<PAGE>
As filed with the Securities and Exchange Commission on November 27, 1996
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
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)
-----------------
Approximate date of commencement of proposed sale to the public. From
time to time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]
-----------------
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
======================================================================================================================
Title of each class of Amount to be Proposed maximum Proposed maximum Amount of
securities to be registered registered (*) offering price aggregate offering registration fee (*)
per share (**) price(*)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 454,545 $1.8125 $823,862.81 $249.66
shares
- ----------------------------------------------------------------------------------------------------------------------
Preferred Stock Purchase (***) n/a n/a n/a
Rights
</TABLE>
(*) Also covers the registration of 1,078,667 shares registered pursuant to
Registration No. 33-64655 (effective March 6, 1996). Registration fees of
$1,444.70 were paid on November 30, 1996, and $ 26.58 on February 5, 1996, for
the registration of these shares.
(**) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, based on the average
of the high and low prices for the Common Stock on the New York Stock Exchange
Composite Tape on November 21, 1996.
(***) Each share of Common Stock issued by the Registrant has one associated
non-detachable Preferred Stock Purchase Right.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
Pursuant to Rule 429, promulgated under the Securities Act of 1933, as
amended, the Prospectus forming a part of this registration statement also
relates to those shares of registrant's Common Stock initially included in
registrant's registration statement (File No. 33-64655) that remain unsold as
of the date hereof.
<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.
1,533,212 Shares of Common Stock
--------------
This Prospectus covers the resale by shareholders of up to 1,533,212
shares of ICF Kaiser International, Inc. ("ICF Kaiser" or the "Company") Common
Stock, par value $0.01 per share (the "Common Stock") issued in the four
distinct and separate transactions described below.
--------------
See "Risk Factors" beginning on page 8 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) Georgia A. Wilson and Associates, Inc. ("GAW"). This
---------------------------------------------------
Prospectus covers the resale of up to 454,545 shares of Common Stock which were
issued by the Company pursuant to the terms of an Agreement and Plan of Merger
(the "GAW Merger") dated as of July 1, 1996 (the "GAW Merger Agreement"), by and
among ICF Kaiser; GAW, a Texas corporation; ICF Kaiser/Georgia Wilson, Inc., a
Delaware corporation ("ICFK/GW"); and three of the shareholders of GAW (namely,
Georgia A. Wilson, James R. Ainsworth, and Danny L. Sherwood). The individual
GAW shareholders hereinafter are referred to as the "GAW Selling Shareholders."
As a result of the GAW Merger, GAW merged into ICFK/GW, the separate existence
of GAW ceased, and ICFK/GW was the surviving corporation. ICFK/GW is a wholly
owned ICF Kaiser subsidiary.
On July 1, 1996, the effective date of the Merger, each GAW Selling
Shareholder exchanged the shares of GAW common stock owned immediately prior
thereto into her/his pro rata share of 454,545 shares of ICF Kaiser Common Stock
(the "GAW Shares"). The 454,545 GAW Shares issued at the GAW Merger closing are
being registered for resale. A total of 359,089 GAW Shares (79%) are restricted
against transfer until July 22, 1997; thereafter, they may be offered for sale
by the GAW Selling Shareholders. The balance of the 95,456 GAW Shares may be
offered for sale by the GAW Selling Shareholders. The Company will not receive
any of the proceeds from the sale of any of the GAW Shares.
(2) EDA, Incorporated ("EDA"). This Prospectus also 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 "EDA Merger")
dated as of July 28, 1995 (the "EDA Merger Agreement"), by and among ICF Kaiser;
EDA; ICF Kaiser Disappearing, Inc., a Maryland corporation ("ICFKDI"); and five
shareholders of EDA. The individual EDA shareholders hereinafter are referred to
as the "EDA Selling Shareholders". As a result of the EDA 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 EDA 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 EDA Merger closing and
the 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 were
registered for resale pursuant to a Registration Statement on Form S-1 (No.
33-64655) declared effective by the Securities and Exchange Commission
2
<PAGE>
("SEC" or the "Commission") on March 6, 1996. An additional 531,250 shares of
Common Stock (the "EDA Earn-out Shares") were registered for resale under the
same filing. This number was determined by dividing the agreed upon value of
Common Stock to be issued following an earn-out period ($2,125,000) by $4.00 per
share.
In November 1996, the Company, EDA, and the EDA Selling Shareholders
entered into an Agreement pursuant to which the number of EDA Closing Shares was
changed; in addition, the conditions for earning the revised EDA Earn-out Shares
were changed. Three of the EDA Selling Shareholders agreed to return to the
Company a total of 50,000 of the EDA Closing Shares received at the EDA closing
(the "EDA Returned Shares"). At such time as the aggregate Valuation Earnings
(as defined in the EDA Merger Agreement) reach a specified level, the Company
will return the EDA Returned Shares to the respective EDA Selling Shareholders.
If the specified level of aggregate Valuation Earnings is not met on or prior to
December 31, 1997, then the EDA Returned Shares are forfeited back to the
Company. This Agreement also revised the conditions under which the 531,250 EDA
Earn-out Shares would be delivered to the EDA Selling Shareholders.
The EDA Earn-Out Shares, if earned, will be issued in two tranches, the
first in August 1997 and the second in February 1998, with a limited right to an
additional distribution of EDA Earn-Out Shares in August 1998. 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) trading days prior to the second anniversary of the EDA
closing (provided that the first $300,000 of the value of the EDA Earn-out
Shares shall be valued at $4.00 per share), in the case of the first tranche,
and the average closing price of the ICF Kaiser Common Stock on the NYSE for the
twenty (20) trading days prior to December 31, 1997, in the case of the second
tranche. The EDA Returned and Earn-out Shares will remain in escrow until the
earnout conditions have been met.
A total of 141,250 of the EDA Closing Shares may be offered for sale by
the five EDA Selling Shareholders. None of the EDA Returned Shares may be
offered for sale by the three EDA Selling Shareholders until the conditions for
their return to such shareholders have been met; thereafter, they may be offered
for sale by such shareholders. The EDA Earn-out Shares remain in escrow pending
the meeting of the revised 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 pursuant to the
amended EDA Merger Agreement. The Company will not receive any of the proceeds
from the sale of the EDA Closing Shares, the EDA Returned Shares, or the EDA
Earn-out Shares.
(3) John G. Balch ("Mr. Balch"). The Prospectus also covers the resale
----------------------------
of up to 256,167 shares of Common Stock (the "Balch Shares") out of a total of
396,167 shares issued by the Company pursuant to the terms of an Agreement dated
as of March 21, 1995 (the "Balch Agreement"), by and between Mr. Balch and
Excell Development Construction, Inc. ("Excell"), a Delaware corporation and an
indirect, wholly owned subsidiary of the Company. All of the 396,167 Balch
Shares were registered for resale pursuant to a Registration Statement on Form
S-1 (No. 33-64655) declared effective by the SEC on March 6, 1996. Of the total
Balch Shares, 121,167 shares could have been offered for sale by Mr. Balch and
275,000 were pledged as security for loans between Mr. Balch and Excell. The
Company is aware that through November 20, 1996, Mr. Balch had sold 85,000 of
the 121,167 Balch Shares and 36,167 Balch Shares may be offered for sale by Mr.
Balch. The Company will not receive any of the proceeds from the sale of these
Balch Shares. As of that date, the Company had applied 55,000 of the 275,000
pledged Balch Shares against Mr. Balch's outstanding loan principal.
(4) The IPC Company ("IPC"). The Prospectus also covers the resale of
------------------------
100,000 shares of Common Stock (the "IPC Shares") issued by the Company pursuant
to the terms of an Asset Purchase Agreement (the "IPC Agreement") by and among
ICF Kaiser; ICF Kaiser Engineers, Inc., a Delaware corporation and a wholly
owned subsidiary of ICF Kaiser; IPC and six IPC shareholders (hereinafter
referred to as the "IPC Selling Shareholders". Pursuant to the IPC 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. All of the 100,000 IPC Shares
subsequently were distributed to the IPC Selling Shareholders by IPC in
connection with the liquidation of IPC or as an IPC dividend, and all such IPC
Shares may be offered for sale by the IPC Selling Shareholders. All of the IPC
Shares were registered for resale pursuant to a Registration Statement on Form
S-1 (No. 33-64655) declared effective by the SEC on March 6, 1996. The Company
will not receive any of the proceeds from the sale of the IPC Shares.
The Company has been advised by the GAW Selling Shareholders, the EDA
Selling Shareholders, Mr. Balch, IPC, and the IPC Selling Shareholders that
there are no underwriting arrangements with respect to the sale of the GAW
3
<PAGE>
Shares, the EDA Closing Shares, the EDA Returned Shares, the EDA Earn-out
Shares, the Balch Shares, and the IPC Shares (collectively the "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 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 GAW Selling Shareholders, the EDA Selling
Shareholders, Mr. Balch, 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."
---------------
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
November 21, 1996, as quoted on the New York Stock Exchange Composite Tape, was
$1.875.
---------------
The date of this Prospectus is _____________, 1996.
TABLE OF CONTENTS
Available Information ..................................................5
Prospectus Summary......................................................6
Risk Factors............................................................8
Market Prices and Dividend Policy......................................14
Selected Consolidated Financial Data...................................15
Management's Discussion and Analysis of Financial Condition
and Results of Operations...........................................16
Business...............................................................25
Management.............................................................36
Executive Compensation.................................................40
Security Ownership.....................................................45
Selling Shareholders...................................................47
Description of the Capital Stock.......................................48
Description of the Credit Facility.....................................56
Description of Proposed $15 Million of 12% Senior Subordinated
Notes due 2003......................................................59
Description of the Indenture...........................................59
Pro Forma Financial Information........................................68
Legal Matters..........................................................72
Experts................................................................72
Consolidated Financial Information....................................F-1
4
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission
(the "Commission") Registration Statements on Form S-1 (herein, together with
all amendments and exhibits, referred to as the "Registration Statements") 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 Statements and in the exhibits and schedules thereto. For further
information about the Company and the Shares, reference is made to the
Registration Statements. The Registration Statements 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 to the Registration Statement are not
complete, each such statement being qualified in all respects by such reference.
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 Commission also maintains a Web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
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.
5
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the 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
capabilities to public- and private-sector clients in the related markets of
environment, infrastructure, industry and energy. The terms "Company" or "ICF
Kaiser" in this Prospectus may refer to ICF Kaiser International, Inc. and/or
any of its wholly owned operating subsidiaries. For the nine months ended
September 30, 1996, ICF Kaiser reported gross and service revenue of $1.023
billion and $434 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.
The Company is organized into three business groups: the ICF Kaiser
Engineers Group; the Federal Programs Group; and the Consulting Group. The
Company operates predominantly in one industry segment, in which it provides
engineering, construction, consulting and other professional services. As of
November 12, 1996, the Company employed approximately 5,000 people located in
more than 85 offices worldwide.
In the environmental market, ICF Kaiser provides services in connection
with the remediation of hazardous and radioactive waste, waste minimization and
disposal, risk assessment, global warming and acid rain, alternative fuels and
clean up of harbors and waterways. Demand for environmental services is driven
by a number of factors, including: the need to improve the quality of the
environment; federal, state and municipal regulation and enforcement; and
increased liability associated with pollution-related injury and damage. ICF
Kaiser provides consulting, engineering and construction services to the
infrastructure market. This market historically has been driven by the need to
maintain and expand roads, highways, mass transit systems and airports.
Increasingly, environmental concerns, such as reducing automotive air pollutant
emissions, are a driving force behind new infrastructure and transportation
initiatives. ICF Kaiser assists clients in private industry by providing the
engineering and construction skills needed to maintain and retrofit existing
plants and replace aging production capacity with newer, more environmentally
responsible facilities. Through its acquisition of ICF Kaiser Engineers, Inc. in
1988, the Company acquired the engineering and construction skills, as well as
access to process technologies, needed to establish a leadership position in
serving the basic metals and mining industries, including aluminum, steel,
copper, and coal.
ICF Kaiser International, Inc. was incorporated in Delaware in 1987 as
the parent holding company of ICF Incorporated, a nationwide consulting and
engineering firm that has provided services since 1969. 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; Gateway View Plaza, 1600 West Carson St., Pittsburgh, PA 15220
Telephone (412) 497-2000; and 3D International Tower, 1900 West Loop South,
Suite 1350, Houston, TX 77027 Telephone (713) 623-5000.
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The summary 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 Prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The summary consolidated
financial data of the Company as of September 30, 1996 and 1995, and for the
nine-month periods then ended have been prepared on the same basis as the
Consolidated Financial Statements and, in the opinion of the Company, include
all normal and recurring adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the information set forth therein.
Operating results for the nine months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 1996. Certain reclassifications have been made to the prior
period financial statements to conform to the presentation used in the September
30, 1996 financial statements. The nine-month data set forth below is unaudited.
<TABLE>
<CAPTION>
(in thousands, except per share data)
Ten Months
Nine Months Ended Ended
September 30 December 31 Year Ended February 28,
-------------- ----------- --------------------------------------
1996 1995 1995 1995 1994(1) 1993 1992(2)
---- ---- ---- ---- ------ ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Gross revenue .................................... $ 1,023,410 $ 731,795 $ 916,744 $ 861,518 $ 651,657 $ 678,882 $ 710,873
Service revenue (3) .............................. 433,647 357,582 425,896 459,786 382,708 391,528 385,942
Operating income (loss) ......................... 21,170 13,171 17,505 13,688 (5,230) 22,744 (43,963)
Income (loss) before income taxes, minority
interest, and extraordinary item ............ 9,285 2,542 6,303 1,239 (12,877) 14,894 (54,310)
Income (loss) before minority interests and
extraordinary item .......................... 8,445 1,242 4,212 (1,661) (12,528) 8,639 (40,516)
Net income (loss) before extraordinary item ...... 3,720 (73) 2,252 (1,661) (12,528) 8,639 (40,516)
Net income (loss) ................................ 3,720 (73) 2,252 (1,661) (18,497) 8,639 (40,516)
Net income (loss) available
for common shareholders ...................... 2,089 (1,689) 449 (3,815) (25,322) 3,346 (42,932)
Primary and Fully Diluted Net Income (Loss)
Per Common Share:
Before extraordinary item .................... $ 0.10 $ (0.08) $ 0.02 $ (0.18) $ (0.92) $ 0.16 $ (2.25)
Extraordinary loss on early
extinguishment of debt .................. - - - - (0.29) - -
----------- --------- --------- --------- --------- ------- ---------
Total ................................... $ 0.10 $ (0.08) $ 0.02 $ (0.18) $ (1.21) $ 0.16 $ (2.25)
----------- --------- --------- --------- --------- ------- --------
Weighted average common and common equivalent
shares outstanding, assuming full dilution ... 21,955 21,427 21,517 20,957 20,886 21,272 19,085
Balance Sheet Data(end of period):
Total assets ..................................... $ 374,535 $ 373,074 $ 369,517 $ 281,422 $ 281,198 $ 293,076 $ 318,947
Working capital .................................. 102,009 84,422 84,589 91,640 87,648 85,861 65,623
Long-term liabilities ............................ 139,063 126,650 125,818 133,130 130,752 75,602 85,675
Redeemable perferred stock ....................... 19,940 19,736 19,787 19,617 20,212 44,824 45,161
Shareholders' equity ............................. 33,192 27,690 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 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.
7
<PAGE>
RISK FACTORS
Prospective purchasers of the Common Stock should carefully consider
the following risk factors relative to investing in the Common Stock.
Company is Highly Leveraged
At September 30, 1996, the Company had total indebtedness of $133.4
million, representing 71.5% of total capitalization. Effective March 8, 1996,
the Company agreed to increase the interest rate on its $125 million of 12%
Senior Subordinated Notes due 2003 (the "Existing Notes") by one percent until
the Company achieves and maintains a specified level of earnings as defined in
the Fourth Supplemental Indenture to the Indenture dated as of January 11, 1994
(the "Existing Indenture") governing the Existing Notes.
The degree to which the Company is leveraged could have important
consequences including, but not limited to, the following: (i) the Company's
ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions, general corporate or other purposes may be
limited; (ii) a substantial portion of the Company's cash flow from operations
will be dedicated to the payment of the principal of, and interest on, its debt;
(iii) the agreements governing the Company's long-term debt contain certain
restrictive financial and operating covenants which could limit the Company's
ability to expand; and (iv) the Company's substantial leverage may make it more
vulnerable to economic downturns and reduce its flexibility in responding to
changing business and economic conditions. The ability of the Company to pay
interest and principal on the Existing Notes and to satisfy its other debt
obligations will be dependent on the future operating performance of the
Company, which could be affected by changes in economic conditions and other
factors, including factors beyond the control of the Company. A failure to
comply with the covenants and other provisions of its debt instruments could
result in events of default under such instruments, which could permit
acceleration of the debt under such instruments and in some cases acceleration
of debt under other instruments that contain cross-default or cross-acceleration
provisions.
If the Company is unable to generate sufficient cash flow to meet its
debt obligations, the Company may be required to renegotiate the terms of the
instruments relating to its long-term debt or to refinance all or a portion of
its long-term debt. However, there can be no assurance that the Company will be
able to successfully renegotiate such terms or refinance its indebtedness, or,
if the Company were able to do so, that the terms available would be favorable
to the Company. In the event that the Company were unable to refinance its
indebtedness or obtain new financing under these circumstances, the Company
likely would have to consider various other options such as the sale of certain
assets to meet its required debt service, negotiation with its lenders to
restructure applicable indebtedness, or other options available to it under law.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
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. The Company's cumulative deficit at September 30, 1996, was
$30,805,000. The amounts shown in the following table are in thousands, and the
nine-month data is unaudited.
<TABLE>
<CAPTION>
Nine Months Ten Months
Ended Ended
September 30, December 31, Year Ended February 28,
-------------------------------------------------------
1996 1995 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $ 3,720 $ 2,252 $ (1,661) $ (18,497) $ 8,639 $ (40,516)
Net income (loss) available
for common shareholders 2,089 449 (3,815) (25,322) 3,346 (42,932)
</TABLE>
Limited Ability to Incur Additional Debt
As of October 31, 1996, the total capacity for cash loans and letters
of credit under the Company's revolving credit and letter of credit facility
(the "Credit Facility") was $40 million. As of November 12, 1996, there was
$21.1
8
<PAGE>
million in letters of credit outstanding and $10.0 million in cash loans
outstanding. Thus, as of November 12, 1996, there was $8.9 million available
under the Credit Facility.
Excluding borrowings under the Credit Facility, the Existing Indenture
limits the Company's ability to incur additional indebtedness to a total amount
equal to 7.5% of the Company's Consolidated Tangible Assets as defined in the
Indenture. As of September 30, 1996, Consolidated Tangible Assets as defined in
the Indenture totaled $215.85 million; 7.5% of this total is $16.2 million. Of
this amount, a total of $15 million may be used for the New Units described in
the immediately following risk factor. The combined amount of available
additional indebtedness may be insufficient for working capital needs, potential
acquisitions, significant capital expenditures, repayment of debt or other
purposes. See "Pro Forma Financial Information."
Possible Offering of New 12% Senior Subordinated Notes due 2003
The Company is considering an offering (the "Offering") of 15,000 units
(the "New Units"), each of which consists of $1,000 principal amount of the new
12% Senior Subordinated Notes due 2003 (the "New Notes") and 4.8 warrants (the
"New Warrants"), each to purchase one share of common stock, par value $0.01 per
share, of the Company (the "Common Stock"). The New Notes and the New Warrants
would be separately transferable immediately after the date of issuance of the
New Units. The New Notes would have substantially identical terms as the
Existing Notes and would be issued pursuant to a new indenture which also would
have substantially identical terms as the Existing Indenture. The net proceeds
of the New Units, if issued, will be used to repurchase a portion of the
Company's Series 2D Senior Preferred Stock with a mandatory redemption date of
January 13, 1997, and having an aggregate liquidation preference of $20 million;
the balance is expected to be provided by a Term Loan under the Credit Facility.
Interest on the New Notes (if issued) would be payable semiannually on
June 30 and December 31 of each year, commencing December 31, 1996. The New
Notes would not be redeemable prior to December 31, 1998. The New Notes would be
redeemable, in whole or in part, at the option of the Company on or after
December 31, 1998, at the redemption prices set forth therein, plus accrued
interest to the date of redemption. The New Notes would be unsecured obligations
of the Company and subordinated in right of payment to all existing and future
Senior Indebtedness (as defined) of the Company. The New Notes would be
unconditionally guaranteed by four wholly owned subsidiaries of the Company. The
New Notes would be effectively subordinated to all existing and future claims of
creditors and preferred stockholders of the Company's subsidiaries. As of
September 30, 1996, after giving pro forma effect to the issuance of the New
Notes and application of the proceeds thereof, the amount of indebtedness of the
Company and its subsidiaries ranking senior in right of payment to the New Notes
would have been approximately $13.0 million. See "Description of the Credit
Facility," "Description of the Indenture," and "Pro Forma Financial
Information." In the event of a Change of Control (as defined), the Company
would be required to offer to purchase all the Existing Notes as well as the New
Notes then outstanding at a purchase price equal to 101% of the aggregate
principal amount of Notes, plus accrued and unpaid interest, if any, to the date
of purchase.
Each New Warrant (if issued) would entitle the holder thereof to
purchase one share of Common Stock at a price equal to $5.00 per share, subject
to adjustment under certain circumstances. Prior to their expiration on December
31, 1998, the New Warrants would be exercisable at any time on or after their
date of issuance. Upon exercise, the holders of New Warrants would be entitled
to purchase, in the aggregate, 72,000 shares of Common Stock.
Risks 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 Facility. The Company
would not be able to incur additional debt (including additional debt permitted
by the Existing Indenture) if the Company were required to pledge assets in
connection with the incurrence of such additional debt. In the event of
bankruptcy or liquidation of the Company, there can be no assurance that
sufficient assets would be available for payment of the Existing Notes.
Limited Ability to Make Acquisitions and Other Investments
The Credit Facility limits the Company's ability to make acquisitions
and other investments, and the Existing Indenture limits the Company's ability
to make restricted payments, including certain payments in connection with
investments and acquisitions. These limitations in the Existing Indenture are
based in part on the Company's
9
<PAGE>
Consolidated Net Income (as defined) 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 very restrictive.
The indebtedness, investment, acquisitions, and restricted payments
limitations in the Credit Facility and the Existing Indenture 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.
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 Facility 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 the covenants that would permit payment of
Common Stock dividends.
Consequences of Failure to Redeem the Preferred Stock on a Timely Basis
The agreements governing the Company's Series 2D Senior Preferred Stock
provide that certain restrictive covenants described in the following paragraph
become operative if the Company fails to make the mandatory redemption on
January 13, 1997.
If the Company fails to make the mandatory redemption, the holders of
the Series 2D Senior Preferred Stock will have the exclusive right to elect two
additional directors. In addition, until such failure is cured, if 33% or more
of the then outstanding Series 2D Senior Preferred Stock 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 from, among other things: making any material change
in the nature of the business of the Company and its Subsidiaries, taken as a
whole; selling or disposing of assets of the Company or any Subsidiary for
consideration of more than $1 million; entering into, amending, and terminating
employment agreements or arrangements of the Company or any Subsidiary that
provide for annual compensation or payments in excess of $200,000; merging or
consolidating the Company with or into any other person; reorganizing,
liquidating, dissolving, declaring, or voluntarily entering into bankruptcy with
respect to, the Company or any Subsidiary; redeeming and declaring of dividends
or distributions on any capital stock of the Company; making any capital
expenditures, or any series of capital expenditures for substantially the same
purpose, or for related purposes, of the Company or any Subsidiary exceeding,
individually $500,000; electing or appointing any officer, and nominating any
director, of the Company, other than existing officers and directors; amending
the Certificate of Incorporation or By-laws of the Company; acquiring or
agreeing to acquire, or acquiring of an option to acquire, all or substantially
all of the capital stock or assets of another person (other than joint ventures
formed in connection with competing for, or obtaining, project or construction
contract or similar business); entering into any material contract outside the
ordinary course of business which contemplates the payment or receipt by the
Company or any Subsidiary of consideration in excess of $500,000; guaranteeing
the obligations of any other person (other than a Subsidiary) in excess of $1
million; and incurring any indebtedness other than as permitted pursuant to the
terms of the Existing Indenture.
To the extent that the Series 2D Senior Preferred Stock is Disqualified
Stock under the Indenture or is treated as such under the Indenture, then the
failure to redeem such stock on the January 13, 1997, mandatory redemption date
could be an Event of Default under the Indenture. If such an Event of Default
occurs, the Trustee (or Holders of 25% of the outstanding Existing Notes) could
declare the Existing Notes to be due and payable immediately for 100% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of payment. Such acceleration could also be an Event of Default under the Credit
Facility.
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.
10
<PAGE>
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.
In August 1996, the Company, through its subsidiary ICF Kaiser Hanford
Company, was informed that the team of which it was a member was unsuccessful
recompeting for work at the DOE's Hanford Site, Richland, Washington, and the
Company's existing contract at Hanford was effectively terminated by DOE on
October 1, 1996. As a result, and based on the Company's current assessment of
the closeout of the Hanford contract, management believes the impact on earnings
will be material in the fourth quarter of 1996, as well as future periods,
unless replaced. In response to the reduction and eventual elimination of the
Hanford contract, in August 1996 the Company initiated a significant operational
efficiency and cost savings program, together with management changes, with the
objective of minimizing the long-term impact associated with the termination of
the Hanford contract. Termination of the Hanford contract is not expected to
significantly impact cash flows in the fourth quarter of fiscal year 1996 but
may have a significant impact after 1996 if the cost savings program is not
successful.
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 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 pending audits relating to fiscal years 1986 forward,
the government has asserted, among other things, that certain costs claimed as
reimbursable under government contracts either were not allowable or not
allocated in accordance with federal procurement regulations. The Company is
actively working with the government to resolve these issues. The Company has
provided for the potential effect of disallowed costs for the periods currently
under audit and for periods not yet audited, although the amounts at issue have
not been quantified by the government or the Company. This provision will be
reviewed periodically as discussions with the government progress. Based on the
information currently available, management believes the potential effects of
these pending audits will not have a material adverse effect on the Company's
financial position, 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.
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.
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
11
<PAGE>
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.
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 the 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 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 five-year Performance Based
Integrating Management contract in 1995 to perform work at the DOE's Rocky Flats
Environmental Technology Site near Golden, Colorado. 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,
12
<PAGE>
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 contract further provides that Kaiser-Hill will not
be reimbursed for 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.
Highly Competitive Market for Company's Services
The market for the Company's services is highly competitive. The
Company and its subsidiaries compete with many other environmental consulting,
engineering and construction 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.
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 is 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.
Fluctuations in Quarterly Financial Results
The Company's quarterly financial results may be affected by a number
of factors, including the commencement, 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.
Limitations on Ability to Change the Control of the Company
In the event of a Change of Control (as defined in the Existing
Indenture), the Company would be required, subject to certain conditions, to
offer to purchase all outstanding Existing Notes at a price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any thereon to
the date of purchase. As of September 30, 1996, the Company did not have
sufficient funds available to purchase all the Existing 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 Existing Notes. If
a Change of Control should occur, the rights of the holders of the Existing
Notes to receive payment 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 Facility prohibit the optional payment or
prepayment or any redemption of the Existing Notes. If, following a Change of
Control, the Company has insufficient funds to purchase all the Existing Notes
tendered pursuant to such an offer, or is prohibited from purchasing such Notes
pursuant to the terms of any Senior Indebtedness (as defined in the Indenture),
an event of default in respect of such Notes would occur. The Change of Control
provisions of the Indentures 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.
13
<PAGE>
MARKET PRICES AND DIVIDEND POLICY
The Common Stock is traded on The New York Stock Exchange ("NYSE")
under the symbol "ICF". At October 31, 1996, there were 1,392 shareholders of
record; the Company believes that there are approximately 6,000 beneficial
owners of Common Stock. On November 21, 1996, the closing price of the Common
Stock as reported on the NYSE Composite Tape was $1,875. The following table
sets forth, for the periods indicated, the high and low sales prices for the
Common Stock on the NYSE:
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
Fiscal Year Ended February 28, 1995
First Quarter $3.875 $2.250
Second Quarter 2.625 2.000
Third Quarter 4.125 2.375
Fourth Quarter 4.375 2.625
March 1 to December 31, 1995
First Quarter $5.000 $3.750
Second Quarter 4.625 3.750
Third Quarter 4.750 3.250
December 1995 4.250 3.125
Fiscal Year Ended December 31, 1996
First Quarter $4.375 $2.625
Second Quarter 3.375 2.375
Third Quarter 3.250 2.000
Fourth Quarter (through November 21, 1996) 2.375 1.750
</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, and the First Chicago Web site
address is http://www.fctc.com.
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 for the ten months ended
December 31, 1995.
14
<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
Prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The selected consolidated financial data of the Company
as of September 30, 1996 and 1995, and for the nine-month periods then ended
have been prepared on the same basis as the Consolidated Financial Statements
and, in the opinion of the Company, include all normal and recurring adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the information set forth therein. Operating results for the nine months ended
September 30, 1996 are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 1996. Certain reclassifications
have been made to the prior period financial statements to conform to the
presentation used in the September 30, 1996 financial statements. The nine-month
data set forth below is unaudited.
<TABLE>
<CAPTION>
(in thousands, except per share data)
Ten Months
Nine Months Ended Ended
September 30 December 31, Year Ended February 28,
------------ ------------ ---------------------------------------
1996 1995 1995 1995 1994(1) 1993 1992(2)
---- ---- ---- ---- ------ ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Gross revenue......................................... $1,023,410 $731,795 $916,744 $861,518 $651,657 $678,882 $710,873
Service revenue(3).................................... 433,647 357,582 425,896 459,786 382,708 391,528 385,942
Operating income (loss)............................... 21,170 13,171 17,505 13,688 (5,230) 22,744 (43,963)
Income (loss) before income taxes, minority
interests, and extraordinary item................. 9,285 2,542 6,303 1,239 (12,877) 14,894 (54,310)
Income (loss) before minority interests and
extraordinary item................................ 8,445 1,242 4,212 (1,661) (12,528) 8,639 (40,516)
Net income (loss) before extraordinary item........... 3,720 (73) 2,252 (1,661) (12,528) 8,639 (40,516)
Net income (loss)..................................... 3,720 (73) 2,252 (1,661) (18,497) 8,639 (40,516)
Net income (loss) available
for common shareholders........................... 2,089 (1,689) 449 (3,815) (25,322) 3,346 (42,932)
Primary and Fully Diluted Net Income (Loss)
Per Common Share:
Before extraordinary item......................... $ 0.10 $ (0.08) $ 0.02 $ (0.18) $ (0.92) $ 0.16 $ (2.25)
Extraordinary loss on early
extinguishment of debt......................... -- -- -- -- (0.29) -- --
---------- -------- -------- -------- -------- -------- --------
Total.......................................... $ 0.10 $ (0.08) $ 0.02 $ (0.18) $ (1.21) $ 0.16 $ (2.25)
========== ======== ======== ======== ======== ======== ========
Weighted average common and common equivalent
shares outstanding, assuming full dilution........ 21,955 21,427 21,517 20,957 20,886 21,272 19,085
Balance Sheet Data (end of period);
Total assets.......................................... $ 374,535 $373,074 $369,517 $281,422 $281,198 $293,076 $318,947
Working capital....................................... 102,009 84,422 84,589 91,640 87,648 85,861 65,623
Long-term liabilities................................. 139,063 126,650 125,818 133,130 130,752 75,602 85,675
Redeemable perferred stock............................ 19,940 19,736 19,787 19,617 20,212 44,824 45,161
Shareholders' equity.................................. 33,192 27,690 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 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.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company 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 the ten months
ended December 31, 1995 for unaudited comparative operating results for the ten
months ended December 31, 1994. In addition, the comparative period financial
statements for the nine months ended September 30, 1995 have been restated to
conform with the presentation used in the September 30, 1996 financial
statements.
Operating Results for Nine Months Ended September 30, 1996 and 1995
The Company's operating income of $21.2 million for the nine months
ended September 30, 1996 was an $8.0 million increase from the $13.2 million of
operating income recorded for the nine months ended September 30, 1995. The
increase in operating income partially resulted from a $3.9 million increase in
operating income from the Company's operations at the Department of Energy's
(DOE) Hanford, Washington site (Hanford), resulting from higher award fees
earned at Hanford in 1996 and activities associated with the final phase of the
Company's work at Hanford (see Business Outlook). An additional $6.8 million of
the increase in operating income was due to earnings (before minority interests)
from the Performance Based Integrating Management Contract at DOE's Rocky Flats
Environmental Technology Site in Colorado (Rocky Flats). 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). Work under the Rocky Flats contract began on July 1, 1995.
Operating income for the Company's consulting group increased $1.3
million from 1995 to 1996, primarily due to new contracts and task orders
awarded during 1996 and the recognition of revenue resulting from the
acceleration in the cost approval process (see Note B to the consolidated
financial statements for the nine months ended September 30, 1996). Prior to the
third quarter of 1996, the Company had estimated and recorded revenue based on
provisional rates. In 1996, the Company accelerated the procedures for obtaining
approval from the U.S. government for the Company's actual costs incurred in
current periods. As a result, in the third quarter of 1996, the Company's
consulting group was able to accelerate its process of billing on certain
cost-reimbursement contracts.
The Company's operating income also increased $2.3 million for the nine
months ended September 30, 1996 from the comparable period in 1995 as a result
of the 1996 closing of an unprofitable business, and $1.1 million due to income
from the Company's increased economic interest in an entity that owns a coal
pulverization facility. Additionally, the Company realized cost savings of
certain corporate functions, resulting in an improvement in operating income in
1996. Finally, operating income from international operations increased $0.8
million, primarily due to improved operating results from the Company's
Australian operations.
Partially offsetting the operating income increases discussed above
were declines of $4.6 million in operating income from engineering and
construction operations and $4.2 million in operating income from other federal
programs. The federal programs group had significant increases in its costs
associated with marketing activities in pursuit of large-scale projects,
including approximately $2.1 million of costs in 1996 associated with the
Company's unsuccessful re-compete bid on the Hanford contract (see Business
Outlook) and significant costs associated with other DOE proposals. The
engineering and construction group also experienced higher costs in 1996
associated with marketing activities. In addition, the comparative 1995 results
for engineering and construction operations had included operating income from a
major transit project in the Philippines.
16
<PAGE>
Operating Results for Ten Months Ended December 31, 1995 and 1994
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
Rocky Flats contract awarded in April 1995 to Kaiser-Hill. 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.
An additional $3.0 million increase in operating income resulted from
the Company's operations at Hanford because the award fees earned in 1995 were
higher than those earned in 1994.
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 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's 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 was 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. The Company 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.
Business 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's contract backlog was $3.9 billion at September 30, 1996
compared to $4.4 billion at December 31, 1995. The overall reduction in backlog
is primarily due to Hanford (see below). In September 1996, the Company signed
another TERC contract estimated at $260 million to perform environmental
restoration work at federal installations in the South Pacific Division of the
U.S. Army Corps of Engineers, Sacramento District. The contract (TERC) is for
four years, with two, three-year options and is a cost reimbursement delivery
order contract. The fee structure includes a combination of cost plus fixed fee,
award fee, and incentive fees. An unsuccessful bidder has filed a protest
against the award of the contract to the Company. As a result, performance under
the Sacramento TERC has been suspended pending resolution of the protest. The
Company believes the protest will not
17
<PAGE>
be successful. In September 1996, the Company also signed a five-year contract,
valued at more than $60 million, to support EPA's Green Lights and ENERGY STAR
programs.
In March 1996, the Company signed a two-year, $102 million contract to
provide engineering and construction services for the initial phase of a
mini-mill project for Nova Hut, a.s., an integrated steel maker based in the
Ostrava region of the Czech Republic. The Company is currently negotiating a
contract with Nova Hut for the next phase of the mini-mill project. Earnings
associated with this contract for the next phase of work are expected to be
material to the Company's operating results. Management expects to complete
negotiations on this contract in the fourth quarter of 1996 or the first quarter
of 1997.
The Company is currently negotiating to sell its interest in entities
owning and operating a coal pulverization facility, the earnings and cash flows
from which have been significant to the Company, in order to improve the
Company's cash position in light of substantial near-term cash requirements (see
Liquidity and Capital Resources). The Company anticipates that the closing of
such a sale will occur in the fourth quarter of 1996 or the first quarter of
1997. The sale is expected to result in a gain in the period in which the sale
is finalized. The Company anticipates that any cash proceeds resulting from the
sale that are not used to satisfy the substantial near-term cash requirements
will be reinvested in the Company's business. See "Pro Forma Financial
Information."
In August 1996, the Company, through its subsidiary, ICF Kaiser Hanford
Company, was informed that the team of which it was a member was unsuccessful in
its bid for DOE's new management and integration contract at Hanford. The new
contract was effective October 1, 1996. The Company's existing contract to
perform services at Hanford expires in March 1997, but was effectively
terminated by DOE on October 1, 1996. As a result, and based on the Company's
current assessment of the closeout of the Hanford contract, management believes
the impact on earnings will be material in the fourth quarter of 1996, as well
as future periods, unless replaced. In response to the reduction and eventual
elimination of the Hanford contract, in August 1996 the Company initiated a
significant operational efficiency and cost savings program, together with
management changes, with the objective of minimizing the long-term impact
associated with the termination of the Hanford contract. To date, the results of
the cost savings program have been encouraging. Termination of the Hanford
contract is not expected to significantly impact cash flows in the fourth
quarter but may have a significant impact after 1996 if the cost savings program
is not successful (see Liquidity and Capital Resources). Profitable operating
results in the fourth quarter of fiscal year 1996 are dependent on the success
of the Company's ongoing marketing efforts (including Nova Hut), results from
the cost savings program discussed above, and an expected gain on sale of the
entities with interests in the coal pulverization facility.
The Company's consulting group showed improvement in operating results
between the nine-month periods ended September 30, 1996 and 1995, aided by the
recognition of revenue resulting from the accelerated cost approval process (see
Operating Results for Nine Months Ended September 30, 1996 and 1995). EPA
historically has been the consulting group's principal federal government
customer; for several years the consulting group has been diversifying its
client base to international, private sector, and non-EPA federal government
entities. EPA now accounts for only approximately 50% of the consulting group's
service revenue. In 1996, the consulting group increased its business
development efforts to diversify its client base and expects to make further
progress in diversification in 1997.
As discussed in Operating Results, the Company's domestic engineering
and construction business has not met its financial goals during 1996. As a
result, the Company continues in its efforts to enhance profitability of these
operations. These efforts include both a continuation of cost reduction efforts
and increases in marketing. In conjunction with the cost reduction efforts the
Company has recently completed a realignment of several of its offices,
including the termination of certain underutilized employees (see Note G to the
consolidated financial statements for the nine months ended September 30, 1996).
The Company will continue to seek other opportunities to save costs, and future
actions may include additional office space consolidations and terminations.
RESULTS OF OPERATIONS
The following table summarizes key elements in the Consolidated Statements of
Operations for the nine months ended September 30, 1996 and 1995, ten months
ended December 31, 1995 and 1994, and the years ended February 28, 1995 and 1994
(dollars in millions).
18
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended Ten Months Ended Year Ended
September 30, December 31, February 28,
-------------------------- --------------------------- ---------------------------
1996 1995 1995 1994 1995 1994
---- ---- ---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Gross revenue $ 1,023.4 $ 731.8 $ 916.7 $ 732.4 $ 861.5 $ 651.7
Service revenue $ 433.6 $ 357.6 $ 425.9 $ 392.0 $ 459.8 $ 382.7
Service revenue as a percentage
of gross revenue 42.4% 48.9% 46.5% 53.5% 53.4% 58.7%
Operating expenses as a percentage
of service revenue:
Direct cost of services and overhead 81.8% 83.5% 84.5% 86.0% 85.5% 84.6%
Administrative and general 11.5% 10.8% 9.5% 8.7% 9.5% 12.0%
Depreciation and amortization 1.8% 2.0% 2.0% 2.0% 2.0% 2.5%
Unusual items, net - - (0.1)% - - 2.3%
Operating income (loss) as a percentage
of service revenue 4.9% 3.7% 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 certain 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 equity in income of unconsolidated joint ventures and affiliated
companies. The Company 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 earned.
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 the Company effective July 1, 1995, 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 subsidiaries in the Company's financial statements (see
Note C to the consolidated financial statements for the nine months ended
September 30, 1996.)
Nine Months Ended September 30, 1996 versus Nine Months Ended September 30, 1995
Revenue
Gross revenue for the nine months ended September 30, 1996 increased
$291.6 million, or 39.8%, to $1,023.4 million. The increase in gross revenue was
primarily attributable to the commencement of work under the Rocky Flats
contract which generated a $291.8 million increase in gross revenue during the
nine months ended September 30, 1996.
Service revenue increased by $76.0 million for the nine-month period
ended September 30, 1996 as compared to the nine-month period ended September
30, 1995. The increase was due primarily to an $82.3 million increase in service
revenue generated under the Rocky Flats contract. Service revenue as a
percentage of gross revenue decreased to 42.4% for the nine months ended
September 30, 1996 from 48.9% for the nine months ended September 30, 1995. The
decrease in service revenue as a percentage of gross revenue is 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.
19
<PAGE>
Operating Expenses
Direct cost of services and overhead increased $56.2 million between
the nine-month periods ended September 30, 1996 and 1995. A $74.4 million
increase in costs on the Rocky Flats contract was partially offset by a $13.0
million reduction in Hanford costs attributable to federal budget reductions at
the Hanford site. The Company's direct cost of services and overhead as a
percentage of service revenue for the nine months ended September 30, 1996 was
comparable to the same period in the prior year.
Administrative and general expense increased $11.4 million, or 29.4%,
between the nine-month periods ended September 30, 1996 and 1995 and increased
from 10.8% to 11.5% as a percentage of service revenue. The increase in these
costs is primarily attributable to the Company's increased commitment to
marketing activities in 1996, including costs associated with new marketing
positions within the Company and proposing and bidding large-scale domestic and
foreign contracts. The increase in administrative and general expenses as a
percentage of service revenue resulting from increased marketing efforts was
partially offset as a result of the increase in service revenue in 1996 from the
Rocky Flats contract which does not have a proportionate increase in
administrative and general expenses.
Income Tax Expense
The Company's income tax provision was $0.8 million for the nine months
ended September 30, 1996 compared with $1.3 million for the nine months ended
September 30, 1995. The income tax provision for the nine months ended September
30, 1996 reflects a partial reversal of the valuation allowance for certain
deferred tax assets. This partial reversal reduced tax expense by approximately
$2.0 million for the nine-month period. The Company expects to have significant
taxable income in the near-term from the sale of certain subsidiaries (see
Business Outlook). The remaining valuation allowance after this partial reversal
in 1996 is for foreign tax benefits not currently assured of realization. Also,
the income tax provision for the nine months ended September 30, 1996 was
computed by excluding the minority interest in Kaiser-Hill's income because
Kaiser-Hill is a flow-through entity for tax purposes and is partially owned by
an outside party. This and the partial reversal of the valuation allowance had
the effect of reducing the Company's effective tax rate. Since Kaiser-Hill
commenced operations on July 1, 1995, its effect on the effective tax rate was
relatively larger in the nine months ended September 30, 1996 than in 1995.
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 ten-month period. 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.
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 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.
20
<PAGE>
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 was 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, December 31,
1995 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
(Existing Notes) (see Liquidity and Capital Resources).
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 for the ten
months ended December 31, 1995). 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
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
which expire in 1998 to 2009.
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.
21
<PAGE>
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, the Company
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 was 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 (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
The Company'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
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
Cash Flows for Nine Months Ended September 30, 1996
During the nine months ended September 30, 1996, cash and cash
equivalents increased $4.7 million to $21.0 million. Operating activities
generated $5.9 million in cash, primarily from operations at Kaiser-Hill which
generated $8.8 million. An additional significant operating source of cash was
$7.0 million received from the IRS in settlement of litigation (see Unusual
Items under Results of Operations for the ten months ended December 31, 1995).
Significant operating uses of cash included $15.4 million in interest payments
on the Company's Existing Notes, a $3.7 million pension payment, and $4.2
million of payments for net settlement costs and legal expenses of litigation.
22
<PAGE>
The increase in contract receivables, net between December 31, 1995 and
September 30, 1996 was primarily due to an increase in receivables under the
Hanford contract resulting from the closeout of the contract. The decrease in
prepaid expenses and other current assets in 1996 was attributable to collection
from the IRS of $7.0 million, which was accrued in other current assets at
December 31, 1995. The cash received from the IRS settlement is included in
unusual items on the Statement of Cash Flows.
During the nine months ended September 30, 1996, net borrowings under
the Company's Credit Facility provided $8.0 million in cash (see Note E to the
consolidated financial statements for the nine months ended September 30, 1996).
Borrowings under the Credit Facility were used to fund operations (including the
pension payment made in September 1996). Other significant uses of cash in
investing and financing activities included purchases of fixed assets ($4.9
million), payment of dividends ($2.0 million), and investments in joint ventures
and affiliates ($1.2 million ).
In July 1996, EPA approved the Company's provisional billing rates for
the year ended February 28, 1995. This approval permitted the Company to submit
invoices for billing rate variances on cost-plus contracts with U.S. government
agencies for costs incurred during that year. The Company expects to collect in
excess of $1.5 million on these billings in future periods. In October 1996, the
Company also obtained approval for provisional billing rates for the ten months
ended December 31, 1995 which is expected to result in more than $2.0 million in
additional invoicing.
Cash Flows for Ten Months Ended December 31, 1995
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 Existing 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 Existing Notes was made in
June 1995. An additional $7.5 million interest payment on the Existing 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 EPA 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
collected in excess of $4 million as of December 31, 1995 on these contracts.
Liquidity and Capital Resources Outlook
Effective May 7, 1996, the Company's new $40 million Credit Facility
replaced the then-existing revolving credit facility which was due to expire
October 31, 1996. The Credit Facility contains Eurodollar and alternate base
interest rate alternatives with margins dependent upon the Company's financial
operating results and expires June 30, 1998. The Credit Facility is provided by
CoreStates Bank, as agent bank, and two other banks (the Banks) with terms and
covenants similar to those under the former credit facility. 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 payments of
cash dividends on common stock and requires the maintenance of specified
financial ratios. Total available credit is determined from a borrowing base
calculation based on eligible accounts receivable (billed and unbilled). As of
September 30, 1996, the Company had $13.0 million in cash borrowings and $21.3
million of letters of credit outstanding under the Credit Facility. The letters
of credit outstanding under the Credit Facility are generally required to
support performance guarantees, primarily on international projects. The Company
had $5.7 million of additional credit available under the Credit Facility as of
September 30, 1996. As of November 12, 1996, the Company had $10.0
23
<PAGE>
million of cash borrowings outstanding, $21.1 million of letters of credit
outstanding and the additional credit available under the Credit Facility was
$8.9 million.
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 its Existing Notes and 600,000
warrants, each to purchase one share of the Company's common stock at $5.00 per
share. The net proceeds of the $125 million offering 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
Existing Notes and related warrants for $1.4 million. In March 1996, the
interest rate on the Existing 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 for the ten months ended December 31,
1995). The Existing Notes mature on December 31, 2003 with semi-annual interest
payments.
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 Existing 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 governing the Existing Notes which permitted the
payment of all accrued and future dividends. As consideration for this
amendment, the interest rate on the Existing Notes was increased as discussed
above. Cash flows from operations are not expected to be sufficient for the full
redemption of the preferred stock. Therefore, to the extent permitted by the
Banks and the Credit Facility, the Company intends to use a combination of the
following potential transactions to redeem this preferred stock. The Company is
considering a private offering of up to $15 million of additional senior
subordinated notes with terms and conditions virtually identical to the
Company's Existing Notes. The Existing Notes allow the Company to incur
Additional Indebtedness (as defined in the Indenture governing the Existing
Notes) in an amount sufficient to permit this private placement. In addition,
and as discussed in the Business Outlook section above, the Company is currently
negotiating the sale of interests in certain entities; the proceeds of this sale
could be used to pay down the outstanding loan balance on the Credit Facility,
thus freeing up capacity that could be used in part for the redemption of the
preferred stock. The Company is also reviewing with the Banks a possible
temporary increase in the Credit Facility under terms that would permit the use
of the Credit Facility for the partial redemption of the preferred stock. The
Company's ability to redeem the preferred stock when due is subject to the
successful conclusion of some combination of these or other transactions prior
to January 13, 1997. See "Pro Forma Financial Information."
As explained in the Business Outlook Section, the loss of the Hanford
contract may have a significant impact on the Company's cash flows after 1996 if
the Company's cost savings and marketing programs are not successful. The
Company believes it will be successful in its ability to generate adequate cash
flows to fund operations throughout the next twelve months and in reducing
overhead costs within the operating groups and corporate functions. In addition
to the cash requirements of the Company's daily operations and the redemption of
the preferred stock discussed above, the Company has financial obligations in
excess of $8 million due in January 1997 for interest due on the Existing Notes.
The Company expects to meet this interest obligation with either operating cash
flows or borrowings under its 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.
24
<PAGE>
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 elected to
provide pro forma disclosures. Therefore, the Company does not believe that the
adoption of SFAS No. 123 will have a material adverse effect on the Company's
financial position or results of operations. The requirements of SFAS No. 123
are effective for financial statements for fiscal years beginning after December
15, 1995.
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. For the nine
months ended September 30, 1996, ICF Kaiser reported gross and service revenue
of $1,023 million and $434 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 of unconsolidated joint
ventures and affiliated companies. During the four years and nine months ended
September 30, 1996, the Company operated predominantly in one industry segment,
in which it provided engineering, construction, program management, consulting
and other professional services.
<TABLE>
<CAPTION>
Nine Months Ten Months Fiscal Year Ended
Ended Ended February 28,
September 30, December 31, -----------------------------------
1996 1995 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Gross revenue.................... $1,023,410,000 $ 916,744,000 $ 861,518,000 $ 651,657,000
Service revenue.................. $ 433,647,000 $ 425,896,000 $ 459,786,000 $ 382,708,000
Operating income (loss).......... $ 21,170,000 $ 17,505,000 $ 13,688,000 $ (5,230,000)
Assets........................... $ 374,535,000 $ 369,517,000 $ 281,422,000 $ 281,198,000
</TABLE>
As of September 30, 1996, the Company's contract backlog totaled
approximately $3.9 billion, down from $4.4 billion as of December 31, 1995. Most
of the Company's backlog relates to public-sector environmental projects that
span from one to five years. Approximately 6.4% of the $3.9 billion backlog is
expected to be worked off during the last quarter of the fiscal year ending
December 31, 1996. See "Backlog."
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; Gateway View Plaza, 1600 West Carson St.,
Pittsburgh, PA 15220 Telephone (412) 497-2000; and 3D International Tower, 1900
West Loop South, Suite 1350, Houston, TX 77027 Telephone (713) 623-5000. Other
offices include Livermore, Los Angeles, Rancho Cordova, San Diego, San
Francisco, San Rafael and Universal City, CA; Golden and Lakewood, CO;
Washington, DC; Ft. Lauderdale and Miami, FL; Chicago, IL; Gary, IN; Ruston, LA;
Edgewood, Baltimore and Silver Spring, MD; Boston, MA; Las Vegas, NV; Iselin,
NJ; Albuquerque and Los Alamos, NM; Richmond, VA; Richland and Seattle, WA. The
Company's international offices are located in Perth, Australia; Prague, Czech
Republic; London, England; Paris, France; Mexico City, Mexico; Makatic City and
Mandaluyong City, Philippines; Lisbon, Portugal; Moscow, Russia; and Taipei,
Taiwan. As of November 12, 1996, ICF Kaiser employed approximately 5,000
persons.
25
<PAGE>
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.
Strategy
The Company's business strategy is based primarily on four elements:
(i) full front end capability, (ii) value added services, (iii) access to
technology, and (iv) strategic relationships.
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.
Value-added Services. The Company provides value-added services 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 such threats can be managed and
opportunities capitalized on; (ii) allows creation of customized solutions for
the clients' environmental problems; and (iii) combines problem identification,
solution, and implementation.
Access to Technology. The Company has access to new 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 key
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 leading 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 is organized into three business groups: the Federal
Programs Group; the ICF Kaiser Engineers Group; and the Consulting Group.
FEDERAL PROGRAMS GROUP
U.S. Department of Energy. 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: Argonne National Laboratory, Idaho National Engineering Laboratory,
Lawrence Livermore National Laboratory, Los Alamos National Laboratory, Mound
Plant Site, Oak Ridge National Laboratory, two Sandia National Laboratories,
Hanford Site, and Rocky Flats Environmental Technology Site (the last Site is
described in more detail below). The services provided by the Company at these
facilities 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.
In 1995 the Company, through Kaiser-Hill Company, LLC, 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, 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 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 determines its
incentive fee: stabilize plutonium and
26
<PAGE>
plutonium residues for specific 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 employees at the site by
the end of the contract term.
In August 1996, the Company, through its subsidiary ICF Kaiser Hanford
Company, was informed that the team of which it was a member was unsuccessful in
its bid for DOE's new management and integration contract at the DOE's Hanford
Site, Richland, Washington, where the Company had worked since 1987. The
Company's existing contract at Hanford was effectively terminated by the DOE on
October 1, 1996. As a result, and based on the Company's current assessment of
the closeout of the Hanford contract, management believes the impact on earnings
will be material in the fourth quarter of 1996, as well as future periods,
unless replaced. In response to the reduction and eventual elimination of the
Hanford contract, in August 1996 the Company initiated a significant operational
efficiency and cost savings program, together with management changes, with the
objective of minimizing the long-term impact associated with the termination of
the Hanford contract. Termination of the Hanford contract is not expected to
significantly impact cash flows in the fourth quarter of fiscal year 1996 but
may have a significant impact after 1996 if the cost savings program is not
successful.
Effective October 1, 1996, ICF Kaiser Hanford Company acquired the
Hanford Site General Support Services Contract from the MACTEC Division of
Management Analysis Company of Golden, Colorado. Under the contract, ICF Kaiser
provides administrative, engineering, and technical support services for major
DOE projects at the Hanford Site, including tank waste remediation programs. In
addition, the Company will work closely with DOE to aid its strategic
initiatives associated with site cleanup and facility transition.
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.
The U.S. Department of Defense (DOD) established the Total
Environmental Restoration Contract (TERC) program to clean up contaminated Army
sites in a streamlined and efficient manner by partnering with private
contractors. A TERC allows a single contractor to handle all aspects of
remediation, resulting in quicker cleanup, more effective project management,
and better coordination with federal and state regulators and the public. It
also helps to build a culture of cooperation among USACE, the contractor, the
regulatory community, and the public.
In September 1996, the Company signed a contract estimated at $260
million to perform environmental restoration work at federal installations in
the South Pacific Division of the U.S. Army Corps of Engineers (USACE). The
contract was awarded and will be managed by the Sacramento District, is for four
years (with two, three-year options), and covers cleanup work at the Oakland
(California) Army Base and at other Army bases and federal installations in
California, Arizona, Nevada, and Utah. An unsuccessful bidder for the Sacramento
TERC filed a protest against the award of the contract to the Company, alleging
that the USACE did not properly evaluate its technical proposal and did not
perform a cost/technical tradeoff. As permitted by Federal rules and
regulations, performance under the TERC has been suspended pending resolution of
the protest. The Company believes that the protest is without merit and that
work under the contract will begin as soon as the protest is dismissed.
The Sacramento TERC was the second TERC awarded to ICF Kaiser. In
August 1995, ICF Kaiser won the largest hazardous, toxic, and radioactive waste
contract ever awarded by USACE, a $330 million TERC to remediate contaminated
Army sites in USACE's Baltimore District. ICF Kaiser's Baltimore TERC covers
cleanup work at Picatinny Arsenal in New Jersey, Aberdeen Proving Ground near
Baltimore, and other Army bases and federal installations in New York, New
Jersey, Pennsylvania, Delaware, Maryland, the District of Columbia, Virginia,
and West Virginia. The Baltimore 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.
The Company also provides environmental services to USACE, Savannah
(Georgia) District, under several contracts, including a $50 million contract to
support the Corps' South Atlantic Division, as well as a $2 million contract
under which the company is designing contaminated groundwater treatment systems
at the Milan Army Ammunition Plant in Tennessee.
27
<PAGE>
Other Federal Government Work. Under a variety of smaller contracts,
-----------------------------
the Company provides the Federal government with numerous other services. Under
an EPA contract 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 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 KAISERS 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."
Industry Services. ICF Kaiser's engineering design, project management,
-----------------
and construction services to the industrial market involve work with the steel,
aluminum, alumina, copper, 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. The Company recently announced that it is
negotiating to sell the pulverized coal injection facility that it designed,
built, currently operates and jointly owns 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.
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).
28
<PAGE>
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.
International Services. ICF Kaiser provides engineering, construction
----------------------
management, and consulting services through companies managed and staffed by
local professionals in Australia, Taiwan, the Philippines, Mexico, Brazil,
Portugal, France, England, Russia, and the Czech Republic, as well as project
offices throughout the world. International projects include design engineering
for the expansion of a major alumina refinery in Western Australia; program
management of the overhaul and upgrade of Portugal's main intercity freight and
passenger rail lines; and environmental remediation of hydrocarbon contamination
in soil and groundwater in France and Mexico. 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 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. 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. 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.
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. Working on global change
issues for the EPA for 14 years, the Company supports the EPA's Global Change
Division, providing services related to the reduction of methane and other
greenhouse gases.
In September 1996, the Consulting Group announced that it had signed a
five-year contract, potentially valued at more than $60 million, to provide
technical analysis and implementation support for EPA's Green Lights and ENERGY
STAR programs. The Consulting Group has worked on EPA's voluntary public-private
partnership programs on energy efficiency and methane reduction since their
inception in 1990.
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.
29
<PAGE>
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 a number of sophisticated simulation models and proprietary
applications. 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.
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.
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 60% of the Company's consolidated gross revenue
during for the ten months 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 in fiscal year 1995 and 65% in
fiscal year 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 months ended December 31, 1995, foreign operations
30
<PAGE>
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 for the ten months ended December 31, 1995.
Backlog
Backlog refers to the aggregate amount of gross contract revenue
remaining to be earned pursuant to signed contracts extending beyond one year.
At September 30, 1996, the Company's contract backlog was approximately $3.9
billion in gross revenue, down from approximately $4.4 billion in gross revenue
at December 31, 1995. The Company expects that approximately 6.4% of the total
backlog at September 30, 1996, will be worked off during the last fiscal quarter
of fiscal 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 Rocky Flats contract with Kaiser-Hill
represents approximately $2.3 billion of the Company's $3.9 billion backlog at
September 30, 1996. 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.
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, 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
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<PAGE>
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.
Other Statutes. 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 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. Under the Ocean Dumping Ban Act of 1988, regulatory revisions to the
Clean Water Act were made to eliminate ocean dumping of sludge. The Toxic
Substance Control Act (TSCA), enacted in 1976, establishes requirements for
identifying and controlling toxic chemical hazards to human health and the
environment. The Federal Insecticide, Fungicide, and Rodenticide Act (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.
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.
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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. 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. The Company has a wholly
owned subsidiary, ICF Kaiser Remediation Company, through which it 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,
with respect to Federal government clients, generally qualifies for the
limitations on liabilities under CERCLA Section 119(a). In addition, in
connection with contracts involving field services at DOE 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 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.
33
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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 material 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.
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
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 cashflows 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 pending audits relating to fiscal years 1986 forward,
the government has asserted, among other things, that certain costs claimed as
reimbursable under government contracts either were not allowable or not
allocated in accordance with federal procurement regulations. The Company is
actively working with the government to resolve these issues. The Company has
provided for the potential effect of disallowed costs for the periods currently
under audit and for periods not yet audited, although the amounts at issue have
not been quantified by the government or the Company. This provision will be
reviewed periodically as discussions with the government progress. Based on the
information currently available, management believes the potential effects of
these pending audits will not have a material adverse effect on the Company's
financial position, results of operations, or cash flows.
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
34
<PAGE>
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
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 DOE contracts file reports with
DOD and DOE 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. 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
DOD and DOE contracts.
Employees
As of November 12, 1996, ICF Kaiser employed approximately 5,000
people, and the Company believes that its relations with its employees are good.
Of the 5,000 total employees, approximately 2,400 persons are employed at
Kaiser-Hill's Rocky Flats site in Colorado. Approximately 1,375 of the Rocky
Flats personnel are represented by the United Steelworkers of America, Local
8031 (as of October 1996), and approximately 130 are represented by the
Buildings Trade Union (as of October 1996).
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 September 30, 1996, 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
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; Gateway View Plaza, 1600 West Carson St.,
Pittsburgh, PA 15220 Telephone (412) 497-2000; and 3D International Tower, 1900
West Loop South, Suite 1350, Houston, TX 77027 Telephone (713) 623-5000. Other
offices include Livermore, Los Angeles; Rancho Cordova, San Diego, San
Francisco, San Rafael and Universal City, CA; Golden and Lakewood, CO;
Washington, DC; Ft. Lauderdale and Miami, FL; Chicago, IL; Gary, IN; Ruston, LA;
Edgewood, Baltimore and Silver Spring, MD; Boston, MA; Las Vegas, NV; Iselin,
NJ; Albuquerque and Los Alamos, NM; Richmond, VA; Richland and Seattle, WA. The
Company's international offices are located in Perth, Australia; Prague, Czech
Republic; London, England; Paris, France; Mexico City, Mexico; Makatic City and
Mandaluyong City, Philippines; Lisbon, Portugal; Moscow, Russia; and Taipei,
Taiwan.
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 cashflows as a result of these investigations.
35
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MANAGEMENT
Set forth below is certain information concerning the directors and
executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Position(s) with Company
---- --- ------------------------
<S> <C> <C>
James O. Edwards 53 Chairman of the Board and Chief Executive Officer
Michael K. Goldman 44 Executive Vice President and Chief Administrative Officer
Stephen W. Kahane 46 Executive Vice President and President of the Federal Programs Group
Edward V. Lower 51 Executive Vice President
Richard K. Nason 54 Director, Executive Vice President and Chief Financial Officer
George D. O'Brien 58 Executive Vice President
Marcy A. Romm 37 Senior Vice President and Director of Human Resources
Marc Tipermas 48 Director, Executive Vice President, and Director of Corporate Development
David Watson 53 Executive Vice President and President of the ICF Kaiser Engineers Group
Paul Weeks, II 52 Senior Vice President, General Counsel, and Secretary
Gian Andrea Botta 43 Director
Tony Coelho 54 Director
Maynard H. Jackson 58 Director
Thomas C. Jorling 56 Director
Frederic V. Malek 59 Director
Rebecca P. Mark 42 Director
Robert W. Page, Sr. 69 Director
Outside Directors
</TABLE>
Gian Andrea Botta has been President of EXOR America Inc., a subsidiary
of EXOR Group, since 1993. 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 Company's 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 Investors. Mr.
Botta received a degree in economics and business administration in 1975 from
the University of Torino, Italy.
Tony Coelho has been Chairman and Chief Executive Officer of Coelho
Associates, LLC, a financial consulting firm, since July 1995. He also has been
Chairman and Chief Executive Officer of ETC, the Washington, D.C.-based
education, training, and communications subsidiary of Tele-Communications, Inc.
since October 1995. From 1989 to July 1995 he had been a Managing Director of
Wertheim Schroder & Co. Incorporated, a New York-based international investment
banking and securities firm; from 1990 to 1995 he also served as President and
Chief Executive Officer of Wertheim Schroder Investment Services, Inc. Mr.
Coelho was appointed by President Clinton to serve as Chairman of the
President's Committee on Employment of People with Disabilities in 1994 and to
serve as a member of the Commission on the Roles and Capabilities of the United
States Intelligence Community in 1995. 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. He is a director of the National Foundation for
Affordable Housing Solutions, the National Organization on Disability, the
National Rehabilitation Hospital and Very Special Arts, and is an Honorary
Lifetime Director of the Epilepsy Foundation of America. Mr. Coelho also serves
on Fleishman-Hillard, Inc.'s International Advisory Board.
Thomas C. Jorling has been Vice President, Environmental Affairs, of
International Paper Company since 1994. 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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Maynard H. Jackson has been Chairman of Jackson Securities
Incorporated, an investment banking firm, since 1994. 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 is a Trustee of Morehouse College and a Trustee of FGIC Public
Trust. 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.; Intrav, Inc.; Manor Care, Inc.; National Education Corp.; Northwest
Airlines; and Paine Webber Mutual Funds. Mr. Malek graduated from the United
States Military Academy (B.S.) and Harvard University (M.B.A.).
Rebecca P. Mark has been Chairman and Chief Executive Officer of Enron
Development Corp., the international project development arm of Enron Corp.,
since 1991. 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 was a member of Enron Power
Corp.'s executive management team from its establishment in 1986 to 1991. 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 also is a director of the
Institute of the Americas. Ms. Mark graduated from Baylor University (B.A. and
M.I.M.) and Harvard University (M.B.A.).
Robert W. Page, Sr. retired as an Executive Vice President at McDermott
International, Inc., an energy services 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 Officer 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)
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, Los Angeles
(B.A., M.S.P.H., D. Env.).
37
<PAGE>
Edward V. Lower has been an Executive Vice President of the Company and
a Group Executive Vice President and Regional Manager (Northeast and
Mid-Atlantic) of the ICF Kaiser Engineers Group since December 1995. In 1991,
Dr. Lower joined EA Engineering, Science and Technology, Inc. as President and
Chief Operating Officer; he became a member of that company's Board of Directors
in 1994. Prior to joining EA Engineering, Dr. Lower worked for Union Carbide in
a variety of positions, most notably vice president/general manager. Dr. Lower
graduated from the University of Delaware (B.S.), LaSalle University (LL.B.),
West Virginia University (M.B.A.), and New York University (M.A.; Ph.D.).
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.
George D. O'Brien has been an Executive Vice President of the Company
and of the Federal Programs Group since May 1996. Dr. O'Brien was President and
CEO of Kaiser-Hill Company, LLC, from its inception in 1994 until he became
Executive Vice President of the Company. Dr. O'Brien joined the Company in 1989
and directed its infrastructure, engineering, and constructions operations from
1989 to 1994 when he was appointed President of the Company's subsidiary, ICF
Kaiser Hanford Company. He left that position to head Kaiser-Hill Company; he
now serves in a senior position focusing on DOE and DOD projects within the
Federal Programs Group. From 1986 to 1989, Dr. O'Brien was Commanding Officer of
the nuclear-powered aircraft carrier USS Carl Vinson; prior to that, he held a
variety of assignments with the U.S. Navy involving aircraft and ship
operations, aircraft engineering program management, and national strategic
planning. Dr. O'Brien graduated from the U.S. Naval Academy (B.S.) and the Navy
Post Graduate School (Ph.D.), Monterey, California.
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. In November
1996 he accepted line responsibility for the Consulting Group and staff
responsibility for governmental relations. 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. He became
President of the combined Kaiser Engineers and International Groups in November
1996. From 1989 to November 1995, he was with Day & Zimmerman 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 & Zimmerman, Mr. Watson was with Stearns Catalytic, Inc. and Burmah
Oil Company. Mr. Watson graduated from Loughborough University of Technology,
Loughborough, 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 Assistant
38
<PAGE>
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--Agreement and Transactions with
Executive Officers Named in the Summary Compensation Table (Three of Whom also
are Directors)" section of this Prospectus.
Compensation Committee Interlocks and Insider Participation
The non-employee directors of the Company who are voting members of the
Compensation Committee are Tony Coelho (Chairman), Thomas C. Jorling, and
Frederic V. Malek. Gian Andrea Botta also is a voting member of the Committee.
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 or employee
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 Inc.) 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. In addition, for 15
days prior to and ending on the expiration date of the Series 2D Warrants
(November 2, 1997), 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 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
39
<PAGE>
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 employment agreement which is described in
-----------
the "Executive Compensation--Agreements and Transactions with Executive Officers
Named in the Summary Compensation Table (Three of Whom also are Directors)" of
this Prospectus, Mr. Edwards' then-outstanding indebtedness to the Company was
restructured effective December 31, 1994. 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 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 $1,081,816. It is the Company's intention to retire
the debt when the value of the collateral reaches the amount owed.
Executive compensation paid to Mr. Edwards during the ten-month fiscal
period ended December 31, 1995 and fiscal years 1995 and 1994 is described in
the "Executive Compensation" section of this Prospectus.
EXECUTIVE COMPENSATION
The following table shows the compensation received by the Chief
Executive Officer and the other four most highly compensated executive officers
of the Company (the "Named Executive Officers") for the three fiscal periods
ended December 1995. Because of the Company's fiscal year-end change, the fiscal
period that ended December 31, 1995, is only a ten-month period. The table shows
the amounts received by each Named Executive Officer for all three fiscal
periods.
40
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
====================================================================================================================
Annual Compensation Long-term Compensation Awards
- --------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (i)
- ----------------- Salary Bonus Other Annual Restricted Securities Underlying All Other
Name, Principal ($) ($) Compensation Stock Options/SARs (#) Compensation
Position, and (1) ($) (2) Award(s) ($)
Fiscal Period
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
James O. Edwards, Chairman and CEO (3)
- --------------------------------------------------------------------------------------------------------------------
Ten-month 1995 $295,673 $152,500 (2) 0 0 $111,938 (3)
- --------------------------------------------------------------------------------------------------------------------
Fiscal 1995 $324,519 0 (2) 0 53,000 new options $111,890 (3)
97,000 repriced options
- --------------------------------------------------------------------------------------------------------------------
Fiscal 1994 $300,000 0 (2) 0 0 $123,596 (3)
- --------------------------------------------------------------------------------------------------------------------
Stephen W. Kahane, Executive Vice President (4)
- --------------------------------------------------------------------------------------------------------------------
Ten-month 1995 $219,808 0 (2) 0 0 $12,235 (4)
- --------------------------------------------------------------------------------------------------------------------
Fiscal 1995 $249,423 $60,000 (2) 0 66,666 new options $12,866 (4)
33,334 repriced options
- --------------------------------------------------------------------------------------------------------------------
Fiscal 1994 $220,000 0 (2) 0 0 $23,007 (4)
- --------------------------------------------------------------------------------------------------------------------
Richard K. Nason, Executive Vice President and CFO(5)
- --------------------------------------------------------------------------------------------------------------------
Ten-month 1995 $190,865 $25,000 (2) 0 0 $12,558 (5)
- --------------------------------------------------------------------------------------------------------------------
Fiscal 1995 $168,749 0 (2) 0 52,000 options $9,538 (5)
- --------------------------------------------------------------------------------------------------------------------
Fiscal 1994 $100,077 0 (2) 0 0 $1,140 (5)
- --------------------------------------------------------------------------------------------------------------------
Alvin S. Rapp, Executive Vice President (6)
- --------------------------------------------------------------------------------------------------------------------
Ten-month 1995 $245,096 $50,000 (2) 0 0 $11,608 (6)
- --------------------------------------------------------------------------------------------------------------------
Fiscal 1995 $274,519 $150,000 $200,022 (2)(7) 0 0 $278,702 (6)
- --------------------------------------------------------------------------------------------------------------------
Fiscal 1994 $64,500 $147,159 (2) $418,499 100,000 options $35,729 (6)
- --------------------------------------------------------------------------------------------------------------------
Marc Tipermas, Executive Vice President (7)
- --------------------------------------------------------------------------------------------------------------------
Ten-month 1995 $248,942 $110,000 (2) 0 0 $11,788 (7)
- --------------------------------------------------------------------------------------------------------------------
Fiscal 1995 $274,423 $45,000 (2) 0 74,463 new options $12,573 (7)
50,537 repriced options
- --------------------------------------------------------------------------------------------------------------------
Fiscal 1994 $220,000 0 (2) 0 0 $22,715 (7)
====================================================================================================================
</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 is a
twelve-month period running from March 1, 1994, through February 28, 1995.
Fiscal 1994 is a twelve-month period running from March 1, 1993, through
February 28, 1994.
(1) The amounts shown in this column were paid for services rendered during
the ten months ended December 31, 1995, and include amounts paid during 1996
that were attributed to ten-month 1995 service.
(2) Any amounts shown in the "Other Annual Compensation" column 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 salary and bonus for the Named
Executive Officer for the stated fiscal period.
(3) 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
$9,552 Company contribution under the Company's Retirement
Plan for ten-month 1995 made in September 1996
$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
41
<PAGE>
(4) 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
$9,552 Company contribution under the Company's Retirement
Plan for ten-month 1995 made in September 1996
$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
$306 Imputed income for Company-paid life insurance
(5) 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
$9,552 Company contribution under the Company's
Retirement Plan for ten-month 1995 made in
September 1996
$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
(6) 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
$9,552 Company contribution under the Company's Retirement
Plan for ten-month 1995 made in September 1996
$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
(7) 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
$9,552 Company contribution under the Company's Retirement
Plan for ten-month 1995 made in September 1996
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
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
42
<PAGE>
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 September 30, 1996, there were 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 nine
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.
Agreements and Transactions with Executive Officers Named in the Summary
Compensation Table (Three 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
his salary; annual bonus compensation to be determined by the Compensation
Committee; 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 re-named Federal Programs
Group. In addition to delineating Dr. Kahane's areas of responsibility and
reporting line, the agreement provides for his annual salary; 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.
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 re-named ICF Kaiser Engineers 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 September 30, 1996, 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 September
30, 1996, 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 March 1, 1995 was $648,546. As of November 8, 1996, Mr. Rapp
is an employee, but no longer an executive officer, of the Company.
43
<PAGE>
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
his salary; annual bonus compensation to be determined by the Compensation
Committee of the Company's Board of Directors (in amounts specified in the
agreement); 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.
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 September 30, 1996, was $191,647, plus accrued interest. The largest
aggregate amount of Mr. Goldman's indebtedness to the Company outstanding at any
time since March 1, 1995 was $191,647.
44
<PAGE>
SECURITY OWNERSHIP
<TABLE>
<CAPTION>
=================================================================================================================
Name and Address of 5% Shareholders, Beneficial Percent of Aggregate
Directors, and Executive Officers Ownership (a) Class of Stock Voting Power (a)
=================================================================================================================
<S> <C> <C> <C>
Directors
- -----------------------------------------------------------------------------------------------------------------
Gian Andrea Botta (b) 12,000 * *
- -----------------------------------------------------------------------------------------------------------------
Tony Coelho (c) 17,000 * *
- -----------------------------------------------------------------------------------------------------------------
James O. Edwards (d) 424,431 1.9% of Common Stock 1.7%
- -----------------------------------------------------------------------------------------------------------------
Maynard H. Jackson (e) 6,000 * *
- -----------------------------------------------------------------------------------------------------------------
Thomas C. Jorling (f) 6,000 * *
- -----------------------------------------------------------------------------------------------------------------
Frederic V. Malek (g) 30,000 * *
- -----------------------------------------------------------------------------------------------------------------
Rebecca P. Mark (h) 12,000 * *
- -----------------------------------------------------------------------------------------------------------------
Richard K. Nason (i) 28,459 * *
- -----------------------------------------------------------------------------------------------------------------
Robert W. Page, Sr. (j) 12,000 * *
- -----------------------------------------------------------------------------------------------------------------
Marc Tipermas (k) 261,262 1.2% of Common Stock 1.1%
- -----------------------------------------------------------------------------------------------------------------
Executive Officers Named in the Summary Compensation Table
- -----------------------------------------------------------------------------------------------------------------
James O. Edwards, Chairman and Chief
Executive Officer (d) 424,431 1.9% of Common Stock 1.7%
- -----------------------------------------------------------------------------------------------------------------
Stephen W. Kahane, 165,547 * *
Executive Vice President (l)
- -----------------------------------------------------------------------------------------------------------------
Richard K. Nason, 28,459 * *
Executive Vice President (i)
- -----------------------------------------------------------------------------------------------------------------
Alvin S. Rapp, 128,180 * *
Executive Vice President (m)
- -----------------------------------------------------------------------------------------------------------------
Marc Tipermas, 261,262 1.2% of Common Stock 1.1%
Executive Vice President (k)
- -----------------------------------------------------------------------------------------------------------------
All Directors and Executive Officers
as a Group (17 persons) (n) 1,239,690 5.5% of Common Stock 5.0%
- -----------------------------------------------------------------------------------------------------------------
5% Common Shareholders
- -----------------------------------------------------------------------------------------------------------------
ICF Kaiser International, Inc. 1,871,965 8.4% of Common Stock 7.6%
Employee Stock Ownership Trust (o)
- -----------------------------------------------------------------------------------------------------------------
ICF Kaiser International, Inc. 957,807 4.3% of Common Stock 3.9%
Retirement Plan (p)
- -----------------------------------------------------------------------------------------------------------------
FIMA Finance Management, Inc. (b) 2,680,952 10.7% of Common Stock 10.7%
- -----------------------------------------------------------------------------------------------------------------
State of Wisconsin Investment Board (q) 2,055,000 9.2% of Common Stock 8.3%
- -----------------------------------------------------------------------------------------------------------------
Cowen & Company (r) 2,422,300 10.8% of Common Stock 9.8%
- -----------------------------------------------------------------------------------------------------------------
Series 2D Senior Preferred Stock
- -----------------------------------------------------------------------------------------------------------------
EXOR America, Inc. (b) 200 shares (b) 100% of Series 2D 9.6%
Senior Preferred Stock
- -----------------------------------------------------------------------------------------------------------------
* = ownership of less than 1%
=================================================================================================================
</TABLE>
(a) Except as noted below, all information in the above table is as of
October 31, 1996. 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
45
<PAGE>
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 October 31,
1996. 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
September 30, 1996; the unaudited information with respect to the number of
shares allocated to individuals' accounts is current as of September 30, 1996.
With respect to ownership of shares which are held in the Company's Section
401(k) Plan but allocated to individuals' accounts, the unaudited information is
current as of September 30, 1996. For shares shown in the following footnotes as
being held by the Company's Retirement Plan or in directed investment accounts
in the Company's Retirement Plan, the unaudited information is current as of
September 30, 1996.
(b) Mr. Botta's share ownership includes 12,000 shares that may be acquired
within 60 days of October 31, 1996, 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 October 31, 1996, upon the exercise of stock options. He also
owns 2,000 other shares.
(d) Mr. Edwards' share ownership includes 2,909 shares allocated to his ESOP
account, 4,215 shares allocated to his Section 401(k) Plan account, 62,274
shares in his directed investment account under the Retirement Plan, and 75,000
shares that may be acquired within 60 days of October 31, 1996, upon the
exercise of stock options. He also beneficially owns 280,033 other shares. Mr.
Edwards disclaims beneficial ownership of the 2,900 shares of Common Stock owned
by his spouse's IRA which are not included in the total shown for Mr. Edwards in
the table. Mr. Edwards is a member of the ESOP Plan Committee and the Retirement
Plan Committee; as such, he has shared investment power over 1,871,965 and
957,807 shares held by the ESOP and Retirement Plan, respectively. He has shared
voting power over 717,301 shares held by the Retirement Plan that are not held
in directed investment accounts. Mr. Edwards disclaims beneficial ownership of
the shares held by the ESOP and the Retirement Plan.
(e) Mr. Jackson's share ownership includes 6,000 that may be acquired within 60
days of October 31, 1996, upon the exercise of stock options.
(f) Mr. Jorling's share ownership includes 6,000 shares that may be acquired
within 60 days of October 31, 1996, upon the exercise of stock options.
(g) Mr. Malek's share ownership includes 15,000 shares that may be acquired
within 60 days of October 31, 1996, upon the exercise of stock options. He also
owns 15,000 other shares.
(h) Ms. Mark's share ownership includes 12,000 shares that may be acquired
within 60 days of October 31, 1996, upon the exercise of stock options.
(i) Mr. Nason's share ownership includes 212 shares allocated to his ESOP
account, 12,413 shares allocated to his Section 401(k) Plan account, and 13,834
shares that may be acquired within 60 days of October 31, 1996, upon the
exercise of stock options. He also owns 2,000 other shares.
(j) Mr. Page's share ownership includes 12,000 shares that may be acquired
within 60 days of October 31, 1996, upon the exercise of stock options.
(k) Dr. Tipermas' share ownership includes 8,028 shares allocated to his ESOP
account, 12,734 shares in his directed investment account under the Retirement
Plan, and 62,500 shares that may be acquired within 60 days of October 31, 1996,
upon the exercise of stock options. He also owns 178,000 other shares.
(l) Dr. Kahane's share ownership includes 7,079 shares allocated to his ESOP
account, 5,946 shares in his directed investment account under the Retirement
Plan, and 50,000 shares that may be acquired within 60 days of October 31, 1996,
upon the exercise of stock options. He also owns 102,522 other shares.
(m) Mr. Rapp's share ownership includes 60,000 shares that may be acquired
within 60 days of October 31, 1996, upon the exercise of stock options. He also
owns 68,180 other shares.
(n) This total includes 37,861 shares allocated to ESOP accounts, 18,823 shares
in Section 401(k) Plan accounts, 83,789 shares in directed investment accounts
under the Retirement Plan, and 379,398 shares that may be acquired within 60
days of October 31, 1996, upon the exercise of stock options. The 717,669
balance of the shares are owned directly.
(o) 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 94,856 shares of Common Stock, 11,334 of which are
shares that may be acquired within 60 days of October 31, 1996, upon the
exercise of stock options. Ms. Romm beneficially owns 25,983 shares of Common
Stock, 5,813 of which are shares that may be acquired within 60 days of October
31, 1996, upon the exercise of stock options. The ESOP Plan Committee's address
is 9300 Lee Highway, Fairfax, VA 22031.
(p) 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 (o). Mr. Goldman
does not have any shares of Common Stock in his directed investment account
under the Retirement Plan; Ms. Romm has 1,973 shares in her directed investment
account. Of the 957,807 shares of Common Stock held by the Retirement Plan, a
total
46
<PAGE>
of 240,506 at September 30, 1996, were held in directed investment accounts in
which the participants have voting and investment powers over their allocated
shares. The Retirement Plan Committee has investment and voting powers over the
remaining shares held by the Retirement Plan in the ICF Stock Fund. The
Retirement Plan Committee's address is 9300 Lee Highway, Fairfax, VA 22031.
(q) 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, 1996) which was filed with the SEC and which
reports share ownership information as of December 31, 1995.
(r) Cowen & Company, Financial Square, New York, New York, 10005-3597. The
information with respect to the shares of Common Stock beneficially owned by
Cowen & Company is based on a Report on Schedule 13G dated February 13, 1996,
which was filed with the SEC reporting share ownership information as of
December 31, 1995.
SELLING SHAREHOLDERS
<TABLE>
<CAPTION>
================================================================================================================
Name Beneficial Ownership GAW Shares Number of Shares Beneficial Ownership of
of GAW Shares Restricted Not Restricted of Common Stock Shares of Common Stock
Against Transfer Against Transfer Offered for Sale After Giving Effect
Until 7/22/97 prior to 7/22/97 (a) to Proposed Sale
================================================================================================================
<S> <C> <C> <C> <C>
Georgia A. Wilson 238,794 63,478 302,272 0
----------------------------------------------------------------------------------------------------------------
James R. Ainsworth 102,340 27,205 129,545 0
----------------------------------------------------------------------------------------------------------------
Danny L. Sherwood 17,955 4,773 22,728 0
-----------------------------------------------------------------------------------------------------------------
Total 359,089 95,456 454,545 0
=================================================================================================================
</TABLE>
(a) The Company issued 454,545 shares of Common Stock to the GAW Selling
Shareholders in return for all the outstanding shares of Georgia A.
Wilson & Associates, Inc.
<TABLE>
<CAPTION>
================================================================================================================================
Name Beneficial Beneficial Beneficial Beneficial Number of Shares Beneficial Ownership
Ownership Ownership of Ownership of Ownership of of Common Stock of Shares of Common
of EDA EDA EDA Initial Additional Offered for Sale Stock After Giving Effect
Closing Returned Earn-out Shares EDA Earn-out (a) to Proposed Sale
Shares Shares
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Douglas A. Huppert 11,475 0 4,500 27,375 43,350 (b)
--------------------------------------------------------------------------------------------------------------------------------
Igor Livshin 39,152 15,356 21,375 130,031 205,914 (b)
--------------------------------------------------------------------------------------------------------------------------------
Daniel A. Milliron 39,998 19,288 23,250 141,438 223,974 (b)
--------------------------------------------------------------------------------------------------------------------------------
Terry B. Soesbee 39,152 15,356 21,375 130,031 205,912 (b)
--------------------------------------------------------------------------------------------------------------------------------
Timothy V. Treadwell 11,475 0 4,500 27,375 43,350 (b)
--------------------------------------------------------------------------------------------------------------------------------
Total 141,250 50,000(b) 75,000(b) 456,250(b) 772,500 (b)
================================================================================================================================
</TABLE>
(a) The Company issued 722,500 shares of Common Stock to the EDA Selling
Shareholders in return for all the outstanding shares of EDA,
Incorporated.
(b) The EDA Returned Shares and 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 as specified in the agreement
with the EDA Selling Shareholders.
<TABLE>
<CAPTION>
=======================================================================================================
Name Beneficial Number of Shares Number of Shares Beneficial Ownership of
Ownership of of Common Stock Pledged Shares of Common Stock
Balch Shares Offered for Sale After Giving Effect
to Proposed Sale
=======================================================================================================
<S> <C> <C> <C> <C>
John G. Balch(a) 256,167 36,167 220,000 0
-------------------------------------------------------------------------------------------------------
Total 256,167(a) 36,167(a) 220,000 (a)
=======================================================================================================
</TABLE>
(a) In addition to the 256,167 Balch Shares, Mr. Balch beneficially owns
2,792 shares allocated to his account in the Company's Employee Stock
Ownership Plan. On March 6, 1996, Mr. Balch and Excell
47
<PAGE>
executed a stock pledge agreement pursuant to which Mr. Balch pledged a
total of 275,000 of the Balch Shares as security for all loans owed by
Mr. Balch to Excell. In partial satisfaction of loans owed by Mr. Balch
to Excell, Excell accepted 55,000 pledged Balch Shares on April 2,
1996.
<TABLE>
<CAPTION>
========================================================================================================
Name Beneficial Beneficial Number of Beneficial Ownership
Ownership Ownership of Shares of of Shares of Common
of IPC IPC Shares Common Stock After Giving
Shares (following Stock Offered Effect to Proposed
(a) distribution) for Sale 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 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 assumed only specified,
listed contractual obligations in connection with the asset purchase.
All of the 100,000 IPC Shares subsequently were distributed to the IPC
Selling Shareholders by IPC. All such shares may be offered by resale
by the IPC Selling Shareholders.
(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 was a shareholder of the IPC Company.
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 October 31, 1996, the outstanding capital stock of the Company
consisted of 22,361,842 shares of Common Stock and 200 shares of Series 2D
Senior Preferred Stock. The outstanding Common Stock figure excludes 531,250
shares held in escrow in connection with the EDA acquisition.
Common Stock
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.
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.
48
<PAGE>
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.
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. The shareholder relations telephone number at First Chicago is (201)
324-0498, and the First Chicago Web site address is http://www.fctc.com.
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 and 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 and the
dividend rate. In addition, the Board of Directors has authority to prescribe
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 of 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. 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.
Series 2D Senior Preferred Stock
The Company has issued 200 shares of Series 2D Senior Preferred Stock,
all of which are currently outstanding and held by EXOR America, Inc. In
connection with the issuance of the Series 2D Senior Preferred Stock, the
Company issued Series 2D Warrants for the purchase of 2,680,952 shares of Common
Stock to an affiliate of the purchaser of the Series 2D Senior Preferred Stock
(see "Series 2D Warrants" below). The following is a summary of the terms of the
Series 2D Senior Preferred Stock, which ranks prior to 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 Senior Preferred Stock pays cumulative
---------
dividends of $9,750 per $100,000 of liquidation preference per year, payable in
quarterly amounts of $487,500.
Liquidation Preference. Upon any voluntary or involuntary liquidation,
----------------------
dissolution or winding up of the Company, the holders of Series 2D Senior
Preferred Stock are entitled to receive a liquidation preference equal to
$100,000 plus accrued but unpaid dividends per share of Series 2D Senior
Preferred Stock before any distribution is made to the holders of any capital
stock of the Company ranking junior to the Series 2D Senior Preferred Stock.
Mandatory Redemption. The Company is obligated to redeem all shares of
--------------------
Series 2D Senior 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 Senior Preferred Stock ("Series 2D Certificate of Designations"), the
original purchaser (and current holder) of the shares of Series 2D Senior
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 Initial Holder of the Series 2D Senior Preferred Stock has the
right, subject to a 180-day cure period, to require the Company to redeem all
shares of Series 2D Senior 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 it that the U.S. Departments of Defense or Energy, or the President of
the United States
49
<PAGE>
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 in a
market purchase or a private purchase other than from the Company.
Optional Redemption. The Company at any time and at its option may
-------------------
redeem all, but not less than all, of the shares of Series 2D Senior 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 Senior 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.
One-time Redemption Right. The Company has a one-time right to redeem
-------------------------
all outstanding shares of Series 2D Senior 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 Senior Preferred Stock, (ii) cash in an
amount equal to all accrued and unpaid dividends on the Series 2D Senior
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
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 option 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.
Voting. The number of votes entitled to be cast by any holder of Series
------
2D Senior Preferred Stock is equal to the total number of shares of Series 2D
Senior Preferred Stock owned by such holder divided by the total number of
outstanding shares of Series 2D Senior 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 Senior Preferred Stock
is reduced as Series 2D Warrants are exercised. Thus, the Series 2D Senior
Preferred Stock has voting power similar to that of the Common Stock.
In general, holders of shares of Series 2D Senior 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
50
<PAGE>
shares of Series 2D Senior 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 Senior Preferred Stock or alter or change the powers,
preferences, or special rights of the Series 2D Senior 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 Senior Preferred Stock. Moreover, without the affirmative vote
of at least 66 2/3% of the aggregate voting power of shares of Series 2D Senior
Preferred Stock outstanding, the Company may not (i) authorize or issue
preferred stock senior to the Series 2D Senior Preferred Stock or (ii) authorize
or issue equity securities with a mandatory redemption date earlier than January
13, 1997.
Board Membership. As discussed below (see "Provisions Affecting Changes
----------------
of Control and Extraordinary Transactions"), until January 13, 1997 (when the
Series 2D Senior 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 Senior Preferred Stock for a
period in excess of 100 days or fails to make a mandatory redemption, the
holders of Series 2D Senior 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 Senior 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:
making any material change in nature of the business of the Company and its
Subsidiaries, taken as a whole; selling or disposing of assets of the Company or
any Subsidiary for consideration of more than $1 million; entering into,
amending and terminating employment agreements or arrangements of the Company or
any Subsidiary that provide for annual compensation or payments in excess of
$200,000; merging or consolidating the Company with or into any other person;
reorganizing, liquidating, dissolving, declaring, or voluntarily entering into
bankruptcy with respect to, the Company or any Subsidiary; redeeming and
declaring of dividends or distributions on any capital stock of the Company;
making any capital expenditures, or any series of capital expenditures for
substantially the same purpose, or for related purposes, of the Company or any
Subsidiary exceeding, individually $500,000; electing or appointing any officer,
and nominating any director, or the Company, other than existing officers and
directors; amending of the Certificate of Incorporation or By-laws of the
Company; acquiring or agreeing to acquire, or acquiring of an option to acquire,
all or substantially all of the capital stock or assets of another person (other
than joint ventures formed in connection with competing for, or obtaining,
project or construction contract or similar business); entering into any
material contract outside the ordinary course of business which contemplates the
payment or receipt by the Company or any Subsidiary of consideration in excess
of $500,000; guaranteeing the obligations of any other person (other than a
Subsidiary) in excess of $1 million; and incurring any indebtedness other than
as permitted pursuant to the terms of the Existing Indenture.
Further, under such circumstances, the Initial Holder is relieved from
the limitations on its right to acquire additional voting securities of the
Company, to subject the Series 2D Senior Preferred Stock to a voting trust, or
to solicit proxies in opposition to the Company's Board of Directors. The
Company is current in the payment of dividends on the Series 2D Preferred Stock;
the Indentures permit the Company to pay the remaining dividends to the date of
mandatory redemption of the Series 2D Preferred Stock.
Transferability. The Series 2D Senior Preferred Stock and Series 2D
---------------
Warrants were sold in a private placement exempt from registration under the
Securities Act. Thus, there is no public market for the Series 2D Senior
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, as amended, pursuant to which the securities were sold in
1992; that Agreement 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.
Other Terms. Except as set forth above, holders of the Series 2D Senior
-----------
Preferred Stock have no preemptive or other rights to subscribe for additional
shares of Company stock.
51
<PAGE>
Series 2D Warrants
In January 1992, the Company sold to an affiliate of EXOR America, Inc.
Series 2D Warrants to purchase 2,680,952 shares of Common Stock (subject to
adjustment) at an exercise price of $8.40 per share. The Series 2D Warrants
expire in November 1997. In January 1994, the Company issued replacement Series
2D Warrants to the same affiliate 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 then-current credit
agreement, or any similar agreement relating to indebtedness for borrowed money
of the Company, the Company shall make such payment in Common Stock.
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.
Senior Subordinated Debt Warrants
A total of 600,000 Senior Subordinated Debt Warrants (the "Senior
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 Senior 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 Senior Warrants terminate and become void on December 31, 1998
(the "Expiration Date"). The Senior 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 Senior Warrants has been registered with the SEC and listed on
the New York Stock Exchange.
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 Senior 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 Senior 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 Senior 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 Senior Warrant and the Purchase Price are subject to adjustment
in certain events, including (a) a dividend or distribution on the Company's
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<PAGE>
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 Senior 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 Senior Warrant), then the
Purchase Price and the number of shares of Common Stock issuable upon the
exercise of each Senior 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 Senior 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 SEC on Form S-8 and do not, in the aggregate exceed five
percent of the 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 1/100th 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. The Rights Agent is First
Chicago Trust Company of New York.
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 Senior Preferred
Stock cannot be deemed an Acquiring Person.
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<PAGE>
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 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.
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<PAGE>
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 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) provide that shareholders owning at least
50% of the voting power of the capital stock are required to call a special
meeting of shareholders.
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,
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<PAGE>
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 Senior Preferred Stock."
The agreements relating to the Series 2D Senior Preferred Stock provide
that, until January 13, 1997, subject to adjustment, so long as the purchaser of
the Series 2D Senior Preferred Stock (and its 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 expiring 1999") 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 expiring 1999 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 CREDIT FACILITY
Effective on May 7, 1996, the Company entered into a revised revolving
credit and letter of credit facility (the "Credit Facility" ), with a syndicate
of three banks (the "Banks" ). The agent for the Banks (the "Agent" ) is
CoreStates Bank, N.A. Capitalized terms and acronyms used but not defined in
this description of the Credit Facility have the meanings assigned to them in
the agreement governing the Credit Facility. The material terms of the Credit
Facility are summarized below:
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Borrowing Availability and Termination Date. Under the Credit Facility,
-------------------------------------------
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) $40 million
or (ii) the Borrowing Base (85% of Eligible Billed Accounts Receivable and
Certain Unbilled Accounts Receivable up to a maximum of $10 million). If the
Company sells assets other than in the ordinary course of business while the
Credit Facility is in effect, the borrowing availability will be reduced by the
net cash proceeds from each sale; however, there is no mandatory reduction for
the first approximately $5 million in aggregate net cash proceeds. The Credit
Facility terminates on June 30, 1998.
Interest. The Credit Facility contains LIBOR and Base Rate options,
--------
each with applicable margins determined from time to time based on the ratio of
the Company's EBITDA to Consolidated Interest Expense, payable monthly.
Fee. The Company pays certain fees and commissions to the Banks,
---
including a commitment fee of 5/8% per annum on the unused portion of the Credit
Facility. Outstanding letters of credit bear a fee equal to the LIBOR applicable
margin in effect over the period, payable quarterly.
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 Facility. 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 in a
manner that could have a 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.
Collateral. To secure the payment and the punctual performance of all
----------
of the Obligations under the Credit Facility, the Company and each of the
Subsidiary Guarantors granted to the Banks a general continuing lien upon and
security interest in all the Collateral. The Collateral is defined as including
all now-existing or hereafter acquired or arising (i) Accounts, (ii) General
Intangibles, Chattel Paper, Instruments derived from or related to any Accounts,
(iii) guarantees of any Accounts and all other security held for the payment or
satisfaction thereof, (iv) goods or services the sale or lease of which gave
rise to any Account, including returned goods, (v) the balance of any deposit,
agency or other account with any Bank, (vi) Discounted Treasuries delivered by
the Company or the Subsidiary Guarantors to the Agent pursuant to the Credit
Facility, and (vii) books, records and other property at any time evidencing or
related to the foregoing, together with all products and Proceeds (including
insurance Proceeds) of any of the foregoing.
Financial Covenants. The Credit Facility 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 has agreed that it will not permit the ratios of (i) EBITDA less Capital
Expenditures plus Consolidated Lease Expenses to Consolidated Fixed Charges (the
"Fixed Charge Coverage Ratio") and (ii) EBITDA to Consolidated Interest Expense
(the "Interest Coverage Ratio"), computed on a consolidated, rolling four
quarters basis to be less than those set forth below:
<TABLE>
Period Ending Fixed Charge Coverage Ratio Interest Coverage Ratio
------------- --------------------------- -----------------------
<S> <C> <C>
June 30, 1997 1.15:1.00 1.70:1.00
June 30, 1998 1.20:1.00 1.75:1.00
</TABLE>
The Company also covenanted that it will not permit the ratio of Senior
Funded Indebtedness to EBITDA on the last day of any fiscal quarter, as of such
day for the immediately preceding four fiscal quarters, to be greater than
2.5:1.0. Finally, the Company covenanted that it will not permit the ratio of
Indebtedness for Borrowed Money to Total Capitalization on the last day of any
fiscal quarter ending in the periods set forth below to be greater than the
ratio set forth opposite such period:
Test Period Ratio
----------- -----
May 7, 1996 through December 31, 1996 .77:1.0
January 1, 1997 through June 30, 1998 .75:1.0
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Under the Credit Facility, the Company and its Subsidiaries agreed not
to assume, incur, or create any Indebtedness for Borrowed Money except for (i)
the loans and letters of credit under the Credit Facility, (ii) Subordinated
Debt, (iii) Non-Recourse Indebtedness, (iv) up to $10 million in additional debt
(to the extent the Company has unused borrowing availability), and (v) certain
other Indebtedness for Borrowed Money specified in the Credit Facility.
Restrictive Covenants. The Credit Facility contains other customary
---------------------
negative covenants and restrictions, including, without limitation, restrictions
on (i) the creation of liens, (ii) mergers, consolidations, and other
extraordinary transactions, (iii) guarantees, (iv) loans, and (v) transfers and
sale of assets. Investments in project related joint ventures are limited to
$500,000 in any 12-month period, and investments in project finance ventures are
limited to an aggregate of $7.5 million. In addition, the Credit Facility limits
Acquisitions to an aggregate of $5 million (excluding the value of the Company's
Capital Stock used for Acquisitions), with any single Acquisition not to exceed
$2 million.
The Credit Facility also contains restrictions against the Company's
making any redemptions, repurchases, dividends or distributions of any kind in
respect of its Capital Stock, other than (a) pursuant to an Excluded
Transaction, (b) dividends payable pursuant to the terms of the Company's Series
2D Senior Preferred Stock, and (c) redemptions, repurchases, dividends or
distributions payable in the form of the Company's Capital Stock or with the net
proceeds of the sale of the Company's Capital Stock (other than to a Subsidiary
or employee stock ownership plan of the Company). The Credit Facility defines an
Excluded Transaction as the redemption on or before January 13, 1997 of the
Company's Series 2D Senior Preferred Stock from the proceeds of any one or more
of (i) the issuance by the Company of shares of its common stock or preferred
stock without mandatory dividend or redemption rights, plus, to the extent the
proceeds of such issuance plus the proceeds of (ii), (iii) or (iv) below, if
any, are insufficient to effect such redemption, up to twenty (20) percent of
Consolidated Net Income for the period commencing December 31, 1995 through the
date of such redemption; (ii) the creation by the Company of a series of
preferred stock with mandatory dividend or redemption rights and issuance of and
payments of dividends on shares of such series, as to which the Agent and the
Required Banks shall have consented (which consent shall not be unreasonably
withheld); (iii) the sale of some or all of the Company's interests in, or the
sale of some or all of the assets of, Gary PCI Ltd. L.P.; and (iv) any other
transaction with the consent of the Agent and all of the Banks (which consent
shall not be unreasonably withheld). The Company is obligated to summarize the
terms of transactions (i) through (iv) in an officer executed certificate and
provide that certificate to the Agent and the Banks not later than 30 days prior
to the proposed date of any such transaction. See "Description of the Credit
Facility--Proposed Credit Facility Amendment."
Events of Default. The Credit Facility provides for various events of
-----------------
default, including, among others: (i) the failure to pay any principal or
interest on, or any other amount owing in respect of any loans under the Credit
Facility when due and payable, (ii) the breach of certain specified covenants
and restrictive covenants contained in the Credit Facility; (iii) the failure by
the Company or any Subsidiary to pay when due any Indebtedness for Borrowed
Money in excess of $1 million (other than that incurred pursuant to the Credit
Facility); (iv) the failure of the Company to observe or perform any agreement,
term, condition, or covenant relating to Indebtedness for Borrowed Money in the
aggregate that remains unpaid, undischarged, unbonded, 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 Subsidiary involving an aggregate liability in excess of $1
million in the aggregate that remains unpaid, undischarged, unbonded,
undischarged or unstayed for 30 days; and (vii) the attachment of or levy or
garnishment on assets of the Company or any Subsidiary in an aggregate amount in
excess of $1 million which have not been dissolved or satisfied within 30 days.
Other Provisions. Affirmative covenants of the Company and its
----------------
Subsidiaries include the obligations (i) to provide the Banks with financial
statements, reports, and compliance certificates; (ii) to maintain their
necessary and useful properties in good working order and condition; (iii) to
comply in all material respects with ERISA provisions; (iv) to continue to
engage in businesses of the same general type as now conducted; (v) to maintain
insurance; and (vi) to promptly pay and discharge all of their debt, taxes, and
lawful claims for labor, materials, and supplies.
Proposed Credit Facility Amendment. The Company and the Banks are
----------------------------------
reviewing a proposed amendment to the Credit Facility that would permit the
issuance of $15 million of New Units and the use of the net proceeds therefrom
to partially redeem the Series 2D Senior Preferred Stock. The proposed amendment
also would approve the Company's sale of its interest in entities owning and
operating a coal pulverization facility in Indiana. Finally, the
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<PAGE>
proposed amendment would provide for a term loan to be used to redeem the
balance of the Series 2D Senior Preferred Stock.
DESCRIPTION OF PROPOSED $15 MILLION OF 12% SENIOR SUBORDINATED NOTES DUE 2003
The Company is considering a private placement of 15,000 Units
consisting of $15,000,000 principal amount of 12% Senior Subordinated Notes due
2003 and 72,000 Warrants to purchase shares of Common Stock. The terms of these
New Notes and New Warrants would be identical in all material respects to the
terms of the Existing Notes and Senior Warrants, except that (i) the Existing
Notes and Senior Warrants issued in 1994 were registered under the Securities
Act and therefore do not have legends restricting their transfer and (ii) the
rights of the Holders of the Existing Notes have priority over the rights of the
Holders of the New Notes in the event of an Asset Sale (as defined in the
Indenture) by the Company.
DESCRIPTION OF THE INDENTURE
The $125,000,000 principal amount of 12% Senior Subordinated Notes due
2003 (the "Existing Notes") were issued in 1994 pursuant to an Indenture dated
as of January 11, 1994, (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 Existing Notes. The terms of the Existing 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
Existing Notes are subject to all such terms. The following summary does not
purport to be a complete description of the Existing Notes and is subject to the
detailed provisions of, and qualified in its entirety by reference to, the
Indenture and the Existing Notes. Capitalized terms that are used but not
otherwise defined herein have the meanings assigned to them in the Indenture.
General. The Existing Notes are general unsecured obligations of the
-------
Company, subordinated in right of payment to all Senior Indebtedness of the
Company as described in more detail below. The Existing Notes bear interest at
12% per annum, payable on June 30 and 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 Existing Notes
mature on December 31, 2003. The Trustee is the Paying Agent and the Registrar
under the Indenture.
Interest Rate Increase. The Indenture provides that the interest rate
----------------------
on the Existing Notes will be increased by one percent (from 12% to 13%) 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 to extend no
further than March 31, 1998 (each a "Quarterly Measurement Period"). If, during
the two years from March 1996 to March 31, 1998, the Company's Earnings equal or
exceed $36 million for two consecutive Quarterly Measurement Periods, then the
interest will revert to 12% for so long as the Company maintains at least $36
million in Earnings. However, if the Company's Earnings fall below $36 million
for any subsequent Quarterly Measurement Period, up to and including the
Quarterly Measurement Period ending March 31, 1998, the interest will increase
to 13% until the Company's Earnings again equal or exceed $36 million for one
fiscal quarter on a trailing twelve month basis calculated quarterly. The
Company's Earnings for the trailing twelve month period ended September 30,
1996, were approximately $31.3 million.
Ranking. The Indebtedness represented by the Existing Notes is
-------
subordinated in right of payment to all existing and future Senior Indebtedness
of the Company. The Indenture defines Senior Indebtedness as all Indebtedness of
the Company other than Indebtedness that is specifically designated by the terms
of the instrument creating or evidencing it as not being senior in right of
payment to the Existing Notes. All of the Company's outstanding Indebtedness
under the Credit Facility is Senior Indebtedness under the Indenture. The Credit
Facility is referred to as the Bank Credit Agreement in the Indenture. 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. The Indenture provides that the Company will not directly or
indirectly issue, assume, guarantee, incur, or otherwise become liable for
(collectively, "issue") 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 Existing Notes. Unsecured
Indebtedness is not deemed to be subordinate or junior to secured Indebtedness
merely because it is unsecured.
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The Company is a holding company and 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 Existing 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, generally will have priority as to
the assets of the Subsidiaries over the equity interests of the Company and the
holders of Indebtedness of the Company. 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.
The Company may not pay the principal of, premium (if any), or interest
on, the Existing Notes or make any deposit pursuant to the "Discharge of
Indenture" provisions and may not repurchase, redeem, defease, or otherwise
retire any Existing Notes (collectively, "pay the Existing Notes") if (i) any
Senior Indebtedness is not paid when due or (ii) any other default on Senior
Indebtedness occurs and the maturity of such Senior Indebtedness is accelerated
in accordance with its terms unless, in either case, the default has been cured
or waived and any such acceleration has been rescinded or such Senior
Indebtedness has been paid in full.
During the continuance of any default (other than a default described
in the preceding paragraph) with respect to any Senior Indebtedness pursuant to
which the maturity thereof may be accelerated immediately, the Company may not
pay the Existing 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 Bank
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. Such Payment Blockage Period
could be terminated earlier (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 unless the holders of such
Senior Indebtedness, the Agent under the Bank 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 Existing
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 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 Bank 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 has 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
Existing Notes are entitled to receive any payment. If payment of the Existing
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
Bank 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 Existing Notes may recover less,
ratably, than other creditors of the Company.
Sinking Fund. There is no mandatory sinking fund for the Existing
------------
Notes.
Mandatory Offers to Purchase the Existing Notes. The Indenture requires
-----------------------------------------------
the Company to offer to purchase all of the outstanding Existing Notes upon the
occurrence of a Change of Control and to offer to purchase a portion of the
outstanding Existing Notes under certain other circumstances.
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Optional Redemption of the Existing Notes. The Existing 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:
Optional
Year Redemption Price
---- ----------------
1998 108.0%
1999 106.4
2000 104.8
2001 103.2
2002 101.6
If less than all of the Existing Notes are to be redeemed at any time,
selection of the Existing Notes to be redeemed will be made by the Trustee from
among the outstanding Existing 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 Existing 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
Existing Notes or portions thereof called for redemption.
Change of Control. Upon the occurrence of a Change of Control, the
-----------------
Company will offer to purchase all outstanding Existing Notes at a purchase
price equal to 101% of the aggregate principal amount of the Existing Notes,
plus accrued and unpaid interest to the date of purchase. This is a Change of
Control Offer under the Indenture.
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 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 Existing 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; (iii) the purchase date; and (iv) the instructions that
Holders must follow in order to have their Existing Notes purchased. Any Change
of Control Offer will be conducted in compliance with applicable tender offer
rules, including Section 14(e) of the Securities Exchange Act of 1934, as
amended, and Rule 14e-1 thereunder. The Change of Control purchase feature of
the Existing Notes in certain circumstances may discourage a sale or takeover of
the Company or make such a sale or takeover more difficult.
Change of Control is defined to include 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 Existing Notes to
require the Company to repurchase such Existing 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 Existing
Notes. If a Change of Control should occur, the rights of the Holders of the
Existing Notes to receive payment for their Existing Notes upon a Change of
Control Offer would be subject to the prior rights of holders of any Senior
Indebtedness as discussed above.
Certain Covenants
Limitations on Additional Indebtedness. The Indenture provides that 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
(i) Junior Subordinated Indebtedness incurred by the Company in compliance with
the covenant described below or (ii) Indebtedness between the Company and its
Wholly Owned Restricted Subsidiaries unless, after giving effect thereto, the
Company's Consolidated Fixed Charge Coverage Ratio on the date thereof would be
at least:
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(a) 2.25 to l, if such date is after February 29, 1996 and
on or prior to February 28, 1998; and
(b) 2.50 to 1, if such date is after February 28, 1998.
The above ratios are to be determined on a pro forma basis as if the incurrence
of such additional Indebtedness 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 additional Indebtedness 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 Bank 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 does not exceed 7.5%
of the Consolidated Tangible Assets of the Company; and
(iii) incur Refinancing Indebtedness.
In addition, notwithstanding the above limitations: (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 below in the "Limitations on
Subsidiary Debt and Preferred Stock" subsection; and (b) Single Purpose
Subsidiaries of the Company may incur Non-Recourse Indebtedness.
If the Company agrees to incur Indebtedness that will be subordinate or
junior in ranking in any respect to any Senior Indebtedness, the Indenture
requires that such Indebtedness must be 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 Existing 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 (including 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 Bank Credit Agreement
and in compliance with the "Limitations on Additional
Indebtedness" and "Limitations on Guarantees" provisions of
the Indenture;
(ii) Indebtedness issued to and held by the Company or a Wholly
Owned Restricted Subsidiary of the Company;
(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 in
an aggregate amount 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 limits the ability of
----------------------------------
the Company and its Restricted Subsidiaries to make Restricted Payments. Under
the Indenture Restricted Payments include without limitation (i) dividends on
the Company's Capital Stock, (ii) all other payments or distribution of cash,
securities, or other property or assets in respect of the Company's Capital
Stock (excluding payments made solely in Qualified Capital
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Stock), (iii) any payment on account of the purchase, redemption, retirement, or
other acquisition for value of the Company's Capital Stock or any other payment
or distribution made in respect thereof, either directly or indirectly
(excluding payments made solely in Qualified Capital Stock), (iv) any Restricted
Investment, and (v) any Restricted Debt Payment.
Assuming (a) that no Default or Event of Default has occurred and is
continuing and (b) that the Company meets the 2.25 to 1 Consolidated Fixed
Charge Coverage Ratio set forth above for incurring Additional Indebtedness,
then the Indenture permits the Company and its Restricted Subsidiaries to make
Restricted Payments in an aggregate amount not to exceed 50% of the Company's
accrued Consolidated Net Income during the period since August 31, 1993, minus
-----
the aggregate amount used since January 11, 1994, for the following three
purposes: (1) investments in Joint Ventures that are not controlled by the
Company or by a Wholly Owned Restricted Subsidiary; (2) the final redemption
payment of $799,400 made in 1994 on the remaining outstanding shares of ICF
Kaiser Engineers Group, Inc. Series 1 Redeemable Preferred Stock; and (3)
payment of regular quarterly dividends on the Company's Series 2D Senior
Preferred Stock. In addition, if the aggregate Consolidated Net Income since
August 31, 1993, is a deficit, then 100% of such deficit also must be subtracted
from the amount available for Restricted Payments.
The calculations described in the preceding paragraph have the effect
of requiring the Company to "make up" any Consolidated Net Deficit before it has
any amounts available for Restricted Payments. Because of the Company's
Consolidated Net Deficit since August 31, 1993, the Company is not permitted to
make any Restricted Payments unless such Restricted Payments are specifically
permitted by other Indenture provisions. Section 5.06(b) of the Indenture
permits certain Restricted Payments even if the Company has not met the tests
described in the immediately preceding paragraph. These permitted Restricted
Payments are:
(A) the Company or any Wholly Owned Restricted Subsidiary can make
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 January 11, 1994;
(B) the Company can pay 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 can purchase or redeem and retire any shares of
Capital Stock of the Company, and pay 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 can make (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) make 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 can make
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) 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 (a) the Person in whom the Investment is made
is engaged only in Permitted Businesses, (b) 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
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<PAGE>
material act or decision), (c) and 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 can make
Designated Investments in Subsidiaries that are not Wholly
Owned Restricted Subsidiaries or in Joint Ventures provided
that such Designated Investments are made solely from (1) 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, (2)
50% of the Company's Consolidated Net Income accrued during
the period since August 31, 1993, or (3) 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 can redeem for cash all (but not less than all) of
the outstanding shares of the Company's Series 2D Senior
Preferred Stock; provided, however, that such redemption shall
not exceed $20 million and such redemption shall not occur
prior to January 13, 1997, unless the Company's earnings
before interest and taxes for the most recent twelve month
period equal or exceed $27 million; or
(H) the Company can pay all regularly quarterly dividends on its
Series 2D Senior Preferred Stock, each such quarterly dividend
payment not to exceed $487,500 in the aggregate or $2,437.50
per share.
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 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. (a two-thirds owned Mexican Restricted Subsidiary),
(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, and (iv) any such Payment Restriction arising in connection with
Refinancing Indebtedness.
Limitations on Transactions with Affiliates. Except as provided below,
-------------------------------------------
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"). The Company can engage in Affiliate Transactions in the ordinary
course of business and consistent with past practice that are fair to the
Company or such Restricted Subsidiary, and are on terms at least as favorable as
would have been obtainable at such time from an unaffiliated party if the Board
of Directors of the Company or such Restricted Subsidiary, pursuant to a Board
Resolution reasonably and in good faith determines that such Affiliate
Transaction is fair to the Company or such Restricted Subsidiary, and is on
terms at least as favorable as would have been obtainable at such time from an
unaffiliated party. However, 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 $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 and is on terms at least
as favorable as would have been obtainable at such time from an unaffiliated
party. If the Affiliate Transaction is valued at $5 million or more, the Company
must have received an opinion from an Independent Financial Advisor to the
effect that the financial terms of such Affiliate Transaction are fair to the
Company 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 that is not under the control
of, owned by, or indebted to any other
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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, 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 Asset Sales since January 11, 1994, 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.
Within nine months after consummation of any such Asset Sale, the
Company shall, or shall cause the applicable Restricted Subsidiary: (i) to
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) to
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 must
result in a permanent reduction in the lending commitment relating thereto in an
amount equal to the principal amount so repaid; or (iii) the cash and Cash
Equivalent portion of the Net Proceeds of such Asset Sale that is neither so
reinvested nor so applied, must be applied to the purchase of Existing 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 (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 provisions described in the preceding two
paragraphs, 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 has agreed to cause the applicable Foreign Subsidiary promptly to
take all actions required by the applicable local law to permit such
repatriation. Once such repatriation of any of such affected Net Proceeds is
permitted under the applicable local law, such repatriation must be immediately
effected and such repatriated Net Proceeds must be applied in the manner set
forth in this covenant. In addition, 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) the Company retains
ownership of more than 50% of the Common Equity of such Restricted Subsidiary or
(ii) all of the Capital Stock of such Restricted Subsidiary is sold or otherwise
disposed of. In addition, the Net Proceeds from any such sale or disposition
must be applied in a manner consistent with the provisions described above in
the "Limitations on Asset Sales" subsection. Alternatively, the Company may
elect 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 above in the "Limitations on Restricted Payments" subsection.
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 Existing 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, transfer conveyance, or other disposition or
assignment shall be made 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
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satisfactory to the Trustee all of the obligations of the Company under the
Existing Notes and the Indenture; (b) immediately prior to and immediately after
and giving effect to such transaction, no Default or Event of Default shall have
occurred and be continuing; and (c) immediately after and giving effect to such
transaction 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, 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 has a
Consolidated Fixed Charge Coverage Ratio of at least 2.25 to 1. 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.
Limitations on Guarantees. The Indenture provides that the Company will
-------------------------
not permit any of its Restricted Subsidiaries to guarantee any Indebtedness
(other than the guarantees permitted under the "Limitations on Subsidiary Debt
and Preferred Stock" provisions described above and guarantees delivered
pursuant to the Bank Credit Agreement by Subsidiaries of the Company who have
delivered similar guarantees prior to January 11, 1994) unless the Company
causes each such Subsidiary to unconditionally guarantee the payment of
principal of, premium (if any), and interest on the Existing Notes. Any such
guarantee shall be subordinated in right of payment to the guarantee by such
Subsidiary pursuant to the Bank Credit Agreement. Four Wholly Owned Restricted
Subsidiaries are guarantors under the Indenture.
Events of Default
"Events of Default" are defined in the Indenture as:
(i) failure by the Company to pay interest on any of the
Existing 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 Existing Notes when they become 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 Existing 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 that has an aggregate outstanding principal
amount of $2 million or more, other than Non-Recourse
Indebtedness of a Single Purpose Subsidiary;
(v) a default under any Indebtedness, other than Non-Recourse
Indebtedness of a Single Purpose Subsidiary, if such default
results in the holder or holders of such Indebtedness
causing such Indebtedness to become due prior to its stated
maturity and 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.
66
<PAGE>
If an Event of Default (other than an Event of Default resulting from
bankruptcy, insolvency or reorganization involving the Company) occurs and is
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 Existing Notes
then outstanding by written notice to the Company and the Trustee, may declare
all amounts owing under the Existing Notes to be due and payable immediately. If
an Event of Default results from bankruptcy, insolvency or reorganization
involving the Company, all outstanding Existing 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 Existing Notes then outstanding
may waive an existing Default or Event of Default and its consequences, except
that a default in the payment of principal of, premium (if any), and interest on
the Existing Notes cannot be so waived.
The Holders may not enforce the provisions of the Indenture or the
Existing Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the Existing Notes
then outstanding may direct the Trustee in its exercise of any trust or power;
however, such direction may 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 Existing 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 Existing 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
Existing Notes to their maturity or redemption, 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. Unless the consent of each Holder
---------------------------------
affected has been obtained, the Company may not: (i) extend the maturity of any
Notes; (ii) affect the terms of any scheduled payment of interest on or
principal of the Existing 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.
Subject to certain exceptions, the Indenture or the Existing Notes may
be amended or supplemented with the consent of the Holders of at least a
majority in principal amount of the Existing Notes then outstanding. The Holders
of a majority in principal amount of the Existing Notes then outstanding may
waive 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
Existing Notes or that resulted from the failure to comply with the covenant
described under "Change of Control.")
Without the consent of any Holder, the Company and the Trustee may
amend or supplement the Indenture or the Existing Notes to cure any ambiguity,
defect or inconsistency, to provide for uncertificated Existing Notes in
addition to or in place of certificated Existing 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.
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;
67
<PAGE>
however, if it acquires any conflicting interest as defined in the Indenture, it
must eliminate such conflict or resign. 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.
PRO FORMA FINANCIAL INFORMATION
The following tables set forth historical financial information for the
Company and pro forma financial information giving effect to the disposition of
the investment in a coal pulverization facility and a related management
operating contract, including assets associated with the contract (the
Disposition), issuance of $15.0 million of Senior Subordinated Notes (New
Notes), short-term borrowing of $6.1 million from a term loan (Term Loan) under
the Credit Facility, and application of assumed proceeds. The pro forma income
statement data are presented as if the transactions had occurred as of March 1,
1995, and the pro forma balance sheet is presented as if the transactions had
occurred on September 30, 1996. The pro forma adjustments are described in
detail in the accompanying notes. These pro forma results have been prepared for
comparative purposes only and do not purport to indicate what would have
occurred had the transactions actually occurred at the dates indicated, or of
results which may occur in the future. This pro forma financial information
should be read in conjunction with the notes thereto and the historical
financial statements of the Company included elsewhere in the Prospectus.
Pro Forma Consolidated Statement of Operations
Nine Months Ended September 30, 1996
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
(1) (2) (3)
Pro Forma Adjustments (4)
--------------------- Pro Forma
ICF Kaiser Other After
Historical Disposition Adjustments Adjustments
-------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
GROSS REVENUE $ 1,023,410 $ (3,453) $ - $ 1,019,957
Subcontract and direct material costs (592,295) 752 - (591,543)
Equity in income of joint ventures and
affiliated companies 2,532 (2,025) - 507
------------- ------------- ------------- ----------------
SERVICE REVENUE 433,647 (4,726) - 428,921
OPERATING EXPENSES
Direct cost of services and overhead 354,658 (1,290) - 353,368
Administrative and general 49,979 - - 49,979
Depreciation and amortization 7,840 (355) 70 (a) 7,555
------------- ------------- ------------- ----------------
OPERATING INCOME 21,170 (3,081) (70) 18,019
OTHER INCOME (EXPENSE)
Gain on sale of investment - - - -
Interest income 944 (12) 188 (d) 1,120
Interest expense (12,829) - (1,519) (a) (13,940)
408 (d)
- - - -
------------- ------------- ------------- ----------------
INCOME BEFORE INCOME TAXES
AND MINORITY INTERESTS 9,285 (3,093) (993) 5,199
Income tax provision 840 - 720 (f) 1,560
- - - -
------------- ------------- ------------- ----------------
INCOME BEFORE MINORITY INTERESTS 8,445 (3,093) (1,713) 3,639
Minority interests in net income of subsidiaries 4,725 - - 4,725
------------- ------------- ------------- ----------------
NET INCOME (LOSS) 3,720 (3,093) (1,713) (1,086)
Preferred stock dividends and accretion 1,631 - (1,631) (c) -
------------- ------------- ------------- ----------------
NET INCOME (LOSS) AVAILABLE
FOR COMMON SHAREHOLDERS $ 2,089 $ (3,093) $ (82) $ (1,086)
============= ============= ============= ================
Primary and Fully Diluted
Net Income (Loss) Per common Share $ 0.10 $ (0.05)
============= ================
Primary and Fully Diluted Weighted Average
Common and Common Equivalent Shares Outstanding 21,955 21,955
============= ================
</TABLE>
68
<PAGE>
Pro Forma Consolidated Statement of Operations
Ten Months Ended December 31, 1995
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4)
Pro Forma Adjustments
--------------------- Pro Forma
ICF Kaiser Other After
Historical Disposition Adjustments Adjustments
- -------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Gross Revenue $ 916,744 $ (4,004) $ - $ 912,740
Subcontract and direct material costs (493,971) 753 - (493,218)
Equity in income of joint ventures
and affiliated companies 3,123 (1,240) - 1,883
------------ ------------ ------------ -----------
Service Revenue 425,896 (4,491) - 421,405
Operating Expenses
Direct cost of services and overhead 359,887 (1,292) - 358,595
Administrative and general 40,647 - 250 (b) 40,897
Depreciation and amortization 8,357 (433) 78 (a) 8,002
Unusual items, net (500) - - (500)
------------ ------------ ------------ -----------
Operating Income 17,505 (2,766) (328) 14,411
Other Income (Expense)
Gain on sale of investment - 11,336 - 11,336
Interest income 2,053 (10) 208 (d) 2,251
Interest expense (13,255) - (1,688) (a) (14,580)
363 (d)
- - - -
------------ ------------ ------------ -----------
Income Before Income Taxes,
Minority Interest, and Extraordinary Item 6,303 8,560 (1,445) 13,418
Income tax provision 2,091 - 593 (f) 2,684
- - - -
------------ ------------ ------------ -----------
Income Before Minority Interests
and Extraordinary Item 4,212 8,560 (2,038) 10,734
Minority interests in net income of subsidiaries 1,960 - - 1,960
------------ ------------ ------------ -----------
Net Income Before Extraordinary Item 2,252 8,560 (2,038) 8,774
Extraordinary loss on early extinguishment of debt - - - -
------------ ------------ ------------ -----------
Net Income 2,252 8,560 (2,038) 8,774
Preferred stock dividends and accretion 1,803 - (1,803) (c) -
Redemption of redeemable preferred stock - - - -
------------ ------------ ------------ -----------
Net Income Available for Common Shareholders $ 449 $ 8,560 $ (235) $ 8,774
============ ============ ============ ===========
Primary and Fully Diluted Net Income
Per Common Share: $ 0.02 $ 0.41
============ ===========
Primary and Fully Diluted Weighted Average
Common and Common Equivalent
Shares Outstanding 21,517 21,517
============ ===========
</TABLE>
69
<PAGE>
Pro Forma Consolidated Balance Sheets
At September 30, 1996
(In thousands)
<TABLE>
<CAPTION>
(1) (2) (3) (4)
Pro Forma Adjustments
----------------------------- Pro Forma
ICF Kaiser Other After
Historical Disposition Adjustments Adjustments
------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 21,022 $ - $ 13,650 (a) $ 30,922
(250) (b)
(20,000) (c)
16,500 (e)
Contract receivables, net 234,168 - - 234,168
Prepaid expenses and other current assets 10,780 - - 10,780
Deferred income taxes 11,938 - 23 (b) 14,574
- - 2,613 (e) -
---------- ----------- ---------- --------------
Total Current Assets 277,908 - 12,536 290,444
---------- ----------- ---------- --------------
Fixed Assets
Furniture, equipment, and leasehold
improvements 48,839 (1,365) - 47,474
Less depreciation and amortization (36,595) 852 - (35,743)
---------- ----------- ---------- --------------
12,244 (513) - 11,731
---------- ----------- ---------- --------------
Other Assets
Goodwill, net 50,510 - - 50,510
Investments in and advances to affiliates 12,168 (4,651) - 7,517
Due from officers and employees 986 - - 986
Other 20,719 - 750 (a) 21,469
---------- ----------- ---------- --------------
84,383 (4,651) 750 80,482
----------------------------------------------------------
$ 374,535 $ (5,164) $ 13,286 $ 382,657
==========================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and subcontractors
payable $ 76,304 $ - $ - $ 76,304
Accrued salaries and employee benefits 59,721 - - 59,721
Accrued interest 4,061 - - 4,061
Other accrued expenses 14,869 - - 14,869
Income taxes payable 399 - - 399
Deferred revenue 14,648 - - 14,648
Other 5,897 - 3,633 (e) 9,530
---------- ----------- ---------- --------------
Total Current Liabilities 175,899 - 3,633 179,532
---------- ----------- ---------- --------------
Long-term Liabilities
Long-term debt, less current portion 133,384 - 14,400 (a) 147,784
Other 5,679 - - 5,679
---------- ----------- ---------- --------------
139,063 - 14,400 153,463
---------- ----------- ---------- --------------
Commitments and Contingencies
Minority Interests in Subsidiaries 6,441 - - 6,441
Redeemable Preferred Stock 19,940 - (19,940) (c) -
Common Stock 224 - - 224
Additional Paid-In Capital 67,158 - - 67,158
Notes Receivable Related to Common Stock (1,732) - - (1,732)
Retained Earnings (Deficit) (30,805) (5,164) (227) (b) (20,776)
(60) (c)
15,480 (e)
Cumulative Translation Adjustment (1,653) - - (1,653)
----------------------------------------------------------
$ 374,535 $ (5,164) $ 13,286 $ 382,657
==========================================================
</TABLE>
70
<PAGE>
NOTE A--BASIS OF PRESENTATION
Column 1 has been prepared from the historical financial statements of
the Company included elsewhere in this Prospectus.
Column 2 has been prepared from the Company's accounts and represents
activity of the Disposition; this activity is reversed to derive the pro forma
results.
Column 3 represents unaudited pro forma adjustments which the Company
considers necessary to give effect to the transactions described above.
Column 4 represents the unaudited pro forma results of operations and
financial position of the Company after giving effect to the adjustments in
column 2 and 3.
NOTE B--OTHER PRO FORMA ADJUSTMENTS
(a) The results of a proposed issuance of New Notes which will be used
to partially redeem the 200 shares of Series 2D Senior Preferred Stock which has
a mandatory redemption date of January 13, 1997, is being recorded to show the
effect of issuance of New Notes. Estimated professional fees and discount
associated with the issuance of New Notes are shown as if they were amortized
over 96 months. Annual interest expense on the New Notes is assumed to be 13%.
(b) The borrowing and subsequent repayment of the Term Loan and
associated expenses are being recorded to show the effects of the Term Loan.
The Term Loan will be used to redeem the balance of the Series 2D Senior
Preferred Stock and will be repaid out of the proceeds from the Disposition.
(c) To record the result of redeeming the Series 2D Senior Preferred
Stock and reversing the effects of its dividends and accretion.
(d) To record effects of investment of excess cash at an assumed annual
interest rate of 5% and reduction in interest expense as a result of assumed
lower borrowings under the Credit Facility due to the Disposition and issuance
of New Notes.
(e) To record the net cash received from the Disposition and the effect
on tax-related balance sheet accounts.
(f) To record net effect of above transactions on the income tax
provision.
71
<PAGE>
LEGAL MATTERS
Matters relating to the legality of the 1,533,212 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 October 31, 1996, Mr. Weeks owned 36,011 shares of Common Stock,
of which 6,474 are held by the Company's ESOP and allocated to his ESOP account
and 862 of which are held in a directed investment account under the Company's
Retirement Plan. As of October 31, 1996, Mr. Weeks had options to purchase
26,667 shares of Common Stock (11,667 of which are exercisable during the 60-day
period beginning October 31, 1996).
EXPERTS
The ICF Kaiser International, Inc. and Subsidiaries consolidated
balance sheets as of December 31, 1995, and 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>
ICF KAISER INTERNATIONAL, INC.
INDEX
Consolidated Balance Sheets -
September 30, 1996 and December 31, 1995 ....................................F-2
Consolidated Statements of Operations -
Nine Months Ended September 30, 1996 and 1995................................F-3
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1996 and 1995................................F-4
Notes to Consolidated Financial Statements.................................F-5-6
Report of Independent Accountants............................................F-7
Consolidated Balance Sheets as of December 31, 1995, and
February 28, 1995.......................................................F-8
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-9
Consolidated Statements of Shareholder's Equity for the ten months
ended December 31, 1995, and for the years ended February 28, 1995
and February 28, 1994..................................................F-10
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-11
Notes to Consolidated Financial Statements...............................F-12-26
F-1
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except shares)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 21,022 $ 16,357
Contract receivables, net 234,168 228,239
Prepaid expenses and other current assets 10,780 20,911
Deferred income taxes 11,938 11,934
-------- --------
Total Current Assets 277,908 277,441
-------- --------
Fixed Assets
Furniture, equipment, and leasehold
improvements 48,839 42,909
Less depreciation and amortization (36,595) (33,369)
-------- --------
12,244 9,540
-------- --------
Other Assets
Goodwill, net 50,510 49,259
Investments in and advances to affiliates 12,168 10,213
Due from officers and employees 986 1,053
Other 20,719 22,011
-------- --------
84,383 82,536
-------- --------
$374,535 $369,517
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ - $ 5,041
Accounts payable and subcontractors payable 76,304 86,429
Accrued salaries and employee benefits 59,721 53,060
Accrued interest 4,061 7,414
Other accrued expenses 14,869 18,594
Income taxes payable 399 801
Deferred revenue 14,648 14,327
Other 5,897 7,186
-------- --------
Total Current Liabilities 175,899 192,852
-------- --------
Long-term Liabilities
Long-term debt, less current portion 133,384 120,112
Other 5,679 5,706
-------- --------
139,063 125,818
-------- --------
Commitments and Contingencies
Minority Interests in Subsidiaries 6,441 2,633
Redeemable Preferred Stock, Liquidation
value $20,000 19,940 19,787
Common Stock, par value $.01 per share:
Authorized - 90,000,000 shares
Issued and outstanding - 22,351,209
and 21,263,828 shares 224 213
Additional Paid-in Capital 67,158 64,654
Notes Receivable related to Common Stock (1,732) (1,732)
Retained Earnings (Deficit) (30,805) (32,894)
Cumulative Translation Adjustment (1,653) (1,814)
-------- --------
$374,535 $369,517
======== ========
</TABLE>
See notes to consolidated financial statements
F-2
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
1996 1995
----------- ---------
(Unaudited)
<S> <C> <C>
GROSS REVENUE $1,023,410 $ 731,795
Subcontract and direct material costs (592,295) (377,281)
Equity in income of joint ventures and
affiliated companies 2,532 3,068
----------- ---------
SERVICE REVENUE 433,647 357,582
OPERATING EXPENSES
Direct cost of services and overhead 354,658 298,466
Administrative and general 49,979 38,619
Depreciation and amortization 7,840 7,326
----------- ---------
OPERATING INCOME 21,170 13,171
OTHER INCOME (EXPENSE)
Interest income 944 1,488
Interest expense (12,829) (12,117)
----------- ---------
INCOME BEFORE INCOME TAXES AND
MINORITY INTERESTS 9,285 2,542
Income tax provision 840 1,300
----------- ---------
INCOME BEFORE MINORITY INTERESTS 8,445 1,242
Minority interests in net income of
subsidiaries 4,725 1,315
----------- ---------
NET INCOME (LOSS) 3,720 (73)
Preferred stock dividends and accretion 1,631 1,616
----------- ---------
NET INCOME (LOSS) AVAILABLE
FOR COMMON SHAREHOLDERS $ 2,089 $ (1,689)
=========== =========
Primary and Fully Diluted
Net Income (Loss) Per Common Share $ 0.10 $ (0.08)
=========== =========
Primary and Fully Diluted Weighted Average
Common and Common Equivalent Shares
Outstanding 21,955 21,427
=========== =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------
1996 1995
------------ -----------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 3,720 $ (73)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 7,840 7,326
Provision for losses on contract receivables 1,255 1,382
Provision for deferred income taxes (386) 916
Earnings in excess of cash distributions from
joint ventures and affiliated companies (282) (1,547)
Unusual items, net 1,498 -
Minority interests in net income of subsidiaries 4,725 1,315
Changes in operating assets and liabilities,
net of acquisitions:
Contract receivables, net (7,379) (105,645)
Prepaid expenses and other current assets 2,139 (10,885)
Other assets (1,293) (3,841)
Accounts payable and accrued expenses (4,698) 101,017
Income taxes payable (402) (1,210)
Deferred revenue 546 2,350
Other liabilities (1,510) 380
Other operating activities 156 -
------------ -----------
Net Cash Provided by (Used in) Operating Activities 5,929 (8,515)
------------ -----------
INVESTING ACTIVITIES:
Purchase of fixed assets (4,905) (1,720)
Sale of fixed assets 22 768
Sale of subsidiaries and subsidiary assets - 735
Investments in subsidiaries and affiliates, net of cash acquired (1,241) (2,240)
------------ -----------
Net Cash Used in Investing Activities (6,124) (2,457)
------------ -----------
FINANCING ACTIVITIES:
Borrowings under credit facility agreement 65,000 13,000
Principal payments on credit facility agreement (57,000) (13,000)
Principal payments on other borrowings - (1,238)
Reacquisition of senior subordinated notes and related warrants (46) -
Distribution of income to minority interest (823) -
Subsidiary capital contribution from minority interest - 500
Proceeds from issuances of common stock 313 383
Repurchases of common stock - (256)
Preferred stock dividends (1,965) (975)
Debt issuance costs (449) -
Other financing activities (247) 55
------------ -----------
Net Cash Provided by (Used in) Financing Activities 4,783 (1,531)
------------ -----------
Effect of Exchange Rate Changes on Cash 77 (863)
------------ -----------
Increase (Decrease) in Cash and Cash Equivalents 4,665 (13,366)
Cash and Cash Equivalents at Beginning of Period 16,357 27,967
------------ -----------
Cash and Cash Equivalents at End of Period $ 21,022 $ 14,601
============ ===========
SUPPLEMENTAL INFORMATION:
Cash payments for interest $ 16,182 $ 15,712
Cash payments (refunds) for income taxes $ 945 $ (28)
NON-CASH TRANSACTIONS:
Issuance of common stock in connection with acquisitions $ 1,600 $ 765
Issuance of common stock pursuant to an agreement
with a former employee $ 500 $ -
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying consolidated financial statements of ICF Kaiser International,
Inc. and subsidiaries (the Company) (including Kaiser-Hill Company, LLC,
effective July 1, 1995), except for the December 31, 1995 balance sheet, are
unaudited and have been prepared in accordance with generally accepted
accounting principles for interim financial information. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included. These statements should be read in conjunction with the
Company's audited consolidated financial statements and footnotes thereto for
the ten months ended December 31, 1995 and the information included in the
Company's Transition Report to the Securities and Exchange Commission on Form
10-K for the ten months ended December 31, 1995. Certain reclassifications have
been made to the prior period financial statements to conform to the
presentation used in the September 30, 1996 financial statements.
Note B - 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 (see Note F) 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.
In 1996, the Company accelerated the procedures for obtaining approval from the
U.S. government for the Company's actual costs incurred in current periods. As
a result, in the third quarter of 1996, the Company's consulting group was able
to accelerate its process of billing on certain cost-reimbursement contracts.
The net effect of this accelerated process is the recognition of an additional
$2.3 million of operating income in the third quarter of 1996.
Note C - Minority Interests in Subsidiaries
Certain of the Company'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 the Company's
consolidated financial statements and the outside parties' interests are
reflected as minority interests.
Note D - 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 the loss period presented and immaterial to the income periods
presented. Therefore, the adjustments were excluded from earnings per share
computations.
Note E - Long-term Debt
The Company's $40 million revolving credit facility became effective May 7,
1996, replacing the former credit facility which was due to expire October 31,
1996. The new credit facility expires June 30, 1998 and is provided by
CoreStates Bank, as agent bank, and two other banks (the Banks) with terms and
covenants similar to those under the former credit facility. ICF Kaiser
International, Inc. and certain of its subsidiaries, which are guarantors of the
new credit facility, have granted the Banks a security interest in their
accounts receivable and certain other assets. The
F-5
<PAGE>
new credit facility limits the payments of cash dividends on common stock and
requires the maintenance of specified financial ratios. Total available credit
is determined from a borrowing base calculation based on eligible accounts
receivable (billed and unbilled).
Note F - 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.
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, results of 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 pending audits relating to fiscal years 1986 forward, the
government has asserted, among other things, that certain costs claimed as
reimbursable under government contracts either were not allowable or not
allocated in accordance with federal procurement regulations. The Company is
actively working with the government to resolve these issues. Management has
provided for the potential effect of disallowed costs for the periods currently
under audit and for periods not yet audited, although the amounts at issue have
not been quantified by the government or the Company. This provision will be
reviewed periodically as discussions with the government progress. Based on the
information currently available, management believes the potential effects of
these pending audits will not have a material adverse effect on the Company's
financial position, results of operations, or cash flows.
Note G - 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 IRS, associated with an affiliate of an
acquired company, net of an accrual for related expenses ($6.8 million); 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). During the
nine months ended September 30, 1996, the net litigation income was received and
$4.2 million of net settlement costs and legal expenses were paid. As of
September 30, 1996, the Company had substantially completed its termination of
employees in the Company's engineering group and its consolidation of office
space. The termination of employees in several foreign offices within the
international group is approximately 50% complete as of September 30, 1996 and
management expects that all actions will be completed by December 31, 1996. As
of September 30, 1996, a $0.1 million accrual remains outstanding associated
with the termination of employees in the international group.
F-6
<PAGE>
Report of Independent Accountants
---------------------------------
To the Board of Directors and Shareholders
ICF Kaiser International, Inc.
We have audited the consolidated balance sheets of ICF Kaiser
International, Inc. and subsidiaries as of December 31, 1995 and February 28,
1995, and the related consolidated statements of operations, shareholders'
equity and cash flows for the ten months ended December 31, 1995 and the years
ended February 28, 1995 and 1994, and the related financial statement Schedule
II Valuation and Qualifying Accounts. 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-7
<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-8
<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-9
<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-10
<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-11
<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-12
<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-13
<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-14
<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-15
<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-16
<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-17
<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-18
<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):
- --------------------------------------------------------------------------------
Ten Months
Ended Year Ended February 28,
December 31, ----------------------
1995 1995 1994
------- ------ --------
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)
======= ====== ========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-19
<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-20
<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-21
<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-22
<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-23
<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>
<CAPTION>
<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-24
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares Option Price
--------- ---------------
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
=========
- --------------------------------------------------------------------------------
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-25
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE M--EMPLOYEE BENEFIT PLANS
ICF Kaiser and certain of its subsidiaries sponsor a number of benefit
plans covering substantially all employees who meet minimum length of service
requirements. These plans include the ICF Kaiser International, Inc. Retirement
Plan (Retirement Plan), a defined-contribution profit sharing plan that provides
for contributions by the Company based on a percentage of covered compensation;
the ICF Kaiser International, Inc. Section 401(k) Plan (401(k) Plan), a cash or
deferred-compensation arrangement that allows employees to defer portions of
their salary, subject to certain limitations; and the ICF Kaiser International,
Inc. Employee Stock Ownership Plan (ESOP) under which the Company made
contributions based on a percentage of covered compensation. Effective March 1,
1993, the Company made contributions equal to 20% of the first 4% of employee
contributions to the 401(k) Plan and 2% of covered compensation to the ESOP.
Effective March 1, 1994, the Company increased its matching contribution to the
401(k) Plan to 50% of the first 4% of employee contributions and discontinued
contributions to the ESOP. Total expense for these plans for the ten months
ended December 31, 1995 and the years ended February 28, 1995 and 1994 was
$5,711,000, $6,466,000, and $8,041,000, respectively. As of December 31, 1995,
the Retirement Plan, 401(k) Plan, and ESOP owned 1,036,437, 175,937, and
2,104,240 shares, respectively, of ICF Kaiser Common Stock.
Certain of the Company's employees are covered by union-sponsored,
collectively bargained, multi-employer pension plans. Contributions and costs
are determined in accordance with the provisions of negotiated labor contracts
or terms of the plans. Pension expense for these plans was $3,676,000,
$2,525,000, and $2,150,000 for the ten months ended December 31, 1995 and the
years ended February 28, 1995 and 1994, respectively.
NOTE N--OTHER POSTRETIREMENT BENEFITS
The Company provides certain postretirement benefits to a limited group of
retirees. The cost of these benefits is funded when paid and limited to a fixed
amount per participant. The Company adopted Statement of Financial Accounting
Standards No. 106, Employers' Accounting for Postretirement Benefits Other Than
Pensions, as of March 1, 1993, and recorded the transition obligation on the
delayed recognition basis.
The funded status of the plan is as follows (in thousands):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, February 28,
1995 1995
------------ ------------
<S> <C> <C>
Accumulated postretirement benefit obligation
(APBO) $ 7,843 $ 9,537
Unamortized transition obligation (11,427) (12,257)
Unrecognized net gain 5,554 4,121
-------- --------
Accrued postretirement benefit cost $ 1,970 $ 1,401
======== ========
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-26
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
The net periodic postretirement benefit cost consists of the following (in
thousands):
- --------------------------------------------------------------------------------
Ten Months
Ended Year Ended February 28,
December 31, -----------------------
1995 1995 1994
------------ ------ ------
Interest cost $ 541 $ 920 $ 938
Amortization of transition obligation 830 980 981
Amortization of unrecognized net gain (214) - -
------ ------ ------
Net periodic postretirement benefit
cost $1,157 $1,900 $1,919
====== ====== ======
- --------------------------------------------------------------------------------
All service cost related to the participants' benefits was included in the
transition obligation.
The discount rate at both December 31, 1995 and February 28, 1995 was 7%.
The 1995 health care cost trend rate is 5%, effective until 2008 when the cost
will be in excess of the Company's maximum obligation. If the trend rate was
increased by 1% for each year, the APBO as of December 31, 1995 would increase
by approximately 3%. Due to changes in assumptions made, including reductions
in premiums paid by the Company, the APBO was reduced by approximately $1.6
million during the ten months ended December 31, 1995. These reductions in the
APBO will be amortized over the average remaining life expectancy of the plan's
participants.
NOTE O--BUSINESS SEGMENT, MAJOR CUSTOMERS, AND FOREIGN OPERATIONS
Business Segment: ICF Kaiser operates predominantly in one industry
segment in which it provides engineering, construction, program management, and
consulting services.
Major Customers: Gross revenue from major customers is as follows (in
thousands):
- --------------------------------------------------------------------------------
Ten Months
Ended Year Ended February 28,
December 31, -----------------------
1995 1995 1994
------------ ---------- --------
U.S. Department of Energy $623,149 $517,478 $312,889
U.S. Environmental Protection Agency 55,527 62,783 63,109
Other U.S. government agencies 41,182 44,969 49,105
-------- -------- --------
Total U.S. government $719,858 $625,230 $425,103
======== ======== ========
- --------------------------------------------------------------------------------
F-27
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Foreign Operations: Gross revenue and operating income from foreign
operations and foreign assets of all consolidated subsidiaries and branches were
as follows (in thousands):
- --------------------------------------------------------------------------------
Ten Months
Ended Year Ended February 28,
December 31, ------------------------
1995 1995 1994
-------- -------- --------
Foreign gross revenue:
Europe $ 14,237 $ 16,758 $ 11,600
Pacific 28,002 35,189 21,997
Other 1,189 2,122 2,793
-------- -------- --------
43,428 54,069 36,390
Domestic gross revenue 873,316 807,449 615,267
-------- -------- --------
Total gross revenue $916,744 $861,518 $651,657
======== ======== ========
Foreign operating income (loss):
Europe $ 1,426 $ 2,600 $ 1,742
Pacific 2,511 (350) (1,899)
Other 20 (44) (255)
-------- -------- --------
3,957 2,206 (412)
Domestic operating income (loss) 13,548 11,482 (4,818)
-------- -------- --------
Total operating income (loss) $ 17,505 $ 13,688 $ (5,230)
======== ======== ========
Foreign assets:
Europe $ 12,905 $ 9,950 $ 6,410
Pacific 11,024 14,813 14,626
Other 137 182 14
-------- -------- --------
24,066 24,945 21,050
Domestic assets 345,451 256,477 260,148
-------- -------- --------
Total assets $369,517 $281,422 $281,198
======== ======== ========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-28
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE P--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 IRS, associated with an affiliate
of an acquired company, net of an accrual for related expenses ($6.8 million);
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). As a part
of management's continuing efforts to identify areas in which costs can be
reduced, the Company has chosen to terminate a group of underutilized employees
and consolidate office space. Management expects that all actions associated
with the termination of employees and office space consolidation will be
completed by December 31, 1996.
During the year ended February 28, 1994, the Company completed a corporate
reorganization, performed a comprehensive review of its key business lines and
its cost structure, and designed and implemented action plans intended to return
the Company to long-term profitability. As a result, the Company recorded an
$8.7 million pretax charge to cover the cost of downsizing the work force ($2.5
million), consolidating office space and renegotiating significant leases ($5.1
million), and restructuring certain international operations ($1.1 million).
All actions have been completed, and there is no further liability outstanding
as of December 31, 1995 associated with this plan.
NOTE Q--SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information is as follows (in thousands):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ten Months
Ended Year Ended February 28,
December 31, ------------------------
1995 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash payments for interest $ 7,898 $ 14,961 $ 10,565
Cash payments (refunds) for
income taxes 1,306 (1,026) (106)
Non-cash transactions:
Issuance of common stock in
connection with an acquisition 765 - -
Decrease of ESOP guaranteed
bank loan - - (5,000)
Sale of investment - 735 2,600
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-29
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE R--SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information for full fiscal quarters for the ten months
ended December 31, 1995 and the year ended February 28, 1995 is presented in the
following tables (in thousands, except per share amounts):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ten Months Ended December 31, 1995:
Third Second First
Quarter Quarter Quarter
-------- -------- -------
<S> <C> <C> <C>
Gross revenue $319,870 $268,274 $192,983
Service revenue $147,391 $117,645 $105,498
Operating income $ 5,815 $ 5,497 $ 3,762
Net income $ 896 $ 575 $ 163
Primary and fully diluted
net income (loss) per common share $ 0.02 $ 0.00 $ (0.02)
Market price per share:
High $ 4.75 $ 4.63 $ 5.00
Low $ 3.25 $ 3.75 $ 3.75
</TABLE>
<TABLE>
<CAPTION>
Year Ended February 28, 1995:
Fourth Third Second First
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Gross revenue $206,154 $235,912 $208,961 $210,491
Service revenue $111,372 $125,345 $109,919 $113,150
Operating income $ 3,234 $ 2,962 $ 3,273 $ 4,219
Net income (loss) $ (943) $ (323) $ (613) $ 218
Primary and fully diluted
net income (loss) per common share $ (0.07) $ (0.04) $ (0.05) $ (0.02)
Market price per share:
High $ 4.38 $ 4.13 $ 2.63 $ 3.88
Low $ 2.63 $ 2.38 $ 2.00 $ 2.25
</TABLE>
- --------------------------------------------------------------------------------
At February 29, 1996 there were 21,398,053 shares of common stock
outstanding held by 1,356 holders of record.
- --------------------------------------------------------------------------------
F-30
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE S--COMPARATIVE STATEMENT OF OPERATIONS INFORMATION (UNAUDITED)
Unaudited operating results for the ten months ended December 31, 1994 are
as follows (in thousands):
- --------------------------------------------------------------------------------
GROSS REVENUE $ 732,370
Subcontract and direct material costs (343,369)
Equity in income of joint ventures and
affiliated companies 2,995
---------
SERVICE REVENUE 391,996
OPERATING EXPENSES
Direct cost of services and overhead 337,120
Administrative and general 34,292
Depreciation and amortization 7,688
---------
OPERATING INCOME 12,896
OTHER INCOME (EXPENSE)
Gain on sale of investment 551
Interest income 1,492
Interest expense (12,138)
---------
INCOME BEFORE INCOME TAXES 2,801
Income tax provision 2,962
---------
NET LOSS $ (161)
=========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-31
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
-------------------------------------------
The following table sets forth the estimated expenses payable by the
Registrant with respect to the offering described in this Registration
Statement:
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission registration fee $249.66*
Legal fees and expenses $1,000
Accounting fees and expenses $1,000
Miscellaneous expenses $5,000
---------
Total $7,249.66*
</TABLE>
* An aggregate SEC registration fee of $1,471.28 was paid in connection
with the registration of 1,078,667 shares of Common Stock included in this
Registration Statement but initially registered on Form S-1 (No. 33-64655)
declared effective March 6, 1996.
Item 14. Indemnification of Directors and Officers
-----------------------------------------
Under the Delaware General Corporation Law ("Delaware Law"), a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to an action by reason of the person's past or present service
as a director, officer, employee, or agent of the corporation or of the person's
past or present service, at the corporation's request, as a director, officer,
employee, or agent of another corporation, partnership, joint venture, trust, or
other enterprise. Under the Delaware Law, a corporation may indemnify such
persons against expenses (including attorneys' fees), judgments, fines, and
amounts paid in settlement that are actually and reasonably incurred by that
person in connection with such action. The Delaware Law provides, however, that
such person must have acted in good faith and in a manner that such person
reasonably believed to be in (or not opposed to) the corporation's best
interests. In respect of any criminal action or proceeding, an indemnifiable
person must have no reasonable cause to believe such conduct to be unlawful. In
addition, the Delaware Law permits no indemnification in any action by or in the
right of the corporation where such person has been adjudged liable to the
corporation, unless, and only to the extent that, a court determines that such
person fairly and reasonably is entitled to indemnity for costs the court deems
proper in spite of liability adjudication.
The sections of the Company's Amended and Restated Certificate of
Incorporation and Amended and Restated By-laws relating to indemnification of
directors and officers provide for mandatory indemnification of directors and
officers on generally the same terms as permitted by the Delaware Law.
Item 15. Recent Sales of Unregistered Securities
---------------------------------------
On March 21, 1995, in connection with the termination of the
employment of Mr. John G. Balch from the employ of a subsidiary of the
Registrant, the Registrant agreed to issue 396,167 shares of Common Stock to Mr.
Balch; all of the 396,167 shares were issued on November 15, 1995. All of the
shares are restricted and legended against transfer. The issuance of the shares
was effected without registration, in reliance upon the exemption available
under Section 4(2) of the Securities Act. The shares subsequently were
registered for resale (No. 33-64655).
On July 28, 1995, in connection with the acquisition of EDA
Incorporated, the Registrant issued an aggregate of 722,500 shares of Common
Stock to a total of five former shareholders of such company, each of whom gave
an
II-1
<PAGE>
investment representation with respect to the Registrant's shares acquired by
him. All of the shares are restricted and legended against transfer. The
issuance of the shares was effected without registration, in reliance upon the
exemption available under Section 4(2) of the Securities Act. The shares
subsequently were registered for resale (No. 33-64655).
On January 31, 1996, in connection with the acquisition of The IPC
Company, the Registrant issued an aggregate of 100,000 shares of Common Stock to
The IPC Company which indicated an intent subsequently to distribute all of the
100,000 shares to five of its shareholders. The IPC Company and the five IPC
shareholders each gave an investment representation with respect to the
Registrant's shares acquired by it or him. All of the shares are restricted and
legended against transfer. The issuance of the shares was effected without
registration, in reliance upon the exemption available under Section 4(2) of the
Securities Act. The shares subsequently were registered for resale (No. 33-
64655).
On July 1, 1996, in connection with the acquisition of Georgia A.
Wilson & Associates, Inc., the Registrant issued an aggregate of 454,545 shares
of Common Stock to a total of three former shareholders of such company, each of
whom gave an investment representation with respect to the Registrant's shares
acquired by her or him. All of the shares are restricted and legended against
transfer. The issuance of the shares was effected without registration, in
reliance upon the exemption available under Section 4(2) of the Securities Act.
These shares are being registered for resale pursuant to the instant
Registration Statement.
Item 16. Exhibits and Financial Statement Schedules
------------------------------------------
The following exhibits and financial statement schedule are filed as
part of this Registration Statement.
(a) Exhibits
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)
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 Transition
Report on Form 10-K Registrant No. 1-12248 for the transition
period from March 1, 1995 to December 31, 1995 filed with the
Commission on March 29, 1996)
5. Fifth Supplemental Indenture dated as of June 24, 1996
II-2
<PAGE>
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) 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(e) 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(f) 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(g) 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(h) 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(i) 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)
Exhibit No. 5 -- Opinion and Consent of Paul Weeks, II
Exhibit No. 10 -- Material Contracts
10(a) Credit Agreement dated as of May 6, 1996, with CoreStates N.A., as
agent (Incorporated by reference to Exhibit No. 10(r) to Quarterly
Report on Form 10-Q Registrant No. 1-12248 for the second quarter
of fiscal 1996 filed with the Commission on August 14, 1996)
II-3
<PAGE>
10(b) ICF Kaiser International, Inc. Employee Stock Ownership Plan (as
amended and restated as of March 1, 1993) (and further amended
with respect to name change only as of June 26, 1993)
(Incorporated by reference to Exhibit No. 10(c) 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)
1. Amendment No. 1 dated April 24, 1995 (Incorporated by reference to
Exhibit No. 10(l)(1) to Annual Report on Form 10-K Registrant No.
1-12248 for fiscal 1995 filed with the Commission on May 23, 1995)
2. Amendment No. 2 dated December 15, 1995 (Incorporated by reference
to Exhibit No. 10(b)(2) to Transition Report on Form 10-K
Registrant No. 1-12248 for the transition period from March 1,
1995 to December 31, 1995 filed with the Commission on March 29,
1996)
10(c) Trust Agreement with Vanguard Fiduciary Trust Company dated as of
August 31, 1995, for ICF Kaiser International Employee Stock
Ownership Plan (Incorporated by reference to Exhibit No. 10(c) to
Registration Statement on Form S-1 Registrant No. 33-64655 filed
with the Commission on November 30, 1995)
10(d) ICF Kaiser International, Inc. Retirement Plan (as amended and
restated as of March 1, 1993) (and further amended with respect to
name change only as of June 26, 1993) (Incorporated by reference
to Exhibit No. 10(d) 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)
1. Amendment No. 1 dated April 24, 1995 (Incorporated by reference to
Exhibit No. 10(d)(1) to Annual Report on Form 10-K Registrant No.
1-12248 filed with the Commission on May 23, 1995.)
2. Amendment No. 2 dated December 15, 1995 (Incorporated by reference
to Exhibit No. 10(d)(2) to Transition Report on Form 10-K
Registrant No. 1-12248 for the transition period from March 1,
1995 to December 31, 1995 filed with the Commission on March 29,
1996)
10(e) Trust Agreement with Vanguard Fiduciary Trust Company dated as of
August 31, 1995, for ICF Kaiser International, Inc. Retirement
Plan (Incorporated by reference to Exhibit No. 10(e) to
Registration Statement on Form S-1 (Registrant No. 33-64655) filed
with the Commission on November 30, 1995)
10(f) Lease Agreement between HMCE Associates (as Landlord) and ICF
Kaiser Incorporated (as Tenant), dated January 30, 1987, for the
lease of the Registrant's headquarters in Fairfax, Virginia
(Incorporated by reference to Exhibit No. 10(a) to Registration
Statement on Form S-1 (No. 33-31473) filed with the Commission on
October 6, 1989)
1. First Amendment entered into August 31, 1987 (Incorporated by
reference to Exhibit No. 10(a) to Registration Statement on Form
S-1 (No. 33-31473) filed with the Commission on October 6, 1989)
2. Second Amendment entered into September 23, 1987 (Incorporated by
reference to Exhibit No. 10(a) to Registration Statement on Form
S-1 (No.33-31473) filed with the Commission on October 6, 1989)
3. Third Amendment entered into as of February 12, 1990 (Incorporated
by reference to Exhibit No. 10(a) to Annual Report on Form 10-K
Registrant No. 0-18025 filed with the Commission on April 25,
1990)
10(g) Lease Agreement between HMCE Associates Limited Partnership (as
Landlord) and American Capital and Research Corporation (as
Tenant), dated April 27, 1988, for the lease of space in the
building adjacent to the Registrant's headquarters in Fairfax,
Virginia (Incorporated by reference to Exhibit No. 10(b) to
Registration Statement on Form S-1 (No. 33-31473) filed with the
Commission on October 6, 1989)
1. First Amendment entered into July 29, 1988. (Incorporated by
reference to Exhibit No. 10(b) to Annual Report on Form 10-K
(Registrant No. 0-18025) filed with the Commission on April 25,
1990)
2. Second Amendment entered into as of February 12, 1990
(Incorporated by reference to Exhibit No. 10(b) to Annual Report
on Form 10-K Registrant No. 0-18025 filed with the Commission on
April 25, 1990)
3. Third Amendment entered into as of December 22, 1992 (Incorporated
by reference to Exhibit No. 10(h)(3) to Annual Report on Form 10-K
Registrant No. 1-12248 for the fiscal year ended February 28, 1993
filed with the Commission on May 21, 1993)
II-4
<PAGE>
10(h) Amended and Restated Lease Agreement by and between Kaiser
Engineers, Inc. and 1800 Harrison Limited Partnership, dated as of
July 1, 1988, for the lease of the Registrant's offices in
Oakland, California (Incorporated by reference to Exhibit No.
10(c) to Registration Statement on Form S-1 (No. 33-31576) filed
with the Commission on October 13, 1989)
1. First Amendment made as of March 27, 1991 (Incorporated by
reference to Exhibit No. 10(a)(1) to Quarterly Report on Form 10-Q
(Registrant No. 0-18025) for the first quarter of fiscal 1993
filed with the Commission on July 10, 1992)
2. Second Amendment made as of June 1992 (Incorporated by reference
to Exhibit No. 10(a)(2) to Quarterly Report on Form 10-Q
(Registrant No. 0-18025) for the first quarter of fiscal 1993
filed with the Commission on July 10, 1992)
3. Third Amendment made as of April 27, 1993 (Incorporated by
reference to Exhibit No. 10(i)(3) to Annual Report on Form 10-K
(Registrant No. 1-12248) for the fiscal year ended February 28,
1993 filed with the Commission on May 21, 1993)
10(i) Guaranty provided by American Capital and Research Corporation to
1800 Harrison Limited Partnership, dated as of March 27, 1991, and
First Amendment thereto dated as of June 1992, guaranteeing the
performance of Kaiser Engineers, Inc. under an Amended and
Restated Lease Agreement by and between Kaiser Engineers, Inc. and
the California Public Employee's Retirement System, dated as of
July 1, 1988, for the lease of the Registrant's offices in
Oakland, California (Incorporated by reference to Exhibit No.
10(b) to Quarterly Report on Form 10-Q Registrant No. 0-18025 for
the first quarter of fiscal 1993 filed with the Commission on July
10, 1992)
10(j) ICF Kaiser International, Inc. Stock Incentive Plan (as amended
and restated through March 1, 1996)
10(l) Purchase Order dated March 8, 1995 (WHC-380393, Mod. 1) issued by
Westinghouse Hanford Company to ICF Kaiser Hanford Company (DOE
Reference No. DE-AC06-87RL1930) (Incorporated by reference to
Exhibit No. 10(m) to Annual Report on Form 10-K Registrant
No. 1-12248 for fiscal year 1995 filed with the Commission on May
23, 1995)
10(m) Assignment Agreement between the U.S. Department of Energy, Kaiser
Engineers Hanford Company, and Westinghouse Hanford Company, with
an effective date of October 1, 1993 (Contract No. DE-A06-
93RL12359) (Incorporated by reference to Exhibit No. 10(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)
1. Modification No. 1 dated October 25, 1993 (Incorporated by
reference to Exhibit No. 10(n)(1) to Annual Report on Form 10-K
Registrant No. 1-12248 filed with the Commission on May 25, 1994).
10(n) Hanford Termination Notice effective October 1, 1996, from the
U.S. Department of Energy.
10(o) Massachusetts Water Resources Authority Agreement with ICF Kaiser
Engineers, Inc. through its wholly owned subsidiary of ICF Kaiser
Engineers of Massachusetts, Inc. for construction management
services for Boston Harbor Project--Deer Island Related
Facilities, Contract No. 5622 (June 1990) (Incorporated by
reference to Exhibit No. 10(h) to Quarterly Report on Form 10-Q
Registrant No. 0-18025 for the second quarter of fiscal 1991 filed
with the Commission on October 12, 1990) (Amendment Nos. 1-3
incorporated by reference to Exhibit No. 10(n)(1-3) to Annual
Report on Form 10-K Registrant No. 0-18025 for the fiscal year
ended February 28, 1993 filed with the Commission on May 21,
1993).
1. Amendment No. 4 and Amendment No. 4A each dated December 2,
1993
[IN ACCORDANCE WITH RULE 202 OF REGULATION S-T, THIS EXHIBIT
NO. 10(n)(1) to Annual Report on Form 10-K Registrant No. 1-
12248 for fiscal 1994 FILED IN PAPER ON MAY 20, 1994, ON FORM
SE PURSUANT TO A CONTINUING HARDSHIP EXEMPTION is incorporated
herein by reference thereto]
2. Amendment No. 5 dated December 6, 1994 [IN ACCORDANCE WITH RULE
202 OF REGULATION S-T, THIS EXHIBIT NO. 10(n)(2) to Annual
Report on Form 10-K Registrant No.
II-5
<PAGE>
1-12248 for fiscal 1995 FILED IN PAPER ON MAY 23, 1995, ON FORM
SE PURSUANT TO A CONTINUING HARDSHIP EXEMPTION is incorporated
herein by reference thereto]
3. Amendment No. 6 to the Agreement with the Massachusetts Water
Resources Authority for Construction Management Services
(January 1996) (Amendment No. 6 incorporated by reference to
Exhibit No. 10(n)(3) to Quarterly Report on Form 10-Q
Registrant No. 1-12248 for the fiscal quarter ended March 31,
1996 filed with the Commission on May 15, 1996).
10(p) Contract (#DE-AC3495RF00825) between Kaiser-Hill Company, LLC, a
subsidiary of the Corporation, and the U.S. Department of Energy
dated as of April 4, 1995. [IN ACCORDANCE WITH RULE 202 OF
REGULATION S-T, THIS EXHIBIT NO. 10(o) WAS FILED IN PAPER ON MAY
23, 1995, ON FORM SE PURSUANT TO A CONTINUING HARDSHIP EXEMPTION
is incorporated herein by reference thereto]
1. Modifications to Contract #DE-AC3495RF00825.
10(q) ICF Kaiser International, Inc. Section 401(k) Plan (as amended and
restated as of March 1, 1993) (and further amended with respect to
name change only as of June 26, 1993) (Incorporated by reference
to Exhibit No. 10(f) to Quarterly Report on Form 10-Q Registrant
No. 1-12248 (Registrant No. 1-12248) for the second quarter of
fiscal 1994 filed with the Commission on October 15, 1993)
1. Amendment No. 1 dated April 24, 1995 (Incorporated by reference to
Exhibit No. 10(p)(1) to Annual Report on Form 10-K Registrant No.
1-12248 for fiscal 1995 filed with the Commission on May 23,
1995).
2. Amendment No. 2 dated December 15, 1995 (Incorporated by reference
to Exhibit No. 10(p)(2) to Transition Report on Form 10-K
Registrant No. 1-12248 for the transition period from March 1,
1995 to December 31, 1995 filed with the Commission on March 29,
1996).
10(r) Trust Agreement with Vanguard Fiduciary Trust Company dated as of
March 1, 1989, for the ICF Kaiser International, Inc. Section
401(k) Plan (Incorporated by reference to Exhibit No. 28(b) to
Registration Statement on Form S-8 (Registration No. 33-51460)
filed with the Commission on August 31, 1992).
Exhibit No. 10 -- Material Contracts (management contracts, compensatory plans,
or arrangements.)
10(aa) Employment Agreement with James O. Edwards dated as of December
31, 1994 (Incorporated by reference to Exhibit No. 10 (bb) to
Annual Report on Form 10-K for fiscal 1995 Registrant No. 1-12248
filed with the Commission on May 23, 1995).
10(bb) ICF Kaiser International, Inc. Corporate Incentive Compensation
Plan: Annual Incentive Plan (dated as of September 29, 1993)
(Incorporated by reference to Exhibit No. 10(aa) 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).
10(cc) ICF Kaiser International, Inc. Non-employee Director Stock Option
Plan (as amended and restated as of June 26, 1993) (Incorporated
by reference to Exhibit No. 10(bb) 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).
10(dd) Agreement with Alvin S. Rapp, Executive Vice President of the
Registrant, dated November 1, 1993 (Incorporated by reference to
Exhibit No. 10(ll) to Amendment No. 1 to Registration Statement on
Form S-1 (No. 33-70986) filed with the Commission on November 22,
1993).
10(ee) Employment Agreement with Marc Tipermas, Executive Vice President
of the Registrant, effective as of March 1, 1994 (Incorporated by
reference to Exhibit No. 10(ll) to Annual Report on Form 10-K
(Registrant No. 1-12248) filed with the Commission on May 25,
1994).
II-6
<PAGE>
10(ff) Employment Agreement with Stephen W. Kahane, Executive Vice
President of the Registrant, effective as of March 1, 1994
(Incorporated by reference to Exhibit No. 10(mm) to Annual Report
on Form 10-K (Registrant No. 1-12248) filed with the Commission on
May 25, 1994).
10(gg) ICF Kaiser International, Inc. Senior Executive Officers Severance
Plan as approved by the Compensation Committee of the Board of
Directors on April 4, 1994, and adopted by the Board of Directors
on May 5, 1994 (Incorporated by reference to Exhibit No. 10(nn) to
Annual Report on Form 10-K (Registrant No. 1-12248) filed with the
Commission on May 25, 1994).
10(hh) Employment Agreement with Michael K. Goldman, Executive Vice
President of the Registrant, effective as of February 28, 1994.
(Incorporated by reference to Exhibit No. 10(jj) to Annual Report
on Form 10-K Registrant No. 1-12248 for fiscal 1995 filed with the
Commission on May 23, 1995).
10(ii) Employment Agreement dated May 17, 1993, and February 1, 1995,
with Richard K. Nason, Executive Vice President and Chief
Financial Officer of the Registrant (Incorporated by reference to
Exhibit No. 10(ii) to Transition Report on Form 10-K Registrant
No. 1-12248 for the transition period from March 1, 1995 to
December 31, 1995 filed with the Commission on March 29, 1996).
Exhibit No. 11 -- Computation of Primary and Fully Diluted Earnings Per Share
(Incorporated by reference to Exhibit No. 11 to (a) Transition
Report on Form 10-K Registrant No. 1-12248 for the transition
period from March 1, 1995 to December 31, 1995, filed with the
Commission on March 29, 1996, and (b) Quarterly Report on Form 10-
Q Registrant No. 1-12248 for the third quarter ended September 30,
1996 filed with the Commission on November 14, 1996).
Exhibit No. 21 -- Subsidiaries of the Registrant as of July 4, 1996
(Incorporated by reference to Exhibit No. 21 to Quarterly Report
on Form 10-Q Registrant No. 1-12248 for the second quarter of
fiscal 1996 filed with the Commission on August 14, 1996).
Exhibit No. 23 -- Consents
23(a) Consent of Coopers & Lybrand L.L.P.
23(b) Consent of Paul Weeks, II, is contained in Exhibit No. 5
Exhibit No. 24 -- Powers of Attorney (see pages II-9 and II-10).
(b) Financial Statement Schedule
The following Supplemental Schedule Relating to the Consolidated
Financial Statements of ICF Kaiser International, Inc. and Subsidiaries for each
of the ten months ended December 31, 1995 and for the two years in the period
ended February 28, 1995.
a. Schedule II: Valuation and qualifying accounts..........S-1
All Schedules except the one listed above have been omitted because
they are not applicable or not required or because the required information is
included elsewhere in the financial statements in this filing.
Item 17. Undertakings
------------
The undersigned Registrant hereby undertakes:
(a)(l) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
II-7
<PAGE>
(i) To include a prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or event arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that the undertakings set forth in paragraphs (l)(i) and
- -------- -------
(l)(ii) above do not apply if the information required to be included in a post-
effective amendment by those paragraphs is contained in periodic reports filed
by the Registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 that are incorporated by reference in this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(h) That insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of Fairfax, the
Commonwealth of Virginia, on this 27 day of November, 1996.
ICF Kaiser International, Inc.
(Registrant)
Date: November 27, 1996 By /s/ James O. Edwards
----------------------
James O. Edwards,
Chairman of the Board and
Chief Executive Officer
- -------------------------------------------------------------------------------
POWER OF ATTORNEY
Each of the undersigned hereby appoints James O. Edwards, Marc Tipermas,
Richard K. Nason, Paul Weeks, II, and Cynthia L. Hathaway, and each of them
severally, his or her true and lawful attorneys to execute (in the name of and
on behalf of and as attorneys for the undersigned) this Registration Statement
and any and all amendments to this Registration Statement, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission.
- -------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
(1) Principal executive officer
Date: November 27, 1996 By /s/ James O. Edwards
----------------------------
James O. Edwards,
Chairman and Chief Executive Officer
(2) Principal financial and accounting officer
Date: November 27, 1996 By /s/ Richard K. Nason
----------------------------
Richard K. Nason,
Executive Vice President and
Chief Financial Officer
II-9
<PAGE>
- -------------------------------------------------------------------------------
POWER OF ATTORNEY
Each of the undersigned hereby appoints James O. Edwards, Marc Tipermas,
Richard K. Nason, Paul Weeks, II, and Cynthia L. Hathaway, and each of them
severally, his or her true and lawful attorneys to execute (in the name of and
on behalf of and as attorneys for the undersigned) this Registration Statement
and any and all amendments to this Registration Statement, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission.
- -------------------------------------------------------------------------------
(3) The Board of Directors
Date: November 27, 1996 By /s/ Gian Andrea Botta
--------------------------------
Gian Andrea Botta,
Director
Date: November 27, 1996 By
--------------------------------
Tony Coelho,
Director
Date: November 27, 1996 By /s/ James O. Edwards
--------------------------------
James O. Edwards,
Director
Date: November 27, 1996 By /s/ Maynard H. Jackson
--------------------------------
Maynard H. Jackson
Director
Date: November 27, 1996 By /s/ Thomas C. Jorling
--------------------------------
Thomas C. Jorling
Director
Date: November 27, 1996 By /s/ Frederic V. Malek
--------------------------------
Frederic V. Malek,
Director
Date: November 27, 1996 By /s/ Rebecca P. Mark
--------------------------------
Rebecca P. Mark,
Director
Date: November 27, 1996 By /s/ Richard K. Nason
--------------------------------
Richard K. Nason,
Director
Date: November 27, 1996 By /s/ Robert W. Page, Sr.
--------------------------------
Robert W. Page, Sr.,
Director
Date: November 27, 1996 By /s/ Marc Tipermas
--------------------------------
Marc Tipermas,
Director
II-10
<PAGE>
Exhibit 4(a)(5)
THIS FIFTH SUPPLEMENTAL INDENTURE, dated as of June 24, 1996, is
entered into by and among ICF KAISER INTERNATIONAL, INC., a Delaware corporation
(the "Company"), the BANK OF NEW YORK, a New York banking corporation (the
"Trustee"), and the following GUARANTORS:
Cygna Consulting Engineers and Project Management, Inc., a Delaware
corporation ("Cygna"); ICF Kaiser Government Programs, Inc., a
Delaware corporation ("ICFK-GP"); PCI Operating Company, Inc. ("PCI");
and Systems Applications International, Inc. "(SAI").
WITNESSETH:
WHEREAS, each Guarantor is either a direct or an indirect Wholly Owned
Restricted Subsidiary of the Company;
WHEREAS , on May 6, 1996, the Company entered into a Credit Agreement
with Corestates Bank, N.A., as Agent, the banking institutions named therein
(the "Banks"), and certain subsidiaries of the Company named therein (the
"Subsidiary Guarantors"), as a successor Bank Credit Agreement;
WHEREAS, as a condition to the Company's being permitted to include
the Accounts Receivable of the Guarantors in the Borrowing Base pursuant to the
Bank Credit Agreement, the Guarantors also must become Subsidiary Guarantors
under the Bank Credit Agreement;
WHEREAS, ICFK-GP became a Subsidiary Guarantor of the Bank Credit
Agreement on May 6, 1996;
WHEREAS, Cygna, PCI, and SAI have determined that it is desirable to
become Subsidiary Guarantors under the Bank Credit Agreement;
WHEREAS, the Company and the Trustee have heretofore executed and
delivered an Indenture dated as of January 11, 1994 (the "Indenture"), as
supplemented, for the purpose of issuing Notes, and Section 10.01 of the
Indenture provides that the Company (when authorized by a Board Resolution) and
the Trustee for the Notes, at any time and from time to time, may enter into one
or more indentures supplemental thereto, in form satisfactory to such Trustee,
for any of the purposes set forth in said Section 10.01 (each a "Supplemental
Indenture");
WHEREAS, Section 5.11 of the Indenture requires that, prior to or
concurrently with the Guarantors becoming Subsidiary Guarantors under the Bank
Credit Agreement, the Company must cause the Guarantors to execute and deliver
to the Trustee a Supplemental Indenture and a Indenture Guarantee (substantially
in the form attached as Exhibit B to the Indenture) pursuant to which the
Guarantors will unconditionally guarantee the payment of principal of, premium,
if any, and interest on the Notes;
WHEREAS, Section 5.11 of the Indenture further provides that the
Indenture Guarantee referenced in the immediately preceding clause shall be
subordinated in right of payment to any subsidiary guarantee granted by the
Guarantors pursuant to the Bank Credit Agreement;
WHEREAS, ICFK-GP became a Subsidiary Guarantor of the Bank Credit
Agreement on May 6, 1996, and was already a Guarantor of the Indenture as of
September 1, 1995;
WHEREAS, Cygna, PCI, and SAI will become Subsidiary Guarantors under
the Bank Credit Agreement and have determined that it is desirable
simultaneously or concurrently to become Guarantors under the Indenture;
WHEREAS, the execution and delivery of this Supplemental Indenture has
been duly authorized by the Executive Committee of the Board of Directors of the
Company;
<PAGE>
WHEREAS, the execution and delivery of this Supplemental Indenture and
the Indenture Guarantees have been duly authorized by the Boards of Directors of
the Guarantors;
WHEREAS, the Company and the Guarantors have determined that it is
desirable to enter into this Fifth Supplemental Indenture and have requested the
Trustee to join with them in the execution of this Fifth Supplemental Indenture;
and
WHEREAS, the Trustee has accepted the trusts created by this Fifth
Supplemental Indenture and in evidence thereof has joined in the execution
hereof;
NOW, THEREFORE, THIS FIFTH SUPPLEMENTAL INDENTURE WITNESSETH, that, in
consideration of the premises and of acceptance by the Trustee of the trusts
created hereby and by the Indenture, and also for and in consideration of the
sum of One Dollar to the Company duly paid by the Trustee at or before the
execution and delivery of this Supplemental Indenture, the receipt of which is
hereby acknowledged, IT IS HEREBY COVENANTED AND AGREED, by and among the
Company, the Guarantors, and the Trustee, as follows:
1. Terms defined in the Indenture are used herein as therein defined.
2. ICFK-GP acknowledges that it has executed and delivered to the
Trustee the Second Supplemental Indenture and an Indenture Guarantee, both as of
September 1, 1995.
2. Each of Cygna, PCI, and SAI hereby acknowledge its execution and
delivery of an Indenture Guarantee dated as of June 24, 1996, in the form
authorized and approved by the Second Supplemental Indenture to the Indenture
and attached as Exhibit B to the Indenture.
IN WITNESS WHEREOF, the parties hereto have caused this Fifth
Supplemental Indenture to be duly executed, and the Company, the Guarantors, and
the Trustee have caused their respective corporate seals to be hereunto affixed
and attested, all as of June 24, 1996.
2
<PAGE>
Exhibit No. 5
ICF Kaiser International, Inc.
9300 Lee Highway
Fairfax, VA 22031
November 27, 1996
ICF Kaiser International, Inc.
9300 Lee Highway
Fairfax, VA 22031
Re: ICF Kaiser International, Inc.Registration Statement on Form S-1
----------------------------------------------------------------
Gentlemen:
Referring to the Registration Statement on Form S-1 which ICF Kaiser
International, Inc. (the "Company") has filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Securities Act"),
relating to the registration for resale of up to 1,673,212 shares of the
Company's Common Stock, par value $0.01 per share, I am of the opinion that:
1. The shares of Common Stock which are to be sold and delivered by the
GAW Selling Shareholders, the EDA Selling Shareholders, Mr. Balch, IPC, and the
IPC Selling Shareholders pursuant to the Registration Statement have been duly
and validly authorized by the Company.
2. The shares of Common Stock which are to be sold and delivered by the
GAW Selling Shareholders, the EDA Selling Shareholders and Mr. Balch pursuant to
the Registration Statement have been legally issued and are fully paid, and
nonassessable.
3. The EDA Earn-out Shares, when delivered in accordance with the terms of
the EDA Merger Agreement, will be legally issued, fully paid, and nonassessable.
Capitalized terms not otherwise defined herein are as defined in the
Registration Statement. I hereby consent to the filing of this opinion with the
Securities and Exchange Commission as Exhibit No. 5 to the Registration
Statement referred to above and to the use of my name under the heading "Legal
Matters."
Very truly yours,
/s/ Paul Weeks, II
------------------------
Paul Weeks, II
Senior Vice President,
General Counsel and Secretary
<PAGE>
Exhibit 10(j)
================================================================================
ICF KAISER INTERNATIONAL, INC. STOCK INCENTIVE PLAN
(as amended and restated through March 1, 1996)
================================================================================
1. Purpose. The purpose of this plan ("Plan") is to promote the interests
of ICF Kaiser International, Inc. ("ICF Kaiser") by affording its key employees
an incentive, by means of an opportunity to acquire ICF Kaiser's Common Stock,
par value $0.01 per share, and to share in the increase in the value of the
Common Stock, to remain in the employ of the Company, and to exert their maximum
efforts in its behalf.
2. Administration. The Plan shall be administered by the Compensation
Committee ("Committee") of the Board of Directors of ICF Kaiser ("Board"). In
addition to its duties with respect to the Plan stated elsewhere in the Plan,
the Committee shall have full authority, consistent with the Plan, to interpret
the Plan, to promulgate such rules and regulations with respect to the Plan as
it deems desirable, and to make all other determinations necessary or desirable
for the administration of the Plan. All decisions, determinations, and
interpretations of the Committee shall be binding upon all persons. The
Committee may delegate to the Chief Executive Officer of ICF Kaiser (the "CEO")
the discretion (a) to select Participants to whom Options shall be granted from
among the key employees of ICF Kaiser and its Subsidiaries, other than key
employees of ICF Kaiser who are required to file reports with the Securities and
Exchange Commission pursuant to Section 16(a) of the Securities Exchange Act of
1934, as amended, and (b) as set forth below in the Plan, to perform such other
functions of the Committee as are specified in this Plan with respect to
Participants other than key employees of ICF Kaiser who are required to file
reports with the Securities and Exchange Commission pursuant to Section 16(a) of
the Securities Exchange Act of 1934, as amended.
3. Shares Subject to the Plan. The aggregate combined number of shares of
Common Stock which may be covered by stock options ("Options"), stock
appreciation rights ("SARs"), restricted shares ("Restricted Shares"), and
restricted stock units ("Restricted Stock Units") granted pursuant to the Plan
is 6,000,000 shares, subject to adjustment under Section 9. Shares which may be
delivered on exercise or settlement of Options, SARs, Restricted Shares, or
Restricted Stock Units may be previously issued shares reacquired by ICF Kaiser
or authorized but unissued shares. Shares covered by Restricted Shares or
Restricted Stock Units that are forfeited and shares covered by Options that
expire unexercised or are canceled (without having been surrendered upon the
exercise of SARs, whether settled in cash or Common Stock) shall again be
available for grant under the Plan.
4. Eligibility. The Committee or the CEO, as the case may be, shall from
time to time in its or his or her discretion select the employees to whom
Options, SARs, Restricted Shares, and Restricted Stock Units shall be granted
("Participants") from among the key employees of ICF Kaiser and its subsidiary
corporations ("Subsidiaries").
5. Options.
(a) The Committee or the CEO, as the case may be, shall in its or his
or her discretion determine the time or times when options shall be granted and
the number of shares of Common Stock to be subject to each Option. In the case
of an incentive stock option, as defined in Section 422(b) of the Internal
Revenue Code of 1986, as amended (the "Code"), the aggregate fair market value
(determined as of the date the Option is granted) of the stock which for any
Options may become exercisable by a Participant for the first time by such
individual during any calendar year (under all incentive stock option plans of
ICF Kaiser and its Subsidiaries) shall not exceed $100,000. Options may be
granted under the Plan on such terms and conditions as the Committee considers
appropriate, which may differ from those provided in the Plan, where such
Options are granted in substitution for stock options held by employees of other
companies who concurrently become employees of ICF Kaiser or a Subsidiary as the
result of a merger or consolidation of the employing company with, or the
acquisition of the property or stock of the employing company by, ICF Kaiser or
a Subsidiary.
(b) Except as provided in paragraph (d), each option shall be for
such term as the Committee or the CEO, as the case may be, shall determine, but
not more than 10 years from the date it is granted, except that the term of an
option other than an incentive stock option may extend up to 11 years from the
date the Option is granted if the Participant dies within the 10th year
following the date of grant.
(c) Except as provided in paragraphs (a) and (d), the purchase price
for each share of Common Stock subject to an Option shall be not less than the
fair market value of the Common Stock on the date the Option is granted.
(d) In the case of an incentive stock option, as defined in Section
422(b) of the Code, granted to an employee who at the time the Option is granted
owns (within the meaning of Section 422(b)(6) of the Code) stock possessing more
than 10 percent of the total combined voting power of all classes of stock of
the corporation employing such employee or of its parent corporation or a
subsidiary corporation (as defined in Sections 424(e) and 424(f),
<PAGE>
respectively, of the Code), the purchase price for each share of Common Stock
subject to the Option shall be at 110 percent of the fair market value of the
shares at the time such Option is granted and such Option shall not be
exercisable after the expiration of five years from the date such option is
granted.
(e) Exercise of an Option shall be by written notice in the form and
manner determined by the Committee. Except as otherwise determined by the
Committee or the CEO, as the case may be, no Option may be exercised to any
extent before one year from the date of grant. The Committee or the CEO, as the
case may be, in its or his or her discretion may (1) determine installment
exercise terms for an option under which it may be exercised in a series of
cumulative installments, (2) prescribe rules limiting the frequency of exercise
of options or the minimum number of shares that may be exercised at any one
time, (3) determine the form of consideration (including cash, shares of Common
Stock, or any combination thereof) which may be accepted in payment of the
purchase price of shares purchased pursuant to the exercise of an Option, and
(4) prescribe such other rules or conditions as it considers appropriate
regarding the exercise of Options granted under the Plan.
(f) In the case of incentive stock options, the instruments
evidencing such Options shall provide that if, within two years from the date of
grant of the Option or within one year after the transfer of shares of Common
Stock to the Participant on exercise of the option, the Participant makes a
disposition (as defined in Section 424(c) of the Code) of any shares of such
Common Stock, the Participant shall notify ICF Kaiser of such disposition in the
manner and within such time as the Committee in its discretion shall determine.
The Committee may direct that a legend restricting transfer in the absence of
appropriate notification be affixed to any stock certificates representing
Common Stock transferred under the Plan.
(g) Each Option shall be evidenced by a written instrument which
shall state such terms and conditions which are not inconsistent with the
provisions of the Plan as the Committee or the CEO, as the case may be, in its
or his or her discretion shall determine and approve, including terms and
conditions regarding the exercise of Options upon termination of employment.
(h) The Committee may, in its discretion, make loans available to
Participants, on reasonable terms, with funds to be provided by ICF Kaiser, to
facilitate payment by any Participant of the exercise price of, or any tax
withholding obligation incurred with respect to, any options, SARs, Restricted
Shares, or Restricted Stock Units granted under the Plan after the adoption of
this provision. The Committee or ICF Kaiser may, in their respective discretion,
take other steps to enable ICF Kaiser to facilitate the payment of such exercise
price or tax withholding obligations, including but not limited to arranging for
the provision of loans by, or other arrangements with, third parties, including
but not limited to banks or brokers, with or without a guarantee of such loans
by ICF Kaiser.
6. Stock Appreciation Rights. The Committee may from time to time grant
SARs unrelated to Options or related to Options or portions of Options granted
to Participants under the Plan. Each SAR shall be evidenced by a written
instrument and shall be subject to such terms and conditions as the Committee
may determine. The Participant may exercise an SAR or portion thereof, and
thereupon shall be entitled to receive payment of an amount equal to the
aggregate appreciation in value of the shares as to which the SAR is awarded,
which may be shares of Common Stock, as measured by the difference between the
purchase price of such shares and their fair market value at the date of
exercise. Such payments may be made in cash, in shares of Common Stock valued at
fair market value as of the date of exercise, or in any combination thereof, as
the Committee in its discretion shall determine.
7. Restricted Shares and Restricted Stock Units.
(a) The Committee may from time to time, and subject to the
provisions of the Plan and such other terms and conditions as the Committee may
determine, grant Restricted Shares and Restricted Stock Units under the Plan.
Each grant of Restricted Shares and Restricted Stock Units shall be evidenced by
a written instrument which shall state the number of Restricted Shares or
Restricted Stock Units covered by the grant and the terms and conditions which
the Board shall have determined with respect to such grant. Restricted Shares
shall be shares of Common Stock. Each Restricted Stock Unit shall be equivalent
in value to a share of Common Stock.
(b) A stock certificate representing the Restricted Shares granted to
a Participant shall be registered in the Participant's name but shall be held in
custody by ICF Kaiser for the Participant's account. The Participant generally
shall have the rights and privileges of a shareholder as to such Restricted
Shares, including the right to vote or otherwise act as a shareholder with
respect to such Restricted Shares, except that the following restrictions shall
apply: (i) the Participant shall not be entitled to delivery of the certificate
until the expiration or termination of the Restriction Period (as defined
herein) and the satisfaction of any other conditions prescribed by the
Committee; (ii) none of the Restricted Shares may be sold, transferred,
assigned, pledged, or otherwise encumbered or disposed of prior to termination
of the Restriction Period; (iii) the Participant shall forfeit and immediately
transfer back to ICF Kaiser
A-2
<PAGE>
without payment all of the Restricted Shares, and all rights of the Participant
to such Restricted Shares shall terminate without further obligation on the part
of ICF Kaiser, if and when the Participant ceases to be either an employee or a
director of ICF Kaiser or any of its Subsidiaries prior to expiration or
termination of the Restriction Period and the satisfaction of any other
conditions prescribed by the Committee applicable to such Restricted Shares.
Cash dividends, if any, with respect to the Restricted Shares shall be paid to
the Participant.
(c) Upon the expiration or termination of the Restriction Period and
the satisfaction of any other conditions prescribed by the Committee, the
restrictions applicable to the Restricted Shares shall lapse and a stock
certificate for the number of Restricted Shares with respect to which the
restrictions have lapsed shall be delivered, free of all such restrictions, to
the Participant or the Participant's beneficiary or estate, as the case may be.
ICF Kaiser shall not be required to deliver any fractional share of Common Stock
but will pay, in lieu thereof, the fair market value (determined as of the date
the restrictions lapse) of such fractional share to the Participant or the
Participant's beneficiary or estate, as the case may be. No payment will be
required from the Participant upon the issuance or delivery of any Restricted
Shares, except that any amount necessary to satisfy applicable federal, state,
or local tax requirements shall be withheld or paid promptly upon notification
of the amount due and prior to or concurrently with the issuance or delivery of
a certificate representing such shares.
(d) Vesting of each grant of Restricted Shares and Restricted Stock
Units shall require the Participant to remain an employee or a director of ICF
Kaiser or of a Subsidiary for a prescribed period (the "Restriction Period"),
which period may be subject to acceleration upon the occurrence of certain
events, as the Committee may determine and specify in the written instrument
evidencing such grant. The Committee shall determine the Restriction Period or
Periods which shall apply to the shares of Common Stock covered by each grant of
Restricted Shares or Restricted Stock Units, provided that in no case shall the
Restriction Period be less than one year, subject to adjustment as set forth
above. All Restricted Stock Units granted to a Participant under the Plan shall
terminate without further obligation on the part of ICF Kaiser if and when the
Participant ceases to be an employee or a director of ICF Kaiser or any of its
Subsidiaries prior to expiration or termination of the Restriction Period and
the satisfaction of any other conditions prescribed by the Committee applicable
to Restricted Stock Units, and in such event the Participant shall not be
entitled to receive any payment with respect to those Restricted Stock Units,
except as provided in paragraph (f).
(e) Upon expiration of the Restriction Period or Periods applicable
to each grant of Restricted Stock Units, the Participant shall, without payment
on his or her part, be entitled to receive payment in an amount equal to the
aggregate fair market value of the shares of Common Stock covered by such grant
on the date of expiration. Such payment may be made in cash, in shares of Common
Stock equal to the number of Restricted Stock Units with respect to which such
payment is made, or in any combination thereof, as the Committee in its
discretion shall determine. Any payment in cash shall reduce the number of
shares of Common Stock which may be covered by Restricted Stock Units granted
under the Plan, as provided in Section 3, to the extent of the number of
Restricted Stock Units to which such payment relates.
(f) A Participant whose Restricted Stock Units have not previously
terminated shall be entitled to receive payment in an amount equal to each cash
dividend ICF Kaiser would have paid to such Participant during the term of those
Restricted Stock Units as if the Participant had been the owner of record of the
shares of Common Stock covered by such Restricted Stock Units on the record date
for the payment of such dividend. Payment of each such dividend equivalent shall
be made on the payment date of the cash dividend with respect to which it is
made, or as soon as practicable thereafter.
8. Long-Term Incentive Award Program. The Committee shall have the
discretion to grant non-statutory Options and/or Restricted Shares to
Participants pursuant to the terms of a Long-Term Incentive Award Program
(LTIAP) designed to accomplish the purposes of the Plan. Under the LTIAP, the
Committee shall have the discretion to grant conditionally non-statutory Options
and/or Restricted Shares to Participants, which Options and/or Restricted Shares
shall be forfeited in the event that earnings per share (EPS) targets determined
at the time of the conditional grant are not subsequently achieved by ICF
Kaiser. EPS targets, if any are set, shall be determined by the Committee on an
annual basis. All other terms and conditions of the LTIAP shall be determined
by the Committee in its discretion and shall not be inconsistent with the
provisions of the Plan.
9. Adjustment Upon Changes in Capitalization. If there is a change in the
number or kind of outstanding shares of ICF Kaiser's stock by reason of a stock
dividend, stock split, recapitalization, merger, consolidation, combination or
other similar event, or if there is a distribution to shareholders of ICF
Kaiser's Common Stock other than a cash dividend, appropriate adjustments shall
be made by the Committee to the number and kind of shares subject to the Plan;
the number and kind of shares under Options, SARs, Restricted Shares, and
Restricted Stock Units then outstanding; the maximum number of shares available
for options, SARs, Restricted Shares, and Restricted
A-3
<PAGE>
Stock Units; the purchase price for shares of Common Stock covered by Options;
and other relevant provisions, to the extent that the Committee, in its sole
discretion, determines that such changes make such adjustments necessary to be
equitable. Similar adjustments may also be made by the Committee in its
discretion if substitute Options are granted pursuant to Section 5(a).
10. Transferability of Options, SARs, Restricted Shares, and Restricted
Stock Units. Options that are intended to be incentive stock options, SARs,
Restricted Shares, and Restricted Stock Units shall be nonassignable and
nontransferable by the Participant, other than by will or the laws of descent
and distribution, and shall be exercisable during the Participant's lifetime
only by the Participant or his guardian. Options that are designated at the time
of grant as Options that are not incentive stock options may be transferred or
assigned only to a person who is at the time of such transfer an employee of ICF
Kaiser or a Subsidiary, except that any such options held by persons subject to
the reporting obligations of Section 16(a) of the Securities Exchange Act of
1934, as amended, may not be transferred or assigned other than by will or the
laws of descent and distribution.
11. Laws and Regulations. The Plan, the grant and exercise of Options,
SARs, Restricted Shares, and Restricted Stock Units, and the obligation of ICF
Kaiser to sell or deliver shares of Common Stock under the Plan shall be subject
to all applicable laws, regulations, and rules.
12. No Employment Rights. Nothing in the Plan shall confer upon any
employee of ICF Kaiser or a Subsidiary any right to continued employment or
interfere with the right of ICF Kaiser or a Subsidiary to terminate his or her
employment at any time.
13. Tax Withholding. Any payment to or settlement with a Participant in
cash or in Common Stock pursuant to any provision of the Plan shall be subject
to withholding of income tax, FICA tax, or other taxes to the extent ICF Kaiser
or a Subsidiary is required to make such withholding. Any required withholding
payable by a Participant with respect to any tax may be paid in cash, in whole
shares of Common Stock, or in a combination of whole shares of Common Stock and
cash, having an aggregate fair market value equal to the amount of any required
withholding obligation.
14. Termination; Amendments.
(a) The Board may at any time terminate the Plan. Unless the Plan
shall previously have been terminated by the Board, it shall terminate on
December 31, 2005. No Option, SAR, Restricted Share, or Restricted Stock Unit
may be granted after such termination.
(b) The Board may at any time or times amend the Plan or amend any
outstanding Options, SARs, Restricted Shares, or Restricted Stock Units for the
purpose of satisfying the requirements of any changes in applicable laws or
regulations or for any other purpose which at the time may be permitted by law,
provided that no amendment of any outstanding Options, SARs, Restricted Shares,
or Restricted Stock Units shall contain terms or conditions inconsistent with
the provisions of the Plan as determined by the Committee.
(c) Except as provided in Section 9, no such amendment shall, without
the approval of the shareholders of ICF Kaiser: (i) increase the maximum number
of shares of Common Stock for which Options, SARs, Restricted Shares or
Restricted Stock Units may be granted under the Plan; (ii) except to the extent
required or permitted under Section 5(a) in the case of substitute Options,
reduce the price at which options may be granted below the price provided for in
Section 5(c); (iii) reduce the option price of outstanding Options; (iv) extend
the period during which Options, SARs, Restricted Shares, or Restricted Stock
Units may be granted; (v) except to the extent permitted or required under
Section 5(a) in the case of substitute Options, extend the period during which
an outstanding Option may be exercised beyond the maximum period provided for in
Section 5(b); (vi) materially increase in any other way the benefits accruing to
Participants; or (vii) change the class of persons eligible to be Participants.
15. Effective Date. The Plan shall become effective upon approval by the
Board; provided, however, that the Plan shall be submitted to the shareholders
for approval, and if not approved by the shareholders within one year from the
date of approval by the Board, shall be of no force and effect. Options, SARs,
Restricted Shares, and Restricted Stock Units granted by the Committee before
approval of the Plan by the shareholders shall be granted subject to such
approval and shall not be exercisable or payable before such approval. Options,
SARs, and Restricted Stock Units may be granted by the Committee, or other
actions may be taken under or with respect to the Plan, pursuant to any Plan
amendment that is subject to shareholder approval, prior to the receipt of such
shareholder approval, provided that such Options, SARs, Restricted Shares, and
Restricted Stock Units shall not be exercisable or payable before such approval.
A-4
<PAGE>
Exhibit 10(p)1
Modifications to Contract DE-AC34-95RF00825
MOD Changes
- --- -------
Original
M001 1. "Attachment A" of the original contract is deleted in its
entirety and replaced with the revised "Attachment A Revision
1" contained in this modification.
2. Clause I.56, Government Property (Cost Reimbursement, Time and
Material, or Labor Hour contracts) is revised as follows: FAR
52.245-5(g)(1) is deleted in its entirety and replaced with the
attached FAR 52.245-5(g)(1) and (2).
3. The following clause shall be added to Section I of the
contract: FAR 52.245-18, Special Test Equipment (FEB 1993).
4. Article G.5 DOE Property Administration is deleted in its
entirety and replaced with the following:
James Brothers (Primary) 966-7756
Ed Pietsch (Secondary) 966-5128
US Department of Energy
Rocky Flats Field Office
Property and Information Management Division - Bldg. 130
PO Box 928
Golden, CO 80402-0928
Future revisions of the primary and secondary points of contact
may be accomplished by written notification from the
Contracting Officer to the Contractor, without formal contract
modification."
5. Article G.2 Addresses - The last paragraph shall be revised to
read "...written notification from the Contracting Officer to
the contractor..."
6. Article H.23 Property - Paragraph (a)(5) shall be revised to
read "...within 6 months after the contract effective date and
will have two years from contract effective date to conduct and
complete inventory of DOE Plant and Equipment Asset types in
the 400, 500 and 600 series."
7. Delete Section G, Contract Administration, Table of Contents
and replace it with the attached corrected Section G Table of
Contents.
8. The following clause shall be added to Section I of the
Contract: "DEAR 952.231-70, Date of Incurrence of Cost (APR
1984). The Contractor shall be entitled to reimbursement of
costs incurred in an amount not to exceed $500,000 on or after
May 1, 1995 which, if incurred after this contract has been
entered into, would have been reimbursable under the provisions
of this contract."
<PAGE>
Modifications to Contract DE-AC34-95RF00825
MOD Changes
- --- -------
9. The following article shall be added to Section H of the
Contract:
"H.28 Advance Agreement of Relocation Costs
The Contractor shall be entitled to reimbursement for
relocation costs incurred in the amount not to exceed $366,400,
on or after May 1, 1995, which if incurred after the effective
date of this contract, would have been reimbursable under the
provisions of this contract.
10. Article G.7, Invoicing/Payment Procedures shall be
revised as follows:
a. Renumber existing G.7(d) as G.7(e)
b. Insert the following as new G.7(d)
c. Insert the following as new G.7.(f)
d. Insert the following as new G.7(g)
"(d) Any basis for withholding, set off or reduction with
respect to invoices which are discovered after acceptance will
be corrected on subsequent invoices. If the Government
discovers such bases for withholding, set off or reduction, the
contracting Officer will notify the Contractor in writing to
the individual listed in Article G.4, Defective of Improper
Invoices, above. The Contracting Officer's written notification
will explain the nature of the bases for withholding, set off
or reduction, will specify the dollar amount of the
withholding, set off or reduction and will direct the
Contractor to reflect the appropriate credit on the next
invoice submitted under this Contract. Unless the Contractor
reconciles the bases for withholding, set off or reduction to
the satisfaction of the Contracting Officer within seven (7)
calendar days, the Contractor shall make the credit as
previously directed by the Contracting Officer"
"(f) Notwithstanding the provisions of FAR 52.232-25 (a)(4),
the Government is not limited to the seven (7) day notification
to the Contractor of a defective invoice."
"(g) the Government acknowledges and agrees that the Contractor
may finance its performance under this contract by selling
accounts receivable arising under the contract to an affiliate
of the Contractor organized solely for the purpose of assisting
in the financing of the Contractor's performance under the
contract. Such affiliate may further sell and/or otherwise
grant a security interest in such receivables to an ultimate
financing source or sources or an agent or trustee acting on
behalf of an ultimate financing source or sources, such further
sale and/or grant of a security interest being solely for the
purpose of completing the financing of the contractors
performance of the work under the contract. The ultimate
financing source or sources would provide funds to the
affiliate solely for the purpose of financing the affiliate's
purchasing said accounts receivable from the Contractor,
thereby providing the funding to the Contractor to perform the
work under the contract. The government consents to the
financing arrangement described above."
<PAGE>
Modifications to Contract DE-AC34-95RF00825
MOD Changes
- --- -------
11. The following DOE/RFFO personnel shall be added to
article H.3(b) as COR's:
Dana C. Lindsay, Chief Counsel,
Authority for functional area.
George R. Cannode, Director, Training & Development
Authority for functional area
12. Clause I.33, 52.222-35, Affirmative Action for Special
Disabled and Vietnam Era Veterans, is deleted in its
entirety and replaced with the attached revised clause.
A002 1. Article B.3, Obligation of Funds
Make the following revisions to Modification M001:
2. Clause FAR 52.245-18, entitled "Special Test Equipment" in
Modification M001 shall be identified as "Clause I.104".
3. Clause DEAR 952.231-70, entitled "Date of Incurrence of Cost"
in Modification M001 shall be identified as "Clause I.105".
4. The dollar aount in Clause I.105, "Date of Incurrence of Cost"
shall be corrected to read $670,000.
5. The dollar amount in Clause H.28 shall be corrected to read
$670,000.
M003 1. The dollar amount in Clause I.105, "Date of Incurrence of Cost"
shall be corrected to read $716,000.
2. The dollar mount in Clause H.28, "Advance Agreement on
Relocation Costs" shall be corrected to read $716,000.
3. SF33, Block 21, B&R Number 820201000 should be deleted and
replaced with B&R Number EW703000.
<PAGE>
Modifications to Contract DE-AC34-95RF00825
MOD Changes
- --- -------
4. The following clause shall be added to Section H of the
contract:
H.29 Services from Certain Approved Affiliates
(a) Effective July 1, 1995, the Contractor may obtain services
constituting home office support from certain of its corporate
affiliates. The corporate affiliates from which such services
may be obtained are referred to herein as "Approved
Affiliates". The Approved Affiliates are ICF Kaiser
International, Inc. and its affiliates and CH2M Hill Companies
Ltd. and its affiliates plus those that may be added from time
to time by the Contractor with the approval of the Contracting
Officer.
The Contractor shall submit an annual plan detailing the
estimated amount of services to be provided by the "Approved
Affiliates" for the approval of the Contracting Officer. Use of
other affiliates will be submitted on a case by case basis for
the approval of the Contracting Officer prior to obtaining the
services.
The contractor shall submit an annual plan detailing the
estimated amount of services to be provided by the "Approved
Affiliates" for the approval of the Contracting Officer. Use of
other affiliates will be submitted on a case by case basis for
the approval of the Contracting Officer prior to obtaining the
services.
(b) Unless otherwise agreed to by the Contracting Officer, if
the services are performed at the providing entity's home or
branch office, reimbursement shall only include applicable
costs incurred in accordance with FAR Subpart 31.2 as
supplemented or modified by DEAR 931.2. Allowable costs will
include direct costs and applicable indirect costs as approved
by the cognizant Federal audit agency.
Any profit or fee of the providing entity on its services may
not be included as allowable costs. If the services of the
Approved Affiliate are obtained non-competitively, cost of
money shall not be an allowable cost. These limitations on
profit or fee and cost of money are not applicable to
subcontracts awarded to an approved affiliate based on
competition or market/catalog price.
(c) If the services are performed by personnel on temporary
assignments (less than 12 month duration) at the RFETS, or
other designated locations away from the providing entity's
home or branch office, reimbursement shall be in accordance
with the foregoing paragraph (b) plus the travel and living
allowance policies for temporary assignments in accordance with
the policies of the providing entity, not to exceed the
applicable provisions of the FAR. For temporary assignments
greater than six months, indirect costs shall be based on an
offsite rate (excluding rent and utilities costs of the office
where such personnel are normally located) as approved by
cognizant Federal audit agency. Such temporarily assigned
employees shall remain on the providing entity's payroll.
<PAGE>
EXHIBIT 23(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-1
of our report dated March 8, 1996, on our audits of the financial statements and
the 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.
November 27, 1996
