           to a large extent upon facts provided to such counsel
                           by officers and other representatives of the Company
                           and the Guarantors and without independent check or
                           verifications), no facts came to such counsel's
                           attention that caused such counsel to believe that
                           the applicable Registration Statement, at the time
                           such Registration Statement or any post-effective
                           amendment thereto became effective and, in the case
                           of the Exchange Offer Registration Statement, as of
                           the date of Consummation of the Exchange Offer,
                           contained an untrue statement of a material fact or
                           omitted to state a material fact required to be
                           stated therein or necessary to make the statements
                           therein not misleading, or that the Prospectus
                           contained in such Registration Statement as of its
                           date and, in the case of the opinion dated the date
                           of Consummation of the Exchange Offer, as of the date
                           of Consummation, contained an untrue statement of a
                           material fact or omitted to state a material fact
                           necessary in order to make the statements therein, in
                           the light of the circumstances under which they were
                           made, not misleading. Without limiting the foregoing,
                           such counsel may state further that such counsel
                           assumes no responsibility for, does not opine as to,
                           and has not independently verified, the accuracy,
                           completeness or fairness of the financial statements,
                           notes and schedules and other financial data included
                           in any Registration Statement contemplated by this
                           Agreement or the related Prospectus; and



                                       12
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                                             (3) a customary comfort letter,
                           dated as of the date of effectiveness of the Shelf
                           Registration Statement or the date of Consummation of
                           the Exchange Offer, as the case may be, from the
                           Company's independent accountants, in the customary
                           form and covering matters of the type customarily
                           covered in comfort letters to underwriters in
                           connection with underwritten offerings, and affirming
                           the matters set forth in the comfort letters
                           delivered pursuant to paragraph (g) of Section 9 of
                           the Purchase Agreement, without exception;

                                    (B) set forth in full or incorporate by
                  reference in the underwriting agreement, if any, in connection
                  with any sale or resale pursuant to any Shelf Registration
                  Statement the indemnification provisions and procedures of
                  Section 8 hereof with respect to all parties to be indemnified
                  pursuant to said Section; and

                                    (C) deliver such other documents and
                  certificates as may be reasonably requested by the selling
                  Holders, and Restricted Broker Dealers, if any, to evidence
                  compliance with clause (A) above and with any customary
                  conditions contained in the underwriting agreement or other
                  agreement entered into by the Company and the Guarantors
                  pursuant to this clause (xi).

                  If at any time the representations and warranties of the
         Company and the Guarantors contemplated in (A)(1) above cease to be
         true and correct in all material respects, the Company and the
         Guarantors shall so advise the selling Holders and each Restricted
         Broker-Dealer promptly and if requested by such Persons, shall confirm
         such advice in writing;

                           (xii) prior to any public offering of Transfer
         Restricted Securities, cooperate with the selling Holders and their
         counsel in connection with the registration and qualification of the
         Transfer Restricted Securities under the state Blue Sky or securities
         laws of such jurisdictions as the selling Holders may request and do
         any and all other acts or things necessary or advisable to enable the
         disposition in such jurisdictions of the Transfer Restricted Securities
         covered by the applicable Registration Statement; PROVIDED, HOWEVER,
         that neither the Company nor any Guarantors shall be required to
         register or qualify as a foreign corporation where it is not now so
         qualified or to take any action that would subject it to the service of
         process in suits or to taxation, other than as to matters and
         transactions relating to the Registration Statement, in any
         jurisdiction where it is not now so subject;

                           (xiii) in connection with any sale of Transfer
         Restricted Securities that will result in such securities no longer
         being Transfer Restricted Securities, cooperate with the Holders to
         facilitate the timely preparation and delivery of certificates
         representing Transfer Restricted Securities to be sold and not bearing
         any restrictive legends; and to register such Transfer Restricted
         Securities in such denominations and such names as the Holders or the
         underwriter(s), if any, may request at least two Business Days prior to
         such sale of Transfer Restricted Securities;

                           (xiv) use their respective best efforts to cause the
         disposition of the Transfer Restricted Securities covered by the
         Registration Statement to be registered with or approved by such other
         governmental agencies or authorities as may be necessary to enable the
         seller or sellers thereof or the underwriter(s), if any, to consummate
         the disposition of such Transfer Restricted Securities, subject to the
         proviso contained in clause (xii) above;




                                       13
   15

                           (xv) provide a CUSIP number for all Transfer
         Restricted Securities not later than the effective date of a
         Registration Statement covering such Transfer Restricted Securities and
         provide the Trustee under the Indenture with printed certificates for
         the Transfer Restricted Securities which are in a form eligible for
         deposit with the Depository Trust Company;

                           (xvi) cooperate and assist in any filings required to
         be made with the NASD and in the performance of any due diligence
         investigation by any underwriter (including any "qualified independent
         underwriter") that is required to be retained in accordance with the
         rules and regulations of the NASD, and use their respective best
         efforts to cause such Registration Statement to become effective and
         approved by such governmental agencies or authorities as may be
         necessary to enable the Holders selling Transfer Restricted Securities
         to consummate the disposition of such Transfer Restricted Securities;
         PROVIDED, HOWEVER, that the Company shall not take any position during
         review by the NASD that would, in any manner, create the implication
         that the offering of the Series A Notes on the Closing Date by the
         Company should be or is subject to the rules and regulations of the
         NASD;

                           (xvii) otherwise use their respective best efforts to
         comply with all applicable rules and regulations of the Commission, and
         make generally available to its security holders with regard to any
         applicable Registration Statement, as soon as practicable, a
         consolidated earnings statement meeting the requirements of Rule 158
         (which need not be audited) covering a twelve-month period beginning
         after the effective date of the Registration Statement (as such term is
         defined in paragraph (c) of Rule 158 under the Act);

                           (xviii) cause the Indenture to be qualified under the
         TIA not later than the effective date of the first Registration
         Statement required by this Agreement and, in connection therewith,
         cooperate with the Trustee and the Holders of Notes to effect such
         changes to the Indenture as may be required for such Indenture to be so
         qualified in accordance with the terms of the TIA; and execute and use
         their best efforts to cause the Trustee to execute, all documents that
         may be required to effect such changes and all other forms and
         documents required to be filed with the Commission to enable such
         Indenture to be so qualified in a timely manner; and

                           (xix) provide promptly to each Holder and the Initial
         Purchasers upon request each document filed with the Commission
         pursuant to the requirements of Section 13 or Section 15(d) of the
         Exchange Act.

                  (d) RESTRICTIONS ON HOLDERS. Each Holder agrees by acquisition
of a Transfer Restricted Security that, upon receipt of the notice referred to
in Section 6(c)(iii)(C) or any notice from the Company of the existence of any
fact of the kind described in Section 6(c)(iii)(D) hereof (in each case, a
"SUSPENSION NOTICE"), such Holder will forthwith discontinue disposition of
Transfer Restricted Securities pursuant to the applicable Registration Statement
until (i) such Holder's receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 6(c)(iv) hereof, or (ii) such Holder is
advised in writing by the Company that the use of the Prospectus may be resumed,
and has received copies of any additional or supplemental filings that are
incorporated by reference in the Prospectus (the "ADVICE"). If so directed by
the Company, each Holder will either (i) destroy any Prospectuses, other than
permanent file copies, then in such Holder's possession which have been replaced
by the Company with more recently dated Prospectuses or (ii) deliver to the
Company (at the Company's expense) all copies, other than



                                       14
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permanent file copies then in such Holder's possession, of the Prospectus
covering such Transfer Restricted Securities that was current at the time of
receipt of either such notice. In the event the Company shall give any such
notice, the time period regarding the effectiveness of such Registration
Statement set forth in Section 3 or 4 hereof, as applicable, shall be extended
by the number of days during the period from and including the date of the
giving of such notice pursuant to Section 6(c)(i) or Section 6(c)(iii)(D) hereof
to and including the date when each selling Holder covered by such Registration
Statement shall have received the copies of the supplemented or amended
Prospectus contemplated by Section 6(c)(iv) hereof or shall have received the
Advice.

SECTION 7. REGISTRATION EXPENSES

                  (a) All expenses incident to the Company's and the Guarantors'
performance of or compliance with this Agreement will be borne by the Company,
regardless of whether a Registration Statement becomes effective, including
without limitation: (i) all registration and filing fees and expenses (including
filings made by any Purchaser or Holder with the NASD and its counsel that may
be required by the rules and regulations of the NASD); (ii) all fees and
expenses of compliance with federal securities and state Blue Sky or securities
laws; (iii) all expenses of printing (including printing certificates for the
Series B Notes to be issued in the Exchange Offer and printing of Prospectuses,
whether for exchanges, sales or otherwise), messenger and delivery services and
telephone; (iv) all fees and disbursements of counsel for the Company, the
Guarantors and the Holders of Transfer Restricted Securities (subject to the
provisions of Section 7(b) hereof); (v) all application and filing fees in
connection with listing the Series B Notes on a national securities exchange or
automated quotation system pursuant to the requirements hereof; and (vi) all
fees and disbursements of independent certified public accountants of the
Company and the Guarantors (including the expenses of any special audit and
comfort letters required by or incident to such performance).

                  Notwithstanding the foregoing, the Holders will be responsible
for any underwriting discounts and commissions, brokers fees and any transfer
taxes relating to such Notes disposed of by the Holders. The Company will, in
any event, bear its and the Guarantors' internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), the expenses of any annual audit and the fees and
expenses of any Person, including special experts, retained by the Company or
the Guarantors.

                  (b) In connection with any Registration Statement required by
this Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company and the Guarantors
will reimburse the Initial Purchasers and the Holders of Transfer Restricted
Securities being tendered in the Exchange Offer and/or resold pursuant to the
"Plan of Distribution" contained in the Exchange Offer Registration Statement or
registered pursuant to the Shelf Registration Statement, as applicable, for the
reasonable fees and disbursements of not more than one counsel, who shall be
Cahill Gordon & Reindel, unless another firm shall be chosen by the Holders of a
majority in principal amount of the Transfer Restricted Securities for whose
benefit such Registration Statement is being prepared.




                                       15
   17

SECTION 8. INDEMNIFICATION

                  (a) The Company and the Guarantors, jointly and severally,
agree to indemnify and hold harmless (i) each Holder and (ii) each person, if
any, who controls (within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act) any Holder (any of the persons referred to in this clause (ii)
being hereinafter referred to as a "CONTROLLING PERSON") and (iii) the
respective officers, directors, partners, employees, representatives and agents
of any Holder or any controlling person (any person referred to in clause (i),
(ii) or (iii) may hereinafter be referred to as an "INDEMNIFIED HOLDER"), to the
fullest extent lawful, from and against any and all losses, claims, damages,
liabilities, judgments, actions and expenses (including without limitation and
as incurred, reimbursement of all reasonable costs of investigating, preparing,
pursuing or defending any claim or action, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, including the
reasonable fees and expenses of counsel to any Indemnified Holder) directly or
indirectly caused by, related to, based upon, arising out of or in connection
with any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement, preliminary prospectus or Prospectus
(or any amendment or supplement thereto), or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as such losses, claims,
damages, liabilities, judgments, actions or expenses are caused by an untrue
statement or omission or alleged untrue statement or omission that is made in
reliance upon and in conformity with information relating to any of the Holders
furnished in writing to the Company by any of the Holders expressly for use
therein.

                  (b) Each Holder of Transfer Restricted Securities agrees,
severally and not jointly, to indemnify and hold harmless the Company and the
Guarantors, and their respective directors, officers, and any person controlling
(within the meaning of Section 15 of the Act or Section 20 of the Exchange Act)
the Company or the Guarantors, and the respective officers, directors, partners,
employees, representatives and agents of each such person, to the same extent as
the foregoing indemnity from the Company and the Guarantors to each of the
Indemnified Holders, but only with respect to claims and actions based on
information relating to such Holder furnished in writing by such Holder
expressly for use in any Registration Statement. In case any action or
proceeding shall be brought against the Company, the Guarantors or any of their
directors or officers or any such controlling person in respect of which
indemnity may be sought against a Holder of Transfer Restricted Securities, such
Holder shall have the rights and duties given the Company and the Guarantors,
and the Company, the Guarantors, such directors or officers or such controlling
person shall have the rights and duties given to each Holder by the preceding
paragraph. In no event shall any Holder be liable or responsible for any amount
in excess of the amount by which the total received by such Holder with respect
to its sale of Transfer Restricted Securities pursuant to a Registration
Statement exceeds (i) the amount paid by such Holder for such Transfer
Restricted Securities and (ii) the amount of any damages which such Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission.

                  (c) In case any action shall be commenced involving any person
in respect of which indemnity may be sought pursuant to Section 8(a) or 8(b)
(the "INDEMNIFIED PARTY"), the indemnified party shall promptly notify the
person against whom such indemnity may be sought (the "INDEMNIFYING PERSON") in
writing and the indemnifying party shall assume the defense of such action,
including the employment of counsel reasonably satisfactory to the indemnified
party and the payment of all fees and expenses of such counsel, as incurred
(except that in the case of any action in respect of which indemnity may be
sought pursuant to both Sections 8(a) and 8(b), a Holder shall not be required
to assume the defense of such action pursuant to this Section 8(c), but may
employ separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
the



                                       16
   18

Holder). Any indemnified party shall have the right to employ separate counsel
in any such action and participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of the indemnified party unless
(i) the employment of such counsel shall have been specifically authorized in
writing by the indemnifying party, (ii) the indemnifying party shall have failed
to assume the defense of such action or employ counsel reasonably satisfactory
to the indemnified party or (iii) the named parties to any such action
(including any impleaded parties) include both the indemnified party and the
indemnifying party, and the indemnified party shall have been advised by counsel
that there may be one or more legal defenses available to it which are different
from or additional to those available to the indemnifying party (in which case
the indemnifying party shall not have the right to assume the defense of such
action on behalf of the indemnified party). In any such case, the indemnifying
party shall not, in connection with any one action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) for
all indemnified parties and all such fees and expenses shall be reimbursed as
they are incurred. Such firm shall be designated in writing by a majority of the
Holders, in the case of the parties indemnified pursuant to Section 8(a), and by
the Company and Guarantors, in the case of parties indemnified pursuant to
Section 8(b). The indemnifying party shall indemnify and hold harmless the
indemnified party from and against any and all losses, claims, damages,
liabilities and judgments by reason of any settlement of any action (i) effected
with its written consent or (ii) effected without its written consent if the
settlement is entered into more than twenty business days after the indemnifying
party shall have received a request from the indemnified party for reimbursement
for the fees and expenses of counsel (in any case where such fees and expenses
are at the expense of the indemnifying party) and, prior to the date of such
settlement, the indemnifying party shall have failed to comply with such
reimbursement request. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement or compromise of, or
consent to the entry of judgment with respect to, any pending or threatened
action in respect of which the indemnified party is or could have been a party
and indemnity or contribution may or could have been sought hereunder by the
indemnified party, unless such settlement, compromise or judgment (i) includes
an unconditional release of the indemnified party from all liability on claims
that are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.

                  (d) If the indemnification provided for in this Section 8 is
unavailable to an indemnified party under Section 8(a) or Section 8(b) hereof
(other than by reason of exceptions provided in those Sections) in respect of
any losses, claims, damages, liabilities or expenses referred to therein, then
each applicable indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the Company and
the Guarantors, on the one hand, and of the Indemnified Holder, on the other
hand, in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or expenses. The relative fault of the
Company and the Guarantors, on the one hand, and of the Indemnified Holder, on
the other hand, shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or the Guarantors or by the Indemnified Holder and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The amount paid or payable by a party as a result of
the losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in the last sentence of
Section 8(b), any legal or other fees or expenses reasonably incurred by such
party in connection with investigating or defending any action or claim.




                                       17
   19

                  The Company, the Guarantors and each Holder of Transfer
Restricted Securities agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by pro rata
allocation (even if the Holders were treated as one entity for such purpose) or
by any other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages, liabilities or expenses referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8, no Holder or its related
Indemnified Holders shall be required to contribute, in the aggregate, any
amount in excess of the amount by which the total received by such Holder with
respect to the sale of its Transfer Restricted Securities pursuant to a
Registration Statement exceeds the sum of (A) the amount paid by such Holder for
such Transfer Restricted Securities PLUS (B) the amount of any damages which
such Holder has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Holders' obligations to contribute pursuant to
this Section 8(d) are several in proportion to the respective principal amount
of Series A Notes held by each of the Holders hereunder and not joint.

SECTION 9. RULE 144A

                  The Company and the Guarantors hereby agree with each Holder,
for so long as any Transfer Restricted Securities remain outstanding and, in the
event the Company subsequently becomes subject to Section 13 or 15(d) of the
Exchange Act, during any period in which the Company or the Guarantors (i) are
not subject to Section 13 or 15(d) of the Exchange Act, to make available, upon
request of any Holder of Transfer Restricted Securities, to any Holder of
Transfer Restricted Securities in connection with any sale thereof and any
prospective purchaser of such Transfer Restricted Securities designated by such
Holder, the information required by Rule 144A(d)(4) under the Act in order to
permit resales of such Transfer Restricted Securities pursuant to Rule 144A, and
(ii) are subject to Section 13 or 15(d) of the Exchange Act, to make all filings
required thereby in a timely manner in order to permit resales of such Transfer
Restricted Securities pursuant to Rule 144.

SECTION 10. UNDERWRITTEN REGISTRATIONS

                  No Holder may participate in any Underwritten Registration
hereunder unless such Holder (a) agrees to sell such Holder's Transfer
Restricted Securities on the basis provided in customary underwriting
arrangements entered into in connection therewith and (b) completes and executes
all reasonable questionnaires, powers of attorney, and other documents required
under the terms of such underwriting arrangements.

SECTION 11. SELECTION OF UNDERWRITERS

                  For any Underwritten Offering, the investment banker or
investment bankers and manager or managers for any Underwritten Offering that
will administer such offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities included in
such offering. Such investment bankers and managers are referred to herein as
the "underwriters."




                                       18
   20

SECTION 12. MISCELLANEOUS

                  (a) REMEDIES. Each Holder and the Initial Purchasers, in
addition to being entitled to exercise all rights provided herein, in the
Indenture, the Purchase Agreement or granted by law, including recovery of
Liquidated Damages (the payment of which is the sole monetary remedy available
to the Holders of Transfer Restricted Series A Notes in the event that the
Company does not comply with the deadlines set forth in this Agreement with
respect to the conduct of the Exchange Offer or the registration of the Series A
Notes for resale under a Shelf Registration Statement) or other damages, will in
addition be entitled to specific performance of its rights under this Agreement.
The Company and the Guarantors agree that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by them of the
provisions of this Agreement and hereby agree to waive the defense in any action
for specific performance that a remedy at law would be adequate.

                  (b) NO INCONSISTENT AGREEMENTS. Neither the Company nor the
Guarantors will, on or after the date of this Agreement, enter into any
agreement with respect to their respective securities that is inconsistent with
the rights granted to the Holders in this Agreement or otherwise conflicts with
the provisions hereof. Neither the Company nor the Guarantors has previously
entered into any agreement granting any registration rights with respect to
their respective securities to any Person. The rights granted to the Holders
hereunder do not in any way conflict with and are not inconsistent with the
rights granted to the holders of the Company's and the Guarantors' securities
under any agreement in effect on the date hereof.

                  (c) ADJUSTMENTS AFFECTING THE NOTES. Neither the Company nor
the Guarantors will take any action, or voluntarily permit any change to occur,
with respect to the Notes that would materially and adversely affect the ability
of the Holders to Consummate any Exchange Offer.

                  (d) AMENDMENTS AND WAIVERS. This Agreement may not be amended,
modified or supplemented, and waivers or consents to or departures from the
provisions hereof may not be given unless (i) in the case of Section 5 hereof
and this Section 12(d)(i), the Company has obtained the written consent of
Holders of all outstanding Transfer Restricted Securities (except with respect
to a waiver or departure entered into by a Holder with the Company that is
binding only with respect to the Notes held by such Holder) and (ii) in the case
of all other provisions hereof, the Company has obtained the written consent of
Holders of a majority of the outstanding principal amount of Transfer Restricted
Securities (excluding Transfer Restricted Securities held by the Company or its
Affiliates). Notwithstanding the foregoing, a waiver or consent to departure
from the provisions hereof that relates exclusively to the rights of Holders
whose securities are being tendered pursuant to the Exchange Offer and that does
not affect directly or indirectly the rights of other Holders whose securities
are not being tendered pursuant to such Exchange Offer may be given by the
Holders of a majority of the outstanding principal amount of Transfer Restricted
Securities subject to such Exchange Offer.

                  (e) THIRD PARTY BENEFICIARY. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company, on the one
hand, and the Initial Purchasers, on the other hand, and shall have the right to
enforce such agreements directly to the extent they may deem such enforcement
necessary or advisable to protect their rights or the rights of Holders
hereunder.

                  (f) NOTICES. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, first-class
mail (registered or certified, return receipt requested), telex, telecopier, or
air courier guaranteeing overnight delivery:




                                       19
   21

                           (i) if to a Holder, at the address set forth on the
         records of the Registrar under the Indenture, with a copy to the
         Registrar under the Indenture; and

                           (ii) if to the Company or the Guarantors:

                                RailAmerica Transportation Corp.
                                5300 Broken Sound Boulevard, N.W.
                                Boca Raton, Florida 33487
                                Facsimile No.: (561) 994-3929
                                Attention:  General Counsel

                                With a copy to:

                                Greenberg Traurig, P.A.
                                1221 Brickell Avenue
                                Miami, Florida 33131
                                Facsimile No.: (305) 579-0500
                                Attention:  Fern Watts

                  All such notices and communications shall be deemed to have
been duly given: at the time delivered by hand, if personally delivered; five
Business Days after being deposited in the mail, postage prepaid, if mailed;
when receipt acknowledged, if telecopied; and on the next Business Day, if
timely delivered to an air courier guaranteeing overnight delivery.

                  Copies of all such notices, demands or other communications
shall be concurrently delivered by the Person giving the same to the Trustee at
the address specified in the Indenture.

                  (g) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders of Transfer Restricted Securities; PROVIDED,
HOWEVER, that this Agreement shall not inure to the benefit of or be binding
upon a successor or assign of a Holder unless and to the extent such successor
or assign acquired Transfer Restricted Securities directly from such Holder.

                  (h) COUNTERPARTS. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.

                  (i) HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.

                  (j) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICT OF LAW RULES THEREOF.

                  (k) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity,



                                       20
   22

legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be affected or impaired
thereby.

                  (l) ENTIRE AGREEMENT. This Agreement is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted with respect to the
Transfer Restricted Securities. This Agreement supersedes all prior agreements
and understandings between the parties with respect to such subject matter.






                                       21
   23

                  IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.

                           RAILAMERICA TRANSPORTATION CORP.



                           By: /s/ Bennett Marks
                               -------------------------------------------------
                               Name:  Bennett Marks
                               Title: Senior Vice President and Chief Financial
                                      Officer


                           RAILAMERICA, INC.,
                           as Guarantor



                           By: /s/ Mark Phariss
                               -------------------------------------------------
                               Name:  Mark Phariss
                               Title: Vice President, General Counsel and
                                      Assistant Secretary




                                      S-1
   24
                           AUSTIN & NORTHWESTERN RAILROAD COMPANY, INC.
                           BOSTON CENTRAL FREIGHT RAILROADS, INC.
                           CASCADE AND COLUMBIA RIVER RAILROAD COMPANY, INC.
                           CENTRAL OREGON & PACIFIC RAILROAD, INC.
                           CENTRAL RAILROAD COMPANY OF INDIANA
                           CENTRAL RAILROAD COMPANY OF INDIANAPOLIS
                           CONNECTICUT SOUTHERN RAILROAD, INC.
                           DAKOTA RAIL, INC.
                           DALLAS, GARLAND & NORTHEASTERN RAILROAD, INC.
                           DALLAS, GARLAND & NORTHEASTERN RAILROAD, INC.
                           DELAWARE VALLEY RAILWAY COMPANY, INC.
                           FLORIDA RAIL LINES, INC.
                           GEORGIA SOUTHWESTERN RAILROAD, INC.
                           HURON AND EASTERN RAILWAY COMPANY, INC.
                           INDIANA & OHIO CENTRAL RAILROAD, INC.
                           INDIANA & OHIO RAIL CORP.
                           INDIANA & OHIO RAILWAY COMPANY
                           INDIANA SOUTHERN RAILROAD, INC.
                           MARKSMAN CORP.
                           MID-MICHIGAN RAILROAD, INC.
                           MINNESOTA NORTHERN RAILROAD, INC.
                           MISSOURI & NORTHERN ARKANSAS RAILROAD COMPANY, INC.
                           NEW ENGLAND CENTRAL RAILROAD, INC.
                           NEW ORLEANS LOWER COAST RAILROAD COMPANY, INC.
                           NORTH CAROLINA AND VIRGINIA RAILROAD COMPANY, INC.
                           OTTER TAIL VALLEY RAILROAD COMPANY, INC.
                           PALM BEACH RAIL HOLDING, INC.
                           PITTSBURG INDUSTRIAL RAILROAD, INC.
                           PLAINVIEW TERMINAL COMPANY
                           PRAIRIE HOLDINGS CORPORATION
                           RAIL OPERATING SUPPORT GROUP, INC.
                           RAILAMERICA AUSTRALIA, INC.
                           RAILAMERICA EQUIPMENT CORPORATION
                           RAILAMERICA INTERMODAL SERVICES, INC.
                           RAILINK ACQUISITION, INC.
                           RAILTEX ACQUISITION CORP.
                           RAILTEX DISTRIBUTION SERVICES, INC.
                           RAILTEX, INC.
                           RAILTEX INTERNATIONAL HOLDINGS, INC.
                           RAILTEX LOGISITICS, INC.
                           RAILTEX SERVICES CO., INC.
                           SAGINAW VALLEY RAILWAY COMPANY, INC.
                           SAN DIEGO & IMPERIAL VALLEY RAILROAD COMPANY, INC.




                                      S-2
   25

                           SOUTH CAROLINA CENTRAL RAILROAD COMPANY, INC.
                           SOUTH CENTRAL TENNESSEE RAILROAD CORP., INC.
                           ST. CROIX VALLEY RAILROAD COMPANY
                           THE TOLEDO, PEORIA & WESTERN RAILROAD CORPORATION
                           TOLEDO, PEORIA & WESTERN RAILWAY CORPORATION
                           VENTURA COUNTY RAILROAD CO., INC.
                           WEST TEXAS AND LUBBOCK RAILROAD COMPANY, INC.,
                             as Guarantors

                           By: /s/ Bennett Marks
                               ------------------------------------------------
                               Name:  Bennett Marks
                               Title: Senior Vice President and Chief Financial
                                      Officer,
                                           On behalf of each of the above-
                                            named entities.






                                      S-3
   26
Donaldson, Lufkin & Jenrette Securities Corporation
Barclays Bank PLC
Scotia Capital (USA) Inc.



By:  DONALDSON, LUFKIN & JENRETTE
     SECURITIES CORPORATION




By: /s/ Steven D. Smith
    -------------------------------------
    Name:  Steven D. Smith
    Title: Senior Vice President





                                      S-4

EX-23.2

   1
                                                                   EXHIBIT 23.2

              CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We hereby consent to the use in this Registration Statement on Form S-4 of
RailAmerica Transportation Corporation of our report dated March 15, 2000
relating to the financial statements of RailAmerica, Inc., which appears in such
Registration Statement. We also consent to the references to us under the
heading "Experts" in such Registration Statement.


PricewaterhouseCoopers LLP


Ft. Lauderdale, Florida
September 5, 2000

EX-23.3

   1


                                                                   EXHIBIT 23.3

                       CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in this Registration
Statement filed on Form S-4 of our report dated February 4, 2000, on our audits
of the financial statements of Ferronor S.A. (a Chilean corporation and
subsidiary of RailAmerica) included in the RailAmerica, Inc. Form 10-K for the
year ended December 31, 1999, and to all references to our firm included in this
Registration Statement.


                                                 ARTHUR ANDERSEN-LANGTON CLARKE

Charles A. Bunce
(Partner)

Santiago, Chile
September 5, 2000

EX-23.4

   1


                                                                   EXHIBIT 23.4

              CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of our report dated July 14, 1999 relating to the
financial statements of V/Line Freight Corporation as of June 30, 1998 and for
the year then ended, which appear in RailAmerica, Inc.'s Current Report on Form
8-K/A dated July 16, 1999. We also consent to the reference to our firm under
the heading "Experts" in such Registration Statement.


PricewaterhouseCoopers LLP


Fort Lauderdale, Florida
September 5, 2000

EX-23.5

   1


                                                                    EXHIBIT 23.5

              CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of our report dated March 5, 1999, relating to the
financial statements of RaiLink, Inc. as of December 31, 1998 and for the year
then ended, which appear in RailAmerica, Inc.'s Current Report on Form 8-K/A
dated October 5, 1999. We also consent to the reference to us under the heading
"Experts" in such Registration Statement.


PricewaterhouseCoopers LLP


Ft. Lauderdale, Florida
September 5, 2000

EX-23.6

   1
                                                                   Exhibit 23.6


                         Consent of Independent Auditors

We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 19, 1999, with respect to the financial
statements of The Toledo, Peoria and Western Railroad Corporation incorporated
by reference from RailAmerica's Current Report on Form 8-K/A, dated November 12,
1999 in the Registration Statement (Form S-4) dated September 6, 2000 of
RailAmerica Transportation Corp. for the registration of $130,000,000 12 7/8%
Senior Subordinated Notes due 2010.


                                                Ernst & Young LLP


Syracuse, New York
September 5, 2000

EX-23.7

   1


                                                                   EXHIBIT 23.7

                    CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use in this
Registration Statement of our report dated February 17, 2000, included herein
and to all references to our firm included in this Registration Statement.



                                               ARTHUR ANDERSEN LLP


San Antonio, Texas
September 5, 2000