<PAGE>   1


                                                                   EXHIBIT 10.46

                    AMENDED AND RESTATED EMPLOYMENT AGREEMENT


                  THIS AGREEMENT ("Agreement") is made and entered into as of
the 1st day of January, 2000, by and between John G. Larkin, an individual
resident of the State of Maryland ("Employee"), and Railworks Corporation, a
Delaware corporation ( "Employer").

                               W I T N E S S E T H

                  WHEREAS, Employee has been employed by Employer pursuant to an
Amended and Restated Employment Agreement dated as of August 4, 1998 ("Prior
Agreement");

                  WHEREAS, Employer and Employee desire to amend the Prior
Agreement and restate it as so amended; and

                  WHEREAS, the Employee desires to be so employed by the
Employer, on the terms and conditions as contained herein.

                  NOW, THEREFORE, in consideration of the premises and the
mutual promises and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged by
the parties hereto, the parties hereto, intending to be legally bound, hereby
agree as follows:

                  SECTION 1.        EMPLOYMENT.

                  Subject to the terms hereof, Employer will employ Employee and
Employee hereby accepts such employment. The Employee shall serve as the Chief
Executive Officer of the Employer and shall be a director of each of the
subsidiaries of the Employer and shall also serve on any executive committee
which oversees the daily operations of the Employer, or any similar committee
having such function.

                  Subject to the terms and conditions of this Agreement,
Employee agrees to devote substantially all of his business time and best
efforts to the performance of his job as Chief Executive Officer of the
Employer, subject to direction by the Board of Directors of the Employer (the
"Board of Directors"), as long as such directions are consistent with the
duties, responsibilities and authority customarily given or required of chief
executive officers generally, with the Employee to report his activities
regularly to the Board of Directors. Notwithstanding anything to the contrary
contained herein, as of the date of this Agreement, the Employee shall be
permitted to invest in entities that sell, and sell himself, financial services
and products generally; provided that such activities do not interfere with the
performance of his duties under this Agreement and such activities are not in
contravention of the terms and conditions of Section 5 hereof.

                  SECTION 2.        TERM OF EMPLOYMENT.

                  The term of the Employee's employment hereunder (the "Term")
shall be from May 21, 1998, the commencement date of the Prior Agreement, until
the occurrence of any of the following events:

                  (i)      The death or total disability of Employee (total
                           disability meaning the failure to fully perform his
                           normal required services hereunder for a period of
                           six (6) consecutive months during any consecutive
                           twelve (12) month period during the term hereof, as
                           determined by an independent medical doctor jointly
                           chosen by the Employee and the Employer) by reason of
                           mental or physical disability;

                  (ii)     The termination by Employer of Employee's employment
                           hereunder, upon thirty (30) days prior written notice
                           to Employee, for "good cause", as reasonably
                           determined by the Board of Directors. For purposes of
                           this Agreement, "good cause" for termination of
                           Employee's employment shall exist (A) if Employee is
                           convicted of, pleads guilty to or confesses to any
                           felony or any act of fraud, misappropriation or
                           embezzlement, (B) if Employee has engaged in a
                           dishonest act to the material damage or prejudice of
                           Employer or an affiliate of Employer, or in conduct
                           or activities materially damaging to the property,
                           business, or reputation of Employer or an affiliate
                           of Employer, or (C) if Employee violates any of the




                                      146


<PAGE>   2

                           provisions contained in Section 5 of this Agreement,
                           after receiving written notice from the Employer
                           specifically outlining the alleged violations by the
                           Employee of Section 5 hereof and either (1) the
                           Employee fails to stop the alleged behavior which is
                           claimed to be such a breach within thirty (30) days
                           of receipt by the Employee of such written notice or
                           (2) the Employer prevails in mediation or binding
                           arbitration pursuant to the commercial arbitration
                           rules of the American Arbitration Association which
                           arbitration is commenced by the Employee within
                           thirty (30) days of receipt by the Employer of such
                           notice in accordance with the provisions of Section
                           5.6 hereof;

                  (iii)    The termination by either the Employee or the
                           Employer, upon thirty (30) days written notice to the
                           other party, in the event of a Change of Control of
                           the Employer (as defined hereinbelow).

                  For purposes of this Agreement, a "Change of Control" shall be
                           deemed to have occurred if (A) any "person" (as such
                           term is used in Sections 13(d) and 14(d) of the
                           Securities Exchange Act of 1934, as amended (the
                           "Exchange Act")), other than a trustee or other
                           fiduciary holding securities under an employee
                           benefit plan of the Employer, a corporation owned
                           directly or indirectly by the stockholders of the
                           Employer (immediately after the IPO) or any of their
                           respective affiliates, becomes the "beneficial owner"
                           (a defined in Rule 13d-3 under the Exchange Act),
                           directly or indirectly, of securities of the Employer
                           representing 50% or more of the total voting power
                           represented by the Employer's then outstanding
                           securities that vote generally in the election of
                           directors (referred to herein as "Voting
                           Securities"), including, without limitation, by
                           reason of the agreement of a third party (including
                           Employee) to vote the Voting Securities owned by such
                           third party in the same manner as such person votes
                           the Voting Securities owned by such person; (B)
                           during any period of two consecutive years,
                           individuals who at the beginning of such period
                           constitute the Board of Directors and any new
                           directors whose election by the Board of Directors or
                           nomination for election by the Employer's
                           stockholders was approved by a vote or a majority of
                           the directors then still in office who either were
                           directors at the beginning of the period or whose
                           election or nomination for election was previously so
                           approved, cease for any reason to constitute a
                           majority of the Board of Directors; (C) the
                           stockholders of the Employer approve a merger or
                           consolidation of the Employer with any other
                           corporation, other than a merger or consolidation (i)
                           which would result in the Voting Securities of the
                           Employer outstanding immediately prior thereto
                           continuing to represent (either by remaining
                           outstanding or by being converted into Voting
                           Securities of the surviving of the surviving entity)
                           at least 50% of the total voting power represented by
                           the Voting Securities of the Employer or such
                           surviving entity outstanding immediately after such
                           merger or consolidation or (ii) in which 50% or more
                           of the board of directors of the surviving entity is
                           composed of members from the Board of Directors of
                           the Employer; (D) the stockholders of the Employer
                           approve a plan of complete liquidation of the
                           Employer or an agreement for the sale or disposition
                           by the Employer of (in one transaction or a series of
                           transactions) all or substantially all of the
                           Employer's assets; (E) the executive offices of the
                           Employer are relocated from the Greater Baltimore
                           Metropolitan Area or (F) the Employee is not a member
                           of the Board of Directors or is not on any Executive
                           Committee or similar committee of the Board of
                           Directors; or


                  (iv)     After December 31, 2001, this Agreement shall
                           continue upon a year-to-year basis unless terminated
                           by either the Employer or the Employee upon ninety
                           days (90) written notice to the other before January
                           1 of the next year.

                  SECTION 3.        COMPENSATION.

                  3.1      Term of Employment. Employer will provide Employee
with the following salary, expense reimbursement and additional employee
benefits during the term of employment hereunder.

                  (a)      Salary. Employee will be paid a salary of no less
                           than Three Hundred Twenty-Five Thousand Dollars
                           ($325,000) per annum, and subject to increase as
                           hereinafter provided (the salary then in effect is
                           referred



                                      147


<PAGE>   3

                           to as the "Base Salary"), less deductions and
                           withholdings required by applicable law. The Base
                           Salary shall be paid to Employee in equal monthly
                           installments (or on such more frequent basis as other
                           executives of Employer are compensated). The Base
                           Salary shall be reviewed by the Board of Directors of
                           Employer on at least an annual basis thereafter and
                           may be increased but not decreased below the then
                           Base Salary as a result of any such review.

                  (b)      Performance Bonuses. In addition to the Base Salary,
                           the Employee shall have the right to receive from the
                           Employer, and the Employer shall be obligated to pay
                           to the Employee, a performance bonus (the
                           "Performance Bonus") for each fiscal year during the
                           term of this Agreement, equal to the aggregate amount
                           determined by the bonus formulas delineated herein
                           below. Any amount of a Performance Bonus required to
                           be paid to the Employee for a fiscal year during the
                           term of this Agreement shall be paid by the Employer
                           in the first pay period of the Employer immediately
                           following the finalization of the accounting audit
                           for financial accounting purposes of the Employer for
                           the preceding fiscal year but in all events by March
                           31 of the year immediately following the end of the
                           fiscal year for which such Performance Bonus is
                           attributable.

                           The formulas to determine a Performance Bonus for any
                           fiscal year during the term of this Agreement shall
                           be as follows:

                           (i)      For each fiscal year of the Employer, .5% of
                                    the pre-tax net income, before any
                                    performance or other periodic bonuses for
                                    any of the employees of the Employer and any
                                    of its consolidated subsidiaries, of the
                                    Employer on a consolidated basis for
                                    financial accounting basis based upon
                                    applying generally accepted accounting
                                    principles and generally accepted auditing
                                    standards on a consistent basis. This bonus
                                    shall be calculated by the independent
                                    certified public accountant regularly
                                    employed by the Employer (the "CPA")
                                    applying such generally accepted accounting
                                    principles and generally accepted auditing
                                    standards on a consistent basis.

                                    Plus

                           (ii)     For each fiscal year of the Employer, five
                                    percent (5%) of the excess of (a) the
                                    consolidated after tax net income of the
                                    Employer and its consolidated subsidiaries
                                    for a fiscal year, computed by the CPA
                                    applying generally accepted accounting
                                    principles and generally accepted auditing
                                    standards on a consistent basis over (b) the
                                    Wall Street Estimate (as hereinafter
                                    defined) for such fiscal year. For purposes
                                    of this subsection (ii)(b), Wall Street
                                    Estimate for a fiscal year shall mean the
                                    simple arithmetical average of the
                                    consolidated earnings per share estimates
                                    for a fiscal year of the Employer and its
                                    consolidated subsidiaries in the possession
                                    of First Call on the Determination Date (as
                                    hereinafter defined), translated by the CPA
                                    into the equivalent consolidated after tax
                                    net income of the Employer and its
                                    consolidated subsidiaries for such fiscal
                                    year. For purposes of this subsection
                                    (ii)(b), the Determination Date shall mean
                                    the first day of the fiscal year for which
                                    such computation applies.

                  (c)      Discretionary Bonus. The Board of Directors may, from
                           time to time, award the Employee an additional
                           discretionary bonus based upon such factors as the
                           Board of Directors deems appropriate. The Employer
                           shall have no entitlement to such a discretionary
                           bonus until and unless so awarded by the Board of
                           Directors.

                  (d)      Vacation. Employee shall receive four (4) weeks
                           vacation time per calendar year during the term of
                           this Agreement in addition to customary holidays
                           afforded other employees of Employer. Any unused
                           vacation days in any calendar year may not be carried
                           over to subsequent years. The Employer recognizes the
                           benefit to it of the Employee attending and
                           participating in trade seminars, conventions, and
                           similar gatherings and educational seminars and
                           encourages the Employee to attend such seminars and
                           conventions. Accordingly, any reasonable cost and
                           expenses thereof will be paid for by the Employer and
                           any time spent by the Employee at such seminars and
                           conventions shall not constitute vacation time but
                           shall constitute part of the Employee's duties under
                           this Agreement.


                                      148

<PAGE>   4

                  (e)      Expenses. Employer shall reimburse Employee, within
                           thirty (30) days of its receipt of a reimbursement
                           report from the Employee, for all reasonable and
                           necessary expenses incurred by Employee on behalf of
                           Employer.

                  (f)      Benefit Plans. Employee shall have the option of
                           participating in such medical, dental, disability,
                           hospitalization, life insurance, stock option and
                           other benefit plans (such as pension and profit
                           sharing plans) as Employer maintains from time to
                           time for the benefit of other senior executives of
                           Employer, on the terms and subject to the conditions
                           set forth in such plans.

                  3.2      Effect of Termination and Change in Control. Except
as hereinafter provided, upon the termination of the employment of Employee
hereunder for any reason, Employee shall be entitled to all compensation and
benefits earned or accrued under Section 3.1 as of the effective date of
termination (the "Termination Date"), but from and after the Termination Date no
additional compensation or benefits shall be earned by Employee hereunder.
Except upon termination by the Employer of the employment of the Employee
pursuant to the provisions of Section 2(ii) hereof, Employee shall be deemed to
have earned any Performance Bonus payable with respect to the fiscal year in
which the Termination Date occurs on a prorated basis (based on the number of
days in such calendar year through and including the Termination Date divided by
365). Any such Performance Bonus shall be payable on the date on which the
Performance Bonus would have been paid had Employee continued his employment
hereunder. In addition, the Employee and his eligible dependents shall be
entitled to receive at the sole cost of the Employer (A) the health insurance
benefits specified hereunder for a period of twelve (12) months following the
Termination Date (the "Continuation Period") and following such time period, the
Employee shall be entitled to all rights afforded to him under the Federal
Omnibus Reconciliation Act ("COBRA") to purchase continuation coverage of such
health insurance benefits for himself and his dependents for the maximum period
permitted by law, and the Employee shall be deemed to have elected to exercise
his rights under Cobra as of the first day of the Continuation Period, and (B)
the life insurance benefits specified hereinabove for the period of the
Continuation Period.

                  (i)      Immediately upon a Change in Control or upon
                           termination of this Agreement pursuant to the
                           provisions of Sections 2(i) or (iii) hereof, any
                           stock grants or options previously awarded to the
                           Employee, either by this Agreement or otherwise,
                           shall fully and completely vest and the Employee
                           shall be able to retain or obtain as the case may be,
                           such stock, as though there was no vesting period or
                           criteria of any kind or nature, with respect to such
                           stock. If stock options have previously been awarded
                           to the Employee, notwithstanding any terms and
                           conditions of such award or any plan pursuant to
                           which such stock options were awarded, the Employee
                           or his authorized representative shall have a period
                           of three (3) months from the Termination Date to
                           exercise any or all of such stock options and acquire
                           for his own benefit the shares of stock covered by
                           such stock options.

                  (ii)     Upon termination of the Agreement pursuant to the
                           terms of Section 2(ii) or (iv) hereof, all granted
                           but unvested, at the Termination Date, stock grants
                           or options shall be forfeited upon such termination;
                           provided that the Employee shall be able to retain or
                           exercise any rights for a period of one (1) month
                           after the Termination Date, notwithstanding the terms
                           and provisions of such stock options awarded or the
                           plan under which they were awarded, with respect to
                           any shares of stock granted or shares of stock
                           covered by stock options that have fully vested as of
                           the Termination Date.



                  3.3 Loan Forgiveness on Change in Control. Immediately upon a
Change of Control, any balance of the "Loan", as defined in Section 4.2 hereof,
together with any accrued but unpaid interest thereon to the date of
forgiveness, shall be forgiven automatically without further action by the
Employer or the Employee, and in addition, Employer shall pay to Employee an
amount equal to the difference between (i) the actual federal, state and local
income taxes payable by Employee for the year in which the Loan is forgiven,
including for the purpose of such calculation the taxes resulting from the
inclusion in Employee's income of the gross up payments under this Section and
(ii) the amount of such taxes which would have been paid by Employee had the
Loan not been forgiven. In the event it is determined that any payment hereunder
is an "excess parachute payment" as defined in Section 280G of the Internal
Revenue Code of 1986, as amended, the Employer shall reimburse Employee for the
excise tax imposed under such section and in addition shall pay Employee an
amount equal to the additional federal, state and local income taxes payable or
paid by Employee for the year in which such payment is made to Employee,
including for the purpose of such calculation, the taxes resulting from the
inclusion in Employee's income of the gross up payments made under this Section.
The amounts payable to Employee hereunder shall be paid by Employer within five
business days after Employee submits a calculation of the amount due to him
under this Section, which statement may be an estimated statement based upon the
information available to Employee at the time the statement is submitted. If
payment is made by Employer based on such estimated payment, Employee shall
submit to Employer a


                                      149


<PAGE>   5

final statement based upon the Employee's tax return as filed for the year in
question, which final statement shall be submitted not later than 30 days after
the date on which Employee files his federal income tax return for such year.
Such final statement shall contain a reconciliation of to the estimated
statement and payment of the amounts due to or from Employee shall be paid
within 3 days after the final statement has been submitted.

                  SECTION 4.        COMMON STOCK.

                  4.1 Term of Employment. So that Employee can share in the
increase in value of the business of Employer over time, Employee will be
granted common stock of Employer as follows:

                  (i)      Stock Grants. Under the Prior Agreement, and upon the
                           consummation of the public offering of Employer's
                           common stock ("IPO"), Employee has been granted that
                           number of shares of all classes of stock of the
                           Employer equal to four and one-half (4 1/2%) of the
                           number of shares of all classes of stock of the
                           Employer outstanding immediately upon consummation of
                           the IPO. Such shares so granted fully and completely
                           vested on the date of issuance.

                  (ii)     Stock Splits and Recapitalization. The number of
                           shares of common stock granted hereby shall be
                           automatically adjusted to reflect any change in the
                           capitalization of the Employer, including, but not
                           limited to, such changes as stock dividends, stock
                           splits or recapitalizations. If any adjustment under
                           this Section would create the right of Employee to
                           acquire a fractional share of stock, such fractional
                           share shall be disregarded and the number of shares
                           of common stock subject to the grant shall be the
                           next higher number of whole shares of common stock,
                           rounding all fractions upward.

                  4.2      Stock Loan.

                  (i)      In order to help the Employee pay any required income
                           taxes with respect to the stock granted to the
                           Employee pursuant to the provisions of Section 4.1
                           hereof, Employer has provided to the Employee a loan
                           (the "Loan"). The Loan provides for payment of
                           interest only until June 30, 2005, requires yearly
                           payments of simple interest, at the same interest
                           rate as the Employer incurs to borrow funds from its
                           institutional lenders, is collateralized only by the
                           stock granted and the Employee otherwise is not
                           personally obligated to repay the Loan; provided that
                           upon the termination of this Agreement pursuant to
                           the provisions of Section 2(i) or (ii), the Loan
                           shall be fully paid off within three (3) months of
                           the Termination Date; upon the termination of this
                           Agreement pursuant to Section 2 (iv) hereof, the Loan
                           shall be fully paid off within one (1) year after the
                           Termination Date and upon a Change in Control, the
                           Loan shall be forgiven as hereinabove provided.

                  (ii)     To the extent that the Employee has not repaid the
                           entire principal balance of the Loan plus any accrued
                           interest thereon before June 30, 2005, the Employee
                           agrees to sell, as promptly as practicable, a
                           sufficient number of shares of Common Stock to enable
                           the Employee to repay the then remaining outstanding
                           balance (unpaid principal balance and unpaid accrued
                           interest from time to time, the ("Unpaid Balance of
                           the Loan")) of the Loan after any taxes have been
                           provided for (the "Required Number of Shares"),
                           subject to the following conditions and requirements:

                           (A)      Such sales shall be made in a manner which
                                    shall reasonably not disrupt the orderly
                                    trading of Common Stock, either through open
                                    market or privately negotiated transactions
                                    as long as no sales shall be made at a price
                                    lower than 1/16 below the last sales price
                                    of Common Stock publicly traded immediately
                                    prior to such sale even if such prohibition
                                    shall cause a delay in Employee's compliance
                                    with his obligation to sell Common Stock as
                                    provided hereinabove;

                           (B)      If after June 30, 2005 the Employer proposes
                                    to register any of its securities under the
                                    Securities Act for sale to the public for
                                    its own account or for the account of other
                                    security holders or both, the Employer may,
                                    upon 30 days prior written notice to the
                                    Employee, require the Employee to include
                                    the Required Number of Shares in such
                                    offering and to sell such shares as part of
                                    such offering. In such event, all of the
                                    costs of registering the Required Number of
                                    Shares, including but not limited to, all
                                    registration and filing fees, printing
                                    expenses, fees and disbursements of counsel
                                    and independent public accountants for the
                                    Employer; fees of the National Association
                                    of Securities Dealers, Inc., state Blue Sky
                                    fees and expenses, transfer taxes fees of
                                    transfer agents and



                                      150

<PAGE>   6

                                    registrars and costs of insurance; and all
                                    underwriting discounts and selling
                                    commissions applicable to the sale of shares
                                    other than the Required Number of Shares,
                                    shall be paid by the Employer.
                                    Notwithstanding the above, the Employee
                                    shall pay all underwriting discounts and
                                    selling commissions directly payable with
                                    respect to the registration of the Required
                                    Number of Shares; or

                           (C)      If, as of December 31, 2005, Employee has
                                    not yet disposed of the Required Number of
                                    Shares, the Employer will repurchase from
                                    the Employee the Required Number of Shares
                                    at a per share price equal to 1/16 lower
                                    than the average of the closing sales price
                                    for the Common Stock as reported on the
                                    national stock exchange on which the
                                    Employer's stock trades for a ten (10) day
                                    period prior to the date of such sale to the
                                    Employer, provided, however, that such
                                    repurchase shall only be required if it can
                                    be effected in a manner that complies with
                                    all applicable securities laws.

                  Notwithstanding anything contained herein to the contrary, the
Employee shall not be required to sell any of the Required Number of Shares
unless the net proceeds paid to the Employee as a result of such shares equals
or exceeds 150% of the IPO Price per share.

                  Nothing in this Section 4.2(ii) shall be construed to require
the Employee to sell common stock except in compliance with all applicable
securities laws. Any delay imposed due to compliance with requirements of
applicable securities laws shall suspend the Employee's obligation to sell
Common Stock as otherwise provided hereinabove.

                  Lastly, notwithstanding anything to the contrary contained in
this Section 4.2(ii), the Employee shall have the right but not the obligation,
at any time and from time to time, to repay the Unpaid Balance of the Loan from
his personal resources.

                  4.3      Securities Act. THE SHARES OF COMMON STOCK (THE
"SHARES") GRANTED PURSUANT TO THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE
SECURITIES LAWS, THE SHARES ARE OFFERED PURSUANT TO EXEMPTIONS PROVIDED BY
SECTION 4(2) OF THE ACT AND CERTAIN RULES AND REGULATIONS PROMULGATED PURSUANT
THERETO. THE SHARES MAY NOT BE TRANSFERRED BY THE EMPLOYEE IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL ACCEPTABLE TO EMPLOYER AND ITS COUNSEL,
WHICH ACCEPTANCE SHALL NOT BE UNREASONABLY WITHHELD, THAT SUCH REGISTRATION IS
NOT REQUIRED.

                  At such time as counsel for the Employee, which is acceptable
to the Employer, which acceptance shall not be unreasonably withheld, opines
that the aforementioned stock restriction and legend can be removed from the
certificates representing stock granted pursuant to Section 4. 1 (i) hereof in
accordance with applicable securities law, the Employer agrees to delete any
such legend from the certificates representing such shares that have been so
granted.

                  SECTION 5.        PARTIAL RESTRAINT ON COMPETITION.

                  5.1      Definitions. For the purposes of this Section 5, the
                           following definitions shall apply.

                           (a)      "Company Activities" means the business of
                                    construction and maintenance of railway beds
                                    and tracks; construction and maintenance of
                                    elevated rail systems and structures;
                                    construction and maintenance of railway
                                    switching and signaling equipment,
                                    distributorships and supply in the field of
                                    rail and railway construction materials;
                                    distributorships and supply in the field of
                                    electromechanical controls for use in the
                                    railroad industry, namely, railway switching
                                    equipment and railway signaling equipment;
                                    and design for others in the field of
                                    railroad industry, namely, engineering
                                    design of rail and railway related
                                    structures and equipment or any other
                                    business of the Employer and its
                                    consolidated (for financial accounting
                                    purposes) subsidiaries (the "Consolidated
                                    Group") which said entities are engaged in
                                    on the Termination Date as long as such
                                    business generated gross sales of at least
                                    10% or more of the total gross sales of the
                                    Consolidated Group for the most recent
                                    fiscal year of the Employer before or on the
                                    Termination Date.

                                    Company Activities shall not include
                                    investing in entities which sell, or the
                                    provision by the Employee of sales, of
                                    financial services or products of any kind
                                    or nature or consulting with


                                      151


<PAGE>   7

                                    respect to such sales of such services
                                    and/or products ("Permitted Activity" or
                                    "Permitted Activities").

                           (b)      "Competitor" means any business, individual,
                                    partnership, joint venture, association,
                                    firm, corporation or other entity, other
                                    than the Employer or its affiliates or
                                    subsidiaries, engaged, wholly or partly, in
                                    Company Activities.

                           (c)      "Competitive Position" means (i) having any
                                    financial interest in a Competitor,
                                    including but not limited to, the direct or
                                    indirect ownership or control of all or any
                                    portion of a Competitor, or acting as a
                                    partner, officer, director, principal, agent
                                    or trustee of any Competitor or (ii)
                                    engaging in any employment or independent
                                    contractor arrangement, business or other
                                    activity with any Competitor whereby
                                    Employee will serve such Competitor in any
                                    senior managerial capacity.

                           (d)      "Confidential Information" means any
                                    confidential, proprietary business
                                    information or data belonging to or
                                    pertaining to Employer that does not
                                    constitute a "Trade Secret" (as hereinafter
                                    defined) and that is not generally known by
                                    or available through legal means to the
                                    public, including, but not limited to,
                                    information regarding Employer's customers
                                    or actively sought prospective customers,
                                    acquisition targets, suppliers,
                                    manufacturers and distributors gained by
                                    Employee as a result of his employment with
                                    Employer; but shall not include any
                                    information known by the Employee before
                                    March 1, 1998.

                           (e)      "Customer" means actual customers or
                                    actively sought prospective customers of
                                    Employer during the Term.

                           (f)      "Noncompete Period" or "Nonsolicitation
                                    Period" means the period beginning the date
                                    hereof and ending on the second anniversary
                                    of the termination of Employee's employment
                                    with Employer; provided that such Noncompete
                                    Period or Nonsolicitation Period shall end
                                    on the Termination Date in the event this
                                    Agreement is terminated pursuant to the
                                    provisions of Section 2(iii) hereof.

                           (g)      "Territory" means the area within a one
                                    hundred (100) mile radius of any corporate
                                    office or job site of Employer or any of its
                                    subsidiaries, affiliates or divisions.

                           (h)      "Trade Secrets" means information or data of
                                    or about Employer, including but not limited
                                    to technical or non-technical data,
                                    formulas, patterns, compilations, programs,
                                    devices, methods, techniques, drawings,
                                    processes, financial data, financial plans,
                                    products plans, or lists of actual or
                                    potential customers, clients, distributees
                                    or licensees, information concerning
                                    Employer's finances, services, staff,
                                    contemplated acquisitions, marketing
                                    investigations and surveys, that are not
                                    generally known to, and/or are not readily
                                    ascertainable by legal means by, other
                                    persons.

                           (i)      "Work Product" means any and all work
                                    product property, data documentation or
                                    information of any kind prepared, conceived,
                                    discovered, developed or created by Employee
                                    for Employer or its affiliates, or any of
                                    Employer's or its affiliates' clients or
                                    customers for utilization in Company
                                    Activities, not generally known by and/or
                                    not readily ascertainable by proper means by
                                    other persons who can obtain economic value
                                    from their disclosure or use.

                  5.2      Trade Name and Confidential Information.

                           (a)      Employee hereby agrees that (i) with regard
                                    to each item constituting all or any portion
                                    of the Trade Secrets and Confidential
                                    Information, at all times during the Term
                                    and all times during which such item
                                    continues to constitute a Trade Secret or
                                    Confidential Information, respectively:

                                    (i)     Employee shall not, directly or by
                                            assisting others own, manage,
                                            operate, join, control or
                                            participate in the ownership,
                                            management, operation or control of,
                                            or be connected in any manner with,
                                            any business conducted under any
                                            corporate or trade name of Employer
                                            or name confusingly similar thereto,
                                            without the prior written consent of
                                            Employer;


                                      152

<PAGE>   8

                                    (ii)    Employee shall hold in confidence
                                            all Trade Secrets and all
                                            Confidential Information and will
                                            not, either directly or indirectly,
                                            use, sell, lend, lease, distribute,
                                            license, give, transfer, assign,
                                            show, disclose, disseminate,
                                            reproduce, copy, appropriate or
                                            otherwise communicate any Trade
                                            Secrets or Confidential Information,
                                            without the prior written consent of
                                            Employer; and

                                    (iii)   Employee shall immediately notify
                                            Employer of any unauthorized
                                            disclosure or use of any Trade
                                            Secrets or Confidential Information
                                            of which Employee becomes aware.
                                            Employee shall assist Employer, to
                                            the extent necessary, in the
                                            procurement or any protection of
                                            Employer's rights to or in any of
                                            the Trade Secrets or Confidential
                                            Information.

                           (b)      Upon the request of Employer and, in any
                                    event, upon the termination of Employee's
                                    employment with Employer, Employee shall
                                    deliver to Employer all memoranda, notes,
                                    records, manuals and other documents,
                                    including all copies of such materials and
                                    all documentation prepared or produced in
                                    connection therewith, pertaining to the
                                    performance of Employee's services hereunder
                                    or Employer's business or containing Trade
                                    Secrets or Confidential Information, whether
                                    made or complied by Employee or furnished to
                                    Employee from another source by virtue of
                                    Employee's employment with Employer.

                           (c)      To the greatest extent possible, all Work
                                    Product shall be deemed to be "work made for
                                    hire" (as defined in the Copyright Act, 17
                                    U.S.C.A.ss.ss.101 et seq., as amended) and
                                    owned exclusively by Employer. Employee
                                    hereby unconditionally and irrevocably
                                    transfers and assigns to Employer all
                                    rights, title and interest Employee may have
                                    in or to any and all Work Product,
                                    including, without limitation, all patents,
                                    copyrights, trademarks, service marks and
                                    other intellectual property rights. Employee
                                    agrees to execute and deliver to Employer
                                    any transfers, assignments, documents or
                                    other instruments which Employer may deem
                                    necessary or appropriate to vest complete
                                    title and ownership of any and all such Work
                                    Product, and all rights therein, exclusively
                                    in Employer.

                  5.3      Noncompetition.

                           (a)      The parties hereto acknowledge that Employee
                                    is conducting Company Activities throughout
                                    the Territory. Employee acknowledges that to
                                    protect adequately the interest of Employer
                                    in the business of Employer it is essential
                                    that any noncompete covenant with respect
                                    thereto cover all Company Activities and the
                                    entire Territory.

                           (b)      Employee hereby agrees that, during the Term
                                    and the Noncompete Period, Employee will
                                    not, in the Territory, either directly or
                                    indirectly, alone or in conjunction with any
                                    other party, accept, enter into or take any
                                    action in conjunction with or in furtherance
                                    of a Competitive Position with Employer.
                                    Employee shall notify Employer promptly in
                                    writing if Employee receives an offer of a
                                    Competitive Position during the Noncompete
                                    Term, and such notice shall describe all
                                    material terms of such offer.

                  Nothing contained in this Section 5 shall prohibit Employee
from acquiring not more than five percent (5%) of any Competitor, or from
acquiring any percentage of any company which is non-competitive with Employer,
whose common stock is publicly traded on a national securities exchange or in
the over-the-counter market or from engaging in Permitted Activities.

                  5.4      Nonsolicitation During Employment Term. Employee
hereby agrees that Employee will not, during the Term, either directly or
indirectly, alone or in conjunction with any other party:

                           (a)      solicit, divert or appropriate or attempt to
                                    solicit, divert or appropriate, any Customer
                                    for the purpose of providing the Customer
                                    with services or products competitive with
                                    those offered by Employer during the Term,
                                    other than a Permitted Activity, or

                           (b)      solicit or attempt to solicit any officer,
                                    director, employee, consultant, contractor,
                                    agent, lessor, lessee, licensor, licensee,
                                    supplier or any shareholder of any of the
                                    Founding Companies or other personnel of
                                    Employer or any of its affiliates or
                                    subsidiaries to terminate, alter or lessen
                                    that


                                      153


<PAGE>   9

                                    party's affiliation with Employer or such
                                    affiliate or subsidiary or to violate the
                                    terms of any agreement or understanding
                                    between such employee, consultant,
                                    contractor or other person and Employer.

                  5.5      Nonsolicitation During Nonsolicitation Period.
Employee hereby agrees that Employee will not, during the Nonsolicitation.
Period, either directly or indirectly, alone or in conjunction with any other
party:

                           (a)      solicit, divert or appropriate or attempt to
                                    solicit, divert or appropriate, any Customer
                                    for the purpose of providing the Customer
                                    with services or products that qualify as
                                    Company Activities during the Term;
                                    provided, however, that the covenant in this
                                    clause shall limit Employee's conduct only
                                    with respect to those Customers with whom
                                    Employee had substantial contact (through
                                    direct or supervisory interaction with the
                                    Customer or the Customer's account) during a
                                    period of time up to but no greater than two
                                    (2) years prior to the last day of the Term;
                                    or

                           (b)      solicit or attempt to solicit any officer,
                                    director, employee, consultant, contractor,
                                    agent, lessor, lessee, licensor, licensee,
                                    supplier or any shareholder of any of the
                                    Founding Companies or other personnel of
                                    Employer or any of its affiliates or
                                    subsidiaries residing at the time of the
                                    solicitation in the Territory to terminate,
                                    alter or lessen that party's affiliation
                                    with Employer or such affiliate or
                                    subsidiary or to violate the terms of any
                                    agreement or understanding between such
                                    employee, consultant, contractor or other
                                    person and Employer, other than with respect
                                    to Permitted Activities. For purposes of
                                    this clause (b), employees, consultants,
                                    contractors, or other personnel are those
                                    with knowledge of or access to Trade Secrets
                                    and Confidential Information of the
                                    Employer.

                  5.6      Binding Arbitration. The parties shall refer any
dispute as to whether or not the Employee has violated the provisions of this
Section 5 to a mediator and, in the event that mediation is unsuccessful, such
dispute shall be resolved by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association. The
arbitrator shall be selected by the mediator. The cost of the mediator and, if
necessary, the arbitrator and all other costs of the mediation and, if
necessary, the arbitration shall be split equally between the Employee and the
Employer, except for attorneys fees which shall be paid by the party employing
such attorney.

                  SECTION 6.        MISCELLANEOUS.

                  6.1      Severability. The covenants in this Agreement shall
be construed as covenants independent of one another and as obligations distinct
from any other contract between Employee and Employer.

                  6.2      Survival of Obligations. The covenants in Section 5
of this Agreement shall survive termination of Employee's employment, except in
the case of termination of this Agreement pursuant to the provisions of Section
2(iii) hereof, in which case they shall terminate also and have no further force
or legal effect as of the Termination Date.

                  6.3      Notices. Any notice or other document to be given
hereunder by any party hereto to any other party hereto shall be in writing and
delivered in person or by courier, by telecopy transmission or sent by any
express mail service, postage or fees prepaid at the following addresses:

                  EMPLOYER

                  RailWorks Corporation
                  1104 Kenilworth Drive.
                  Suite 301
                  Baltimore, MD 21204
                  Attention: RailWorks Chief Executive Officer
                  Telecopy No.: (410) 825-6920

                  EMPLOYEE

                  Mr. John G. Larkin


                                      154

<PAGE>   10

                  403 Somerset Road
                  Baltimore, Maryland 21210

or at such other address or number for a party as shall be specified by like
notice. Any notice which is delivered in the manner provided herein shall be
deemed to have been duly given to the party to whom it is directed upon actual
receipt by such party or its agent.

                  6.4      Binding Effect. This Agreement inures to the benefit
of, and is binding upon, Employer and their respective successors and assigns,
and Employee, together with Employee's executor, administrator, personal
representative, heirs, and legatees.

                  6.5      Entire Agreement. This Agreement is intended by the
parties hereto to be the final expression of their agreement with respect to the
subject matter hereof and is the complete and exclusive statement of the terms
thereof, notwithstanding any representations, statements or agreements to the
contrary heretofore made. This Agreement supersedes and terminates all prior
employment and compensation agreements, arrangements and understandings between
or among Employer and Employee including, without limitation, the Prior
Agreement. This Agreement may be modified only by a written instrument signed by
all of the parties hereto.

                  6.6      Governing Law. This Agreement shall be deemed to be
made in, and in all respects shall be interpreted, construed, and governed by
and in accordance with, the laws of the State of Maryland. No provision of this
Agreement shall be construed against or interpreted to the disadvantage of any
party hereto by any court of other governmental or judicial authority or by any
board of arbitrators by reasons of such party or its counsel having or being
deemed to have structured or drafted such provision.

                  6.7 Headings. The section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.

                  6.8      Specific Performance. Each party hereby agrees that
any remedy at law for any breach of provisions contained in this Agreement shall
be inadequate and that the other parties hereto shall be entitled to specific
performance and any other appropriate injunctive relief in addition to any other
remedy such party might have under this Agreement or at law or in equity.

                  6.9      Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same instrument.

                  6.10     Other Employment Agreements. Without the prior
written consent of Employee, no person that is subsequently hired by RailWorks
in a position comparable to the position held by Employee shall be offered an
employment agreement that contain benefits that are more favorable to such
person than the terms contained herein.

SIGNATURES APPEAR ON THE NEXT PAGE.


                                      155

<PAGE>   11


         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.

                                    EMPLOYER

                                    RAILWORKS CORPORATION


                                    By:                                (SEAL)
                                       --------------------------------
                                       Name:
                                       Title:

                                    EMPLOYEE


                                    By:                                (SEAL)
                                       --------------------------------
                                                John Larkin



















                                      156