<PAGE>   1
                                                                    EXHIBIT 10.3

                  AMENDED AND RESTATED EMPLOYMENT AGREEMENT


                  THIS AGREEMENT ("Agreement") is made and entered into as of
this 4th day of August, 1998, by and between John Kennedy, an individual
resident of the State of Pennsylvania ("Employee"), and RailWorks Corporation, a
Delaware corporation (as defined below the "Holding Company").

                               W I T N E S S E T H

                  WHEREAS, the Holding Company has been created for the purpose
of carrying on the businesses of the entities listed on Exhibit A, which is
attached hereto and hereby incorporated by reference herein (the "Founding
Companies"), and the Holding Company has completed a public offering of its
common stock under applicable law;

                  WHEREAS, the Founding Companies desire that the Holding
Company employ the Employee to be the Vice President and Chief Operating Officer
of the Holding Company on the terms and conditions as contained herein; and

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

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

                  SECTION 1.        EMPLOYMENT.

                  Subject to the terms hereof, Employer will employ Employee and
Employee hereby accepts such employment. The Employee shall serve as the Vice
President and Chief Operating Officer of the Holding Company.

                  Subject to the terms and conditions of this Agreement,
Employee agrees to devote substantially all of his business time and best
efforts to the performance of his job as Vice President and Chief Operating
Officer of the Holding Company, subject to direction by the Board of Directors
of the Holding Company (the "Board of Directors"), as long as such directions
are consistent with the duties, responsibilities and authority customarily given
or 



<PAGE>   2

required of chief operating officers generally, with the Employee to report his
activities regularly to the Board of Directors.

                  SECTION 2.        TERM OF EMPLOYMENT.

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

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

         (ii)     The termination by Employer of Employee's employment
                  hereunder, upon thirty (30) days prior written notice to
                  Employee, for "good cause", as reasonably determined by the
                  Board of Directors. For purposes of this Agreement, "good
                  cause" for termination of Employee's employment shall exist
                  (A) if Employee is convicted of, pleads guilty to or confesses
                  to any felony or any act of fraud, misappropriation or
                  embezzlement, (B) if Employee has engaged in a dishonest act
                  to the material damage or prejudice of Employer or an
                  affiliate of Employer, or in conduct or activities materially
                  damaging to the property, business, or reputation of Employer
                  or an affiliate of Employer, or (C) if Employee violates any
                  of the provisions contained in Section 5 of this Agreement,
                  after receiving written notice from the Employer specifically
                  outlining the alleged violations by the Employee of Section 5
                  hereof and either (1) the Employee fails to stop the alleged
                  behavior which is claimed to be such a breach within thirty
                  (30) days of receipt by the Employee of such written notice or
                  (2) the Employer prevails in mediation or binding arbitration
                  pursuant to the commercial arbitration rules of the American
                  Arbitration Association which arbitration is commenced by the
                  Employee within thirty (30) days of receipt by the Employer of
                  such notice in accordance with the provisions of Section 5.6
                  hereof;

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

                           For purposes of this Agreement, a "Change of Control"
                  shall be deemed to have occurred if (A) any "person" (as such
                  term is used in Sections 13(d) and 14(d) of the Securities
                  Exchange Act of 1934, as amended (the "Exchange Act")),



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                  other than a trustee or other fiduciary holding securities
                  under an employee benefit plan of the Holding Company, a
                  corporation owned directly or indirectly by the stockholders
                  of the Holding Company (immediately after the IPO) or any of
                  their respective affiliates, becomes the "beneficial owner"
                  (as defined in Rule 13d-3 under the Exchange Act), directly or
                  indirectly, of securities of the Holding Company representing
                  50% or more of the total voting power represented by the
                  Holding Company's then outstanding securities that vote
                  generally in the election of directors (referred to herein as
                  "Voting Securities"); (B) during any period of two consecutive
                  years, individuals who at the beginning of such period
                  constitute the Board of Directors and any new directors whose
                  election by the Board of Directors or nomination for election
                  by the Holding Company's stockholders was approved by a vote
                  or a majority of the directors then still in office who either
                  were directors at the beginning of the period or whose
                  election or nomination for election was previously so
                  approved, cease for any reason to constitute a majority of the
                  Board of Directors; (C) the stockholders of the Holding
                  Company approve a merger or consolidation of the Holding
                  Company with any other corporation, other than a merger or
                  consolidation (i) which would result in the Voting Securities
                  of the Holding Company outstanding immediately prior thereto
                  continuing to represent (either by remaining outstanding or by
                  being converted into Voting Securities of the surviving
                  entity) at least 50% of the total voting power represented by
                  the Voting Securities of the Holding Company or such surviving
                  entity outstanding immediately after such merger or
                  consolidation or (ii) in which 50% or more of the board of
                  directors of the surviving entity is composed of members from
                  the Board of Directors of the Holding Company; (D) the
                  stockholders of the Holding Company approve a plan of complete
                  liquidation of the Holding Company or an agreement for the
                  sale or disposition by the Holding Company of (in one
                  transaction or a series of transactions) all or substantially
                  all of the Holding Company's assets; or

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

                  SECTION 3.        COMPENSATION.

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



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         (a)      Salary. From the date of this Agreement, Employee will be paid
                  a salary (the "Base Salary") of no less than One Hundred
                  Thousand Dollars ($100,000) per annum, less deductions and
                  withholdings required by applicable law. The Base Salary shall
                  be paid to Employee in equal monthly installments (or on such
                  more frequent basis as other executives of Employer are
                  compensated). The Base Salary shall be reviewed by the Board
                  of Directors of Employer on at least an annual basis
                  thereafter and may be increased but not decreased as a result
                  of any such review.

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

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

                  (i)      For each fiscal year of the Employer, .15% of the
                           pre-tax net income, before any performance or other
                           periodic bonuses for any of the employees of the
                           Employer and any of its consolidated subsidiaries, of
                           the Employer on a consolidated basis for financial
                           accounting basis based upon applying generally
                           accepted accounting principles and generally accepted
                           auditing standards on a consistent basis. This bonus
                           shall be calculated by the independent certified
                           public accountant regularly employed by the Employer
                           (the "CPA") applying such generally accepted
                           accounting principles and generally accepted auditing
                           standards on a consistent basis.

                           Plus



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                  (ii)     For each fiscal year of the Employer, one point five
                           percent (1.5%) of the excess of (a) the consolidated
                           after tax net income of the Employer and its
                           consolidated subsidiaries for a fiscal year, computed
                           by the CPA applying generally accepted accounting
                           principles and generally accepted auditing standards
                           on a consistent basis over (b) the Wall Street
                           Estimate (as hereinafter defined) for such fiscal
                           year. For purposes of this subsection (ii)(b), Wall
                           Street Estimate for a fiscal year shall mean the
                           simple arithmetical average of the consolidated
                           earnings per share estimates for a fiscal year of the
                           Employer and its consolidated subsidiaries in the
                           possession of First Call on the Determination Date
                           (as hereinafter defined), translated by the CPA into
                           the equivalent consolidated after tax net income of
                           the Employer and its consolidated subsidiaries for
                           such fiscal year. For purposes of this subsection
                           (ii)(b), the Determination Date shall mean the date
                           the IPO is consummated and thereafter shall be the
                           first day of the fiscal year for which such
                           computation applies.

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

         (d)      Vacation. Employee shall receive four (4) weeks vacation time
                  per calendar year during the term of this Agreement in
                  addition to customary holidays afforded other employees of
                  Employer. Any unused vacation days in any calendar year may
                  not be carried over to subsequent years.

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

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



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

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

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



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                           were awarded, with respect to any shares of stock
                           granted or shares of stock covered by stock options
                           that have fully vested as of the Termination Date.

                  SECTION 4.        COMMON STOCK.

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

                           (i)      Stock Grant. Simultaneously with the
                                    consummation of the IPO, Employee will be
                                    granted that number of shares of all classes
                                    of stock of the Holding Company equal to one
                                    percent (1.0%) of the number of shares of
                                    all classes of stock of the Holding Company
                                    outstanding immediately upon consummation of
                                    the IPO. Such shares so granted shall fully
                                    and completely vest on the date of issuance.

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

                  4.2      Stock Loan.

                           (i)      In order to help the Employee pay any
                                    required income taxes with respect to the
                                    stock granted to the Employee pursuant to
                                    the provisions of Section 4.1 hereof, at any
                                    time after the IPO has been consummated, the
                                    Employer, upon thirty (30) days written
                                    notice from the Employee, shall provide to
                                    the Employee a loan (the "Loan") in an
                                    amount equal to such income taxes, to be
                                    interest only for a period of five (5)
                                    years, to require yearly payments of simple
                                    interest at the same interest rate as the
                                    Holding Company




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                                    incurs to borrow funds from its
                                    institutional lenders, to be collateralized
                                    only by the stock granted and the Employee
                                    otherwise will not be personally obligated
                                    to repay the Loan; provided that upon the
                                    termination of this Agreement pursuant to
                                    the provisions of Section 2(i) or (ii), the
                                    loan shall be fully paid off within three
                                    (3) months of the Termination Date and upon
                                    the termination of this Agreement pursuant
                                    to Section 2 (iii) or (iv) hereof, the Loan
                                    shall be fully paid off within one (1) year
                                    after the Termination Date.

                           (ii)     To the extent that the Employee has not
                                    repaid the entire principal balance of the
                                    Loan plus any accrued interest thereon
                                    before January 1, 2001, the Employee agrees
                                    to sell, as promptly as practicable, a
                                    sufficient number of shares of Common Stock
                                    to enable the Employee to repay the then
                                    remaining outstanding balance (unpaid
                                    principal balance and unpaid accrued
                                    interest from time to time, the ("Unpaid
                                    Balance of the Loan")) of the Loan after any
                                    taxes have been provided for (the "Required
                                    Number of Shares"), subject to the following
                                    conditions and requirements:

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

                                    (B)      If after January 1, 2001 the
                                             Holding Company proposes to
                                             register any of its securities
                                             under the Securities Act for sale
                                             to the public for its own account
                                             or for the account of other
                                             security holders or both, the
                                             Holding Company may, upon 30 days
                                             prior written notice to the
                                             Employee, require the Employee to
                                             include the Required Number of
                                             Shares in such offering and to sell
                                             such shares as part of such
                                             offering. In such event, all of the
                                             costs of registering the Required
                                             Number of Shares, including but not
                                             limited to, all registration and
                                             filing fees, printing expenses,
                                             fees and



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                                             disbursements of counsel and
                                             independent public accountants for
                                             the Holding Company; fees of the
                                             National Association of Securities
                                             Dealers, Inc., state Blue Sky fees
                                             and expenses, transfer taxes, fees
                                             of transfer agents and registrars
                                             and costs of insurance; and all
                                             underwriting discounts and selling
                                             commissions applicable to the sale
                                             of shares other than the Required
                                             Number of Shares, shall be paid by
                                             the Holding Company.
                                             Notwithstanding the above, the
                                             Employee shall pay all underwriting
                                             discounts and selling commissions
                                             directly payable with respect to
                                             the registration of the Required
                                             Number of Shares; or

                                    (C)      If, as of June 1, 2001, Employee
                                             has not yet disposed of the
                                             Required Number of Shares, the
                                             Holding Company will repurchase
                                             from the Employee the Required
                                             Number of Shares at a per share
                                             price equal to 1/16 lower than the
                                             average of the closing sales price
                                             for the Common Stock as reported on
                                             the national stock exchange on
                                             which the Holding Company's stock
                                             trades for a ten (10) day period
                                             prior to the date of such sale to
                                             the Holding Company, provided,
                                             however, that such repurchase shall
                                             only be required if it can be
                                             effected in a manner that complies
                                             with all applicable securities
                                             laws.

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

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

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

                  4.3      Securities Act.  THE SHARES OF COMMON STOCK (THE
"SHARES") GRANTED PURSUANT TO THIS AGREEMENT HAVE NOT BEEN



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

                  At such time as counsel for the Employee, which is acceptable
to the Holding Company, which acceptance shall not be unreasonably withheld,
opines that the aforementioned stock restriction and legend can be removed from
the certificates representing stock granted pursuant to Section 4.1(i) hereof in
accordance with applicable securities law, the Holding Company agrees to delete
any such legend from the certificates representing such shares that have been so
granted.

                  SECTION 5.        PARTIAL RESTRAINT ON COMPETITION.

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

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



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

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

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

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

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



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

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

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

                  5.2      Trade Name and Confidential Information.

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

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



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

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

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

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



                                       13

<PAGE>   14



                                    any and all such Work Product, and all
                                    rights therein, exclusively in Employer.

                  5.3      Noncompetition.

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

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

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

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

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

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



                                       14

<PAGE>   15




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

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

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

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

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



                                       15

<PAGE>   16



                  SECTION 6.        MISCELLANEOUS.

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

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

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

                  HOLDING COMPANY

                  RailWorks Corporation
                  c/o L.K. Comstock & Company, Inc.
                  One North Lexington Avenue
                  White Plains, New York   10601
                  Attention: RailWorks Chief Executive Officer
                  Telecopy No.: (914) 285-9879

                  EMPLOYEE

                  Mr. John Kennedy
                  561 Brentwater Road
                  Camp Hill, PA 17011

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

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



                                       16

<PAGE>   17




                  6.5      Entire Agreement. This Agreement is intended by the
parties hereto to be the final expression of their agreement with respect to the
subject matter hereof and is the complete and exclusive statement of the terms
thereof, notwithstanding any representations, statements or agreements to the
contrary heretofore made. This Agreement supersedes and terminates all prior
employment and compensation agreements, arrangements and understandings between
or among Employer and Employee. This Agreement may be modified only by a written
instrument signed by all of the parties hereto.

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

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

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

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

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



                                       17

<PAGE>   18



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


                                       HOLDING COMPANY

                                       RAILWORKS CORPORATION



                                       By:  /s/ John G. Larkin           (SEAL)
                                            -----------------------------
                                            John G. Larkin
                                            Chief Executive Officer


                                       EMPLOYEE


                                       /s/ John Kennedy                  (SEAL)
                                       ----------------------------------
                                       John Kennedy






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<PAGE>   19



                                    EXHIBIT A


Annex Railroad Builders, Inc.
Mize Construction Company
Railroad Specialties, Inc.
U.S. Railway Supply, Inc.
Comtrak Construction, Inc.
Condon Brothers, Inc.
HP McGinley, Inc.
Kennedy Railroad Builders, Inc.
Alpha-Keystone Engineering, Inc.
Railcorp, Inc.
Merit Railroad Contractors, Inc.
Midwest Construction Services, Inc.
New England Railroad Construction Co.
Comstock Holdings, Inc.
Railroad Service, Inc.
Minnesota Railroad Service, Inc.
Southern Indiana Wood Preserving Co.
U.S. Trackworks, Inc.
Northern Rail Service & Supply Co.
W.A. Smith Construction Co., Inc.
W.A. Smith Rerailing Services, Inc.
CPI Concrete Products, Inc.





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