RAILAMERICA INC /DE — S-4 — 19991227 — DILUTION

Accretion/Dilution Analysis

Chase analyzed the expected pro forma impact of the merger on projected EPS for RailAmerica for 2000 and 2001. The analysis assumed a range of merger synergies per year from $0 to $20 million per year. Chase noted that the management of RailAmerica forecast approximately $10 million of annual merger synergies. The RailAmerica stand-alone earnings per share were provided by RailAmerica. The pro forma earnings per share were calculated using information provided by the management of RailAmerica and RailTex.

The preparation of a fairness opinion is a complex process and involves various judgments and determinations as to the most appropriate and relevant assumptions and financial analyses and the

application of these methods to the particular circumstances involved. Such an opinion is, therefore, not readily susceptible to partial analysis or summary description and taking portions of the analyses set out above, without considering the analysis as a whole, would, in the opinion of Chase, create an incomplete and misleading picture of the processes underlying the analyses considered in rendering the Chase opinion. Chase did not form an opinion as to whether any individual analysis, considered in isolation, supported or failed to support the Chase opinion. In arriving at its opinion, Chase considered the results of all such analyses and did not attribute particular weight to any one analysis or factor considered by it. The analyses performed by Chase, particularly those based on forecasts, are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than suggested by such analyses. Such analyses were prepared solely as part of Chase’s analysis of the fairness, from a financial point of view, to the stockholders of RailTex of the merger consideration.

Chase, as part of its financial advisory business, is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions and valuations for estate, corporate and other purposes. The Chase Manhattan Corporation and its affiliates, including Chase, in the ordinary course of business, have, from time to time, provided, and in the future may continue to provide, commercial and investment banking services to RailTex and RailAmerica and their respective affiliates, including serving as the agent bank and the lead bank under RailTex’s senior credit facility. In the ordinary course of business, Chase or its affiliates may trade in the debt and equity securities of RailTex and RailAmerica for its own accounts and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities.

The terms of the engagement of Chase by RailTex are set forth in a letter agreement, dated October 1, 1999, between Chase and RailTex. Under the terms of the engagement letter agreement, a fee of $3.0 million is payable to Chase upon the consummation of the merger between RailTex and RailAmerica. In addition, RailTex has agreed to reimburse Chase for its reasonable out-of-pocket expenses, including reasonable fees and disbursements of its counsel and reasonable travel and other out-of-pocket expenses, and to indemnify Chase against certain liabilities relating to or arising out of its engagement. To the extent that the indemnification includes liabilities arising under the federal securities laws, it may not be enforceable as it may be determined to be against public policy.

FINANCING COMMITMENT

DLJ, through its subsidiaries, committed to finance RailAmerica’s acquisition of RailTex, to refinance the existing debt of RailAmerica and RailTex and to pay fees and expenses, subject to specified conditions. DLJ will provide a $50.0 million senior secured six-year revolving credit facility and senior secured term loans totaling between $325 million and $385 million. DLJ will also provide bridge financing totaling between $95 million and $155 million. This bridge financing may be repaid with cash proceeds from (1) the issuance of debt or equity securities in a public offering or Rule 144A private placement and (2) the sale of Kalyn. These facilities will be guaranteed by all of RailAmerica’s subsidiaries except Ferronor. The senior secured loans also will be secured by substantially all the property and assets of RailAmerica and its subsidiaries except Ferronor, all of the capital stock of RailAmerica’s subsidiaries except Ferronor and all intercompany indebtedness.

DLJ’s obligation to provide funding under the senior secured facilities and the bridge financing is subject to a number of conditions, including:

- the consummation of the merger;

- the completion and execution of definitive documentation for the facilities;

- the issuance of a specified amount of RailAmerica common stock in the merger;

- the receipt of at least $11.1 million of proceeds from the exercise of RailTex stock options;

- the receipt of net proceeds of at least $9.0 million from the sale of specified assets of RailTex or the reallocation of the merger consideration to decrease the cash and increase the stock payable to RailTex stockholders;

- RailAmerica having a minimum of $16.9 million of cash on hand for financing the merger;

- the granting of liens on assets and properties in favor of DLJ;

- the absence of any material adverse change at RailAmerica including its subsidiaries, except Ferronor, and RailTex and its subsidiaries as a whole;

- the absence of any disruption or adverse change in the financial, credit or capital markets that would materially impair DLJ’s efforts to syndicate the credit facilities;

- the completion of environmental audits and appraisals of assets; and

- the payment of fees totaling approximately $8.7 million for the senior secured facilities and $2.9 million for the bridge financing plus expenses to DLJ.

COMPLETION OF THE MERGER; EFFECTIVE TIME

The merger agreement provides that the merger will be completed if the RailAmerica stockholders vote to approve the issuance of shares of RailAmerica common stock in the merger, the RailTex stockholders vote to approve and adopt the merger agreement and approve the merger and all other conditions to the merger are satisfied or waived. At completion, Cotton Acquisition Corp. a wholly-owned subsidiary of RailAmerica, will merge with and into RailTex with RailTex as the surviving corporation and each outstanding share of RailTex common stock will be converted into the right to receive $13.50 in cash and 0.66666667 shares of RailAmerica common stock, subject to reallocation as described below. Completion of the merger will occur when the articles of merger are filed with the Secretary of State of Texas. We refer to the time when the merger is completed as the effective time. The filing of the articles of merger will occur as soon as practicable after the closing conditions in the merger agreement are satisfied or waived. Either party may terminate the merger agreement if it is not completed by April 15, 2000 or under the circumstances we describe below under the captions The Merger Agreement — Conditions to the Merger and The Merger Agreement—Termination.

REALLOCATION OF MERGER CONSIDERATION

If RailTex does not sell specified assets for net proceeds of at least $9.0 million prior to the completion of the merger, the amount of cash and RailAmerica common stock to be received by RailTex stockholders for each share of RailTex common stock will be reallocated. The cash portion of the merger consideration, equal to $13.50 per share, will be reduced by the amount less than $9.0 million for which the assets are sold divided by the number of shares of RailTex common stock to be exchanged in the merger. At the same time, the number of shares of RailAmerica common stock to be received for each share of RailTex common stock will be increased by the same value that the cash consideration is decreased. For this calculation, RailAmerica common stock will be valued at $9.75 per share. Assuming RailTex does not sell any of the specified assets prior to the effective time of the merger and all RailTex stock options and stock units are exercised or exchanged, each RailTex stockholder will receive $12.63 in cash and 0.75589744 shares of RailAmerica common stock in the merger in exchange for each share of RailTex common stock owned at the effective time of the merger.

CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES

The conversion of RailTex common stock into the right to receive $13.50 in cash and 0.66666667 shares of RailAmerica common stock, subject to reallocation as described above, will occur automatically at the effective time.

As soon as practicable after the effective time, the exchange agent will mail a transmittal letter and instructions to each RailTex stockholder describing the procedures to follow in forwarding RailTex stock certificates. When the exchange agent receives an executed letter of transmittal and the original stock certificates, it will deliver shares of RailAmerica common stock and cash to the stockholder.

After the effective time, RailTex will not permit any share transfers in its stock transfer books. Any certificate presented for transfer will be canceled and exchanged for the appropriate number of shares of RailAmerica common stock and an appropriate amount of cash. After the effective time and until surrendered, shares of RailTex common stock will only represent the right to acquire the number of shares of RailAmerica common stock and cash into which the shares were convertible at the effective time. See The Merger Agreement — Exchange of New Stock Certificates.

RailTex stockholders should not forward stock certificates to the exchange agent until they have received a transmittal letter. DO NOT RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD.

INTERESTS OF CERTAIN PERSONS IN THE MERGER

Members of RailTex’s management and the RailTex board of directors may have interests in the merger that are in addition to their interests as stockholders of RailTex generally. The RailTex board of directors was aware of these interests and considered them in approving the merger agreement and the transactions contemplated thereby.

Noncompete Agreement between RailAmerica and Ronald A. Rittenmeyer. In connection with the merger, RailAmerica has entered into a noncompete agreement with Ronald A. Rittenmeyer, Chairman of the Board of Directors, President and Chief Executive Officer of RailTex. The noncompete agreement prohibits Mr. Rittenmeyer from engaging in or having an interest in any company, other than RailAmerica, whose primary business is owning and operating Class II or Class III short-line railroads for 24 months commencing upon his termination of employment with RailTex. Under the terms of the noncompete agreement, Mr. Rittenmeyer is entitled to a lump sum of $2,050,000, which will be paid upon termination of his employment with RailTex at the effective time of the merger.

Severance Agreements. RailTex is a party to severance agreements with its four executive officers. Under the severance agreements, an executive officer will receive a lump-sum payment equal to 3 times the officer’s current base pay and targeted cash bonus, continued participation in RailTex’s employee benefit plans and the title to any RailTex car the officer is using at the time he or she is terminated upon the occurrence of the following within two years of a change in control:

- RailTex terminates the executive officer’s employment for any reason other than if the executive officer is convicted of a criminal violation involving fraud, embezzlement or theft in connection with his or her duties, intentionally engages in wrongful damage to the property of RailTex or intentionally engages in the wrongful disclosure of confidential information, any of which demonstrably and materially harms RailTex;

- the executive officer terminates his employment with RailTex for any of the specified reasons contained in the agreement; or

- the executive officer terminates his employment with RailTex for any reason within the 30 day period that begins 12 months, or in the case of one executive, six months after the change in control.

Except in specified situations, RailTex will also pay any additional amounts necessary to cover any federal excise taxes the executive officer may incur as a result of the change in control agreements and, provided the executive officer has not acted in bad faith or with no colorable claim of success, RailTex will pay any legal fees incurred by the executive officer in enforcing the change in control agreements. The consummation of the merger will constitute a change in control under the agreements.

In addition, Bruce Flohr, a RailTex director, will be entitled to a payment under his employment agreement with RailTex as his agreement will be terminated due to the change in control resulting from the merger. The payment will be equal to the unpaid amounts of compensation under the employment agreement, which may be grossed up if any portion of Mr. Flohr’s benefits are subject to excise taxes.

New Directors of RailAmerica. In connection with the merger, RailAmerica has agreed to increase the number of directors on its board of directors to nine and to appoint Ferd. C. Meyer, Jr. and William G. Pagonis, who have been designated by RailTex from the list of persons eligible under the merger agreement, as directors as of the effective time of the merger. The RailAmerica board of directors is divided into three classes, designated Class I, Class II and Class III. The current term of the Class I directors terminates on the date of the 2002 annual meeting of RailAmerica stockholders. The current term of the Class II directors terminates on the date of the 2000 annual meeting of RailAmerica stockholders. The current term of the Class III directors terminates on the date of the 2001 annual meeting of RailAmerica stockholders. Under RailAmerica’s certificate of incorporation, each class of directors must consist, as nearly as possible, of one-third of the total number of directors. RailAmerica’s board of directors currently consists of two Class I directors, two Class II directors and three Class III directors. Ferd. C. Meyer, Jr. will be appointed as a Class I director and William G. Pagonis will be appointed as a Class II director. It has been RailAmerica’s policy to nominate for reelection the incumbent members of the board of directors upon expiration of their terms.

Continuing Employment of Executive Officers. Some executive officers of RailTex will remain executive officers of RailTex or become officers of RailAmerica following the merger.

Indemnification and Insurance. Under the merger agreement, RailAmerica agreed that all rights to indemnification in effect as of October 14, 1999 for acts or omissions occurring prior to the effective time of the merger in favor of RailTex’s current and former directors, officers and employees as provided in RailTex’s bylaws, existing indemnification contracts or under applicable law would continue in full force and effect in accordance with their terms and in any event, for not less than six years from the effective time of the merger. For a period of not less than six years from the effective time of the merger, RailTex, as a wholly owned subsidiary of RailAmerica, or RailAmerica will provide, for the benefit of the current directors and officers of RailTex, an insurance and indemnification policy providing coverage for events occurring at or prior to the effective time of the merger that is no less favorable than RailTex’s current policy, or if substantially equivalent insurance coverage is unavailable, the best available coverage. However, RailAmerica and RailTex, as a wholly owned subsidiary of RailAmerica, will not be required to pay premiums in excess of 200% of the last annual premium paid by RailTex.

Registration of RailAmerica Stock. RailAmerica has agreed to file a registration statement to register the resale of RailAmerica shares issued to affiliates of RailTex in the merger. See — Resale of RailAmerica Common Stock.

Acceleration of Stock Options, Stock Units, Restricted Stock and Non-Qualified Deferred Compensation Program. Under the RailTex option plans and similar arrangements, the RailTex long-term incentive plans and the RailTex restricted stock plans and similar arrangements, RailTex directors and executive officers, as well as many RailTex employees, hold stock options, stock units and restricted stock. Under the merger agreement, each of those awards will become fully vested and then canceled and each holder will receive the merger consideration less any applicable withholding taxes and, in the case of stock options, less the applicable exercise price for each option. See The Merger Agreement — Stock Options and Other Stock Rights. In addition, RailTex maintains a non-qualified deferred compensation program under which executives can defer a portion of their compensation. Under the program, all benefits vest at the effective time of the merger. The following table discloses the number of stock options, stock units and shares of restricted stock and benefits under the non-qualified deferred compensation plan subject to accelerated vesting for each director and executive officer of RailTex as of the date of this joint proxy statement/prospectus: