<PAGE>
As filed with the Securities and Exchange Commission on April 18, 1996
Registration No. 33-64655
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
Post-effective Amendment No. 1 to
REGISTRATION STATEMENT
on Form S-1
UNDER
THE SECURITIES ACT OF 1933
______________
ICF KAISER INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 8711 54-1437073
(State of Incorporation) SIC Code (I.R.S. Employer
Identification No.)
9300 LEE HIGHWAY
FAIRFAX, VIRGINIA 22031-1207
(703) 934-3600
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
______________
Paul Weeks, II, Esq.
Senior Vice President, General Counsel and Secretary
ICF Kaiser International, Inc.
9300 Lee Highway, Fairfax, Virginia 22031-1207
(703) 934-3600
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
______________
<PAGE>
ICF KAISER INTERNATIONAL, INC.
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
<TABLE>
<CAPTION>
Form S-1 Item Number and Caption Location in Prospectus
-------------------------------- ----------------------
<S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover of Prospectus Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus Inside Front Cover Page
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges Prospectus Summary; Risk Factors
4. Use of Proceeds Not Applicable
5. Determination of Offering Price Not Applicable
6. Dilution Not Applicable
7. Selling Security Holders Outside Front Cover Page;
Selling Shareholders
8. Plan of Distribution Outside Front Cover Page
9. Description of Securities to be Registered Description of Capital Stock
10. Interest of Named Experts and Counsel Legal Matters; Experts
11. Information with Respect to the Registrant Prospectus Summary; Risk Factors;
Market Prices and Dividend Policy;
Selected Consolidated Financial Data;
Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Business; Management;
Executive Compensation; Security
Ownership; Consolidated Financial
Statements and Notes thereto.
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities Not Applicable
</TABLE>
<PAGE>
PROSPECTUS
ICF KAISER INTERNATIONAL, INC.
1,218,667 SHARES OF COMMON STOCK
______________
This Prospectus covers the resale by shareholders of up to 1,218,667 shares
of ICF Kaiser International, Inc. ("ICF Kaiser" or the "Company") Common Stock,
par value $0.01 per share (the "Common Stock") issued in, or to be issued in,
the three distinct and separate transactions described below.
______________
SEE "RISK FACTORS" ON PAGES 10-14 OF THIS PROSPECTUS FOR CERTAIN
CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE COMMON STOCK.
______________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
______________
(1) EDA. This Prospectus covers the resale of up to 722,500 shares of
Common Stock which were issued by the Company pursuant to the terms of an
Agreement and Plan of Merger (the "Merger") dated as of July 28, 1995 (the "EDA
Merger Agreement"), by and among ICF Kaiser; EDA, Incorporated, a Maryland
corporation ("EDA"); ICF Kaiser Disappearing, Inc., a Maryland corporation
("ICFKDI"); and each of the shareholders of EDA (namely Terry B. Soesbee, Daniel
A. Milliron, Igor Livshin, Doug A. Huppert, and Timothy V. Treadwell). The
individual EDA shareholders hereinafter are referred to as the "EDA Selling
Shareholders". As a result of the Merger, ICFKDI merged into EDA, the separate
existence of ICFKDI ceased, and EDA was the surviving corporation. As the
surviving corporation, EDA became a wholly owned subsidiary of ICF Kaiser.
On July 28, 1995, the effective date of the Merger, each EDA Selling
Shareholder exchanged the shares of EDA common stock owned immediately prior
thereto into his pro rata share of 191,250 shares of ICF Kaiser Common Stock
(the "EDA Closing Shares"). In addition, each EDA Selling Shareholder received
his pro rata share of cash consideration at the Merger closing (the "Closing")
and his right to receive his share of the EDA Earn-out Shares as defined below
(if any) required to be paid within two years from the Closing.
A total of 191,250 EDA Closing Shares issued at the Closing are being
registered for resale. An additional 531,250 shares of Common Stock (the "EDA
Earn-out Shares") also are being registered for resale; this number has been
determined by dividing the agreed upon value of Common Stock to be issued
following an earn-out period of no longer than two years ($2,125,000) by $4.00
per share. The actual number of EDA Earn-out Shares to be issued will be
determined by calculating the average closing price of ICF Kaiser Common Stock
on the New York Stock Exchange for the twenty (20) days prior to the second
anniversary of the Closing (provided that the first $300,000 of the value of the
EDA Earn-out Shares shall be valued at $4.00 per share).
All of the EDA Closing Shares may be offered for sale by the EDA Selling
Shareholders. All of the 531,250 EDA Earn-out Shares are being held
in escrow pending the meeting of the conditions for their delivery to the EDA
Selling Shareholders. All such shares may be offered for sale by the EDA
Selling Shareholders if delivered to the EDA Selling Shareholders by the escrow
agent pursuant to the EDA Merger Agreement. The Company will not receive any of
the proceeds from the sale of either the EDA Closing Shares or the EDA Earn-out
Shares.
The Company has been advised by the EDA Selling Shareholders that there are
no underwriting arrangements with respect to the sale of the EDA Closing Shares
or the EDA Earn-out Shares, that such Shares will be sold from time to time in
public sales at then-prevailing prices or at prices related to the then-current
market price, or in private transactions at negotiated prices. The EDA Closing
Shares and the EDA Earn-out Shares may be sold through purchases by a broker or
dealer as principal and resold by such broker or dealer for its account pursuant
to
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<PAGE>
this Prospectus or in ordinary brokerage transactions and transactions in which
the broker solicits purchasers. In effecting sales, brokers or dealers engaged
by the EDA Selling Shareholders may arrange for other brokers or dealers to
participate. Brokers or dealers will receive commissions or discounts from the
EDA Selling Shareholders in amounts to be negotiated immediately prior to the
sale. Such brokers or dealers and any other participating brokers or dealers may
be deemed to be "underwriters" within the meaning of the Securities Act of 1993
(the "Securities Act") in connection with such sales. See "Selling
Shareholders."
(2) BALCH. The Prospectus also covers the resale of up to 396,167 shares
of Common Stock (the "Balch Shares") which are to be issued by the Company
pursuant to the terms of an Agreement dated as of March 21, 1995 (the "Balch
Agreement"), by and between Mr. John G. Balch ("Mr. Balch" and a "Selling
Shareholder") and Excell Development Construction, Inc. ("Excell"), a Delaware
corporation and an indirect, wholly owned subsidiary of the Company. Of the
Balch Shares, 121,167 shares may be offered for sale by Mr. Balch and 275,000
are required to be pledged as security for loans between Mr. Balch and Excell.
The Company will not receive any of the proceeds from the sale of shares by Mr.
Balch. The Company has been advised by Mr. Balch that there are no underwriting
arrangements with respect to the sale of the Balch Shares, that such Balch
Shares will be sold from time to time in public sales at then prevailing prices
or at prices related to the then-current market price or in private transactions
at negotiated prices. The Balch Shares may be sold through purchases by a
broker or dealer as principal and resold by such broker or dealer for its
account pursuant to this Prospectus or in ordinary brokerage transactions and
transactions in which the broker solicits purchasers. In effecting sales,
brokers or dealers engaged by the Selling Shareholder may arrange for other
brokers or dealers to participate. Brokers or dealers will receive commissions
or discounts from the Selling Shareholder in amounts to be negotiated
immediately prior to the sale. Such brokers or dealers and any other
participating brokers or dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. See "Selling
Shareholders."
(3) IPC. The Prospectus also covers the resale of 100,000 shares of Common
Stock (the "IPC Shares") which were issued by the Company pursuant to the terms
of an Asset Purchase Agreement by and among ICF Kaiser; ICF Kaiser Engineers,
Inc., an Ohio corporation and a wholly owned subsidiary of ICF Kaiser; The
IPC Company, a Texas corporation ("IPC"); and six IPC shareholders (hereinafter
referred to as the "IPC Selling Shareholders". Pursuant to the Asset Purchase
Agreement, the Company issued 100,000 shares of Common Stock to IPC (the "IPC
Shares") in return for substantially all of IPC's assets, excluding certain
accounts receivable which were conveyed to an IPC shareholder to liquidate his
loan to IPC. The Company's subsidiary assumed only specified, listed contractual
obligations in connection with the asset purchase. The Company has been advised
by IPC that all of the 100,000 IPC Shares will be distributed to the IPC Selling
Shareholders by IPC in connection with the liquidation of IPC or as an IPC
dividend. All such IPC Shares may be offered for sale by the IPC Selling
Shareholders if delivered to the IPC Selling Shareholders in the liquidation or
by dividend. Neither the Company nor its subsidiary will receive any of the
proceeds from the sale of the IPC Shares.
The Company has been advised by IPC and the IPC Selling Shareholders that
there are no underwriting arrangements with respect to the sale of the IPC
Shares, that such IPC Shares will be sold from time to time in public sales at
then prevailing prices or at prices related to the then-current market price or
in private transactions at negotiated prices. The IPC Shares may be sold
through purchases by a broker or dealer as principal and resold by such broker
or dealer for its account pursuant to this Prospectus or in ordinary brokerage
transactions and transactions in which the broker solicits purchasers. In
effecting sales, brokers or dealers engaged by IPC or the IPC Selling
Shareholders may arrange for other brokers or dealers to participate. Brokers
or dealers will receive commissions or discounts from such sellers in amounts to
be negotiated immediately prior to the sale. Such brokers or dealers and any
other participating brokers or dealers may be deemed to be "underwriters" within
the meaning of the Securities Act in connection with such sales. See "Selling
Shareholders."
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<PAGE>
ICF Kaiser's Common Stock is traded on the New York Stock Exchange under
the symbol "ICF". The last sale price reported for such Common Stock on
April 12, 1996, as quoted on the New York Stock Exchange Composite Tape, was
$2.625.
__________________
The date of this Prospectus is April 18, 1996.
-5-
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (herein, together with all
amendments and exhibits, referred to as the "Registration Statement") under the
Securities Act of 1933, as amended (the "Act"), with respect to the Shares
offered hereby. As permitted by the rules and regulations of the Commission,
this Prospectus does not contain all the information set forth in the
Registration Statement and in the exhibits and schedules thereto. For further
information about the Company and the Shares, reference is made to the
Registration Statement. The Registration Statement may be inspected and copied
at the Commission's Public Reference Room, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the Commission:
New York Regional Office, 7 World Trade Center, New York, New York 10048; and
Chicago Regional Office, 500 West Madison Street, Chicago, Illinois 60661. The
statements contained in this Prospectus about the contents of any contract or
other document filed as an exhibit or schedule to the Registration Statement
describe all material elements of those documents. Copies of each such document
may be obtained from the Commission at its principal office in Washington, D.C.
upon payment of the charges prescribed by the Commission.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Commission. Reports,
proxy and information statements, and other information filed by the Company can
be inspected and copied at the Commission's Public Reference Room and Regional
Offices set forth above, and copies of such material can be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates.
The Common Stock has been traded on the New York Stock Exchange since
September 14, 1993, and reports, proxy material, and other information
concerning the Company may be inspected at the office of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005.
__________________
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
OF THE SECURITIES OTHER THAN THE COMMON STOCK TO WHICH IT RELATES OR A
SOLICITATION TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE OTHER INFORMATION CONTAINED HEREIN IS CORRECT AT ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
-6-
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
Available Information...........................................6
Prospectus Summary..............................................8
The Company.....................................................8
Risk Factors...................................................10
Market Prices and Dividend Policy..............................15
Selected Consolidated Financial Data...........................16
Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................18
Business.......................................................25
Management.....................................................36
Executive Compensation.........................................41
Security Ownership.............................................47
Selling Shareholders...........................................50
Description of Capital Stock...................................52
Description of the Indenture...................................60
Description of the Credit Facility.............................70
Legal Matters..................................................72
Experts........................................................72
Consolidated Financial Information............................F-1
</TABLE>
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<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. Effective December 31, 1995, the Company changed its fiscal
year end from February 28 to December 31.
THE COMPANY
ICF Kaiser International, Inc., through ICF Kaiser Engineers, Inc. and its
other operating subsidiaries, is one of the nation's largest engineering,
construction, and consulting services companies, providing fully integrated
engineering, construction and consulting services to public- and private-sector
clients in the related markets of environment, infrastructure, and industry. The
"Company" or "ICF Kaiser" in this Prospectus may refer to ICF Kaiser
International, Inc. and/or any of its wholly owned operating subsidiaries. For
its most recent fiscal period (ten months ended December 31, 1995), ICF Kaiser
reported gross and service revenue of $917 million and $426 million,
respectively. Service revenue is derived by deducting the costs of subcontracted
services and direct project costs from gross revenue and adding the Company's
share of income (loss) of joint ventures and affiliated companies. During the
three years ended December 31, 1995, the Company operated predominantly in one
industry segment, in which it provided engineering, construction, consulting,
and other professional services.
The Company's headquarters is located at 9300 Lee Highway, Fairfax,
Virginia 22031-1207, and its telephone number is (703) 934-3600. The Company's
four regional headquarters are located at 1800 Harrison St., Oakland, California
94612-3430 Telephone (510) 419-6000; 6440 Southpoint Parkway, Jacksonville, FL
32216 Telephone (904) 279-7200; Four Gateway Center, Pittsburgh, Pennsylvania
15222-1207 Telephone (412) 497-2000; and 3D International Tower, 1900 West Loop
South, Suite 1350, Houston, TX 77027 Telephone (713) 623-5000. Other offices
include Tempe, Arizona; Livermore, Los Angeles, Rancho Cordova, Richmond, San
Diego, San Francisco, San Rafael, and Universal City, California; Golden and
Lakewood, Colorado; Washington, DC; Ft. Lauderdale, Miami, Orlando and Tampa,
Florida; Atlanta, Georgia; Idaho Falls, Idaho; Chicago, Illinois; Gary, Indiana;
Ruston, Louisiana; Abingdon, Baltimore, and Silver Spring, Maryland; Boston,
Massachusetts; Kansas City, Missouri; Ely and Las Vegas, Nevada; Iselin, New
Jersey; New York, New York; Albuquerque and Los Alamos, New Mexico; Morrisville,
North Carolina; Cincinnati, Ohio; Dallas, Texas; Richmond, Virginia; Port
Orchard, Richland, and Seattle, Washington. The Company's international offices
are located in Brisbane, Perth and Sydney, Australia; Rio de Janeiro, Brazil;
Prague, Czech Republic; London, England; Paris, France; Mexico City, Mexico;
Lisbon, Portugal; Moscow, Russia; and Taipei, Taiwan. As of March 1, 1996, ICF
Kaiser employed approximately 7,500 persons.
The Company is organized into three business groups, each providing the
services discussed below. In addition, the Company's International Operations
Group works with these business groups developing international clients and
establishing strategic relationships through joint ventures and marketing
agreements. The Company's international clients include both private firms and
foreign government agencies; for the ten months ended December 31, 1995,
foreign operations accounted for approximately 4.7% of the Company's
consolidated gross revenue.
SUMMARY CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data of the Company for the ten months
ended December 31, 1995, and each year in the four-year period ended February
28, 1995, have been derived from the Company's audited consolidated financial
statements. This information should be read in conjunction with the
Consolidated Financial Statements and the related notes thereto appearing
elsewhere in this Report and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Certain reclassifications have been made
to the prior period financial statements to conform to the presentation used in
the December 31, 1995, financial statements.
-8-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
Ten Months Year Ended February 28,
Ended ----------------------------------------------------
December 31, 1995 1995 1994/(1)/ 1993 1992/(2)/
----------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Gross revenue......................................... $916,744 $861,518 $651,657 $678,882 $710,873
Service revenue /(3)/................................. 425,896 459,786 382,708 391,528 385,942
Operating income (loss)............................... 17,505 13,688 (5,230) 22,744 (43,963)
Income (loss) before income taxes, minority interests,
and extraordinary item............................... 6,303 1,239 (12,877) 14,894 (54,310)
Income (loss) before minority interests and
extraordinary item................................... 4,212 (1,661) (12,528) 8,639 (40,516)
Net income (loss) before extraordinary item........... 2,252 (1,661) (12,528) 8,639 (40,516)
Net income (loss) /(2)/............................... 2,252 (1,661) (18,497) 8,639 (40,516)
Net income (loss) available for common shareholders... 449 (3,815) (25,322) 3,346 (42,932)
Primary and Fully Diluted Net Income (Loss)
Per Common Share:
Before extraordinary item............................ $0.02 $(0.18) $(0.92) $0.16 $(2.25)
Extraordinary loss on early extinguishment of debt... --- --- (0.29) --- ---
-------- -------- -------- -------- --------
Total.......................................... $0.02 $(0.18) $(1.21) $0.16 $(2.25)
======== ======== ======== ======== ========
Weighted average common and common equivalent
shares outstanding, assuming full dilution............ 21,517 20,957 20,886 21,272 19,085
Balance Sheet Data (end of period):
Total assets.......................................... $369,517 $281,422 $281,198 $293,076 $318,947
Working capital....................................... 84,589 91,640 87,648 85,861 65,623
Long-term liabilities................................. 125,818 133,130 130,752 75,602 85,675
Redeemable preferred stock............................ 19,787 19,617 20,212 44,824 45,161
Shareholders' equity.................................. 28,427 27,624 30,780 58,521 51,151
</TABLE>
__________________
(1) In fiscal year 1994, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions."
(2) Fiscal year 1992 reflects an after-tax charge of $52.4 million associated
with the disposal and restructuring of certain businesses.
(3) Service revenue is derived by deducting the costs of subcontracted
services and direct project costs from gross revenue and adding the
Company's share of the equity in income of unconsolidated joint ventures
and affiliated companies.
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<PAGE>
RISK FACTORS
Prospective purchasers of the Common Stock should carefully consider the
following risk factors relative to investing in the Common Stock.
HISTORY OF NET LOSSES
As shown in the following table, for three of the past five fiscal years,
the Company has had net losses; fiscal 1992 reflects an after-tax charge of
$52.4 million associated with the disposal and restructuring of certain
businesses.
<TABLE>
<CAPTION>
Ten months
ended
December 31, Year ended February 28,
1995 1995 1994 1993 1992
(in thousands)
<S> <C> <C> <C> <C> <C>
Net income (loss) $2,252 $(1,661) $(18,497) $8,639 $(40,516)
Net income (loss) available
for common shareholders 449 (3,815) (25,322) 3,346 (42,932)
</TABLE>
The Company's cumulative deficit at December 31, 1995, was $32,894,000.
COMPANY IS HIGHLY LEVERAGED
At December 31, 1995, the Company had total indebtedness of $125.2 million,
representing 72.2% of total capitalization. Effective March 8, 1996, the Company
agreed to increase the interest rate on its 12% Senior Subordinated notes due
2003 (the "Notes") by one percent until the Company achieves and maintains a
specified level of earnings as defined in the supplement to the Indenture
governing the Notes. Because of the Company's high leverage, a substantial
portion of the Company's cash flow from operations will be required for the
payment of interest expense. The Company's high leverage may make it difficult
for the Company to engage in financing activities, such as preferred stock
issuances, sale/leaseback arrangements, and operating leases. The Company is
more leveraged than many of its competitors which may leave the Company less
able to take advantage of market opportunities or withstand weakness in its
markets. The Company's high leverage may make it difficult for the Company's
subsidiaries to obtain performance and similar bonds related to certain
activities.
LIMITED ABILITY TO INCUR ADDITIONAL DEBT
As of December 31, 1995, the total capacity for cash loans and letters of
credit under the Credit Agreement was $35.5 million, of which no more than $20
million can be in the form of cash loans. As of December 31, 1995, there was
$7.1 million in letters of credit outstanding and 5.0 million in cash loans
outstanding. Thus, as of December 31, 1995, there was $23.5 million available
under the Credit Agreement, only $15.0 million of which was available for cash
loans.
Excluding borrowings under the Credit Agreement, the indenture (the
"Indenture") for the Company's $125 million of 12% Senior Subordinated Notes due
2003 (the "Notes") limits the Company's ability to incur additional indebtedness
to an amount equal to 7.5% of the Company's Consolidated Tangible Assets as
defined in the Indenture. As of December 31, 1995, Consolidated Tangible Assets
as defined in the Indenture totaled $216.9 million; 7.5% of this total is $16.3
million, of which $15.6 million was available to the Company at that date. The
amount of available additional indebtedness ($39.1 million at December 31) may
be insufficient for working capital needs, potential acquisitions, significant
capital expenditures, repayment of debt, or other purposes.
RISK ASSOCIATED WITH COMPANY'S PLEDGE OF ASSETS
The Company and most of its subsidiaries have granted a security interest
in substantially all of their accounts receivable and certain other assets to
secure all debt incurred pursuant to the Credit Agreement. The Company would not
be able to incur additional debt (including additional debt permitted by the
Indenture) if the Company were required to pledge assets in connection with the
incurrence of that additional debt.
LIMITED ABILITY TO MAKE ACQUISITIONS AND OTHER INVESTMENTS
The Credit Agreement limits the Company's ability to make acquisitions and
other investments, and the Indenture limits the Company's ability to make
restricted payments, including certain payments in connection with investments
and acquisitions. These limitations in the Indenture are based in part on the
Company's consolidated net income (as defined in the Indenture) during the
period since August 31, 1993; the losses incurred by the Company during fiscal
1994 and 1995 have the effect of making these limitations more restrictive then
they had been when the Notes were issued.
The indebtedness, investment, acquisitions, and restricted payments
limitations in the Credit Agreement and the Indenture discussed above mean that
during the next several years it likely will be necessary for the Company to
issue additional equity securities to fund any significant acquisitions and to
invest significant amounts in joint ventures. Additional financing for the
Company generally will have to take the form of raising additional equity
capital, refinancing existing debt, incurring other permitted indebtedness, or
obtaining significant proceeds from the sale of assets.
CONSEQUENCES OF FAILURE TO REDEEM THE PREFERRED STOCK ON A TIMELY BASIS
The agreements governing the Company's Series 2D Preferred Stock provide
that certain restrictive covenants described in the following paragraph become
operative if the Company has failed to make a mandatory redemption. The Company
is obligated to redeem all outstanding shares of the Series 2D Preferred Stock
on January 13, 1997.
When the Company fails to make a mandatory redemption, the holders of
Series 2D Preferred Stock will have the exclusive right to elect two additional
directors. In addition, until such failure to make a mandatory redemption is
cured, if 33% or more of the then outstanding Series 2D Preferred Stock (or
securities issued in exchange therefor) is held by an Initial Holder (currently
EXOR America Inc.), the Company becomes subject to certain restrictive
covenants. Without the consent of the Initial Holder, such covenants would
prohibit the Company form, among other things: disposing of assets for
consideration of more than $1 million in a single transaction; entering into
mergers; making acquisitions; guaranteeing any obligation in excess of $1
million; or incurring indebtedness other than as permitted pursuant to the
Indenture governing the Notes.
COMPANY'S INTENTION NOT TO PAY COMMON STOCK DIVIDENDS
The Company has never paid cash dividends on its Common Stock and has no
intention to pay cash dividends on its Common Stock for the foreseeable future.
Even if it were the Company's intention to pay such dividends, the Credit
Agreement and the Indenture require that the Company comply with certain
covenants before cash dividends on the Common Stock could be paid. The Company
is not currently in compliance with these covenants and therefore would not be
permitted to pay cash dividends on the Common Stock.
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<PAGE>
COMPANY DEPENDENT ON FEDERAL GOVERNMENT CONTRACTS
A substantial portion of ICF Kaiser's revenues are derived from services
performed directly or indirectly under contracts with various agencies and
departments of the Federal government. During the ten months ended December 31,
1995, approximately 78% of the Company's consolidated gross revenue was
derived from contracts with the U.S. Government. During the ten months ended
December 31,1995 the U.S. Department of Energy ("DOE") accounted for
approximately 68% of consolidated gross revenue; the U.S. Department of
Defense ("DOD"), the U.S. Environmental Protection Agency ("EPA"), and other
Federal agencies collectively accounted for approximately 10% of the
Company's consolidated gross revenue.
Contracts made with the U.S. Government generally are subject to annual
approval of funding. Limitations imposed on spending by Federal government
agencies, which might result from efforts to reduce the Federal deficit or for
other reasons, may limit the continued funding of the Company's existing Federal
government contracts and may limit the ability of the Company to obtain
additional contracts. These limitations, if significant, could have a material
adverse effect on the Company.
The Company is subject to audit with respect to costs incurred and charged
to the Federal government. In one such audit, the government has asserted that
certain costs claimed as reimbursable under government contracts were not
allocated in accordance with government cost accounting standards. Management
believes that the potential effect of disallowed costs, if any, for the periods
currently under audit and for periods not yet audited has been adequately
provided for and will not have a material adverse effect on the Company's
financial condition, results of operations, or cash flows.
All Federal contracts may be terminated by the U.S. Government at any time,
with or without cause. There can be no assurance that existing or future Federal
government contracts would not be terminated or that the government will
continue to use the Company's services at levels comparable to current use.
COMPANY DEPENDENT ON GOVERNMENTAL ENVIRONMENTAL REGULATION CONTINUING
A substantial portion of the Company's business has been generated either
directly or indirectly as a result of Federal and state laws, regulations and
programs related to environmental issues. Accordingly, a reduction in the number
or scope of these laws and regulations, or changes in government policies
regarding the funding, implementation or enforcement of such laws, regulations
and programs, could have a material adverse effect on the Company's business. In
addition, any significant effort by the DOE to reduce the role of private
contractors in environmental projects could have a material adverse effect on
the Company.
-11-
<PAGE>
POTENTIAL ENVIRONMENTAL LIABILITY FOR COMPANY'S WORK
The assessment, analysis, remediation, handling, management, and disposal
of hazardous substances necessarily involve significant risks, including the
possibility of damages or personal injuries caused by the escape of hazardous
materials into the environment, and the possibility of fines, penalties or other
regulatory action. These risks include potentially large civil and criminal
liabilities for violations of environmental laws and regulations, and
liabilities to customers and to third parties for damages arising from
performing services for clients.
Potential Liabilities Arising Out of Environmental Laws and Regulations
All facets of the Company's business are conducted in the context of a
rapidly developing and changing statutory and regulatory framework. The
Company's operations and services are affected by and subject to regulation by a
number of Federal agencies, including EPA and the Occupational Safety and Health
Administration, as well as applicable state and local regulatory agencies. The
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA")
addresses cleanup of sites at which there has been a release or threatened
release of hazardous substances into the environment. Increasingly, there are
efforts to expand the reach of CERCLA to make environmental contractors
responsible for cleanup costs by claiming that environmental contractors are
owners or operators of hazardous waste facilities or that they arranged for
treatment, transportation, or disposal of hazardous substances. Several recent
court decisions have accepted these claims. Should the Company be held
responsible under CERCLA for damages caused while performing services or
otherwise, it may be forced to bear such liability by itself, notwithstanding
the potential availability of contribution or indemnity from other parties. The
Resource Conservation and Recovery Act ("RCRA") governs hazardous waste
generation, treatment, transportation, storage, and disposal. RCRA, or EPA-
approved state programs at least as stringent, govern waste handling activities
involving wastes classified as "hazardous." Substantial fees and penalties may
be imposed under RCRA and similar state statutes for any violation of such
statutes and the regulations thereunder.
Potential Liabilities Involving Clients and Third Parties
In performing services for its clients, the Company could potentially be
liable for breach of contract, personal injury, property damage, and negligence
(including improper or negligent performance or design, failure to meet
specifications, and breaches of express or implied warranties). The damages
available to a client, should it prevail in its claims, are potentially large
and could include consequential damages.
Environmental contractors, in connection with work performed for clients,
potentially face liabilities to third parties from various claims, including
claims for property damage or personal injury stemming from a release of
hazardous substances or otherwise. Claims for damage to third parties could
arise in a number of ways, including through a sudden and accidental release or
discharge of contaminants or pollutants during the performance of services;
through the inability, despite reasonable care, of a remedial plan to contain or
correct an ongoing seepage or release of pollutants; through the inadvertent
exacerbation of an existing contamination problem; or through reliance on
reports or recommendations prepared by the Company. Personal injury claims could
arise contemporaneously with performance of the work or long after completion of
the project as a result of alleged exposure to toxic or hazardous substances. In
addition, increasing numbers of claimants assert that companies performing
environmental remediation should be adjudged strictly liable, i.e., liable for
damages even though its services were performed using reasonable care, on the
grounds that such services involved "abnormally dangerous activities."
Clients frequently attempt to shift various of the liabilities arising out
of remediation of their own environmental problems to contractors through
contractual indemnities. Such provisions seek to require the Company to assume
liabilities for damage or personal injury to third parties and property and for
environmental fines and penalties,
-12-
<PAGE>
including liabilities arising as a result of breaches by the Company of
specified standards of care.
For EPA contracts involving field services in connection with Superfund
response actions, the Company is eligible for indemnification under Section 119
of CERCLA, for pollution and environmental damage liability resulting from
release or threatened release of hazardous substances. Recently, EPA has
constricted significantly the circumstances under which it will indemnify its
contractors against liabilities incurred in connection with CERCLA projects.
There are other proposals both in Congress and at the regulatory agencies to
further restrict indemnification of contractors from third-party claims.
Kaiser-Hill Company, LLC (a limited liability company owned equally by the
Company and CH2M Hill Companies, Ltd.) signed a Performance Based Integrating
Management contract with DOE. The terms of that contract govern any liability
(including without limitation, a claim involving strict or absolute liability
and any civil fine or penalty, expense, or remediation cost, but limited to
those of a civil nature), which may be incurred by, imposed on, or asserted
against Kaiser-Hill arising out of any act or failure to act, condition, or
exposure which occurred before Kaiser-Hill assumed responsibility on July 1,
1995 ("pre-existing conditions"). To the extent the acts or omissions of Kaiser-
Hill constitute willful misconduct, lack of good faith, or failure to exercise
prudent business judgment on the part of Kaiser-Hill's managerial personnel
cause or add to any liability, expense, or remediation cost resulting from pre-
existing conditions, Kaiser-Hill shall be responsible but for the incremental
liability, expense, or remediation caused by Kaiser-Hill. The contract further
provides that Kaiser-Hill will not be reimbursed liabilities and expenses to
third parties caused by the willful misconduct or lack of good faith of Kaiser-
Hill's managerial personnel or the failure to exercise prudent business judgment
by Kaiser-Hill's managerial personnel.
MARKET FOR COMPANY'S SERVICES HIGHLY COMPETITIVE
The Company and its subsidiaries compete with many other firms ranging from
small firms to large multinational firms having substantially greater financial,
management, and marketing resources than the Company. Other competitive factors
include quality of services, technical qualifications, reputation, geographic
presence, price, and the availability of key professional personnel.
-13-
<PAGE>
FLUCTUATIONS IN QUARTERLY FINANCIAL RESULTS AND CHANGE IN FISCAL YEAR END
The Company's quarterly financial results may be affected by a number of
factors, including the commencement and completion or termination of major
projects. Accordingly, results for any one quarter are not necessarily
indicative of results for any other quarter or for the year. The Company has
changed its fiscal year end from February 28 to December 31, effective December
31, 1995.
RISKS ASSOCIATED WITH COMPANY'S ABILITY TO ATTRACT AND RETAIN PROFESSIONAL
PERSONNEL
The Company's ability to retain and expand its staff of qualified
professionals will be an important factor in determining the Company's future
success. The market for these professionals, especially environmental
professionals, is competitive. There can be no assurance that the Company will
continue to be successful in its efforts to attract and retain such
professionals.
LIMITATIONS ON ABILITY TO CHANGE THE CONTROL OF COMPANY
In the event of a Change of Control (as defined in the Indenture), the
Company would be required, subject to certain conditions, to offer to purchase
all outstanding Notes at a price equal to 101% of the principal amount thereof,
plus accrued interest thereon. As of December 31, 1995, the Company did not have
sufficient funds available to purchase all the Notes were they to be tendered in
response to an offer made as a result of such a Change of Control. There can be
no assurance that, at the time of a Change of Control, the Company will have
sufficient cash to repay all amounts due under the Notes. If a Change of Control
should occur, the rights of the holders of the Notes to receive payment for
their Notes upon a Change of Control Offer would be subject to the prior payment
rights of holders of any Senior Indebtedness (as defined in the Indenture). The
terms of the Credit Agreement prohibit the optional payment or prepayment or any
redemption of the Notes. If, following a Change of Control, the Company has
insufficient funds to purchase all the Notes tendered pursuant to such an offer,
or is prohibited from purchasing the Notes pursuant to the terms of any Senior
Indebtedness (as defined in the Indenture), an event of default in respect of
the Notes would occur. The Change of Control provisions of the Indenture may
have the effect of discouraging attempts by a person or group to take control of
the Company.
The Company's Amended and Restated Certificate of Incorporation, By-laws,
Shareholder Rights Plan and certain other agreements contain provisions that
could have the effect of delaying or preventing a change of control of the
Company or affect the Company's ability to engage in certain extraordinary
transactions.
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<PAGE>
MARKET PRICES AND DIVIDEND POLICY
Since September 14, 1993, the Common Stock has been traded on the New York
Stock Exchange (NYSE) under the symbol "ICF". Prior to that date, the Common
Stock was traded on the NASDAQ National Market System. At March 6, 1995, the
Company's record date for its 1996 Annual Meeting of Shareholders, there were
1,353 shareholders of record; the Company believes that there are approximately
4,850 beneficial owners of Common Stock.
On April 12, 1996, the closing price of the Common Stock as reported by the
NYSE was $2.625. The following table sets forth, for the periods indicated, the
high and low bid information for the Common Stock as reported on the NASDAQ
National Market System and the high and low sales prices on the NYSE:
<TABLE>
<CAPTION>
Common Stock Price
High Low
<S> <C> <C>
Fiscal Year Ended February 28, 1994
First Quarter............................... $6.875 $ 4.75
Second Quarter 5.50 3.75
Third Quarter (September 1 - September 13).. 4.875 4.375
Third Quarter (September 14 - November 30).. 5.375 4.00
Fourth Quarter.............................. 5.00 3.625
Fiscal Year Ended February 28, 1995
First Quarter............................... $3.875 $ 2.25
Second Quarter.............................. 2.625 2.00
Third Quarter............................... 4.125 2.375
Fourth Quarter.............................. 4.375 2.625
March 1 to December 31, 1995
First Quarter............................... $5.00 $ 3.75
Second Quarter.............................. 4.625 3.75
Third Quarter............................... 4.75 3.25
December.................................... 4.25 3.125
Fiscal Year Ending December 31, 1996
First Quarter............................... $4.375 $ 2.50
</TABLE>
The Company's Transfer Agent and Registrar is First Chicago Trust Company
of New York, P.O. Box 2534, Jersey City, NJ 07303-2534. The Shareholder
Relations telephone number is (201) 324-0498.
The Company has never paid cash dividends on its Common Stock. The Board of
Directors anticipates that no cash dividends will be paid on its Common Stock
for the foreseeable future and that the Company's earnings will be retained for
use in the business.
The Board of Directors determines the Company's Common Stock dividend
policy based on the Company's results of operations, payment of dividends on
preferred stock, financial condition, capital requirements, and other
circumstances. The Company's debt agreements allow dividends to be paid on its
capital stock provided that the Company complies with certain limitations
imposed by the terms of such agreements. See Notes F and I to the Consolidated
Financial Statements.
-15-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data of the Company for the ten months
ended December 31, 1995, and each year in the four-year period ended February
28, 1995, have been derived from the Company's audited consolidated financial
statements. This information should be read in conjunction with the
Consolidated Financial Statements and the related notes thereto appearing
elsewhere in this Report and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Certain reclassifications have been made
to the prior period financial statements to conform to the presentation used in
the December 31, 1995, financial statements.
-16-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
Ten Months Year Ended February 28,
Ended ----------------------------------------------------
December 31, 1995 1995 1994/(1)/ 1993 1992/(2)/
----------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Gross revenue......................................... $916,744 $861,518 $651,657 $678,882 $710,873
Service revenue /(3)/................................. 425,896 459,786 382,708 391,528 385,942
Operating income (loss)............................... 17,505 13,688 (5,230) 22,744 (43,963)
Income (loss) before income taxes, minority interests,
and extraordinary item............................... 6,303 1,239 (12,877) 14,894 (54,310)
Income (loss) before minority interests and
extraordinary item................................... 4,212 (1,661) (12,528) 8,639 (40,516)
Net income (loss) before extraordinary item........... 2,252 (1,661) (12,528) 8,639 (40,516)
Net income (loss) /(2)/............................... 2,252 (1,661) (18,497) 8,639 (40,516)
Net income (loss) available for common shareholders... 449 (3,815) (25,322) 3,346 (42,932)
Primary and Fully Diluted Net Income (Loss)
Per Common Share:
Before extraordinary item............................ $0.02 $(0.18) $(0.92) $0.16 $(2.25)
Extraordinary loss on early extinguishment of debt... --- --- (0.29) --- ---
-------- -------- -------- -------- --------
Total.......................................... $0.02 $(0.18) $(1.21) $0.16 $(2.25)
======== ======== ======== ======== ========
Weighted average common and common equivalent
shares outstanding, assuming full dilution............ 21,517 20,957 20,886 21,272 19,085
Balance Sheet Data (end of period):
Total assets.......................................... $369,517 $281,422 $281,198 $293,076 $318,947
Working capital....................................... 84,589 91,640 87,648 85,861 65,623
Long-term liabilities................................. 125,818 133,130 130,752 75,602 85,675
Redeemable preferred stock............................ 19,787 19,617 20,212 44,824 45,161
Shareholders' equity.................................. 28,427 27,624 30,780 58,521 51,151
</TABLE>
__________________
(1) In fiscal year 1994, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions."
(2) Fiscal year 1992 reflects an after-tax charge of $52.4 million associated
with the disposal and restructuring of certain businesses.
(3) Service revenue is derived by deducting the costs of subcontracted
services and direct project costs from gross revenue and adding the
Company's share of the equity in income of unconsolidated joint ventures
and affiliated companies.
-17-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
ICF Kaiser is one of the nation's largest engineering, construction,
program management, and consulting services companies, providing fully
integrated capabilities to clients in four related market areas: environment,
infrastructure, industry, and energy. The Company provides services to domestic
and foreign clients in both the private and public sectors.
Change in Fiscal Year
The Company changed from a fiscal year ending February 28 to a fiscal year
ending December 31, effective December 31, 1995. As a result, the accompanying
financial statements include consolidated operations for the ten months ended
December 31, 1995 and for the years ended February 28, 1995 and 1994. See Note
S to the consolidated financial statements for unaudited comparative operating
results for the ten months ended December 31, 1994.
Financial Review
ICF Kaiser's operating income of $17.5 million for the ten months ended
December 31, 1995 was a $4.6 million increase from the $12.9 million recorded
for the ten months ended December 31, 1994. The increase in operating income
(before minority interests) primarily resulted from a $5.7 million improvement
in engineering and construction operations and $5.3 million in earnings from the
Performance Based Integrating Management Contract at the U.S. Department of
Energy's (DOE) Rocky Flats Environmental Technology Site in Colorado (Rocky
Flats). The improvement in engineering and construction operations was
partially due to a major transit project in the Philippines, operating revenue
of which had been previously deferred. Other improvements in engineering and
construction operations were due to substantial growth in the group's industrial
sector and a reduction in the group's overhead. The Rocky Flats contract was
awarded in April 1995 to Kaiser-Hill Company, LLC (Kaiser-Hill), a limited
liability company owned equally by ICF Kaiser and CH2M Hill Companies, Ltd.
(CH2M Hill).
An additional $3.0 million increase in operating income resulted from the
Company's operations at DOE's Hanford, Washington site (Hanford). The 1995
results reflect higher award fees earned.
A $4.9 million decline in the Company's operating income from other
environmental work (excluding the Rocky Flats and Hanford contracts) partially
offset the improvements in operating income discussed above between the ten-
month periods ended December 31, 1995 and 1994. This decrease in other
environmental operations was primarily due to a decline in operating income from
private-sector environmental work, increases in bidding and proposal efforts
required by large scale U.S. Department of Defense (DOD) and DOE contracts, and
temporary delays in Federal environmental projects due to Federal government
budgetary uncertainties.
The Company's consulting operations also experienced a decline in operating
revenues between the ten-month periods ended December 31, 1995 and 1994,
resulting in a $0.9 million decrease in operating income for this group. The
decrease was caused by a delay in task-order assignments under new contract
awards and a significant increase in levels of business development activity.
The Federal government's fiscal 1996 budget was not finalized during the ten
months ended December 31, 1995, which led to the Federal government operating
under a continuing resolution (including two no-work furlough periods) since
October 1, 1995. While under this resolution, the assignment of work under
task-order contracts has been delayed.
A significant company-wide increase in marketing efforts further negatively
impacted operating results for the ten months ended December 31, 1995 as
compared to the ten months ended December 31, 1994. These efforts were in
addition to the marketing activities discussed above within the environmental
and consulting operations. Management believes that ICF Kaiser's increased
efforts in its business development activities should result in additional
contract awards in both the public and private sectors of its business.
-18-
<PAGE>
Outlook
The Company's contract backlog increased significantly to $4.4 billion at
December 31, 1995 compared to $1.4 billion at February 28, 1995. The increase in
backlog primarily resulted from the April 1995 award of the Rocky Flats
contract, which added $3.0 billion to contract backlog. The fee structure for
this five-year contract provides for a mixture of base and incentive fees earned
through the achievement of cost reductions, attainment of certain milestones,
and accomplishment of other goals. In August 1995, ICF Kaiser signed a contract
estimated at $330 million to perform environmental restoration work at Federal
installations for the U.S. Army Corps of Engineers (USACE), Baltimore District.
This Total Environmental Restoration Contract (TERC) is for four years with two,
three-year options. The contract is a cost reimbursement delivery order
contract, and the fee structure includes a combination of cost plus fixed fee,
award fee, and incentive fees. In August 1995, ICF Kaiser also signed a five-
year contract estimated at $50 million to provide environmental services to
USACE, Savannah District.
The Company, through its subsidiary, ICF Kaiser Hanford Company, is
currently teaming with five other nationally known firms in bidding on DOE's new
management and integration contract at Hanford. The response to DOE's request
for proposals is due in March 1996. DOE has indicated that it would like the
new contract to be in place in October 1996. The Company's existing contract to
perform services at Hanford terminates in March 1997. It is expected that two
other teams also will bid on the new contract; one of those teams already has
been announced and includes Westinghouse Hanford Company (the incumbent
management and operations contractor at the site). If the Company is
unsuccessful in its bidding efforts on the new Hanford contract, the impact on
ICF Kaiser's operating income after 1996 could be significant.
With the award of the Rocky Flats contract and the Company's continued work
at Hanford, ICF Kaiser is now actively participating in two of DOE's major
environmental cleanup efforts and at seven of DOE's other 18 former weapons
facilities. ICF Kaiser recently expanded its environmental cleanup contract
base with DOD with the award of the USACE Baltimore TERC and USACE Savannah
contracts discussed above. The Company expects that the experience and
reputation it earns under these contracts will continue to enhance its position
as a major participant in the field of environmental cleanup and large program
management.
The Company plans to continue its increased level of business development
activity in the consulting group and expects that such activity will result in
expanded public and private sector consulting services. In October 1995, the
Company was awarded a consulting contract worth up to $111 million to support
the marketing and communication efforts of the U.S. Environmental Protection
Agency's Energy Star programs. The contract is for one year, with four
additional one-year options.
Other major current business initiatives include significant efforts to
enhance the Company's management information systems and increase international
marketing. Also, in its efforts to enhance profitability, the Company expects
to realign several of its offices and terminate more than 100 employees by
December 31, 1996 (see "Unusual Items under Results of Operations"). ICF Kaiser
believes these endeavors, combined with other ongoing efforts described above,
should positively impact the Company's future performance.
-19-
<PAGE>
RESULTS OF OPERATIONS
The following table summarizes key elements in the Consolidated Statements
of Operations for the ten months ended December 31, 1995 and December 31, 1994
(unaudited), and the years ended February 28, 1995 and 1994 (dollars in
millions).
<TABLE>
<CAPTION>
Ten Months Ended Year Ended
December 31, February 28,
----------------- -----------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Gross revenue $916.7 $732.4 $861.5 $651.7
Service revenue $425.9 $392.0 $459.8 $382.7
Service revenue as a percentage of gross revenue 46.5% 53.5% 53.4% 58.7%
Operating expenses as a percentage of service revenue:
Direct cost of services and overhead 84.5% 86.0% 85.5% 84.6%
Administrative and general 9.5% 8.7% 9.5% 12.0%
Depreciation and amortization 2.0% 2.0% 2.0% 2.5%
Unusual items, net (0.1)% -- -- 2.3%
Operating income (loss) as a percentage
of service revenue 4.1% 3.3% 3.0% (1.4)%
</TABLE>
Gross revenue represents services provided to customers with whom the
Company has a primary contractual relationship. Included in gross revenue are
costs of services subcontracted to third parties and other reimbursable direct
project costs, such as materials procured by the Company on behalf of its
customers.
Service revenue is derived by deducting the costs of subcontracted services
and direct project costs from gross revenue and adding the Company's share of
the income of unconsolidated joint ventures and affiliated companies. ICF
Kaiser believes that it is appropriate to analyze operating margins and other
ratios in relation to service revenue because such revenue and ratios reflect
the work performed directly by the Company.
Operating profits (fees) generated by the Hanford and Rocky Flats contracts
are based on performance and not revenue. A change in revenue between periods
is likely to be disproportionate to the change in the fees. Consequently,
changes in revenue may have an exaggerated impact on the Company's margins as
measured on a percentage basis. In addition, because Kaiser-Hill is a
consolidated subsidiary of ICF Kaiser, the operating income includes the portion
of income generated under the Rocky Flats contract attributable to CH2M Hill.
CH2M Hill's interest in Kaiser-Hill is reflected as a minority interest in ICF
Kaiser's financial statements (see Note B to the consolidated financial
statements).
Ten Months Ended December 31, 1995 Versus Ten Months Ended December 31, 1994
Revenue
Gross revenue for the ten months ended December 31, 1995 increased $184.3
million, or 25.2%, to $916.7 million. The increase in gross revenue was
attributable to the commencement of work under the Kaiser-Hill contract which
generated $277.7 million in gross revenue during the current year. The increase
was partially offset by a $98.6 million reduction in gross revenue under the
Hanford contract due to Federal budget reductions at the Hanford site. This
reduced level of Hanford activity is expected to continue and may be reduced
further during the contract period; however, a reduction in the Hanford budget
is not currently expected to have a significant impact on operating income due
to the nature of the fee structure under this particular DOE contract.
Service revenue increased by $33.9 million for the ten-month period ended
December 31, 1995 as compared to the ten months ended December 31, 1994. The
increase was due primarily to $91.2 million of service revenue
-20-
<PAGE>
generated under the Rocky Flats contract, offset by a $57.8 million decrease in
service revenue under the Hanford contract. Service revenue as a percentage of
gross revenue decreased to 46.5% for the ten months ended December 31, 1995 from
53.5% for the ten months ended December 31, 1994 as a result of the nature of
the Rocky Flats contract. A significant portion of the gross revenue derived
from the Rocky Flats contract includes the costs of services subcontracted to
third parties.
Operating Expenses
Direct cost of services and overhead increased $22.8 million between the
ten-month periods ended December 31, 1995 and 1994. Costs on the new Rocky
Flats contract ($85.3 million) were offset by a $60.9 million reduction in the
Hanford contract costs (attributable to the Federal budget reductions discussed
above). The remainder of the Company's direct cost of services and overhead as
a percentage of service revenue for the ten months ended December 31, 1995 was
comparable to the same period in the prior year.
Administrative and general expenses increased $6.4 million, or 18.5%,
between the ten-month periods ended December 31, 1995 and 1994 and increased
from 8.7% to 9.5% as a percentage of service revenue. The increase in these
costs is primarily attributable to the Company's increased marketing activities,
including filling several key marketing positions and incurring relatively high
levels of marketing expense associated with proposing and bidding large-scale
DOD and DOE contracts.
Interest Expense
ICF Kaiser's average debt outstanding and average effective interest rate
for the ten months ended December 31, 1995 and 1994 were as follows.
<TABLE>
<CAPTION>
Ten Months Ended
-------------------------------------
December 31, 1995 December 31, 1994
----------------- -----------------
<S> <C> <C>
Average debt outstanding $123,701,000 $122,674,000
Average effective interest rate 12.9% 12.8%
</TABLE>
The average effective interest rate was comparable between the ten-month
periods ended December 31, 1995 and 1994 due to consistent interest rates and
indebtedness outstanding between the ten-month periods. The Company's principal
debt outstanding consists of 12% Senior Subordinated Notes due 2003 (12% Notes)
(see "Liquidity and Capital Resources" for further discussion).
Income Tax Expense
ICF Kaiser's income tax provision was $2.1 million and $3.0 million for
the ten months ended December 31, 1995 and 1994, respectively. Although pretax
income for the ten months ended December 31, 1995 was $3.5 million greater than
pretax income for the comparable period ended December 31, 1994, the Company's
effective tax rate decreased due to a reduction in permanent differences (such
as the nondeductibility of goodwill) as a percentage of pretax income, increased
foreign tax benefits, and minority interest earnings of a consolidated
subsidiary (see Note H to the consolidated financial statements). The ten
months ended December 31, 1994 also included a repatriation of overseas funds to
the United States which could not then be currently offset by foreign tax
credits, resulting in additional income taxes for that period (see "Income Tax
Expense" under "Year Ended February 28, 1995 Versus Year Ended February 28,
1994").
Because of the reported losses for the year ended February 28, 1994, a $3.3
million valuation allowance was established in that year for deferred tax
assets. Although the level of pretax income has increased substantially since
that period (with a corresponding increase in taxable income), the Company has
maintained the valuation allowance as of December 31, 1995. At December 31,
1995, the Company had deferred tax assets of $0.7 million related to net
operating loss carryforwards, of which $0.5 million expire in the next five
years and $0.2 million expire in 2008. Additionally, the Company had deferred
tax assets of $2.1 million related to tax credit carryforwards, the majority of
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<PAGE>
which expire in 1998 to 2009. Management believes that the Company's expected
levels of pretax earnings, when adjusted for nondeductible expenses such as
goodwill amortization, will generate sufficient future taxable income to realize
the $11.9 million deferred tax asset (net) within the next five years.
Unusual Items
During the ten months ended December 31, 1995, the Company recorded $0.5
million in additional income (net), consisting of the following unusual items:
income in settlement of litigation against the Internal Revenue Service (IRS),
associated with an affiliate of an acquired company, net of an accrual for
related expenses ($6.8 million) (see "Liquidity and Capital Resources"); a
charge to accrue the net settlement cost and legal expenses of other litigation
($4.6 million); a charge to accrue for severance for the termination of 110
employees in the engineering and international groups ($1.0 million); and a
charge to accrue for consolidation of office space ($0.7 million). Management
expects that all actions associated with the termination of employees and office
space consolidation will be completed by December 31, 1996.
Year Ended February 28, 1995 Versus Year Ended February 28, 1994
Revenue
Gross revenue for the year ended February 28, 1995 increased 32.2% to
$861.5 million, while service revenue increased 20.1% to $459.8 million, versus
the year ended February 28, 1994. These increases were attributable to the work
performed at Hanford ($208.8 million of the gross revenue increase and $97.4
million of the service revenue increase). The Hanford revenue increases were
offset partially by a decrease in the Company's engineering and construction
revenue ($14.1 million gross revenue and $10.8 million service revenue).
Service revenue as a percentage of gross revenue decreased to 53.4% for the
year ended February 28, 1995, from 58.7% for the previous year, primarily
because under an October 1993 amendment to the Hanford contract, ICF Kaiser
absorbed tasks utilizing a much higher proportion of subcontractors than Company
personnel.
Operating Expenses
The Company's direct cost of services and overhead was relatively flat as a
percentage of service revenue for the year ended February 28, 1995 versus the
previous year. Excluding Hanford, direct cost of services and overhead
decreased to 76.2% of service revenue for the year ended February 28, 1995 from
79.2% for the year ended February 28, 1994. Administrative and general expense
decreased $2.1 million. The decrease in these costs is attributable primarily
to management cost-cutting initiatives.
A restructuring plan initiated during the year ended February 28, 1994 to
respond to operating losses included downsizing the work force, consolidating
office space, renegotiating significant leases, and restructuring certain
international operations. All actions have been completed, and there is no
further liability outstanding as of December 31, 1995 associated with this plan.
Interest Expense
ICF Kaiser's interest expense net of interest income (net interest) for the
year ended February 28, 1995, increased $6.3 million from the prior year due to
a recapitalization that took place in the fourth quarter of the year ended
February 28, 1994 (also see "Liquidity and Capital Resources"). The increase in
net interest was impacted favorably by $1.3 million in refunds of interest from
the IRS recorded in the third quarter of the year ended February 28, 1995
associated with the Company's tax liabilities and those of an acquired company.
The increase in net interest was offset partially by a reduction in preferred
stock dividends.
Income Tax Expense
ICF Kaiser's income tax provision for the year ended February 28, 1995 was
$2.9 million, even though pretax income was $1.2 million. This is due to
several factors including the deemed dividend from the repatriation of overseas
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<PAGE>
funds to the United States during the year ended February 28, 1995 that
currently could not be offset by foreign tax credits and permanent differences,
such as the nondeductibility of goodwill amortization. Nondeductible permanent
differences comprised a very high percentage of pretax income. As such, the
traditional percentage relationship between income tax expense and pretax income
was not meaningful.
LIQUIDITY AND CAPITAL RESOURCES
During the ten months ended December 31, 1995, cash and cash equivalents
decreased $11.9 million to $16.4 million. Cash was primarily used in investing
and financing activities for acquisitions and investments in joint ventures and
affiliates ($2.0 million); purchases of fixed assets ($1.8 million); payments of
dividends ($1.5 million); repurchases by the Company's insurance subsidiary of a
portion of the Company's outstanding 12% Notes and related warrants ($1.4
million); and payments of other outstanding debt ($1.2 million). In addition,
$6.1 million was used in operating activities. An interest payment of $7.5
million on the Company's 12% Notes was made in June 1995. An additional $7.5
million interest payment on the 12% Notes was due and paid on January 2, 1996.
An increase in contract receivables, net between February 28, 1995 and
December 31, 1995 was primarily due to $71.9 million in receivables from the
commencement of work by Kaiser-Hill under the Rocky Flats contract. An increase
in accounts payable, accrued expenses, and accrued salaries and employee
benefits was also primarily due to the Rocky Flats contract which had $70.6
million of accounts payable, accrued expenses, and accrued salaries and employee
benefits as of December 31, 1995.
During the year ended February 28, 1995, the U.S. Environmental Protection
Agency approved the Company's revised provisional billing rates for fiscal years
1991 through 1994, thus authorizing the Company to submit invoices on cost-plus
contracts with U.S. government agencies for work performed during these approved
years. The Company has collected in excess of $4 million as of December 31,
1995 on these contracts.
The Company has a $60 million revolving credit facility (the Credit
Facility) provided by a consortium of banks (the Banks). ICF Kaiser
International, Inc. and certain of its subsidiaries, which are guarantors of the
Credit Facility, have granted the Banks a security interest in their accounts
receivable and certain other assets. The Credit Facility limits the payment of
cash dividends, requires the maintenance of specified financial ratios, and has
a $20 million limitation on cash borrowings. Total available credit is
determined from a borrowing base calculation based on accounts receivable. The
Credit Facility was amended in 1995 to modify ratios and certain terms. As of
December 31, 1995, the Company had $5.0 million in borrowings outstanding under
the Credit Facility, in addition to $7.1 million in letters of credit, and the
Company had $23.5 million of available credit under the Credit Facility. As of
February 29, 1996, the Company had $9.0 million of borrowings, excluding letters
of credit, outstanding under its Credit Facility. The Credit Facility contains
Eurodollar and alternate base interest rate alternatives with margins dependent
upon the Company's financial operating results, and expires on October 31, 1996.
Kaiser-Hill has a $50 million receivables purchase facility to support its
working capital requirements under the Rocky Flats contract. The receivables
purchase facility requires Kaiser-Hill to maintain a specified tangible net
worth and contains certain default provisions for delinquent receivables.
Program fees consist of 0.30% per annum of the unused portion of the facility
and 0.45% per annum of the used portion of the facility. The receivables
purchase facility is non-recourse to Kaiser-Hill's owners, ICF Kaiser and CH2M
Hill, and expires on June 30, 1998.
In January 1994, the Company issued $125,000,000 of 12% Notes and 600,000
warrants, each to purchase one share of the Company's common stock at $5.00 per
share. The net proceeds were used, in part, to retire senior subordinated notes
and associated warrants, to repurchase preferred stock, and to repay the
outstanding balance on the Company's then-existing revolving credit facility.
The recapitalization resulted in a $6.0 million extraordinary charge (net of $0
tax benefit) for the early extinguishment of debt and a $1.9 million charge to
net income available for common shareholders to repurchase redeemable preferred
stock. As noted above, in November 1995, the Company's insurance subsidiary
repurchased $1,450,000 of the 12% Notes and related warrants for $1.4 million.
In March 1996, the interest rate on the 12% Notes was increased by one percent
until the Company achieves and maintains a specified level of earnings (see
Notes F and I to the consolidated financial statements). The 12% Notes mature
on December 31, 2003 with semi-annual interest payments.
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<PAGE>
For the past several years, the Company has had ongoing negotiations,
filings, and litigation with the IRS related to settlement of its tax
liabilities and the liabilities associated with affiliates of acquired
companies. As noted in the "Results of Operations", the cash and income impact
have generally been favorable to the Company. Further, the Company's previous
tax losses and its resultant net operating loss carryforward position, combined
with the effect of tax credit carryovers, should limit Federal income tax
payments required in the near future.
In one recent tax case, the Company prevailed at the trial court level in a
tax refund litigation matter against the IRS. As discussed under "Unusual
Items" under "Results of Operations," the Department of Justice recently agreed
to pay $6.8 million, net of related expenses, to the Company in settlement of
this matter.
Management believes that current projected levels of cash flows and the
availability of financing, including borrowings under the Company's Credit
Facility, will be adequate to fund operations throughout the next twelve months.
The Company's Series 2D Senior Preferred Stock is subject to mandatory
redemption on January 13, 1997 in the amount of $20 million plus accrued
dividends. Because of technical limitations on the payment of dividends
contained in the Indenture governing the Company's 12% Notes, the Company did
not pay the November 30, 1995 and February 29, 1996 accrued dividends in the
aggregate amount of $975,000 until March 1996, following the signing of an
amendment to the Indenture which permitted the payment of all accrued and future
dividends. As consideration for this amendment, the interest rate on the 12%
Notes was increased as discussed above. The Company currently intends to use
cash generated from operations (including cash received from the tax refund
litigation discussed in the immediately preceding paragraph) to redeem a portion
of this preferred stock on or before the redemption date. To redeem the balance
of the preferred stock, the Company expects to use funds generated from
alternative financing sources. The Company is currently negotiating for
replacement or extension of the current Credit Facility and the possible
issuance of new equity. Management received a commitment for a replacement of
the Company's existing Credit Facility in March 1996 with terms and covenants
similar to the existing Credit Facility.
IMPACT OF NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) recently issued Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," effective for
financial statements for fiscal years beginning after December 15, 1995. It is
the Company's current policy to evaluate all long-lived assets on a periodic
basis for asset impairment. Therefore, upon formal adoption of this statement
in 1996, management does not expect that there will be a material adverse
effect on the Company's financial position or operations.
The FASB also recently issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123), which
encourages companies to adopt a fair value method of accounting for employee
stock options and similar equity instruments. The fair value method requires
compensation cost to be measured at the grant date based on the value of the
award and is recognized over the service period. Alternatively, SFAS No. 123
requires the provision of pro forma disclosures of net income and earnings per
share as if the fair value method had been adopted when the fair value method is
not reflected in the financial statements. The Company has not yet determined
whether it will adopt a fair value method of accounting for stock-based
compensation or provide pro forma disclosures. The impact of the adoption of
this statement on the financial statements cannot be reasonably estimated at
this time. The requirements of SFAS No. 123 are effective for financial
statements for fiscal years beginning after December 15, 1995.
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<PAGE>
BUSINESS
ICF Kaiser International, Inc., through ICF Kaiser Engineers, Inc. and
its other operating subsidiaries, is one of the nation's largest engineering,
construction, and consulting services companies, providing fully integrated
engineering, construction, program management, and consulting services to
public- and private-sector clients in the related markets of environment,
infrastructure, energy, and industry.
For the ten months ended December 31, 1995, ICF Kaiser reported gross
and service revenue of $917 million and $426 million, respectively. Service
revenue is derived by deducting the costs of subcontracted services and direct
project costs from gross revenue and adding the Company's share of the income of
unconsolidated joint ventures and affiliated companies. During the ten months
ended December 31, 1995, and the two years ended February 28, 1995, the Company
operated predominantly in one industry segment, in which it provided
engineering, construction, program management, consulting, and other
professional services.
<TABLE>
<CAPTION>
Fiscal Year Ended
Ten Months Ended ------------------------------------
December 31, 1995 February 28, 1995 February 28, 1994
----------------- ----------------- ------------------
<S> <C> <C> <C>
Gross revenue............ $916,744,000 $861,518,000 $651,657,000
Service revenue.......... $425,896,000 $459,786,000 $382,708,000
Operating income (loss).. $ 17,505,000 $ 13,688,000 $ (5,230,000)
Assets................... $369,517,000 $281,422,000 $281,198,000
</TABLE>
As of December 31, 1995, the Company's contract backlog totaled
approximately $4.4 billion compared to $1.4 billion as of February 28, 1995.
Most of the Company's backlog relates to public-sector environmental projects
that span from one to five years. Approximately 30% of the $4.4 billion backlog
is expected to be worked off during the fiscal year ending December 31, 1996.
See "Backlog" section of this Report.
The Company's headquarters is located at 9300 Lee Highway, Fairfax,
Virginia 22031-1207, and its telephone number is (703) 934-3600. The Company's
four regional headquarters are located at 1800 Harrison St., Oakland, California
94612-3430 Telephone (510) 419-6000; 6440 Southpoint Parkway, Jacksonville, FL
32216 Telephone (904) 279-7200; Four Gateway Center, Pittsburgh, Pennsylvania
15222-1207 Telephone (412) 497-2000; and 3D International Tower, 1900 West Loop
South, Suite 1350, Houston, TX 77027 Telephone (713) 623-5000. Other offices
include Tempe, Arizona; Livermore, Los Angeles, Rancho Cordova, Richmond, San
Diego, San Francisco, San Rafael, and Universal City, California; Golden and
Lakewood, Colorado; Washington, DC; Ft. Lauderdale, Miami, Orlando and Tampa,
Florida; Atlanta, Georgia; Idaho Falls, Idaho; Chicago, Illinois; Gary, Indiana;
Ruston, Louisiana; Abingdon, Baltimore, and Silver Spring, Maryland; Boston,
Massachusetts; Kansas City, Missouri; Ely and Las Vegas, Nevada; Iselin, New
Jersey; New York, New York; Albuquerque and Los Alamos, New Mexico; Morrisville,
North Carolina; Cincinnati, Ohio; Dallas, Texas; Richmond, Virginia; Port
Orchard, Richland, and Seattle, Washington. The Company's international offices
are located in Brisbane, Perth and Sydney, Australia; Rio de Janeiro, Brazil;
Prague, Czech Republic; London, England; Paris, France; Mexico City, Mexico;
Lisbon, Portugal; Moscow, Russia; and Taipei, Taiwan. As of March 1, 1996, ICF
Kaiser employed approximately 7,500 persons.
ICF Kaiser International, Inc. is a Delaware corporation incorporated in
1987 under the name American Capital and Research Corporation. It is the
successor to ICF Incorporated, a nationwide consulting firm organized in 1969.
In 1988, the Company acquired the Kaiser Engineers business which dates from
1914.
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<PAGE>
Strategic Considerations
The following points are important to understanding the Company's business
and strategy:
Full Front-end Capability. The Company's front-end skills include policy
-------------------------
analysis and consulting; scientific analysis and health/risk assessments;
facility siting and environmental assessments; remedial investigations and
feasibility studies; and engineering design. By possessing these skills, the
Company's involvement at the outset of any project places it in a position to
participate in any follow-on engineering and construction work.
High Value-added Services. The Company adds high value within those markets
-------------------------
that relate to environmental services through specialized environmental
knowledge that (i) helps clients understand environmental threats and
opportunities and alternative ways in which each can be managed; (ii) allows
creation of customized solutions for the clients' environmental problems; and
(iii) combines problem identification, solution, and implementation.
Access to Technologies. The Company has access to technologies that play a
----------------------
critical role in both the cleanup of existing waste sites and in the reduction
of waste generated by ongoing and new production processes. These technologies
relate to reducing and monitoring emissions, bioremediation, and industrial
process technologies that can help minimize waste, reduce costs, and improve the
quality of a finished product. To assist clients better and to increase its
overall participation in clients' projects, the Company continues to expand its
access to environmental and process technologies through various methods,
including licensing and joint ventures.
Strategic Relationships. The Company has established business
-----------------------
relationships through joint ventures, marketing agreements, and direct equity
investments that extend its presence and reduce its business development risks.
These relationships are particularly important in the management of the
Company's international operations, and they help reduce the cost and risks
associated with the Company's entering new geographic regions.
The Company provides its fully integrated capabilities to clients through
its operating groups.
FEDERAL PROGRAMS GROUP
U.S. Department of Energy (DOE). An important DOE mission has changed over
-------------------------------
the years--from nuclear weapons production to environmental cleanup of former
nuclear weapons production sites. To help accomplish DOE's cleanup goals
pursuant to this new mission, the Company actively supports DOE at the following
facilities: the Argonne National Laboratory, the Idaho National Engineering
Laboratory, Lawrence Livermore National Laboratory, the Los Alamos National
Laboratory, the Mound Plant Site, the Oak Ridge National Laboratory, the two
Sandia National Laboratories, the Rocky Flats Environmental Technology Site, and
the Hanford Nuclear Reservation (the last two facilities are described in more
detail below). The services provided by the Company include (i) conducting
comprehensive assessments related to environment, safety, and health; (ii)
quality assurance; (iii) security and safeguards; (iv) assessing, managing, and
remediating existing hazardous and solid wastes, radioactive materials, highly
volatile chemical compounds, unidentified mixed wastes, and exploded/unexploded
munitions; and (v) architect, engineer, construction, and site operations
services.
During the ten months ended December 31, 1995, the Company, through Kaiser-
Hill Company, a limited liability company owned equally by the Company and CH2M
Hill Companies, Ltd. (Kaiser-Hill), won DOE's Performance Based Integrating
Management contract at the DOE's Rocky Flats Environmental Technology Site near
Golden, Colorado. Rocky Flats is a former DOE nuclear weapons production
facility. Under the five-year contract which began on July 1, 1995, Kaiser-Hill
oversees plutonium stabilization and storage, environmental restoration, waste
management, decontamination and decommissioning, site safety and security, and
construction activities of subcontractor companies. Under the performance-based
contract signed by Kaiser-Hill, the concept of which was developed in the DOE's
1994 Contract Reform Initiative, 85% of Kaiser-Hill's fees are based on
performance, while only 15% are fixed. Kaiser-Hill's contract commits it to
dealing with urgent risks first, and measurable results in the following "urgent
risk" areas will help determine its incentive fee: stabilize plutonium and
plutonium residues for specified time frames; consolidate plutonium in a single
building; and clean up and remove all high-risk "hot spot" contamination.
Finally, Kaiser-Hill is expected to reduce the number of employees at the site
within the first 18 months of the contract, with a further reduction by the end
of the contract term.
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<PAGE>
Since 1987, the Company, through its wholly owned subsidiary ICF Kaiser
Hanford Company, has been assisting DOE clean up its former nuclear weapons
production site at the Hanford Nuclear Reservation in Richland, Washington.
Under its contract, ICF Kaiser Hanford Company will provide architect, engineer,
construction, and site operation services at the site through March 1997. The
fees the Company is eligible to earn are based on six-month performance reviews;
the Company also has the opportunity to earn incentive fees related to
technology transfers and efficiency savings. In October 1995, the Company
announced that ICF Kaiser Hanford Company was teaming with Raytheon and other
nationally known firms in bidding on the DOE's request for proposals for its new
management and integration contract at the Hanford Site. Assuming there is no
delay in the bidding process, DOE expects that the new contract could be in
place as early as October 1996.
U.S. Department of Defense. DOD estimates that its environmental expense
--------------------------
will be directed primarily to cleaning up hundreds of military bases with
thousands of contaminated sites. There is an urgent need to ensure that the
hazardous wastes present at these sites (often located near population centers)
do not pose a threat to the surrounding population, and, in connection with the
closure of many of the bases, there is an economic incentive to make sure that
the environmental restoration enables the sites of the former bases to be
developed commercially by the private sector.
In August 1995, the Company was awarded a contract estimated at $330
million to perform environmental restoration work at Federal installations for
the U.S. Army Corps of Engineers (USACE), Baltimore District. This Total
Environmental Restoration Contract (TERC) is for four years with two, three-year
options. The contract is a cost reimbursement delivery order contract, and the
fee structure includes a combination of cost plus fixed fee, award fee, and
incentive fees. In August 1995, the Company also signed a five-year contract
estimated at $50 million to provide environmental services to USACE, Savannah
District.
Other Federal Government Work. Under a variety of smaller contracts, the
-----------------------------
Company provides the Federal government with numerous other services. Under a
contract with the U.S. Environmental Protection Agency (EPA) awarded in 1995,
the Company will continue to manage the EPA's quality assurance laboratory in
Las Vegas, Nevada, and provide the laboratory with analytical support. The
Company also supports the EPA's Superfund program under several Alternative
Remedial Contracting Strategy (ARCS) contracts for remedial planning services.
Architectural, engineering, and construction management services for facilities
and infrastructure (such as post offices, court houses, and prisons) are
provided to the U.S. Postal Service, Department of Justice, and General Services
Administration.
ICF KAISER ENGINEERS GROUP
Environmental Consulting and Engineering Services. Demand for the
-------------------------------------------------
Company's non-Federal environmental consulting and engineering services is
driven by a number of factors: the need to improve the quality of the
environment; environmental regulation and enforcement; and increased liability
associated with pollution-related injury and damage. Significant environmental
laws have been enacted in response to public concern over the environment, and
these laws and the implementing regulations affect nearly every industrial
activity. Increasingly strict Federal, state, and local government regulation
has forced private industry and state and local agencies to clean up
contaminated sites, to bring production facilities into compliance with current
environmental regulations, and to minimize waste generation on an ongoing basis.
Although growth in this private-sector market is being hampered by uncertainty
over continuing Federal regulations, the Company generates new business by
increasing the types of services it sells to existing clients, by targeting new
markets for the Company's full-service capabilities, and by expanding the types
of services the Company offers.
The Company's environmental services have progressed beyond study and
analysis to remediation. Following on its established market position in the
consulting and front-end analysis phase of environmental services, the Company
now offers alternative remediation approaches that may involve providing on-site
waste containment, on-site treatment, management of on-site/off-site
remediation, or waste removal. The Company also designs new processes (and
redesigns ongoing production processes) to minimize or eliminate the generation
of hazardous waste. Currently the Company provides site investigations and
feasibility studies, compliance planning and audits, risk assessment,
permitting, community relations services, and construction and construction
management. See "Potential Environmental Liability" section of this Report.
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<PAGE>
Industry Services. ICF Kaiser's engineering design, project management,
-----------------
and construction services to the industrial market involve work with the steel,
aluminum, alumina, copper, iron, and other minerals and metals industries as
well as chemicals, petrochemicals, and refineries. In the coke, coal, and coal
chemicals area, ICF Kaiser's services have included inspection of coke plants
for environmental compliance, facility design and construction, and equipment
sales and services. The Company has provided services related to coal cleaning,
handling, and environmental controls. ICF Kaiser also designed, built, and now
operates and jointly owns a pulverized coal injection facility under a multiyear
tolling agreement.
The international industry market provides opportunities for the Company's
industrial services. The Company's largest industrial project will be a mini-
mill project for Nova Hut, a.s, an integrated steel maker based in the Ostrava
region of the Czech Republic. Under a two-year contract signed in March 1996,
the Company will oversee the construction of the mini-mill as well as future
production and environmental upgrades to Nova Hut's existing integrated steel-
making facilities. The Company will provide project management, engineering,
procurement, construction management, start-up, commissioning, and training
services. This initial phase of the mini-mill project, which is scheduled to
initiate production in December 1997, is part of a two-phase endeavor in which
the second phase will provide Nova Hut with the capability of producing 1
million metric tons per year of hot rolled steel product. The Company also is
assisting the International Finance Corporation in securing the financing for
the mini-mill that has an estimated initial phase capital cost of approximately
$275 million.
Infrastructure Services. The Company also is helping rebuild the
-----------------------
infrastructure of roads, highways, transit systems, harbors, airports,
facilities, and buildings in domestic and international markets. Budget
constraints at the Federal, state, and local government levels have hindered
infrastructure market growth, but the Company remains active in major U.S.
metropolitan areas: Chicago (light rail transit system); Pittsburgh (busway and
light rail projects); San Francisco (commuter rail line extension); Atlanta
(general engineering consulting services to the Metropolitan Atlanta Rapid
Transit Authority); Miami (Intermodal Transit Center, a project that will tie
together air, light/heavy rail, buses, highway systems, and parking facilities).
The major ports of many of the world's cities have serious water pollution
problems, and ICF Kaiser is helping to improve the condition of many harbors and
waterways. In its largest harbor project, the Company continues as the
construction manager of the cleanup of Boston Harbor, one of the largest
environmental projects in the country, under a contract extension that runs
through 1998. Since the inception of the project in 1988, the Company has
served as its construction manager, and currently manages construction workers,
engineers, architects, and support personnel working to construct a wastewater
treatment plant on Deer Island in Boston Harbor.
Internationally, the Company's large-scale construction infrastructure
skills are at work in Portugal where the Company as part of a joint venture
provides project and construction management services for the modification and
reconstruction of the main rail link between the cities of Lisbon and Oporto.
Those skills also are at work in the Philippines where the Company as part of a
joint venture provides front-to-back-end services for a light rail transit line
in Manila.
CONSULTING GROUP
The ICF Kaiser Consulting Group draws upon the talents of its multi-
disciplinary professional staff to support customers within four primary lines
of business.
Environmental consulting services assist customers in developing plans and
---------------------------------
policies, evaluating options for managing environmental responsibilities in the
most cost-effective manner, and identifying and employing the best available
technologies and practices. Life-cycle management strategies are emphasized.
The group has special expertise in such areas as industrial and municipal waste
management, air pollution control, chemical accident prevention, and ground-
water and drinking water management.
Global environmental issues are also a particular area of focus within the
group. Working with U.S. and international organizations that fund global
environmental work and with numerous private sector organizations, the
Consulting Group has conducted projects in over thirty countries and has been
actively involved in supporting international environmental treaties. The group
has achieved great success in implementing technology transfer programs through
the creation of effective public-private partnerships.
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<PAGE>
Working on global change issues for the EPA since 1982, the Company
supports the EPA's Global Change Division, providing services related to the
reduction of methane and other greenhouse gases. The Consulting Group also
provides technical and regulatory support to the EPA's Office of Solid Waste,
focusing on human health and ecological risk assessment and waste
characterization.
In-career education and training programs range in subject matter from
-----------------------------------------
highly technical areas to broader, skill-based and management-oriented training.
The Consulting Group's expertise in the development and delivery of workplace
training, combined with expert knowledge in a wide variety of technologies and
programmatic areas, enables it to provide high impact training that is
specifically tailored to the needs of each customer organization. Environmental
management programs cover regulation, technology, information reporting,
emergency response, and pollution prevention.
Information management programs assist clients in developing decision
-------------------------------
support systems which facilitate the collection and use of information to track
performance, identify opportunities, and improve decision making. The group
offers a number of sophisticated simulation models and proprietary applications,
such as its electric utility Integrated Planning Model. By combining consulting
expertise with information technology skills, the group helps its customers deal
with the unique challenges of their business environment.
Energy and natural resource management services support the development of
-----------------------------------------------
corporate and technical plans for managing power resources and energy projects,
provide economic assessments of short- and long-term market conditions for
various fuels, and serve as an expert foundation in litigation and regulatory
proceedings. The group assists its customers in identifying market
opportunities, commercializing new technologies, and developing public policy.
Its contributions involve linking an in-depth understanding of the energy
markets with an ongoing involvement with energy technology.
The ICF Kaiser Consulting Group serves customers in domestic and
international markets, including both public- and private-sector organizations.
Among its major customers are U.S. government agencies, especially the EPA; U.S.
private sector organizations, particularly major energy producers such as
utilities and oil companies; and governments and businesses around the world, as
well as various multinational banks, development organizations, and treaty
organizations.
Competition and Contract Award Process
The markets in which the Company operates are very competitive. The
Company's competitors range from small local firms to large multinational
companies. The Company believes that no single firm or small number of firms
dominates its markets.
Competition for private-sector work generally is based on several factors,
including quality of work, reputation, price, and marketing approach. The
Company's objective is to establish and maintain a strong competitive position
in its areas of operations by adhering to its basic philosophy of delivering
high-quality work in a timely fashion within its clients' budget constraints.
Most of the Company's contracts with public-sector clients are awarded
through a competitive bidding process that places no limit on the number or type
of offerors. The process usually begins with a government Request for Proposal
(RFP) that delineates the size and scope of the proposed contract. Proposals are
evaluated by the government on the basis of technical merit (for example,
response to mandatory solicitation provisions, corporate and personnel
qualifications, and experience) and cost. The Company believes that its
experience and ongoing work strengthen its technical qualifications and,
thereby, enhance its ability to compete successfully for future government work.
In both the private and public sectors, the Company, acting either as a
prime contractor or as a subcontractor, may join with other firms to form a team
that competes for a single contract or submits a single proposal. Because a team
of firms almost always can offer a stronger set of qualifications than any firm
standing alone, these teaming arrangements often are very important to the
success of a particular competition or proposal. The Company maintains a large
network of business relationships with other companies and has drawn repeatedly
upon these relationships to form winning teams.
-29-
<PAGE>
The Company's subsidiaries operate under a number of different types of
contract structures with its private- and public-sector clients, the most common
of which are Cost Plus and Fixed Price. Under Cost Plus contracts, the Company's
costs are reimbursed with a fee (either fixed or percentage of cost) and/or an
incentive or award fee offered to provide inducement for effective project
management. A variation of Cost Plus contracts are time and materials contracts
under which the Company is paid at a specified fixed hourly rate for direct
labor hours worked. Under Fixed Price contracts, the Company is paid a
predetermined amount for all services provided as detailed in the design and
performance specifications agreed to at the project's inception.
Customers
The Company's clients include: DOE, EPA, and DOD; major corporations in the
energy, transportation, chemical, steel, aluminum, mining, and manufacturing
industries; utilities; and a variety of state and local government agencies
throughout the United States. A substantial portion of the Company's work is
repeat business from existing clients. In many cases, the Company has worked
for the same client for many years, providing different services at different
times. DOE accounted for approximately 68% of the Company's consolidated gross
revenue for the ten-month period ended December 31, 1995; EPA accounted for
another approximately 6%; and DOD and other Federal agencies collectively
accounted for another approximately 4%. The Federal government accounted for
approximately 73% of the Company's consolidated gross revenue for the year ended
February 28, 1995, and 65% for the year ended February 28, 1994.
The Company's international clients include both private firms and foreign
government agencies in such countries as Australia, France, Portugal, and
Taiwan. For the ten-month period ended December 31, 1995, foreign operations
accounted for approximately 4.7% of the Company's consolidated gross revenue.
For information concerning gross revenue, operating income, and identifiable
assets of the Company's business by geographic area, see Note O to the
Consolidated Financial Statements.
Backlog
Backlog refers to the aggregate amount of gross contract revenue remaining
to be earned pursuant to signed contracts extending beyond one year. At December
31, 1995, the Company's contract backlog was approximately $4.4 billion in gross
revenue, up from approximately $1.4 billion in gross revenue at February 28,
1995. In April 1995, Kaiser-Hill was awarded the DOE's Performance Based
Integrating Management contract at Rocky Flats near Denver, Colorado. This
contract represents approximately 62% of the Company's total backlog at December
31, 1995. The Company expects that approximately 30% of the backlog at December
31, 1995, will be worked off during calendar year 1996. Because of the nature of
its contracts, the Company is unable to calculate the amount or timing of
service revenue that might be earned pursuant to these contracts. The Company
believes that backlog is not a predictor of future gross or service revenue.
Differences in contracting practices between the public and private sectors
result in the Company's backlog being weighted heavily toward contracts
associated with agencies of the Federal government. Backlog under contracts
with agencies of the Federal government that extend beyond the government's
current fiscal year includes the full contract amount, including in many cases
amounts anticipated to be earned in option periods and certain performance fees,
even though annual funding of the amounts under such contracts generally must be
appropriated by Congress before the agency may expend funds during any year
under such contracts. In addition, the agency must allocate the appropriated
funds to these specific contracts and thereafter authorize work or task orders
to be performed under these specific contracts. Such authorizations are
generally for periods considerably shorter than the duration of the work the
Company expects to perform under a particular contract and generally cover only
a percentage of the contract revenue. Because of these factors, the amount of
Federal government contract backlog for which funds have been appropriated and
allocated, and task orders issued, at any given date is a substantially smaller
amount than the total Federal government contract backlog as of that date. In
the event that option periods under any given contract are not exercised or
funds are not appropriated, allocated, or authorized to be spent under any given
contract, the amount of backlog attributable to that contract would not result
in revenue to the Company. All contracts and subcontracts with agencies of the
Federal government are subject to termination, reduction, or modification at any
time at the discretion of the government agency.
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<PAGE>
Environmental Regulation
Significant environmental laws have been enacted in response to public
concern over the environment. These laws and the implementing regulations affect
nearly every industrial activity. Efforts to comply with the requirements of
these laws have increased demand for the Company's services. The principal
Federal legislation having the most significant effect on the Company's business
includes the following:
The Comprehensive Environmental Response, Compensation and Liability Act
------------------------------------------------------------------------
(CERCLA). CERCLA, as amended by the Superfund Amendments and Reauthorization
- ---------
Act, established the Superfund program to clean up hazardous waste sites and
provides for penalties and punitive damages for noncompliance with EPA orders.
Superfund may impose strict liability (joint and several as well as individual)
on certain hazardous substance waste owners, operators, disposal "arrangers,"
transporters, and disposal facility owners and operators (Potentially
Responsible Parties or PRPs) for the costs of removal or remedial action; for
other necessary response costs and damages for injury, destruction, or loss of
natural resources; and for the cost of any health effects study. Under certain
circumstances Federal funds may be used to pay for the cleanup.
The Resource Conservation and Recovery Act (RCRA). RCRA, as amended by the
--------------------------------------------------
Hazardous and Solid Waste Amendments of 1984 (HSWA), provides a comprehensive
scheme for the regulation of hazardous waste from the time of generation to its
ultimate disposal (and sometimes thereafter), as well as the regulation of
persons engaged in the treatment, storage, and disposal of hazardous waste. The
RCRA scheme includes both a permitting and a manifest tracking system and
detailed regulations on the handling, treatment, transportation, storage, and
disposal of hazardous waste. Regulations have been issued pursuant to RCRA in
the following areas (among others) of importance to the Company: permitting
remediation of releases associated with underground storage tanks; municipal
solid waste disposal; waste minimization; and treatment, transportation, and
disposal of hazardous waste. HSWA has increased the number of hazardous waste
generators subject to RCRA. HSWA also imposes land disposal restrictions/bans on
certain listed and characteristic hazardous wastes that do not meet specified
treatment standards.
The Clean Air Act. Under the Clean Air Act of 1970, as amended, EPA is
------------------
empowered to establish and enforce National Ambient Air Quality Standards and
limits on the emissions of various pollutants from specific types of facilities.
The Clean Air Act Amendments of 1990 require certain sources emitting an air
pollutant regulated under the Clean Air Act to obtain an operating permit, which
includes enforceable emissions limitations and compliance schedules. The Clean
Air Act also addresses substantial expanded regulation of vehicle emissions,
hazardous air pollutant emissions, stratospheric ozone protection, acid rain
minimization (through the use of limitations on sulfur dioxide and nitrogen
oxide emissions) and related enforcement issues. The use of "marketable
allowances" to establish limits on total emissions while maintaining maximum
market flexibility reflects a shift in environmental policy from command and
control management to a more flexible approach.
The Safe Drinking Water Act. Under the Safe Drinking Water Act and its
----------------------------
subsequent reauthorizations, EPA is empowered to set drinking water standards
for community water supply systems in the United States. The Act requires that
EPA set maximum ground-water contamination levels for specified, and previously
unregulated, toxic substances and also requires EPA to establish a priority list
every three years of contaminants that may cause adverse health effects and may
require regulation. Water supply systems are required to begin monitoring
within defined time limits following the publication of the final regulations.
The Act also requires that EPA set criteria specifying when utilities using
surface water supplies should filter their water and issue national primary
drinking water regulations requiring all utilities to disinfect their water.
The Clean Water Act. The Clean Water Act established a system of
--------------------
standards, permits, and enforcement procedures for the discharge of pollutants
to surface water from industrial, municipal, and other wastewater sources. EPA
sets discharge standards for certain industrial and municipal wastewater
discharges and provides for Federal grants to assist municipalities in complying
with treatment requirements. Key areas for which regulations recently have been
issued or are proposed include industrial wastewater pretreatment, surface water
toxics control, wastewater sludge disposal, and stormwater discharges. In cases
of noncompliance, EPA may assess administrative penalties and may sue for court-
ordered compliance and penalties. Under the Ocean Dumping Ban Act of 1988,
regulatory revisions to the Clean Water Act were made to eliminate ocean dumping
of sludge.
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<PAGE>
The Toxic Substance Control Act (TSCA). TSCA, enacted in 1976, establishes
---------------------------------------
requirements for identifying and controlling toxic chemical hazards to human
health and the environment. EPA has identified more than 60,000 chemical
substances (out of more than five million known chemical compounds) that were
manufactured or processed for commercial use in the United States in 1985. In
addition, more than 1,000 new chemicals are introduced each year. TSCA
authorizes EPA, in certain circumstances, to require testing of existing and new
chemicals used in commerce to determine their human health and environmental
effects. TSCA also gives EPA authority to prohibit or limit certain activities
associated with producing, distributing, and using a chemical that is found to
pose an unreasonable risk of injury to human health or the environment.
The Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA). FIFRA
----------------------------------------------------------------
focuses on the health-based risk of pesticides and requires the registration of
all pesticides, with a heavy emphasis on scientific data and risk assessment.
Under FIFRA, EPA establishes regulations that can include labeling restrictions,
use restrictions, or an outright ban of the pesticide following a risk/benefit
analysis. The 1972 amendments substantially increased the scope of the Act to
include biotechnology and to expand the authority of EPA.
Potential Environmental Liability
The assessment, analysis, remediation, handling, management, and disposal
of hazardous substances necessarily involve significant risks, including the
possibility of damages or personal injuries caused by the escape of hazardous
materials into the environment, and the possibility of fines, penalties or other
regulatory action. These risks include potentially large civil and criminal
liabilities for violations of environmental laws and regulations, and
liabilities to customers and to third parties for damages arising from
performing services for clients.
Potential Liabilities Arising Out of Environmental Laws and Regulations
-----------------------------------------------------------------------
All facets of the Company's business are conducted in the context of a
rapidly developing and changing statutory and regulatory framework. The
Company's operations and services are affected by and subject to regulation by a
number of Federal agencies, including EPA and the Occupational Safety and Health
Administration, as well as applicable state and local regulatory agencies.
As discussed above, CERCLA addresses cleanup of sites at which there has
been a release or threatened release of hazardous substances into the
environment. Increasingly, there are efforts to expand the reach of CERCLA to
make environmental contractors responsible for cleanup costs by claiming that
environmental contractors are owners or operators of hazardous waste facilities
or that they arranged for treatment, transportation, or disposal of hazardous
substances. Several recent court decisions have accepted these claims. Should
the Company be held responsible under CERCLA for damages caused while performing
services or otherwise, it may be forced to bear such liability by itself,
notwithstanding the potential availability of contribution or indemnity from
other parties.
RCRA, also discussed above, governs hazardous waste generation, treatment,
transportation, storage, and disposal. RCRA, or EPA-approved state programs at
least as stringent, govern waste handling activities involving wastes classified
as "hazardous." Substantial fees and penalties may be imposed under RCRA and
similar state statutes for any violation of such statutes and the regulations
thereunder.
Potential Liabilities Involving Clients and Third Parties
---------------------------------------------------------
In performing services for its clients, the Company could potentially be
liable for breach of contract, personal injury, property damage, and negligence
(including improper or negligent performance or design, failure to meet
specifications, and breaches of express or implied warranties). The damages
available to a client, should it prevail in its claims, are potentially large
and could include consequential damages.
Environmental contractors, in connection with work performed for clients,
potentially face liabilities to third parties from various claims, including
claims for property damage or personal injury stemming from a release of
hazardous substances or otherwise. Claims for damage to third parties could
arise in a number of ways, including through a sudden and accidental release or
discharge of contaminants or pollutants during the performance of services;
through the inability, despite reasonable care, of a remedial plan to contain or
correct an ongoing seepage or release of pollutants; through the inadvertent
exacerbation of an existing contamination problem; or through reliance on
reports or
-32-
<PAGE>
recommendations prepared by the Company. Personal injury claims could arise
contemporaneously with performance of the work or long after completion of the
project as a result of alleged exposure to toxic or hazardous substances. In
addition, increasing numbers of claimants assert that companies performing
environmental remediation should be adjudged strictly liable, i.e., liable for
damages even though its services were performed using reasonable care, on the
grounds that such services involved "abnormally dangerous activities."
Clients frequently attempt to shift various of the liabilities arising out
of remediation of their own environmental problems to contractors through
contractual indemnities. Such provisions seek to require the Company to assume
liabilities for damage or personal injury to third parties and property and for
environmental fines and penalties. The Company has endeavored to protect itself
from potential liabilities resulting from pollution or environmental damage by
obtaining indemnification from its private-sector clients and intends to
continue this practice in the future. Under most of these contracts, the Company
has been successful in obtaining such indemnification; however, such
indemnification generally is not available if such liabilities arise as a result
of breaches by the Company of specified standards of care or if the indemnifying
party has insufficient assets to cover the liability. In 1994 the Company
formed a new subsidiary, ICF Kaiser Remediation Company, through which the
Company intends to increase its remediation activities performed for public- and
private-sector clients. The Company will continue its efforts to minimize the
risks and potential liability associated with its remediation activities by
performing all remediation contracts in a professional manner and by carefully
reviewing any and all remediation contracts it signs in an effort to ensure that
its environmental clients accept responsibility for their own environmental
problems.
For EPA contracts involving field services in connection with Superfund
response actions, the Company is eligible for indemnification under Section 119
of CERCLA for pollution and environmental damage liability resulting from
release or threatened release of hazardous substances. Some of the Company's
clients (including private clients, DOE, and DOD) are Potentially Responsible
Parties (PRPs) under CERCLA. Under the Company's contracts with these PRPs, the
Company has the right to seek contribution from these PRPs for liability imposed
on the Company in connection with its work at these clients' CERCLA sites and
generally qualifies for the limitations on liabilities under CERCLA Section
119(a). In addition, in connection with contracts involving field services at
10 of DOE's weapons facilities, including the DOE's Hanford site, the Company is
indemnified under the Price-Anderson Act, as amended, against liability claims
arising out of contractual activities involving a nuclear incident. Recently,
EPA has constricted significantly the circumstances under which it will
indemnify its contractors against liabilities incurred in connection with CERCLA
projects. There are other proposals both in Congress and at the regulatory
agencies to further restrict indemnification of contractors from third-party
claims.
As discussed above, Kaiser-Hill signed a Performance Based Integrating
Management contract with the DOE. The terms of that contract provide that
Kaiser-Hill shall not be held responsible for, and DOE shall pay all costs
associated with, any liability (including without limitation, a claim involving
strict or absolute liability and any civil fine or penalty, expense, or
remediation cost, but limited to those of a civil nature), which may be incurred
by, imposed on, or asserted against Kaiser-Hill arising out of any act or
failure to act, condition, or exposure which occurred before Kaiser-Hill assumed
responsibility on July 1, 1995 ("pre-existing conditions"). To the extent the
acts or omissions of Kaiser-Hill constitute willful misconduct, lack of good
faith, or failure to exercise prudent business judgment on the part of Kaiser-
Hill's managerial personnel and cause or add to any liability, expense, or
remediation cost resulting from pre-existing conditions, Kaiser-Hill shall be
responsible, but only for the incremental liability, expense, or remediation
caused by Kaiser-Hill.
The Kaiser-Hill contract further provides that Kaiser-Hill shall be
reimbursed for the reasonable cost of bonds and insurance allocable to the Rocky
Flats contract and for liabilities (and expenses incidental to such liabilities,
including litigation costs) to third parties not compensated by insurance or
otherwise. The exception to this reimbursement provision applies to liabilities
caused by the willful misconduct or lack of good faith of Kaiser-Hill's
managerial personnel or the failure to exercise prudent business judgment by
Kaiser-Hill's managerial personnel.
In connection with its services to its environmental, infrastructure, and
industrial clients, the Company works closely with Federal and state government
environmental compliance agencies, and occasionally contests the conclusions
those agencies reach regarding the Company's compliance with permits and related
regulations. To date, the Company never has paid a fine in a material amount or
had liability imposed on it for pollution or environmental damage in connection
with its services. However, there can be no assurance that the Company will not
have substantial liability imposed on it for any such damage in the future.
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<PAGE>
Insurance
The Company has a comprehensive risk management and insurance program that
provides a structured approach to protecting the Company. Included in this
program are coverages for general, automobile, pollution impairment, and
professional liability; for workers' compensation; and for employers and
property liability. The Company believes that the insurance it maintains,
including self-insurance, is in such amounts and protects against such risks as
is customarily maintained by similar businesses operating in comparable markets.
At this time, the Company expects to continue to be able to obtain general,
automobile, and professional liability; workers' compensation; and employers and
property insurance in amounts generally available to firms in its industry.
There can be no assurance that this situation will continue, and if insurance of
these types is not available, it could have a material adverse effect on the
Company.
Consistent with industry experience and trends, the Company has found it
difficult to obtain pollution insurance coverage, in amounts and on terms that
are economically reasonable, against possible liabilities that may be incurred
in connection with its conduct of its environmental business. An uninsured claim
arising out of the Company's environmental activities, if successful and of
sufficient magnitude, could have a material adverse effect on the Company.
Regulation of the Company's Business
The Company is subject to general Federal regulation with respect to its
contracting activities with the Federal government. For example, the Company has
a substantial number of cost-reimbursement contracts with the U.S. government,
the costs of which are subject to audit by the U.S. government. As a result of
such audits, the Federal government asserts, from time to time, that certain
costs claimed as reimbursable under government contracts either were not
allowable or not allocated in accordance with Federal procurement regulations.
Management believes that the potential effect of disallowed costs, if any, for
the periods currently under audit and for periods not yet audited has been
provided for adequately and will not have a material adverse effect on the
Company's financial position, operations, or cash flows.
The Company may from time to time, either individually or in conjunction
with other government contractors operating in similar types of businesses, be
involved in U.S. government investigations for alleged violations of procurement
or other Federal laws and regulations. The Company currently is the subject of
a number of U.S. government investigations and is cooperating with the
responsible government agencies involved. No charges presently are known to
have been filed against the Company by these agencies. Management does not
believe that there will be any material adverse effect on the Company's
financial position, operations, or cash flows as a result of these
investigations.
Federal agencies that are the Company's regular customers (including DOE,
EPA, and DOD) have formal policies against awarding contracts that would present
actual or potential conflicts of interest with other activities of the
contractor. Because the Company provides a broad range of services in
environmental and related fields for the Federal government, state governments,
and private customers, there can be no assurance that government conflict-of-
interest policies will not restrict the Company's ability to pursue business in
the future.
Because some of the Company's subsidiaries provide the Federal government
with nuclear energy and defense-related services, these subsidiaries and a
substantial number of their employees are required to have and maintain security
clearances from the Federal government. These subsidiaries and their employees
have been able to obtain these security clearances in the past, and the Company
has no reason to believe that there would be any problems in this area in the
future. However, there can be no assurance that the required security clearances
will be obtained and maintained in the future. Because of its nuclear energy and
defense-related services, the Company is subject to foreign ownership, control,
and influence (FOCI) regulations imposed by the Federal government and designed
to prevent the release of classified information to contractors who are under
foreign control or influence. Under these regulations, FOCI concerns may arise
as a result of a variety of factors, including foreign ownership of substantial
percentages of the Company's equity securities or debt, a high percentage of
foreign revenue, and the number of directors and officers who are not U.S.
citizens. Subsidiaries of the Company with facility security clearances or
sensitive contracts file reports with the DOE and DOD with respect to events and
changes that affect the potential for FOCI. The Company has implemented
procedures designed to insulate such subsidiaries from any FOCI that might
affect the Company.
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<PAGE>
There can be no assurance that such measures will prevent FOCI policies from
affecting the ability of the Company's subsidiaries to secure and maintain
certain types of DOE and DOD contracts.
Employees
As of March 1, 1996, ICF Kaiser employed approximately 7,500 persons, and
the Company believes that its relations with its employees are good.
Approximately one-half of the 2,300 employees at the Company's ICF Kaiser
Hanford Company subsidiary are represented by unions, including unions under the
Hanford Atomic Metals Trades Council (HAMTC), National Building and Construction
Trades (BCT), and the Office and Professional Employees International Union
(OPEIU). Collective bargaining agreements are in place with the HAMTC, the BCT,
the OPEIU, NDT/QC Inspectors, and Escorts/International Guards Units. Of the
7,500 employees, approximately 2,400 persons are employed at Kaiser-Hill in
Colorado, of which approximately 1,400 are represented by the United
Steelworkers of America, Local 8031.
Properties
All of the Company's operations are conducted either in leased facilities
or in facilities provided by the Federal government or other clients. As of
December 31, 1995, the Company leased an aggregate of approximately one million
square feet of space. The terms of these leases range from month-to-month to 15
years, and some may be renewed for additional periods. Some of the space leased
by the Company has been subleased to other entities under subleases expiring
from 1996 to 2000.
The Company's headquarters is located at 9300 Lee Highway, Fairfax,
Virginia 22031-1207, and its telephone number is (703) 934-3600. The Company's
regional headquarters and other offices are listed on page 2 of this Report.
Because the Company's operations generally do not require the maintenance of
unique facilities, suitable office space is readily available for lease in most
of the areas served. The Company believes that adequate space to conduct its
operations will be available for the foreseeable future. In 1987, the Company
entered into a 15-year lease agreement for its headquarters building in Fairfax,
Virginia, containing approximately 200,000 square feet of office space. In 1988,
the Company signed a 15-year lease agreement to occupy approximately 100,000
square feet of office space in a new building adjacent to the Virginia
headquarters building. In connection with the acquisition of ICF Kaiser
Engineers in 1988, ICF Kaiser acquired the lease for ICF Kaiser Engineers'
offices in Oakland, California. The lease provides for approximately 142,000
square feet of office space and expires in June 2000. In February 1996, the
Company announced that it would re-locate its regional headquarters in
Pittsburgh to a new address in Pittsburgh in the second half of 1996 under a
lease for 75,000 square feet of office space. The new address will be Gateway
View Plaza, 1600 West Carson Street, Pittsburgh, PA 15220. The telephone
number will remain the same. The leases for the Company's regional headquarters
in Jacksonville, FL, and Houston, TX, expire in 1996 and 1998, respectively.
Legal Proceedings
The Company and its subsidiaries are involved in a number of lawsuits and
government regulatory proceedings arising in the ordinary course of its business
or arising in connection with the disposition or acquisition of certain
businesses and investments. The Company believes that any ultimate liability
resulting therefrom will not have a material adverse effect on its financial
position, operations, or cash flows.
The Company may from time to time, either individually or in conjunction
with other government contractors operating in similar types of businesses, be
involved in U.S. government investigations for alleged violations of procurement
or other Federal laws and regulations. The Company currently is the subject of a
number of U.S. government investigations and is cooperating with the responsible
government agencies involved. No charges presently are known to have been filed
against the Company by these agencies. Management does not believe there will
be any material adverse effect on the Company's financial position, operations,
or cash flows as a result of these investigations.
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<PAGE>
MANAGEMENT
Set forth below is certain information concerning the directors and
executive officers of the Company.
<TABLE>
<CAPTION>
Name Age at March 31, Position(s) with Company
---- 1996 ------------------------
----
<S> <C> <C>
George F. Brown 49 Executive Vice President and President of the Consulting Group
Kenneth L. Campbell 39 Senior Vice President and Treasurer
James O. Edwards 52 Chairman of the Board and Chief Executive Officer
Michael K. Goldman 44 Executive Vice President and Chief Administrative Officer
Stephen W. Kahane 45 Executive Vice President and President of the Federal Programs Group
Richard K. Nason 54 Director, Executive Vice President and Chief Financial Officer
Alvin S. Rapp 55 Executive Vice President and President of the ICF Kaiser Engineers Group
Marcy A. Romm 37 Senior Vice President, Human Resources
Marc Tipermas 48 Director, Executive Vice President and Director of Corporate Development
David Watson 52 Executive Vice President and President of the International Group
Paul Weeks, II 52 Senior Vice President, General Counsel and Secretary
Gian Andrea Botta 42 Director
Tony Coelho 53 Director
Maynard H. Jackson 58 Director
Thomas C. Jorling 55 Director
Frederic V. Malek 59 Director
Rebecca P. Mark 41 Director
Robert W. Page, Sr. 69 Director
</TABLE>
OUTSIDE DIRECTORS
Gian Andrea Botta currently is President of EXOR America Inc., a subsidiary
of EXOR Group. He had been Vice President of Acquisitions of EXOR America
(formerly IFINT-USA Inc.) from 1987 to 1993. EXOR Group is the international
investment holding unit of the Agnelli Group, a diversified holding company.
Pursuant to the terms of the Series 2D Senior Preferred Stock, EXOR America has
the right to designate a nominee for election to the Board of Directors. Since
March 1, 1993, Mr. Botta has been EXOR America's nominee to the Board of
Directors. Mr. Botta also is a director of Lear Seating Corporation and a
trustee of Corporate Property Investor. Mr. Botta received a degree in economics
and business administration in 1975 from the University of Torino, Italy.
Tony Coelho currently is Chairman and Chief Executive Officer of Coelho
Associates, LLC, a financial consulting firm. He had been a Managing Director of
Wertheim Schroder & Co. Incorporated, a New York-based international investment
banking and securities firm, from 1989 to 1995. He also served on that firm's
Executive Committee and had been President and Chief Executive Officer of
Wertheim Schroder Investment Services, Inc. From 1979 to 1989, Mr. Coelho was a
member of the U.S. House of Representatives from California, and from 1986 to
1989 he served as House Majority Whip. Mr. Coelho has been a director of ICF
Kaiser International, Inc. since 1990. He also is a director of Circus Circus
Enterprises, Inc.; Crop Growers Corporation; Specialty Retail Group, Inc.;
Service Corporation International; Tanknology Environmental, Inc.; and Tele-
Communications, Inc.
Thomas C. Jorling currently is Vice President, Environmental Affairs of
International Paper Company. Mr. Jorling joined International Paper Company in
1994 following a 28-year career that included serving for seven years as the
Commissioner of the New York State Department of Environmental Conservation.
Prior to that, Mr. Jorling was a professor of environmental studies at Williams
College and a visiting professor at the University of California at Santa Cruz.
In addition, Mr. Jorling served from 1977 to 1979 as Assistant Administrator for
Water and Hazardous Material at the U.S. Environmental Protection Agency. Mr.
Jorling has been a director of ICF Kaiser International, Inc. since August 1995.
Mr. Jorling graduated from the University of Notre Dame (B.S), Washington State
University (M.S.), and Boston College (LL.B.).
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<PAGE>
Maynard H. Jackson currently is Chairman of Jackson Securities
Incorporated, an investment banking firm. Mr. Jackson returned to private
business in 1994 after completing his third term as mayor of Atlanta. He had
served three terms as mayor, from 1974 to 1982 and again from 1990 to 1994. From
1982 to 1990, Mr. Jackson was a managing partner in public finance with the law
firm of Chapman and Cutler; he also managed his own law firm from 1970 to 1974.
Mr. Jackson has been a director of ICF Kaiser International, Inc. since
September 1995. Mr. Jackson graduated from Morehouse College (B.A.) and the
School of Law at North Carolina Central University (J.D.).
Frederic V. Malek has been Chairman of Thayer Capital Partners, a merchant
bank, since April 1993. In 1992, he was Campaign Manager, Bush-Quayle '92; he
also has been Co-chairman of the Board of Directors of CB Commercial Group
(formerly Coldwell Banker Commercial Group) since 1989. He was Vice Chairman of
Northwest Airlines from July 1990 to December 1991. He was President of
Northwest Airlines from October 1989 to July 1990. From September 1978 to
December 1988, Mr. Malek served as Executive Vice President of Marriott
Corporation and from January 1981 to May 1988 as President of Marriott's Hotels
and Resorts Division. Mr. Malek has been a director of ICF Kaiser International,
Inc. since 1989. He also serves as a director of American Management Systems,
Inc.; Automatic Data Processing, Inc.; Avis, Inc.; CB Commercial Group; FPL
Group, Inc.; Manor Care, Inc.; National Education Corp.; Northwest Airlines; and
PaineWebber Mutual Funds. Mr. Malek graduated from the United States Military
Academy (B.S.) and Harvard University (M.B.A.).
Rebecca P. Mark is Chairman, President, and Chief Executive Officer of
Enron Development Corporation. She is responsible for Enron's project
development activities worldwide (excluding the U.S.) in power generation,
pipelines, LNG, and liquid fuels. Ms. Mark joined Enron Corp. in 1982 and joined
Enron Power Corp.'s executive management team when the company was established
in 1986. Before joining Enron, Ms. Mark held executive positions with
Continental Resources Company and First City National Bank of Houston. Ms. Mark
has been a director of ICF Kaiser International, Inc. since 1993. Ms. Mark
graduated from Baylor University (B.S. and M.I.M.) and Harvard University
(M.B.A.).
Robert W. Page, Sr. retired as an Executive Vice President at McDermott
International, Inc., a leading energy service company, in 1993. Prior to
joining McDermott in 1990, Mr. Page served as Assistant Secretary of the Army
for Civil Works. He also served as Chairman of the Panama Canal Commission.
From 1981 to 1987, Mr. Page worked for Kellogg Rust, Inc., of Houston, Texas,
where he held the positions of Chairman and Chief Executive Officer. From 1976
to 1981, Mr. Page was President and Chief Executive of Rust Engineering. Mr.
Page has been a director of ICF Kaiser International, Inc. since 1993. He holds
a B.S. in architectural engineering from Texas A & M University.
EXECUTIVE OFFICERS (THREE OF WHOM ALSO ARE DIRECTORS)
George F. Brown, Jr. has been an Executive Vice President of the Company
and President of the Company's Consulting Group since 1994. From 1979 to 1994,
Dr. Brown had worked with DRI/McGraw-Hill. As executive vice president, a
position he held with that company since 1985, Dr. Brown had general management
responsibilities for strategy and operations worldwide. Before that, he served
as group vice president, Government and Health Markets, with overall
responsibility for sales, consulting, and products for government and healthcare
industry clients. Dr. Brown graduated from Carnegie-Mellon University (B.S.,
M.S., Ph. D.).
Kenneth L. Campbell has been a Senior Vice President since 1992 and the
Treasurer of the Company since 1994. He has held a number of senior management
positions with the Company since 1988. From May 1993 to his recent appointment
as Treasurer, Mr. Campbell has been responsible for the project finance and
acquisition activities of the Company. Mr. Campbell first worked for the
Company in the early 1980's in a variety of economic consulting positions,
rejoining the Company in 1988 to assist with the acquisition of ICF Kaiser
Engineers. Mr. Campbell graduated from Wesleyan University (B.A.) and the
University of Pennsylvania, Wharton Graduate School of Finance (M.B.A.).
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<PAGE>
James O. Edwards has been Chairman of the Board and Chief Executive Officer
of ICF Kaiser International, Inc. since 1987. He also was President of ICF
Kaiser International, Inc. from 1987 to 1990. In 1974, he joined ICF
Incorporated, the predecessor of ICF Kaiser International, Inc. and was its
Chairman and Chief Executive Officer from 1986 until the 1987 establishment of
ICF Kaiser International, Inc. Mr. Edwards graduated from Northwestern
University (B.S.I.E.) and Harvard University (M.B.A., High Distinction, George
F. Baker Scholar).
Michael K. Goldman has been an Executive Vice President since 1990 and the
Chief Administrative Officer of the Company since 1995. He has held senior
management positions in several of the Company's operating subsidiaries since
1980. Prior to joining the Company, Mr. Goldman was in the private practice of
law. Mr. Goldman graduated from Harvard University (B.A., M.B.A. High
Distinction, George F. Baker Scholar) and the University of California at
Berkeley (J.D.).
Stephen W. Kahane has been an Executive Vice President of the Company since
1993 and President of the Company's Federal Programs Group since its creation in
1995. He has held senior management positions in several of the Company's
operating subsidiaries since 1985. From 1981 to 1985, Dr. Kahane held a number
of management positions at Jacobs Engineering Group, Inc.; he headed
Environmental and Hazardous Waste Programs and was a Vice President when he left
that firm. Dr. Kahane graduated from the University of California (B.A.,
M.S.P.H., D.Env.).
Richard K. Nason has been an Executive Vice President and the Chief
Financial Officer of the Company since December 1994; he had been a Senior Vice
President and the Treasurer of the Company from April to December 1994. He
joined the Company as Senior Vice President - Internal Audit in June 1993. From
1991 to 1993, Mr. Nason was Executive Vice President and Chief Financial Officer
for The Artery Organization, Inc., a private real estate development and
management company in Bethesda, Maryland. From 1988 to 1991, Mr. Nason was
Senior Vice President for Finance and Planning for Griffin Homes, a real estate
development and home building company in California. Mr. Nason was Senior Vice
President of Marriott Corporation and its subsidiary Host International, Inc.
from 1977 to 1988. Mr. Nason has been a director of ICF Kaiser International,
Inc. since June 1995. Mr. Nason graduated cum laude from Washington and
Jefferson College (B.A.) and the Wharton Graduate School of Finance and
Commerce, University of Pennsylvania (M.B.A.). He also attended the Executive
Program at The Darden School, University of Virginia.
Alvin S. Rapp has been an Executive Vice President and President of the
Company's ICF Kaiser Engineers Group since November 1993. Prior to joining the
Company, he was a regional group vice president of Jacobs Engineering Group,
Inc., an engineering services firm, having joined Jacobs in 1981 as manager of
engineering in that company's Baton Rouge, Louisiana office. Prior to joining
Jacobs, Mr. Rapp held a variety of management positions with Ciba-Geigy
Corporation, U.S.S. Agri-Chemicals, and E.I. du Pont de Nemours & Company, Inc.
Mr. Rapp graduated from Christian Brothers College (B.S.E.E.), Memphis,
Tennessee.
Marcy A. Romm has been Senior Vice President and Director of Human
Resources of the Company since 1993. She has held Human Resources positions at
ICF Kaiser since 1984. Ms. Romm graduated from George Washington University
(B.A., M.B.A.).
Marc Tipermas has been Executive Vice President and Director of Corporate
Development for ICF Kaiser International, Inc. since 1993. He has held senior
management positions in several of ICF Kaiser's operating subsidiaries since
joining the Company in 1981. From 1977 to 1981, Dr. Tipermas was employed by
the U.S. Environmental Protection Agency where he was the Director of the
Superfund Policy and Program Management Office from 1980 to 1981. Prior to
joining EPA, he was Assistant Professor of Political Science at the State
University of New York at Buffalo from 1975 to 1977. Dr. Tipermas has been a
director of ICF Kaiser International, Inc. since 1993. Dr. Tipermas graduated
from the Massachusetts Institute of Technology (S.B.) and Harvard University
(A.M., Ph.D.).
David Watson has been an Executive Vice President and President of the
Company's International Operations Group since December 1995. From 1989 to
November 1995, he was with Day & Zimmermann International, Inc., an engineering
and construction firm. From 1989 to 1993 he was President of that firm's
Advanced Dzign Systems; in 1993 he led that firm's venture into the
international marketplace by taking the position of President of D&Z
International, an off-shore international unit, where he established a strategy
to pursue engineering and construction work in China and Russia. Prior to
joining Day & Zimmermann, Mr. Watson was with Stearns Catalytic, Inc. and Burmah
Oil Company. Mr. Watson graduated from Loughbourgh University of Technology,
Loughbourgh, Leicestershire, England (B. Tech).
Paul Weeks, II has been Senior Vice President, General Counsel, and
Secretary of ICF Kaiser International, Inc. since 1990. He joined ICF
Incorporated in May 1987 as its Vice President, General Counsel, and Secretary.
From 1973 to 1987 he was employed by Communications Satellite Corporation, where
from 1983 to 1987 he was
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<PAGE>
Assistant General Counsel for Corporate Matters. Mr. Weeks graduated from
Princeton University (B.S.E.E.) and The National Law Center of George Washington
University (J.D.).
COMPENSATION OF OUTSIDE DIRECTORS
Directors who are not employees of the Company are paid $1,000 for
attendance at each meeting of the Board of Directors and $750 for attendance at
each meeting of a committee of the Board of Directors of which the director is a
member. In addition, each non-employee director receives an annual retainer of
$20,000, payable in advance in quarterly installments, and each is reimbursed
for his or her expenses incurred in connection with his or her Board service.
Directors of the Company who also are employees of the Company are not
compensated separately for their service as directors.
Under the ICF Kaiser International, Inc. Non-employee Directors Stock
Option Plan, each director of the Company who is not an employee of the Company
("Non-employee director") receives a five-year option to purchase 3,000 shares
of Common Stock on the day he or she commences his or her initial term of
service as a director. In addition, each Non-employee director elected at or
continuing in office following the Company's Annual Meeting of Shareholders
receives an option to purchase 3,000 shares of Common Stock on the date of the
meeting in each calendar year after the year in which the Non-employee director
received his or her initial option grant. The purchase price of each share of
Common Stock subject to an option granted under the plan is the fair market
value of the Common Stock on the date the option is granted. Each option becomes
fully exercisable at the close of business on the next business day following
the date on which the option was granted. Options are not assignable or
transferable other than by will or by the laws of descent and distribution.
Options are exercisable during an optionee's lifetime only by the optionee or
his or her guardian.
CERTAIN TRANSACTIONS WITH CERTAIN DIRECTORS
The Company's transactions with Mr. Botta and Mr. Edwards are described in
the immediately following section of this Prospectus.
The Company's employment agreements with Mr. Edwards and Dr. Tipermas are
described in the "Executive Compensation--Agreements and Transactions with
Executive Officers Named in the Summary Compensation Table (Two of Whom Also Are
Directors)" section of this Prospectus.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The non-employee directors of the Company who were voting members of the
Compensation Committee during calendar year 1995 were Tony Coelho (Chairman),
Gian Andrea Botta, and Frederic V. Malek. The full Board of Directors has
designated an employee director of the Company, James O. Edwards (the CEO of the
Company) as an ex-officio, non-voting member of the Committee. SEC rules require
----------
that whenever there is insider participation in compensation decisions, certain
disclosures must accompany the identification of the participating insiders. The
following paragraphs provide these required disclosures with respect to Mr.
Botta (as the representative of EXOR America) and Mr. Edwards (as an employee
director). All transactions with Mr. Botta and Mr. Edwards were on market terms,
including then-current market interest rates.
MR. BOTTA. Mr. Botta is the President of Exor America, Inc., the holder of
the Company's Series 2D Senior Preferred Stock. The Company is obligated to
redeem the Series 2D Senior Preferred Stock no later than January 13, 1997. Exor
America is an affiliate of the holder of the Company's Series 2D Warrants. The
holder of the Series 2D Warrants, instead of exercising the warrants, will be
able to (a) require the Company to issue it shares of Common Stock with an
aggregate market value equal to the difference between (i) the then-current
market price for the Common Stock and (ii) 90% of the exercise price of the
Series 2D Warrants then in effect, multiplied by the number of Series 2D
Warrants for which the holder is requiring such issuance. As of April 12, 1996,
the expiration date of the Series 2D Warrants is November 2, 1997. In addition,
for 15 days prior to and ending on the expiration date of the Series 2D
Warrants, the holder of the warrants, instead of exercising the warrants or
having Common Stock issued as described in (a) above, will be able to (b)
require the Company to pay it cash in the amount of the difference between the
then-current market price for the Common Stock and the exercise price of the
Series 2D Warrants then in effect, multiplied by the number of Series 2D
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<PAGE>
Warrants for which the holder is requiring that cash payment. If the Company
cannot make the cash payment referred to in (b) above without violating a
covenant or covenants contained in its debt agreements, the Company would be
obligated to make the payment in shares of Common Stock as described in (a)
above. Pursuant to the terms of the Series 2D Senior Preferred Stock, EXOR
America has the right to designate a nominee for election to the Board of
Directors. Since March 1, 1993, Mr. Botta has been EXOR America's nominee to
the Board of Directors.
MR. EDWARDS. As part of his new employment agreement which is described in
the "Executive Compensation--Agreements and Transactions with Executive Officers
Named in the Summary Compensation Table (Two of Whom also are Directors)"
section of this Prospectus, Mr. Edwards' then-outstanding indebtedness to the
Company was restructured. Mr. Edwards had been indebted to the Company under
promissory notes dated January 14, 1991, September 22, 1991, and January 24,
1992, in the respective principal amounts (and per annum interest rates) of
$622,740 (at 9%), $50,000 (at 9%), and $150,000 (at 8%) (collectively, the
"Predecessor Notes"). As of December 31, 1994, the accrued interest on the
Predecessor Notes totaled $205,326.27. All of these loans had been provided to
Mr. Edwards pursuant to his previous compensation agreement with the Company in
return for agreements restricting his ability to sell his stock, were secured by
a pledge of 130,665 shares of ICF Kaiser Common Stock (the "Pledged Shares"),
and were non-recourse to Mr. Edwards. Mr. Edwards has signed an amended and
restated promissory note in the amount of $1,028,066.27 dated December 31, 1994,
which is a continuation of the Predecessor Notes, bears interest at 6.34% per
annum, is secured by the Pledged Shares, is non-recourse to Mr. Edwards, and is
due on December 31, 1997 (with accrued interest from December 31, 1994). The
largest aggregate amount of Mr. Edwards' indebtedness to the Company outstanding
at any time since March 1, 1995 was $1,081,816. It is the Company's intention to
retire the debt when the value of the collateral reaches the amount owed.
Executive compensation paid to Mr. Edwards during the ten-month fiscal
period ended December 31, 1995 and fiscal years 1995 and 1994 is described in
the "Executive Compensation" section of this Prospectus.
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<PAGE>
================================================================================
EXECUTIVE COMPENSATION
================================================================================
The following table shows the compensation received by the Chief Executive
Officer and the other four most highly compensated executive officers of the
Company (the "Named Executive Officers") for the three fiscal periods ended
December 31, 1995. Because of the Company's fiscal year-end change, the fiscal
period that ended December 31, 1995, is only a ten-month period. The table
shows the amounts received by each Named Executive Officer for all three fiscal
periods. Other than bonus amounts already paid in ten-month 1995, the amount of
bonus usually awarded at fiscal year-end (if warranted by the Company's
performance) has not been calculated as of February 15, 1996. Any such year-end
bonus paid to a Named Executive Officer will be disclosed in a subsequent fiscal
year if that Named Executive Officer is the Chief Executive Officer or one of
the other four most highly compensated executive officers in that subsequent
fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
====================================================================================================================================
Annual Compensation Long-term Compensation Awards
- ------------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (i)
Name, Principal Salary Bonus Other Annual Restricted Stock Securities Underlying All Other
Position, and ($) ($) Compensation Award(s) Options/SARs (#) Compensation
Fiscal Period (1) ($) (2) ($) (3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
James O. Edwards, Chairman and CEO (4)
- ------------------------------------------------------------------------------------------------------------------------------------
Ten-month 1995 $295,673 $90,000 (1)(4) (2) 0 0 $102,386 (3)(4)
- ------------------------------------------------------------------------------------------------------------------------------------
Fiscal 1995 $324,519 0 (2) 0 53,000 new options $111,890 (4)
97,000 repriced options
- ------------------------------------------------------------------------------------------------------------------------------------
Fiscal 1994 $300,000 0 (2) 0 0 $123,596 (4)
- ------------------------------------------------------------------------------------------------------------------------------------
Stephen W. Kahane, Executive Vice President (5)
- ------------------------------------------------------------------------------------------------------------------------------------
Ten-month 1995 $219,808 (1) (2) 0 0 $2,683 (3)(5)
- ------------------------------------------------------------------------------------------------------------------------------------
Fiscal 1995 $249,423 $60,000 (2) 0 66,666 new options $12,866 (5)
33,334 repriced options
- ------------------------------------------------------------------------------------------------------------------------------------
Fiscal 1994 $220,000 0 (2) 0 0 $23,007 (5)
- ------------------------------------------------------------------------------------------------------------------------------------
Richard K. Nason, Executive Vice President and CFO(6)
- ------------------------------------------------------------------------------------------------------------------------------------
Ten-month 1995 $190,865 (1) (2) 0 0 $3,006 (3)(6)
- ------------------------------------------------------------------------------------------------------------------------------------
Fiscal 1995 $168,749 0 (2) 0 52,000 options $9,538 (6)
- ------------------------------------------------------------------------------------------------------------------------------------
Fiscal 1994 (5) $100,077 0 (2) 0 0 $1,140 (6)
- ------------------------------------------------------------------------------------------------------------------------------------
Alvin S. Rapp, Executive Vice President (7)
- ------------------------------------------------------------------------------------------------------------------------------------
Ten-month 1995 $245,096 (1) (2) 0 0 $2,056 (3)(7)
- ------------------------------------------------------------------------------------------------------------------------------------
Fiscal 1995 $274,519 $150,000 $200,022 (2)(7) 0 0 $278,702 (7)
- ------------------------------------------------------------------------------------------------------------------------------------
Fiscal 1994 $64,500 $147,159 (2) $418,499 100,000 options $35,729 (7)
- ------------------------------------------------------------------------------------------------------------------------------------
Marc Tipermas, Executive Vice President (8)
- ------------------------------------------------------------------------------------------------------------------------------------
Ten-month 1995 $248,942 $110,000 (1)(8) (2) 0 0 $2,236 (3)(8)
- ------------------------------------------------------------------------------------------------------------------------------------
Fiscal 1995 $274,423 $45,000 (2) 0 74,463 new options $12,573 (8)
50,537 repriced options
- ------------------------------------------------------------------------------------------------------------------------------------
Fiscal 1994 $220,000 0 (2) 0 0 $22,715 (8)
====================================================================================================================================
</TABLE>
The footnotes to this table are on the following pages.
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<PAGE>
Footnotes to Summary Compensation Table
NOTE: Because of the Company's fiscal year-end change, the fiscal period ended
December 31, 1995, is only a ten-month period. Fiscal 1995 and 1994 referred to
in these footnotes are the following twelve-month periods:
Fiscal 1995: March 1, 1994, through February 28, 1995
Fiscal 1994: March 1, 1993, through February 28, 1994
(1) Other than bonus amounts already paid in ten-month 1995, the amount of
bonus usually awarded at fiscal year-end (if warranted by the Company's
performance) has not been calculated as of February 15, 1996. Any such year-end
bonus paid to a Named Executive Officer will be disclosed in a subsequent fiscal
year if that Named Executive Officer is the Chief Executive Officer or one of
the other four most highly compensated executive officers in that subsequent
fiscal year.
(2) Any amounts shown in the "Other Annual Compensation" column for the ten-
month fiscal period ended December 31, 1995, do not include any perquisites and
other personal benefits because the aggregate amount of such compensation for
each of the Named Executive Officers did not exceed the lesser of (i) $50,000 or
(ii) 10% of the combined ten-month 1995 salary and bonus for the Named Executive
Officer.
(3) The Company's ten-month 1995 contributions to the Named Executive Officers
pursuant to the Company's Retirement Plan will not be determined or made until
September 1996. The Company will disclose these contributions for the Named
Executive Officers in next year's Proxy Statement if the Named Executive Officer
is a Named Executive Officer in the fiscal year ending December 31, 1996.
(4) The amounts shown in column (i) of the table for Mr. Edwards comprise the
following:
Ten-month 1995 $100,000 Special cash payment due under Mr. Edwards'
previous December 1990 compensation agreement
$1,666 Company match under the Company's Section 401(k)
Plan
$720 Imputed income for Company-paid life insurance
Fiscal 1995 $100,000 Special cash payment under Mr. Edwards' December
1990 compensation agreement
$1,450 Company match under the Company's Section 401(k)
Plan
$9,576 Company contribution under the Company's Retirement
Plan for FY95 made in November 1995
$864 Imputed income on Company-paid life insurance
Fiscal 1994 $100,000 Special cash payment under Mr. Edwards' December
1990 compensation agreement
$16,563 Company contribution under the Company's
Retirement Plan for FY94 made in November 1995
$1,452 Company match under the Company's Section 401(k)
Plan
$4,717 Company 2% contribution under the Company's
Employee Stock Ownership Plan for FY94 made in
November 1994
$864 Imputed income on Company-paid life insurance
(5) The amounts shown in column (i) of the table for Dr. Kahane comprise the
following:
Ten-month 1995 $2,248 Company match under the Company's Section 401(k)
Plan
$435 Imputed income for Company-paid life insurance
Fiscal 1995 $2,984 Company match under the Company's Section
401(k) Plan
$9,576 Company contribution under the Company's Retirement
Plan for FY95 made in November 1995
$306 Imputed income for Company-paid life insurance
Fiscal 1994 $16,563 Company contribution under the Company's
Retirement Plan for FY94 made in FY95
$1,421 Company match under the Company's Section
401(k) Plan
$4,717 Company 2% contribution under the Company's
Employee Stock Ownership Plan for FY94 made in FY95
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<PAGE>
$306 Imputed income for Company-paid life insurance
(6) Mr. Nason became an executive officer of the Company in December 1994; he
became an employee of the Company in June 1993. The amounts shown in column (i)
of the table for Mr. Nason comprise the following:
Ten-month 1995 $614 Imputed income for Company-paid life insurance
$2,392 Company match under the Company's Section
401(k) Plan
Fiscal 1995 $3,121 Company match under the Company's Section
401(k) Plan
$5,773 Company contribution under the Company's
Retirement Plan for FY95 made in November 1995.
$644 Imputed income for Company-paid life insurance
Fiscal 1994 $785 Company match under the Company's Section
401(k) Plan
$355 Imputed income for Company-paid life insurance
premium
(7) Mr. Rapp joined the Company in November 1993 (fiscal year 1994). The
amount shown in column (e) for fiscal year 1995 was an amount reimbursed for the
payment of taxes. The amount shown in column (f) for fiscal year 1994 is the
value of 88,105 shares of Restricted Stock awarded to Mr. Rapp under the
Company's Stock Incentive Plan determined by multiplying the number of shares by
the $4.75 closing price per share of the Company's Common Stock on the New York
Stock Exchange on November 8, 1993, the date of the grant. The restriction on
these shares was lifted on November 9, 1994, when they vested; Mr. Rapp owns no
other shares of Restricted Stock. The amounts shown in column (i) of the table
for Mr. Rapp comprise the following:
Ten-month 1995 $1,778 Company match under the Company's Section 401(k)
Plan
$278 Imputed income for Company-paid life insurance
Fiscal 1995 $2,353 Company match under the Company's Section 401(k)
Plan
$46,219 Reimbursed expenses associated with
relocation from California to Virginia
$219,155 Forgiveness of interest-free loans made
to facilitate the sale of Mr. Rapp's California
residence and his purchase of a Virginia
residence (includes imputed interest amounts)
$880 Reimbursed accounting expenses
associated with tax considerations for
Mr. Rapp's employment arrangement
$9,576 Company contribution under Company's
Retirement Plan for FY95 made in November
1995
$519 Imputed income for Company-paid life insurance
Fiscal 1994 $462 Company match under the Company's
Section 401(k) Plan
$35,152 Reimbursed expenses associated with
relocation from California to Virginia
$115 Imputed income for Company-paid life insurance
(8) The amounts shown in column (i) of the table for Dr. Tipermas comprise the
following:
Ten-month 1995 $2,236 Company match under the Company's Section
401(k) Plan
Fiscal 1995 $2,997 Company match under the Company's Section
401(k) Plan
$9,576 Company contribution under the Company's
Retirement Plan for FY95 made in November 1995
Fiscal 1994 $16,563 Company contribution under the Company's
Retirement Plan for FY94 made in FY95
$1,435 Company match under the Company's Section 401(k)
Plan
$4,717 Company 2% contribution under the Company's
Employee Stock Ownership Plan for FY94 made in
FY95
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<PAGE>
SENIOR EXECUTIVE OFFICERS SEVERANCE PLAN
In April 1994 the Compensation Committee of the Board of Directors approved
the adoption of the Company's Senior Executive Officers Severance Plan (the
"SEOSP"). In December 1994, the SEOSP was amended to clarify (a) that once an
officer becomes a participant in the SEOSP, he or she will continue to be
eligible for SEOSP benefits throughout his or her employment by the Company and
(b) that the SEOSP is intended to set a minimum severance benefit for the
participant. If a participant is entitled to a greater benefit under his or her
employment agreement with the Company, then such arrangement prevails over the
lower SEOSP benefit.
The eligible participants in the SEOSP are the Chief Executive Officer, the
President, the Chief Operating Officer, the Chief Financial Officer, the
Treasurer, the General Counsel, the Senior Vice President and Director of Human
Resources, and any Executive Vice President and other officers of rank
equivalent to Executive Vice President as designated by the Compensation
Committee. As of December 31, 1995, there are eight persons whose severance
payments are governed by the SEOSP.
A participant is eligible to receive severance payments if the Company
terminates his or her employment without "cause" or if the participant
terminates his or her employment for "good reason." "Cause" and "good reason"
are defined in the SEOSP. Severance benefits equal to three months of average
salary will be paid if the participant's length of employment is three years or
less; severance benefits equal to one month of average salary for each year of
service (up to a maximum of 18 months) will be paid if a participant's length of
employment is four or more years. Average salary is defined in the SEOSP as the
participant's average monthly gross salary excluding all bonus for the six
months prior to employment termination. Severance benefits may be paid under
the SEOSP in two installments or, with the approval of the Compensation
Committee, in a lump sum. The SEOSP provides that severance pay will not be
considered compensation for purposes of the Retirement Plan or the Section
401(k) Plan; severance pay will not increase Years of Service for those Plans'
purposes. No severance benefits have been paid under the Plan since the SEOSP
was adopted.
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<PAGE>
AGREEMENTS AND TRANSACTIONS WITH EXECUTIVE OFFICERS NAMED IN THE SUMMARY
COMPENSATION TABLE (TWO OF WHOM ALSO ARE DIRECTORS)
James O. Edwards. Effective December 31, 1994, the Company entered into a
three-year employment agreement with Mr. Edwards for his services as Chairman
and Chief Executive Officer of the Company. In addition to delineating Mr.
Edwards' areas of responsibility and reporting line, the agreement provides for:
a base salary of $325,000 per year through February 28, 1995, increasing by not
less than $25,000 beginning on March 1, 1995 (with increases beyond $25,000 for
periods after March 1, 1995, to be determined by the Compensation Committee of
the Company's Board of Directors); annual bonus compensation to be determined by
the Compensation Committee; payment on May 15, 1995, of the carryover $100,000
cash payment under Mr. Edwards' 1990 compensation agreement with the Company;
severance payments as provided under the Company's Senior Executive Officers
Severance Plan; eligibility under the Company's employee benefit plans;
cancellation of 97,000 existing options (89,000 of which were vested) to
purchase the Company's Common Stock at exercise prices ranging from $9.51 to
$16.23; the grant of 150,000 options (expiring on November 15, 1999, and vesting
in 37,500 increments over four years beginning May 15, 1995) at fair market
value on the date of grant ($2.51 on September 1, 1994); and a one-year non-
competition period following voluntary or "for cause" employment termination.
The Company's transactions with Mr. Edwards are described in the "Compensation
Committee Interlocks and Insider Participation" section of this Prospectus.
Stephen W. Kahane. Effective March 1, 1994, the Company entered into a
three-year employment agreement with Dr. Kahane for his services as an Executive
Vice President and as Group President of the Company's Environment & Energy
Group. In addition to delineating Dr. Kahane's areas of responsibility and
reporting line, the agreement provides for: a minimum base salary of $260,000 in
fiscal year 1996 and $275,000 in fiscal year 1997; annual bonus compensation to
be determined by the Compensation Committee of the Company's Board of Directors
(in amounts specified in the agreement and with minimum cash bonuses of $30,000
to be paid at the beginning of each of fiscal years 1996 and 1997); severance
payments as provided under the Company's Senior Executive Officers Severance
Plan; eligibility under the Company's employee benefit plans; cancellation of
40,000 existing options to purchase the Company's Common Stock at exercise
prices ranging from $8.25 to $9.51; the grant of 100,000 options (vesting in
25,000 increments over four years and expiring on November 15, 1999) at fair
market value on the date of grant ($3.48 on April 4, 1994); and a one-year non-
competition period following voluntary or "for cause" employment termination. As
of February 15, 1996, Dr. Kahane's employment agreement had not been amended to
reflect the change in the Company's fiscal year end.
-45-
<PAGE>
Alvin S. Rapp. In November 1993, the Company entered into an employment
agreement with Mr. Rapp for his services as an Executive Vice President and as
Group President of the Company's Engineering & Construction Group. In addition
to delineating Mr. Rapp's areas of responsibility and reporting line, the
agreement provides for his salary, bonuses, options, other employee benefits,
and interest-free loans to facilitate the sale of Mr. Rapp's California
residence and the purchase of a new residence near the Company's Virginia
headquarters. As of October 31, 1995, two of these loans had been forgiven
under the terms of the employment agreement because the proceeds from the sale
of Mr. Rapp's California residence were less than anticipated. The third loan
(dated January 20, 1994) has a balance of $300,000 as of October 31, 1995, is
secured by Mr. Rapp's Virginia residence, and is due and payable in full on the
earliest to occur of (a) January 20, 1999, (b) termination of Mr. Rapp's
employment by the Company, (c) provision of reasonably satisfactory substitute
collateral, or (d) the occurrence of a defined event of default. The largest
aggregate amount of Mr. Rapp's indebtedness to the Company outstanding at any
time since the beginning of fiscal year 1995 (March 1, 1994) was $648,546.
Marc Tipermas. Effective March 1, 1994, the Company entered into a three-
year employment agreement with Dr. Tipermas for his services as Executive Vice
President and Director of Corporate Development of the Company. Dr. Tipermas
also is a director of the Company. In addition to delineating Dr. Tipermas'
areas of responsibility and reporting line, the agreement provides for: a
minimum base salary of $290,000 in fiscal year 1996 and $300,000 in fiscal year
1997; annual bonus compensation to be determined by the Compensation Committee
of the Company's Board of Directors (in amounts specified in the agreement and
with a minimum cash bonus of $45,000 to be paid at the beginning of fiscal year
1996); severance payments as provided under the Company's Senior Executive
Officers Severance Plan; eligibility under the Company's employee benefit plans;
cancellation of 60,000 existing options to purchase the Company's Common Stock
at exercise prices ranging from $8.25 to $9.51; the grant of 125,000 options
(vesting in 31,250 increments over four years and expiring on November 15, 1999)
at fair market value on the date of grant ($3.48 on April 4, 1994); and a one-
year non-competition period following voluntary or "for cause" employment
termination. As of February 15, 1996, Dr. Tipermas' employment agreement had not
been amended to reflect the change in the Company's fiscal year end.
AGREEMENTS AND TRANSACTIONS WITH OTHER EXECUTIVE OFFICERS
Michael K. Goldman. Effective February 28, 1994, the Company and Mr.
Goldman agreed to terminate Mr. Goldman's Amended Executive and Compensation
Agreements originally signed in December 1990. Effective March 1, 1994, the
Company and Mr. Goldman entered into an employment arrangement under which Mr.
Goldman (a) serves as an employee of the Company at a specified annual salary;
(b) received the $50,000 special cash payment provided for in his December 1990
Compensation Agreement; and (c) was designated, with certain specified
restrictions, as a participant in the Senior Executive Officers Severance Plan.
In addition, all then-unvested options previously granted to Mr. Goldman vested
as of March 1, 1994. The Company and Mr. Goldman also agreed to amend the terms
of Mr. Goldman's outstanding loan with the Company as follows: the principal
shall be due upon demand by the Company but no later than February 28, 1999;
interest from May 16, 1994, shall accrue on the outstanding principal at 6% per
annum; and payment of interest will be deferred until such time as the principal
is due. No interest shall accrue or be payable on such deferred interest. Mr.
Goldman's loan is secured by 33,134 shares of the Company's Common Stock and is
non-recourse to Mr. Goldman. The Company and Mr. Goldman agreed that if the
value of the pledged stock is less than the then-outstanding amount of principal
and interest at the time of loan repayment demand (or February 28, 1999, at the
latest), then the Company will retire the principal and interest by considering
the pledged shares to have been sold back to the Company (within the constraints
set forth in the Company's debt and equity instruments). The outstanding balance
as of October 31, 1995, was $191,647. The largest aggregate amount of Mr.
Goldman's indebtedness to the Company outstanding at any time since March 1,
1995 was $191,647.
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<PAGE>
SECURITY OWNERSHIP
<TABLE>
<CAPTION>
================================================================================================================================
Name and Address of 5% Shareholders, Amount and Nature of Beneficial Percent of Aggregate
Directors, and Executive Officers Ownership (a) Class of Stock Voting Power (a)
================================================================================================================================
DIRECTORS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gian Andrea Botta 9,000 shares (b) * *
- --------------------------------------------------------------------------------------------------------------------------------
Tony Coelho 17,000 shares (c) * *
- --------------------------------------------------------------------------------------------------------------------------------
James O. Edwards 381,479 shares (d) 1.8% of Common Stock 1.6 %
- --------------------------------------------------------------------------------------------------------------------------------
Thomas C. Jorling 3,000 shares (e) * *
- --------------------------------------------------------------------------------------------------------------------------------
Maynard H. Jackson 3,000 shares (f)
- --------------------------------------------------------------------------------------------------------------------------------
Frederic V. Malek 30,000 shares (g) * *
- --------------------------------------------------------------------------------------------------------------------------------
Rebecca P. Mark 9,000 shares (h) * *
- --------------------------------------------------------------------------------------------------------------------------------
Richard K. Nason 6,992 shares (i) * *
- --------------------------------------------------------------------------------------------------------------------------------
Robert W. Page, Sr. 9,000 shares (j) * *
- --------------------------------------------------------------------------------------------------------------------------------
Marc Tipermas 228,473 shares (k) 1.1% of Common Stock 1.0 %
- --------------------------------------------------------------------------------------------------------------------------------
EXECUTIVE OFFICERS NAMED IN THE SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------------------------------------------------------
James O. Edwards, 379,479 shares (d) 1.8% of Common Stock 1.6%
Chairman and Chief Executive Officer
- --------------------------------------------------------------------------------------------------------------------------------
Stephen W. Kahane, 140,208 shares (l) * *
Executive Vice President
- --------------------------------------------------------------------------------------------------------------------------------
Douglas W. McMinn, 95,704 shares (m) * *
Executive Vice President
- --------------------------------------------------------------------------------------------------------------------------------
Alvin S. Rapp, 108,180 shares (n) * *
Executive Vice President
- --------------------------------------------------------------------------------------------------------------------------------
Marc Tipermas, 228,473 shares (k) 1.1% of Common Stock 1.0%
Executive Vice President
- --------------------------------------------------------------------------------------------------------------------------------
ALL DIRECTORS AND EXECUTIVE OFFICERS 1,160,173 shares (o) 5.4% of Common Stock 4.8%
AS A GROUP (19 PERSONS)
- --------------------------------------------------------------------------------------------------------------------------------
5% COMMON SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------------
ICF Kaiser International, Inc. Employee 2,099,995 shares (p) 9.9% 8.9%
Stock Ownership Trust
- --------------------------------------------------------------------------------------------------------------------------------
ICF Kaiser International, Inc. Retirement 1,038,316 shares (q) 4.9% 4.4%
Plan
- --------------------------------------------------------------------------------------------------------------------------------
FIMA Finance Management, Inc. 2,680,952 warrants (b) 11.2% 11.2%
- --------------------------------------------------------------------------------------------------------------------------------
Mathers & Company, Inc., Mathers Fund, 2,410,569 shares (r) 11.4% 10.2%
Inc., and Henry van der Eb
- --------------------------------------------------------------------------------------------------------------------------------
State of Wisconsin Investment Board 2,055,000 shares (s) 9.7% 8.7%
- --------------------------------------------------------------------------------------------------------------------------------
SERIES 2D SENIOR PREFERRED STOCK
- --------------------------------------------------------------------------------------------------------------------------------
EXOR America, Inc. 200 shares (b) 100% of Series 2D Senior 10.0%
Preferred Stock
- --------------------------------------------------------------------------------------------------------------------------------
________________________________
* = ownership of less than 1% The footnotes to this Table are on the following two pages.
================================================================================================================================
</TABLE>
-47-
<PAGE>
Footnotes to the Security Ownership Table
(a) Except as noted below, all information in the above table is as of December
31, 1995. To calculate the voting percentage, it was assumed that the individual
or entity exercised all of his/her/its exercisable options, but that no other
individuals or entities exercised theirs. A person is deemed to be a beneficial
owner of the Company's stock if that person has voting or investment power (or
voting and investment powers) over any shares of capital stock or has the right
to acquire such shares within 60 days from December 31, 1995. With respect to
the total number of shares held by the Company's Employee Stock Ownership Trust
(the "ESOP"), the share information is current as of August 31, 1995; the
unaudited information with respect to the number of shares allocated to
individuals' accounts is current as of February 28, 1995. With respect to
ownership of shares which are held in the Company's Section 401(k) Plan but
allocated to individuals' accounts, the information is current as of September
30, 1995. For shares shown in the following footnotes as being held in directed
investment accounts in the Company's Retirement Plan, the beneficial owner shown
below currently has investment but not voting power over those shares; these
individuals will have voting power over the directed investment account shares
beginning in 1996; the Retirement Plan information is current as of September
30, 1995.
(b) Mr. Botta's share ownership includes 9,000 shares that may be acquired
within 60 days of December 31, 1995, upon the exercise of stock options. Mr.
Botta is the President of EXOR America, Inc., 375 Park Avenue, New York, NY
10152, the owner of 200 shares of Series 2D Senior Preferred Stock. FIMA Finance
Management Inc., Citco Building, Wickhams Cay, P.O. Box 662, Road Town, Tortola,
British Virgin Islands, owns Series 2D Warrants for the purchase of 2,680,952
shares of Common Stock. EXOR America and FIMA are wholly owned subsidiaries of
EXOR Group, 2 Blvd. Royal, Luxembourg. The Amended and Restated Certificate of
Incorporation of the Company limits the total vote of the Series 2D Senior
Preferred Stock to 2,380,952 votes. Mr. Botta disclaims beneficial ownership of
the shares of Series 2D Senior Preferred Stock and of the Series 2D Warrants.
(c) Mr. Coelho's share ownership includes 15,000 shares that may be acquired
within 60 days of December 31, 1995, upon the exercise of stock options. He also
owns 2,000 other shares.
(d) Mr. Edwards' share ownership includes 2,575 shares allocated to his ESOP
account, 4,680 shares allocated to his Section 401(k) Plan account, 60,091
shares in his directed investment account under the Retirement Plan, and 37,500
shares that may be acquired within 60 days of December 31, 1995, upon the
exercise of stock options. He also owns 278,633 other shares. Mr. Edwards is a
member of the ESOP Plan Committee and the Retirement Plan Committee; as such, he
has shared investment power over 2,099,995 and 1,038,316 shares held by the ESOP
and Retirement Plan, respectively. Until 1996, he has shared voting power over
the 1,038,316 shares held by the Retirement Plan. Mr. Edwards disclaims
beneficial ownership of the shares held by the ESOP and the Retirement Plan.
(e) Mr. Jorling's share ownership includes 3,000 shares that may be acquired
within 60 days of December 31, 1995, upon the exercise of stock options.
(f) Mr. Jackson's share ownership includes 3,000 that may be acquired within 60
days of December 31, 1995, upon the exercise of stock options.
(g) Mr. Malek's share ownership includes 15,000 shares that may be acquired
within 60 days of December 31, 1995, upon the exercise of stock options. He also
owns 15,000 other shares.
(h) Ms. Mark's share ownership includes 9,000 shares that may be acquired
within 60 days of December 31, 1995, upon the exercise of stock options.
(i) Mr. Nason's share ownership 6,325 shares allocated to his Section 401(k)
Plan account, and 667 shares that may be acquired within 60 days of December 31,
1995, upon the exercise of stock options.
(j) Mr. Page's share ownership includes 9,000 shares that may be acquired
within 60 days of December 31, 1995, upon the exercise of stock options.
(k) Dr. Tipermas' share ownership includes 7,698 shares allocated to his ESOP
account, 7,525 shares in his directed investment account under the Retirement
Plan, and 31,250 shares that may be acquired within 60 days of December 31,
1995, upon the exercise of stock options. He also owns 182,000 other shares.
-48-
<PAGE>
(l) Dr. Kahane's share ownership includes 6,734 shares allocated to his ESOP
account, 5,952 shares in his directed investment account under the Retirement
Plan, and 25,000 shares that may be acquired within 60 days of December 31,
1995, upon the exercise of stock options. He also owns 102,522 other shares.
(m) Mr. McMinn's share ownership includes 5,063 shares allocated to his ESOP
account, 40 shares in his directed investment account under the Retirement Plan,
and 50,000 shares that may be acquired within 60 days of December 31, 1995, upon
the exercise of stock options. He also owns 40,601 other shares. As of October
16, 1995, Mr. McMinn no longer is an executive officer of the Company.
(n) Mr. Rapp's share ownership includes 40,000 shares that may be acquired
within 60 days of December 31, 1995, upon the exercise of stock options. He also
owns 68,180 other shares.
(o) This total includes 37,190 shares allocated to ESOP accounts, 11,005 shares
in Section 401(k) Plan accounts, 76,407 shares in directed investment accounts
under the Retirement Plan, and 248,167 shares that may be acquired within 60
days of December 31, 1995, upon the exercise of stock options. The balance of
the shares are owned directly (787,404 shares).
(p) The ESOP Trustee is Vanguard Fiduciary Trust Company, 200 Vanguard Blvd.,
Malvern, PA 19355. All of the shares of Common Stock held by the ESOP are
allocated to individual ESOP participants' accounts and are voted by those
participants. The ESOP Plan Committee has investment power over all of the
shares of Common Stock held by the ESOP, the members of which are James O.
Edwards, Michael K. Goldman, and Marcy A. Romm. Each ESOP Plan Committee member
disclaims beneficial ownership of the shares of Common Stock held by the ESOP.
The individual shareholdings of Mr. Edwards are shown above in footnote
(d). Mr. Goldman beneficially owns 108,178 shares of Common Stock, 25,000 of
which are shares that may be acquired within 60 days of December 31, 1995, upon
the exercise of stock options. Ms. Romm beneficially owns 20,615 shares of
Common Stock, 1,000 of which are shares that may be acquired within 60 days of
December 31, 1995, upon the exercise of stock options. The ESOP Plan Committee's
address is 9300 Lee Highway, Fairfax, VA 22031.
(q) The Retirement Plan Trustee is Vanguard Fiduciary Trust Company, 200
Vanguard Blvd., Malvern, PA 19355. The members of the Retirement Plan Committee
are James O. Edwards, Michael K. Goldman, and Marcy A. Romm; the individual
shareholdings of the members are shown in footnotes (d) and (p). Neither Mr.
Goldman nor Ms. Romm have any shares of Common Stock in his or her directed
investment accounts under the Retirement Plan. Of the 1,038,316 shares of Common
Stock held by the Retirement Plan, a total of 213,124 at August 31, 1995, were
held in directed investment accounts in which the participants have investment
power over their allocated shares. The Retirement Plan Committee has investment
power over the remaining shares held by the Retirement Plan held in the ICF
Stock Fund. Until 1996, the Retirement Plan Committee members will direct the
Trustee how to vote all of the shares of Common Stock held by the Retirement
Plan; thereafter, participants will vote their shares of Common Stock held by
the Retirement Plan in directed investment accounts and their allocated shares
in the ICF Stock Fund.
(r) Mathers & Company, Inc., Mathers Fund, Inc., and Henry van der Eb, 100
Corporate North, Suite 201, Bannockburn, IL 60015. The information with respect
to the shares of Common Stock beneficially owned by Mathers and Company, Inc.
and Mathers Fund, Inc. (firms which are controlled by common officers), and by
Henry van der Eb (President of Mathers and Company and Chairman of the Mathers
Fund, Inc.) is based on a Report on Schedule 13G (Amendment No. 3 dated February
9, 1995) which was filed with the SEC and which reports share ownership as of
December 31, 1994.
(s) State of Wisconsin Investment Board, P.O. Box 7842, Madison, WI 53707. The
information with respect to the shares of Common Stock beneficially owned by the
State of Wisconsin Investment Board is based on a Report on Schedule 13G
(Amendment No. 3 dated February 13, 1995) which was filed with the SEC and which
reports share ownership information as of December 31, 1994.
-49-
<PAGE>
SELLING SHAREHOLDERS (BALCH; EDA SHAREHOLDERS)
<TABLE>
<CAPTION>
====================================================================================================================================
Name Beneficial Beneficial Beneficial Beneficial Number of Shares Beneficial Ownership of
Ownership of Ownership of Ownership of Ownership of of Common Stock Offered Shares of Common Stock
Balch Shares EDA Closing EDA Initial Additional for Sale After Giving Effect to
Shares Earn-out EDA Earn- Proposed Sale
Shares out Shares
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
John G. Balch (a) 396,167 396,167 0
- ------------------------------------------------------------------------------------------------------------------------------------
EDA SELLING SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------------
Douglas A. Huppert 11,475 4,500 27,375 43,350 (b)
- ------------------------------------------------------------------------------------------------------------------------------------
Igor Livshin 54,506 21,375 130,031 205,914 (b)
- ------------------------------------------------------------------------------------------------------------------------------------
Daniel A. Milliron 59,288 23,250 141,438 223,974 (b)
- ------------------------------------------------------------------------------------------------------------------------------------
Terry B. Soesbee 54,506 21,375 130,031 205,912 (b)
- ------------------------------------------------------------------------------------------------------------------------------------
Timothy V.Treadwell 11,475 4,500 27,375 43,350 (b)
- ------------------------------------------------------------------------------------------------------------------------------------
Total 396,167 (a) 191,250 75,000 (b) 456,250(b) 1,118,667 (b)
====================================================================================================================================
</TABLE>
(a) In addition to the 396,167 Balch Shares, Mr. Balch beneficially owns 2,792
shares allocated to his account in the Company's Employee Stock Ownership Plan.
On the effective date of the Registration Statement of which this Prospectus is
a part, Mr. Balch and Excell are obligated to execute a stock pledge agreement
pursuant to which Mr. Balch will pledge 275,000 of the Balch Shares as security
for all loans owed by Mr. Balch to Excell. In satisfaction of all loans owed by
Mr. Balch to Excell, Excell is obligated to accept 55,000 pledged Balch Shares
on each of the first five anniversaries of April 2, 1995, or on such earlier
date(s) as Mr. Balch may elect.
(b) The 531,250 EDA Earn-out Shares are being held in escrow, but may be
offered for sale by the EDA Selling Shareholders if delivered to the EDA Selling
Shareholders at the end of the earn-out period. The number of EDA Earn-out
Shares allocated to each EDA Selling Shareholder was derived by using the same
percentage of the total EDA Closing Shares each individual received pursuant to
the Agreement and Plan of Merger.
-50-
<PAGE>
SELLING SHAREHOLDERS (THE IPC COMPANY; IPC SELLING SHAREHOLDERS)
<TABLE>
<CAPTION>
=====================================================================================================================
Name Beneficial Beneficial Number of Beneficial
Ownership Ownership of Shares of Ownership of Shares
of IPC IPC Shares Common of Common Stock
Shares (following Stock Offered After Giving Effect
distribution)(a) for Sale to Proposed Sale
====================================================================================================================
<S> <C> <C> <C> <C>
The IPC Company 100,000 0 0 0
- --------------------------------------------------------------------------------------------------------------------
THE IPC SELLING SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------
Carlos E. Camacho (b) 28,369 28,369 0
- --------------------------------------------------------------------------------------------------------------------
Norman P. Kolb (b) 4,965 4,965 0
- --------------------------------------------------------------------------------------------------------------------
Glynn R. Kruger (c) 28,368 28,368 0
- --------------------------------------------------------------------------------------------------------------------
Glynn R. Kruger, Jr. (c) 28,368 28,368 0
- --------------------------------------------------------------------------------------------------------------------
Charles A. Reeves, Jr. (b) 4,965 4,965 0
- --------------------------------------------------------------------------------------------------------------------
Richard H. Street (b) 4,965 4,965 0
- --------------------------------------------------------------------------------------------------------------------
Total 100,000 100,000 100,000 0
====================================================================================================================
</TABLE>
(a) The Company issued 100,000 shares of Common Stock to IPC (the "IPC
Shares") in return for IPC's assets, excluding substantially all of certain
accounts receivable which were conveyed to an IPC shareholder to
liquidate his loan to IPC. The Company assumed only specified, listed
contractual obligations in connection with the asset purchase. All of the
100,000 IPC Shares will be distributed to the IPC Selling Shareholders by
IPC in connection with the liquidation of IPC or as an IPC dividend. All
such shares may be offered by sale by the IPC Selling Shareholders if
delivered to the IPC Selling Shareholders in the liquidation or by
dividend.
(b) This individual became an employee of a wholly owned subsidiary of the
Company following the purchase of substantially all of the IPC Company's
assets by the Company.
(c) This individual or entity is a shareholder of the IPC Company.
-51-
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 90,000,000 shares
of Common Stock and 2,000,000 shares of preferred stock, par value $0.01 per
share. As of December 31, 1995, the outstanding capital stock of the Company
consisted of 21,263,828 shares of Common Stock and 200 shares of Series 2D
Senior Preferred Stock. The outstanding Common Stock figure excludes the 531,250
escrowed EDA Earn-Out shares.
COMMON STOCK
The following is a summary of the terms of the Company's Common Stock:
Voting. Each share of Common Stock has one vote per share on all matters
submitted to a vote of shareholders. The Company's Amended and Restated
Certificate of Incorporation provides that no action may be taken by the holders
of shares of Common Stock by written consent in lieu of holding a meeting of
shareholders.
Dividends. The Company has never paid cash dividends on its Common Stock.
The Board of Directors anticipates that for the foreseeable future no cash
dividends will be paid on its Common Stock and that the Company's earnings will
be retained for use in the business. The Board of Directors determines the
Company's Common Stock dividend policy based on the Company's results of
operations, payment of dividends on preferred stock (if any is outstanding),
financial condition, capital requirements, and other circumstances. The
Company's debt and credit agreements allow dividends to be paid on its capital
stock provided that the Company complies with certain limitations imposed by the
terms of such agreements. See "Description of the Indenture" and "Description of
Credit Facility."
Other Terms. Holders of Common Stock have no preemptive or other rights to
subscribe for additional shares of Company stock. Upon liquidation, dissolution,
or winding up of the Company, each share of Common Stock will share equally in
assets legally available for distribution to stockholders.
Transfer Agent. The transfer agent and registrar for the Common Stock is
First Chicago Trust Company of New York, 14 Wall Street, Mail Suite 4680, New
York, New York 10005, (201) 324-0498. The transfer agent and registrar's mailing
address is P.O. Box 2534, Jersey City, NJ 07303-2534.
Public Market. Since September 14, 1993, the Common Stock has been traded
on the New York Stock Exchange under the symbol "ICF." From December 14, 1989,
to September 13, 1993, the Common Stock was traded on the NASDAQ National
Market.
PREFERRED STOCK
Preferred stock is available for issuance from time to time at the
discretion of the Board of Directors of the Company, without shareholder
approval. For each series of preferred stock it establishes, the Board of
Directors has authority to prescribe the number of shares in that series, the
dividend rate, and the voting rights, conversion privileges, redemption, sinking
fund provisions and liquidation rights, if any, and any other rights,
preferences and limitations of the particular series. The issuance of preferred
stock could decrease the amount earnings and assets available for distribution
to the holders of Common Stock or adversely affect the rights and powers,
including voting rights, of the holders of Common Stock. Additionally, the
issuance of preferred stock could have the effect of delaying, deferring or
preventing a change in control of the Company without further action by the
shareholders.
SERIES 2D PREFERRED STOCK
The Company has issued 200 shares of Series 2D Preferred Stock, all of
which are currently outstanding. In connection with the issuance of the Series
2D Preferred Stock, the Company issued Series 2D Warrants for the purchase of
2,680,952 shares of Common Stock to the purchaser of the Series 2D Preferred
Stock (see "Series 2D Warrants" below). The following is a summary of the terms
of the Series 2D Preferred Stock, which ranks prior to
-52-
<PAGE>
the Company's Common Stock and Series 4 Junior Preferred Stock (if any is
issued) with respect to dividend rights and rights on liquidation, winding up
and dissolution.
Dividends. The Series 2D Preferred Stock pays cumulative dividends of
$9,750 per $100,000 of liquidation preference per year, payable quarterly.
Liquidation Preference. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the holders of Series 2D Preferred
Stock are entitled to receive a liquidation preference equal to $100,000 plus
accrued but unpaid dividends per share of Series 2D Preferred Stock before any
distribution is made to the holders of any capital stock of the Company ranking
junior to the Series 2D Preferred Stock.
Redemption. The Company is obligated to redeem all shares of Series 2D
Preferred Stock outstanding on January 13, 1997, for the full liquidation
preference amount, plus accrued and unpaid dividends thereon to the redemption
date. In addition, upon a proposal for or the occurrence of a Change in Control
Event, as defined in the Certificate of Designations creating the Series 2D
Preferred Stock ("Series 2D Certificate of Designations"), the original
purchaser (and current holder) of the shares of Series 2D Preferred Stock (the
"Initial Holder") has the option to require the Company to redeem all or part of
such Initial Holder's shares at a redemption price of $100,000 per share,
together with accrued and unpaid dividends. This Certificate of Designations is
now included in the Company's Amended and Restated Certificate of Incorporation.
The Company at any time and at its option may redeem all, but not less than
all, of the shares of Series 2D Preferred Stock at a redemption price of
$106,250 per share, plus accrued and unpaid dividends thereon to the redemption
date.
If, as of any date the Company elects to redeem the shares of Series 2D
Preferred Stock, an Initial Holder owns any Series 2D Warrants, then the holder
of such shares may elect to receive, in lieu of the applicable redemption price
described above, consideration per share equal to (i) cash in the amount of
$106,249.99, and (ii) one share of a new series of preferred stock, par value
$0.01 per share (the "Series XD Preferred Stock"), of the Company to be created
pursuant to a Certificate of Designations in the form attached as an exhibit to
the Series 2D Certificate of Designations (the "Series XD Certificate of
Designations"). No dividends will be payable with respect to shares of Series XD
Preferred Stock. The liquidation preference for such shares will be $0.01 per
share. Holders of shares of Series XD Preferred Stock would be entitled to vote
together with holders of the Company's Common Stock on all matters to be voted
on by the Company's shareholders. The number of votes entitled to be cast by
holders of such shares of Series XD Preferred Stock is determined separately
with respect to each holder in accordance with formulae set forth in the Series
XD Certificate of Designations. No holder of shares of Series XD Preferred Stock
may transfer any such shares unless such shares are transferred to a Purchaser
Affiliate, as defined in the Securities Purchase Agreement between the Company
and the Initial Holder (the "Securities Purchase Agreement"). The Company must
redeem all outstanding shares of Series XD Preferred Stock at a redemption price
per share equal to the aggregate liquidation preference of such shares on the
first to occur of (i) January 13, 1997 or (ii) the date upon which an Initial
Holder does not hold any Series 2D Warrants.
The Company also has a one-time right to redeem all outstanding shares of
Series 2D Preferred Stock, each share in exchange for (i) a subordinated debt
security (the "Exchange Note") with an aggregate principal amount of $99,999.99
and a minimum interest rate of 9.75%, in the form attached as an exhibit to the
Series 2D Certificate of Designations, bearing interest at a rate that would
preserve the after-Federal income tax return on dividends on the Series 2D
Preferred Stock, (ii) cash in an amount equal to all accrued and unpaid
dividends on the Series 2D Preferred Stock, and (iii) one share of a new series
of preferred stock, par value $0.01 per share (the "Series YD Preferred Stock"),
of the Company to be created pursuant to a Certificate of Designations in the
form attached as an exhibit to the Series 2D Certificate of Designations (the
"Series YD Certificate of Designations"). No dividends will be payable with
respect to shares of Series YD Preferred Stock. The liquidation preference for
such shares will be $0.01 per share. The Company may at any time and at its
option redeem all, but not less than all, the shares of Series YD Preferred
Stock at a redemption price of $0.01 per share. The Company has mandatory
redemption obligations to: (i) redeem all shares of Series YD Preferred Stock
outstanding on January 13, 1997 for the full
-53-
<PAGE>
liquidation preference amount, (ii) redeem all or part of the Initial Holder's
Series YD Preferred Stock for the liquidation preference amount if the Initial
Holder exercises its redemption opinion upon the proposal or occurrence of a
Change in Control Event, (iii) concurrently redeem all outstanding Exchange
Notes when Series YD Preferred Stock is redeemed, and (iv) redeem and purchase
outstanding shares of Series YD Preferred Stock pursuant to the Securities
Purchase Agreement. If the holder of such redeemed Series YD Preferred Stock is
an Initial Holder and also holds any outstanding Series 2D Warrants, then such
holder shall receive, for each share of Series YD Preferred Stock redeemed, a
share of Series XD Preferred Stock. Shares of Series XD Preferred Stock may not
be transferred separately from their corresponding Exchange Notes.
The Initial Holder of the Series 2D Preferred Stock has the right, subject
to a 180-day cure period, to require the Company to redeem all shares of Series
2D Preferred Stock (or shares of Series YD Preferred Stock and associated
Exchange Notes, as the case may be) held by it under certain circumstances. This
right is exercisable in the event the Company notifies such affiliates that the
DOD, the DOE or the President of the United States has made a final
determination on the grounds of national security that the Company, by reason of
the ownership of such Company securities by the Initial Holder, should forfeit a
security clearance on a material facility or a material government contract,
and, in the reasonable judgment of the Company's Board of Directors, such
forfeiture will have a material adverse effect on the Company. This right is not
exercisable, however, if the parent organization of the Initial Holder acquires
more than 20% of the voting power of the Company.
Voting. The number of votes entitled to be cast by any holder of Series 2D
Preferred Stock is equal to the total number of shares of Series 2D Preferred
Stock owned by such holder divided by the total number of outstanding shares of
Series 2D Preferred Stock times the total number of shares of Common Stock (not
to exceed 2,380,952, subject to certain adjustments) for which Series 2D
Warrants are outstanding and unexercised. After such time as there are
outstanding Series 2D Warrants exercisable for 2,380,952 or fewer shares of
Common Stock, the voting power of the Series 2D Preferred Stock is reduced as
Series 2D Warrants are exercised. Thus, the Series 2D Preferred Stock has voting
power similar to that of the Common Stock.
In general, holders of shares of Series 2D Preferred Stock vote together
with the holders of Common Stock and are not entitled to vote as a separate
class. However, the affirmative vote of the holders of a majority of the shares
of Series 2D Preferred Stock, voting as a class with the holders of other series
of preferred stock or as a separate class, in accordance with Delaware law,
would be required for the approval of any proposed amendment of the Amended and
Restated Certificate of Incorporation that would change the par value of the
Series 2D Preferred Stock or alter or change the powers, preferences, or special
rights of the Series 2D Preferred Stock so as to affect such holders adversely.
Such a class vote is also required with respect to any proposed merger or
similar transaction involving an amendment of the Company's Amended and Restated
Certificate of Incorporation if the amendment would materially and adversely
affect the powers, preferences, or special rights of the Series 2D Preferred
Stock. Moreover, without the affirmative vote of at least 66 2/3% of the
aggregate voting power of shares of Series 2D Preferred Stock outstanding, the
Company may not (i) authorize or issue preferred stock senior to the Series 2D
Preferred Stock or (ii) authorize or issue equity securities with a mandatory
redemption date earlier than January 13, 1997.
As discussed below (see "Provisions Affecting Changes of Control and
Extraordinary Transactions"), until January 13, 1997 (when the Series 2D
Preferred Stock is required to be redeemed), the Initial Holder has the right to
designate one nominee for election as a director of the Company.
Rights Upon Dividend Default. Whenever the Company is in arrears with
respect to any dividend payable on the Series 2D Preferred Stock for a period in
excess of 100 days or fails to make a mandatory redemption, the holders of
Series 2D Preferred Stock will have the exclusive right to elect two additional
directors. In addition, until such an arrearage or failure to make a mandatory
redemption is cured, if 33% or more of the then-outstanding Series 2D Preferred
Stock (or securities issued in exchange therefor) is held by an Initial Holder,
the Company becomes subject to certain restrictive covenants. Such covenants
would prohibit the Company from, among other things: disposing of assets for
consideration of more than $1 million in a single transaction; entering into
mergers; making acquisitions; guaranteeing any obligation in excess of $1
million; or incurring indebtedness other than as
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<PAGE>
permitted pursuant to the Indenture governing the Notes without the consent of
such Initial Holder. Further, under such circumstances, the Initial Holder is
relieved from the limitations described below on its right to acquire additional
voting securities of the Company, to subject Series 2D Preferred Stock to a
voting trust, or to solicit proxies in opposition to the Company's Board of
Directors. See "Provisions Affecting Changes of Control and Extraordinary
Transactions". The Company is current in the payment of dividends on the Series
2D Preferred Stock and has executed a supplement to the Indenture governing the
Notes that will permit the Company to pay the remaining dividends to the date of
mandatory redemption of the Series 2D Preferred Stock. See Notes and I to the
Consolidated Financial Statements.
Transferability. The Series 2D Preferred Stock and Series 2D Warrants were
sold in a private placement exempt from registration under the Securities Act.
Thus, there is no pubic market for the Series 2D Preferred Stock (or the Series
XD Preferred Stock, Series YD Preferred Stock or Exchange Notes, if any of such
securities are issued) or the Series 2D Warrants. Transfers of any such
securities are further restricted by the Securities Purchase Agreement, which
grants the Company a right of first offer to purchase any such securities prior
to any transfers to any person other than an Initial Holder.
A registration rights agreement provides the holders of Series 2D Warrants
and the holders of any shares of Common Stock issued upon exercise of Series 2D
Warrants with certain rights to register for resale shares of Common Stock
issued upon exercise of the Series 2D Warrants. These registration rights
include customary demand and incidental registration rights.
Other Terms. Except as set forth above, holders of the Series 2D Preferred
Stock have no preemptive or other rights to subscribe for additional shares of
Company stock.
SERIES 2D WARRANTS
In January 1992, the Company sold to an affiliate of EXOR America Series 2D
Warrants to purchase 2,680,952 shares of Common Stock (subject to adjustment) at
an exercise price of $8.40 per share. As of April 12, 1996, the Series 2D
Warrants expire on November 2, 1997. In January 1994, the Company issued
replacement Series 2D Warrants to the affiliate of EXOR America exercisable at
$6.90 per share (subject to adjustment). The holder of the Series 2D Warrants is
able, in lieu of exercising such warrants, to require the Company to issue to
such holder Common Stock with an aggregate market value equal to the difference
between the then current market price for the Common Stock and 90% of the
exercise price of the Series 2D Warrants then in effect, multiplied by the
number of Series 2D Warrants for which the holder is requiring such issuance. In
addition, on the expiration date of the Series 2D Warrants, the holder of such
warrants will be able, in lieu of exercising the warrants or having Common Stock
issued as described in the preceding sentence, to require the Company to pay it
cash in the amount of the difference between the then current market price for
the Common Stock and the exercise price of the Series 2D Warrants then in
effect, multiplied by the number of Series 2D Warrants for which the holder is
requiring such payment. In the event that the Company cannot make such cash
payment without violating a covenant or covenants contained in the Indenture,
its Credit Agreement, or any similar agreement relating to indebtedness for
borrowed money of the Company, the Company shall make such payment in Common
Stock as described above.
SENIOR SUBORDINATED DEBT WARRANTS
A total of 600,000 Senior Subordinated Debt Warrants (the "Warrants") were
issued by the Company under a warrant agreement (the "Warrant Agreement") dated
as of January 11, 1994, between the Company and The Bank of New York, a New York
banking corporation, as warrant agent (the "Warrant Agent"). Each Warrant
entitles the holder thereof to acquire one share of Common Stock of the Company,
subject to adjustment, upon payment of the exercise price of $5.00 (the
"Purchase Price"), subject to adjustment as described below. All outstanding
Warrants terminate and become void on December 31, 1998 (the "Expiration Date").
The Warrants are subject to the terms contained in the Warrant Agreement;
capitalized terms that are not otherwise defined below are used as defined in
the Warrant Agreement. The Common Stock issuable upon exercise of the Warrants
has been registered with the Commission.
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Non-Surviving Combination. If the Company proposes to enter into a
transaction that would constitute a Non-Surviving Combination if consummated,
the Company must give written notice thereof to the holders promptly after an
agreement is reached with respect to the Non-Surviving Combination but in no
event less than 30 days prior to the consummation thereof. As used herein, a
"Non-Surviving Combination" means any merger, consolidation, or other business
combination by the Company with one or more persons (other than a wholly owned
subsidiary of the Company) in which the Company is not the survivor, or a sale
of all or substantially all of the assets of the Company to one or more such
other persons, if, in connection with any of the foregoing, consideration (other
than consideration which includes Common Stock or securities convertible into,
or exercisable or exchangeable for, Common Stock or rights or options to acquire
Common Stock or such other securities) is distributed to holders of Common Stock
in exchange for all or substantially all of their equity interest in the
Company.
In a Non-Surviving Combination, the surviving entity (the "Survivor") will
be obligated to distribute or pay to each holder of Warrants, upon payment of
the Purchase Price prior to the Expiration Date, the number of shares of stock
or other securities or other property (including any cash) of the Survivor that
would have been distributable or payable on account of the Common Stock if such
holder's Warrants had been exercised immediately prior to such Non-Surviving
Combination (or, if applicable, the record date therefor). Following the
consummation of a Non-Surviving Combination, the Warrants will represent only
the right to receive such shares of stock or other property from the Survivor
upon payment of the Purchase Price prior to the Expiration Date. No transaction
is presently in progress or under negotiation that would constitute a Non-
Surviving Combination.
Adjustment. The number of shares of Common Stock issuable upon the
exercise of each Warrant and the Purchase Price are subject to adjustment in
certain events, including (a) a dividend or distribution on the Company's Common
Stock in shares of its Common Stock or a combination, subdivision,
reorganization, or reclassification of Common Stock, (b) the issuance of shares
of Common Stock for a consideration per share less than the market price per
share at the time of issuance, (c) the issuance of rights, warrants, or options
for the purchase of Common Stock or for the purchase of securities convertible
into or exchangeable for Common Stock where the aggregate amount of
consideration (taking into account the consideration received for the issuance
of such right, warrant, or option plus any consideration to be received upon the
exercise thereof and including, in the case of a right, warrant, or option to
purchase a convertible or exchangeable security, any consideration to be
received upon the eventual conversion or exchange of such security for Common
Stock) per share of Common Stock received or receivable by the Company is less
than the market price per share at the time of issuance of such right, warrant,
or option, (d) the issuance of any securities convertible into or exchangeable
for Common Stock where the aggregate amount of consideration (taking into
account the consideration received for the issuance of such convertible or
exchangeable security and the consideration to be received upon the conversion
or exchange thereof) per share of Common Stock received or receivable by the
Company is less than the market price per share of Common Stock on the date of
issuance of such convertible or exchangeable security, and (e) a dividend or
distribution on the Company's Common Stock of cash, evidences of its
indebtedness, other securities, or other properties or assets other than any
cash dividend which, when aggregated with all other cash dividends paid in the
year prior to the declaration of such cash dividend, does not exceed 10% of the
market price per share of Common Stock on the date of such declaration. If the
terms of any of the Company's outstanding rights, warrants, or options for the
purchase of Common Stock or securities convertible into or exchangeable for
Common Stock change, in each case where the issuance thereof caused an
adjustment in the terms of the Warrants (including by way of expiration of such
securities but excluding by way of antidilution provisions thereof triggering an
adjustment of the terms thereof upon the occurrence of an event that would cause
an adjustment of the terms of the Warrant), then the Purchase Price and the
number of shares of Common Stock issuable upon the exercise of each Warrant
shall be readjusted to take account of such change. Notwithstanding the
foregoing, no adjustment in the Purchase Price or the number of shares of Common
Stock issuable upon exercise of Warrants will be required (i) until cumulative
adjustments would result in an adjustment of at least one percent in the
Purchase Price, (ii) for the granting, in a transaction which would otherwise
trigger an adjustment, of any rights, warrants, or options or the issuance of
any Common Stock to officers, directors, or employees of, or consultants or
advisors to, the Company where such issuances are registered with the Commission
on Form S-8 and do not, in the aggregate exceed five percent of the
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number of shares of Common Stock outstanding (assuming the exercise of the
options so granted and all rights, warrants, options, and convertible securities
then outstanding), or (iii) the issuance of Common Stock pursuant to any
dividend reinvestment plan where the purchase price of Common Stock thereunder
is no less than 95% of the market price on the date of issuance.
SHAREHOLDER RIGHTS PLAN
On January 13, 1992, the Board of Directors of the Company declared a
dividend distribution to shareholders of record at the close of business on
January 31, 1992 (the "Record Date") of one Right for each outstanding share of
Common Stock.
Each Right entitles the registered holder of Common Stock to purchase from
the Company a unit consisting of one one hundredth of a share (a "Preferred
Stock Unit") of Series 4 Junior Preferred Stock ("Series 4 Preferred Stock"), at
a purchase price of $50.00 per Preferred Stock Unit ("Purchase Price"), subject
to adjustment. The Rights also are subject to antidilution adjustments. The
description of the Rights is set forth in a Rights Agreement (the "Rights
Agreement") between the Company and the Rights Agent.
A Distribution Date (the "Distribution Date") for the Rights will occur
upon the earlier of (i) 10 business days following a "Stock Acquisition Date,"
which is the public announcement that a person or group of affiliated or
associated persons has acquired, or obtained the right to acquire, beneficial
ownership of 20% or more of the outstanding shares of Common Stock (such person
or group referred to herein as an "Acquiring Person") or (ii) 10 business days
following the commencement of a tender offer or exchange offer that would if
consummated result in a person or group becoming an Acquiring Person. The Rights
are not exercisable until the Distribution Date and will expire at the close of
business on January 13, 2002, unless earlier redeemed by the Company as
described below.
The Rights Agreement provides, among other things, that the Initial Holder
on the date of the Rights Agreement of the Series 2D Preferred Stock cannot be
deemed an Acquiring Person.
Until the Distribution Date (i) the Rights will be evidenced by the Common
Stock certificates and will be transferred with and only with such certificates
and (ii) the surrender for transfer of any certificates for Common Stock
outstanding will also constitute the transfer of the Rights associated with the
Common Stock represented by such certificate.
In the event that, at any time following the Distribution Date, a person
becomes an Acquiring Person, then each holder of a Right (other than the
Acquiring Person) will thereafter have the right to receive, (x) upon exercise
and payment of the Purchase Price, Common Stock (or, in certain circumstances,
cash, property or other securities of the Company) having a value equal to two
times the Purchase Price of the Right or (y) at the discretion of the Board of
Directors, upon exercise and without payment of the Purchase Price, Common Stock
(or, in certain circumstances, cash, property or other securities of the
Company) having a value equal to the Purchase Price of the Right. For example,
at a Purchase Price of $50.00 per Right, each Right not owned by an Acquiring
Person (or by certain related parties) following the event set forth above would
entitle its holder to purchase $100 worth of Common Stock (or other
consideration, as noted above) for $50.00. Assuming that the Common Stock has a
per share value of $10.00 at such time, the holder of each Right would be
entitled to purchase 10 shares of Common Stock for a total aggregate purchase
price of $50.00. However, Rights are not exercisable following the occurrence of
the event set forth above until such time as the Rights are no longer redeemable
by the Company as set forth below.
In the event that, at any time following the Stock Acquisition Date, (i)
the Company is acquired in a merger or other business combination transaction in
which the Company is not the surviving corporation, (ii) the Company is the
surviving corporation in a merger with any Person (as defined in the Rights
Agreement) and its Common Stock is changed into or exchanged for stock or other
securities of any other Person or cash or any other property, or (iii) 50% or
more of the Company's assets or earning power is sold or transferred, each
holder of a Right (except Rights
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held by an Acquiring Person or which previously have been exercised as set forth
above) shall thereafter have the right to receive, upon exercise, common stock
of the acquiring Company having a value equal to two times the Purchase Price of
the Right. The events set forth in this paragraph and in the immediately
preceding paragraph are referred to as the "Triggering Events."
As noted above, following the occurrence of any of the events described
above, all Rights that are, or (under certain circumstances specified in the
Rights Agreement) were, beneficially owned by any Acquiring Person will be null
and void.
The Purchase Price payable, and the number of Preferred Stock Units or
other securities or property issuable upon exercise of the Rights, are subject
to amendment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Series 4
Preferred Stock, (ii) if holders of the Series 4 Preferred Stock are granted
certain rights or warrants to subscribe for Series 4 Preferred Stock or
convertible securities at less than the current market price of the Series 4
Preferred Stock, or (iii) upon the distribution to holders of the Series 4
Preferred Stock of evidences of indebtedness or assets (excluding regular
quarterly cash dividends) or of subscription rights or warrants (other than
those referred to above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least one percent of the
Purchase Price. In addition, to the extent that the Company does not have
sufficient shares of Common Stock issuable upon exercise of the Rights following
the occurrence of a Triggering Event, the Company may, under certain
circumstances, reduce the Purchase Price. No fractional Preferred Stock Units
will be issued and, in lieu thereof, an adjustment in cash will be made.
In general, the Company may redeem the Rights in whole, but not in part, at
a price of $0.01 per Right (payable in cash, Common Stock or other consideration
deemed appropriate by the Board of Directors), at any time until 10 business
days following the Stock Acquisition Date. After the redemption period has
expired, the Company's right of redemption may be reinstated if an, Acquiring
Person reduces its beneficial ownership to less than 10% of the outstanding
shares of Common Stock in a transaction or series of transactions not involving
the Company and there are no other Acquiring Persons. Immediately upon the
action of the Board of Directors ordering redemption of the Rights, and without
any notice to the holder of such Rights prior to such redemption, the Rights
will terminate and the only right of the holders of Rights will be to receive
the $0.01 redemption price.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including, without limitation, the right
to vote or to receive dividends.
Other than those provisions relating to the principal economic terms of the
Rights (except with respect to increasing the Purchase Price under certain
circumstances described in the Rights Agreement), any of the provisions of the
Rights Agreement may be amended by the Board of Directors of the Company prior
to the Distribution Date. After the Distribution Date, the provisions of the
Rights Agreement may be amended by the Board in order to cure any ambiguity, to
make changes which do not adversely affect the interests of holders of Rights
(excluding the interests of any Acquiring Person) or to shorten or lengthen any
time period under the Rights Agreement. However, no amendment to adjust the time
period governing redemption shall be made when the Rights are not redeemable.
One Right will be distributed to shareholders of the Company for each share
of Common Stock owned of record by them at the close of business on the Record
Date. Until the Distribution Date, the Company will issue a Right with each
share of Common Stock so that all shares of Common Stock will have attached
Rights.
The Rights may be deemed to have certain anti-takeover effects. The Rights
generally may cause substantial dilution to a person or group that attempts to
acquire the Company under circumstances not approved by the Board of Directors
of the Company. The Rights should not interfere with any merger or other
business combination approved by the Board of Directors of the Company since the
Board of Directors may, at its option, at any time
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prior to the close of business on the earlier of (i) the tenth business day
following the Stock Acquisition Date or (ii) January 13, 2002, redeem all but
not less than all of the then outstanding Rights at $0.01 per Right.
PROVISIONS AFFECTING CHANGES OF CONTROL AND EXTRAORDINARY TRANSACTIONS
In addition to the Shareholder Rights Plan, certain provisions of the
Company's Amended and Restated Certificate of Incorporation and By-laws and
other agreements could have the effect of delaying, deferring, or preventing a
change in control of the Company or other extraordinary corporate transaction.
The Company's Amended and Restated Certificate of Incorporation and By-laws
provide for classification of the Board of Directors into three classes, as
nearly equal in number as possible, with one class of directors being elected
each year for three-year terms. Under Delaware law, members of a classified
board may be removed only for cause. Thus, at least two years would be required
to effect a change of control in the Board of Directors, unless a shareholder
had sufficient voting power to amend or repeal the Amended and Restated
Certificate of Incorporation and By-law provisions relating to classification of
the Board of Directors.
In addition, the Amended and Restated Certificate of Incorporation imposes
supermajority voting requirements for certain corporate transactions that apply
if a majority of the Board of Directors has not served in such positions for at
least 12 months. Under those circumstances, the approval of two-thirds of the
voting power of the Company's capital stock would be required in order for the
Company to (i) merge with or consolidate into any other entity, other than a
subsidiary of the Company, (ii) sell, lease or assign all or substantially all
of the assets or properties of the Company, or (iii) amend the voting provisions
of the Amended and Restated Certificate of Incorporation. Other Amended and
Restated Certificate of Incorporation provisions of the type referred to above
include (i) the denial of the right of holders of Common Stock to take action by
written consent in lieu of at a shareholders' meeting and (ii) the ability of
the Board of Directors to determine the rights and preferences (including voting
rights) of the Company's authorized but unissued preferred stock, and then to
issue such stock. Such By-law provisions include those that (i) require advance
nomination of directors, (ii) require advance notice of business to be conducted
at shareholders' meetings, and (iii) require that a special meeting of
shareholders can be called by the shareholders only if shareholders owning at
least 50% of the voting power of the capital stock request such a special
meeting.
With the exception of the provision that authorizes the Board of Directors
to fix the terms of and issue authorized but unissued shares of preferred stock,
the approval of the holders of at least two-thirds of the voting power of the
Company's capital stock is required to amend, alter, or repeal, or to adopt
provisions inconsistent with, the Amended and Restated Certificate of
Incorporation and By-law provisions described above, regardless of whether a
majority of the members of the Board of Directors has served in such positions
for more than 12 months at the time of such action.
The voting and certain other rights of the holders of the Company's Series
2D Preferred Stock may also have the effect of delaying, deferring or preventing
a change of control of the Company. As described in the preceding sections, the
terms of the Series 2D Preferred Stock permit the holders of such stock to
require redemption of the stock upon a "Change of Control Event" as defined
therein (in general, (i) the acquisition of 40% or more of the voting power of
the Company by an unrelated third party, (ii) a change in the composition of a
majority of the Company's directors over a two-year period or (iii) shareholder
approval of (A) a transaction or series of transactions consummated within nine
months which results in the shareholders of the Company prior to such
transaction(s) owning less than 55% of the voting power of the Company, (B)
liquidation of the Company, or (C) sale or disposition of all or substantially
all of the Company's assets). See "Series 2D Preferred Stock".
The agreements relating to the Series 2D Preferred Stock provide that,
until January 13, 1997, subject to adjustment, so long as the purchaser of the
Series 2D Preferred Stock (and its
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affiliates) owns 80% of such stock (including securities issuable in exchange
for such stock) or 80% of the Series 2D Warrants or the Common Stock issued upon
exercise of the Series 2D Warrants, such purchaser (and its affiliates) shall be
entitled to designate a nominee for director to serve on the Company's Board of
Directors.
In addition, warrants issued by the Company in 1989 to purchase 275,088
shares of Common Stock, subject to antidilution adjustment (the "Subordinated
Debt Warrants") and the Series 2D Warrants (which are exercisable for 2,680,952
shares of Common Stock, subject to adjustment) provide that, if the Company is a
party to a merger or other extraordinary corporate transaction in which the
Company's outstanding Common Stock is exchanged for securities or other
consideration (including cash), the holders thereof shall have the right to
elect, within 60 days after notice, to receive, at the holder's election, (i)
the consideration which the warrantholder would have received had the warrants
been exercised immediately prior to the transaction or (ii) the number of shares
of the acquiring party's voting stock (with the highest voting power per share
in the case of the Series 2D Warrants) determined by reference to a formula that
gives effect to the fair market value of the consideration paid for the
Company's Common Stock in the transaction. If such a transaction constitutes a
Change of Control Event (as described above), each of the holders of the
Subordinated Debt Warrants and Series 2D Warrants also have the right to
exercise the warrants they hold within the 60-day notice period referred to
above and receive cash in an amount equal to the fair market value of the
highest per share consideration paid in connection with the transaction,
computed as if the warrants had been exercised immediately prior to consummation
of the transaction.
DELAWARE TAKEOVER STATUTE
Section 203 of the Delaware General Corporation Law (the "Delaware Takeover
Statute") applies to Delaware corporations with a class of voting stock listed
on a national securities exchange, authorized for quotation on an inter-dealer
quotation system, or held of record by 2,000 or more persons, and restricts
transactions which may be entered into by such a corporation and certain of its
stockholders. The Delaware Takeover Statute provides, in essence, that a
stockholder acquiring more than 15% of the outstanding voting shares of a
corporation subject to the statute (an "Interested Stockholder"), but less than
85% of such shares, may not engage in certain "Business Combinations" with the
corporation for a period of three years subsequent to the date on which the
stockholder became an Interested Stockholder, unless (i) prior to such date the
corporation's board of directors approved either the Business Combination or the
transaction in which the stockholder became an Interested Stockholder or (ii)
the Business Combination is approved by the corporation's board of directors and
authorized by a vote of at least 66 2/3% of the outstanding voting stock of the
corporation not owned by the Interested Stockholder.
The Delaware Takeover Statute defines the term "Business Combination" to
encompass a wide variety of transactions with or caused by an Interested
Stockholder in which the Interested Stockholder receives or could receive a
benefit on other than a pro rata basis with other stockholders, including
mergers, certain asset sales, certain issuances of additional shares to the
Interested Stockholder, transactions with the corporation which increase the
proportionate interest of the Interested Stockholder, or transactions in which
the Interested Stockholder receives certain other benefits.
DESCRIPTION OF THE INDENTURE
The $125,000,000 of 12% Senior Subordinated Notes due 2003 (the "Notes")
were issued pursuant to an Indenture dated as of January 11, 1994, as
supplemented (the "Indenture") between the Company and The Bank of New York, as
trustee (the "Trustee"). The following is a summary of the material terms and
provisions of the Notes. The terms of the Notes include those set forth in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (the "Trust Indenture Act"). The Notes are subject to all
such terms. Capitalized terms that are used but not otherwise defined herein
have the meanings assigned to them in the Indenture.
General. The Notes are general unsecured obligations of the Company,
subordinated in right of payment to all Senior Indebtedness of the Company.
Except as described in the following section, the Notes bear interest at 12%
per annum, payable on June 30 and
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December 31 of each year, to holders of record at the close of business on June
15 or December 15, as the case may be, immediately preceding the relevant
interest payment date. The Notes mature on December 31, 2003. The Trustee is the
Paying Agent and the Registrar under the Indenture.
Interest Rate Increase. Effective March 8, 1996, the Company agreed to
increase the interest rate on the Notes by one percent until the Company
achieves and maintains $36 million of earnings after deducting minority
interests and before interest, taxes, depreciation, and amortization calculated
in accordance with generally accepted accounting principles ("Earnings"). The
Company will measure its Earnings for trailing twelve month periods, each period
to end on the last day of a fiscal quarter and extend no further than March 31,
1998 (each a "Quarterly Measurement Period"). If the Company's Earnings equal or
exceed $36 million for two consecutive Quarterly Measurement Periods, then the
Company is relieved of its obligation to pay the additional one percent
interest. However, if the Company's Earnings do not equal or exceed $36 million
for any subsequent Quarterly Measurement Period, up to and including the
Quarterly Measurement Period ending March 31, 1998, the Company is obligated to
commence paying the additional one percent interest until the Company's Earnings
for one measurement period only again equal or exceed $36 million on a trailing
twelve month basis calculated quarterly.
Ranking. The Indebtedness represented by the Notes is subordinated in
right of payment to all existing and future Senior Indebtedness of the Company,
including without limitation all obligations of the Company under the Credit
Agreement (see "Description of the Credit Facility" below) and is senior in
right of payment to all indebtedness of the Company that by its terms is
expressly subordinated in right of payment to the Notes. Although the Indenture
contains limitations on the amount of additional Indebtedness which the Company
may incur, under certain circumstances the amount of such Indebtedness could be
substantial and such Indebtedness may be Senior Indebtedness. See "Certain
Covenants-Limitations on Additional Indebtedness."
The Company is a holding company which derives substantially all of its
income from its Subsidiaries. The Company must rely on dividends or other
intercompany transfers from its Subsidiaries to generate the funds necessary to
meet its debt service and other obligations, including payment of principal of
and interest on the Notes. The ability of its Subsidiaries to pay such dividends
or other intercompany transfers is subject to applicable state laws. Claims of
creditors of its Subsidiaries, including trade creditors, secured creditors, and
creditors holding guarantees of its Subsidiaries, and claims of holders of
preferred stock of its Subsidiaries, generally will have priority as to the
assets of its Subsidiaries over the equity interests of the Company and the
holders of Indebtedness of the Company. See "Description of Credit Facility."
If any Senior Indebtedness is disallowed, avoided, or subordinated pursuant to
the provisions of Section 548 of the Bankruptcy Law or any applicable state
fraudulent conveyance law, such Indebtedness nevertheless constitutes Senior
Indebtedness for purposes of the Indenture.
Only Indebtedness of the Company that is Senior Indebtedness ranks senior
to the Notes in accordance with the provisions of the Indenture. The Company has
agreed in the Indenture that it will not issue, assume, guarantee, incur, or
otherwise become liable for (collectively, "issue"), directly or indirectly,
any Indebtedness that is subordinate or junior in ranking in any respect to
Senior Indebtedness unless such Indebtedness is expressly subordinated in right
of payment to the Notes. Unsecured Indebtedness is not deemed to be subordinate
or junior to secured Indebtedness merely because it is unsecured.
The Company may not pay the principal of, premium, if any, or interest on,
the Notes or make any deposit pursuant to the provisions described under
"Discharge of Indenture" and may not repurchase, redeem, defease, or otherwise
retire any Notes (collectively, "pay the Notes") if (i) any Senior
Indebtedness (other than Non-Recourse Indebtedness) is not paid when due or (ii)
any other default on Senior Indebtedness (other than Non-Recourse Indebtedness)
occurs and the maturity of such Senior Indebtedness is accelerated in accordance
with its terms unless, in either case, (x) the default has been cured or waived
and any such acceleration has been rescinded or (y) such Senior Indebtedness has
been paid in full. During the continuance of any default (other than a default
described in clause (i) or (ii) of the preceding sentence) with respect to any
Senior Indebtedness (other than Non-Recourse Indebtedness) pursuant to which the
maturity thereof may be accelerated immediately without further notice (except
such notice as may be required to effect such acceleration) or the expiration of
any applicable grace periods, the Company may not pay the Notes for a period (a
"Payment Blockage Period") commencing upon the receipt by the Company and the
Trustee of written notice of such default from the holders of such Senior
Indebtedness, the Agent under the Credit Agreement or the trustee for the
holders of any other Senior Indebtedness specifying an election to effect a
Payment Blockage Period (a "Payment Notice") and ending 179 days thereafter
(or earlier if such Payment Blockage Period is terminated (i) by written notice
to the Trustee and the Company from the person or persons who gave such Payment
Notice, (ii) by repayment in full of such Senior Indebtedness, or (iii) because
the default giving rise to such Payment Notice is no longer continuing).
Notwithstanding the provisions described in the immediately preceding sentence
(but subject to the first sentence of this paragraph), unless the holders of
such Senior Indebtedness, the Agent under the Credit Agreement or the trustee
for the holders of any other Senior Indebtedness have accelerated the maturity
of such Senior Indebtedness, the Company may resume payments on the Notes after
such Payment Blockage Period expires. Not more than one Payment Notice may be
given in any consecutive 360-day period, irrespective of the number of defaults
with respect to Senior Indebtedness during such period. No default or event of
default which existed or was continuing
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on the date of the commencement of any Payment Blockage Period with respect to
the Senior Indebtedness initiating such Payment Blockage Period shall be, or be
made, the basis of the commencement of a subsequent Payment Blockage Period by
the holders of such Senior Indebtedness, the Agent under the Credit Agreement or
the trustee for the holders of any other Senior Indebtedness whether or not
within a period of 360 consecutive days unless such default or event of default
shall have been cured or waived for a period of not less than 90 consecutive
days.
Upon any payment or distribution of the assets of the Company to creditors
upon a total or partial liquidation or total or partial dissolution of the
Company or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property (whether voluntary or
involuntary), or upon an assignment for the benefit of creditors or any other
marshaling of the assets and liabilities of the Company, the holders of Senior
Indebtedness are entitled to receive payment in full before the holders of the
Notes are entitled to receive any payment. If payment of the Notes is
accelerated because of an Event of Default, the Company or the Trustee shall
promptly notify the holders of Senior Indebtedness, the Agent under the Credit
Agreement and the trustee for the holders of any other Senior Indebtedness of
the acceleration. If the Trustee provides such notice, the Trustee also will
notify the Company of the acceleration.
By reason of such subordination provisions contained in the Indenture, in
the event of insolvency, Holders of the Notes may recover less, ratably, than
other creditors of the Company.
Optional Redemption of the Notes. The Notes may not be redeemed prior to
December 31, 1998, but will be redeemable at the option of the Company, in whole
or in part, at any time on or after December 31, 1998, at the following
redemption prices (expressed as percentages of principal amount), together with
accrued and unpaid interest thereon to the redemption date, if redeemed during
the 12-month period beginning December 31:
<TABLE>
<CAPTION>
Optional
Year Redemption Price
---- ----------------
<S> <C>
1998 108.0%
1999 106.4
2000 104.8
2001 103.2
2002 101.6
</TABLE>
If less than all of the Notes are to be redeemed at any time, selection of
the Notes to be redeemed will be made by the Trustee from among the outstanding
Notes on a pro rata basis, by lot or by any other method permitted in the
Indenture. Notice of redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to each Holder whose Notes are to be
redeemed at the registered address of such Holder. On and after the redemption
date, interest will cease to accrue on the Notes or portions thereof called for
redemption.
Sinking Fund. There is no mandatory sinking fund for the Notes.
Mandatory Offers to Purchase the Notes. The Indenture requires the Company
to offer to purchase all of the outstanding Notes upon the occurrence of a
Change of Control and to offer to purchase a portion of the outstanding Notes
under certain other circumstances. See "Change of Control" and "Certain
Covenants-Limitations on Asset Sales."
Change of Control. Upon the occurrence of a Change of Control, the Company
will offer (a "Change of Control Offer") to purchase all outstanding Notes at
a purchase price equal to 101% of the aggregate principal amount of the Notes,
plus accrued and unpaid interest to the date of purchase.
Within 30 days after any Change of Control, the Company, or the Trustee at
the Company's request, will mail or cause to be mailed to all Holders on the
date of the Change of
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Control a notice stating: (i) that a Change of Control has occurred and that the
Holders have the right to require the Company to purchase any or all of the
outstanding Notes at a purchase price equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of purchase; (ii)
the circumstances and relevant facts regarding such Change of Control (including
information with respect to pro forma historical income, cash flow, and
capitalization after giving effect to such Change of Control); (iii) the
purchase date (which will be no earlier than 30 days nor later than 60 days from
the date such notice is mailed); and (iv) the instructions, determined by the
Company consistent with the Indenture, that Holders must follow in order to have
their Notes purchased. Any Change of Control Offer will be conducted in
compliance with applicable tender offer rules, including Section 14(e) of the
Exchange Act and Rule 14e-1 thereunder. The Change of Control purchase feature
of the Notes in certain circumstances may make it more difficult or may
discourage a sale or takeover of the Company.
Clause (i) of the definition of Change of Control includes the sale, lease,
conveyance, or other disposition of all or "substantially all" of the Company's
assets. Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a holder of Notes to require
the Company to repurchase such Notes as a result of a transfer or lease of the
Company's assets to another person may be uncertain.
There can be no assurance that, at the time of a Change of Control, the
Company will have sufficient cash to repay all amounts due under the Notes. If a
Change of Control should occur, the rights of the Holders of the Notes to
receive payment for their Notes upon a Change of Control Offer would be subject
to the prior rights of holders of any Senior Indebtedness. See "Ranking."
CERTAIN COVENANTS
Limitations on Additional Indebtedness. The Indenture provides that (i)
the Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create, incur, assume, guarantee, extend the maturity
of, or otherwise become liable with respect to (collectively, "incur"), any
Indebtedness (including without limitation Acquired Indebtedness), other than
(a) Junior Subordinated Indebtedness incurred by the Company in compliance with
the covenant described in the second sentence of this paragraph or (b)
Indebtedness between the Company and its Wholly Owned Restricted Subsidiaries
(provided that such Indebtedness of the Company to any Wholly Owned Restricted
Subsidiary is expressly subordinated in right of payment to the Notes) or among
such Wholly Owned Restricted Subsidiaries (provided, however, that any
subsequent issue or transfer of any Capital Stock that results in any such
Wholly Owned Restricted Subsidiary ceasing to be a Wholly Owned Restricted
Subsidiary or any transfer of such Indebtedness (other than to a Wholly Owned
Restricted Subsidiary) shall be deemed, in each case, to constitute the
incurrence of such Indebtedness by the Company) and (ii) the Company will not
permit any of its Restricted Subsidiaries to issue (except to the Company or any
of its Wholly Owned Restricted Subsidiaries) any Capital Stock having a
preference in liquidation or with respect to the payment of dividends, unless,
after giving effect thereto, the Company's Consolidated Fixed Charge Coverage
Ratio on the date thereof would be at least:
(1) 2.00 to 1, if such date is on or prior to February 29, 1996;
(2) 2.25 to l, if such date is after February 29, 1996 and on or prior to
February 28, 1998; and
(3) 2.50 to 1, if such date is after February 28, 1998,
in each case determined on a pro forma basis as if the incurrence of such
additional Indebtedness or the issuance of such Capital Stock, as the case may
be, and the application of the net proceeds therefrom, had occurred at the
beginning of the four-quarter period used to calculate the Company's
Consolidated Fixed Charge Coverage Ratio. The Indenture also provides that the
Company will not directly or indirectly incur any Junior Subordinated
Indebtedness unless, after giving effect thereto, the Company's Consolidated
Fixed Charge Coverage Ratio on the date thereof would be at least 1.50 to 1, in
each case determined on a pro forma basis as if the incurrence of such
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additional Indebtedness, and the application of the net proceeds therefrom, had
occurred at the beginning of the four-quarter period used to calculate the
Company's Consolidated Fixed Charge Coverage Ratio.
Notwithstanding the immediately preceding paragraph, the Company and its
Restricted Subsidiaries may: (i) incur Indebtedness under the Credit Agreement
in an amount not to exceed $60 million; (ii) incur Indebtedness not otherwise
permitted by any other provision hereof, so long as the aggregate principal
amount of Indebtedness incurred under this clause (ii) does not exceed 7.5% of
the Consolidated Tangible Assets of the Company; and (iii) incur Refinancing
Indebtedness. In addition, notwithstanding the immediately preceding paragraph:
(A) Subsidiaries of the Company that are not Wholly Owned Restricted
Subsidiaries may incur Indebtedness to the Company or any of its Wholly Owned
Restricted Subsidiaries in the amounts and subject to the restrictions described
in clause (iii) of the covenant described under "Limitations on Subsidiary Debt
and Preferred Stock"; and (B) Single Purpose Subsidiaries of the Company may
incur Non-Recourse Indebtedness to the extent permitted by clause (iv) of the
covenant described under "Limitations on Subsidiary Debt and Preferred Stock."
Notwithstanding the two preceding paragraphs, the Company may not incur any
Indebtedness if such Indebtedness is subordinate or junior in ranking in any
respect to any Senior Indebtedness unless such Indebtedness is Junior
Subordinated Indebtedness. In addition, the Company may not incur any secured
Indebtedness which is not Senior Indebtedness unless contemporaneously therewith
effective provision is made to secure the Notes equally and ratably with such
secured Indebtedness for so long as such secured Indebtedness is secured by a
Lien.
Limitations on Subsidiary Debt and Preferred Stock. The Indenture provides
that the Company will not permit any of its Restricted Subsidiaries, directly or
indirectly, to create, incur, assume, guarantee, extend the maturity of, or
otherwise become liable with respect to (collectively, "incur"), any
Indebtedness (which, with respect to any Restricted Subsidiary, includes without
limitation preferred stock of such Restricted Subsidiary) except: (i) guarantees
by any Restricted Subsidiary of the payment of the principal of, premium, if
any, and interest on the Indebtedness incurred pursuant to the Credit Agreement
and in compliance with clause (i) of the second paragraph of the covenant
described under "Limitations on Additional Indebtedness" and with the covenant
described under "Limitations on Guarantees"; (ii) Indebtedness issued to and
held by the Company or a Wholly Owned Restricted Subsidiary of the Company
(provided, however, that any subsequent issue or transfer of any Capital Stock
that results in any such Wholly Owned Restricted Subsidiary ceasing to be a
Wholly Owned Restricted Subsidiary or any transfer of such Indebtedness (other
than to a Wholly Owned Restricted Subsidiary) shall be deemed, in each case, to
constitute the incurrence of such Indebtedness by such Restricted Subsidiary);
(iii) Indebtedness to the Company or any of its Wholly Owned Restricted
Subsidiaries incurred by Subsidiaries of the Company that are not Wholly Owned
Restricted Subsidiaries that are engaged in Permitted Businesses in an aggregate
amount (together with all Designated Investments made in Subsidiaries that are
not Wholly Owned Restricted Subsidiaries in compliance with the provisions of
clause (E) of the second paragraph of the covenant described under "Limitations
on Restricted Payments") not to exceed 5% of Consolidated Tangible Assets; and
(iv) Non-Recourse Indebtedness incurred by a Single Purpose Subsidiary.
Limitations on Restricted Payments. The Indenture provides that the
Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, make any Restricted Payment if at the time of such
Restricted Payment: (i) a Default or Event of Default shall have occurred and be
continuing or shall occur as a consequence thereof; (ii) the Company would be
unable to incur an additional $1.00 of Senior Indebtedness under the covenant
described in the first sentence of the first paragraph under "Limitations on
Additional Indebtedness;" or (iii) the amount of such Restricted Payment, when
added to the aggregate amount of all Restricted Payments (other than those made
pursuant to the provisions of clauses (A), (C), (D), (E) or (G) of the
immediately following paragraph) made after the date of the Indenture, exceeds
the sum of: (a) 50% of the Company's Consolidated Net Income accrued during the
period since August 31, 1993 (or, if such aggregate Consolidated Net Income
shall be a deficit, minus 100% of such aggregate deficit); plus (b) the
aggregate amount of Net Reductions in Investments attributable to Designated
Investments made by the Company or any Subsidiary subsequent to the date of the
Indenture; provided, however, that (1) the Net Reductions in Investments
attributable to any Designated Investment for purposes of this calculation shall
not exceed the amount of such Designated Investment, (2) to the
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extent that cash or Cash Equivalents included in any Net Reductions in
Investments pursuant to the definition thereof have been or will be included in
the computation of Consolidated Net Income for purposes of determining the
ability of the Company or any of its Restricted Subsidiaries to make Restricted
Payments under clause (iii)(a) of this paragraph, such cash or Cash Equivalents
shall not also be included in computing Net Reductions in Investments for
purposes of this clause (iii)(b), and (3) the Company is not be permitted to
make any Restricted Payment described in clause (i) or (ii) of the definition of
Restricted Payment from any Net Reductions in Investments.
Notwithstanding the foregoing, the provisions of clauses (ii) and (iii) of
the immediately preceding paragraph will not prevent: (A) the Company or any
Wholly Owned Restricted Subsidiary from making Investments in Subsidiaries, in
an aggregate amount not to exceed $4 million, pursuant to contractual
obligations in existence on the date of the Indenture or directly related to
projects in existence on the date of the Indenture; (B) the Company from paying
any dividend within 60 days after the date of its declaration if such dividend
could have been paid on the date of its declaration without violation of this
covenant; (C) the Company from purchasing or redeeming and retiring any shares
of Capital Stock of the Company, and paying accrued and unpaid dividends on such
shares at the time of such repurchase or redemption, in exchange for, or out of
the net proceeds of a substantially concurrent sale (other than to a Subsidiary
of the Company or an employee stock ownership plan) of, shares of Qualified
Capital Stock of the Company; (D) the Company or any Subsidiary from making (1)
Investments pursuant to the provisions of employee benefit plans of the Company
or any of its Subsidiaries in an aggregate amount not to exceed $500,000 in a
fiscal year, or (2) making loans to officers of the Company in connection with
any relocation of residence, approved by a majority of the independent members
of the Board of Directors of the Company, provided that the aggregate amount of
Investments and loans under this clause (D) shall not exceed $1 million in any
fiscal year; (E) the Company or any Wholly Owned Restricted Subsidiary from
making Designated Investments (1) in Subsidiaries that are not Wholly Owned
Restricted Subsidiaries in an aggregate amount (together with Indebtedness
incurred by or on behalf of Subsidiaries that are not Wholly Owned Restricted
Subsidiaries in compliance with the provisions of clause (iii) of the covenant
described under "Limitations on Subsidiary Debt and Preferred Stock") not to
exceed 5% of Consolidated Tangible Assets or (2) in Joint Ventures in an
aggregate amount not to exceed 5% of Consolidated Tangible Assets, provided
that: (1) the Person in whom the Investment is made is engaged only in Permitted
Businesses; (2) the Company, directly or through Wholly Owned Restricted
Subsidiaries of the Company, controls, under an operating and management
agreement or otherwise, the day to day management and operation of such Person
or otherwise has the right to exercise significant influence over the management
and operation of such Person in all material respects (including without
limitation the right to control or veto any material act or decision); and (3)
after giving effect to such Investment, the aggregate amount of Indebtedness and
Investments made by the Company and its Subsidiaries in such Person does not
exceed $5 million; (F) the Company or any Wholly Owned Restricted Subsidiary
from making Designated Investments in Subsidiaries that are not Wholly Owned
Restricted Subsidiaries or in Joint Ventures; provided that such Designated
Investments are made solely from (i) the net proceeds of a substantially
concurrent sale (other than to a Subsidiary of the Company or an employee stock
ownership plan) of shares of Qualified Capital Stock of the Company, (ii) 50% of
the Company's Consolidated Net Income accrued during the period since August 31,
1993, or (iii) the aggregate amount of Net Reductions in Investments (not to
exceed the aggregate amount of such Designated Investments) made by the Company
or any Subsidiary subsequent to the date of the Indenture; (G) the Company from
redeeming for cash all (but not less than all) of the outstanding shares of the
Company's Series 2D Preferred Stock; provided, however, that such redemption
shall not be at a price in excess of the redemption price set forth in Section
17.01 of the Company's Amended and Restated Certificate of Incorporation in
effect as of the date of the Indenture; or (H) the Company from paying regularly
quarterly dividends, each such quarterly dividend payment not to exceed $487,500
in the aggregate or $2,437.50 per share on the outstanding shares of the
Company's Series 2D Preferred Stock.
Limitations on Restrictions on Distributions from Subsidiaries. The
Indenture provides that the Company will not, and will not permit any of its
Restricted Subsidiaries to, create or otherwise cause or suffer to exist or
become
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effective any consensual Payment Restriction with respect to any of its
Restricted Subsidiaries, except for (i) Payment Restrictions covering not more
than $1 million in the aggregate of retained earnings of ICF Kaiser Servicios
Ambientales, S.A. de C.V., (ii) any such Payment Restriction contained in
Existing Indebtedness or existing contracts to which the Company or any of its
Restricted Subsidiaries are parties, (iii) any such Payment Restriction under
any agreement evidencing any Acquired Indebtedness that was permitted to be
incurred pursuant to the Indenture, provided that such Payment Restriction only
applies to assets that were subject to such restrictions and encumbrances prior
to the acquisition of such assets by the Company or its Restricted Subsidiaries,
and (iv) any such Payment Restriction arising in connection with Refinancing
Indebtedness; provided that any such Payment Restrictions that arise under such
Refinancing Indebtedness are not, taken as a whole, more restrictive than those
under the agreement creating or evidencing the Indebtedness being refunded or
refinanced.
Limitations on Transactions with Affiliates. The Indenture provides that
the Company will not, and will not permit any of its Restricted Subsidiaries to,
make any loan, advance, guarantee or capital contribution to or for the benefit
of, or sell, lease, transfer, or otherwise dispose of any of its properties or
assets to or for the benefit of, or make any Investment in, or purchase or lease
any property or assets from, or enter into or amend any contract, agreement or
understanding with or for the benefit of, any Affiliate of the Company or any of
its Subsidiaries (each an "Affiliate Transaction"), other than Affiliate
Transactions in the ordinary course of business and consistent with past
practice that are fair to the Company or such Restricted Subsidiary, as the case
may be, and are on terms at least as favorable as would have been obtainable at
such time from an unaffiliated party, unless the Board of Directors of the
Company or such Restricted Subsidiary, as the case may be, pursuant to a Board
Resolution reasonably and in good faith determines that such Affiliate
Transaction is fair to the Company or such Restricted Subsidiary, as the case
may be, and is on terms at least as favorable as would have been obtainable at
such time from an unaffiliated party. In addition, the Company will not, and
will not permit any of its Restricted Subsidiaries to, enter into any Affiliate
Transaction or series of Affiliate Transactions involving or having a value of
more than (i) $1 million unless a majority of the members of the Board of
Directors of the Company who are not affiliated with any other party to such
Affiliate Transaction reasonably and in good faith shall have determined that
such Affiliate Transaction or series of Affiliate Transactions is fair to the
Company or such Restricted Subsidiary, as the case may be, and is on terms at
least as favorable as would have been obtainable at such time from an
unaffiliated party, and (ii) $5 million unless the Company or such Restricted
Subsidiary, as the case may be, has received an opinion from an Independent
Financial Advisor to the effect that the financial terms of such Affiliate
Transaction are fair to the Company or such Restricted Subsidiary, as the case
may be, from a financial point of view.
The provisions of the foregoing paragraph shall not apply to: (i)
transactions exclusively between or among the Company and any of its Wholly
Owned Restricted Subsidiaries or exclusively between or among any of the
Company's Wholly Owned Restricted Subsidiaries, provided that such transactions
are not otherwise prohibited by the Indenture; (ii) arms-length transactions
between the Company or any of its Wholly Owned Restricted Subsidiaries and the
other owners of any Subsidiary or Joint Venture described in the last sentence
of the definition of Affiliate; and (iii) reasonable compensation,
indemnification, and other benefits paid or made available to officers,
directors and employees of the Company or any Subsidiary for services rendered
in such Person's capacity as an officer, director or employee.
Limitations on Asset Sales. The Indenture provides that the Company will
not, and will not permit any of its Restricted Subsidiaries to, consummate any
Asset Sale unless: (i) the Company or its Restricted Subsidiaries receive
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets or Capital Stock included in such Asset Sale; (ii) the
aggregate fair market value of the consideration from such Asset Sale (other
than consideration in the form of assumption of Indebtedness of the Company or
one or more of its Restricted Subsidiaries from which the Company or such
Restricted Subsidiaries, as the case may be, are released) that is not in the
form of cash or Cash Equivalents shall not, when aggregated with the fair market
value of all other non-cash or non-Cash Equivalent consideration received by the
Company and its Restricted Subsidiaries from all previous Asset Sales since the
date of the Indenture that have not yet been converted into cash or Cash
Equivalents, exceed 5% of Consolidated Tangible Assets of the Company at the
time of such Asset Sale; and (iii) if the aggregate fair market value of the
assets or Capital Stock to be sold in such Asset Sale exceeds $3 million, such
Asset Sale has been approved by the Company's Board of Directors.
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Within six months after consummation of any such Asset Sale, the Company
shall, or shall cause the applicable Restricted Subsidiary to: (i) reinvest the
cash and Cash Equivalent portion of the Net Proceeds of such Asset Sale in a
manner that would constitute a Related Business Investment; (ii) apply or cause
to be applied the cash and Cash Equivalent portion of the Net Proceeds of such
Asset Sale to repay outstanding Senior Indebtedness of the Company or any
Restricted Subsidiary, provided, however, that any such repayment of
Indebtedness under any revolving credit facility or similar agreement shall
result in a permanent reduction in the lending commitment relating thereto in an
amount equal to the principal amount so repaid; or (iii) apply or cause to be
applied the cash and Cash Equivalent portion of the Net Proceeds of such Asset
Sale that is neither reinvested as provided in clause (i) nor applied to the
repayment of Senior Indebtedness as provided in clause (ii) to the purchase of
Notes tendered to the Company at a purchase price equal to 100% of the principal
thereof, plus accrued interest thereon to the date of purchase, pursuant to an
offer to purchase made by the Company as set forth below (an "Asset Sale Offer"
); provided, however, that the Company may defer the Asset Sale Offer until the
amount subject thereto would be at least $5 million.
Notwithstanding the foregoing provisions: (i) to the extent that any or all
of the Net Proceeds of any Foreign Asset Sale are prohibited or delayed by
applicable local law from being repatriated to the United States, the portion of
such Net Proceeds so affected will not be required to be applied in the manner
set forth in this covenant but may be retained by the applicable Foreign
Subsidiary so long, but only so long, as the applicable local law will not
permit repatriation to the United States (the Company hereby agreeing to cause
the applicable Foreign Subsidiary promptly to take all actions required by the
applicable local law to permit such repatriation) and, once such repatriation of
any of such affected Net Proceeds is permitted under the applicable local law,
such repatriation will be immediately effected and such repatriated Net Proceeds
will be applied in the manner set forth in this covenant; and (ii) to the extent
that the Board of Directors has determined in good faith that repatriation of
any or all of the Net Proceeds of any Foreign Asset Sale would have a material
adverse tax consequence, the Net Proceeds so affected may be retained by the
applicable Foreign Subsidiary for so long as such material adverse tax event
would continue.
Restrictions on Sale of Stock of Subsidiaries. The Indenture provides that
the Company may not sell or otherwise dispose of any of the Capital Stock of any
Restricted Subsidiary of the Company unless: (i) (a)(x) the Company shall retain
ownership of more than 50% of the Common Equity of such Restricted Subsidiary or
(y) all of the Capital Stock of such Restricted Subsidiary shall be sold or
otherwise disposed of; and (b) the Net Proceeds from any such sale or
disposition are applied in a manner consistent with the provisions described
under "Limitations on Asset Sales"; or (ii) the Company elects to treat the
amount of its remaining investment in any such Restricted Subsidiary that has
become a Joint Venture as a result of such sale or disposition as an Investment
in such Joint Venture subject to the provisions described under "Limitations on
Restricted Payments."
Limitations on Mergers and Certain Other Transactions. The Indenture
provides that the Company, in a single transaction or a series of related
transactions, will not (i) consolidate or merge with or into, or sell, lease,
convey or otherwise dispose of all or substantially all of its assets, or assign
any of its obligations under the Notes or the Indenture, to any Person or (ii)
adopt a Plan of Liquidation unless, in either case: (a) the Person formed by or
surviving such consolidation or merger (if other than the Company) or to which
such sale, lease, conveyance or other disposition or assignment shall be made
(or, in the case of a Plan of Liquidation, one Person to which assets are
transferred) (collectively, the "Successor"), is a corporation organized and
existing under the laws of the United States or any State thereof or the
District of Columbia, and the Successor assumes by supplemental indenture in a
form satisfactory to the Trustee all of the obligations of the Company under the
Notes and the Indenture; (b) immediately prior to and immediately after and
giving effect to such transaction and the assumption of the obligations as set
forth in clause (a) above and the incurrence of any Indebtedness to be incurred
in connection therewith, no Default or Event of Default shall have occurred and
be continuing; and (c) immediately after and giving effect to such transaction
and the assumption of the obligations as set forth in clause (a) above and the
incurrence of any Indebtedness to be incurred in connection therewith, and the
use of any net proceeds therefrom on a pro forma basis, (1) the Consolidated
Tangible Net Worth of the Company or the Successor, as the case may be, would be
at least equal to the Consolidated Tangible Net Worth of the Company immediately
prior to such transaction and (2) the Company or the Successor, as the case may
be, could incur at least $1.00 of additional
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Senior Indebtedness under the covenant described under "Limitations on
Additional Indebtedness." In addition, the Indenture provides that the Company
will not permit any Single Purpose Subsidiary that has outstanding Indebtedness
to consolidate or merge with any other Person other than a Person the activities
of which are limited to ownership of a portion of the same project in which the
referent Single Purpose Subsidiary owns an interest. The foregoing provisions of
the Indenture do not prohibit a transaction the sole purpose of which (as
determined in good faith by the Board of Directors and evidenced by a Board
Resolution) is to change the state of incorporation of the Company or a Single
Purpose Subsidiary, as the case may be, and such transaction does not have as
one of its purposes the evasion of the limitations described above.
Limitations on Guarantees. The Indenture provides that the Company will
not permit any of its Restricted Subsidiaries to guarantee any Indebtedness
(other than (i) guarantees permitted under the provisions of clause (i) of the
covenant described under "Limitations on Subsidiary Debt and Preferred Stock"
and (ii) guarantees delivered pursuant to the Credit Agreement by Subsidiaries
of the Company who have delivered similar guarantees prior to the date of the
Indenture) unless the Company causes each such Subsidiary to execute and deliver
to the Trustee, prior to or concurrently with the issuance of such guarantee, a
supplemental indenture, in form satisfactory to the Trustee, pursuant to which
such Subsidiary unconditionally guarantees the payment of principal of, premium,
if any, and interest on the Notes. Any such guarantee shall be subordinated in
right of payment to the guarantee by such Subsidiary pursuant to the Bank Credit
Agreement. One such Subsidiary became a guarantor under the Indenture in
September 1995.
EVENTS OF DEFAULT
"Events of Default" are defined in the Indenture as: (i) failure by the
Company to pay interest on any of the Notes when it becomes due and payable and
the continuance of any such failure for 30 days, whether or not such payment is
prohibited by the provisions described under "Ranking"; (ii) failure by the
Company to pay the principal or premium of any of the Notes when it becomes due
and payable, whether at stated maturity, upon redemption, upon acceleration or
otherwise (including failure to make payment pursuant to a Change in Control
Offer or an Asset Sale Offer), whether or not such payment is prohibited by the
provisions described under "Ranking"; (iii) failure by the Company to comply
with any covenant in the Indenture and continuance of such failure for 60 days
after notice of such failure has been given to the Company by the Trustee or by
the Holders of at least 25% of the aggregate principal amount of the Notes then
outstanding; (iv) failure by the Company or any of its Subsidiaries to make any
payment when due or during any applicable grace period, and the continuation of
such failure for seven days, in respect of any Indebtedness of the Company or
any of its Subsidiaries, other than Non-Recourse Indebtedness of a Single
Purpose Subsidiary, that has an aggregate outstanding principal amount of $2
million or more; (v) a default under any Indebtedness, other than Non-Recourse
Indebtedness of a Single Purpose Subsidiary, whether such Indebtedness now
exists or hereafter shall be created, if (A) such default results in the holder
or holders of such Indebtedness causing such Indebtedness to become due prior to
its stated maturity and (B) the principal amount of such Indebtedness, together
with the principal amount of any other such Indebtedness the maturity of which
has been so accelerated, aggregate $2 million or more at any one time
outstanding; (vi) one or more final judgments or orders that exceed $2 million
in the aggregate for the payment of money have been entered by a court or courts
of competent jurisdiction against the Company or any of its Subsidiaries and
such judgment or judgments have not been satisfied, stayed, annulled, or
rescinded within 60 days of being entered; and (vii) certain events of
bankruptcy, insolvency or reorganization involving the Company or any of its
Subsidiaries.
If an Event of Default (other than an Event of Default resulting from
bankruptcy, insolvency or reorganization involving the Company) shall have
occurred and be continuing under the Indenture, the Trustee by written notice to
the Company, or the Holders of at least 25% in aggregate principal amount of the
Notes then outstanding by written notice to the Company and the Trustee, may
declare all amounts owing under the Notes to be due and payable immediately.
Upon such declaration of acceleration, the aggregate principal of and interest
on the outstanding Notes shall immediately become due and payable. If an Event
of Default results from bankruptcy, insolvency or reorganization involving the
Company, all outstanding Notes shall become due and payable without any further
action or notice. In certain cases, the Holders of a majority in aggregate
principal amount of the Notes
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then outstanding may waive an existing Default or Event of Default and its
consequences, except a default in the payment of principal of, premium, if any,
and interest on the Notes.
The Holders may not enforce the provisions of the Indenture or the Notes
except as provided in the Indenture. Subject to certain limitations, Holders of
a majority in principal amount of the Notes then outstanding may direct the
Trustee in its exercise of any trust or power; provided however, that such
direction does not conflict with the terms of the Indenture. The Trustee may
withhold from the Holders notice of any continuing Default or Event of Default
(except any Default or Event of Default in payment of principal of, premium, if
any, or interest on the Notes) if the Trustee determines that withholding such
notice is in the Holders' interest.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture and, upon any Officer of the Company
becoming aware of any Default or Event of Default, a statement specifying such
Default or Event of Default and what action the Company is taking or proposes to
take with respect thereto.
MISCELLANEOUS PROVISIONS
Discharge of Indenture. The Indenture permits the Company to terminate all
of its obligations under the Indenture, other than the obligation to pay the
principal of, premium, if any, and interest on the Notes, and certain other
obligations at any time by (i) depositing in trust with the Trustee, under an
irrevocable trust agreement, money, or U.S. government obligations in an amount
sufficient to pay principal of, premium, if any, and interest on the Notes to
their maturity or redemption, as the case may be, and (ii) complying with
certain other conditions, including delivery to the Trustee of an opinion of
counsel or a ruling received from the Internal Revenue Service to the effect
that Holders will not recognize income, gain, or loss for Federal income tax
purposes as a result of the Company's exercise of such right and will be subject
to Federal income tax on the same amount and in the same manner and at the same
times as would have been the case otherwise.
Amendment, Supplement, and Waiver. Subject to certain exceptions, the
Indenture or the Notes may be amended or supplemented with the consent (which
may include consents obtained in connection with a tender offer or exchange
offer for Notes) of the Holders of at least a majority in principal amount of
the Notes then outstanding, and any existing Default under, or compliance with
any provision of, the Indenture may be waived (other than any continuing Default
or Event of Default in the payment of the principal of, premium, if any, or
interest on the Notes or that resulted from the failure to comply with the
covenant described under "Change of Control") with the consent (which may
include consents obtained in connection with a tender offer or exchange offer
for Notes) of the Holders of a majority in principal amount of the Notes then
outstanding. Without the consent of any Holder, the Company and the Trustee may
amend or supplement the Indenture or the Notes to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or in place of
certificated Notes, to provide for the assumption of the Company's obligations
to Holders in the case of a merger or acquisition, or to make any change that
does not adversely affect the rights of any Holder.
Without the consent of each Holder affected, the Company may not: (i)
extend the maturity of any Note; (ii) affect the terms of any scheduled payment
of interest on or principal of the Notes (including without limitation any
redemption provisions); (iii) modify or eliminate any of the provisions of the
Indenture relating to a Change of Control; (iv) make any change in the
subordination provisions of the Indenture that adversely affects the rights of
any Holder; or (v) reduce the percentage of Holders necessary to consent to an
amendment, supplement or waiver to the Indenture.
The right of any Holder to participate in any consent required or sought
pursuant to any provision of the Indenture (and the obligation of the Company to
obtain any such consent otherwise required from such Holder) may be subject to
the requirement that such Holder shall have been the Holder of record of any
Notes with respect to which such consent is required or sought as of a date
identified by the Trustee in a notice furnished to Holders in accordance with
the terms of the Indenture.
-69-
<PAGE>
Concerning the Trustee. The Indenture contains certain limitations on the
rights of the Trustee, should it become a creditor of the Company, to obtain
payment of claims in certain cases, or to realize on certain property received
in respect of any such claim as security or otherwise. The Trustee is permitted
to engage in other transactions; however, if it acquires any conflicting
interest (as defined in the Indenture), it must eliminate such conflict or
resign. The Holders of a majority in principal amount of the then outstanding
Notes have the right to direct the time, method, and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that, in case an Event of Default
occurs and is not cured, the Trustee is required, in the exercise of its power,
to use the degree of care of a prudent person in similar circumstances in the
conduct of his own affairs. Subject to such provisions, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to the Trustee.
DESCRIPTION OF THE CREDIT FACILITY
Effective on January 11, 1994, the Company entered into a revised revolving
credit and letter of credit facility (the "Credit Agreement"), with a
syndicate of banks (the "Banks"). The agent for the Banks (the "Agent") is
Chemical Bank. Capitalized terms used in this description of the Credit
Agreement and not defined herein have the meanings assigned to them in the
Credit Agreement. The material terms of the Credit Agreement are summarized
below:
Borrowing Availability and Termination Date. Under the Credit Agreement,
loans may be made to the Company and letters of credit may be issued at the
request of the Company for an aggregate amount of the lesser of (i) $60 million,
or (ii) the Borrowing Base (85% of Eligible Billed Accounts Receivable) as
reduced by outstanding additional permitted indebtedness. If the Company sells
assets other than in the ordinary course of business while the Credit Agreement
is in effect, the borrowing availability will be reduced by one-half of the net
proceeds from each sale; provided, however, that there will be no reduction for
the first $10 million in aggregate net proceeds. The Credit Agreement terminates
on October 31, 1996.
Limitation on Cash Borrowings. As the result of an early 1995 amendment to
the Credit Agreement, the Company cannot borrow cash under the Credit Agreement
if the Company holds in excess of $15 million in Restricted Cash or $10 million
in Unrestricted Cash. Essentially Restricted Cash includes cash held in accounts
in foreign countries (usually not repatriated because of adverse tax
consequences) and cash held by the Company's captive insurance subsidiary.
Interest. The Credit Agreement contains Eurodollar and Alternate Base
Rate ("ABR") options, with applicable margins depending on the Company's ratio
of (i) Consolidated Net Income plus Consolidated Interest Expense and income
taxes to (ii) Consolidated Interest Expense.
Fee. The Company pays certain fees and commissions to the Banks, including
a commitment fee of 1/2% per annum on the unused portion of the facility.
Outstanding letters of credit bear a fee equal to the Eurodollar applicable
margin in effect over the payment period.
Collateral. Advances under the Credit Agreement are secured on a first
priority basis by a pledge of all of the billed and unbilled accounts of the
Company and certain of its subsidiaries, as well as certain other tangible and
intangible assets of the Company and of its subsidiaries.
Subsidiary Guarantee. Certain Subsidiaries of the Company (the
"Subsidiary Guarantors") entered into a joint and several guarantee of the
Company's payment obligations under the Credit Agreement. Each of the Subsidiary
Guarantors also agreed to a number of covenants in favor of the Agent, including
covenants (each with specified exceptions) (i) not to create, incur or permit to
exist any Lien on its collateral, (ii) not to sell, transfer, lease or otherwise
dispose of any of its collateral, (iii) not to amend, modify, terminate or waive
any provision of any agreement giving rise to an Account (as defined in the
Credit Agreement) in a manner that could have a
-70-
<PAGE>
materially adverse effect upon the value of the Account as collateral, and (iv)
not to grant discounts, compromises or extensions of Accounts except in the
ordinary course of business.
Financial Covenants. The Credit Agreement contains financial covenants that
require the Company to maintain certain financial ratios above or below
specified limits, including, but not limited, to those described below. The
Company and the Banks have not yet agreed on a Credit Agreement amendment to
reflect the Company's fiscal year change. The Company covenants that it will not
allow the ratios of (i) Adjusted Consolidated Net Income to Consolidated Fixed
Charges (the "Fixed Charge Coverage Ratio") and (ii) (x) Consolidated Net Income
plus Consolidated Interest Expense and income taxes to (y) Consolidated Interest
Expense (the "Interest Coverage Ratio"), computed on a consolidated, rolling
four quarters basis to be less than those set forth below:
<TABLE>
<CAPTION>
Period Ending Fixed Charge Coverage Ratio Interest Coverage Ratio
------------- --------------------------- -----------------------
<S> <C> <C>
November 30, 1995 1.10:1.00 1.60:1.00
February 28, 1996 1.15:1.00 1.80:1.00
Thereafter 1.20:1.00 2.00:1.00
</TABLE>
The Company also covenants that it will not allow the ratio of Consolidated
Funded Indebtedness to Consolidated Capital Funds Ratio, on a consolidated,
quarterly basis to exceed those set forth below:
<TABLE>
<CAPTION>
Test Period Ratio
----------- -----
<S> <C>
September 1, 1995 through November 30, 1995 .77:1.0
December 1, 1995 through February 28, 1995 .76:1.0
Thereafter .75:1.0
</TABLE>
Under the Credit Agreement, the Company and its subsidiaries agree not to
assume, incur or create any debt except for (i) debt incurred in conjunction
with the issuance of the Notes, (ii) debt under the Credit Agreement, (iii) up
to $10 million in additional debt (to the extent the Company has unused
Borrowing Base), and (iv) certain other debt specified in the Credit Agreement.
Restrictive Covenants. The Credit Agreement contains certain negative
covenants and restrictions customary for such a facility, including, without
limitation, restrictions on (i) the creation of liens, (ii) mergers and other
extraordinary transactions, (iii) transactions with affiliates and (iv) sale of
assets. Investments in project-related joint ventures will be limited to
$500,000 in any 12-month period, and investments in project finance ventures
will be limited to an aggregate of $12.5 million (minus any outstanding
financing, including letters of credit, related to Kaiser-Hill). In addition,
the Credit Facility limits other acquisitions and investments to an aggregate of
$5 million (plus the net cash proceeds from dispositions of acquisitions and
investments made after January 11, 1994), with any individual acquisition or
investment not to exceed $2 million.
In addition, with certain exceptions, the Company is not permitted to
declare or pay any dividend on its capital stock (other than dividends payable
solely in common stock or rights or other equity securities (not including
preferred stock) of the Company), or pay for the purchase, redemption,
retirement or other acquisition of any shares of any class of the Company's
stock, or make any distribution in respect thereof (such declaration, payments
and other above-referenced transactions hereinafter referred to as "Restricted
Payments"). Permitted Restricted Payments include (i) dividends on capital
stock in amounts which, together with certain permitted redemptions of common
stock, do not exceed the sum of the aggregate amount received by the Company
from the issuance of capital stock after January 11, 1994 and 20% of
Consolidated Net Income for the period commencing September 1, 1993, and (ii)
certain preferred stock dividends, provided that, after giving effect to such
Restricted Payments, no Default or Event of Default will be in existence. The
Company's Subsidiaries may make Restricted Payments to the Company at any time.
-71-
<PAGE>
Events of Default. The Credit Agreement provides for various events of
default, including, among others: (i) the failure to make any payment of
principal of, interest on, or any other amount owing in respect of any
obligation under the Credit Agreement when due and payable, (ii) the breach of
certain of the covenants and restrictive covenants contained in the Credit
Agreement; (iii) the failure by the Company or any of its subsidiaries to make a
required payment of principal of, interest on, or under a guarantee obligation
with respect to, any indebtedness in excess of $1 million (other than
indebtedness incurred pursuant to the Credit Agreement); (iv) the failure of the
Company to observe or perform any other condition or agreement relating to
indebtedness or guarantee obligation in excess of $1 million, where such failure
gives the holders the right to accelerate payment thereof; (v) the occurrence of
certain events of insolvency or bankruptcy (voluntary or involuntary); (vi) the
entering of one or more judgments or decrees against the Company or any of its
subsidiaries involving an aggregate liability in excess of $1 million that is
not or are not fully paid, covered by insurance, vacated, discharged or stayed
pending appeal within 60 days of entry; and (vii) the suspension of the Company
or any of its subsidiaries by an agency or branch of the government, but only if
aggregate gross revenues no longer accruing to the Company or a subsidiary as a
result of the suspended contract shall be at least $10 million. In addition, a
Change of Control (as such term is defined in the Indenture governing the Notes)
will be an event of default (i) one day before the Indenture requires the
Company to purchase the Notes following a Change of Control, or (ii) 89 days
after the Change of Control occurs, whichever occurs first.
Other Provisions. Affirmative covenants of the Company and its
Subsidiaries include the obligations to pay their material obligations at or
before maturity. The Company also is required to continue, and to cause its
subsidiaries to continue, to engage in businesses of the same general type as
now conducted.
LEGAL MATTERS
Matters relating to the legality of the 1,218,667 shares of Common Stock
being offered by this Prospectus have been passed upon for the Company by Paul
Weeks, II, Esq., Senior Vice President, General Counsel, and Secretary of the
Company.
As of March 6, 1996, Mr. Weeks owned 34,526 shares of Common Stock, of
which 6,088 are held by the Company's ESOP and allocated to his ESOP account and
863 of which are held in a directed investment account under the Company's
Retirement Plan. As of March 6, 1996, Mr. Weeks had options to purchase
21,667 shares of Common Stock (9,667 of which are exercisable during the 60-day
period beginning March 6, 1996).
EXPERTS
The ICF Kaiser International, Inc. and Subsidiaries consolidated balance
sheets as of December 31, 1995, February 28, 1995, and the consolidated
statements of operations, shareholders' equity, and cash flows for the ten
months ended December 31, 1995, and for each of the two years in the period
ended February 28, 1995, have been included herein in reliance on the report of
Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
-72-
<PAGE>
INDEX
Consolidated Financial Statements of ICF Kaiser International, Inc. and
Subsidiaries.
<TABLE>
<S> <C>
a. Report of Independent Accountants.......................................F-2
b. Consolidated Balance Sheets December 31, 1995, and February 28, 1995....F-3
c. Consolidated Statements of Operations for the ten months ended
December 31, 1995 and for the years ended February 28, 1995 and
February 28, 1994.......................................................F-4
d. Consolidated Statements of Shareholders' Equity for the ten months
ended December 31, 1995 and for the years ended February 28, 1995 and
February 28, 1994.......................................................F-5
e. Consolidated Statements of Cash Flows for the ten months ended
December 31, 1995 and for the years ended February 28, 1995 and
February 28, 1994.......................................................F-6
f. Notes to Consolidated Financial Statements .............................F-7
</TABLE>
- --------------------------------------------------------------------------------
F-1
<PAGE>
Report of Independent Accountants
---------------------------------
To the Board of Directors and Shareholders
ICF Kaiser International, Inc.
We have audited the consolidated financial statements and financial
statement schedule of ICF Kaiser International, Inc. and subsidiaries listed in
Item 14(a) of this Form 10-K. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of ICF
Kaiser International, Inc. and subsidiaries as of December 31, 1995 and February
28, 1995, and the consolidated results of their operations and their cash flows
for the ten months ended December 31, 1995, and for each of the two years in the
period ended February 28, 1995, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information
required to be included therein.
COOPERS & LYBRAND L.L.P.
Washington, D.C.
March 8, 1996
- --------------------------------------------------------------------------------
F-2
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except shares)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, February 28,
1995 1995
----------- -----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 16,357 $ 28,233
Contract receivables, net 228,239 139,860
Prepaid expenses and other current assets 20,911 10,872
Deferred income taxes 11,934 13,553
-------- --------
Total Current Assets 277,441 192,518
-------- --------
Fixed Assets
Furniture, equipment, and leasehold improvements 42,909 42,557
Less depreciation and amortization (33,369) (29,648)
-------- --------
9,540 12,909
-------- --------
Other Assets
Goodwill, net 49,259 47,945
Investments in and advances to affiliates 10,213 8,022
Due from officers and employees 1,053 1,826
Other 22,011 18,202
-------- --------
82,536 75,995
-------- --------
$369,517 $281,422
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 5,041 $ 578
Accounts payable and subcontractors payable 86,429 33,452
Accrued salaries and employee benefits 53,060 30,549
Accrued interest 7,414 2,528
Other accrued expenses 18,594 13,359
Income taxes payable 801 644
Deferred revenue 14,327 11,013
Other 7,186 8,755
-------- --------
Total Current Liabilities 192,852 100,878
-------- --------
Long-term Liabilities
Long-term debt, less current portion 120,112 126,733
Other 5,706 6,397
-------- --------
125,818 133,130
-------- --------
Commitments and Contingencies
Minority Interests in Subsidiaries 2,633 173
Redeemable Preferred Stock,
liquidation value $20,000 19,787 19,617
Common Stock, par value $.01 per share:
Authorized-90,000,000 shares
Issued and outstanding-21,263,828 and
21,011,369 shares 213 210
Additional Paid-in Capital 64,654 63,786
Notes Receivable Related to Common Stock (1,732) (1,732)
Retained Earnings (Deficit) (32,894) (33,343)
Cumulative Translation Adjustment (1,814) (1,297)
-------- --------
$369,517 $281,422
======== ========
</TABLE>
- --------------------------------------------------------------------------------
See notes to consolidated financial statements.
F-3
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ten Months
Ended Year Ended February 28,
December 31, -----------------------
1995 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross Revenue $ 916,744 $ 861,518 $ 651,657
Subcontract and direct material costs (493,971) (405,819) (272,169)
Equity in income of joint ventures
and affiliated companies 3,123 4,087 3,220
------------ ----------- ----------
Service Revenue 425,896 459,786 382,708
Operating Expenses
Direct cost of services and overhead 359,887 393,096 323,828
Administrative and general 40,647 43,770 45,842
Depreciation and amortization 8,357 9,232 9,559
Unusual items, net (500) - 8,709
------------ ----------- ----------
Operating Income (Loss) 17,505 13,688 (5,230)
Other Income (Expense)
Gain (loss) on sale of investment - 551 (925)
Interest income 2,053 1,799 1,490
Interest expense (13,255) (14,799) (8,212)
------------ ----------- ----------
Income (Loss) Before Income Taxes,
Minority Interests, and Extraordinary Item 6,303 1,239 (12,877)
Income tax provision (benefit) 2,091 2,900 (349)
------------ ----------- ----------
Income (Loss) Before Minority Interests
and Extraordinary Item 4,212 (1,661) (12,528)
Minority interests in net income of subsidiaries 1,960 - -
------------ ----------- ----------
Net Income (Loss) Before Extraordinary Item 2,252 (1,661) (12,528)
Extraordinary loss on early extinguishment of debt - - (5,969)
------------ ----------- ----------
Net Income (Loss) 2,252 (1,661) (18,497)
Preferred stock dividends and accretion 1,803 2,154 4,896
Redemption of redeemable preferred stock - - 1,929
------------ ----------- ----------
Net Income (Loss) Available for Common Shareholders $ 449 $ (3,815) $ (25,322)
============ =========== ==========
Primary and Fully Diluted Net Income (Loss)
Per Common Share:
Before extraordinary item $ 0.02 $ (0.18) $ (0.92)
Extraordinary loss on early extinguishment of debt - - (0.29)
------------ ----------- ----------
Total $ 0.02 $ (0.18) $ (1.21)
============ =========== ==========
Primary and Fully Diluted Weighted Average
Common and Common Equivalent
Shares Outstanding 21,517 20,957 20,886
============ =========== ==========
</TABLE>
- --------------------------------------------------------------------------------
See notes to consolidated financial statements.
F-4
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except shares)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Series 1 Junior Notes
Convertible Receivable
Preferred Stock Common Stock Additional Related Retained Cumulative ESOP
----------------- --------------------- Paid-in to Common Earnings Translation Guaranteed
Shares Par Value Shares Par Value Capital Stock (Deficit) Adjustment Bank Loan
------ --------- ---------- --------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 1, 1993 69 $ 6,900 21,303,807 $ 213 $ 65,040 $ (2,725) $ (4,206) $ (1,701) $ (5,000)
Net loss - - - - - - (18,497) - -
Preferred stock dividends - - - - - - (4,670) - -
Preferred stock accretion - - - - - - (226) - -
Redemption of redeemable
preferred stock - - - - - - (1,929) - -
Repurchase of preferred stock (69) (6,900) - - 2,050 - - - -
Issuances of common stock - - 231,249 2 1,056 - - - -
Repurchases of
common stock - - (610,468) (6) (3,716) - - - -
Issuance of warrants - - - - 900 - - - -
Repurchase of warrants - - - - (1,909) - - - -
Payments received on notes
receivable - - - - - 993 - - -
Decrease in loan balance - - - - - - - - 5,000
Foreign currency translation
adjustment - - - - - - - (40) -
Other - - - - 151 - - - -
------ --------- ---------- --------- ---------- ---------- ---------- ----------- ----------
Balance, February 28, 1994 - - 20,924,588 209 63,572 (1,732) (29,528) (1,741) -
Net loss - - - - - - (1,661) - -
Preferred stock dividends - - - - - - (1,950) - -
Preferred stock accretion - - - - - - (204) - -
Issuances of common stock - - 161,781 2 393 - - - -
Repurchases of
common stock - - (75,000) (1) (179) - - - -
Foreign currency translation
adjustment - - - - - - - 444 -
------ --------- ---------- --------- ---------- ---------- ---------- ----------- ----------
Balance, February 28, 1995 - - 21,011,369 210 63,786 (1,732) (33,343) (1,297) -
Net income - - - - - - 2,252 - -
Preferred stock dividends - - - - - - (1,633) - -
Preferred stock accretion - - - - - - (170) - -
Issuances of common stock - - 314,422 4 1,167 - - - -
Repurchases of
common stock - - (61,963) (1) (256) - - - -
Foreign currency translation
adjustment - - - - - - - (517) -
Other - - - - (43) - - - -
------ --------- ---------- --------- ---------- ---------- ---------- ----------- ----------
Balance, December 31, 1995 - $ - 21,263,828 $ 213 $ 64,654 $ (1,732) $ (32,894) $ (1,814) $ -
====== ========= ========== ========= ========== ========== ========== =========== ==========
</TABLE>
- --------------------------------------------------------------------------------
See notes to consolidated financial statements.
F-5
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ten Months
Ended Year Ended February 28,
December 31, --------------------------
1995 1995 1994
------------ --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 2,252 $ (1,661) $(18,497)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 8,357 9,232 9,559
Provision for losses on contract receivables 601 1,320 2,241
Provision for deferred income taxes 1,253 2,500 (714)
Earnings less than (in excess of) cash distributions from
joint ventures and affiliated companies (1,105) 972 (1,708)
Minority interests in net income of subsidiaries 1,960 -- --
(Gain) loss on sale of investment -- (551) 925
Unusual items, net of cash (500) -- 7,786
Extraordinary loss on early extinguishment of debt -- -- 5,969
Premium paid on reacquisition of senior subordinated notes -- -- (4,250)
Changes in operating assets and liabilities, net of acquisitions:
Contract receivables, net (88,743) (13,014) 26,292
Prepaid expenses and other current assets (3,826) 4,471 4,614
Other assets (4,953) (1,268) (745)
Accounts payable and accrued expenses 78,801 2,218 (10,233)
Income taxes payable 157 297 (2,478)
Deferred revenue 3,314 2,551 (2,412)
Other liabilities (3,625) (5,103) (2,660)
Other operating activities -- 219 418
-------- -------- --------
Net Cash Provided by (Used in) Operating Activities (6,057) 2,183 14,107
-------- -------- --------
INVESTING ACTIVITIES
Investments in subsidiaries and affiliates, net of cash acquired (2,010) (622) (2,755)
Sales of subsidiaries and subsidiary assets 735 2,600 --
Purchases of fixed assets (1,759) (2,426) (1,388)
Proceeds from sales of fixed assets 1,035 -- --
Other investing activities -- (600) --
-------- -------- --------
Net Cash Used in Investing Activities (1,999) (1,048) (4,143)
-------- -------- --------
FINANCING ACTIVITIES
Borrowings under credit facility agreement 16,000 5,000 10,000
Principal payments on credit facility agreement and other borrowings (17,173) (1,172) (47,010)
Proceeds from issuance of senior subordinated notes and related warrants -- -- 121,488
Reacquisition of senior subordinated notes and related warrants (1,363) -- (31,559)
Repurchases of redeemable preferred stock and related warrants -- (799) (27,363)
Repurchase of preferred stock -- -- (4,850)
Subsidiary capital contribution from minority interest 500 -- --
Proceeds from issuances of common stock 406 395 640
Repurchases of common stock (257) (180) (3,722)
Principal payments from notes receivable related to common stock -- -- 993
Preferred stock dividends (1,471) (1,950) (5,321)
Debt issuance costs -- (149) (6,307)
Other financing activities 55 -- 151
-------- -------- --------
Net Cash Provided by (Used in) Financing Activities (3,303) 1,145 7,140
-------- -------- --------
Effect of Exchange Rate Changes on Cash (517) 444 (40)
-------- -------- --------
Increase (Decrease) in Cash and Cash Equivalents (11,876) 2,724 17,064
Cash and Cash Equivalents, Beginning of Period 28,233 25,509 8,445
-------- -------- --------
Cash and Cash Equivalents, End of Period $ 16,357 $ 28,233 $ 25,509
-------- -------- --------
</TABLE>
- --------------------------------------------------------------------------------
See notes to consolidated financial statements.
F-6
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE A--ORGANIZATION AND NATURE OF OPERATIONS
ICF Kaiser International, Inc. (ICF Kaiser or the Company) was formed
on October 19, 1987, as a holding company for the ICF Kaiser family of companies
developed and acquired. These companies provide engineering, construction,
program management, and consulting services primarily to the public and private
environmental, infrastructure, industry, and energy markets domestically and
internationally.
NOTE B--SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements
include all subsidiaries (including Kaiser-Hill Company, LLC, effective July 1,
1995) that are controlled by ICF Kaiser. Certain of ICF Kaiser's subsidiaries
are partially owned by outside parties. For financial reporting purposes, the
assets, liabilities, results of operations, and cash flows of these subsidiaries
are included in ICF Kaiser's consolidated financial statements and the outside
parties' interests are reflected as minority interests. Investments in
unconsolidated joint ventures and affiliated companies are accounted for using
the equity method. The difference between the carrying value of investments
accounted for under the equity method and the Company's underlying equity is
amortized on a straight-line basis over the lives of the underlying assets. All
significant intercompany balances and transactions have been eliminated.
Significant Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Change in Fiscal Year: The Company changed from a fiscal year ending
February 28 to a fiscal year ending December 31, effective December 31, 1995.
As a result, the accompanying financial statements include consolidated
operations for the ten months ended December 31, 1995 and for the years ended
February 28, 1995 and 1994.
Revenue Recognition: Revenue is recorded on cost-type contracts as
costs are incurred. Revenue on time-and-materials contracts is recognized to
the extent of billable rates times hours delivered plus materials expense
incurred. Revenue on long-term, fixed-price contracts is recognized generally
using the percentage-of-completion method and, therefore, includes a proportion
of expected earnings based on costs incurred to total estimated costs.
Foreign Currency Translation: Results of operations for foreign
entities are translated using the average exchange rates during the period.
Assets and liabilities are translated to U.S. dollars using the exchange rate in
effect at the balance sheet date. Resulting translation adjustments are
reflected in shareholders' equity as cumulative translation adjustment.
Cash Equivalents and Restricted Cash: ICF Kaiser considers all highly
liquid financial instruments purchased with original maturities of three months
or less to be cash equivalents. Other assets as of December 31, 1995 and
February 28, 1995 included $600,000 of restricted cash and short-term
investments, which supported a letter of credit for one of ICF Kaiser's
subsidiaries.
Fixed Assets: Furniture and equipment are carried at cost, or fair
value at acquisition if acquired through a purchase of a business, and are
depreciated using the straight-line method over their estimated useful lives
ranging from three to ten years. Leasehold improvements are carried at cost and
are amortized using the straight-line method over the remaining lease term.
- --------------------------------------------------------------------------------
F-7
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Goodwill: Goodwill represents the excess of cost over the fair value
of the net assets of acquired businesses and is amortized using the straight-
line method over periods ranging from five to 40 years. The Company evaluates
the recoverability of goodwill on an annual basis by examining undiscounted
operating income. Accumulated amortization was $12,785,000 and $11,148,000 at
December 31, 1995 and February 28, 1995, respectively.
Income Taxes: The Company provides for deferred income taxes using
the liability method on temporary differences between financial reporting and
income tax reporting, which primarily relate to reserves for adjustments and
allowances. If necessary, management records a valuation allowance for deferred
tax assets. The most significant permanent differences between book and taxable
income are nondeductible goodwill amortization, minority interest earnings of a
consolidated subsidiary, the effect of foreign taxes, and differences between
the book and tax basis of businesses sold.
Income taxes have not been provided for the undistributed earnings of
the Company's foreign subsidiaries, because the Company intends to continue the
operations and reinvest the undistributed earnings indefinitely. Undistributed
earnings of foreign subsidiaries for which income taxes have not been provided
amounted to approximately $5.7 million at December 31, 1995.
Net Income (Loss) Per Common Share: Net income (loss) per common
share is computed using net income (loss) available for common shareholders, as
adjusted under the modified treasury stock method, and the weighted average
number of common stock and common stock equivalents outstanding during the
periods presented. Common stock equivalents include stock options and warrants
and additional shares which will be or may be issued in connection with
acquisitions. The adjustments required by the modified treasury stock method
and for acquisition-related contingencies were anti-dilutive for all loss
periods presented and immaterial to the income period presented. Therefore, the
adjustments were excluded from earnings per share computations.
Concentrations of Credit Risk: The Company maintains cash balances
primarily in overnight Eurodollar deposits, investment-grade commercial paper,
bank certificates of deposit, and U.S. government securities. ICF Kaiser grants
uncollateralized credit to its customers. Approximately 64% of ICF Kaiser's
contract receivables at December 31, 1995 are from the U.S. government (see Note
D). When practical and in order to mitigate its credit risk to commercial
customers, ICF Kaiser obtains advance funding of costs for industrial
construction work.
Long-Lived Assets: The Financial Accounting Standards Board (FASB)
recently issued Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, effective for financial statements for fiscal years beginning after December
15, 1995. It is the Company's current policy to evaluate all long-lived assets
on a periodic basis for asset impairment. Therefore, upon formal adoption of
this statement in 1996, management does not expect that there will be a
material adverse effect on the Company's financial position or operations.
Stock-Based Compensation: The FASB also recently issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123), which encourages companies to adopt a fair value
method of accounting for employee stock options and similar equity instruments.
The fair value method requires compensation cost to be measured at the grant
date based on the value of the award and is recognized over the service period.
Alternatively, SFAS No. 123 requires the provision of pro forma disclosures of
net income and earnings per share as if the fair value method had been adopted
when the fair value method is not reflected in the financial statements. The
Company has not yet determined whether it will adopt a fair value method of
accounting for stock-based compensation or provide pro forma disclosures. The
impact of the adoption of this statement on the financial statements cannot be
reasonably estimated at this time. The requirements of SFAS No. 123 are
effective for financial statements for fiscal years beginning after December 15,
1995.
- --------------------------------------------------------------------------------
F-8
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Reclassifications: Certain reclassifications have been made to the
prior period financial statements to conform to the presentation used in the
December 31, 1995 financial statements.
NOTE C--DIVESTITURES
The Company sold a 20% interest in a subsidiary during the year ended
February 28, 1995, resulting in a $551,000 pretax gain. During the year ended
February 28, 1994, ICF Kaiser sold a portion of its energy engineering business,
resulting in a $925,000 pretax loss.
NOTE D--CONTRACT RECEIVABLES
Contract receivables consist of the following (in thousands):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, February 28,
1995 1995
------------ ------------
<S> <C> <C>
U.S. government agencies:
Currently due $ 26,162 $ 36,752
Retention 1,870 2,026
Unbilled 123,890 34,273
-------- --------
151,922 73,051
-------- --------
Commercial clients and state
and municipal governments:
Currently due 64,121 69,317
Retention 5,361 4,522
Unbilled 16,270 2,834
-------- --------
85,752 76,673
-------- --------
237,674 149,724
Less allowances for
uncollectible receivables 9,435 9,864
-------- --------
$228,239 $139,860
======== ========
</TABLE>
- --------------------------------------------------------------------------------
U.S. government receivables arise from U.S. government prime contracts and
subcontracts. The significant increase in the unbilled U.S. government
receivables is due primarily to a contract between the U.S. Department of Energy
(DOE) and Kaiser-Hill Company, LLC (Kaiser-Hill) to perform services at DOE's
Rocky Flats Environmental Technology Site in Colorado. Unbilled receivables
result from revenue that has been earned but was not billed as of the end of the
period. The unbilled receivables can be invoiced at contractually defined
intervals and milestones, as well as upon completion of the contract or the
federal government cost audit. Generally, retention is not expected to be
realized within one year; consistent with industry practice, these receivables
are classified as current. Management anticipates that the remaining unbilled
receivables will be substantially billed and collected within one year.
- --------------------------------------------------------------------------------
F-9
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE E--JOINT VENTURES AND AFFILIATED COMPANIES
ICF Kaiser has ownership interests in certain unconsolidated corporate joint
ventures and affiliated companies. The Company's net investments in and
advances to these corporate joint ventures and affiliated companies are
summarized as follows (in thousands):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ownership
Interest at
December 31, December 31, February 28,
1995 1995 1995
------------ ------------ ------------
<S> <C> <C> <C>
Gary PCI Ltd. L.P. 50% $ 5,257 $ 4,315
LIFAC North America 50% 1,535 1,914
Other 20% to 50% 3,421 1,793
------- -------
$10,213 $ 8,022
======= =======
</TABLE>
- --------------------------------------------------------------------------------
Combined summarized financial information of all of ICF Kaiser's corporate
joint ventures and affiliated companies is as follows (in thousands):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, February 28, February 28,
1995 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Current assets $19,082 $15,103 $27,041
Non-current assets 42,400 12,723 6,608
Current liabilities 31,703 15,875 19,034
Non-current liabilities 446 55 455
Gross revenue 41,262 52,616 51,282
Net income 6,606 8,430 8,908
</TABLE>
- --------------------------------------------------------------------------------
F-10
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE F--LONG-TERM DEBT
ICF Kaiser's long-term debt is as follows (in thousands):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, February 28,
1995 1995
------------ ------------
<S> <C> <C>
12% senior subordinated notes due 2003 $123,550 $125,000
Revolving credit facility (interest at 9.0% at
December 31, 1995) 5,000 5,000
Other notes, with interest at varying rates,
payable in installments through 1998 92 1,209
-------- --------
128,642 131,209
Less unamortized discount on 12% senior 3,489 3,898
subordinated notes -------- --------
125,153 127,311
Less current maturities 5,041 578
-------- --------
Long-term debt $120,112 $126,733
======== ========
</TABLE>
- --------------------------------------------------------------------------------
Scheduled maturities of long-term debt outstanding at December 31, 1995,
are as follows: $5,041,000 in 1996, $21,000 in 1997, $30,000 in 1998, and
$123,550,000 in 2003.
On January 11, 1994, ICF Kaiser issued 125,000 Units, each Unit consisting
of $1,000 principal amount of the Company's 12% Senior Subordinated Notes due
2003 (12% Notes) and 4.8 warrants, each to purchase one share of the Company's
common stock at an exercise price of $5.00 per share. The warrants expire on
December 31, 1998, and additional warrants may be issued under certain anti-
dilution provisions. Of the net issue price of $121,487,500 ($125,000,000 less a
$3,512,500 discount), $900,000 was allocated to the value of the 600,000
warrants and $120,587,500 to the 12% Notes. The net proceeds were used, in part,
to retire the Company's 13.5% Senior Subordinated Notes due 1999 (13.5% Notes),
to repurchase preferred stock, to repay the outstanding balance on the Company's
then-existing revolving credit facility, and to repurchase warrants associated
with the 13.5% Notes and preferred stock. The recapitalization resulted in a
$6.0 million extraordinary charge (net of $0 tax benefit due to the
unanticipated decline in fiscal 1994's fourth-quarter results) for the early
extinguishment of debt and a $1.9 million charge to net income available for
common shareholders to repurchase the Series 2C Senior Preferred Stock. In
November 1995, the Company's insurance subsidiary repurchased 1,450 of the Units
for $1.4 million. In March 1996, the interest rate on the 12% Notes was
increased by one percent until the Company achieves and maintains a specified
level of earnings (see Note I).
- --------------------------------------------------------------------------------
F-11
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
The Company's obligations under the 12% Notes are subordinate to its
obligations under the Company's revolving credit facility. Interest payments
are due semiannually. The 12% Notes may not be prepaid at the Company's option
prior to December 31, 1998. Subsequent to that date, the Company may prepay the
12% Notes at a premium. In addition, the Company agreed to certain business and
financial covenants, including restrictions on indebtedness, dividends,
acquisitions, and certain types of investments and asset sales. At December 31,
1995, the fair value of the 12% Notes was approximately $116.4 million. The
fair value was computed using an average of recently quoted market prices
obtained from financial institutions. Net debt issuance costs of $3.8 million
and $4.2 million associated with the 12% Notes are classified as other assets at
December 31, 1995 and February 28, 1995, respectively, in the accompanying
balance sheets. These costs and the discount on the 12% Notes are being
amortized over the life of the notes.
The Company has a $60 million revolving credit facility (the Credit Facility)
provided by a consortium of banks (the Banks). ICF Kaiser International, Inc.
and certain of its subsidiaries, which are guarantors of the Credit Facility,
granted the Banks a security interest in their accounts receivable and certain
other assets. The Credit Facility limits the payment of cash dividends,
requires the maintenance of specified financial ratios, and has a $20 million
limitation on cash borrowings. Total available credit is determined from a
borrowing base calculation based on accounts receivable. ICF Kaiser and the
Banks entered into amendments in 1995 that modified financial ratios and other
terms of the Credit Facility. As of December 31, 1995, there were $5.0 million
in borrowings outstanding under the Credit Facility, in addition to letters of
credit, and the Company had $23.5 million of available credit under the
Credit Facility. The Credit Facility contains Eurodollar and alternate base
interest rate alternatives with margins dependent upon the Company's financial
operating results, and expires on October 31, 1996. The outstanding letters of
credit were $7.1 million at December 31, 1995, and issued principally to support
performance guarantees under certain contracts.
One of the Company's subsidiaries has a $50 million receivables purchase
facility to support the working capital requirements of the subsidiary under its
contract. The receivables purchase facility requires the subsidiary to maintain
a specified tangible net worth and contains certain default provisions for
delinquent receivables. Program fees consist of 0.30% per annum of the unused
portion of the facility and 0.45% per annum of the used portion of the facility.
The receivables purchase facility is non-recourse to ICF Kaiser International,
Inc. and expires on June 30, 1998.
There are 275,088 common stock warrants that were issued with the 13.5% Notes
that remained outstanding following the repurchase of the other warrants in
January 1994. The warrants expire on May 15, 1999, and are exercisable at any
time for shares of ICF Kaiser Common Stock at $6.87 per share. Additional
warrants may be required to be issued under certain anti-dilution provisions.
NOTE G--CONTINGENCIES
In the course of the Company's normal business activities, various claims or
charges have been asserted and litigation commenced against the Company arising
from or related to properties, injuries to persons, and breaches of contract, as
well as claims related to acquisitions and dispositions. Claimed amounts may
not bear any reasonable relationship to the merits of the claim or to a final
court award. In the opinion of management, an adequate reserve has been
provided for final judgments, if any, in excess of insurance coverage, that
might be rendered against the Company in such litigation.
- --------------------------------------------------------------------------------
F-12
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
The Company may from time to time, either individually or in conjunction with
other government contractors operating in similar types of businesses, be
involved in U.S. government investigations for alleged violations of procurement
or other federal laws and regulations. The Company currently is the subject of
a number of U.S. government investigations and is cooperating with the
responsible government agencies involved. No charges presently are known to
have been filed against the Company by these agencies. Management does not
believe that there will be any material adverse effect on the Company's
financial position, operations, or cash flows as a result of these
investigations.
The Company has a substantial number of cost-reimbursement contracts with the
U.S. government, the costs of which are subject to audit by the U.S. government.
As a result of such audits, the government asserts, from time to time, that
certain costs claimed as reimbursable under government contracts either were not
allowable or not allocated in accordance with federal procurement regulations.
Management believes that the potential effect of disallowed costs, if any, for
the periods currently under audit and for periods not yet audited, has been
provided for adequately and will not have a material adverse effect on the
Company's financial position, operations, or cash flows.
- --------------------------------------------------------------------------------
F-13
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE H--INCOME TAXES
The components of income (loss) before income taxes and minority interests and
the related provision (benefit) for income taxes are as follows (in thousands):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ten Months
Ended Year Ended February 28,
December 31, ----------------------
1995 1995 1994
------- ------ --------
<S> <C> <C> <C>
Income (loss) before income
taxes, minority interests, and
extraordinary item:
Domestic $ 7,419 $1,217 $(11,894)
Foreign (1,116) 22 (983)
------- ------ --------
$ 6,303 $1,239 $(12,877)
======= ====== ========
Provision (benefit) for income
taxes:
Federal:
Current $ 171 $ 120 $ -
Deferred 2,020 2,328 (652)
------- ------ --------
2,191 2,448 (652)
------- ------ --------
State:
Current 258 100 -
Deferred 293 172 (62)
------- ------ --------
551 272 (62)
------- ------ --------
Foreign:
Current 409 180 365
Deferred (1,060) - -
------- ------ --------
(651) 180 365
------- ------ --------
$ 2,091 $2,900 $ (349)
======= ====== ========
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-14
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
The tax effects of the principal temporary differences and carryforwards
that give rise to the Company's deferred tax asset are as follows (in
thousands):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, February 28,
1995 1995
------------ ------------
<S> <C> <C>
Reserves for adjustments and allowances $ 8,984 $ 8,507
Vacation and incentive compensation accruals 6,655 5,443
Litigation settlement (2,676) -
Joint ventures (1,969) (1,610)
Net operating loss carryforwards 711 2,247
Tax credit carryforwards 2,077 1,063
Other 1,482 1,233
------- -------
Deferred income tax asset 15,264 16,883
Valuation allowance (3,330) (3,330)
------- -------
Deferred income tax asset, net $11,934 $13,553
======= =======
</TABLE>
- --------------------------------------------------------------------------------
Because of the reported losses for the year ended February 28, 1994, a $3.3
million valuation allowance was established in that year for deferred tax
assets. Although the level of pretax income has increased substantially since
that period (with a corresponding increase in taxable income), the Company has
maintained the valuation allowance. At December 31, 1995, the Company had
deferred tax assets of $0.7 million related to net operating loss carryforwards,
of which $0.5 million expire within the next five years and $0.2 million expire
in 2008. Additionally, the Company has deferred tax assets of $2.1 million
related to tax credit carryforwards, the majority of which expire in 1998 to
2009. Management believes that the Company's expected levels of pretax
earnings, when adjusted for nondeductible expenses such as goodwill
amortization, will generate sufficient future taxable income to realize the
$11.9 million deferred tax asset (net) within the next five years.
- --------------------------------------------------------------------------------
F-15
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
The effective income tax (benefit) rate varied from the federal statutory
income tax rate because of the following differences:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ten Months
Ended Year Ended February 28,
December 31, -----------------------
1995 1995 1994
----------- ---------- -----------
<S> <C> <C> <C>
Statutory tax rate (benefit) 34.0% 34.0% (34.0)%
----- ----- ------
Changes in tax rate (benefit) from:
Goodwill amortization 11.7 69.9 9.9
Minority interest earnings of a
consolidated subsidiary (11.0) - -
Differences between book and tax basis
of businesses sold - 7.4 7.3
State income taxes 5.8 14.5 (0.3)
Foreign taxes (benefit) (9.2) 67.8 4.8
Valuation allowance - - 9.2
Business meals, entertainment, and dues 5.1 30.9 1.4
R&D credits (5.5) - -
Subsidiary preferred dividends - 1.9 0.1
Adjustment of prior years' accruals 2.1 3.8 (2.4)
Other 0.2 3.8 1.3
----- ----- ------
(0.8) 200.0 31.3
----- ----- ------
33.2% 234.0% (2.7)%
===== ===== ======
</TABLE>
- --------------------------------------------------------------------------------
One of the Company's consolidated subsidiaries, Kaiser-Hill, is a flow-
through entity for tax purposes and is partially owned by an outside party.
Accordingly, the provision for income taxes in the accompanying financial
statements was computed based on the Company's taxable share of Kaiser-Hill's
income. The tax rate effect of the outside party's share of income is reflected
above as minority interest earnings of a consolidated subsidiary. Kaiser-Hill
began operations during the ten months ended December 31, 1995.
The tax provision for the year ended February 28, 1995 reflects the deemed
dividend from the repatriation of overseas funds to the United States that
currently could not be offset by foreign tax credits. For the past several
years, the Company has had ongoing negotiations, filings, and litigation with
the Internal Revenue Service (IRS) related to settlement of its tax liabilities
and the liabilities associated with affiliates of acquired companies. During the
year ended February 28, 1995, ICF Kaiser's 1989-1992 tax returns were accepted
as filed, resulting in the receipt of refunds from the IRS with interest. An
agreement also was reached with the IRS as to the amount of interest owed in
connection with previously settled years (1977-1986). The overall impact on
pretax earnings for the year ended February 28, 1995 was a reduction of net
interest expense of $1.3 million related to interest refunds.
- --------------------------------------------------------------------------------
F-16
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE I--PREFERRED STOCK
Preferred Stock of the Company is as follows (in thousands):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, February 28,
1995 1995
------------ ------------
<S> <C> <C>
Series 2D Senior Preferred Stock, par value
$0.01 per share; liquidation value
$20,000,000; 200 shares designated, issued,
and outstanding $20,000 $20,000
Less unamortized discount, warrant value, and
issue costs (213) (383)
------- -------
Redeemable Preferred Stock $19,787 $19,617
======= =======
</TABLE>
- --------------------------------------------------------------------------------
Series 2D Senior Preferred Stock: The Series 2D Senior Preferred Stock
(Series 2D Preferred Stock) together with five-year detachable warrants (Series
2D Warrants) were issued in fiscal 1992 for a price of $20,000,000 (less a
discount of $100,000). Of the net price of $19,900,000, $400,000 was allocated
to the value of the warrants and $19,500,000 was allocated to the value of the
stock. The value of the Series 2D Preferred Stock was reduced further by issue
costs.
Dividends on the Series 2D Preferred Stock are $9,750 per share per annum,
cumulative. Each of the shares has a liquidation preference of $100,000 ($20
million in the aggregate). The issue carries voting rights equal to 2,380,952
shares of ICF Kaiser Common Stock. The Series 2D Preferred Stock may be
redeemed at ICF Kaiser's option at 106.25% of the original price and is subject
to mandatory redemption at liquidation value on January 13, 1997. Because of
technical limitations on the payment of dividends contained in the Indenture
governing the Company's 12% Notes (see Note F), the Company did not pay the
November 30, 1995 and February 29, 1996 accrued dividends in the aggregate
amount of $975,000. Dividends in arrears at December 31, 1995 were $487,500.
If dividends are in arrears in excess of 100 days or redemption does not occur
in January 1997, the holder of the Series 2D Preferred Stock will have the
exclusive right to elect two additional directors and to prohibit or limit the
Company from taking certain specified extraordinary actions without the holder's
consent. In March 1996, the Company and the holders of the 12% Notes amended
the Indenture to permit payment of all accrued but unpaid dividends (which were
then paid) and all future dividends. As consideration for this amendment, the
interest rate on the 12% Notes was increased by one percent from March 1996
until the Company achieves and maintains a specified level of earnings.
The Series 2D Warrants expire in November 1997 and may be exercised for
2,680,952 shares of ICF Kaiser Common Stock at an exercise price of $6.90 per
share. In lieu of exercising the warrants, the holder may, at the holder's
option, require the Company to pay it cash or issue shares of ICF Kaiser's
Common Stock equal to the difference between the current market price of the
Company's common stock and 90% of the warrants' current exercise price. In the
event that the Company cannot make a cash payment to the holder of the warrants
without violating certain covenants contained in the Company's agreements
relating to certain indebtedness, the Company will make such payment in common
stock. Additional warrants may be issued under certain anti-dilution
provisions.
- --------------------------------------------------------------------------------
F-17
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Junior Preferred Stock: The Company has authorized 200 shares of Series 1
Junior Convertible Preferred Stock, par value $0.01 per share, with a
liquidation value of $20,000,000 and 500,000 shares of Series 4 Junior Preferred
Stock, par value $0.01 per share, with a liquidation value of $500,000. There
were no shares issued or outstanding on either series as of December 31, 1995
and February 28, 1995.
NOTE J--COMMON STOCK
Notes Receivable Related to Common Stock: Notes receivable related to ICF
Kaiser Common Stock pertain to promissory notes from certain current and former
members of senior management in accordance with their compensation agreements
collateralized by shares of ICF Kaiser Common Stock.
Shareholder Rights Plan: The Shareholder Rights Plan (Rights Plan) is
designed to provide the Board of Directors (the Board) with the ability to
negotiate with a person or group that might, in the future, make an unsolicited
attempt to acquire control of ICF Kaiser, whether through the accumulation of
shares in the open market or through a tender offer that does not offer an
adequate price. The Rights Plan provides for one Right (Right) for each
outstanding share of ICF Kaiser Common Stock. Each Right entitles the holder to
purchase 1/100 of a share of Series 4 Junior Preferred Stock at a purchase price
of $50. The Rights generally may cause substantial dilution to a person or
group that attempts to acquire the Company on terms not approved by the Board.
The Rights should not interfere with any merger or other business combination
approved by the Board because the Board may, at its option, following the
acquisition by any person or group of 20% of the outstanding shares of ICF
Kaiser Common Stock, redeem the Rights upon payment of the redemption price of
$0.01 per Right. The Rights are not triggered by the acquisition of beneficial
ownership of more than 20% of ICF Kaiser Common Stock by the initial holder of
the Series 2D Preferred Stock. Unless redeemed earlier by the Board,
unexercised Rights expire on January 13, 2002.
Other: At December 31, 1995, ICF Kaiser was obligated to issue 396,167
shares of the Company's common stock pursuant to an agreement with a former
employee. Accordingly, this liability has been recognized in the accompanying
financial statements. The shares were issued in March 1996. 275,000 of these
shares are being held by the Company pursuant to a pledge agreement as security
for an amount receivable from the former employee.
- --------------------------------------------------------------------------------
F-18
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE K--LEASES
Future minimum payments on noncancelable operating leases for office space
and on other noncancelable operating leases with initial or remaining terms in
excess of one year are as follows on December 31, 1995 (in thousands):
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
1996 $ 24,066
1997 19,949
1998 17,366
1999 15,701
2000 12,586
Thereafter 20,312
---------
$ 109,980
=========
</TABLE>
- --------------------------------------------------------------------------------
The total rental expense for all operating leases was $24,950,000,
$31,176,000, and $30,833,000 for the ten months ended December 31, 1995 and the
years ended February 28, 1995 and 1994, respectively. Sublease rental income
was $3,189,000, $3,944,000, and $2,225,000, for the ten months ended December
31, 1995 and the years ended February 28, 1995 and 1994, respectively. Minimum
future sublease rentals to be received under noncancelable subleases during 1996
are approximately $1,967,000.
NOTE L--STOCK OPTIONS
The ICF Kaiser Stock Incentive Plan provides for the issuance of options,
stock appreciation rights, restricted shares, and restricted stock units of up
to an aggregate of 6,000,000 shares of ICF Kaiser Common Stock. Awards are made
to employees of ICF Kaiser at the discretion of the Compensation Committee of
the Board. The plan provides that the option price is not to be less than the
fair market value on the date of grant.
Stock option activity under this plan and other options granted for the
periods indicated is as follows:
- --------------------------------------------------------------------------------
F-19
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Option Price
--------- ---------------
<S> <C> <C>
Balance, March 1, 1993 1,946,000 $5.99 to $17.00
Granted 390,000 $4.17 to $ 6.79
Canceled (10,000) $8.25 to $12.83
Expired (30,000) $5.04 to $12.83
---------
Balance, February 28, 1994 2,296,000 $4.17 to $17.00
Granted 824,000 $2.34 to $ 4.41
Canceled (453,000) $2.64 to $16.23
Expired (250,000) $4.41 to $16.23
---------
Balance, February 28, 1995 2,417,000 $2.34 to $17.00
Granted 678,000 $3.50 to $ 4.42
Canceled (257,000) $8.25
Expired (382,000) $2.64 to $16.23
Exercised (4,000) $2.64 to $ 2.68
---------
Balance, December 31, 1995 2,452,000 $2.34 to $17.00
=========
Exercisable at December 31, 1995 1,090,000 $2.34 to $17.00
=========
</TABLE>
- --------------------------------------------------------------------------------
At December 31, 1995, 1,985,835 shares were available for the granting of
options. There were 242,000 exercisable options outstanding at an option price
below the fair market value of ICF Kaiser Common Stock at December 31, 1995. In
March 1995, the Company canceled 257,000 options granted to employees at an
exercise price of $8.25 and granted 86,000 options to them at an exercise price
of $4.09.
- --------------------------------------------------------------------------------
F-20
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 16. Exhibits and Financial Statement Schedules
------------------------------------------
The following exhibits and financial statement schedule are filed as part
of this Registration Statement.
(a) Exhibits
II - 1
<PAGE>
Exhibit No. 3 -- Articles of Incorporation and By-laws
3(a) Certificate of Incorporation of ICF Kaiser International, Inc.
(restated through June 26, 1993) (Incorporated by reference to Exhibit
No. 3(a) to Quarterly Report on Form 10-Q Registrant No. 1-12248 for the
second quarter of fiscal 1994 filed with the Commission on October 15,
1993)
3(b) Amended and Restated By-laws of ICF Kaiser International, Inc. (as
amended through June 23, 1995) (Incorporated by reference to Exhibit No.
3(b) to Quarterly Report on Form 10-Q Registrant No. 1-12248 for the
second quarter of fiscal 1995 filed with the Commission on October 13,
1995)
Exhibit No. 4 -- Instruments Defining the Rights of Security Holders, including
Indentures
4(a) Indenture dated as of January 11, 1994, between the Registrant and The
Bank of New York, as Trustee (Incorporated by reference to Exhibit No.
4(a) to Quarterly Report on Form 10-Q Registrant No. 1-12248 for the
third quarter of fiscal 1994 filed with the Commission on January 14,
1994)
1. First Supplemental Indenture dated as of February 17, 1995.
(Incorporated by reference to Exhibit No. 4(a)(1) to Annual Report on
Form 10-K Registrant No. 1-12248 for fiscal year 1995 filed with the
Commission on May 23, 1995)
2. Second Supplemental Indenture dated September 1, 1995 (Incorporated by
reference to Exhibit No. 4(a) (2) to Registration Statement on Form S-1
Registration No. 33-64655 filed with the Commission on November 30, 1995)
II - 2
<PAGE>
3. Third Supplemental Indenture dated October 20, 1995 (Incorporated by
reference to Exhibit No. 4(a)(3) to Registration Statement on Form S-1
Registration No. 33-64655 filed with the Commission on November 30, 1995)
4. Fourth Supplemental Indenture dated as of March 8, 1996 (Incorporated by
reference to Exhibit No. 4(a)(4) to Annual Report on Form 10-K Registrant
No. 1-12248 for transition period from March 1, 1995 to December 31,
1995 filed with the Commission on March 29, 1996)
4(b) Form of 12% Senior Subordinated Note due 2003 (Incorporated by
reference to Exhibit No. 4(b) to Quarterly Report on Form 10-Q Registrant
No. 1-12248 for the third quarter of fiscal 1994 filed with the
Commission on January 14, 1994)
4(c) Form of Common Stock Purchase Warrant expiring May 15, 1999 (as
amended and restated through January 11, 1994) (Incorporated by reference
to Exhibit No. 4(e) to Quarterly Report on Form 10-Q Registrant No.
1-12248 for the third quarter of fiscal 1994 filed with the Commission
on January 14, 1994)
4(d) Credit Agreement among ICF Kaiser International, Inc., certain Banks,
and Chemical Bank (Delaware), as Agent, dated as of December 8, 1993, as
amended (see Exhibit No. 10(a))
4(e) ICF Kaiser International, Inc. Series 2D Warrant, No. 2D-2, dated
January 11, 1994 (Incorporated by reference to Exhibit No. 4(f) to
Quarterly Report on Form 10-Q Registrant No. 1-12248 for the third
quarter of fiscal 1994 filed with the Commission on January 14, 1994)
4(f) Securities Purchase Agreement by and among ICF Kaiser International,
Inc., IFINT-USA Inc., and FIMA Finance Management Inc., B.V.I. dated as
of December 20, 1990 (Incorporated by reference to Exhibit No. 4(b) to
Quarterly Report on Form 10-Q Registrant No. 0-18025 for the third
quarter of fiscal 1991 filed with the Commission on January 14, 1991)
1. Amendment No. 1 to Securities Purchase Agreement dated as of January 13,
1992 (Incorporated by reference to Exhibit No. 4(e)(1) to Quarterly
Report on Form 10-Q Registrant No. 0-18025 for the third quarter of
fiscal 1992 filed with the Commission on January 14, 1992)
2. Amendment No. 2 to Securities Purchase Agreement (Incorporated by
reference to Exhibit 4(g)(2) to Amendment No. 2 to Registration Statement
on Form S-1 (No. 33-70986) filed with the Commission on December 23,
1993)
4(g) Amended and Restated Registration Rights Agreement dated as of January
13, 1992, between ICF Kaiser International, Inc. and FIMA Finance
Management Inc., (Incorporated by reference to Exhibit No. 4(f) to
Quarterly Report on Form 10-Q Registrant No. 0-18025 for the third
quarter of fiscal 1992 filed with the Commission on January 14, 1992)
4(h) Rights Agreement, dated as of January 13, 1992, between ICF Kaiser
International, Inc. and Office of the Secretary, ICF Kaiser
International, Inc. as Rights Agent, including
1. Form of Certificate of Designations of Series 4 Junior Preferred Stock
2. Form of Rights Certificate
3. Summary of Rights to Purchase Preferred Stock (Incorporated by reference
to Exhibit No. 4(h) to Quarterly Report on Form 10-Q Registrant No.
0-18025 for the third quarter of fiscal 1992 filed with the Commission
on January 14, 1992)
4(i) Warrant Agreement dated as of January 11, 1994, between the Registrant
and The Bank of New York, as Warrant Agent (Incorporated by reference to
Exhibit No. 4(c) to Quarterly Report on Form 10-Q Registrant No. 1-12248
for the third quarter of fiscal 1994 filed with the Commission on January
14, 1994)
4(j) Form of Warrant expiring December 31, 1998 (Incorporated by reference
to Exhibit No. 4(d) to Quarterly Report on Form 10-Q Registrant No.
1-12248 for the third quarter of fiscal 1994 filed with the Commission
on January 14, 1994)
II-3
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Post-Effective Amendment No. 1 to the
Registration Statement on Form S-1 (No. 33-64655) of our report dated March 8,
1996, on our audits of the financial statements and financial statement schedule
of ICF Kaiser International, Inc. We also consent to the reference to our firm
under the caption "Experts".
Coopers & Lybrand L.L.P.
Washington, D.C.
April 18, 1996
