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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 31, 1997
REGISTRATION NO. 333-19519
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ICF KAISER INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 54-1437073
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION
NUMBER)
AND SUBSIDIARY GUARANTORS
CYGNA CONSULTING ENGINEERS AND PROJECT MANAGEMENT, INC.
ICF KAISER GOVERNMENT PROGRAMS, INC.
PCI OPERATING COMPANY, INC.
SYSTEMS APPLICATIONS INTERNATIONAL, INC.
(EXACT NAMES OF REGISTRANTS AS SPECIFIED IN THEIR RESPECTIVE CHARTERS)
CALIFORNIA 94-2278222
DELAWARE 54-1761768
DELAWARE 54-1589711
DELAWARE 54-1770848
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION
NUMBER)
8711
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
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PAUL WEEKS, II, ESQ.
9300 LEE HIGHWAY SENIOR VICE PRESIDENT, GENERAL COUNSEL
FAIRFAX, VIRGINIA 22031 AND SECRETARY
(703) 934-3600 ICF KAISER INTERNATIONAL, INC.
(ADDRESS, INCLUDING ZIP CODE, AND 9300 LEE HIGHWAY
TELEPHONE NUMBER, INCLUDING AREA CODE, FAIRFAX, VIRGINIA 22031
OF REGISTRANTS' PRINCIPAL EXECUTIVE (703) 934-3600
OFFICE) (NAME, ADDRESS, INCLUDING ZIP CODE,
AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
COPY TO:
JAMES J. MAIWURM, ESQ.
CROWELL & MORING LLP
1001 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20004
(202) 624-2500
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable 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 statement 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. [_]
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THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
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 SAID
SECTION 8(A), MAY DETERMINE.
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PROSPECTUS
ICF KAISER INTERNATIONAL, INC.
OFFER TO EXCHANGE $1,000 IN PRINCIPAL AMOUNT OF ITS
12% SENIOR NOTES DUE 2003, SERIES B,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR
EACH $1,000 IN PRINCIPAL AMOUNT OF ITS OUTSTANDING 12%
SENIOR NOTES DUE 2003, SERIES A
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON MARCH 6, 1997, UNLESS EXTENDED.
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ICF Kaiser International, Inc. ("ICF Kaiser" or the "Company") hereby offers
to exchange (the "Exchange Offer") up to $15,000,000 in aggregate principal
amount of its new 12% Senior Notes due 2003, Series B (the "Exchange Notes"),
for up to $15,000,000 in aggregate principal amount of its outstanding 12%
Senior Notes due 2003, Series A (the "Old Notes" and, together with the
Exchange Notes, the "Notes"), that were issued and sold in a transaction
exempt from registration under the Securities Act of 1933, as amended (the
"Securities Act").
The terms of the Exchange Notes are substantially identical (including
principal amount, interest rate, maturity, security and ranking) to the terms
of the Old Notes for which they may be exchanged pursuant to the Exchange
Offer, except that the Exchange Notes (i) are freely transferable by holders
thereof (except as provided below) and (ii) are not entitled to certain
registration rights and certain additional interest provisions that are
applicable to the Old Notes under the Registration Rights Agreement (as
defined). The Exchange Notes will be issued under the indenture dated as of
December 23, 1996 governing the Old Notes (the "Indenture").
The interest rate on the Exchange Notes will be 13% until the Company
achieves and maintains $36 million of Earnings (as defined) for two
consecutive quarters on a trailing twelve-month basis after deducting minority
interests and before interest, taxes, depreciation and amortization calculated
in accordance with generally accepted accounting principles. See "Description
of the Notes--Interest Rate Increase." Interest on the Exchange Notes is
payable semiannually on June 30 and December 31 of each year, commencing June
30, 1997. Interest on the Exchange Notes will accrue from December 31, 1996.
The Exchange Notes are not redeemable prior to December 31, 1998. The Exchange
Notes are redeemable, in whole or in part, at the option of the Company on or
after December 31, 1998 at the redemption prices set forth herein, plus
accrued and unpaid interest, if any, to the date of redemption.
The Exchange Notes will be senior unsecured obligations of the Company, will
rank senior to all subordinated indebtedness of the Company and will rank pari
passu in right of payment with all existing and future senior indebtedness of
the Company, including the Old Notes and indebtedness under the Credit
Facility (as defined). As of September 30, 1996, after giving pro forma effect
to the issuance of the Old Notes, borrowings under the Credit Facility and
application of the proceeds therefrom, the Company would have had
approximately $153.9 million of total indebtedness and $18.8 million secured
indebtedness under the Credit Facility. The Exchange Notes will be
unconditionally guaranteed by four wholly owned subsidiaries of the Company
(the "Subsidiary Guarantors").
In the event of a Change of Control (as defined), the Company will be
required to offer to purchase all Exchange Notes then outstanding at a
purchase price equal to 101% of the aggregate principal amount of such
Exchange Notes, plus accrued and unpaid interest, if any, to the date of
purchase.
(Continued on next page)
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HOLDERS OF OLD NOTES SHOULD CAREFULLY CONSIDER THE MATTERS SET FORTH IN
"RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS PRIOR TO MAKING A
DECISION WITH RESPECT TO THE EXCHANGE OFFER.
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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.
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THE DATE OF THIS PROSPECTUS IS JANUARY 31, 1997
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(Continued from previous page)
The Old Notes were originally issued and sold on December 23, 1996 in a
transaction not registered under the Securities Act, in reliance upon the
exemption provided in Section 4(2) of the Securities Act and Rule 144A
promulgated under the Securities Act. Accordingly, the Old Notes may not be
reoffered, resold or otherwise pledged, hypothecated or transferred in the
United States unless so registered or unless an applicable exemption from the
registration requirements of the Securities Act is available. Based upon its
view of interpretations provided to third parties by the Staff (the "Staff")
of the Securities and Exchange Commission (the "Commission"), the Company
believes that the Exchange Notes issued pursuant to the Exchange Offer in
exchange for the Old Notes may be offered for resale, resold and otherwise
transferred by holders thereof (other than any holder that is (i) an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act (an "Affiliate"), (ii) a broker-dealer who acquired Old Notes directly
from the Company or (iii) a broker-dealer who acquired Old Notes as a result
of market-making or other trading activities) without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided that such Exchange Notes are acquired in the ordinary course of such
holders' business and such holders are not engaged in, and do not intend to
engage in, and have no arrangement or understanding with any person to
participate in, a distribution of such Exchange Notes. Each broker-dealer that
receives Exchange Notes for its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a prospectus in connection with any
resale of Exchange Notes. The Letter of Transmittal that is filed as an
exhibit to the Registration Statement of which this Prospectus is a part (the
"Letter of Transmittal") states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. Broker-dealers who
acquired Old Notes as a result of market-making or other trading activities
may use this Prospectus, as supplemented or amended, in connection with
resales of Exchange Notes. The Company has agreed that, for a period of 180
days after the Exchange Date (as defined), it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. Any
holder who tenders in the Exchange Offer for the purpose of participating in a
distribution of the Exchange Notes and any other holder that cannot rely upon
interpretations of the Staff must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction.
Old Notes initially purchased by qualified institutional buyers and
institutional accredited investors were initially represented by a single,
global Old Note in registered form, registered in the name of a nominee of The
Depository Trust Company ("DTC"), as depository. The Exchange Notes exchanged
for Old Notes represented by the global Old Note will be represented by one or
more global Exchange Notes in registered form, registered in the name of the
nominee of DTC. See "Book-Entry; Delivery and Form." Exchange Notes issued to
persons other than qualified institutional buyers and institutional accredited
investors in exchange for Old Notes held by such investors will be issued only
in certificated, fully registered, definitive form. Except as described
herein, Exchange Notes in definitive certificated form will not be issued in
exchange for the global Old Note or interests therein.
The Old Notes and the Exchange Notes constitute new issues of securities
with no established public trading market. Any Old Notes not tendered and
accepted in the Exchange Offer will remain outstanding. To the extent that Old
Notes are not tendered or are tendered but are not accepted in the Exchange
Offer, a holder's ability to sell such Old Notes could be adversely affected.
Following consummation of the Exchange Offer, the holders of any remaining Old
Notes will continue to be subject to the existing restrictions on transfer
thereof and the Company will have no further obligation to such holders to
provide for the registration under the Securities Act of the Old Notes except
under certain limited circumstances. See "Old Notes Registration Rights;
Additional Interest." No assurance can be given as to the liquidity of the
trading market for the Old Notes or the Exchange Notes. The Old Notes are not
listed on any securities exchange and the Company does not intend to apply for
a listing of the Exchange Notes on a securities exchange.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered or accepted for exchange. The Exchange
Offer will expire at 5:00 p.m., New York City time, on March 6, 1997, unless
extended (the "Expiration Date"). The date of acceptance for exchange of the
Old Notes (the "Exchange Date") will be the first business day following the
Expiration Date, upon surrender of the Old Notes. Old Notes tendered pursuant
to the Exchange Offer may be withdrawn at any time prior to the Expiration
Date; otherwise such tenders are irrevocable.
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all expenses incident to the Exchange Offer.
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AVAILABLE INFORMATION
The Company and the Subsidiary Guarantors have filed with the Commission a
Registration Statement on Form S-1 (together with all amendments, exhibits,
schedules and supplements thereto, the "Registration Statement") under the
Securities Act with respect to the Exchange Notes being offered hereby. This
Prospectus, which forms a part of the Registration Statement, does not contain
all of the information set forth in the Registration Statement, certain items
of which are omitted as permitted by the rules and regulations of the
Commission. For further information with respect to the Company, the
Subsidiary Guarantors and the Exchange Notes, reference is hereby made to the
Registration Statement. Statements contained in this Prospectus as to the
contents of any contract or other document are not necessarily complete and,
where such contract or other document is an exhibit to the Registration
Statement, each such statement is qualified in all respects by the provisions
in such exhibit, to which reference is hereby made.
The Company is subject to the reporting 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
may be inspected by anyone without charge 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. Copies of such material may also
be obtained at the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, upon payment of prescribed fees. 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 Company's common stock is traded on the New York Stock Exchange.
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.
In the event that the Company ceases to be subject to the reporting
requirements of the Exchange Act, the Company has agreed that, so long as the
Exchange Notes remain outstanding, it will file with the Commission and
distribute to holders of the Exchange Notes copies of the financial
information that would have been contained in annual reports and quarterly
reports, including management's discussion and analysis of financial condition
and results of operations, that the Company would have been required to file
with the Commission pursuant to the Exchange Act. Such financial information
shall include annual reports containing consolidated financial statements and
notes thereto, together with an opinion thereon expressed by an independent
public accounting firm, as well as quarterly reports containing unaudited
condensed consolidated financial statements for the first three quarters of
each fiscal year.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. The terms "Company" or "ICF Kaiser" in this
Prospectus may refer to ICF Kaiser International, Inc. and/or any of its
consolidated subsidiaries. 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, program management and consulting services companies. The
Company's Federal Programs, Engineers and Consulting Groups provide fully
integrated services to domestic and foreign clients in the private and public
sectors of the environment, infrastructure and basic metals and mining industry
markets. For the latest nine-month period ended September 30, 1996, ICF Kaiser
had gross and service revenue of $1,023.4 million and $433.6 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. As of November 30, 1996, the Company employed 5,176 people located
in more than 80 offices worldwide.
In the environmental market, the Company 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 is well-positioned to take advantage of the growing market arising from
the increased awareness internationally of the need for additional and/or
initial environmental regulations, studies and remediation.
ICF Kaiser also provides services to the infrastructure market. This market
is driven by the need to maintain and expand, among other things, ports, roads,
highways, mass transit systems and airports. Increasingly, environmental
concerns, such as wastewater treatment and reducing automotive air pollutant
emissions, are a driving force behind new infrastructure and transportation
initiatives. The Company has capitalized on its specialized technical and
environmental skills to win projects that provide consulting, planning, design
and construction services. Internationally, there is a critical need for
infrastructure projects where population growth of major cities has been and
will continue to be extremely high. The Company currently provides engineering
and construction management services for mass transit and wastewater treatment
facilities in many such major cities worldwide.
ICF Kaiser assists its basic metals and mining industry clients by providing
the engineering and construction skills needed to maintain and retrofit
existing plants and replace aging production capacity with newer, more
efficient and more environmentally responsible facilities. The Company's
engineering and construction skills, as well as its access to process
technologies, have helped establish it as a worldwide leader in serving the
basic metals and mining industries, especially aluminum and steel. ICF Kaiser
is currently expanding its operations internationally, particularly engineering
and construction management services related to alumina production from
bauxite, aluminum smelting and other basic industry facilities.
The Company is currently working on several large, highly visible projects,
including, but not limited to, (i) a five-year contract at the U.S. Department
of Energy's Rocky Flats Environmental Technology site near Golden, Colorado,
(ii) a two-year contract with Nova Hut, an integrated steel maker based in the
Czech Republic, (iii) two four-year Total Environmental Restoration Contracts
("TERC") to perform environmental restoration work at federal installations for
the U.S. Army Corps of Engineers, (iv) a five-year construction management
contract
1
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for the Boston Harbor wastewater treatment facility and (v) a three-year
contract as the project manager at the light rail transit system in Manila.
ICF Kaiser International, Inc. was incorporated in Delaware 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. The
Company's headquarters is located at 9300 Lee Highway, Fairfax, Virginia 22031-
1207, telephone number (703) 934-3600.
THE EXCHANGE OFFER
The Company is offering to exchange (the "Exchange
The Exchange Offer........ Offer") up to $15,000,000 aggregate principal
amount of its 12% Senior Notes due 2003, Series B
(the "Exchange Notes"), for up to $15,000,000 ag-
gregate principal amount of its outstanding 12% Se-
nior Notes due 2003, Series A, that were issued and
sold in a transaction exempt from registration un-
der the Securities Act (the "Old Notes" and to-
gether with the Exchange Notes, the "Notes"). The
form and terms of the Exchange Notes are substan-
tially identical (including principal amount, in-
terest rate, maturity, security and ranking) to the
form and terms of the Old Notes for which they may
be exchanged pursuant to the Exchange Offer, except
that the Exchange Notes are freely transferable by
holders thereof except as provided herein (see "The
Exchange Offer--Terms of the Exchange" and "--Terms
and Conditions of the Letter of Transmittal") and
are not entitled to certain registration rights and
certain additional interest provisions that are ap-
plicable to the Old Notes under a registration
rights agreement dated as of December 23, 1996 (the
"Registration Rights Agreement") between the Com-
pany and BT Securities Corporation as initial pur-
chaser (the "Initial Purchaser") of the Old Notes.
Exchange Notes issued pursuant to the Exchange Of-
fer in exchange for the Old Notes may be offered
for resale, resold or otherwise transferred by
holders thereof (other than any holder that is (i)
an Affiliate of the Company, (ii) a broker-dealer
who acquired Old Notes directly from the Company or
(iii) a broker-dealer who acquired Old Notes as a
result of market-making or other trading activi-
ties), without compliance with the registration and
prospectus delivery provisions of the Securities
Act, provided that such Exchange Notes are acquired
in the ordinary course of such holders' business
and such holders are not engaged in, and do not in-
tend to engage in, and have no arrangement or un-
derstanding with any person to participate in, a
distribution of such Exchange Notes.
Minimum Condition......... The Exchange Offer is not conditioned upon any min-
imum aggregate amount of Old Notes being tendered
or accepted for exchange.
Expiration Date...........
The Exchange Offer will expire at 5:00 p.m., New
York City time, of March 6, 1997, unless extended
(the "Expiration Date").
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Exchange Date............. The first date of acceptance for exchange for the
Old Notes will be the first business day following
the Expiration Date.
Conditions to the
Exchange Offer........... The obligation of the Company to consummate the Ex-
change Offer is subject to certain conditions. See
"The Exchange Offer--Conditions to the Exchange Of-
fer." The Company reserves the right to terminate
or amend the Exchange Offer at any time prior to
the Expiration Date upon the occurrence of any such
condition.
Withdrawal Rights......... Tenders of Old Notes pursuant to the Exchange Offer
may be withdrawn at any time prior to the Expira-
tion Date. Any Old Notes not accepted for any rea-
son will be returned without expense to the
tendering holders thereof as promptly as practica-
ble after the expiration or termination of the Ex-
change Offer.
Procedures for Tendering
Old Notes................. See "The Exchange Offer--How to Tender."
Federal Income Tax
Consequences.............. The exchange of Old Notes for Exchange Notes by
tendering holders will not be a taxable exchange
for federal income tax purposes, and such holders
should not recognize any taxable gain or loss as a
result of such exchange.
Use of Proceeds........... There will be no cash proceeds to the Company from
the exchange pursuant to the Exchange Offer.
Effect on Holders of Old
Notes..................... As a result of the making of this Exchange Offer,
and upon acceptance for exchange of all validly
tendered Old Notes pursuant to the terms of this
Exchange Offer, the Company will have fulfilled a
covenant contained in the terms of the Old Notes
and the Registration Rights Agreement, and,
accordingly, the holders of the Old Notes will have
no further registration or other rights under the
Registration Rights Agreement, except under certain
limited circumstances. See "Old Notes Registration
Rights; Additional Interest." Holders of the Old
Notes who do not tender their Old Notes in the
Exchange Offer will continue to hold such Old Notes
and will be entitled to all the rights and
limitations applicable thereto under the Indenture.
All untendered, and tendered but unaccepted, Old
Notes will continue to be subject to the
restrictions on transfer provided for in the Old
Notes and the Indenture. To the extent that Old
Notes are tendered and accepted in the Exchange
Offer, the trading market, if any, for the Old
Notes not so tendered could be adversely affected.
See "Risk Factors--Consequences of Failure to
Exchange Old Notes."
3
<PAGE>
TERMS OF THE EXCHANGE NOTES
The Exchange Offer applies to $15,000,000 aggregate principal amount of Old
Notes. The form and terms of the Exchange Notes are substantially identical to
the form and terms of the Old Notes, except that the Exchange Notes have been
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof. The Exchange Notes will evidence the same
debt as the Old Notes and will be entitled to the benefits of the Indenture.
See "Description of the Notes."
Securities Offered........ $15,000,000 of 12% Senior Notes due 2003, Series B
Maturity Date............. December 31, 2003
Interest Rate and Payment
Dates.................... The Exchange Notes will bear interest at a rate of
12% per annum. Interest will accrue from December
31, 1996 and will be paid semiannually on June 30
and December 31 of each year, commencing June 30,
1997.
Temporary Interest Rate
Increase................. The interest rate on the Exchange Notes will be 13%
until (i) the Company achieves and maintains for
two consecutive quarters on a trailing twelve-month
basis $36 million of earnings after deducting mi-
nority interests and before interest, taxes, depre-
ciation and amortization calculated in accordance
with generally accepted accounting principles
("Earnings") or (ii) March 31, 1998, provided that
the Company's Earnings are $36 million as of that
date on a trailing twelve-month basis. If the
Company's Earnings are not $36 million as of that
date on a trailing twelve-month basis, then the in-
terest rate will continue at 13% until the
Company's Earnings are $36 million for one quarter
on a trailing twelve-month basis. See "Description
of the Notes--Interest Rate Increase."
Optional Redemption....... The Exchange Notes are redeemable, in whole or in
part, at the option of the Company on or after De-
cember 31, 1998 at the redemption prices set forth
herein, plus accrued and unpaid interest thereon,
if any, to the redemption date.
Change of Control......... In the event of a Change of Control, the Company
will be required to offer to purchase all of the
outstanding Exchange Notes at 101% of the principal
amount thereof, plus accrued and unpaid interest
thereon, if any, to the date of purchase. See "De-
scription of the Notes--Change of Control."
Ranking................... The Exchange Notes will be unsecured obligations of
the Company, will rank senior to all subordinated
indebtedness of the Company and will rank pari
passu in right of payment with all existing and fu-
ture senior indebtedness of the Company, including
the Old Notes and indebtedness under the Credit Fa-
cility (as defined).
Guarantees................ The Exchange Notes will be unconditionally guaran-
teed by the Subsidiary Guarantors.
Certain Covenants......... The Indenture contains certain covenants that,
among other things, limit: (i) the incurrence of
additional indebtedness by the Company and its
4
<PAGE>
Restricted Subsidiaries (as defined); (ii) the pay-
ment of dividends; (iii) the repurchase of capital
stock or subordinated indebtedness; (iv) the making
of certain other distributions, loans and invest-
ments; (v) the sale of assets and the sale of the
stock of Restricted Subsidiaries; (vi) the creation
of restrictions on the ability of Restricted Sub-
sidiaries to pay dividends or make other payments
to the Company; and (vii) the ability of the Com-
pany and its Restricted Subsidiaries to enter into
certain transactions with affiliates or to merge,
consolidate or transfer substantially all assets.
All of these limitations and restrictions are sub-
ject to a number of important qualifications and
exceptions. See "Description of the Notes--Certain
Covenants."
For additional information regarding the Exchange Notes, see "Description of
the Notes."
EXCHANGE OFFER; REGISTRATION RIGHTS; ADDITIONAL INTEREST
Pursuant to the Registration Rights Agreement, the Company has agreed (i) to
file the Registration Statement on or prior to February 6, 1997 with respect to
the Exchange Offer, (ii) to use its best efforts to cause the Registration
Statement to become effective under the Securities Act on or prior to April 27,
1997 and (iii) to use its best efforts to consummate the Exchange Offer on or
prior to June 11, 1997. In the event that applicable interpretations of the
Staff do not permit the Company to effect the Exchange Offer, or if for any
reason the Exchange Offer is not consummated, the Company will use its best
efforts to cause to become effective a shelf registration statement with
respect to the resale of the Old Notes and to keep such shelf registration
statement effective until December 23, 1999.
The Company will be obligated to pay additional interest as liquidated
damages to holders of the Old Notes under certain circumstances if the Company
is not in compliance with its obligations under the Registration Rights
Agreement. See "Old Notes Registration Rights; Additional Interest."
RISK FACTORS
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED PRIOR TO MAKING A DECISION WITH RESPECT TO THE EXCHANGE OFFER.
5
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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
The summary historical 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 historical
consolidated financial data of the Company as of September 30, 1995 and 1996
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
ended 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 data for the nine months ended
September 30, 1995 and 1996 set forth below are unaudited.
<TABLE>
<CAPTION>
TEN MONTHS NINE MONTHS ENDED
YEAR ENDED FEBRUARY 28 OR 29, ENDED SEPTEMBER 30,
------------------------------------- DECEMBER 31, --------------------
1992(1) 1993 1994(2) 1995 1995 1995 1996
-------- -------- -------- -------- ------------ -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Gross revenue........... $710,873 $678,882 $651,657 $861,518 $916,744 $731,795 $1,023,410
Service revenue (3)..... 385,942 391,528 382,708 459,786 425,896 357,582 433,647
Unusual income
(expense), net......... (67,054) 50 (8,709) -- 500 -- --
Operating income
(loss)................. (43,963) 22,744 (5,230) 13,688 17,505 13,171 21,170
Interest expense, net... 10,347 6,921 6,722 13,000 11,202 10,629 11,885
Income (loss) before
income taxes, minority
interests, and
extraordinary item..... (54,310) 14,894 (12,877) 1,239 6,303 2,542 9,285
Income tax provision
(benefit).............. (13,794) 6,255 (349) 2,900 2,091 1,300 840
Minority interests...... -- -- -- -- 1,960 1,315 4,725
Extraordinary loss on
early extinguishment of
debt................... -- -- 5,969 -- -- -- --
Net income (loss)....... (40,516) 8,639 (18,497) (1,661) 2,252 (73) 3,720
Preferred stock
dividends and
accretion.............. 2,416 5,293 4,896 2,154 1,803 1,616 1,631
Redemption of preferred
stock.................. -- -- 1,929 -- -- -- --
Net income (loss)
available for common
shareholders........... (42,932) 3,346 (25,322) (3,815) 449 (1,689) 2,089
BALANCE SHEET DATA (END
OF PERIOD):
Working capital......... $ 65,623 $ 85,861 $ 87,648 $ 91,640 $ 84,589 $ 84,422 $ 102,009
Total assets............ 318,947 293,076 281,198 281,422 369,517 373,074 374,535
Total indebtedness...... 86,332 74,391 123,042 127,311 125,153 121,561 133,384
Redeemable preferred
stock.................. 45,161 44,824 20,212 19,617 19,787 19,736 19,940
Shareholders' equity.... 51,151 58,521 30,780 27,624 28,427 27,690 33,192
OTHER DATA:
EBITDA (4).............. $ 32,250 $ 33,460 $ 13,038 $ 22,920 $ 23,402 $ 19,182 $ 24,285
Capital expenditures.... 3,644 4,638 1,388 2,426 1,759 1,720 4,905
Depreciation and
amortization........... 9,159 10,766 9,559 9,232 8,357 7,326 7,840
Ratio of earnings to
fixed charges (5)...... N/A 1.8x N/A 1.0x 1.2x 1.1x 1.2x
</TABLE>
- --------
(1) Fiscal year 1992 reflects an after-tax charge of $52.4 million associated
with the disposal and restructuring of certain businesses.
(2) In fiscal year 1994, the Company adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other
than Pensions."
(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.
(4) EBITDA represents operating income (loss), excluding unusual items, plus
depreciation and amortization minus minority interests. Management believes
that EBITDA is generally accepted as providing useful information regarding
a company's ability to service and/or incur debt. EBITDA should not be
considered in isolation or as a substitute for net income, cash flows or
other consolidated income or cash flow data prepared in accordance with
generally accepted accounting principles or as a measure of a company's
profitability or liquidity.
(5) The ratio of earnings to fixed charges is calculated by dividing income
from continuing operations before fixed charges and income taxes
("earnings") by fixed charges. Fixed charges consist of interest expense
and that portion of rental expense that the Company believes to be
representative of interest. In the years ended February 29, 1992 and
February 28, 1994, earnings, as defined, were inadequate to cover fixed
charges. The deficiencies were $54.3 million and $12.9 million for the
years ended February 29, 1992 and February 28, 1994, respectively.
6
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, before
tendering their Old Notes for the Exchange Notes offered hereby, holders of
Old Notes should consider carefully the following factors, which may be
generally applicable to the Old Notes as well as to the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes, as set forth in the legend thereon, as a
consequence of the issuance of the Old Notes pursuant to the exemptions from,
or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old Notes
may not be offered or sold, unless registered under the Securities Act and
applicable state securities laws, or pursuant to an exemption therefrom.
Except under certain limited circumstances, the Company does not intend to
register the Old Notes under the Securities Act. In addition, any holder of
Old Notes who tenders in the Exchange Offer for the purpose of participating
in a distribution of the Exchange Notes may be deemed to have received
restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. To the extent Old Notes are tendered
and accepted in the Exchange Offer, the trading market, if any, for the Old
Notes not so tendered could be adversely affected. See "The Exchange Offer"
and "Old Notes Registration Rights; Additional Interest."
COMPANY IS HIGHLY LEVERAGED
On a pro forma basis, at September 30, 1996, assuming the issuance of the
Old Notes, borrowings under the Credit Facility and application of the net
proceeds therefrom, the Company would have had total indebtedness of $153.9
million, representing 82.4% of total capitalization. Effective March 8, 1996,
the Company agreed to increase the interest rate on the Company's 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
(as such Indenture has been and may be amended, restated, supplemented or
otherwise modified from time to time, the "Existing Indenture") governing the
Existing Notes. The Indenture governing the Notes contains an identical
increased interest rate provision.
The degree to which the Company is leveraged could have important
consequences to holders of the Notes, 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; (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; and (v) the level of the Company's leverage may make it
more difficult for the Company to obtain performance and similar bonds. The
ability of the Company to pay interest and principal on the 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
7
<PAGE>
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 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 $30.8
million.
<TABLE>
<CAPTION>
TEN MONTHS NINE MONTHS
YEAR ENDED FEBRUARY 28 OR 29, ENDED ENDED
---------------------------------- DECEMBER 31, SEPTEMBER 30,
1992 1993 1994 1995 1995 1996
-------- ------ -------- ------- ------------ -------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net income (loss)....... $(40,516) $8,639 $(18,497) $(1,661) $2,252 $3,720
Net income (loss)
available for common
shareholders........... (42,932) 3,346 (25,322) (3,815) 449 2,089
</TABLE>
RECENT AND ANTICIPATED RESULTS
For the three months ended September 30, 1996, the Company's operating
income decreased $2.8 million from the corresponding period in 1995, primarily
due to a decrease in operating income from engineering and construction
operations. The Company's service revenue and operating results for the fourth
quarter will be significantly lower than the third quarter. For the nine
months ended September 30, 1996, the Company's Federal Programs Group had
significant increases in costs associated with marketing activities in pursuit
of large-scale projects, including approximately $2.1 million in 1996
associated with the Company's unsuccessful recompete bid on the U.S.
Department of Energy's ("DOE") proposal at its Hanford site ("Hanford") and
significant costs associated with other DOE proposals. In August 1996, the
Company was informed that it was unsuccessful in its bid for the DOE's new
management and integration contract at Hanford. The Company's existing
contract at Hanford, the operating income from which has been significant to
the Company's results, was set to expire in March 1997, and effectively was
terminated by DOE on October 1, 1996. Management believes the impact on
earnings due to the closeout of the Hanford contract will be material in the
fourth quarter of 1996. Management also believes the impact on earnings due to
the closeout of the Hanford contract will be material in future periods,
unless replaced with new contracts or offset by savings from the Company's on-
going cost reduction program. There can be no assurance, however, that the
Company will be able to enter into new contracts or achieve cost savings that
will, in the aggregate, totally offset the effect of the loss of the Hanford
contract. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
In March 1996, the Company and Nova Hut, an integrated steel maker based in
the Ostrava region of the Czech Republic, signed a two-year $102 million
contract to provide engineering and construction services for the initial
phase of a mini-mill project. The Company is currently negotiating a contract
with Nova Hut for the next phase of the mini-mill project and expects to
complete negotiations in the first quarter of 1997. If negotiations are
successful, anticipated earnings associated with this contract for the next
phase of work are expected to be material to the Company's operating results.
There can be no assurance, however, that such negotiations will be completed.
The Company has sold (the "Disposition") its interest in entities owning and
operating a pulverized coal injection facility in Indiana ("PCI"). Although
the sale will result in a gain in the fourth quarter of 1996, the negative
effect of the sale in future periods on earnings and cash flows will be
significant. See "Unaudited Pro Forma Consolidated Financial Statements."
8
<PAGE>
LIMITED ABILITY TO INCUR ADDITIONAL DEBT
Excluding borrowings under the Credit Facility, the Existing Indenture and
the Indenture (together, the "Indentures") limit the Company's ability to
incur additional Indebtedness (as defined). The amount of available additional
indebtedness may be insufficient for working capital needs, potential
acquisitions, significant capital expenditures, repayment of debt or other
purposes. See "Description of the Notes--Certain Covenants--Limitations on
Additional Indebtedness" and "Description of 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. Government. During the ten months ended
December 31, 1995, the 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.
The Company's existing contract at Hanford effectively was 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 in future
periods, unless replaced with new contracts and/or cost reductions. 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. See "--Recent and Anticipated Results."
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 or task orders under existing 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.
RISK ASSOCIATED WITH COMPANY'S PLEDGE OF ASSETS
The Company and most of its subsidiaries have granted a security interest in
substantially all of their accounts receivable and certain other assets to
secure all debt incurred pursuant to the Credit Facility. The Company would
not be able to incur additional debt (including additional debt permitted by
the Indentures) if
9
<PAGE>
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 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 Indentures limit the Company's ability to make
restricted payments, including certain payments in connection with investments
and acquisitions. Limitations in the Existing Indenture are based in part on
the Company's 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 this limitation very restrictive.
The indebtedness, investment, acquisitions and restricted payments
limitations in the Credit Facility and the Indentures discussed above mean
that during the next several years it likely will be necessary for the Company
to issue additional equity securities to fund any significant acquisitions and
to invest significant amounts in joint ventures. These limitations may make it
more difficult for the Company to compete effectively in its markets.
FRAUDULENT CONVEYANCE LAWS
The incurrence by the Company of indebtedness such as the Notes may be
subject to review under relevant state and federal fraudulent conveyance laws
if a bankruptcy case or lawsuit is commenced on behalf of unpaid creditors of
the Company. Under these statutes, if a court were to find that (i) the Notes
were incurred with the intent of hindering, delaying or defrauding creditors
or that the Company received less than a reasonably equivalent value or fair
consideration for the Notes and (ii) at the time the Notes were issued, the
Company was insolvent, was rendered insolvent by the issuance of the Notes,
was engaged in a business or transaction for which the assets remaining with
the Company constituted unreasonably small capital, or intended to incur, or
believed that it would incur, debts beyond its ability to pay such debts as
they matured, such court could void the Company's obligations under the Notes,
or subordinate the Notes to all other indebtedness of the Company. In that
event, there would be no assurance that any repayment on the Notes would ever
by recovered by holders of the Notes. The measure of insolvency for purposes
of the foregoing would vary depending upon the law of the jurisdiction which
is being applied. Generally, however, the Company would be considered to have
been insolvent at the time the Notes were issued if the sum of its debts was
then greater than all of its property at a fair valuation, or if the then fair
saleable value of its assets was less than the amount that was then required
to pay its probable liability on its existing debts as they become absolute
and matured. There can be no assurance as to what standard a court would apply
in order to determine whether the Company was "insolvent" as of the date the
Notes were issued, or that, regardless of the method of valuation, a court
would not determine that the Company was insolvent on that date. Nor can there
be any assurance that a court would not determine, regardless of whether the
Company was insolvent on the date the Notes were issued, that the payments
constituted fraudulent transfers on another of the grounds listed above.
LIMITATIONS ON CHANGE OF CONTROL
In the event of a Change of Control, the Company would be required, subject
to certain conditions, to offer to purchase all outstanding Existing Notes and
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
of the Existing Notes and 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 and Notes. The terms of
the Credit Facility prohibit the optional payment or prepayment or any
redemption of the Existing Notes and Notes. If, following a Change of Control,
the Company has insufficient funds to purchase all the Existing Notes and
Notes tendered pursuant to such an offer, 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. See "Description of the Notes--Change of Control."
10
<PAGE>
The Company's 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.
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.
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
11
<PAGE>
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 response
actions under Superfund, a program established under CERCLA to clean up
hazardous waste sites and provide for penalties and punitive damages for
noncompliance with EPA orders, 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 ("Kaiser Hill") (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 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.
MARKET FOR COMPANY'S SERVICES HIGHLY COMPETITIVE
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. See "Business--Competition and
Contract Award Process."
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.
12
<PAGE>
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.
ABSENCE OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The Exchange Notes are being offered to the holders of the Old Notes. The
Old Notes were offered and sold in December 1996 to a small number of
institutional and accredited investors and are eligible for trading in the
Private Offerings, Resale and Trading through Automated Linkages ("PORTAL")
Market.
The Company does not intend to apply for a listing of the Exchange Notes on
a securities exchange. There is currently no established market for the
Exchange Notes and there can be no assurance as to the liquidity of markets
that may develop for the Exchange Notes, the ability of the holders of the
Exchange Notes to sell their Exchange Notes or the price at which such holders
would be able to sell their Exchange Notes. If such markets were to exist, the
Exchange Notes could trade at prices that may be lower than the initial market
values thereof, depending on many factors, including prevailing interest
rates, the markets for similar securities, and the financial performance of
the Company. The Initial Purchaser has made a market for the Old Notes.
Although there is currently no market for the Exchange Notes, the Initial
Purchaser has advised the Company that it currently intends to make a market
in the Exchange Notes. However, the Initial Purchaser is not obligated to do
so, and any such market making with respect to the Old Notes or the Exchange
Notes may be discontinued at any time without notice. In addition, such
market-making activities will be subject to the limits imposed by the
Securities Act and the Exchange Act and may be limited during the Exchange
Offer or the pendency of an applicable Shelf Registration Statement (as
defined).
The liquidity of, and trading market for, the Exchange Notes also may be
adversely affected by general declines in the market for similar securities.
Such a decline may adversely affect such liquidity and trading markets
independent of the financial performance of, and prospects for, the Company.
ORIGINAL ISSUE DISCOUNT
The Old Notes were issued with original issue discount. Consequently,
holders of Exchange Notes will have income for tax purposes arising from such
original issue discount prior to the actual receipt of cash in respect of such
income. See "Certain Federal Income Tax Considerations" for a more detailed
discussion of the federal income tax consequences to the holders of the
Exchange Notes of the exchange of Old Notes for Exchange Notes and the
ownership and disposition of the Exchange Notes.
If a bankruptcy case is commenced by or against the Company under the United
States Bankruptcy Code (the "Bankruptcy Code"), the claim of a holder of any
of the Notes with respect to the principal amount thereof may be limited to an
amount equal to the sum of (i) the initial offering price allocable to the Old
Notes and (ii) that portion of the original issue discount that is not deemed
to constitute "unmatured interest" for purposes of the Bankruptcy Code. Any
original issue discount that was not amortized as of any such bankruptcy
filing would constitute "unmatured interest."
USE OF PROCEEDS
There will be no cash proceeds to the Company resulting from the Exchange
Offer.
The Company used the net proceeds received from the sale of the Old Notes to
repurchase a portion of the Company's Series 2D Senior Preferred Stock having
an aggregate liquidation preference of $20.0 million. The balance of the
Series 2D Senior Preferred Stock was repurchased using borrowings under the
Credit Facility. See "Unaudited Pro Forma Consolidated Financial Statements."
13
<PAGE>
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The sole purpose of the Exchange Offer is to fulfill the obligations of the
Company under the Registration Rights Agreement with respect to the
registration of the Old Notes.
The Old Notes originally were issued and sold on December 23, 1996 (the
"Issue Date"). Such sales were not registered under the Securities Act in
reliance upon the exemption provided by Section 4(2) of the Securities Act and
Rule 144A promulgated under the Securities Act. In connection with the sale of
the Old Notes, the Company agreed to file with the Commission the Registration
Statement, pursuant to which the Exchange Notes, consisting of another series
of senior notes of the Company covered by such Registration Statement and
containing substantially identical terms to the Old Notes, except as set forth
in this Prospectus, would be offered in exchange for Old Notes tendered at the
option of the holders thereof. If (i) because of any change in law or in
currently prevailing interpretations of the Staff of the Commission the
Company is not permitted to effect the Exchange Offer, (ii) the Exchange Offer
is not consummated within 180 days of the Issue Date, (iii) in certain
circumstances, after the consummation of the Exchange Offer, the Initial
Purchaser continues to hold Exchange Notes and so requests, (iv) the holders
of not less than a majority in aggregate principal amount of the Old Notes
determine that the interests of the holders would be materially adversely
affected by consummation of the Exchange Offer or (v) in the case of any
holder of Old Notes that participates in the Exchange Offer, such holder does
not receive Exchange Notes on the date of the exchange that may be sold
without restriction under state and federal securities laws (other than due
solely to the status of such holder as an Affiliate of the Company), then the
Company will file with the Commission a registration statement (the "Shelf
Registration Statement") to cover resales of the Old Notes by the holders
thereof who satisfy certain conditions relating to the provision of
information in connection with the Shelf Registration Statement. In the event
that (i) the Company fails to file the Registration Statement, (ii) the
Registration Statement or, if applicable, the Shelf Registration Statement, is
not declared effective by the Commission or (iii) the Exchange Offer is not
consummated or the Shelf Registration Statement ceases to be effective, in
each case within specified time periods, the interest rate borne by the Old
Notes will be increased. See "Old Notes Registration Rights; Additional
Interest."
TERMS OF THE EXCHANGE
The Company hereby offers to exchange, upon the terms and subject to the
conditions set forth herein and in the Letter of Transmittal accompanying the
Registration Statement of which this Prospectus is a part, $1,000 in principal
amount of Exchange Notes for each $1,000 in principal amount of Old Notes. The
terms of the Exchange Notes are substantially identical to the terms of the
Old Notes for which they may be exchanged pursuant to this Exchange Offer,
except that the Exchange Notes generally will be freely transferable by
holders thereof, and the holders of the Exchange Notes (as well as remaining
holders of any Old Notes) are not entitled to certain registration rights and
certain additional interest provisions that are applicable to the Old Notes
under the Registration Rights Agreement. The Exchange Notes will evidence the
same debt as the Old Notes and will be entitled to the benefits of the
Indenture. See "Description of the Notes."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered or accepted for exchange.
Based on its view of interpretations set forth in no-action letters issued
by the Staff to third parties, the Company believes that Exchange Notes issued
pursuant to the Exchange Offer in exchange for the Old Notes may be offered
for resale, resold and otherwise transferred by holders thereof (other than
any holder that is (i) an Affiliate of the Company, (ii) a broker-dealer who
acquired Old Notes directly from the Company or (iii) a broker-dealer who
acquired Old Notes as a result of market making or other trading activities)
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such Exchange Notes are acquired in the
ordinary course of such holders' business, and such holders are not engaged
in, and do not intend to engage in, and have no arrangement or understanding
with any person to participate in, a
14
<PAGE>
distribution of such Exchange Notes. Any broker-dealer that resells Exchange
Notes that were received by it for its own account pursuant to the Exchange
Offer and any broker or dealer that participates in a distribution of such
Exchange Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of Exchange Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. Broker-dealers who
acquired Old Notes as a result of market-making or other trading activities
may use this Prospectus, as supplemented or amended, in connection with
resales of the Exchange Notes. The Company has agreed that, for a period of
180 days after the Exchange Date, it will make this Prospectus available to
any broker-dealer for use in connection with any such resale. Any holder who
tenders in the Exchange Offer for the purpose of participating in a
distribution of the Exchange Notes or any other holder that cannot rely upon
such interpretations must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction.
Tendering holders of Old Notes will not be required to pay brokerage
commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of the Old Notes
pursuant to the Exchange Offer.
The Exchange Notes will bear interest from December 31, 1996. Holders of Old
Notes whose Old Notes are accepted for exchange will be deemed to have waived
the right to receive any payment in respect of interest on the Old Notes
accrued from December 31, 1996 to the date of the issuance of the Exchange
Notes. Interest on the Exchange Notes is payable semiannually in arrears on
June 30 and December 31 of each year, commencing June 30, 1997, accruing from
December 31, 1996 at a rate of 12% per annum, subject to a temporary interest
rate increase to 13% until the occurrence of certain events. See "Description
of the Notes--Interest Rate Increase."
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer expires on the Expiration Date. The term "Expiration
Date" means 5:00 p.m., New York City time, on March 6, 1997 unless the Company
in its sole discretion extends the period during which the Exchange Offer is
open, in which event the term "Expiration Date" means the latest time and date
on which the Exchange Offer, as so extended by the Company, expires. The
Company reserves the right to extend the Exchange Offer at any time and from
time to time prior to the Expiration Date by giving written notice to Bankers
Trust Company (the "Exchange Agent") and by timely public announcement
communicated by no later than 5:00 p.m. on the next business day following the
Expiration Date, unless otherwise required by applicable law or regulation, by
making a release to the Dow Jones News Service. During any extension of the
Exchange Offer, all Old Notes previously tendered pursuant to the Exchange
Offer will remain subject to the Exchange Offer.
The initial Exchange Date will be the first business day following the
Expiration Date. The Company expressly reserves the right to (i) terminate the
Exchange Offer and not accept for exchange any Old Notes for any reason,
including if any of the events set forth below under "Conditions to the
Exchange Offer" shall have occurred and shall not have been waived by the
Company and (ii) amend the terms of the Exchange Offer in any manner, whether
before or after any tender of the Old Notes. If any such termination or
amendment occurs, the Company will notify the Exchange Agent in writing and
will either issue a press release or give written notice to the holders of the
Old Notes as promptly as practicable. Unless the Company terminates the
Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date,
the Company will exchange the Exchange Notes for Old Notes on the Exchange
Date.
This Prospectus and the related Letter of Transmittal and other relevant
materials will be mailed by the Company to record holders of Old Notes and
will be furnished to brokers, banks and similar persons whose names, or the
names of whose nominees, appear on the lists of holders for subsequent
transmittal to beneficial owners of Old Notes.
15
<PAGE>
HOW TO TENDER
The tender to the Company of Old Notes by a holder thereof pursuant to one
of the procedures set forth below will constitute an agreement between such
holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
General Procedures
A holder of an Old Note may tender the same by (i) properly completing and
signing the Letter of Transmittal or a facsimile thereof (all references in
this Prospectus to the Letter of Transmittal shall be deemed to include a
facsimile thereof) and delivering the same, together with the certificate or
certificates representing the Old Notes being tendered and any required
signature guarantees (or a timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") pursuant to the procedure described below), to the
Exchange Agent at its address set forth on the back cover of this Prospectus
on or prior to the Expiration Date or (ii) complying with the guaranteed
delivery procedures described below.
If tendered Old Notes are registered in the name of the signer of the Letter
of Transmittal and the Exchange Notes to be issued in exchange therefor are to
be issued (and any untendered Old Notes are to be reissued) in the name of the
registered holder, the signature of such signer need not be guaranteed. In any
other case, the tendered Old Notes must be endorsed or accompanied by written
instruments of transfer in form satisfactory to the Company and duly executed
by the registered holder and the signature on the endorsement or instrument of
transfer must be guaranteed by a bank, broker, dealer, credit union, savings
association, clearing agency or other institution (each an "Eligible
Institution") that is a member of a recognized signature guarantee medallion
program within the meaning of Rule 17Ad-15 under the Exchange Act. If the
Exchange Notes and/or Old Notes not exchanged are to be delivered to an
address other than that of the registered holder appearing on the note
register for the Old Notes, the signature on the Letter of Transmittal must be
guaranteed by an Eligible Institution.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender Old Notes should contact such holder promptly and instruct such holder
to tender Old Notes on such beneficial owner's behalf. If such beneficial
owner wishes to tender such Old Notes itself, such beneficial owner must,
prior to completing and executing the Letter of Transmittal and delivering
such Old Notes, either make appropriate arrangements to register ownership of
the Old Notes in such beneficial owner's name or follow the procedures
described in the immediately preceding paragraph. The transfer of record
ownership may take considerable time.
Book-Entry Transfer
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at DTC (the "Book-Entry Transfer Facility") for purposes of
the Exchange Offer within two business days after receipt of this Prospectus,
and any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with the
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the Book-
Entry Transfer Facility, the Letter of Transmittal, with any required
signature guarantees and any other required documents, must, in any case, be
transmitted to and received by the Exchange Agent at the address specified on
the back cover of this Prospectus on or prior to the Expiration Date or the
guaranteed delivery procedures described below must be complied with.
THE METHOD OF DELIVERY OF OLD NOTES AND ALL OTHER DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, PROPER INSURANCE BE
OBTAINED, AND THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION
DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION
DATE.
16
<PAGE>
Unless an exemption applies under the applicable law and regulations
concerning "backup withholding" of federal income tax, the Exchange Agent will
be required to withhold, and will withhold, 31% of the gross proceeds
otherwise payable to a holder pursuant to the Exchange Offer if the holder
does not provide its taxpayer identification number (social security number or
employer identification number, as applicable) and certify that such number is
correct. Each tendering holder should complete and sign the main signature
form and the Substitute Form W-9 included as part of the Letter of
Transmittal, so as to provide the information and certification necessary to
avoid backup withholding, unless an applicable exemption exists and is proved
in a manner satisfactory to the Company and the Exchange Agent.
Guaranteed Delivery Procedures
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or Old Notes to reach the Exchange Agent before the
Expiration Date, a tender may be effected if the Exchange Agent has received
at its office listed on the Letter of Transmittal on or prior to the
Expiration Date a letter, telegram or facsimile transmission from an Eligible
Institution setting forth the name and address of the tendering holder, the
principal amount of the Old Notes being tendered, the names in which the Old
Notes are registered and, if possible, the certificate numbers of the Old
Notes to be tendered, and stating that the tender is being made thereby and
guaranteeing that within three New York Stock Exchange trading days after the
date of execution of such letter, telegram or facsimile transmission by the
Eligible Institution, the Old Notes, in proper form for transfer, will be
delivered by such Eligible Institution together with a properly completed and
duly executed Letter of Transmittal (and any other required documents). Unless
Old Notes being tendered by the above-described method (or a timely Book-Entry
Confirmation) are deposited with the Exchange Agent within the time period set
forth above (accompanied or preceded by a properly completed Letter of
Transmittal and any other required documents), the Company may, at its option,
reject the tender. Copies of a Notice of Guaranteed Delivery which may be used
by Eligible Institutions for the purposes described in this paragraph are
available from the Exchange Agent.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes (or a timely Book-Entry Confirmation) is received
by the Exchange Agent. Issuances of Exchange Notes in exchange for Old Notes
tendered pursuant to a Notice of Guaranteed Delivery or letter, telegram or
facsimile transmission to similar effect (as provided above) by an Eligible
Institution will be made only against deposit of the Letter of Transmittal
(and any other required documents) and the tendered Old Notes (or a timely
Book-Entry Confirmation).
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Old Notes will be
determined by the Company, whose determination will be final and binding. The
Company reserves the absolute right to reject any or all tenders not in proper
form or the acceptances for exchange of which may, in the opinion of counsel
to the Company, be unlawful. The Company also reserves the absolute right to
waive any of the conditions of the Exchange Offer or any defect or
irregularities in tenders of any particular holder whether or not similar
defects or irregularities are waived in the case of other holders. Neither the
Company, the Exchange Agent nor any other person will be under any duty to
give notification of any defects or irregularities in tenders or shall incur
any liability for failure to give any such notification. The Company's
interpretation of the terms and conditions of the Exchange Offer (including
the Letter of Transmittal and the instructions thereto) will be final and
binding.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Old Notes for exchange (the "Transferor") exchanges,
assigns and transfers the Old Notes to the Company and it revocably
constitutes and appoints the Exchange Agent as the Transferor's agent and
attorney-in-fact to cause the Old Notes to be assigned, transferred and
exchanged. The Transferor represents
17
<PAGE>
and warrants that it has full power and authority to tender, exchange, assign
and transfer the Old Notes and to acquire Exchange Notes issuable upon the
exchange of such tendered Old Notes, and that, when the same are accepted for
exchange, the Company will acquire good and unencumbered title to the tendered
Old Notes, free and clear of all liens, restrictions, charges and encumbrances
and not subject to any adverse claim. The Transferor also warrants that it
will, upon request, execute and deliver any additional documents deemed by the
Company to be necessary or desirable to complete the exchange, assignment and
transfer of tendered Old Notes. The Transferor further agrees that acceptance
of any tendered Old Notes by the Company and the issuance of Exchange Notes in
exchange therefor shall constitute performance in full by the Company of its
obligations under the Registration Rights Agreement and that the Company shall
have no further obligations or liabilities thereunder (except in certain
limited circumstances). All authority conferred by the Transferor will survive
the death or incapacity of the Transferor and every obligation of the
Transferor shall be binding upon the heirs, legal representatives, successors,
assigns, executors and administrators of such Transferor.
By tendering Old Notes and executing the Letter of Transmittal, the
Transferor certifies that (a) it is not an Affiliate of the Company, that it
is not a broker-dealer that owns Old Notes acquired directly from the Company
or an Affiliate of the Company, that it is acquiring the Exchange Notes
offered hereby in the ordinary course of such Transferor's business and that
such Transferor has no arrangement with any person to participate in the
distribution of such Exchange Notes, (b) that it is an Affiliate of the
Company or of the Initial Purchaser of the Old Notes and that it will comply
with the registration and prospectus delivery requirements of the Securities
Act to the extent applicable to it, or (c) that it is a Participating Broker-
Dealer (as defined in the Registration Rights Agreement) and that it will
deliver a prospectus in connection with any resale of such Exchange Notes. By
tendering Old Notes and executing the Letter of Transmittal, the Transferor
further certifies that it is not engaged in and does not intend to engage in a
distribution of the Exchange Notes.
WITHDRAWAL RIGHTS
Old Notes tendered pursuant to the Exchange Offer may be withdrawn at any
time prior to the Expiration Date.
For a withdrawal to be effective, a written or facsimile transmission notice
of withdrawal must be timely received by the Exchange Agent at its address set
forth on the back cover of this Prospectus prior to the Expiration Date. Any
such notice of withdrawal must specify the person named in the Letter of
Transmittal as having tendered Old Notes to be withdrawn, the certificate
numbers of Old Notes to be withdrawn, the principal amount of Old Notes to be
withdrawn, a statement that such holder is withdrawing its election to have
such Old Notes exchanged, and the name of the registered holder of such Old
Notes, and must be signed by the holder in the same manner as the original
signature on the Letter of Transmittal (including any required signature
guarantees) or be accompanied by evidence satisfactory to the Company that the
person withdrawing the tender has succeeded to the beneficial ownership of the
Old Notes being withdrawn. The Exchange Agent will return the properly
withdrawn Old Notes promptly following receipt of notice of withdrawal. All
questions as to the validity of notices of withdrawals, including time of
receipt, will be determined by the Company and such determination will be
final and binding on all parties.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Old Notes validly tendered and not withdrawn and
the issuance of the Exchange Notes will be made on the Exchange Date.
The Exchange Agent will act as agent for the tendering holders of the Old
Notes for the purposes of receiving Exchange Notes from the Company and
causing the Old Notes to be assigned, transferred and exchanged. Upon the
terms and subject to conditions of the Exchange Offer, delivery of Exchange
Notes to be issued in exchange for accepted Old Notes will be made by the
Exchange Agent promptly after acceptance of
18
<PAGE>
the tendered Old Notes. Old Notes not accepted for exchange by the Company
will be returned without expense to the tendering holders (or in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
the Book-Entry Transfer Facility pursuant to the procedures described above,
such non-exchanged Old Notes will be credited to an account maintained with
such Book-Entry Transfer Facility) promptly following the Expiration Date or,
if the Company terminates the Exchange Offer prior to the Expiration Date,
promptly after the Exchange Offer is so terminated.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Company will not be required to issue Exchange
Notes in respect of any properly tendered Old Notes not previously accepted
and may terminate the Exchange Offer (by oral or written notice to the
Exchange Agent and by timely public announcement communicated by no later than
5:00 p.m. on the next business day following the Expiration Date, unless
otherwise required by applicable law or regulation, by making a release to the
Dow Jones News Service) or, at its option, modify or otherwise amend the
Exchange Offer, if (a) there shall be threatened, instituted or pending any
action or proceeding before, or any injunction, order or decree shall have
been issued by, any court or governmental agency or other governmental
regulatory or administrative agency or commission, (i) seeking to restrain or
prohibit the making or consummation of the Exchange Offer or any other
transaction contemplated by the Exchange Offer, (ii) assessing or seeking any
damages as a result thereof or (iii) resulting in a material delay in the
ability of the Company to accept for exchange some or all of the Old Notes
pursuant to the Exchange Offer; (b) any statute, rule, regulation, order or
injunction shall be sought, proposed, introduced, enacted, promulgated or
deemed applicable to the Exchange Offer or any of the transactions
contemplated by the Exchange Offer by any government or governmental
authority, domestic or foreign, or any action shall have been taken, proposed
or threatened, by any government, governmental authority, agency or court,
domestic or foreign, that in the reasonable judgment of the Company might
directly or indirectly result in any of the consequences referred to in
clauses (a)(i) or (ii) above or, in the reasonable judgment of the Company,
might result in the holders of Exchange Notes having obligations with respect
to resales and transfers of Exchange Notes that are greater than those
described in the interpretations of the Staff referred to on the cover page of
this Prospectus, or would otherwise make it inadvisable to proceed with the
Exchange Offer; or (c) a material adverse change shall have occurred in the
business, condition (financial or otherwise), operations, or prospects of the
Company.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by it with respect to all or any portion of the Exchange Offer
regardless of the circumstances (including any action or inaction by the
Company) giving rise to such condition or may be waived by the Company in
whole or in part at any time or from time to time in its sole discretion. The
failure by the Company at any time to exercise any of the foregoing rights
will not be deemed a waiver of any such right, and each right will be deemed
an ongoing right that may be asserted at any time or from time to time. In
addition, the Company has reserved the right, notwithstanding the satisfaction
of each of the foregoing conditions, to terminate or amend the Exchange Offer.
Any determination by the Company concerning the fulfillment or
nonfulfillment of any conditions will be final and binding upon all parties.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no Exchange Notes will be issued in exchange for any such Old
Notes, if at such time any stop order shall be threatened or in effect with
respect to the Registration Statement of which this Prospectus constitutes a
part or qualification of the Indenture under the Trust Indenture Act of 1939,
as amended (the "Trust Indenture Act").
19
<PAGE>
EXCHANGE AGENT
Bankers Trust Company has been appointed as the Exchange Agent for the
Exchange Offer. Letters of Transmittal must be addressed or transmitted to the
Exchange Agent at:
<TABLE>
<CAPTION>
BY MAIL: BY HAND: BY OVERNIGHT MAIL OR COURIER:
<S> <C> <C>
BT Services Tennessee, Inc. Bankers Trust Company BT Services Tennessee, Inc.
Reorganization Unit Corporate Trust and Agency Group Corporate Trust and Agency Group
P.O. Box 292737 Receipt & Delivery Window Reorganization Unit
Nashville, TN 37229-2737 123 Washington Street, 1st Floor 648 Grassmere Park Road
New York, New York 10006 Nashville, TN 37211
BY FACSIMILE: (615) 835-3701
TO CONFIRM: (615) 835-3572
</TABLE>
Delivery to an address other than as set forth herein, or transmissions of
instructions via a facsimile number other than the ones set forth herein, will
not constitute a valid delivery.
SOLICITATION OF TENDERS; EXPENSES
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting acceptances of the Exchange Offer. The
Company will, however, pay the Exchange Agent reasonable and customary fees
for its services and will reimburse it for reasonable out-of-pocket expenses
in connection therewith. The Company also will pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding tenders for their customers. The expenses to be
incurred in connection with the Exchange Offer, including the fees and
expenses of the Exchange Agent and printing, accounting, investment banking
and legal fees, will be paid by the Company and are estimated to be
approximately $130,568.
No person has been authorized to given any information or to make any
representations in connection with the Exchange Offer other than those
contained in this Prospectus. If given or made, such information or
representations should not be relied upon as having been authorized by the
Company. Neither the delivery of this Prospectus nor any exchange made
hereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of the Company since the respective dates as
of which information is given herein. The Exchange Offer is not being made to
(nor will tenders be accepted from or on behalf of) holders of Old Notes in
any jurisdiction in which the making of the Exchange Offer or the acceptance
thereof would not be in compliance with the laws of such jurisdiction.
However, the Company may, at its discretion, take such action as it may deem
necessary to make the Exchange Offer in any such jurisdiction and extend the
Exchange Offer to holders of Old Notes in such jurisdiction. In any
jurisdiction the securities laws or blue sky laws of which require the
Exchange Offer to be made by a licensed broker or dealer, the Exchange Offer
is being made on behalf of the Company by one or more registered brokers or
dealers that are licensed under the laws of such jurisdiction.
DISSENT AND APPRAISAL RIGHTS
HOLDERS OF OLD NOTES WILL NOT HAVE DISSENTERS' RIGHTS OR APPRAISAL RIGHTS IN
CONNECTION WITH THE EXCHANGE OFFER.
FEDERAL INCOME TAX CONSEQUENCES
The exchange of Old Notes for Exchange Notes by tendering holders will not
be a taxable exchange for federal income tax purposes, and such holders should
not recognize any taxable gain or loss as a result of such exchange. See
"Certain Federal Income Tax Considerations."
OTHER
Participation in the Exchange Offer is voluntary and holders of Old Notes
should consider carefully whether to accept the terms and conditions thereof.
Holders of the Old Notes are urged to consult their financial and tax advisors
in making their own decisions on what action to take with respect to the
Exchange Offer.
20
<PAGE>
As a result of the making of and upon acceptance for exchange of all validly
tendered Old Notes pursuant to the terms of this Exchange Offer, the Company
will have fulfilled a covenant contained in the terms of the Old Notes and the
Registration Rights Agreement. Holders of the Old Notes who do not tender
their Old Notes in the Exchange Offer will continue to hold such Old Notes and
will be entitled to all the rights and limitations applicable thereto under
the Indenture, except for any such rights under the Registration Rights
Agreement that by their terms terminate or cease to have further effect as a
result of the making of this Exchange Offer. See "Description of the Notes."
All untendered Old Notes will continue to be subject to the restriction on
transfer set forth in the Indenture. To the extent that Old Notes are tendered
and accepted in the Exchange Offer, the trading market, if any, for any
remaining Old Notes could be affected adversely. See "Risk Factors--
Consequences of Failure to Exchange Old Notes."
The Company may in the future seek to acquire untendered Old Notes in open
market or privately negotiated transactions, through subsequent exchange
offers or otherwise. The Company has no present plan to acquire any Old Notes
that are not tendered in the Exchange Offer.
21
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996 and as adjusted as of such date to give effect to the
issuance of the Old Notes, borrowings under the Credit Facility, Disposition
of PCI and the application of the assumed proceeds therefrom. This table
should be read in conjunction with the consolidated financial statements and
notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------------
ACTUAL AS ADJUSTED
----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Debt:
Credit Facility (a)................................. $ 13,000 $ 18,800
12% Senior Subordinated Notes due 2003, Series
A(b)............................................... -- 14,700
Existing 12% Senior Subordinated Notes due 2003..... 120,339 120,339
Other............................................... 45 45
----------- -----------
Total debt........................................ 133,384 153,884
Minority interests in subsidiaries.................... 6,441 6,441
9.75% Series 2D Senior Preferred Stock (c)............ 19,940 --
Common shareholders' equity (d)....................... 33,192 43,221
----------- -----------
Total capitalization.............................. $192,957 $ 203,546
=========== ===========
</TABLE>
- --------
(a) The Company used a borrowing of $5.8 million under the Credit Facility to
repurchase partially the Series 2D Senior Preferred Stock on December 30,
1996.
(b) The proceeds from the issuance and sale of the Old Notes were used to
repurchase partially the Series 2D Senior Preferred Stock on December 30,
1996. The Old Notes are shown net of the $0.3 million discount associated
with issuance. The Old Notes have not been adjusted for the approximate
$0.1 million value assigned to the warrants issued concurrently with the
Old Notes.
(c) The Company repurchased the Series 2D Senior Preferred Stock with the net
proceeds from the issuance of the Old Notes and borrowing under the Credit
Facility.
(d) Common shareholders' equity is adjusted to reflect the effects of the net
gain on the Disposition of PCI, expenses associated with the borrowing
under the Credit Facility and the remaining accretion on the Series 2D
Senior Preferred Stock. Common shareholders' equity has not been adjusted
for the approximate $0.1 million value assigned to the warrants issued
concurrently with the Old Notes. See "Unaudited Pro Forma Consolidated
Financial Statements."
22
<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, 1995 and 1996 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
ended 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 data for the nine months ended
September 30, 1995 and 1996 set forth below are unaudited.
<TABLE>
<CAPTION>
TEN MONTHS NINE MONTHS ENDED
YEAR ENDED FEBRUARY 28 OR 29, ENDED SEPTEMBER 30,
-------------------------------------- DECEMBER 31, --------------------
1992(1) 1993 1994(2) 1995 1995 1995 1996
-------- -------- -------- -------- ------------ -------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Gross revenue........... $710,873 $678,882 $651,657 $861,518 $916,744 $731,795 $1,023,410
Service revenue (3)..... 385,942 391,528 382,708 459,786 425,896 357,582 433,647
Unusual income
(expense), net......... (67,054) 50 (8,709) -- 500 -- --
Operating income
(loss)................. (43,963) 22,744 (5,230) 13,688 17,505 13,171 21,170
Interest expense, net... 10,347 6,921 6,722 13,000 11,202 10,629 11,885
Income (loss) before
income taxes, minority
interests, and
extraordinary item..... (54,310) 14,894 (12,877) 1,239 6,303 2,542 9,285
Income tax provision
(benefit).............. (13,794) 6,255 (349) 2,900 2,091 1,300 840
Income (loss) before
minority interests and
extraordinary item..... (40,516) 8,639 (12,528) (1,661) 4,212 1,242 8,445
Minority interests...... -- -- -- -- 1,960 1,315 4,725
Net income (loss) before
extraordinary item..... (40,516) 8,639 (12,528) (1,661) 2,252 (73) 3,720
Extraordinary loss on
early extinguishment of
debt................... -- -- 5,969 -- -- -- --
Net income (loss)....... (40,516) 8,639 (18,497) (1,661) 2,252 (73) 3,720
Preferred stock
dividends and
accretion.............. 2,416 5,293 4,896 2,154 1,803 1,616 1,631
Redemption of preferred
stock.................. -- -- 1,929 -- -- -- --
Net income (loss)
available for common
shareholders........... (42,932) 3,346 (25,322) (3,815) 449 (1,689) 2,089
Primary and Fully
Diluted Net Income
(Loss)
Per Common Share:
Before extraordinary
item.................. $ (2.25) $ 0.16 $ (0.92) $ (0.18) $ 0.02 $ (0.08) $ 0.10
Extraordinary loss on
early extinguishment
of debt............... -- -- (0.29) -- -- -- --
-------- -------- -------- -------- -------- -------- ----------
Total.................. $ (2.25) $ 0.16 $ (1.21) $ (0.18) $ 0.02 $ (0.08) $ 0.10
======== ======== ======== ======== ======== ======== ==========
BALANCE SHEET DATA (END
OF PERIOD):
Working capital......... $ 65,623 $ 85,861 $ 87,648 $ 91,640 $ 84,589 $ 84,422 $ 102,009
Total assets............ 318,947 293,076 281,198 281,422 369,517 373,074 374,535
Long-term liabilities... 85,675 75,602 130,752 133,130 125,818 126,953 139,063
Total indebtedness...... 86,332 74,391 123,042 127,311 125,153 121,561 133,384
Redeemable preferred
stock.................. 45,161 44,824 20,212 19,617 19,787 19,736 19,940
Shareholders' equity.... 51,151 58,521 30,780 27,624 28,427 27,690 33,192
OTHER DATA:
EBITDA (4).............. $ 32,250 $ 33,460 $ 13,038 $ 22,920 $ 23,402 $ 19,182 $ 24,285
Capital expenditures.... 3,644 4,638 1,388 2,426 1,759 1,720 4,905
Depreciation and
amortization........... 9,159 10,766 9,559 9,232 8,357 7,326 7,840
Ratio of earnings to
fixed charges (5)...... N/A 1.8x N/A 1.0x 1.2x 1.1x 1.2x
</TABLE>
- -------
(1) Fiscal year 1992 reflects after-tax charge of $52.4 million associated
with the disposal and restructuring of certain businesses.
(2) In fiscal year 1994, the Company adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other than Pensions."
(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.
(4) EBITDA represents operating income (loss), excluding unusual items, plus
depreciation and amortization minus minority interests. Management
believes that EBITDA is generally accepted as providing useful information
regarding a company's ability to service and/or incur debt. EBITDA should
not be considered in isolation or as a substitute for net income, cash
flows or other consolidated income or cash flow data prepared in
accordance with generally accepted accounting principles or as a measure
of a company's profitability or liquidity.
(5) The ratio of earnings to fixed charges is calculated by dividing income
from continuing operations before fixed charges and income taxes
("earnings") by fixed charges. Fixed charges consist of interest expense
and that portion of rental expense that the Company believes to be
representative of interest. In the years ended February 29, 1992 and
February 28, 1994, earnings, as defined, were inadequate to cover fixed
charges. The deficiencies were $54.3 million and $12.9 million for the
years ended February 29, 1992 and February 28, 1994, respectively.
23
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following tables set forth historical financial information for the
Company and pro forma financial information giving effect to the issuance of
the Old Notes, borrowings under the Credit Facility, the Disposition of PCI
and application of the assumed proceeds therefrom (collectively, the "Pro
Forma Transactions"). The pro forma statement of operations data are presented
as if the Pro Forma Transactions had occurred as of March 1, 1995, and the pro
forma balance sheet is presented as if the Pro Forma 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
consolidated financial statements of the Company included elsewhere in this
Prospectus.
24
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
(1) (2) (3) (4)
PRO FORMA ADJUSTMENTS
----------------------- PRO FORMA
ICF KAISER DISPOSITION OTHER AFTER
HISTORICAL OF PCI ADJUSTMENTS ADJUSTMENTS
---------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash
equivalents............ $ 21,022 $16,500 $ 13,950 (a) $ 37,022
5,550 (b)
(20,000)(c)
Contract receivables,
net.................... 234,168 -- -- 234,168
Prepaid expenses and
other current assets... 10,780 -- -- 10,780
Deferred income taxes... 11,938 2,613 23 (b) 14,574
-------- ------- -------- --------
Total Current Assets.. 277,908 19,113 (477) 296,544
-------- ------- -------- --------
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 $13,949 $ 273 $388,757
======== ======= ======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-
term debt.............. $ -- $ -- $ 5,800 (b) $ 5,800
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
Deferred revenue........ 14,648 -- -- 14,648
Other................... 6,296 3,633 -- 9,929
-------- ------- -------- --------
Total Current
Liabilities.......... 175,899 3,633 5,800 185,332
-------- ------- -------- --------
Long-term Liabilities
Long-term debt, less
current portion........ 133,384 -- 14,700 (a) 148,084
Other................... 5,679 -- -- 5,679
-------- ------- -------- --------
139,063 -- 14,700 153,763
-------- ------- -------- --------
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) 10,316 (227)(b) (20,776)
(60)(c)
Cumulative Translation
Adjustment............... (1,653) -- -- (1,653)
-------- ------- -------- --------
$374,535 $13,949 $ 273 $388,757
======== ======= ======== ========
</TABLE>
25
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
(1) (2) (3) (4)
PRO FORMA ADJUSTMENTS
-------------------------- PRO FORMA
ICF KAISER DISPOSITION OTHER AFTER
HISTORICAL OF PCI ADJUSTMENTS ADJUSTMENTS
------------- ------------ ------------ -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<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)
Interest income....... 944 (12) -- 932
Interest expense...... (12,829) -- (1,491)(a) (13,912)
408 (d)
------------- ---------- ---------- -------------
Income (Loss) Before
Income Taxes and
Minority Interests..... 9,285 (3,093) (1,153) 5,039
Income tax provision
(benefit)............ 840 (928) 1,600 (e) 1,512
------------- ---------- ---------- -------------
Income (Loss) Before
Minority Interests..... 8,445 (2,165) (2,753) 3,527
Minority interests in
net income of
subsidiaries......... 4,725 -- -- 4,725
------------- ---------- ---------- -------------
Net Income (Loss)....... 3,720 (2,165) (2,753) (1,198)
Preferred stock
dividends and
accretion............ 1,631 -- (1,631)(c) --
------------- ---------- ---------- -------------
Net Income (Loss)
Available for Common
Shareholders........... $ 2,089 $ (2,165) $ (1,122) $ (1,198)
============= ========== ========== =============
Primary and Fully
Diluted Net Income
(Loss) Per Common
Share.................. $ 0.10 $ (0.05)
============= =============
Primary and Fully Di-
luted Weighted Average
Common and Common
Equivalent Shares Out-
standing............... 21,955 21,955
============= =============
OTHER DATA:
EBITDA (f).............. $ 24,285 $ (3,436) $ -- $ 20,849
Cash interest expense... 11,840 -- 1,463 13,303
Capital expenditures.... 4,905 -- -- 4,905
Depreciation and
amortization........... 7,840 (355) 70 7,555
</TABLE>
26
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
TEN MONTHS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
(1) (2) (3) (4)
PRO FORMA ADJUSTMENTS
----------------------- PRO FORMA
ICF KAISER DISPOSITION OTHER AFTER
HISTORICAL OF PCI ADJUSTMENTS ADJUSTMENTS
---------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<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 disposition of
investment................. -- 11,336 -- 11,336
Interest income............. 2,053 (10) -- 2,043
Interest expense............ (13,255) -- (1,656)(a) (14,548)
363 (d)
-------- ------- ------- --------
Income (Loss) Before Income
Taxes and Minority
Interests ................... 6,303 8,560 (1,621) 13,242
Income tax provision
(benefit).................. 2,091 1,712 (1,155)(e) 2,648
-------- ------- ------- --------
Income (Loss) Before Minority
Interests ................... 4,212 6,848 (466) 10,594
Minority interests in net
income of subsidiaries..... 1,960 -- -- 1,960
-------- ------- ------- --------
Net Income (Loss)............. 2,252 6,848 (466) 8,634
Preferred stock dividends
and accretion.............. 1,803 -- (1,803)(c) --
-------- ------- ------- --------
Net Income Available for
Common Shareholders.......... $ 449 $ 6,848 $ 1,337 $ 8,634
======== ======= ======= ========
Primary and Fully Diluted Net
Income Per Common Share...... $ 0.02 $ 0.40
======== ========
Primary and Fully Diluted
Weighted Average Common and
Common Equivalent Shares
Outstanding.................. 21,517 21,517
======== ========
OTHER DATA:
EBITDA (f).................... $ 23,402 $(3,199) $ (250) $ 19,953
Cash interest expense......... 12,500 -- 1,625 14,125
Capital expenditures.......... 1,759 -- -- 1,759
Depreciation and amortiza-
tion......................... 8,357 (433) 78 8,002
</TABLE>
27
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Column 1 has been prepared from the Company's historical consolidated
financial statements included elsewhere in this Prospectus. Column 2 has been
prepared from the Company's accounts and represents the effect of the
Disposition of PCI and the entities associated with the Disposition. Column 3
represents unaudited pro forma adjustments that the Company considers
necessary to give effect to the Pro Forma Transactions other than the
Disposition of PCI. Column 4 represents the unaudited pro forma results of
operations and financial position of the Company after giving effect to the
Pro Forma Transactions.
(a) To record the result of the issuance of the Old Notes that were used to
repurchase partially the Series 2D Senior Preferred Stock on December 30,
1996. Estimated professional fees and discount of $0.3 million associated
with the issuance of the Old Notes are shown as if they were amortized
over 96 months. The Old Notes and common shareholders' equity have not
been adjusted for the approximate $0.1 million value assigned to the
warrants issued concurrently with the Old Notes. Annual interest expense
on the Old Notes is assumed to be 13%.
(b) To record the borrowings under the Credit Facility and associated
expenses. The borrowings were used to repurchase the balance of the Series
2D Senior Preferred Stock on December 30, 1996.
(c) To record the result of the repurchase of the Series 2D Senior Preferred
Stock and the reversal of the effects of the associated dividends and
accretion.
(d) To record, as a result of the Pro Forma Transactions, the effect of the
reduction in interest expense of the Credit Facility. It is assumed that a
portion of the cash provided by the Pro Forma Transactions will be used to
repurchase the Series 2D Senior Preferred Stock, that the balance will be
reinvested in the Company's business activities and that such activities
will provide funds to allow the Company to reduce borrowings under the
Credit Facility.
(e) To record the net effect on the income tax provision.
(f) EBITDA represents operating income (loss), excluding unusual items, plus
depreciation and amortization minus minority interests. Management
believes that EBITDA is generally accepted as providing useful information
regarding a company's ability to service and/or incur debt. EBITDA should
not be considered in isolation or as a substitute for net income, cash
flows or other consolidated income or cash flow data prepared in
accordance with generally accepted accounting principles or as a measure
of a company's profitability or liquidity.
28
<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 three related market areas: environment,
infrastructure and basic metals and mining industries. 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 DOE's Hanford site,
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
the PCI 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
29
<PAGE>
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.
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 governments 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.
30
<PAGE>
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 TERC
contract 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. 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, 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 first quarter of 1997.
The Company has sold its interest in entities owning and operating the PCI
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 closing occurred in December 1996. The sale will result in a
gain in the period in which the sale was 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 "Unaudited Pro Forma Consolidated Financial
Statements."
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 a gain
on sale of the entities owning and operating PCI.
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 "--Overview--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
31
<PAGE>
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 years ended February 28, 1994 and 1995, the ten months
ended December 31, 1994 and 1995 and the nine months ended September 30, 1995
and 1996.
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 28, DECEMBER 31, SEPTEMBER 30,
--------------- ------------------ -----------------------
1994 1995 1994 1995 1995 1996
------ ------ ----------- ------ ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Gross revenue........... $651.7 $861.5 $732.4 $916.7 $731.8 $1,023.4
Service revenue......... $382.7 $459.8 $392.0 $425.9 $357.6 $ 433.6
Service revenue as a
percentage of gross
revenue................ 58.7% 53.4% 53.5% 46.5% 48.9% 42.4%
Operating expenses as a
percentage of service
revenue:
Direct cost of
services and
overhead............. 84.6% 85.5% 86.0% 84.5% 83.5% 81.8%
Administrative and
general.............. 12.0% 9.5% 8.7% 9.5% 10.8% 11.5%
Depreciation and
amortization......... 2.5% 2.0% 2.0% 2.0% 2.0% 1.8%
Unusual items, net.... 2.3% -- -- (0.1)% -- --
Operating income (loss)
as a percentage of
service revenue........ (1.4)% 3.0% 3.3% 4.1% 3.7% 4.9%
</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.
32
<PAGE>
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.
Operating Expense. 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
33
<PAGE>
by a $60.9 million reduction in the Hanford contract costs (attributable to
the Federal budget reductions discussed above). The remainder of the Company's
direct cost of services and overhead as a percentage of service revenue for
the ten months ended December 31, 1995 was comparable to the same period in
the prior year.
Administrative and general expenses increased $6.4 million, or 18.5%,
between the ten-month periods ended December 31, 1995 and 1994 and increased
from 8.7% to 9.5% as a percentage of service revenue. The increase in these
costs 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, 1994 and 1995
were as follows.
<TABLE>
<CAPTION>
TEN MONTHS ENDED
--------------------------
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Average debt outstanding....................... $122,674,000 $123,701,000
Average effective interest rate................ 12.8% 12.9%
</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 the 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 "--Results
of Operations--Year Ended February 28, 1995 Versus Year Ended February 28,
1994--Income Tax Expense").
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.
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
34
<PAGE>
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 "--Results of
Operations--Ten Months Ended December 31, 1995 Versus Ten Months Ended
December 31, 1994--Unusual Items"). 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.
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.
35
<PAGE>
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. Effective December 17, 1996, the
Company signed an amendment to the Credit Facility (the "Amendment") that
approved the Disposition of PCI, provided for a temporary $5.0 million Over
Advance Provision (as defined in the Amendment) and permitted the net proceeds
from the issuance of the Old Notes and borrowings under the Over Advance
Provision to be used to redeem the Series 2D Senior Preferred Stock. See
"Description of the Credit Facility."
The Credit Facility is provided by CoreStates Bank, N.A. 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,
including the pledge of the stock of certain subsidiaries. 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
36
<PAGE>
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 January 7, 1997, the Company had no cash borrowings outstanding,
$18.6 million of letters of credit outstanding and the additional credit
available under the Credit Facility was $21.4 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.
The Company has sold its interest in the entities owning and operating PCI,
the earnings and cash flows from which have been significant to the Company
(see "--Overview--Business Outlook").
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 was 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 Existing Indenture, 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. The
Company repurchased this preferred stock using the net proceeds of the
issuance of the Old Notes and borrowings under the Credit Facility.
As explained in "--Overview--Business Outlook," 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.
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, the adoption of this statement has no
material adverse effect on the Company's financial position or operations.
37
<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 adoption of SFAS No. 123 will
not have a material adverse effect on the Company's financial position or
result of operations. The requirements of SFAS No. 123 are effective for
financial statements for fiscal years beginning after December 15, 1995.
38
<PAGE>
BUSINESS
ICF Kaiser International, Inc., through ICF Kaiser Engineers, Inc. and its
other operating subsidiaries, is one of the nation's largest engineering,
construction, program management and consulting services companies. The
Company's Federal Programs, Engineers and Consulting Groups provide fully
integrated services to domestic and foreign clients in the private and public
sectors of the environment, infrastructure and basic metals and mining
industry markets. For the latest twelve-month period ended September 30, 1996,
ICF Kaiser had gross and service revenue of $1,337.5 million and $569.8
million, respectively, and EBITDA (as defined) of $30.8 million. 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. As of November 30, 1996,
the Company employed 5,176 people located in more than 80 offices worldwide.
The Company was incorporated in Delaware 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. The Company's
headquarters is located at 9300 Lee Highway, Fairfax, Virginia 22031-1207,
telephone number (703) 934-3600.
OVERVIEW OF MARKETS
Environmental. In the environmental market, the Company 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 ICF
Kaiser's environmental consulting and engineering services is driven by a
number of factors, including: the need to improve the quality of the
environment; federal, state and municipal environmental regulation and
enforcement; and increased liability associated with pollution-related injury
and damage. Increasingly strict federal, state, and local government
regulation has forced private industry and government 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. In addition, ICF Kaiser is well-positioned to take advantage of
the growing market arising from the increased awareness internationally of the
need for additional and/or initial environmental regulations, studies and
remediation.
Significant environmental laws have been enacted in response to public
concern about the environment. These laws and the implementing regulations
affected nearly every industrial activity, and efforts to comply with the
requirements of these laws create demand for the Company's services. The
principal Federal legislation that has created a substantial market for the
Company, and therefore has the most significant effect on the Company's
business, includes the following: The Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") of 1980, as amended by the Superfund
Amendments and Reauthorization Act ("SARA") of 1986, established the Superfund
program to clean up existing, often abandoned hazardous waste sites and
provides for penalties and punitive damages for noncompliance with the EPA
orders. The Resource Conservation and Recovery Act ("RCRA") of 1976, 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 Clean Air Act as amended in 1970 empowered the EPA to
establish and enforce National Ambient Air Quality Standards, National
Emission Standards for Hazardous Air Pollutants and limits on the emission of
various pollutants. The 1990 amendments to the Clean Air Act substantially
increase the number of sources emitting a regulated air pollutant which will
be required to obtain an operating permit; the amendments also address the
issues of acid rain, ozone protection, and other areas in which the Company
can provide expanded services. The Clean Water Act of 1972, originally the
Federal Water Pollution Control Act of 1948, established a system of
standards, permits and enforcement procedures for the discharge of pollutants
to surface water from industrial, municipal, and other wastewater sources. The
Toxic Substance Control Act, enacted in 1976, established requirements for
identifying and controlling toxic chemical hazards to human health and the
environment.
39
<PAGE>
Infrastructure. The global infrastructure market is driven by the need to
maintain and expand among other things, ports, roads, highways, mass transit
systems and airports. Increasingly, environmental concerns, such as wastewater
treatment and reducing automotive air pollutant emissions, have become a
driving force behind new infrastructure and transportation initiatives. This
market is primarily funded by government dollars, although the private sector
is seeking an increased role, particularly in international projects. The
Company has capitalized on its specialized technical and environmental skills
to win projects that provide consulting, planning, design and construction
services. Internationally, there is a critical need for infrastructure
projects where population growth of major cities has been and will continue to
be extremely high. The Company provides engineering and construction
management services for mass transit and wastewater treatment facilities in
major metropolitan areas worldwide.
Industry. ICF Kaiser assists its basic metals and mining industry clients by
providing the engineering and construction skills needed to maintain and
retrofit existing plants and replace aging production capacity with newer,
more efficient and more environmentally responsible facilities. The Company's
engineering and construction skills, as well as its access to process
technologies, have helped establish it as a worldwide leader in serving the
basic metals and mining industries, especially aluminum and steel. ICF Kaiser
is currently expanding its operations internationally, particularly
engineering and construction management services related to alumina production
from bauxite, aluminum smelting and other basic industry facilities.
BUSINESS STRATEGY
The Company's business strategy is based primarily on providing its clients:
(i) full front-end capability; (ii) value-added services; (iii) access to
technology; and (iv) the benefits of the Company's 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, including remedial design and remedial action, for the clients'
environmental problems; and (iii) combines problem identification, solution,
and implementation.
Access to Technology. The Company has access to technologies that can assist
clients clean up existing waste sites, reduce waste generated by ongoing and
new production processes, reduce and monitor emissions, improve the quality of
finished products, assist in the production in the basic metal and mining
industries, and reduce costs. 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.
BUSINESS GROUPS
The Company is organized into three business groups: the Federal Programs
Group; the ICF Kaiser Engineers Group; and the Consulting Group.
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Federal Programs Group
The Company derives a substantial portion of its revenues from contracts
with various agencies and departments of the Federal government. The Federal
Programs Group's major clients are the DOE and the DOD.
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. The Company provides many
services at these facilities, including (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, mixed 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, won DOE's Performance Based
Integrating Management contract at Rocky Flats. 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
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 of employees at the site
by the end of the contract term.
In August 1996, the 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 effectively
was 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.
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. The Company undertook the contract in
order to maintain a presence at Hanford and to further its strategic alliance
with MACTEC. 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
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to make sure that the environmental restoration enables the sites of the
former bases to be developed commercially by the private sector.
DOD established the TERC program to clean up contaminated Army sites in a
streamlined and efficient manner by partnering with private contractors. A
TERC contract 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 the 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 USACE. The TERC contract will be managed by the
Sacramento District, lasts 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. 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.
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
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. The Company has 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.
All of ICF Kaiser's markets are global in nature. To capitalize on
international opportunities while minimizing its business development risks,
the Company has established international business relationships through joint
ventures, marketing agreements and direct equity investments. The Company has
projects underway in over 25 countries.
Environmental Consulting and Engineering Services. Demand for the Company's
non-Federal environmental consulting and engineering services is driven by a
number of factors, including: 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
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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 and expanding the services it sells to existing clients
and by targeting new markets for the Company's full-service capabilities.
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 also 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 PCI facility that it designed, built,
currently operates and jointly owns under a multiyear tolling agreement.
The international market provides opportunities for the Company's industrial
services. The Company's largest industrial project will be a mini-mill project
for Nova Hut. Under a two-year contract signed in March 1996, the Company will
oversee the construction of the continuous slab caster portion 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 June 1998, is part of a
two-phase endeavor in which the second phase will provide Nova Hut with a new
rolling mill with the capability of producing one million metric tons per year
of hot rolled steel product. The Company is currently negotiating a contract
with Nova Hut for the second phase of the mini-mill project. The Company
expects earnings from the next phase to be material to the Company's operating
results. Management expects to complete negotiations on this contract in the
first quarter of 1997, although there can be no assurance with respect
thereto. The Company also is assisting the International Finance Corporation
in securing the financing for the next phase of the mini-mill project.
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
domestic infrastructure market growth, but the Company remains active in major
U.S. metropolitan areas: Chicago (light rail transit system); Seattle (light
rail project); San Francisco (commuter rail line extension); Atlanta (general
engineering consulting services to the Metropolitan Atlanta Rapid Transit
Authority); and Miami (Intermodal Transit Center, a project that will tie
together air, light/heavy rail, buses, highway systems, and parking
facilities).
In the international infrastructure market, 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. The Company also provides program management
services for the overhaul and upgrade of Portugal's main intercity freight and
passenger rail lines. 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. In Brazil, the Company is developing
the plan to remediate and clean up Guanabara Bay.
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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; and environmental remediation of hydrocarbon contamination in soil
and groundwater in France and Mexico.
Consulting Group
The 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 Consulting Group draws upon the talents of its multi-
disciplinary professional staff to support customers within four primary lines
of business.
Environmental Consulting Services. This line of business assists 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
Consulting 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. Consulting services in this line
of business 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.
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Information Management Programs. The Company assists clients in developing
decision support systems that facilitate the collection and use of information
to track performance, identify opportunities and improve decision making. The
group offers a number of sophisticated simulation models and proprietary
applications. 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. This line of business
supports the development of corporate and technical plans for managing power
resources and energy projects, provides economic assessments of short- and
long-term market conditions for various fuels, and serves as an expert
foundation in litigation and regulatory proceedings. The Consulting 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 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.
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
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government agencies throughout the United States. A substantial portion of the
Company's work is repeat business from existing clients. In many cases, the
Company has worked for the same client for many years, providing different
services at different times. DOE accounted for approximately 68% of the
Company's consolidated gross revenue for the ten 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
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"). CERCLA, as amended by the Superfund Amendments and Reauthorization
Act, established the Superfund program to clean
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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
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, 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 and solid 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; corrective action; and
treatment, transportation, and disposal of hazardous waste. HSWA has increased
the number of hazardous waste generators subject to RCRA. HSWA also imposes
land disposal restrictions/bans on certain listed and characteristic hazardous
wastes that do not meet specified treatment standards.
The Clean Air Act. Under the Clean Air Act, as amended in 1970 and 1990, EPA
is empowered to establish and enforce National Ambient Air Quality Standards,
National Emission Standards for Hazardous Air Pollutants, and limits on the
emissions of various pollutants from specific types of facilities. The 1990
amendments 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 of 1974, as amended, EPA
is empowered to set drinking water standards for community water supply
systems and to control subsurface injection of waste. The Clean Water Act, as
amended in 1972 and 1990, 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
Act of 1972, as amended in 1988, regulatory revisions to the Clean Water Act
were made to eliminate ocean dumping of sludge. The Toxic Substance Control
Act of 1976 establishes requirements for identifying and controlling toxic
chemical hazards to human health and the environment. The Federal Insecticide,
Fungicide, and Rodenticide Act of 1947, as amended in 1988, 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. The
Oil Pollution Act of 1990 covers the discharge of oil and hazardous substances
into navigable waters, adjoining shorelines or the exclusive economic zone of
the United States.
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
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regulation by a number of Federal agencies, including EPA, the Nuclear
Regulatory Commission and the Occupational Safety and Health Administration,
as well as applicable state and local regulatory agencies.
As discussed above, CERCLA addresses cleanup of sites at which there has
been a release or threatened release of hazardous substances into the
environment. Increasingly, there are efforts to expand the reach of CERCLA to
make environmental contractors responsible for cleanup costs by claiming that
environmental contractors are owners or operators of hazardous waste
facilities or that they arranged for treatment, transportation, or disposal of
hazardous substances. Several recent court decisions have accepted these
claims. Should the Company be held responsible under CERCLA for damages caused
while performing services or otherwise, it may be forced to bear such
liability by itself, notwithstanding the potential availability of
contribution or indemnity from other parties.
RCRA, also discussed above, governs hazardous waste generation, treatment,
transportation, storage, and disposal. RCRA, or EPA-approved state programs at
least as stringent, govern waste handling activities involving wastes
classified as "hazardous." Substantial fees and penalties may be imposed under
RCRA and similar state statutes for any violation of such statutes and the
regulations thereunder.
Potential Liabilities Involving Clients and Third Parties
In performing services for its clients, the Company could potentially be
liable for breach of contract, personal injury, property damage, and
negligence (including improper or negligent performance or design, failure to
meet specifications, and breaches of express or implied warranties). The
damages available to a client, should it prevail in its claims, are
potentially large and could include consequential damages.
Environmental contractors, in connection with work performed for clients,
potentially face liabilities to third parties from various claims, including
claims for property damage or personal injury stemming from a release of
hazardous substances or otherwise. Claims for damage to third parties could
arise in a number of ways, including through a sudden and accidental release
or discharge of contaminants or pollutants during the performance of services;
through the inability, despite reasonable care, of a remedial plan to contain
or correct an ongoing seepage or release of pollutants; through the
inadvertent exacerbation of an existing contamination problem; or through
reliance on reports or 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
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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.
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 employer 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 obtained
pollution insurance coverage on a claims-made basis, 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.
49
<PAGE>
REGULATION
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.
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.
Federal agencies that are the Company's regular customers (including DOE,
EPA, and DOD) have formal policies against awarding contracts that would
present actual or potential conflicts of interest with other activities of the
contractor. Because the Company provides a broad range of services in
environmental and related fields for the Federal government, state
governments, and private customers, there can be no assurance that government
conflict-of-interest policies will not restrict the Company's ability to
pursue business in the future.
Because some of the Company's subsidiaries provide the Federal government
with nuclear energy and defense-related services, these subsidiaries and a
substantial number of their employees are required to have and maintain
security clearances from the Federal government. These subsidiaries and their
employees have been able to obtain these security clearances in the past, and
the Company has no reason to believe that there would be any problems in this
area in the future. However, there can be no assurance that the required
security clearances will be obtained and maintained in the future. Because of
its nuclear energy and defense-related services, the Company is subject to
foreign ownership, control, and influence ("FOCI") regulations imposed by the
Federal government and designed to prevent the release of classified
information to contractors who are under foreign control or influence. Under
these regulations, FOCI concerns may arise as a result of a variety of
factors, including foreign ownership of substantial percentages of 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 30, 1996, ICF Kaiser employed 5,176 people, and the Company
believes that its relations with its employees are good. Of the total
employees, 2,005 persons are employed at Kaiser-Hill's Rocky Flats site in
Colorado. A total of 1,361 of the Rocky Flats personnel are represented by the
United Steelworkers of America, Local 8031. The Company believes that its
relations with the unions are good.
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
50
<PAGE>
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 AND REGULATORY 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.
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 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.
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.
51
<PAGE>
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
Sudhakar Kesavan...... 42 Executive Vice President and President of the
Consulting Group
Edward V. Lower....... 51 Executive Vice President
Richard K. Nason...... 54 Director, Executive Vice President and Chief
Financial Officer
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........ 53 Senior Vice President, General Counsel and Secretary
Tony Coelho........... 54 Director
Maynard H. Jackson.... 58 Director
Thomas C. Jorling..... 56 Director
Rebecca P. Mark....... 42 Director
</TABLE>
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.).
Sudhakar Kesavan has been an Executive Vice President of the Company and
President of the Company's Consulting Group since December 1996. He has held
senior management positions in the Company's Consulting Group since 1983.
Prior to joining the Company, Mr. Kesavan worked for the Indian subsidiary of
the Royal Dutch/Shell company. Mr. Kesavan graduated from the Indian Institute
of Technology (B. Tech), Indian Institute of Management (P.G.D.M.) and the
Massachusetts Institute of Technology (S.M.).
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
52
<PAGE>
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.).
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 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.).
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
53
<PAGE>
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.
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.).
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.).
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.).
54
<PAGE>
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.
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) and Thomas C. Jorling. Gian
Andrea Botta also was a voting member of the Committee until his resignation
as a director upon the Company's repurchase of the Series 2D Senior Preferred
Stock on December 30, 1996. 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.
Gian Andrea Botta. Mr. Botta is the President of EXOR America, Inc., which
was the holder of the Company's Series 2D Senior Preferred Stock. The Company
repurchased the Series 2D Senior Preferred Stock on December 30, 1996. EXOR
America is an affiliate of the former holder of the Company's Series 2D
Warrants, which the Company also repurchased on December 30, 1996. Pursuant to
the terms of the Series 2D Senior Preferred Stock, EXOR America had the right
to designate a nominee for election to the Board of Directors. From March 1,
1993 until December 30, 1996, Mr. Botta was EXOR America's nominee to the
Board of Directors.
James O. 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 Offering Memorandum, 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
55
<PAGE>
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 $1,081,816. It is the
Company's intention to retire the debt when the value of the collateral
reaches the amount owed. Executive compensation paid to Mr. Edwards during the
ten-month fiscal period ended December 31, 1995 and fiscal years 1995 and 1994
is described in the "Executive Compensation" section of this Offering
Memorandum.
56
<PAGE>
EXECUTIVE COMPENSATION
The following table shows the compensation received by the Chief Executive
Officer and the other four most highly compensated executive officers of the
Company (the "Named Executive Officers") for the three fiscal periods ended
December 1995. Because of the Company's fiscal year-end change, the fiscal
period that ended December 31, 1995, is only a ten-month period. The table
shows the amounts received by each Named Executive Officer for all three
fiscal periods.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
-------------------------------- ------------------------------------
(A) (B)
--------- (C) (D) (E) (F) (G) (I)
NAME, PRINCIPAL BONUS OTHER ANNUAL RESTRICTED SECURITIES
POSITION, AND SALARY ($) COMPENSATION STOCK UNDERLYING ALL OTHER
FISCAL PERIOD ($) (1) ($) (2) AWARD(S) ($) OPTIONS/SARS (#) COMPENSATION
--------------- -------- -------- -------------- ------------ ----------------------- ------------
<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 $113,166(3)
97,000 repriced options
Fiscal 1994............ $299,519 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 $ 13,136(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 $ 13,341(5)
Fiscal 1994............ $100,077 0 (2) 0 0 $ 8,932(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............ $ 62,500 $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 $ 12,878(7)
50,537 repriced options
Fiscal 1994............ $220,000 0 (2) 0 0 $ 22,735(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.
57
<PAGE>
(3) The amounts shown in column (i) of the table for Mr. Edwards comprise the
following:
<TABLE>
<C> <C> <S>
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
$ 2,726 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
(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 $ 3,254 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
$ 9,576 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
$ 5,773 Company contribution under the Company's Retirement
Plan for FY94 made in FY95
$ 2,019 Company 2% contribution under the Company's Employee
Stock Ownership Plan for FY94 made in FY95
(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
</TABLE>
58
<PAGE>
(7) The amounts shown in column (i) of the table for Dr. Tipermas comprise the
following:
<TABLE>
<S> <C> <C>
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 $ 3,302 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
$ 1,455 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
</TABLE>
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTIONS/SAR
VALUES
<TABLE>
<CAPTION>
(D)
(B) NUMBER OF SECURITIES (E)
SHARES (C) UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED VALUE OPTIONS/SARS IN-THE-MONEY
(A) ON EXERCISE REALIZED AT 12/31/95(#) OPTIONS/SARS AT 12/31/95
NAME (#) ($) EXERCISABLE/UNEXERCISABLE ($) EXERCISABLE/UNEXERCISABLE(*)
---- ----------- -------- ------------------------- --------------------------------
<S> <C> <C> <C> <C>
James O. Edwards........ 0 0 37,500/112,500 $65,250/$195,750
Stephen W. Kahane....... 0 0 50,000/50,000 $38,500/$38,500
Richard K. Nason........ 0 0 13,834/58,166 $8,898/$21,323
Alvin S. Rapp........... 0 0 40,000/60,000 (**)
Marc Tipermas........... 0 0 62,500/62,500 $48,125/$48,125
</TABLE>
- --------
(*) Calculated using the NYSE closing price of the Common Stock on December
29, 1995 ($4.25 per share) less the per share option exercise price
multiplied by the number of exercisable or unexercisable options, as the
case may be.
(**) Mr. Rapp's options are not in-the-money.
SENIOR EXECUTIVE OFFICERS SEVERANCE PLAN
In April 1994 the Compensation Committee of the Board of Directors approved
the adoption of the Company's Senior Executive Officers Severance Plan (the
"SEOSP"). In December 1994, the SEOSP was amended to clarify (a) that once an
officer becomes a participant in the SEOSP, he or she will continue to be
eligible for SEOSP benefits throughout his or her employment by the Company
and (b) that the SEOSP is intended to set a minimum severance benefit for the
participant. If a participant is entitled to a greater benefit under his or
her employment agreement with the Company, then such arrangement prevails over
the lower SEOSP benefit.
The eligible participants in the SEOSP are the Chief Executive Officer, the
President, the Chief Operating Officer, the Chief Financial Officer, the
Treasurer, the General Counsel, the Senior Vice President and Director of
Human Resources, and any Executive Vice President and other officers of rank
equivalent to Executive Vice President as designated by the Compensation
Committee. As of November 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.
59
<PAGE>
AGREEMENTS AND TRANSACTIONS WITH NAMED EXECUTIVE OFFICERS (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
Offering Memorandum.
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, 1994 was $648,546. As of November 8,
1996, Mr. Rapp is an employee, but no longer an executive officer, of the
Company.
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.
60
<PAGE>
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.
61
<PAGE>
SECURITY OWNERSHIP
<TABLE>
<CAPTION>
NAME AND ADDRESS OF 5% SHAREHOLDERS, BENEFICIAL PERCENT OF
DIRECTORS, AND EXECUTIVE OFFICERS OWNERSHIP(A) COMMON STOCK
------------------------------------ ------------ ------------
<S> <C> <C>
DIRECTORS
Tony Coelho........................................ 17,000 (b) *
James O. Edwards................................... 424,431 (c) 1.9%
Maynard H. Jackson................................. 6,000 (d) *
Thomas C. Jorling.................................. 6,000 (e) *
Rebecca P. Mark.................................... 12,000 (f) *
Richard K. Nason................................... 53,459 (g) *
Marc Tipermas...................................... 260,262 (h) 1.2%
EXECUTIVE OFFICERS NAMED IN THE SUMMARY COMPENSATION
TABLE
James O. Edwards................................... 424,431 (c) 1.9%
Chairman and Chief Executive Officer
Stephen W. Kahane.................................. 139,447 (i) *
Executive Vice President
Richard K. Nason................................... 53,459 (g) *
Executive Vice President
Alvin S. Rapp...................................... 128,180 (j) *
Executive Vice President
Marc Tipermas...................................... 260,262 (h) 1.2%
Executive Vice President
All Directors and Executive Officers
as a Group (14 persons)............................. 1,153,814 (k) 5.2%
5% COMMON SHAREHOLDERS
ICF Kaiser International, Inc. Employee Stock 1,871,965 (l) 8.4%
Ownership Trust...................................
ICF Kaiser International, Inc. Retirement Plan..... 957,807 (m) 4.3%
State of Wisconsin Investment Board................ 2,055,000 (n) 9.2%
Cowen & Company.................................... 2,422,300 (o) 10.9%
</TABLE>
- --------
* = ownership of less than 1%
(a) Except as noted below, all information in the above table is as of
December 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 be a beneficial owner of the Company's stock if that person has
voting or investment power (or voting and investment powers) over any
shares of capital stock or has the right to acquire such shares within 60
days from December 30, 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. Coelho's share ownership includes 15,000 shares that may be acquired
within 60 days of December 31, 1996, upon the exercise of stock options.
He also owns 2,000 other shares.
(c) 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 December 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.
62
<PAGE>
(d) Mr. Jackson's share ownership includes 6,000 shares that may be acquired
within 60 days of December 31, 1996, upon the exercise of stock options.
(e) Mr. Jorling's share ownership includes 6,000 shares that may be acquired
within 60 days of December 31, 1996, upon the exercise of stock options.
(f) Ms. Mark's share ownership includes 12,000 shares that may be acquired
within 60 days of December 31, 1996, upon the exercise of stock options.
(g) 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
38,834 shares that may be acquired within 60 days of December 31, 1996,
upon the exercise of stock options. He also owns 2,000 other shares.
(h) 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
December 31, 1996, upon the exercise of stock options. He also owns
177,000 other shares.
(i) 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
December 31, 1996, upon the exercise of stock options. He also owns 76,422
other shares.
(j) Mr. Rapp's share ownership includes 60,000 shares that may be acquired
within 60 days of December 31, 1996, upon the exercise of stock options.
He also owns 68,180 other shares.
(k) This total includes 39,968 shares allocated to ESOP accounts, 18,823
shares in Section 401(k) Plan accounts, 84,376 shares in directed
investment accounts under the Retirement Plan, and 327,556 shares that may
be acquired within 60 days of December 31, 1996, upon the exercise of
stock options. The 683,091 balance of the shares are owned directly.
(l) 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 (c). Mr. Goldman beneficially owns 94,856 shares of Common
Stock, 11,334 of which are shares that may be acquired within 60 days of
December 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 December 31, 1996, upon the
exercise of stock options. The ESOP Plan Committee's address is 9300 Lee
Highway, Fairfax, VA 22031.
(m) 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 (c) and
(n). 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 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.
(n) 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.
(o) 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.
63
<PAGE>
DESCRIPTION OF THE CREDIT FACILITY
Effective on May 7, 1996, the Company entered into a 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. Effective December 17, 1996, the Company and
the Banks signed an Amendment to the Credit Facility (the "Amendment") that
approved the Disposition of PCI, provided for a temporary Over Advance
Provision (as defined in the Amendment) and permitted the net proceeds from
the issuance of the Old Notes and borrowings under the Over Advance Provision
to be used to redeem the Series 2D Senior Preferred Stock. Material terms of
the Credit Facility and the Amendment are summarized below.
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. Under the
Amendment, the Credit Facility has been increased to $45 million until March
31, 1997 and excludes the Disposition of PCI from the mandatory facility
reduction requirement following certain asset sales.
Interest. The Credit Facility and the Amendment contain 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. Under the Credit Facility and the Amendment, EBITDA is defined, for
any period, as Consolidated Net Income plus the sum of (a) Consolidated
Interest Expense, (b) income tax expense, (c) depreciation expense, (d)
amortization expense, (e) extraordinary or unusual losses or other losses not
incurred in the ordinary course of business included in the calculation of net
income, (f) any non-cash charge against net income required to be recognized
in connection with the issuance of capital stock to employees (whether upon
lapse of vesting restrictions, exercise of employee options or otherwise) and
(g) any non-cash charge against net income required to be recognized in
connection with employee benefit plans less extraordinary or unusual gains or
other gains not incurred in the ordinary course of business included in the
calculation of net income, in each case to the extent such items are taken
into account in determining Consolidated Net Income.
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. The Company paid certain fees
and commissions for the Amendment.
Subsidiary Guarantee. Certain Subsidiaries of the Company including the four
Subsidiary Guarantors under the Indentures (the "Credit Facility Subsidiary
Guarantors") entered into a joint and several guarantee of the Company's
payment obligations under the Credit Facility. Each of the Credit Facility
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 Credit
Facility 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-
64
<PAGE>
existing or hereafter acquired or arising (i) Accounts, (ii) General
Intangibles, Chattel Paper and 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 Credit Facility 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.
Under the Amendment, the Collateral also includes all intangible assets of the
Company. The Company has pledged all of the stock of certain of its domestic
subsidiaries and 65% of the stock of certain foreign subsidiaries as further
security under the Credit Facility.
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>
<CAPTION>
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>
Under the Amendment, the Fixed Charge Coverage Ratio from the date of the
Amendment to September 30, 1997 has been reduced to 1.05:1.00 and the Interest
Coverage Ratio has been reduced to 1.50:1.00 until September 30, 1997.
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. Under the Amendment, the Company agreed that it will not permit
the ratio of Total 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 less than those set forth below:
<TABLE>
<CAPTION>
TOTAL FUNDED INDEBTEDNESS
TEST PERIOD TO EBITDA
----------- -------------------------
<S> <C>
December 31, 1996 through March 30, 1997........ 6.25:1.00
March 31, 1997 through June 30, 1997............ 6.00:1.00
July 1, 1997 through September 30, 1997......... 5.50:1.00
October 1, 1997 through December 31, 1997....... 5.00:1.00
January 1, 1998 through June 30, 1998........... 4.75:1.00
</TABLE>
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:
<TABLE>
<CAPTION>
INDEBTEDNESS FOR BORROWED MONEY TO
TEST PERIOD TOTAL CAPITALIZATION RATIO
----------- ----------------------------------
<S> <C>
May 7, 1996 through December 31,
1996............................... 0.77:1.00
January 1, 1997 through June 30,
1998............................... 0.75:1.00
</TABLE>
Under the Amendment, the ratio of Indebtedness for Borrowed Money to Total
Capitalization is 0.86:1.00 from the date of the Amendment through the
termination of the Credit Facility.
Under the Credit Facility as amended by the Amendment, 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
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the Credit Facility, (ii) Subordinated Debt, (iii) Non-Recourse Indebtedness,
(iv) the Notes 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 Amendment provides that except for one specified
investment, no acquisitions or investments can be made during the time the
Over Advance Provision is outstanding. 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 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).
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.
DESCRIPTION OF $125 MILLION OF 12% SENIOR SUBORDINATED NOTES DUE 2003
On January 11, 1994, the Company completed a sale of $125,000,000 principal
amount of 12% Senior Subordinated Notes due 2003. The terms of these Existing
Notes are identical in all material respects to the terms of the Old Notes and
the Exchange Notes offered pursuant to this Prospectus, except that (i) unlike
the Old Notes, the Existing Notes were registered under the Securities Act and
therefore do not have legends restricting their transfer, (ii) the Holders of
the Existing Notes have priority over the Holders of the Notes with respect to
the repurchase of the Existing Notes from the cash and Cash Equivalent portion
of the Net Proceeds of Asset Sales (capitalized terms have the meanings
assigned to them in the Existing Indenture relating to the Existing Notes),
(iii) certain definitions and covenants included in the Existing Indenture
refer to, or have the effect as of, the date of, or dates preceding the date
of, the Existing Indenture (January 11, 1994), whereas such definitions and
covenants in the Indenture relating to the Old Notes and the Exchange Notes
refer to, or have effect as of, the date of, or dates preceding the date of,
the Indenture (December 23, 1996) and (iv) the Existing Notes are subordinated
in right of payment to all existing and future senior indebtedness of the
Company.
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<PAGE>
DESCRIPTION OF THE NOTES
The Exchange Notes will be issued pursuant to an Indenture dated as of
December 23, 1996 (the "Indenture") between the Company and The Bank of New
York, as trustee (the "Trustee"), which also serves as the Trustee under the
Existing Indenture. The terms of the Exchange Notes are the same in all
respects (including principal amount, interest rate, maturity, security and
ranking) as the terms of the Old Notes for which they may be exchanged
pursuant to the Exchange Offer, except that the Exchange Notes (i) are freely
transferable by holders thereof (except as provided below) and (ii) are not
entitled to certain registration rights and certain additional interest
provisions that are applicable to the Old Notes under the Registration Rights
Agreement. Unless the context otherwise requires, all references herein to the
"Notes" shall include the Old Notes and the Exchange Notes.
The following is a summary of the material terms and provisions of the
Notes. The terms of the Notes include those set forth in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act. The
Notes are subject to all such terms. The following summary does not purport to
be a complete description of the Notes and is subject to the detailed
provisions of, and qualified in its entirety by reference to, the Indenture
and the Notes. Capitalized terms that are used but not otherwise defined
herein have the meanings assigned to them in the Indenture. The Bank Credit
Agreement referred to in the Indenture and herein is the Credit Facility.
Certain definitions from the Indenture are set forth below under "--Certain
Definitions."
GENERAL
The Notes are senior unsecured obligations of the Company. The 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
Notes will mature on December 31, 2003.
The Exchange Notes will bear interest from December 31, 1996. Holders of Old
Notes whose Old Notes are accepted for exchange will be deemed to have waived
the right to receive any payment in respect of interest on the Old Notes
accrued from December 31, 1996 to the date of the issuance of the Exchange
Notes.
The Exchange Notes will be issued only in registered form, without coupons,
in denominations of $1,000 and integral multiples thereof. Principal of,
premium, if any, and interest on the Old Notes is payable and on the Exchange
Notes will be payable, and the Notes may be presented for registration of
transfer or exchange, at the office of the Trustee. Payments may be paid by
check mailed to the registered addresses of the holders of record (the
"Holders") of the Notes. The Holders must surrender their Notes to the Paying
Agent to collect principal payments. The Company may require payment of a sum
sufficient to cover any transfer tax or other governmental charge payable in
connection with certain transfers or exchanges of the Notes. Initially, the
Trustee under the Existing Indenture will be the Paying Agent and the
Registrar under the Indenture. The Company or any of its Subsidiaries
subsequently may act as the Paying Agent and the Registrar, and the Company
may change any Paying Agent and any Registrar without prior notice to the
Holders.
INTEREST RATE INCREASE
The interest rate on the Old Notes is increased and on the Exchange 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, prior to
March 31, 1998, the Company's Earnings equal or exceed $36 million for two
consecutive Quarterly Measurement Periods, then the interest rate will revert
to 12%. However, if the Company's Earnings do not equal or exceed $36 million
for any subsequent Quarterly Measurement Period, up to and including the
Quarterly Measurement Period ending March 31, 1998, the interest rate will
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<PAGE>
increase to 13% until the Company's Earnings again equal or exceed $36 million
for one fiscal quarter on a trailing twelve month basis. The Company's
Earnings for the trailing twelve month period ended September 30, 1996, were
approximately $31.3 million.
RANKING
The Old Notes are and the Exchange Notes will be senior unsecured
obligations of the Company, rank senior to all subordinated indebtedness of
the Company and rank pari passu in right of payment with all existing and
future senior indebtedness of the Company, including indebtedness under the
Credit Facility.
SUBSIDIARY GUARANTEES
Four wholly owned subsidiaries of the Company (the "Subsidiary Guarantors")
have unconditionally guaranteed the payment of the principal, premium, if any,
and interest on the Notes. The Subsidiary Guarantors are Cygna Consulting
Engineers and Project Management, Inc., ICF Kaiser Government Programs, Inc.,
PCI Operating Company, Inc. and Systems Applications International, Inc. Cygna
Consulting Engineers and Project Management, Inc. is incorporated under the
laws of the State of California, and the other Subsidiary Guarantors are
incorporated under the laws of the State of Delaware. All four Subsidiary
Guarantors are Subsidiary Guarantors under the Existing Indenture and the Bank
Credit Agreement.
OPTIONAL REDEMPTION OF THE NOTES
The Notes may not be redeemed prior to December 31, 1998, but will be
redeemable at the option of the Company, in whole or in part, at any time on
or after December 31, 1998, at the following redemption prices (expressed as
percentages of principal amount), together with accrued and unpaid interest,
if any, thereon to the redemption date, if redeemed during the 12-month period
beginning December 31:
<TABLE>
<CAPTION>
OPTIONAL
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
1998.................................. 108.0%
1999.................................. 106.4
2000.................................. 104.8
2001.................................. 103.2
2002.................................. 101.6
</TABLE>
If less than all of the Notes are to be redeemed at any time, selection of
the Notes to be redeemed will be made by the Trustee from among the
outstanding Notes on a pro rata basis, by lot or by any other method permitted
in the Indenture. Notice of redemption will be mailed at least 30 days but not
more than 60 days before the redemption date to each Holder whose Notes are to
be redeemed at the registered address of such Holder. On and after the
redemption date, interest will cease to accrue on the Notes or portions
thereof called for redemption.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will offer (a
"Change of Control Offer") to purchase all outstanding Notes at a purchase
price equal to 101% of the aggregate principal amount of the Notes, plus
accrued and unpaid interest, if any, to the date of purchase.
Within 30 days after any Change of Control, the Company, or the Trustee at
the Company's request, will mail or cause to be mailed to all Holders on the
date of the Change of Control a notice stating: (i) that a Change of Control
has occurred and that the Holders have the right to require the Company to
purchase any or all of the outstanding Notes at a purchase price equal to 101%
of the principal amount thereof plus accrued and unpaid interest, if any, to
the date of purchase; (ii) the circumstances and relevant facts regarding such
Change of Control; (iii) the purchase date; and (iv) the instructions that
Holders must follow in order to have their Notes purchased. Any Change of
Control Offer will be conducted in compliance with applicable tender offer
rules,
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<PAGE>
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 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 Notes to require
the Company to repurchase such Notes as a result of a transfer or lease of the
Company's assets to another person may be uncertain. There can be no assurance
that, at the time of a Change of Control, the Company will have sufficient
cash to repay all amounts due under the Existing Notes and the Notes.
CERTAIN COVENANTS
Limitations on Additional Indebtedness. The Indenture provides that (i) the
Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create, incur, assume, guarantee, extend the maturity
of or otherwise become liable with respect to (collectively, "incur"), any
Indebtedness (including without limitation Acquired Indebtedness), other than
(a) Junior Subordinated Indebtedness incurred by the Company in compliance
with the provisions of the immediately following sentence or (b) Indebtedness
between the Company and its Wholly Owned Restricted Subsidiaries (provided
that such Indebtedness of the Company to any Wholly Owned Restricted
Subsidiary is expressly subordinated in right of payment to the Notes) or
among such Wholly Owned Restricted Subsidiaries (provided, however, that any
subsequent issue or transfer of any Capital Stock that results in any such
Wholly Owned Restricted Subsidiary ceasing to be a Wholly Owned Restricted
Subsidiary or any transfer of such Indebtedness (other than to a Wholly Owned
Restricted Subsidiary) shall be deemed, in each case, to constitute the
incurrence of such Indebtedness by the Company) and (ii) the Company will not
permit any of its Restricted Subsidiaries to issue (except to the Company or
any of its Wholly Owned Restricted Subsidiaries) any Capital Stock having a
preference in liquidation or with respect to the payment of dividends, unless,
after giving effect thereto, the Company's Consolidated Fixed Charge Coverage
Ratio on the date thereof would be at least:
(1) 2.25 to 1, if such date is on or prior to February 28, 1998; and
(2) 2.50 to 1, if such date is after February 28, 1998,
in each case determined on a pro forma basis as if the incurrence of such
additional Indebtedness or the issuance of such Capital Stock, as the case may
be, and the application of the net proceeds therefrom, had occurred at the
beginning of the four-quarter period used to calculate the Company's
Consolidated Fixed Charge Coverage Ratio. In addition, after the date hereof
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, and the application of the net proceeds therefrom,
had occurred at the beginning of the four-quarter period used to calculate the
Company's Consolidated Fixed Charge Coverage Ratio.
Notwithstanding the immediately preceding paragraph, the Company and its
Restricted Subsidiaries may: (i) incur Indebtedness under the Bank Credit
Agreement in an amount not to exceed $60,000,000; (ii) incur Indebtedness not
otherwise permitted by any other provision hereof, so long as the aggregate
principal amount of Indebtedness incurred under this clause (ii) does not
exceed 7.5% of the Consolidated Tangible Assets of the Company; and (iii)
incur Refinancing Indebtedness. In addition, notwithstanding the provisions of
Section 5.04(a): (A) Subsidiaries of the Company that are not Wholly Owned
Restricted Subsidiaries may incur Indebtedness to the Company of any of its
Wholly Owned Restricted Subsidiaries in the amounts and subject to the
restrictions in Section 5.05(iii) and (B) Single Purpose Subsidiaries of the
Company may incur Non-Recourse Indebtedness to the extent permitted by Section
5.05(iv).
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<PAGE>
Notwithstanding the two preceding paragraphs, the Company may not incur any
Indebtedness if such Indebtedness is subordinated or junior in ranking in any
respect to any Senior Indebtedness unless such Indebtedness is Junior
Subordinated Indebtedness. In addition, the Company may not incur any secured
Indebtedness which is not Senior Indebtedness unless contemporaneously
therewith effective provision is made to secure the Notes equally and ratably
with such secured Indebtedness for so long as such secured Indebtedness is
secured by a Lien.
Limitations on Subsidiary Debt and Preferred Stock. The Indenture further
provides that the Company will not permit any of its Restricted Subsidiaries,
directly or indirectly, to create, incur, assume, guarantee, extend the
maturity of or otherwise become liable with respect to (collectively,
"incur"), any Indebtedness (which, with respect to any Restricted Subsidiary,
includes without limitation preferred stock of such Restricted Subsidiary)
except: (i) guarantees by any Restricted Subsidiary of the payment of the
principal of, premium, if any, and interest on the Indebtedness incurred
pursuant to the Bank Credit Agreement and in compliance with the provisions of
Section 5.11; (ii) Indebtedness issued to and held by the Company or a Wholly
Owned Restricted Subsidiary of the Company (provided, however, that any
subsequent issue or transfer of any Capital Stock that results in any such
Wholly Owned Restricted Subsidiary ceasing to be a Wholly Owned Restricted
Subsidiary or any transfer of such Indebtedness (other than to a Wholly Owned
Restricted Subsidiary) shall be deemed, in each case, to constitute the
incurrence of such Indebtedness by such Restricted Subsidiary); (iii)
Indebtedness to the Company or any of its Wholly Owned Restricted Subsidiaries
incurred by Subsidiaries of the Company that are not Wholly Owned Restricted
Subsidiaries that are engaged in Permitted Businesses in an aggregate amount
(together with all Designated Investments made in Subsidiaries that are not
Wholly Owned Restricted Subsidiaries in compliance with the provisions of
Section 5.06(b)(E)) not to exceed 5% of Consolidated Tangible Assets; and (iv)
Non-Recourse Indebtedness incurred by a Single Purpose Subsidiary.
Limitations on Restricted Payments. The Indenture provides that the Company
will not, and will not permit any of its Restricted Subsidiaries to, directly
or indirectly, make any Restricted Payment if at the time of such Restricted
Payment:
(i) a Default or Event of Default shall have occurred and be continuing
or shall occur as a consequence thereof;
(ii) the Company would be unable to incur an additional $1.00 of Senior
Indebtedness under the covenant described in the first sentence of the
first paragraph under "Limitations on Additional Indebtedness;" or
(iii) the amount of such Restricted Payment, when added to the aggregate
amount of all Restricted Payments (other than those made pursuant to the
provisions of clause (A), (C), (D), (E) or (G) of the immediately following
paragraph) made after the date of this Indenture exceeds the sum of: (a)
50% of the Company's Consolidated Net Income accrued during the period from
September 30, 1996 to the end of the Company's most recent fiscal quarter
for which financial results have been reported at the time of such
Restricted Payment (or, if such aggregate Consolidated Net Income shall be
a deficit, minus 100% of such aggregate deficit); plus (b) the aggregate
amount of Net Reductions in Investments attributable to Designated
Investments made by the Company or any Subsidiary subsequent to the date of
this Indenture; provided, however, that (1) the Net Reductions in
Investments attributable to any Designated Investment for purposes of this
calculation shall not exceed the amount of such Designated Investment, (2)
to the extent that cash or Cash Equivalents included in any Net Reductions
in Investments pursuant to the definition thereof have been or will be
included in the computation of Consolidated Net Income for purposes of
determining the ability of the Company or any of its Restricted
Subsidiaries to make Restricted Payments under clause (iii)(a) of this
paragraph, such cash or Cash Equivalents shall not also be included in
computing Net Reductions in Investments for purposes of this clause
(iii)(b) and (3) the Company will not be permitted to make any Restricted
Payment described in clause (i) or (ii) of the definition of Restricted
Payment from any Net Reductions in Investments.
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<PAGE>
Notwithstanding the foregoing, the provisions of clauses (ii) and (iii) of
the immediately preceding paragraph will not prevent:
(A) the Company or any Wholly Owned Restricted Subsidiary from making
Investments in Subsidiaries, in an aggregate amount not to exceed
$4,000,000, pursuant to contractual obligations in existence on the date of
the Indenture or directly related to projects in existence on the date of
the Indenture;
(B) the Company from paying any dividend within 60 days after the date
of its declaration if such dividend could have been paid on the date of its
declaration without violation of this covenant;
(C) the Company from purchasing or redeeming and retiring any shares of
Capital Stock of the Company, and paying accrued and unpaid dividends on
such shares at the time of such repurchase or redemption, in exchange for,
or out of the net proceeds of a substantially concurrent sale (other than
to a Subsidiary of the Company or an employee stock ownership plan) of
shares of Qualified Capital Stock of the Company;
(D) the Company or any Subsidiary from making (1) Investments pursuant to
the provisions of employee benefit plans of the Company or any of its
Subsidiaries in an aggregate amount not to exceed $500,000 in any fiscal
year, or (2) making loans to officers of the Company in connection with any
relocation of residence, approved by a majority of the independent members
of the Board of Directors of the Company, provided that the aggregate
amount of Investments and loans under this clause (D) shall not exceed $1
million in any fiscal year;
(E) the Company or any Wholly Owned Restricted Subsidiary from making
Designated Investments (1) in Subsidiaries that are not Wholly Owned
Restricted Subsidiaries in an aggregate amount (together with Indebtedness
incurred by or on behalf of Subsidiaries that are not Wholly Owned
Restricted Subsidiaries in compliance with the provisions of clause (iii)
of the covenant described under "Limitations on Subsidiary Debt and
Preferred Stock) not to exceed 5% of Consolidated Tangible Assets or (2) in
Joint Ventures in an aggregate amount not to exceed 5% of Consolidated
Tangible Assets, provided that: (x) the Person in whom the Investment is
made is engaged only in Permitted Businesses; (y) the Company, directly or
through Wholly Owned Restricted Subsidiaries of the Company, controls,
under an operating and management agreement or otherwise, the day to day
management and operation of such Person or otherwise has the right to
exercise significant influence over the management and operation of such
Person in all material respects (including without limitation the right to
control or veto any material act or decision); and (z) after giving effect
to such Investment, the aggregate amount of Indebtedness and Investments
made by the Company and its Subsidiaries in such Person does not exceed $5
million;
(F) the Company or any Wholly Owned Restricted Subsidiary from making
Designated Investments in Subsidiaries that are not Wholly Owned Restricted
Subsidiaries or in Joint Ventures; provided that such Designated
Investments are made solely from (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
from September 30, 1996 to the end of the Company's most recent fiscal
quarter for which financial results have been reported at the time of such
Restricted Payment, 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 from redeeming 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 be at a price in excess
of the redemption price set forth in Section 17.01 of the Company's Amended
and Restated Certificate of Incorporation in effect as of January 11, 1994;
and provided, further, that prior to January 13, 1997, the Company shall
not redeem any of the outstanding shares of the Company's Series 2D Senior
Preferred Stock until the Company delivers to the Trustee an Officers'
Certificate certifying that the Company's earnings before interest and
taxes for the most recent twelve (12) month period calculated in accordance
with generally accepted accounting principles equaled or exceeded $27
million. Nothing contained in this further proviso shall affect the
Company's right to redeem the Series 2D Senior Preferred Stock no later
than January 13, 1997; or
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<PAGE>
(H) the Company from (1) making all regular quarterly dividends, each
such quarterly dividend payment not to exceed $487,500 in the aggregate or
$2,437.50 per share, on the outstanding shares of the Company's Series 2D
Senior Preferred Stock; and (2) making all payments of any dividends of up
to 9.75% on the aggregate unpaid amount of any regular quarterly dividend
on the outstanding shares of the Company's Series 2D Senior Preferred Stock
from the date such regular quarterly dividend should have been paid to the
date of the payment of such dividend; in consideration thereof, and except
as provided below, the Company increased the Interest payable on the Notes
by one percent (1%) (the "Additional Interest") from the date of the
Indenture, such Additional Interest payable as provided for in the Notes.
The Company files its financial results with the Securities and Exchange
Commission on quarterly and annual reports, and these reports include the
Company's earnings after deducting minority interests and before interest,
taxes, depreciation, and amortization calculated in accordance with
generally accepted accounting principles ("Earnings"). The Company will
measure its Earnings for trailing twelve month periods, each period to end
on the last day of a fiscal quarter and extend no further than March 31,
1998 (each a "Quarterly Measurement Period"). If the Company's Earnings
equal or exceed $36 million for two consecutive Quarterly Measurement
Periods, then the Company is relieved of its obligation to pay any future
Additional Interest. However, if the Company's Earnings do not equal or
exceed $36 million for any subsequent Quarterly Measurement Period, up to
and including the Quarterly Measurement Period ending March 31, 1998, the
Company is obligated to commence paying Additional Interest until the
Company's Earnings again equal or exceed $36 million on a trailing twelve
month basis calculated quarterly.
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 $1,000,000 in the aggregate of retained earnings of ICF Kaiser Servicios
Ambientales, S.A. de C.V., (ii) any such Payment Restriction contained in
Existing Indebtedness or existing contracts to which the Company or any of its
Restricted Subsidiaries are parties, (iii) any such Payment Restriction under
any agreement evidencing any Acquired Indebtedness that was permitted to be
incurred pursuant to the provisions of this Indenture, provided that such
Payment Restriction only applies to assets that were subject to such
restrictions and encumbrances prior to the acquisition of such assets by the
Company or its Restricted Subsidiaries and (iv) any such Payment Restriction
arising in connection with Refinancing Indebtedness; provided that any such
Payment Restrictions that arise under such Refinancing Indebtedness are not,
taken as a whole, more restrictive than those under the agreement creating or
evidencing the Indebtedness being refunded or refinanced.
Limitations on Transactions with Affiliates. The Indenture provides that the
Company will not, and will not permit any of its Restricted Subsidiaries to,
make any loan, advance, guarantee or capital contribution to or for the
benefit of, or sell, lease, transfer or otherwise dispose of any of its
properties or assets to or for the benefit of, or make any Investment in, or
purchase or lease any property or assets from, or enter into or amend any
contract, agreement or understanding with or for the benefit of, any Affiliate
of the Company or any of its Subsidiaries (each an "Affiliate Transaction"),
other than Affiliate Transactions in the ordinary course of business and
consistent with past practice that are fair to the Company of such Restricted
Subsidiary, as the case may be, and are on terms at least as favorable as
would have been obtainable at such time from an unaffiliated party, unless the
Board of Directors of the Company or such Restricted Subsidiary, as the case
may be, pursuant to a Board Resolution reasonably and in good faith determines
that such Affiliate Transaction is fair to the Company or such Restricted
Subsidiary, as the case may be, and is on terms at least as favorable as would
have been obtainable at such time from an unaffiliated party. In addition, the
Company will not, and will not permit any of its Restricted Subsidiaries to,
enter into any Affiliate Transaction or series of Affiliate Transactions
involving or having a value of more than (i) $1 million unless a majority of
the members of the Board of Directors of the Company who are not affiliated
with any other party to such Affiliate Transaction reasonably and in good
faith shall have determined that such Affiliate Transaction or series of
Affiliate Transactions is fair to the Company or such Restricted Subsidiary,
as the case may be, and is on terms at least as favorable as would have been
obtainable at such time from an unaffiliated party and (ii) $5 million unless
the Company or such
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Restricted Subsidiary, as the case may be, has received an opinion from an
Independent Financial Advisor to the effect that the financial terms of such
Affiliate Transaction are fair to the Company or such Restricted Subsidiary,
as the case may be, from a financial point of view.
The provisions of the foregoing paragraph shall not apply to: (i)
transactions exclusively between or among the Company and any of its Wholly
Owned Restricted Subsidiaries or exclusively between or among any of the
Company's Wholly Owned Restricted Subsidiaries, provided that such
transactions are not otherwise prohibited by the Indenture; (ii) arms-length
transactions between the Company or any of its Wholly Owned Restricted
Subsidiaries and the other owners of any Subsidiary or Joint Venture described
in the last sentence of the definition of Affiliate; and (iii) reasonable
compensation, indemnification and other benefits paid or made available to
officers, directors and employees of the Company or any Subsidiary for
services rendered in such Person's capacity as an officer, director or
employee.
Limitations on Asset Sales. The Indenture provides that the Company will
not, and will not permit any of its Restricted Subsidiaries to, consummate any
Asset Sale unless: (i) the Company or its Restricted Subsidiaries receive
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets or Capital Stock included in such Asset Sale; (ii) the
aggregate fair market value of the consideration from such Asset Sale (other
than consideration in the form of assumption of Indebtedness of the Company or
one or more of its Restricted Subsidiaries from which the Company or such
Restricted Subsidiaries, as the case may be, are released) that is not in the
form of cash or Cash Equivalents shall not, when aggregated with the fair
market value of all other non-cash or non-Cash Equivalent consideration
received by the Company and its Restricted Subsidiaries from all previous
Asset Sales since the date of this Indenture that have not yet been converted
into cash or Cash Equivalents, exceed 5% of Consolidated Tangible Assets of
the Company at the time of such Asset Sale; and (iii) if the aggregate fair
market value of the assets or Capital Stock to be sold in such Asset Sale
exceeds $3 million such Asset Sale has been approved by the Company's Board of
Directors.
Within six months after consummation of any such Asset Sale (the Business
Day closest to the end of such six-month period is referred to as the "Asset
Sale Offer Date"), the Company shall, or shall cause the applicable Restricted
Subsidiary to: (i) reinvest the cash and Cash Equivalent portion of the Net
Proceeds of such Asset Sale in a manner that would constitute a Related
Business Investment; (ii) apply or cause to be applied the cash and Cash
Equivalent portion of the Net Proceeds of such Asset Sale to repay outstanding
Senior Indebtedness of the Company or any Restricted Subsidiary, provided,
however, that any such repayment of Indebtedness under any revolving credit
facility or similar agreement shall result in a permanent reduction in the
lending commitment relating thereto in an amount equal to the principal amount
so repaid; or (iii) apply or cause to be applied the cash and Cash Equivalent
portion of the Net Proceeds of such Asset Sale that is neither reinvested as
provided in clause (i) nor applied to the repayment of Senior Indebtedness as
provided in clause (ii), (x) first to the purchase of Existing Notes tendered
to the Company at a purchase price equal to 100% of the principal amount
thereof, plus accrued and unpaid interest, if any, thereon to the date of
purchase, pursuant to an offer to purchase made by the Company as set forth in
Article 3 and Section 5.09 of the Existing Indenture and the Indenture (an
"Asset Sale Offer") and (y) second to the purchase of the Notes tendered to
the Company at a purchase price equal to 100% of the principal thereof, plus
accrued and unpaid interest, if any, thereon to the date of purchase, pursuant
to an Asset Sale Offer, provided, however, that the Company may defer the
Asset Sale Offer for the Existing Notes until the amount subject thereto would
be at least $5 million, and provided, further, that the Company may defer the
Asset Sale Offer for the Notes until remaining amount subject thereto would be
at least $5 million.
Notwithstanding the foregoing provisions: (i) to the extent that any or all
of the Net Proceeds of any Foreign Asset Sale are prohibited or delayed by
applicable local law from being repatriated to the United States, the portion
of such Net Proceeds so affected will not be required to be applied in the
manner set forth in this covenant but may be retained by the applicable
Foreign Subsidiary so long, but only so long, as the applicable local law will
not permit repatriation to the United States (the Company hereby agreeing to
cause the applicable Foreign Subsidiary promptly to take all actions required
by the applicable local law to permit such repatriation) and, once such
repatriation of any such affected Net Proceeds is permitted under the
applicable local law, such
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repatriation will be immediately effected and such repatriated Net Proceeds
will be applied in a manner set forth in this covenant; and (ii) to the extent
that the Board of Directors has determined in good faith that repatriation of
any or all of the Net Proceeds of any Foreign Asset Sale would have a material
adverse tax consequence, the Net Proceeds so affected may be retained by the
applicable Foreign Subsidiary for so long as such material adverse tax
consequence would continue.
Each Asset Sale Offer: (i) will be mailed to the record Holders of the Notes
as shown on the register of Holders of Notes, with a copy to the Trustee; (ii)
will specify the purchase date (which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed and not later than 240
days after the date of the Asset Sale giving rise to such Asset Sale Offer);
and (iii) otherwise will comply with the procedures set forth in the
Indenture. Upon receiving notice of the Asset Sale Offer, Holders of Notes may
elect to tender their Notes in whole or in part in integral multiples of
$1,000 in exchange for cash. To the extent Holders properly tender Notes in an
amount exceeding the amount of Net Proceeds used to make the Asset Sale Offer,
Notes of tendering Holders will be repurchased on a pro rata basis (based on
amounts tendered).
The Company will comply with the requirements of Section 14(e) under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to any Asset Sale Offer.
Restrictions on Sale of Stock of Subsidiaries. The Indenture provides that
the Company may not sell or otherwise dispose of any of the Capital Stock of
any Restricted Subsidiary of the Company unless: (i) (a) (x) the Company shall
retain ownership of more than 50% of the Common Equity of such Restricted
Subsidiary or (y) all of the Capital Stock of such Restricted Subsidiary shall
be sold or otherwise disposed of, and (b) the Net Proceeds from any such sale
or disposition are applied in a manner consistent with the provisions
described under "Limitations on Asset Sales"; or (ii) the Company elects to
treat the amount of its remaining investment in any such Restricted Subsidiary
that has become a Joint Venture as a result of such sale or other disposition
as an Investment in such Joint Venture subject to the provisions described
under "Limitations on Restricted Payments."
Limitations on Mergers and Certain Other Transactions. The Indenture
provides that the Company, in a single transaction or a series of related
transactions, will not (i) consolidate or merge with or into, or sell, lease,
convey or otherwise dispose of all or substantially all of its assets, or
assign any of its obligations under the Notes or the Indenture, to any Person
or (ii) adopt a Plan of Liquidation unless, in either case: (a) the Person
formed by or surviving such consolidation or merger (if other than the
Company) or to which such sale, lease, conveyance or other disposition or
assignment shall be made (or, in the case of a Plan of Liquidation, one Person
to which assets are transferred) (collectively, the "Successor"), is a
corporation organized and existing under the laws of the United States or any
State thereof or the District of Columbia, and the Successor assumes by
supplemental indenture in a form satisfactory to the Trustee all of the
obligations of the Company under the Notes and the Indenture; (b) immediately
prior to and immediately after giving effect to such transaction and the
assumption of the obligations as set forth in clause (a) above and the
incurrence of any Indebtedness to be incurred in connection therewith, no
Default or Event of Default shall have occurred and be continuing; and (c)
immediately after and giving effect to such transaction and the assumption of
the obligations as set forth in clause (a) above and the incurrence of any
Indebtedness to be incurred in connection therewith, and the use of any net
proceeds therefrom on a pro forma basis, (1) the Consolidated Tangible Net
Worth of the Company or the Successor, as the case may be, would be at least
equal to the Consolidated Tangible Net Worth of the Company immediately prior
to such transaction and (2) the Company or the Successor, as the case may be,
could incur at least $1.00 of additional Senior Indebtedness under the
covenant described under "Limitations on Additional Indebtedness."
In addition, the Indenture will provide 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 reference
Single Purpose Subsidiary owns an interest.
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The foregoing provisions of the Indenture will not prohibit a transaction
the sole purpose of which (as determined in good faith by the Board of
Directors and evidenced by a Board Resolution) is to change the state of
incorporation of the Company or a Single Purpose Subsidiary, as the case may
be, and such transaction does not have as one of its purposes the evasion of
the limitations described above.
Limitations on Guarantees. The Indenture provides that the Company will not
permit any of its Restricted Subsidiaries to guarantee any Indebtedness (other
than (i) the Guarantors and (ii) guarantees delivered pursuant to the Bank
Credit Agreement by Subsidiaries of the Company who have delivered similar
guarantees prior to the date of the Indenture) unless the Company causes each
such Subsidiary to execute and deliver to the Trustee, prior to or
concurrently with the issuance of such guarantee, a supplemental indenture, in
form satisfactory to the Trustee, pursuant to which such Subsidiary
unconditionally guarantees the payment of principal of, premium, if any, and
interest on the Notes. Any such guarantee will be substantially in the form of
the Subsidiary Guarantee included as an Exhibit to the Indenture. See "--
Subsidiary Guarantees."
EVENTS OF DEFAULT
An "Event of Default" is defined in the Indenture as (i) failure by the
Company to pay interest on any of the Notes when it becomes due and payable
and the continuance of any such failure for 30 days; (ii) failure by the
Company to pay the principal or premium of any of the 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); (iii) failure by the Company
to comply with any covenant in the Indenture and continuance of such failure
for 60 days after notice of such failure has been given to the Company by the
Trustee or by the Holders of at least 25% of the aggregate principal amount of
the Notes then outstanding; (iv) failure by the Company or any of its
Subsidiaries to make any payment when due or during any applicable grace
period, and the continuation of such failure for seven days, in respect of any
Indebtedness of the Company or any of its Subsidiaries 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.
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 Notes then
outstanding by written notice to the Company and the Trustee, may declare all
amounts owing under the Notes to be due and payable immediately. If an Event
of Default results from bankruptcy, insolvency or reorganization involving the
Company, all outstanding Notes shall become due and payable without any
further action or notice. In certain cases, the Holders of a majority in
aggregate principal amount of the Notes 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 Notes cannot be
so waived.
The Holders may not enforce the provisions of the Indenture or the Notes
except as provided in the Indenture. Subject to certain limitations, Holders
of a majority in principal amount of the Notes then outstanding may direct the
Trustee in its exercise of any trust or power; 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 Notes) if the Trustee determines that withholding such notice
is in the Holders' interest.
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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.
DISCHARGE OF INDENTURE
The Indenture permits the Company to terminate all of its obligations under
the Indenture, other than the obligation to pay the principal of, premium, if
any, and interest on the Notes, and certain other obligations at any time by
(i) depositing in trust with the Trustee, under an irrevocable trust
agreement, money, or U.S. government obligations in an amount sufficient to
pay principal of, premium, if any, and interest on the Notes to their maturity
or redemption, 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 Note; (ii) affect the terms of any
scheduled payment of interest on or principal of the Notes (including without
limitation any redemption provisions); (iii) modify or eliminate any of the
provisions of the Indenture relating to a Change of Control; or (iv) 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 Notes may be amended or
supplemented, and any existing Default under, or compliance with any provision
of, the Indenture may be waived (other than any continuing Default or Event of
Default in the payment of the principal of, premium, if any, or interest on
the Notes or that resulted from the failure to comply with the covenant
described under "Change of Control") with the consent of Holders of at least a
majority in principal amount of the then outstanding Notes.
Without the consent of any Holder, the Company and the Trustee may amend or
supplement the Indenture or the Notes to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or in place
of certificated Notes, to provide for the assumption of the Company's
obligations to Holders in the case of a merger or acquisition, or to make any
change that does not adversely affect the rights of any Holder.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee is permitted to engage in
other transactions; however, if it acquires any conflicting interest as
defined in the Indenture, it must eliminate such conflict or resign. The
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.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms that are used
in the Indenture. Reference is made to the Indenture for the full definition
of all such terms and certain other terms.
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"Acquired Indebtedness" means: (i) with respect to any Person that becomes a
direct or indirect Subsidiary of the Company after the date of this Indenture,
Indebtedness of such Person and its Subsidiaries existing at the time such
Person becomes a Subsidiary of the Company that was not incurred in connection
with, or in contemplation of, such Person becoming a Subsidiary of the
Company; and (ii) with respect to the Company or any of its Subsidiaries, any
Indebtedness assumed by the Company or any of its Subsidiaries in connection
with the acquisition of an asset from another Person that was not incurred by
such other Person in connection with, or in contemplation of, such
acquisition.
"Affiliate" of any Person means any Person (i) which directly or indirectly
controls or is controlled by, or is under direct or indirect common control
with, the referent Person, (ii) which beneficially owns or holds 10% or more
of any class of the Voting Stock of the referent Person or (iii) of which 10%
or more of the Voting Stock (or, in the case of a Person which is not a
corporation, 10% or more of the equity interest) is beneficially owned or held
by the referent Person. For purposes of this definition, control of a Person
shall mean the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise. Notwithstanding the foregoing, the term "Affiliate"
shall not include, with respect to the Company or any Wholly Owned Subsidiary
of the Company, (a) any Wholly Owned Subsidiary of the Company or (b) any
Subsidiary of the Company that is not a Wholly Owned Subsidiary or any Joint
Venture, provided that such Subsidiary or Joint Venture is not under the
control of, and does not have any Capital Stock (other than directors'
qualifying shares) or Indebtedness owned or held by, any Affiliate of the
Company.
"Asset Sale" for any Person means the sale, lease, transfer or other
disposition or series of sales, leases, transfers or other dispositions
(including without limitation by merger or consolidation, and whether by
operation of law or otherwise) of any of that Person's assets (including
without limitation the sale or other disposition of Capital Stock of any
Subsidiary of such Person, whether by such Person or by such Subsidiary),
whether owned on the date of this Indenture of subsequently acquired,
excluding, however: (i) any sale, lease, transfer or other disposition between
the Company and any of its Wholly Owned Restricted Subsidiaries; (ii) any
transfer of assets of the Company or any of its Restricted Subsidiaries that
constitutes and is treated as a Designated Investment; (iii) any transfer of
assets of the Company or any of its Restricted Subsidiaries that constitutes a
Change of Control and that is governed by and effected in accordance with the
provisions of Section 5.03 and Article 6; and (iv) any sale, lease, transfer
or other disposition, or series of sales, leases, transfers or other
dispositions, of assets having a purchase price or transaction value, as the
case may be, of $1,000,000 or less, provided that no Default or Event of
Default exists at the time of such sale.
"Attributable Indebtedness", when used with respect to any Sale and
Leaseback Transaction, means, as at the time of determination, the greater of
(i) the fair market value of the property subject to such Sale and Leaseback
Transaction and (ii) the present value (discounted at a rate equivalent to the
Company's then-current weighted average cost of funds for borrowed money as at
the time of determination, compounded on a semi-annual basis) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in any such Sale and Leaseback Transaction.
"Bank Credit Agreement" means the Credit Agreement dated as of May 6, 1996
among the Company, certain banks and CoreStates Bank, N.A. as such agreement
has been and may be amended, restated, supplemented or otherwise modified from
time to time, and includes any successor bank credit agreement.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal, state or
foreign law for the relief of debtors.
"Board Resolution" for any Person means a duly adopted resolution of the
Board of Directors of such Person.
"Capital Stock" of any Person means any and all shares, rights to purchase,
warrants or options (whether or not currently exercisable), participations or
other equivalents of or interests in (however designated) the equity
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(including without limitation common stock, preferred stock and partnership
and joint venture interests) of such Person.
"Capitalized Lease Obligations" of any Person means the obligations of such
Person to pay rent or other amounts under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP, and the
amount of such obligation shall be the capitalized amount thereof determined
in accordance with GAAP.
"Cash Equivalents" means: (i) obligations issued or unconditionally
guaranteed by the United States of America or any agency thereof or
obligations issued by any agency or instrumentality thereof and backed by the
full faith and credit of the United States of America; (ii) commercial paper
rated the highest grade by Moody's Investors Service, Inc. and Standard &
Poor's Corporation and maturing not more than one year from the date of
creation thereof; and (iii) readily marketable direct obligations issued by
any state of the United States of America or any political subdivision thereof
having one of the two highest rating categories obtainable from either Moody's
Investors Service, Inc. or Standard & Poor's Corporation.
"Change of Control" means any of the following: (i) the sale, lease,
conveyance or other disposition of all or substantially all of the Company's
assets as an entirety or substantially as an entirety to any Person or "group"
(within the meaning of Section 13(d)(3) of the Exchange Act) in one or a
series of transactions, provided that a transaction where the holders of all
classes of Common Equity of the Company immediately prior to such transaction
own, directly or indirectly, more than 50% of the aggregate voting power of
all classes of Common Equity of such Person or group immediately after such
transactions shall not be a Change of Control; (ii) the acquisition by the
Company and any of its Subsidiaries of 50% or more of all classes of Common
Equity of the Company in one transaction or a series of related transactions;
(iii) the approval by the Company of a Plan of Liquidation of the Company;
(iv) any transaction or series of transactions (as a result of a tender offer,
merger, consolidation or otherwise) that results in, or that is in connection
with, (a) any Person, including a "group" (within the meaning of Section
13(d)(3) of the Exchange Act) that includes such Person, acquiring "beneficial
ownership" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of 50% or more of the aggregate voting power of all classes of
Common Equity of the Company or any Person that possesses "beneficial
ownership" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of 50% or more of the aggregate voting power of all classes of
Common Equity of the Company, or (b) less than 50% (measured by the aggregate
voting power of all classes) of the Company's Common Equity being registered
under Section 12(b) or 12(g) of the Exchange Act; or (v) a majority of the
Board of Directors of the Company not being comprised of Continuing Directors.
"Common Equity" of any Person means all Capital Stock of such Person that is
generally entitled to (i) vote in the election of directors of such Person or
(ii) if such Person is not a corporation, vote or otherwise participate in the
selection of the governing body, partners, managers or others that will
control the management and policies of such Person.
"Consolidated Amortization Expense" of any Person for any period means the
amortization expense of such Person and its Restricted Subsidiaries for such
period (to the extent included in the computation of Consolidated Net Income
of such Person), determined on a consolidated basis in accordance with GAAP.
"Consolidated Depreciation Expense" of any Person for any period means the
depreciation expense of such Person and its Restricted Subsidiaries for such
period (to the extent included in the computation of Consolidated Net Income
of such Person), determined on a consolidated basis in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" of any Person means, with respect
to any determination date, the ratio of (i) EBITDA for such Person's prior
four full fiscal quarters for which financial results have been reported
immediately preceding the determination date to (ii) the aggregate Fixed
Charges of such Person for such four fiscal quarters; provided, however, that
if any calculation of the Company's Consolidated Fixed Charge Coverage Ratio
requires the use of any quarter beginning prior to the date of this Indenture,
such
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calculation shall be made on a pro forma basis, giving effect to the issuance
of the Notes and the use of the net proceeds therefrom as if the same had
occurred at the beginning of the four-quarter period used to make such
calculation; and provided, further, that if any such calculation requires the
use of any quarter prior to the date that any Asset Sale was consummated, or
that any Indebtedness was incurred, or that any acquisition was effected, by
the Company or any of its Restricted Subsidiaries, such calculation shall be
made on a pro forma basis, giving effect to each such Asset Sale, incurrence
of Indebtedness or acquisition, as the case may be, and the use of any
proceeds therefrom, as if the same had occurred at the beginning of the four-
quarter period used to make such calculation.
"Consolidated Income Tax Expense" means, for any Person for any period, the
provision for taxes based on income and profits of such Person and its
Restricted Subsidiaries to the extent such income or profits were included in
computing Consolidated Net Income of such Person for such period.
"Consolidated Net Income" of any Person for any period means the net income
(or loss) of such Person and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP; provided that
there shall be excluded from such net income (to the extent otherwise included
therein), without duplication: (i) the net income (or loss) of any Person
(other than a Restricted Subsidiary of the reference Person) in which any
Person other than the referent Person has an ownership interest, except to the
extent that any such income has actually been received by the referent Person
or any of its Wholly Owned Restricted Subsidiaries in the form of cash
dividends or similar cash distributions during such period; (ii) except to the
extent includible in the consolidated net income of the referent Person
pursuant to the foregoing clause (i), the net income (or loss) of any Person
that accrued prior to the date that (a) such Person becomes a Restricted
Subsidiary of the referent Person or is merged into or consolidated with the
referent Person or any of its Restricted Subsidiaries or (b) the assets of
such Person are acquired by the referent Person or any of its Restricted
Subsidiaries; (iii) the net income (or loss) of any Restricted Subsidiary of
the referent Person to the extent that the declaration or payment of dividends
or similar distributions by such Restricted Subsidiary of that income is not
permitted by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary during such period (provided that the
amount of loss excluded pursuant to this clause (iii) shall not exceed that
amount of net income excluded pursuant to this clause (iii)); (iv) any gain
(but not loss, except pursuant to clause (vii) below), together with any
related provisions for taxes on any such gain, realized during such period by
the referent Person or any of its Restricted Subsidiaries upon (a) the
acquisition of any securities, or the extinguishment of any Indebtedness, of
the referent Person or any of its Restricted Subsidiaries or (b) any Asset
Sale by the referent Person or any of its Restricted Subsidiaries; (v) any
extraordinary gain (but not extraordinary loss, except pursuant to clause
(vii) below), together with any related provision for taxes on any such
extraordinary gain, realized by the referent Person or any of its Restricted
Subsidiaries during such period; (vi) in the case of a successor to such
Person by consolidation, merger or transfer of its assets, any earnings of the
successor prior to such merger, consolidation or transfer of assets; and (vii)
in the case of the Company, any extraordinary loss directly related to the
repurchase or repayment, substantially concurrently with the sale of the
Notes, of (a) the Company's 13.5% Senior Subordinated Notes due 1999 and
warrants issued in connection with the issuance of such notes, (b) the Bank
Credit Agreement and (c) the Company's Series 2C Senior Preferred Stock and
related Series 2C Warrants.
"Consolidated Net Tangible Assets" of any Person as of any date means the
Consolidated Tangible Assets of such Person and its Restricted Subsidiaries
less the total current liabilities of such Person and its Restricted
Subsidiaries, on a consolidated basis as of such date.
"Consolidated Tangible Assets" of any Person as of any date means the total
assets of such Person and its Restricted Subsidiaries (excluding any assets
that would be classified as "intangible assets" under GAAP) on a consolidated
basis at such date, determined in accordance with GAAP, less all write-ups
subsequent to September 30, 1996 in the book value of any asset owned by such
Person or any of its Restricted Subsidiaries.
"Consolidated Tangible Net Worth" of any Person as of any date means the
stockholders' equity (including any preferred stock that is classified as
equity under GAAP, other than Disqualified Stock) of such Person and
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its Restricted Subsidiaries (excluding any equity adjustment for foreign
currency translation for any period subsequent to September 30, 1996 and any
assets that would be classified as "intangible assets" under GAAP) on a
consolidated basis at such date, as determined in accordance with GAAP, less
all write-ups subsequent to September 30, 1996 in the book value of any asset
owned by such Person or any of its Restricted Subsidiaries.
"Continuing Director" of the Company as of any date means a member of the
Board of Directors of the Company who (i) was a member of the Board of
Directors of the Company on the date of this Indenture or (ii) was nominated
for election or elected to the Board of Directors of the Company with the
affirmative vote of at least a majority of the directors who were Continuing
Directors at the time of such nomination or election.
"Default" means any event, act or condition that is, or after notice or the
passage of time or both would be, an Event of Default.
"Designated Investments" means Investments made after the date of this
Indenture in (i) any Subsidiary of the Company that is not a Wholly Owned
Restricted Subsidiary or (ii) any Joint Venture, provided that such Subsidiary
or Joint Venture is engaged in one or more Permitted Businesses.
"Disqualified Stock" means any Capital Stock that, by its terms, by the
terms of any agreement related thereto or by the terms of any security into
which it is convertible, puttable or exchangeable, is, or upon the happening
of any event or the passage of time would be, required to be redeemed or
repurchased by the issuer thereof or any of its Subsidiaries, whether or not
at the option of the holder thereof, or matures or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, in whole or in part, on or
prior to the final maturity date of the Notes.
"EBITDA" means, with respect to any Person for any period, without
duplication, the sum of the amounts for such period of (i) Consolidated Net
Income, (ii) Consolidated Income Tax Expense, (iii) Consolidated Amortization
Expense (but only to the extent not included in Fixed Charges), (iv)
Consolidated Depreciation Expense, (v) Fixed Charges and (vi) all other non-
cash items reducing the Consolidated Net Income of such Person and its
Restricted Subsidiaries, in each case determined on a consolidated basis in
accordance with GAAP (provided, however, that the amounts set forth in clauses
(ii) through (vi) shall be included only to the extent such amounts reduce
Consolidated Net Income), less the aggregate amount of all non-cash items,
determined on a consolidated basis, to the extent such items increase
Consolidated Net Income.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Indebtedness" means all of the Indebtedness of the Company and its
Restricted Subsidiaries that is outstanding on the date of this Indenture.
"Existing Indenture" means the Indenture dated as of January 11, 1994, as
such Indenture has been and may be amended, restated, supplemented or
otherwise modified from time to time.
"Fixed Charges" means, with respect to any Person for any period, the
aggregate amount of (i) interest, whether expensed or capitalized, paid,
accrued or scheduled to be paid or accrued during such period (except to the
extent accrued in a prior period) in respect of all Indebtedness of such
Person and its Restricted Subsidiaries (including (a) original issue discount
on any Indebtedness and (b) the interest portion of all deferred payment
obligations, calculated in accordance with the effective interest method, in
each case to the extent attributable to such period) and (ii) dividend
requirements on preferred stock of such Person and its Subsidiaries (whether
in cash or otherwise), but not including dividends payable solely in shares of
Qualified Capital Stock, paid, accrued or schedules to be paid or accrued
during such period (except to the extent accrued in a prior period), and
excluding items eliminated in consolidation. For purposes of this definition,
(1) interest on a Capitalized Lease Obligation shall be deemed to accrue at
the rate of interest implicit in such Capitalized Lease Obligation in
accordance with GAAP, (2) interest on Indebtedness that is determined on a
fluctuating basis shall be deemed to have accrued at a fixed rate per annum
equal to the rate of interest of such Indebtedness in effect on the last day
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of the period with respect to which Fixed Charges are being calculated, (3)
interest on Indebtedness that may optionally be determined at an interest rate
based upon a factor of a prime or similar rate, a eurocurrency interbank
offered rate or other rates, shall be deemed to have been based upon the rate
actually chosen, or, if none, then based upon such optional rate chosen as
such Person may designate and (4) Fixed Charges shall be increased or reduced
by the net cost (including without limitation amortization of discount) or
benefit associated with Hedging Obligations attributable to such period. For
purposes of clause (ii) above, dividend requirements (other than dividends
payable solely in shares of Qualified Capital Stock) shall be increased to any
amount representing the pretax earnings that would be required to cover such
dividend requirements; accordingly, the increased amount shall be equal to a
fraction, the numerator of which is such dividend requirements and the
denominator of which is 1 minus the applicable actual combined Federal, state,
local and foreign income tax rate of such Person and its Subsidiaries
(expressed as a decimal), on a consolidated basis, for the fiscal year
immediately preceding the date of the transaction giving rise to the need to
calculate Fixed Charges.
"Foreign Asset Sale" means any Asset Sale in respect of the Capital Stock or
assets of a Foreign Subsidiary.
"Foreign Subsidiary" means any Subsidiary of the Company that is organized
under the laws of any jurisdiction other than the United States of America,
any state thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, as in effect on January 11, 1994.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any interest rate swap agreement, foreign currency exchange
agreement, interest rate collar agreement, option or futures contract or other
similar agreement or arrangement relating to interest rates or foreign
exchange rates.
"Indebtedness" of any Person at any date means, without duplication: (i) all
liabilities, contingent or otherwise, of such Person for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of
such Person or only to a portion thereof); (ii) all obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments; (iii) all
obligations of such Person in respect of letters of credit or other similar
instruments (or reimbursement obligations with respect thereto), other than
standby letters of credit issued for the benefit of, or surety or performance
bonds issued by, such Person in the ordinary course of business to the extent
such letters of credit are not drawn upon; (iv) all obligations of such Person
with respect to Hedging Obligations; (v) all obligations of such Person to pay
the deferred and unpaid purchase price of property or services, except trade
payables and accrued expenses incurred by such Person in the ordinary course
of business in connection with obtaining goods, materials or services, which
payable is not overdue according to industry practice or the original terms of
sale unless such payable is being contested in good faith; (vi) the maximum
fixed repurchase price of all Disqualified Stock of such Person; (vii) all
Capitalized Lease Obligations of such Person; (viii) all Indebtedness of
others secured by a Lien on any asset of such Person, whether or not such
Indebtedness is assumed by such Person, other than a pledge by a Single
Purpose Subsidiary of the Capital Stock of an Unrestricted Subsidiary or Joint
Venture of such Single Purpose Subsidiary to secure Indebtedness of such
Unrestricted Subsidiary or Joint Venture incurred to finance a project
constituting one or more Permitted Businesses; (ix) all Indebtedness of others
guaranteed by, or otherwise the Liability of, such Person to the extent of
such guarantee or Liability; and (x) all Attributable Indebtedness. The amount
of Indebtedness of any Person at any date shall be the outstanding balance at
such date of all unconditional obligations as described above, the maximum
liability of such Person for any such contingent obligations at such date and,
in the case of clause (viii), the fair market value of any asset subject to a
Lien securing the Indebtedness of others on the date that the Lien attaches.
For purposes of the first sentence hereof, the "maximum fixed repurchase
price" of any Disqualified Stock that does not have a fixed repurchase price
shall be calculated in accordance with the terms of such Disqualified Stock as
if such Disqualified Stock were purchased on any date on which Indebtedness
shall
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be required to be determined pursuant to this Indenture, and if such price is
based upon, or measured by, the fair market value of such Disqualified Stock
(or any equity security for which it may be exchanged or converted), such fair
market value shall be determined in good faith by the Board of Directors of
such Person, which determination shall be evidenced by a Board Resolution.
"Independent Financial Advisor" means an accounting, appraisal or investment
banking firm of nationally recognized standing that is, in the reasonable
judgment of the Company's Board of Directors, qualified to perform the task
for which it has been engaged and disinterested and independent with respect
to the Company and its Affiliates.
"Investments" of any Person means (i) all investments by such Person in any
other Person in the form of loans, advances or capital contributions or
similar credit extensions constituting Indebtedness of such Person, and any
guarantee of Indebtedness of any other Person, (ii) all purchases (or other
acquisitions for consideration) by such Person of Indebtedness, Capital Stock
or other securities of any other Person and (iii) all other items that would
be classified as investments (including without limitation purchases of assets
outside the ordinary course of business) on a balance sheet of such Person
prepared in accordance with GAAP; provided, however, that advances to non-
executive employees and extensions of trade credit and advances to customers
and suppliers and other contractual and trade relationships, requiring
repayment within reasonable commercial periods, to the extent made in the
ordinary course of business consistent with past practice and in accordance
with normal industry practice, shall not be deemed to constitute Investments.
"Joint Venture" means (i) a corporation of which less than a majority of the
aggregate voting power of all classes of the Common Equity is owned by the
Company or its Restricted Subsidiaries and (ii) any entity other than a
corporation in which the Company and its Restricted Subsidiaries own less than
a majority of the Common Equity of such entity.
"Junior Subordinated Indebtedness" of the Company at any date means
Indebtedness of the Company which by its terms, or by the terms of any
agreement or instrument pursuant to which such Indebtedness is issued, (i) is
expressly subordinated in right of payment to the Notes and (ii) provides that
no payment of principal of such Indebtedness by way sinking fund, mandatory
redemption, defeasance or otherwise is required to be made by the Company
(including without limitation at the option of the holder hereof) at any time
prior to the maturity of the Notes.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or other similar encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law (including without limitation any conditional sale or other title
retention agreement, and any lease in the nature thereof, any option or other
agreement to sell, and any filing of, or agreement to give, any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Net Proceeds" with respect to any Asset Sale by any Person means the
aggregate net proceeds received by such Person from such Asset Sale (including
without limitation the amount of cash applied to repay Indebtedness secured by
any asset involved in such Asset Sale or otherwise received as consideration
for the assumption or incurrence of liabilities incurred in connection with or
in anticipation of such Asset Sale) after (i) provision for all income or
other taxes measured by or resulting from such Asset Sale or the transfer of
the proceeds of such Asset Sale to such Person and (ii) payment of all
brokerage commissions and the underwriting and other fees and expenses related
to such Asset Sale, whether such proceeds are in cash or property (valued at
the fair market value thereof at the time of receipt as determined in good
faith by the Board of Directors of such Person, which determination shall be
evidenced by a Board Resolution).
"Net Reductions in Investments" means the amount of cash and Cash
Equivalents, less all fees and expenses incurred or accrued in connection with
the realization or collection of such cash and Cash Equivalents, and after
giving effect to all taxes payable with respect thereto, received with respect
to any Designated Investment, whether from the payment of interest on
Indebtedness, dividends, repayments of loans or advances
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or other transfers of assets from the Person in which such Designated
Investment was made, but only to the extent that such cash or Cash Equivalents
have been paid to the Company or one or more Wholly Owned Restricted
Subsidiaries of the Company in compliance with all applicable laws, rules and
regulations and all relevant documents, agreements and instruments.
"Non-Recourse Indebtedness" of a Single Purpose Subsidiary means
Indebtedness for which (i) the sole legal recourse for collection of
principal, premium, if any, and interest on such Indebtedness is against (a)
the specific property identified in the instruments evidencing or securing
such Indebtedness and such property was acquired with the proceeds of such
Indebtedness or such Indebtedness was incurred within 90 days of the
acquisition of such property or (b) the Capital Stock of such Single Purpose
Subsidiary, provided that such Single Purpose Subsidiary has no assets other
than the specific property acquired with the proceeds of such Indebtedness
plus a reasonable amount of working capital, (ii) no assets of such Single
Purpose Subsidiary, other than those assets identified in clause (i)(a) of
this definition, may be realized upon in collection of principal, premium, if
any, or interest on such Indebtedness and (iii) neither the Company nor any
Restricted Subsidiary of the Company, other than the referent Single Purpose
Subsidiary, is directly or indirectly liable to make any payment thereon, has
made any guarantee or payment or performance of such Indebtedness or has
pledged or granted any lien or encumbrances on any assets as collateral or
security with respect thereto, other than the Capital Stock of the referent
Single Purpose Subsidiary.
"Payment Restriction", with respect to a Subsidiary of any Person, means any
encumbrance, restriction or limitation, whether by operation of the terms of
its charter or by reason of any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation, on the ability of (i) such
Subsidiary to (a) pay dividends or make other distributions on its Capital
Stock or make payments on any obligation, liability or Indebtedness owed to
such Person or any other Subsidiary of such Person, (b) make loans or advances
to such Person or any other Subsidiary of such Person or (c) transfer any of
its properties or assets to such Person or any other Subsidiary of such Person
or (ii) such Person or any other Subsidiary of such Person to receive or
retain any such (a) dividends, distributions or payments, (b) loans or
advances or (c) transfer of properties or assets.
"Permitted Businesses" means the businesses of providing consulting,
engineering or construction services to public and private sector clients in
the environment, energy, infrastructure and industry markets.
"Permitted Investments" means: (i) direct obligations of the United States
of America or any agency thereof, or obligations guaranteed by the United
States of America or any agency thereof, in each case maturing within 180 days
of the date of acquisition thereof; (ii) certificates of deposit or Eurodollar
deposits, due within 180 days of the date of acquisition thereof, with a
commercial bank which is organized under the laws of the United States of
America or any state thereof having capital funds of at least $500,000,000 or
more; and (iii) commercial paper given the highest rating by two established
national credit rating agencies and maturing not more than 180 days from the
date of acquisition thereof.
"Person" means any individual, corporation, partnership, joint venture,
incorporated or unincorporated association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof or other entity of any kind.
"Plan of Liquidation", with respect to any Person, means a plan that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously, in phases or
otherwise): (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such Person otherwise than as an entirety
or substantially as an entirety; and (ii) the distribution of all or
substantially all of the proceeds of such sale, lease, conveyance or other
disposition and all or substantially all of the remaining assets of such
Person to Holders of Capital Stock of such Person.
"Qualified Capital Stock" means Capital Stock that is not Disqualified
Stock.
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"Refinancing Indebtedness" means Indebtedness of the Company or a Restricted
Subsidiary of the Company issued in exchange for, or the proceeds from the
issuance and sale of disbursement of which are used substantially concurrently
to repay, redeem, refund, refinance, discharge or otherwise retire for value,
in whole or in part (collectively, "repay"), or constituting an amendment,
modification or supplement to or a deferral or renewal of (collectively, an
"amendment"), any Indebtedness of the Company or any of its Restricted
Subsidiaries existing immediately after the original issuance of the Notes or
incurred pursuant to the provisions of Section 5.40 in a principal amount not
in excess of the principal amount of the Indebtedness so refinanced; provided
that: (i) the Refinancing Indebtedness is the obligation of the same Person,
and is subordinated to the Notes, if at all, to the same extent, as the
Indebtedness being repaid; (ii) the Refinancing Indebtedness is scheduled to
mature either (a) no earlier than the Indebtedness being repaid or (b) after
the maturity date of the Notes; and (iii) the portion, if any, of the
Refinancing Indebtedness that is scheduled to mature on or prior to the
maturity date of the Notes has a Weighted Average Life to Maturity at the time
such Refinancing Indebtedness is incurred that is equal to or greater than the
Weighted Average Life to Maturity of the portion of the Indebtedness being
repaid that is scheduled to mature on or prior to the maturity date of the
Notes.
"Related Business Investment" means any Investment directly by the Company
or one or more of its Wholly Owned Restricted Subsidiaries in any business
that is closely related to or complements the business of the Company and its
Subsidiaries as such business exists on the date hereof.
"Restricted Debt Payment" means any purchase, redemption, defeasance
(including without limitation in substance or legal defeasance) or other
acquisition or retirement for value, directly or indirectly, by the Company or
a Subsidiary of the Company, prior to the scheduled maturity or prior to any
scheduled repayment of principal or sinking fund payment, as the case may be,
in respect of Indebtedness of the Company that is subordinate in right of
payment to the Notes other than a Restricted Debt Payment made with the
proceeds of a substantially concurrent sale (other than to a Subsidiary of the
Company or an employee stock ownership plan) of the Company's Qualified
Capital Stock, provided that all Indebtedness so purchased, redeemed, defeased
or otherwise acquired or retired for value promptly is surrendered for
cancellation to the trustee for such Indebtedness.
"Restricted Investment", with respect to any Person, means any Investment by
such Person in any of its Affiliates or in any Person other than a Wholly
Owned Restricted Subsidiary other than (i) a Permitted Investment or (ii) an
Investment made with the proceeds of a substantially concurrent sale (other
than to a Subsidiary of the Company or an employee stock ownership plan) of
the Company's Qualified Capital Stock.
"Restricted Payment" means with respect to any Person: (i) the declaration
of any dividend (other than a dividend declared by a Wholly Owned Restricted
Subsidiary to holders of its Common Equity) or the making of any other payment
or distribution of cash, securities or other property or assets in respect of
such Person's Capital Stock, except that a dividend payable solely in
Qualified Capital Stock of such Person shall not constitute a Restricted
Payment (for purposes of this clause (i), the declaration of any such
dividend, or the making of any other such distribution, by any Restricted
Subsidiary shall only constitute an Restricted Payment to the extent of the
amounts paid or payable to Persons other than the Company or a Wholly Owned
Restricted Subsidiary); (ii) any payment on account of the purchase,
redemption, retirement or other acquisition for value of such Person's Capital
Stock or any other payment or distribution made in respect thereof, either
directly or indirectly); (iii) any Restricted Investment; or (iv) any
Restricted Debt Payment.
"Restricted Subsidiary" means each of the Subsidiaries of the Company which,
as of the determination date, is not an Unrestricted Subsidiary of the
Company.
"Sale and Leaseback Transaction" means with respect to any Person an
arrangement with any bank, insurance company or other lender or investor or to
which such lender or investor is a party, providing for the leasing by such
Person or any of its Subsidiaries of any property or asset of such Person or
any of its Subsidiaries which has been or is being sold or transferred by such
Person or such Subsidiary to such lender or investor or to any Person to whom
funds have been or are to be advanced by such lender or investor on the
security of such
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property or asset. Notwithstanding the foregoing, no transaction exclusively
between the Company and any Wholly Owned Restricted Subsidiary shall be deemed
to constitute a Sale and Leaseback Transaction.
"Senior Indebtedness" means all Indebtedness of the Company other than
Indebtedness that is specifically designated, by the terms of the instrument
creating or evidencing the same, as not being senior in right of payment to
the Notes.
"Single Purpose Subsidiary" of any Person means a Subsidiary of such Person
which has no Subsidiaries other than Unrestricted Subsidiaries and the
activities of which are limited to (i) ownership of all or a portion of the
interests in a single project constituting one or more Permitted Businesses,
either directly or through the ownership of Capital Stock of another Person
and (ii) the development, engineering, design, project management,
construction or operation of such project.
"Subsidiary" of any Person means (i) any corporation of which at least a
majority of the aggregate voting power of all classes of the Common Equity is
owned by such Person directly or through one or more other Subsidiaries of
such Person and (ii) any entity other than a corporation in which such Person,
directly or indirectly, owns at least a majority of the Common Equity of such
entity.
"Unrestricted Subsidiary" means American Venture Holdings, Inc., a Delaware
corporation, American Venture Investments Incorporated, a Delaware
corporation, Excell Development Construction, Inc., a Delaware corporation,
ICF Kaiser Holdings Unlimited, Inc., a Delaware corporation, ICF Leasing
Corporation, Inc., a Delaware corporation, International Systems, Inc., a
Colorado corporation, Cygna Consulting Engineers and Project Management, Inc.,
a California corporation, ICF Kaiser Engineers Eastern Europe, Inc., a
Delaware corporation, and ICF Kaiser Netherlands, B.V., a Netherlands
corporation, and each of the other Subsidiaries of the Company so designated
by a resolution adopted by the Board of Directors of the Company and whose
creditors have no direct or indirect recourse (including without limitation
recourse with respect to the payment of principal of or interest on
Indebtedness of such Subsidiary) to the Company or a Restricted Subsidiary
other than a Lien on the Capital Stock of such Unrestricted Subsidiary;
provided, however, that (a) no Subsidiary may be an Unrestricted Subsidiary if
it owns any Capital Stock of a Restricted Subsidiary and (b) the Board of
Directors of the Company will be prohibited after the date of this Indenture
from designating as an Unrestricted Subsidiary any Subsidiary existing on the
date of this Indenture. The Board of Directors of the Company may designate an
Unrestricted Subsidiary to be a Restricted Subsidiary, provided that (i) any
such designation shall be deemed to be an incurrence by the Company and its
Restricted Subsidiaries of the Indebtedness (if any) of such designated
Subsidiary for purposes of the provisions of Section 5.04 as of the date of
such designation and (ii) immediately after giving effect to such designation
and the incurrence of any such additional Indebtedness, the Company and its
Restricted Subsidiaries could incur $1.00 of additional Senior Indebtedness
pursuant to the provisions of Section 5.04. Any such designation or
redesignation by the Board of Directors shall be evidenced to the Trustee by
the filing with the trustee of a certified copy of the Board Resolution of the
Company giving effect to such designation or redesignation and an Officers'
Certificate certifying that such designation or redesignation complied with
the foregoing conditions and setting forth the underlying calculations of such
Officers' Certificate, and upon which certificate the trustee shall
conclusively rely without any investigation whatsoever.
"Voting Stock", with respect to any Person, means securities of any class of
Capital Stock of such Person entitling the holders thereof (whether at all
times or only so long as no senior class of stock has voting power by reason
of any contingency) to vote in the election of members of the board of
directors of such Person.
"Weighted Average Life to Maturity", when applied to any Indebtedness at any
date, means the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment by (ii) the then outstanding
principal amount of such Indebtedness.
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"Wholly Owned Restricted Subsidiary" of the Company means a Restricted
Subsidiary of the Company, of which 100% of the Common Equity (except for
directors' qualifying shares of certain minority interests owned by other
Persons solely due to local law requirements that there be more than one
stockholder, but which interest is not in excess of what is required for such
purpose) is owned directly by the Company or through one or more Wholly Owned
Restricted Subsidiaries of the Company.
"Wholly Owned Subsidiary" of the Company means a Subsidiary of the Company,
of which 100% of the Common Equity (except for directors' qualifying shares or
certain minority interests owned by other Persons solely due to local law
requirements that there be more than one stockholder, but which interest is
not in excess of what is required for such purpose) is owned directly by the
Company or one or more Wholly Owned Subsidiaries of the Company.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the material United States Federal
income tax consequences relevant to the exchange of Old Notes for Exchange
Notes and the ownership and disposition of the Exchange Notes by holders
acquiring Exchange Notes pursuant to the Exchange Offer, and represents the
opinion of Crowell & Moring LLP, special tax counsel to the Company, insofar
as it relates to matters of law and legal conclusions. The discussion is based
on the current provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), applicable Treasury Regulations, judicial authority and
administrative rulings and practice. Any of such authorities are subject to
change at any time by legislative, judicial or administrative action. Any such
changes may be applied retroactively in a manner that could adversely affect a
holder of the Exchange Notes. Further, there can be no assurance that the
Internal Revenue Service (the "IRS") will not take a contrary view, and no
rulings from the IRS have been or will be sought. This summary is for general
informational purposes only and does not purport to address specific tax
consequences that may be relevant to certain persons (including, for example,
foreign persons, financial institutions, broker-dealers, insurance companies
or tax-exempt organizations and persons in special situations such as those
who hold Exchange Notes as part of a straddle).
EACH HOLDER OF OLD NOTES IS URGED TO CONSULT ITS OWN TAX ADVISORS WITH RESPECT
TO FEDERAL INCOME TAX CONSIDERATIONS THAT MAY BE SPECIFIC TO IT, AS WELL AS
WITH RESPECT TO ANY STATE, LOCAL OR FOREIGN TAX CONSIDERATIONS OF THE EXCHANGE
OF OLD NOTES FOR EXCHANGE NOTES AND OF HOLDING OR DISPOSING OF THE EXCHANGE
NOTES.
EXCHANGE OF NOTES
The exchange of Exchange Notes for Old Notes pursuant to the Exchange Offer
should not be treated as a taxable exchange for federal income tax purposes
because, other than the fact that the Exchange Notes will be registered, the
terms of the Exchange Notes will be identical in all material respects to the
terms of the Old Notes. The Holder must continue to include interest and
original issued discount in income as if the exchange had not occurred.
INTEREST AND ORIGINAL ISSUE DISCOUNT
In general, a Holder of a debt instrument issued with original issue
discount ("OID") must include a portion of the OID in gross income as interest
in each taxable year or portion thereof in which the Holder holds the debt
instrument even if the Holder has not received a cash payment in respect of
such OID.
Because the original Holders of the Old Notes also purchased warrants, each
Old Note will be treated as part of an "investment unit" for federal income
tax purposes. Under Treasury Regulations regarding OID (the "OID
Regulations"), the issue price of an investment unit is equal to the first
price at which a substantial amount of units are sold to the public (not
including bond houses, brokers, or similar persons or organizations acting in
the capacity of an underwriter, placement agent or wholesaler). The issue
price of a unit is then allocated between the securities comprising each unit
based on their relative fair market values. Under the OID Regulations, the
issuer's allocation is binding on all holders of the securities, unless a
holder explicitly discloses to the IRS that its allocation differs from that
of the issuer.
The Company has allocated approximately $1.00 as the issue price of each
warrant. This allocation reflects the Company's judgment as to the value of
the warrants at the time of issuance. This allocation is not binding on the
IRS.
Each Old Note bears OID equal to the excess of its "stated redemption price
at maturity" over its "issue price." The stated redemption price at maturity
of an Old Note and of an Exchange Note is the sum of its stated principal
amount and all other payments including interest payments due thereunder. The
OID Regulations, as modified by the contingent payment debt instrument rules
described below, will apply to the Exchange Notes.
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A Holder is generally required to include OID in income periodically over
the term of an Exchange Note without regard to when the cash or other payments
attributable to such income are received. In general, a Holder must include in
gross income for Federal income tax purposes the sum of the daily portions of
OID with respect to the Exchange Note for each day during the taxable year on
which such Holder holds the Exchange Note ("Accrued OID"). The daily portion
is determined by allocating to each day of any accrual period within a taxable
year a pro rata portion of the OID allocable to such accrual period. The
amount of such OID is equal to the adjusted issue price of the Exchange Note
(the issue price of the Old Note increased by the Accrued OID for all prior
accrual periods and decreased by any cash payments on the Old Note and the
Exchange Note) at the beginning of the accrual period multiplied by the yield
to maturity of the Exchange Note. For purposes of computing OID, the Company
will use six-month accrual periods that generally correspond to the
stated interest payment periods of the Exchange Notes, with the exception of
an initial short accrual period. Any payment made under an Exchange Note will
be treated first as a payment of OID (which was previously includable in
income) to the extent of OID that has accrued as of the date of payment and
has not been allocated to prior payments and second as a payment of principal
(which, generally, is not includable in income).
CONTINGENT PAYMENT DEBT INSTRUMENTS
The Exchange Notes provide that if certain Earnings targets are achieved by
the Company, the Temporary Interest Rate of 13 percent will be reduced to 12
percent. See "Description of the Notes--Interest Rate Increase." Because the
Exchange Notes provide for a change in the interest rate in the event a
contingency is satisfied, the Exchange Notes will be treated as contingent
payment debt instruments and will be subject to different OID rules than debt
instruments providing only for noncontingent payments.
Treasury Regulations provide that, with respect to a contingent payment debt
instrument issued for money such as the Exchange Notes (the "Contingent
Payment Debt Regulations"), interest on an Exchange Note must be taken into
account under the so-called noncontingent bond method, whether or not the
amount of any interest payment is fixed or determinable. The amount of
interest that is taken into account for each accrual period is determined by
constructing a projected payment schedule for the debt instrument and applying
rules similar to those described above for accruing OID on a noncontingent
debt instrument. If the actual amount of a contingent payment is not equal to
the projected amount, appropriate adjustments are made to reflect the
difference.
Under this method, the amount of income, deductions, gain and loss with
respect to an Exchange Note has been computed based on the following steps:
Step 1: The Company has determined the "comparable yield" of an Exchange
Note by computing the yield at which the Company could issue a fixed-rate
debt instrument with terms and conditions similar to those of the Exchange
Notes.
Step 2: A "projected payment schedule" which will produce the comparable
yield has been determined by the Company. The projected payment schedule
includes each noncontingent payment on an Exchange Note and an amount for
each contingent payment based on the expected value of the contingent
payment as of the issue date.
Step 3: The daily portions of interest on an Exchange Note for a taxable
year have been determined by multiplying the comparable yield times the
adjusted issue price of an Exchange Note at the beginning of an accrual
period, and allocating to each day in the accrual period the ratable
portion of interest accruing in the period. The "adjusted issue price" of
an Exchange Note is equal to the Exchange Note's issue price (as defined
above), increased by any interest previously accrued (without regard for
adjustments described in the following paragraph), and decreased by the
amount of any noncontingent payment and the projected amount of any
contingent payment previously made on the Exchange Note.
Step 4: Adjustments are then made to the amount of interest attributable
to an Exchange Note during a taxable year for any differences between
projected and actual contingent payments. A positive adjustment is made if
the amount of a contingent payment is more than the projected amount of the
contingent payment. A negative adjustment is made if the amount of a
payment is less than the projected amount of the payment.
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Positive and negative adjustments are netted at the end of a tax year, and
a net positive adjustment is treated as additional interest to a Holder,
while a net negative adjustment would reduce the amount of interest that a
Holder would otherwise account for with respect to an Exchange Note.
The Company's calculation of the comparable yield on the Exchange Notes and
the Company's projected payment schedule are used to determine a Holder's
interest, accruals and adjustments unless these determinations are
unreasonable and the Holder explicitly discloses to the IRS that its projected
payment schedule differs from that of the issuer. The Company will provide the
projected payment schedule to the Trustee for distribution to Holders of the
Exchange Notes.
SALE OR RETIREMENT OF NOTES
A Holder's basis in an Exchange Note will be increased by the interest
previously accrued by the Holder on the Exchange Note as described above
(determined without regard for any adjustments), and decreased by the amount
of any noncontingent payment and the projected amount of any contingent
payment previously made on the Exchange Note. Upon the sale, exchange,
retirement or other disposition of an Exchange Note, a Holder will generally
recognize gain or loss equal to the difference between the amount realized on
the disposition and the Holder's adjusted tax basis in the Exchange Note. If
any contingent payment remains unpaid at the time of sale, exchange or
retirement of the Note, including a contingent payment due on the retirement
of an Exchange Note, then any gain recognized by a Holder is treated as
ordinary interest income for federal income tax purposes. Any loss recognized
by a Holder on the sale, exchange or retirement of an Exchange Note is
ordinary loss to the extent that the Holder's total interest inclusions on the
Exchange Note exceed the total net negative adjustments on the Exchange Note
that the Holder took into account as ordinary loss.
BOND PREMIUM, MARKET DISCOUNT, ACQUISITION PREMIUM NOT TO APPLY
The Contingent Payment Debt Regulations provide that the premium and
discount rules of the OID Regulations do not apply to Contingent Payment Debt
Instruments. Instead, a Holder that purchases an Exchange Note for more or
less than the Exchange Note's adjusted issue price accrues interest on the
Exchange Notes based on the projected payment schedule determined as of the
issue date by the Company. However, upon acquisition, the Holder must allocate
any difference between the Exchange Note's adjusted issue price and the
Exchange Note's basis to daily portions of interest or to projected payments
over the remaining term of the Exchange Note. Where a Holder's basis is
greater than the Exchange Note's adjusted issue price, the allocation is
treated as a negative adjustment as described above. Where a Holder's basis is
less than the Exchange Note's adjusted issue price, the allocation is treated
as a positive adjustment as described above.
The Contingent Payment Debt Regulations are very complex and this summary
does not purport to be a complete analysis or listing of all the potential tax
consequences which may be relevant to a decision to purchase the Exchange
Notes. Investors are urged to consult their own tax advisers regarding the
application of the Contingent Payment Debt Regulations to an investment in the
Exchange Notes.
BACKUP WITHHOLDING
A Holder of an Exchange Note may be subject to backup withholding at the
rate of 31% with respect to interest paid on an Exchange Note and gross
proceeds upon the sale or retirement of an Exchange Note unless such holder
(a) is a corporation or other exempt recipient and, when required,
demonstrates this fact or (b) provides, when required, a correct taxpayer
identification number, certifies that backup withholding is not in effect and
otherwise complies with applicable requirements of the backup withholding
rules. Furthermore, a Holder of an Exchange Note that does not provide the
Company with the Holder's correct taxpayer identification number may be
subject to penalties imposed by the IRS. Backup withholding will be made when
cash payments are made with respect to the Exchange Notes. Backup withholding
is not an additional tax; any amounts so withheld are creditable against the
Holder's federal income tax liability.
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OLD NOTES REGISTRATION RIGHTS; ADDITIONAL INTEREST
The Company and the Initial Purchaser have entered into a registration
rights agreement (the "Registration Rights Agreement") pursuant to which the
Company agreed, for the benefit of the holders of the Old Notes, that it
would, at its own cost, (i) within 45 days after the date of original issuance
of the Old Notes (December 23, 1996) (the "Issue Date"), file this
Registration Statement with respect to this Exchange Offer for the Exchange
Notes, which will have terms identical in all material respects to the Old
Notes (except that the Exchange Notes will not contain terms with respect to
transfer restrictions), (ii) use its best efforts to cause this Registration
Statement to be declared effective under the Securities Act within 135 days
after the Issue Date and (iii) use its best efforts to consummate the Exchange
Offer within 180 days after the Issue Date. The Company will keep the Exchange
Offer open for not less than 20 business days (or longer if required by
applicable law) after the date notice of the Exchange Offer is mailed to the
holders of the Old Notes. For each Old Note surrendered to the Company
pursuant to the Exchange Offer, the holder of such Old Note will receive an
Exchange Note having a principal amount equal to that of the surrendered Old
Note. Interest on each Exchange Note will accrue from December 31, 1996, the
last interest payment date on which interest was paid on the Old Notes
surrendered pursuant to the Exchange Offer.
The Registration Rights Agreement also provides an agreement to include in
this Prospectus certain information necessary to allow a broker-dealer who
holds Old Notes that were acquired for its own account as a result of market-
making activities or other ordinary course trading activities (other than Old
Notes acquired directly from the Company or one of its Affiliates) and any
other person subject to the prospectus delivery requirements of the Securities
Act to exchange such Old Notes pursuant to the Exchange Offer and to satisfy
the prospectus delivery requirements in connection with resales of Exchange
Notes received by such person in the Exchange Offer and to maintain the
effectiveness of this Registration Statement and to amend and supplement this
Prospectus contained therein for such purposes for a period not to exceed 180
days after consummation of the Exchange Offer.
Under existing interpretations of the Commission contained in several no-
action letters to third parties, the Exchange Notes would in general be freely
tradable after the Exchange Offer without further registration under the
Securities Act. However, any holder of Old Notes who is an Affiliate of the
Company within the meaning of the Securities Act or who intends to participate
in the Exchange Offer for the purpose of distributing the Exchange Notes (i)
will not be able to rely on the interpretation of the staff of the Commission,
(ii) will not be able to tender its Old Notes in the Exchange Offer and (iii)
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any sale or transfer of the Old Notes unless
such sale or transfer is made pursuant to an exemption from such requirements.
Each holder of Old Notes who participates in the Exchange Offer will be
required to represent that at the time of commencement of the Exchange Offer
such holder will have no arrangement or understanding with any Person to
participate in the distribution of the Exchange Notes in violation of the
provisions of the Securities Act and that such holder is not an Affiliate of
the Company within the meaning of the Securities Act and is not acting on
behalf of any persons or entities who could not truthfully make the foregoing
representations.
In the event that (i) any changes in law or the applicable interpretations
of the staff of the Commission do not permit the Company to effect the
Exchange Offer, (ii) the Exchange Offer is not consummated within 180 days
after the Issue Date, (iii) if, under certain circumstances, after the
consummation of the Exchange Offer, the Initial Purchaser continues to hold
Exchange Notes and so requests, (iv) the holders of not less than a majority
in aggregate principal amount of the Registrable Notes (as defined in the
Registration Rights Agreement) determine that the interests of the holders
would be materially adversely affected by consummation of the Exchange Offer
or (v) in the case of any holder that participates in the Exchange Offer, such
holder does not receive Exchange Notes on the date of the exchange that may be
sold without restriction under state and Federal securities laws (other than
due solely to the status of such holder as an Affiliate of the Company within
the meaning of the Securities Act), then the Company shall promptly deliver to
the holders and the Trustee written notice thereof and, at its cost, as
promptly as reasonably practicable, file the Shelf Registration Statement.
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The Company shall use its best efforts to cause the Shelf Registration
Statement to be declared effective under the Securities Act as promptly as
reasonably practicable and to keep the Shelf Registration Statement
continuously effective under the Securities Act until three years after the
Issue Date or such shorter period ending when all Old Notes covered by the
Shelf Registration Statement have been sold in the manner set forth and as
contemplated in the Shelf Registration Statement. The Company will, in the
event of the filing of a Shelf Registration Statement, provide to each holder
of the Old Notes copies of the prospectus that is a part of the Shelf
Registration Statement, notify each such holder when the Shelf Registration
Statement for the Old Notes has become effective and take certain other
actions as are required to permit unrestricted resales of the Old Notes. A
holder of Old Notes that sells such Old Notes pursuant to the Shelf
Registration Statement generally will be required to be named as a selling
securityholder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement that are applicable to such a
holder (including certain indemnification obligations). In addition, each
holder of the Old Notes will be required to deliver information to be used in
connection with the Shelf Registration Statement and to provide comments on
the Shelf Registration Statement within the time periods set forth in the
Registration Rights Agreement in order to have its Old Notes included in the
Shelf Registration Statement and to benefit from the provisions regarding
liquidated damages set forth in the following paragraph.
Although the Company intends that this Registration Statement become
effective, there can be no assurance that it will become effective. If the
Company fails to comply with the above provisions or if the Registration
Statement fails to become effective, then, as liquidated damages, additional
interest (the "Additional Interest") shall become payable in respect of the
Old Notes as follows:
(i) if this Registration Statement or the Shelf Registration Statement is
not filed within 45 days after the Issue Date, Additional Interest shall be
accrued on the Old Notes over and above the stated interest at a rate of
0.50% per annum for the first 90 days immediately following the 45th day
after the Issue Date, such Additional Interest rate increasing by an
additional 0.50% per annum at the beginning of each subsequent 90-day
period;
(ii) if this Registration Statement or the Shelf Registration Statement
is not declared effective within 135 days after the Issue Date, then,
commencing on the 136th day after the Issue Date, Additional Interest shall
be accrued on the Old Notes over and above the stated interest at a rate of
0.50% per annum for the first 90 days immediately following the 135th day
after the Issue Date, such Additional Interest rate increasing by an
additional 0.50% per annum at the beginning of each subsequent 90-day
period; or
(iii) if either (A) the Company has not exchanged the Exchange Notes for
all Old Notes validly tendered in accordance with the terms of the Exchange
Offer on or prior to 180 days after the Issue Date, or (B) this
Registration Statement ceases to be effective at any time prior to the time
that the Exchange Offer is consummated or (C) if applicable, the Shelf
Registration Statement has been declared effective and such Shelf
Registration Statement ceases to be effective at any time prior to the
third anniversary of the Issue Date, then Additional Interest shall accrue
on the Old Notes (over and above any interest otherwise payable on the Old
Notes) at a rate of .50% per annum for the first 90 days commencing on (x)
the 181st day after the Issue Date, in the case of clause (A) above, or (y)
the date this Registration Statement ceases to be effective without being
declared effective within five business days, in the case of clause (B)
above, or (z) the day the Shelf Registration Statement ceases to be
effective, in the case of clause (C) above, such Additional Interest rate
increasing by an additional 0.50% per annum at the beginning of each
subsequent 90-day period:
provided, however, that the Additional Interest rate on the Old Notes may not
exceed 2% per annum in the aggregate; provided further, that (1) upon the
filing of this Registration Statement or a Shelf Registration Statement (in
the case of clause (i) above), (2) upon the effectiveness of this Registration
Statement or a Shelf Registration Statement (in the case of clause (ii)
above), or (3) upon the exchange of Exchange Notes for all Old Notes tendered
(in the case of clause (iii)(A) above) or upon the effectiveness of this
Registration Statement that has ceased to remain effective (in the case of
clause (iii)(B) above), or upon the effectiveness of the Shelf Registration
Statement that has ceased to remain effective (in the case of clause (iii)(C)
above), Additional
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Interest on the Old Notes as a result of such clause (i), (ii) or (iii) above
(or the relevant subclause thereof), as the case may be, shall cease to
accrue.
Any amounts of Additional Interest due pursuant to clause (i), (ii) or (iii)
above will be payable in cash, semiannually on each June 30 and December 31 of
each year, commencing with the first such date occurring after any such
Additional Interest commences to accrue. The amount of Additional Interest
will be determined by multiplying the applicable Additional Interest rate by
the principal amount of the Notes, multiplied by a fraction, the numerator of
which is the number of days such Additional Interest rate was applicable
during such period (determined on the basis of a 360-day year consisting of
twelve 30-day months) and the denominator of which is 360.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is an exhibit to this Registration Statement and is
available without charge by writing to the Company at 9300 Lee Highway,
Fairfax, Virginia, 22031, Attention: Secretary or by telephone at (703) 934-
3600.
OLD NOTES TRANSFER RESTRICTIONS
Because the following restrictions will apply to any Old Notes held by
holders who do not participate in the Exchange Offer, holders of Old Notes are
advised to consult legal counsel prior to making any offer, resale, pledge or
transfer of any of the Old Notes.
None of the Old Notes have been registered under the Securities Act and they
may not be offered or sold within the United States or to, or for the account
or benefit of, U.S. persons except pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities
Act. Accordingly, the Old Notes were sold only (i) to a limited number of
"qualified institutional buyers" (as defined in Rule 144A promulgated under
the Securities Act) ("QIBs") in compliance with Rule 144A; (ii) to a limited
number of other institutional "accredited investors" (as defined in Rule
501(a)(1), (2), (3) or (7) promulgated under the Securities Act) ("Accredited
Investors") that, prior to their purchase of any Old Notes delivered to the
Initial Purchaser a letter containing certain representations and agreements;
and (iii) outside the United States to persons other than U.S. persons
("foreign purchasers," which term shall include dealers or other professional
fiduciaries in the United States acting on a discretionary basis for foreign
beneficial owners (other than an estate or trust)) in reliance upon Regulation
S under the Securities Act. As used herein, the term "United States" and "U.S.
person" have the meanings given to them in Regulation S under the Securities
Act.
Each purchaser of Old Notes has been deemed to have represented and agreed
as follows:
1. It purchased the Old Notes (and the related guarantees) for its own
account or account with respect to which it exercises sole investment
discretion and that it and any such account is (i) a QIB, and is aware that
the sale to it is being made in reliance on Rule 144A; (ii) an Accredited
Investor; or (iii) a foreign purchaser that is outside the United States
(or a foreign purchaser that is a dealer or other fiduciary as referred to
above).
2. It acknowledged that the Old Notes have not been registered under the
Securities Act and may not be offered or sold within the United States or
to, or for the account or benefit of, U.S. persons except as set forth
below.
3. It shall not resell or otherwise transfer any of such Old Notes within
three years after the original issuance of the Notes except (i) to the
Company or any subsidiary thereof, (ii) inside the United States to a QIB
in compliance with Rule 144A, (iii) inside the United States to an
Accredited Investor that, prior to such transfer, furnishes (or has
furnished on its behalf by a U.S. broker-dealer) to the Trustee a signed
letter containing certain representations and agreements relating to the
restrictions on transfer of the Old Notes (the form of which letter can be
obtained from the Trustee), (v) outside the United States in compliance
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with Regulation S under the Securities Act, (v) pursuant to the exemption
from registration provided by Rule 144 promulgated under the Securities Act
(if available), or (vi) pursuant to an effective registration under the
Securities Act.
4. It agreed that it will give to each person to whom it transfers Old
Notes notice of any restrictions on transfer of such Old Notes.
5. It understands that the Old Notes bear, and if not exchanged pursuant
to the Exchange Offer will continue to bear, a legend substantially to the
following effect unless otherwise agreed by the Company and the holder
thereof:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN
RULE 144A PROMULGATED UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501 (a) (1), (2), (3) OR (7)
PROMULGATED UNDER THE SECURITIES ACT) (AN "ACCREDITED INVESTOR") OR (C) IT IS
NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH REGULATION S PROMULGATED UNDER THE SECURITIES ACT, (2) AGREES
THAT IT WILL NOT WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THIS
SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE ISSUER
THEREOF OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED
INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A PROMULGATED UNDER THE
SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED
INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHED (OR HAS FURNISHED ON ITS
BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON
TRANSFER OF THIS SECURITY), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH REGULATION S PROMULGATED UNDER THE SECURITIES
ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144
PROMULGATED UNDER THE SECURITIES ACT (IF AVAILABLE), OR (F) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT
IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF
THIS SECURITY WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY,
IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER
MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE ISSUER SUCH
CERTIFICATIONS, WRITTEN LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM
MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO
AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE RESPECTIVE MEANINGS
GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
6. It acknowledged that the Trustee will not be required to accept for
registration of transfer any Old Note acquired by it, except upon
presentation of evidence satisfactory to the Company and the Trustee that
the restrictions set forth herein have been complied with.
7. It acknowledged that the Company, the Initial Purchaser and others
will rely upon the truth and accuracy of the foregoing acknowledgments,
representations and agreements and agreed that if any of the
acknowledgments, representations or agreements deemed to have been made by
its purchase of Old Notes are no longer accurate, it shall promptly notify
the Company and the Initial Purchaser. If it acquired any Notes as a
fiduciary or agent for one or more investor accounts, it represented that
it has sole investment
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discretion with respect to each such account and it has full power to make
the foregoing acknowledgments, representations and agreements on behalf of
each account.
Holders of Old Notes shall not sell or transfer Old Notes to, and each
purchaser of Old Notes represented and covenanted that it did not acquire the
Old Notes for or on behalf of, any pension or welfare plan (as defined in
Section 3 or the Employee Retirement Income Security Act of 1974 ("ERISA")),
except that such a purchase for or on behalf of a pension or welfare plan
shall be permitted:
(1) to the extent such purchase is made by or on behalf of a bank
collective investment fund maintained by the purchaser in which no plan
(together with any other plans maintained by the same employer or
employee organization) has an interest in excess of 10% of the total
assets in such collective investment fund and the applicable conditions
of Prohibited Transaction Exemption 91-38 issued by the Department of
Labor are satisfied;
(2) to the extent such purchase is made by or on behalf of an
insurance company pooled separate account maintained by the purchaser
in which, at any time while the Units are outstanding, no plan
(together with any other plans maintained by the same employer or
employee organization) has an interest in excess of 10% of the total of
all assets in such pooled separate account and the applicable
conditions of Prohibited Transaction Exemption 90-1 issued by the
Department of Labor are satisfied;
(3) to the extent such purchase is made on behalf of a plan by (A) an
investment adviser registered under the Investment Advisers Act of 1940
that had as of the last day of its most recent fiscal year total assets
under its management and control in excess of $50,000,000 and had
shareholders' or partners' equity in excess of $750,000, as shown in
its most recent balance sheet prepared in accordance with generally
accepted accounting principles, or (B) a bank as defined in Section
202(a) of the Investment Advisers Act of 1940 with equity capital in
excess of $1,000,000 as of the last day of its most recent fiscal year
and, in either case, such investment adviser or bank is otherwise a
qualified professional asset manager, as such term is used in
Prohibited Transaction Exemption 84-14 issued by the Department of
Labor, and the assets of such plan when combined with the assets of
other plans established or maintained by the same employer (or
affiliate thereof) or employee organization and manager by such
investment advisor or bank, do not represent more than 20% of the total
client assets managed by such investment advisor or bank and the
applicable conditions of Prohibited Transaction Exemption 84-14 are
otherwise satisfied; or
(4) to the extent such plan is a governmental plan (as defined in
Section 3 of ERISA) which is not subject to the provisions of Title I
of ERISA or Section 4975 of the Code.
Each purchaser of Old Notes also represented that (a) if it is an insurance
company, no part of the funds used to purchase the Old Notes purchased by it
constitutes assets allocated to any separate account maintained by it such
that the use of such funds constitutes a transaction in violation of Section
406 of ERISA or a Prohibited Transaction, as such term is defined in Section
4975 of the Code, which could be subject to, respectively, a civil penalty
assessed pursuant to Section 502 of ERISA or a tax imposed by Section 4975 of
the Code and (b) if it is not an insurance company, that no part of the funds
used to purchase the Old Notes purchased by it constitutes assets allocated to
any trust, plan or account which contains the assets of any employee pension
benefit plan, welfare plan or account prohibited pursuant to the preceding
paragraph of this "Transfer Restrictions."
Holders of Old Notes are advised that the Prohibited Transaction Exemptions
described above do not relieve a fiduciary or other party from all prohibited
transaction provisions of the Code and ERISA and from ERISA's general
fiduciary responsibilities including, but not limited to, a fiduciary's
obligation to discharge his, her, or its duties solely in the interests of
participants and beneficiaries. As a result of the foregoing restrictions,
holders of Old Notes are advised to consult legal counsel prior to making any
offer, resale, pledge, hypothecation or other transfer or disposition of the
Old Notes or any interest therein.
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BOOK-ENTRY; DELIVERY AND FORM
Old Notes are represented by a single, global Old Note in registered form,
registered in the name of the nominee of DTC. The Exchange Notes exchanged for
Old Notes represented by the global Old Note will be represented by one or
more global Exchange Notes in registered form (the "Global Note"), registered
in the name of the nominee of DTC. Exchange Notes issued to persons other than
QIBs or Accredited Investors in exchange for Old Notes held by such investors
will be issued only in certificated, fully registered, definitive form
("Certificated Notes"). Except as described herein, Exchange Notes in the form
of Certificated Notes will not be issued in exchange for the Global Note or
interests therein.
THE GLOBAL NOTE
The Company expects that pursuant to procedures established by the DTC (i)
upon deposit of the Global Note, DTC or its custodian will credit, on its
internal system, portions of the Global Note which shall comprise the
corresponding respective principal amount of the Global Note to the respective
accounts of Persons who have accounts with such depository and (ii) ownership
of the Exchange Notes will be shown on, and the transfer of ownership thereof
will be effected only through, records maintained by DTC or its nominee (with
respect to interests of participants) and the records of participants (with
respect to interests of Persons other than participants). Ownership of
beneficial interests in the Global Note will be limited to Persons who have
accounts with DTC ("participants") or Persons who hold interests through
participants. QIBs may hold their interests in the Global Note directly
through DTC if they are participants in such system, or indirectly through
organizations that are participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of the
Global Note, DTC or such nominee will be considered the sole owner or holder
of the Exchange Notes represented by the Global Note for all purposes under
the Indenture. No beneficial owner of an interest in the Global Note will be
able to transfer such interest except in accordance with DTC's applicable
procedures, in addition to those provided for under the Indenture.
Payments of the principal of, premium (if any) and interest on, the Global
Note will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. None of the Company, the Trustee or any Paying Agent will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Note
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interest.
The Company expects DTC or its nominee, upon receipt of any payment of the
principal of, premium (if any) and interest on, the Global Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Note as
shown on the records of DTC or its nominee. The Company also expects that
payments by participants to owners of beneficial interests in any such Global
Note held through such participants will be governed by standing instructions
and customary practice, as is now the case with securities held for the
accounts of customers registered in the names of nominees for such customers.
Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and be settled in clearinghouse funds. If a
holder requires physical delivery of a Certificated Note for any reason,
including to sell Exchange Notes to Persons in states that require physical
delivery of such Exchange Notes or to pledge such Exchange Notes, such holder
must transfer its interest in the Global Note in accordance with the normal
procedures of DTC and the procedures set forth in the Indenture.
DTC has advised the Company that DTC will take any action permitted to be
taken by a holder of Exchange Notes (including the presentation of Exchange
Notes for exchange as described below) only at the direction of one or more
participants to whose account the DTC interests in the Global Note is credited
and only in respect
95
<PAGE>
of such portion of the aggregate principal amount of Exchange Notes as to
which such participant or participants has or have given such direction.
However, if there is an Event of Default under the Indenture, DTC will
exchange the Global Note for Certificated Notes which it will distribute to
its participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such
as banks, brokers, dealers and trust companies that clear through or maintain
a custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among participants of DTC, it is
under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither of the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
CERTIFICATED NOTES
If DTC is at any time unwilling or unable to continue as a depository for
the Global Note and a successor depository is not appointed by the Company
within 90 days, the Company will issue Certificated Notes in exchange for the
Global Note.
PLAN OF DISTRIBUTION
Based on interpretations by the Staff set forth in no-action letters issued
to third parties, the Company believes that Exchange Notes issued pursuant to
the Exchange Offer in exchange for the Old Notes may be offered for resale,
resold and otherwise transferred by holders thereof (other than any holder
that is (i) an Affiliate of the Company, (ii) a broker-dealer who acquired Old
Notes directly from the Company or (iii) a broker-dealer who acquired Old
Notes as a result of market-making or other trading activities) without
compliance with the registration and prospectus delivery provisions of the
Securities Act provided that such Exchange Notes are acquired in the ordinary
course of such holders' business, and such holders are not engaged in, and do
not intend to engage in, and have no arrangement or understanding with any
person to participate in, a distribution of such Exchange Notes; provided that
broker-dealers ("Participating Broker-Dealers") receiving Exchange Notes in
the Exchange Offer will be subject to a prospectus delivery requirement with
respect to resales of such Exchange Notes. To date, the Staff has taken the
position that Participating Broker-Dealers may fulfill their prospectus
delivery requirements with respect to transactions involving an exchange of
securities such as the exchange pursuant to the Exchange Offer (other than a
resale of an unsold allotment from the sale of the Old Notes to the Initial
Purchaser) by means of this Prospectus. Pursuant to the Registration Rights
Agreement, the Company has agreed to permit Participating Broker Dealers and
other persons, if any, subject to similar prospectus delivery requirements to
use this Prospectus in connection with the resale of such Exchange Notes. The
Company has agreed that, for a period of 180 days after the Exchange Date, it
will make this Prospectus, and any amendment or supplement to this Prospectus,
available to any broker-dealer that requests such documents in the Letter of
Transmittal.
Each holder of the Old Notes who wishes to exchange its Old Notes for
Exchange Notes in the Exchange Offer will be required to make certain
representations to the Company as set forth in "The Exchange Offer--Terms and
Conditions of the Letter of Transmittal." In addition, each holder who is a
broker-dealer and who
96
<PAGE>
receives Exchange Notes for its own account in exchange for Old Notes that
were acquired by it as a result of market-making activities or other trading
activities will be required to acknowledge that it will deliver a prospectus
in connection with any resale by it of such Exchange Notes.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or at negotiated prices. Any
such resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any such broker-dealer and/or the purchasers of any such Exchange Notes.
Any broker-dealer that resells Exchange Notes that were received by it for its
own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
The Company has agreed to pay all expenses incidental to the Exchange Offer
other than commissions and concession of any brokers or dealers and will
indemnify holders of Registrable Notes (as defined in the Registration Rights
Agreement) (including any brokers-dealers) against certain liabilities,
including liabilities under the Securities Act, as set forth in the
Registration Rights Agreement.
LEGAL MATTERS
Matters relating to the legality of the Exchange Notes and the related
Guarantees have been passed upon for the Company by Paul Weeks, II, Esq.,
Senior Vice President, General Counsel and Secretary of the Company. As of
December 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 December 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 December 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, are included in this Prospectus 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.
97
<PAGE>
ICF KAISER INTERNATIONAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
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-5-9
Report of Independent Accountants...................................... F-10
Consolidated Balance Sheets as of December 31, 1995, and February 28,
1995.................................................................. F-11
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-12
Consolidated Statements of Shareholders' Equity for the ten months
ended December 31, 1995,
and for the years ended February 28, 1995 and February 28, 1994....... F-13
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-14
Notes to Consolidated Financial Statements............................. F-15-38
</TABLE>
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
F-5
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
certain other assets. The 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>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
NOTE H--GUARANTOR SUBSIDIARIES
In connection with the registration of 12% Senior Notes due 2003, Series B
(Exchange Notes), the Company is required to provide financial information for
four wholly owned subsidiaries of ICF Kaiser International, Inc. (Subsidiary
Guarantors). The Subsidiary Guarantors unconditionally guarantee the payment
of the principal, premium, if any, and interest on the Company's $15 million
of 12% Senior Notes due 2003, Series A issued in December 1996 (Series A
Notes) and the Exchange Notes. The Company is offering to exchange the
Exchange Notes for the Series A Notes. The Subsidiary Guarantors are Cygna
Consulting Engineers and Project Management, Inc., ICF Kaiser Government
Programs, Inc., PCI Operating Company, Inc., and Systems Applications
International, Inc.
Presented below is condensed consolidating financial information for ICF
Kaiser International, Inc. (Parent Company), the Subsidiary Guarantors, and
the non-guarantor subsidiaries as of and for the nine months ended September
30, 1996.
Investments in subsidiaries have been presented using the equity method of
accounting. ICF Kaiser International, Inc. does not have a formal tax sharing
arrangement with its subsidiaries and has allocated taxes to its subsidiaries
based on the Company's effective tax rate. In the Company's opinion, separate
financial statements for Subsidiary Guarantors would not provide additional
information that is material to investors. Therefore, the Subsidiary
Guarantors are combined in the presentation below.
F-7
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
ICF KAISER INTERNATIONAL, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
ICF KAISER
PARENT SUBSIDIARY NON-GUARANTOR INTERNATIONAL, INC.
COMPANY GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash
equivalents.......... $ (327) $ 8,272 $ 14,546 $ (1,469) $ 21,022
Contract receivables,
net.................. (4,311) 73,179 165,300 -- 234,168
Intercompany
receivables, net..... 129,572 (7,055) (122,517) -- --
Prepaid expenses and
other current
assets............... 4,696 732 8,377 (3,025) 10,780
Deferred income
taxes................ 13,119 (789) (392) -- 11,938
-------- ------- --------- -------- --------
Total Current
Assets............. 142,749 74,339 65,314 (4,494) 277,908
-------- ------- --------- -------- --------
Fixed Assets
Furniture, equipment,
and leasehold
improvements......... 6,843 3,556 38,440 -- 48,839
Less depreciation and
amortization......... (3,167) (2,919) (30,509) -- (36,595)
-------- ------- --------- -------- --------
3,676 637 7,931 -- 12,244
-------- ------- --------- -------- --------
Other Assets
Goodwill, net......... -- -- 50,510 -- 50,510
Investments in and
advances to
affiliates........... 58,899 41 13,292 (60,064) 12,168
Due from officers and
employees............ 353 144 489 -- 986
Other................. 4,642 2,700 13,377 -- 20,719
-------- ------- --------- -------- --------
63,894 2,885 77,668 (60,064) 84,383
-------- ------- --------- -------- --------
$210,319 $77,861 $ 150,913 $(64,558) $374,535
======== ======= ========= ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of
long-term debt....... $ -- $ -- $ -- $ -- $ --
Accounts payable and
other accrued
expenses............. 12,778 34,634 46,200 (2,439) 91,173
Accrued salaries and
employee benefits.... (798) 30,650 29,869 -- 59,721
Accrued interest...... 4,143 -- 4 (86) 4,061
Income taxes payable.. (2,622) -- 3,021 -- 399
Deferred revenue...... (103) 518 14,233 -- 14,648
Other................. 4,077 31 1,789 -- 5,897
-------- ------- --------- -------- --------
Total Current
Liabilities........ 17,475 65,833 95,116 (2,525) 175,899
-------- ------- --------- -------- --------
Long-term Liabilities
Long-term debt, less
current portion...... 135,301 -- 45 (1,962) 133,384
Other................. 2,758 -- 2,921 -- 5,679
-------- ------- --------- -------- --------
138,059 -- 2,966 (1,962) 139,063
-------- ------- --------- -------- --------
Minority Interests in
Subsidiaries........... -- 6,441 -- -- 6,441
Redeemable Preferred
Stock.................. 19,940 -- -- -- 19,940
Common Stock............ 224 108 167 (275) 224
Additional Paid-in
Capital................ 67,158 224 44,825 (45,049) 67,158
Notes Receivable Related
to Common Stock........ (1,732) -- -- -- (1,732)
Retained Earnings
(Deficit).............. (30,805) 5,255 9,492 (14,747) (30,805)
Cumulative Translation
Adjustment............. -- -- (1,653) -- (1,653)
-------- ------- --------- -------- --------
$210,319 $77,861 $ 150,913 $(64,558) $374,535
======== ======= ========= ======== ========
</TABLE>
F-8
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
ICF KAISER INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
ICF KAISER
PARENT SUBSIDIARY NON-GUARANTOR INTERNATIONAL, INC.
COMPANY GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
Gross Revenue........... $ 1,165 $ 442,478 $ 581,405 $ (1,638) $1,023,410
Subcontract and direct
material costs....... (524) (302,444) (289,327) -- (592,295)
Equity in income of
joint ventures and
affiliated companies
and subsidiaries..... 11,707 -- 3,127 (12,302) 2,532
-------- --------- --------- -------- ----------
Service Revenue......... 12,348 140,034 295,205 (13,940) 433,647
Operating Expenses
Operating expenses.... (4,771) 130,515 280,534 (1,641) 404,637
Depreciation and
amortization......... 1,638 904 5,298 -- 7,840
-------- --------- --------- -------- ----------
Operating Income........ 15,481 8,615 9,373 (12,299) 21,170
Interest income....... 223 286 675 (240) 944
Interest expense...... (12,832) (129) (54) 186 (12,829)
-------- --------- --------- -------- ----------
Income Before Income
Taxes and Minority
Interests.............. 2,872 8,772 9,994 (12,353) 9,285
Income tax (provision)
benefit.............. 848 (789) (899) -- (840)
-------- --------- --------- -------- ----------
Income Before Minority
Interests.............. 3,720 7,983 9,095 (12,353) 8,445
Minority interests in
net income of
subsidiaries......... -- (4,725) -- -- (4,725)
-------- --------- --------- -------- ----------
Net Income.............. 3,720 3,258 9,095 (12,353) 3,720
Preferred stock
dividends and
accretion............ 1,631 -- -- -- 1,631
-------- --------- --------- -------- ----------
Net Income Available for
Common Shareholders.... $ 2,089 $ 3,258 $ 9,095 $(12,353) $ 2,089
======== ========= ========= ======== ==========
<CAPTION>
ICF KAISER INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED, IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net Cash Provided by
(Used in) Operating
Activities............. $ (7,619) $ 9,014 $ 4,639 $ (105) $ 5,929
-------- --------- --------- -------- ----------
INVESTING ACTIVITIES
Investments in
subsidiaries and
affiliates, net of cash
acquired............... -- -- (1,241) -- (1,241)
Purchases of fixed
assets................. (2,488) (257) (2,160) -- (4,905)
Proceeds from sale of
fixed assets........... -- -- 22 -- 22
-------- --------- --------- -------- ----------
Net Cash Used in
Investing
Activities........... (2,488) (257) (3,379) -- (6,124)
-------- --------- --------- -------- ----------
FINANCING ACTIVITIES
Borrowings under credit
facility agreement..... 65,000 -- -- -- 65,000
Principal payments on
credit facility and
other borrowings....... (57,247) -- 247 -- (57,000)
Reacquisition of senior
subordinated notes and
related warrants....... -- -- (46) -- (46)
Distribution of income
to minority interest... -- (823) -- -- (823)
Proceeds from issuances
of common stock........ 313 -- -- -- 313
Preferred stock
dividends.............. (1,965) -- -- -- (1,965)
Debt issuance costs..... (449) -- -- -- (449)
Other financing
activities............. -- -- (247) -- (247)
-------- --------- --------- -------- ----------
Net Cash Provided by
(Used in) Financing
Activities........... 5,652 (823) (46) -- 4,783
-------- --------- --------- -------- ----------
Effect of Exchange Rate
Changes on Cash........ -- -- 77 -- 77
-------- --------- --------- -------- ----------
Increase (Decrease) in
Cash and Cash
Equivalents............ (4,455) 7,934 1,291 (105) 4,665
Cash and Cash
Equivalents at
Beginning of Period.... 4,128 1,015 12,578 (1,364) 16,357
-------- --------- --------- -------- ----------
Cash and Cash
Equivalents at End of
Period................. $ (327) $ 8,949 $ 13,869 $ (1,469) $ 21,022
======== ========= ========= ======== ==========
</TABLE>
F-9
<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 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
consolidated 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, except for Note T,
as to which the date is January 7, 1997
F-10
<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-11
<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-12
<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-13
<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-14
<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-15
<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-16
<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-17
<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>
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
subordinated notes.............................. 3,489 3,898
-------- --------
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
F-18
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$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).
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.
F-19
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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-20
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE H--INCOME TAXES
The components of income (loss) before income taxes and minority interests
and the related provision (benefit) for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
TEN MONTHS
ENDED YEAR ENDED FEBRUARY 28,
DECEMBER 31, -----------------------
1995 1995 1994
------------ ---------- ------------
<S> <C> <C> <C>
Income (loss) before income taxes,
minority interests, and
extraordinary item:
Domestic.......................... $ 7,419 $ 1,217 $ (11,894)
Foreign........................... (1,116) 22 (983)
------- ---------- ------------
$ 6,303 $ 1,239 $ (12,877)
======= ========== ============
Provision (benefit) for income
taxes:
Federal:
Current........................... $ 171 $ 120 $ --
Deferred.......................... 2,020 2,328 (652)
------- ---------- ------------
2,191 2,448 (652)
------- ---------- ------------
State:
Current........................... 258 100 --
Deferred.......................... 293 172 (62)
------- ---------- ------------
551 272 (62)
------- ---------- ------------
Foreign:
Current........................... 409 180 365
Deferred.......................... (1,060) -- --
------- ---------- ------------
(651) 180 365
------- ---------- ------------
$ 2,091 $ 2,900 $ (349)
======= ========== ============
</TABLE>
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
F-21
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
The effective income tax (benefit) rate varied from the federal statutory
income tax rate because of the following differences:
<TABLE>
<CAPTION>
TEN MONTHS YEAR ENDED
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 consoli-
dated 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-22
<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 outstand-
ing............................................ $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.
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.
F-23
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
NOTE K--LEASES
Future minimum payments on noncancelable operating leases for office space
and on other noncancelable operating leases with initial or remaining terms in
excess of one year are as follows on December 31, 1995 (in thousands):
<TABLE>
<S> <C>
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.
F-24
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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:
<TABLE>
<CAPTION>
SHARES OPTION PRICE
--------- ---------------
<S> <C> <C>
Balance, March 1, 1993........................... 1,946,000 $5.99 to $17.00
Granted........................................ 390,000 $4.17 to $ 6.79
Canceled....................................... (10,000) $8.25 to $12.83
Expired........................................ (30,000) $5.04 to $12.83
---------
Balance, February 28, 1994....................... 2,296,000 $4.17 to $17.00
Granted........................................ 824,000 $2.34 to $ 4.41
Canceled....................................... (453,000) $2.64 to $16.23
Expired........................................ (250,000) $4.41 to $16.23
---------
Balance, February 28, 1995....................... 2,417,000 $2.34 to $17.00
Granted........................................ 678,000 $3.50 to $ 4.42
Canceled....................................... (257,000) $8.25
Expired........................................ (382,000) $2.64 to $16.23
Exercised...................................... (4,000) $2.64 to $ 2.68
---------
Balance, December 31, 1995....................... 2,452,000 $2.34 to $17.00
=========
Exercisable at December 31, 1995................. 1,090,000 $2.34 to $17.00
=========
</TABLE>
At December 31, 1995, 1,985,835 shares were available for the granting of
options. There were 242,000 exercisable options outstanding at an option price
below the fair market value of ICF Kaiser Common Stock at December 31, 1995.
In March 1995, the Company canceled 257,000 options granted to employees at an
exercise price of $8.25 and granted 86,000 options to them at an exercise
price of $4.09.
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.
F-25
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
The net periodic postretirement benefit cost consists of the following (in
thousands):
<TABLE>
<CAPTION>
TEN MONTHS YEAR ENDED
ENDED FEBRUARY 28,
DECEMBER 31, -------------
1995 1995 1994
------------ ------ ------
<S> <C> <C> <C>
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
====== ====== ======
</TABLE>
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.
F-26
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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):
<TABLE>
<CAPTION>
TEN MONTHS
ENDED YEAR ENDED FEBRUARY 28,
DECEMBER 31, -----------------------
1995 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
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
======== =========== ===========
</TABLE>
Foreign Operations: Gross revenue and operating income from foreign
operations and foreign assets of all consolidated subsidiaries and branches
were as follows (in thousands):
<TABLE>
<CAPTION>
TEN MONTHS
ENDED YEAR ENDED FEBRUARY 28,
DECEMBER 31, ------------------------
1995 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
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
======== =========== ===========
</TABLE>
F-27
<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-28
<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):
Ten Months Ended December 31, 1995:
<TABLE>
<CAPTION>
THIRD SECOND FIRST
QUARTER QUARTER QUARTER
-------- -------- --------
<S> <C> <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
Year Ended February 28, 1995:
<CAPTION>
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-29
<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):
<TABLE>
<S> <C>
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)
=========
</TABLE>
NOTE T--GUARANTOR SUBSIDIARIES
In connection with the registration of 12% Senior Notes due 2003, Series B
(Exchange Notes), the Company is required to provide financial information for
four wholly owned subsidiaries of ICF Kaiser International, Inc. (Subsidiary
Guarantors). The Subsidiary Guarantors unconditionally guarantee the payment
of the principal, premium, if any, and interest on the Company's $15 million
of 12% Senior Notes due 2003, Series A issued in December 1996 (Series A
Notes) and the Exchange Notes. The Company is offering to exchange the
Exchange Notes for the Series A Notes. The Subsidiary Guarantors are Cygna
Consulting Engineers and Project Management, Inc., ICF Kaiser Government
Programs, Inc., PCI Operating Company, Inc., and Systems Applications
International, Inc.
Presented below is condensed consolidating financial information for ICF
Kaiser International, Inc. (Parent Company), the Subsidiary Guarantors, and
the non-guarantor subsidiaries as of and for the ten months ended December 31,
1995, and the years ended February 28, 1995 and 1994.
Investments in subsidiaries have been presented using the equity method of
accounting. ICF Kaiser International, Inc. does not have a formal tax sharing
arrangement with its subsidiaries and has allocated taxes to its subsidiaries
based on the Company's effective tax rate. In the Company's opinion, separate
financial statements for Subsidiary Guarantors would not provide additional
information that is material to investors. Therefore, the Subsidiary
Guarantors are combined in the presentation below.
F-30
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ICF KAISER INTERNATIONAL, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ICF KAISER
PARENT SUBSIDIARY NON-GUARANTOR INTERNATIONAL, INC.
COMPANY GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash
equivalents.......... $ 4,128 $ 1,015 $ 12,578 $ (1,364) $ 16,357
Contract receivables,
net.................. (2,970) 75,407 155,802 -- 228,239
Intercompany
receivables, net..... 145,228 (8,516) (136,712) -- --
Prepaid expenses and
other current
assets............... 5,093 4,092 12,942 (1,216) 20,911
Deferred income
taxes................ 12,169 -- (235) -- 11,934
-------- ------- --------- -------- --------
Total Current
Assets............. 163,648 71,998 44,375 (2,580) 277,441
-------- ------- --------- -------- --------
Fixed Assets
Furniture, equipment,
and leasehold
improvements......... 2,957 1,507 38,445 -- 42,909
Less depreciation and
amortization......... (2,555) (788) (30,026) -- (33,369)
-------- ------- --------- -------- --------
402 719 8,419 -- 9,540
-------- ------- --------- -------- --------
Other Assets
Goodwill, net......... -- -- 49,259 -- 49,259
Investments in and
advances to
affiliates........... 45,592 1 10,782 (46,162) 10,213
Due from officers and
employees............ 294 188 571 -- 1,053
Other................. 5,520 3,624 12,867 -- 22,011
-------- ------- --------- -------- --------
51,406 3,813 73,479 (46,162) 82,536
-------- ------- --------- -------- --------
$215,456 $76,530 $ 126,273 $(48,742) $369,517
======== ======= ========= ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of
long-term debt....... $ 5,000 $ 4 $ 37 $ -- $ 5,041
Accounts payable and
other accrued
expenses............. 16,250 47,127 42,776 (1,130) 105,023
Accrued salaries and
employee benefits.... 10,053 24,505 18,502 -- 53,060
Accrued interest...... 7,500 -- -- (86) 7,414
Income taxes payable.. (1,729) -- 2,530 -- 801
Deferred revenue...... 15 212 14,100 -- 14,327
Other................. 3,779 38 3,369 -- 7,186
-------- ------- --------- -------- --------
Total Current
Liabilities........ 40,868 71,886 81,314 (1,216) 192,852
-------- ------- --------- -------- --------
Long-term Liabilities
Long-term debt, less
current portion...... 121,470 -- 51 (1,409) 120,112
Other................. 3,090 -- 2,616 -- 5,706
-------- ------- --------- -------- --------
124,560 -- 2,667 (1,409) 125,818
-------- ------- --------- -------- --------
Minority Interests in
Subsidiaries........... -- 2,539 94 -- 2,633
Redeemable Preferred
Stock.................. 19,787 -- -- -- 19,787
Common Stock............ 213 108 165 (273) 213
Additional Paid-in
Capital................ 64,654 -- 43,225 (43,225) 64,654
Notes Receivable Related
to Common Stock........ (1,732) -- -- -- (1,732)
Retained Earnings
(Deficit).............. (32,894) 1,997 622 (2,619) (32,894)
Cumulative Translation
Adjustment............. -- -- (1,814) -- (1,814)
-------- ------- --------- -------- --------
$215,456 $76,530 $ 126,273 $(48,742) $369,517
======== ======= ========= ======== ========
</TABLE>
F-31
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ICF KAISER INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
TEN MONTHS ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON- ICF KAISER
PARENT SUBSIDIARY GUARANTOR INTERNATIONAL, INC.
COMPANY GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ---------- ------------ ------------ -------------------
<S> <C> <C> <C> <C> <C>
Gross Revenue $ 1,539 $ 285,037 $ 630,168 $ -- $ 916,744
Subcontract and direct
material costs....... (1,037) (189,607) (303,327) -- (493,971)
Equity in income of
joint ventures and
affiliated companies
and subsidiaries..... 754 -- 3,358 (989) 3,123
------- --------- --------- ----- ---------
Service Revenue......... 1,256 95,430 330,199 (989) 425,896
Operating Expenses
Operating expenses.... (2,502) 90,502 312,589 (55) 400,534
Depreciation and
amortization......... 1,349 850 6,158 -- 8,357
Usual items, net...... 1,700 -- (2,200) -- (500)
------- --------- --------- ----- ---------
Operating Income........ 709 4,078 13,652 (934) 17,505
Interest income....... 488 269 1,319 (23) 2,053
Interest expense...... 1,147 (475) (13,950) 23 (13,255)
------- --------- --------- ----- ---------
Income Before Income
Taxes and Minority
Interests.............. 2,344 3,872 1,021 (934) 6,303
Income tax provision.. (92) (556) (1,443) -- (2,091)
------- --------- --------- ----- ---------
Income (Loss) Before
Minority Interests..... 2,252 3,316 (422) (934) 4,212
Minority interests in
net (income) loss of
subsidiaries......... -- (2,039) 79 -- (1,960)
------- --------- --------- ----- ---------
Net Income (Loss)....... 2,252 1,277 (343) (934) 2,252
Preferred stock
dividends and
accretion............ 1,803 -- -- -- 1,803
------- --------- --------- ----- ---------
Net Income (Loss)
Available for Common
Shareholders........... $ 449 $ 1,277 $ (343) $(934) $ 449
======= ========= ========= ===== =========
</TABLE>
F-32
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ICF KAISER INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
TEN MONTHS ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON- ICF KAISER
PARENT SUBSIDIARY GUARANTOR INTERNATIONAL, INC.
COMPANY GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ---------- ------------ ------------ -------------------
<S> <C> <C> <C> <C> <C>
Net Cash Provided by
(Used in) Operating
Activities............. $(6,297) $ 655 $ 949 $(1,364) $(6,057)
------- ------ ------- ------- -------
INVESTING ACTIVITIES
Investments in
subsidiaries and
affiliates, net of cash
acquired............... (1,000) -- (1,010) -- (2,010)
Sale of subsidiaries and
subsidiary assets...... -- -- 735 -- 735
Purchases of fixed
assets................. (92) (148) (1,519) -- (1,759)
Proceeds from sale of
fixed assets........... -- -- 1,035 -- 1,035
------- ------ ------- ------- -------
Net Cash Used in
Investing
Activities......... (1,092) (148) (759) -- (1,999)
------- ------ ------- ------- -------
FINANCING ACTIVITIES
Borrowings under credit
facility agreement..... 16,000 -- -- -- 16,000
Principal payments on
credit facility and
other borrowings....... (16,000) -- (1,173) -- (17,173)
Reacquisition of senior
subordinated notes and
related warrants....... -- -- (1,363) -- (1,363)
Subsidiary capital
contribution from
minority interest...... -- 500 -- -- 500
Proceeds from issuance
of common stock........ 406 -- -- -- 406
Repurchases of common
stock.................. (257) -- -- -- (257)
Preferred stock
dividends.............. (1,471) -- -- -- (1,471)
Other financing
activities............. -- -- 55 -- 55
------- ------ ------- ------- -------
Net Cash Provided by
(Used in) Financing
Activities......... (1,322) 500 (2,481) -- (3,303)
------- ------ ------- ------- -------
Effect of Exchange Rate
Changes on Cash........ -- -- (517) -- (517)
------- ------ ------- ------- -------
Increase (Decrease) in
Cash and Cash
Equivalents............ (8,711) 1,007 (2,808) (1,364) (11,876)
Cash and Cash
Equivalents at
Beginning of Period.... 12,839 8 15,386 -- 28,233
------- ------ ------- ------- -------
Cash and Cash
Equivalents at End of
Period................. $ 4,128 $1,015 $12,578 $(1,364) $16,357
======= ====== ======= ======= =======
</TABLE>
F-33
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ICF KAISER INTERNATIONAL, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
FEBRUARY 28, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ICF KAISER
PARENT SUBSIDIARY NON-GUARANTOR INTERNATIONAL, INC.
COMPANY GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash
equivalents.......... $ 12,839 $ 8 $ 15,386 $ -- $ 28,233
Contract receivables,
net.................. (3,331) 4,593 138,598 -- 139,860
Intercompany
receivables, net..... 133,776 (3,856) (129,920) -- --
Prepaid expenses and
other current
assets............... 5,349 137 6,058 (672) 10,872
Deferred income
taxes................ 13,788 -- (235) -- 13,553
-------- ------ -------- -------- --------
Total Current
Assets............. 162,421 882 29,887 (672) 192,518
-------- ------ -------- -------- --------
Fixed Assets
Furniture, equipment,
and leasehold
improvements......... 2,865 1,359 38,333 -- 42,557
Less depreciation and
amortization......... (2,196) (441) (27,011) -- (29,648)
-------- ------ -------- -------- --------
669 918 11,322 -- 12,909
-------- ------ -------- -------- --------
Other Assets
Goodwill, net......... -- -- 47,945 -- 47,945
Investments in and
advances to
affiliates........... 42,797 -- 8,848 (43,623) 8,022
Due from officers and
employees............ 262 -- 1,564 -- 1,826
Other................. 5,766 83 12,353 -- 18,202
-------- ------ -------- -------- --------
48,825 83 70,710 (43,623) 75,995
-------- ------ -------- -------- --------
$211,915 $1,883 $111,919 $(44,295) $281,422
======== ====== ======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of
long-term debt....... $ -- $ 4 $ 574 $ -- $ 578
Accounts payable and
other accrued
expenses............. 17,766 494 29,223 (672) 46,811
Accrued salaries and
employee benefits.... 7,255 280 23,014 -- 30,549
Accrued interest...... 2,528 -- -- -- 2,528
Income taxes payable.. 42 -- 602 -- 644
Deferred revenue...... -- 256 10,757 -- 11,013
Other................. 5,934 21 2,800 -- 8,755
-------- ------ -------- -------- --------
Total Current
Liabilities........ 33,525 1,055 66,970 (672) 100,878
-------- ------ -------- -------- --------
Long-term Liabilities
Long-term debt, less
current portion...... 126,102 -- 631 -- 126,733
Other................. 3,750 -- 2,647 -- 6,397
-------- ------ -------- -------- --------
129,852 -- 3,278 -- 133,130
-------- ------ -------- -------- --------
Minority Interests in
Subsidiaries........... -- -- 173 -- 173
Redeemable Preferred
Stock.................. 19,617 -- -- -- 19,617
Common Stock............ 210 108 159 (267) 210
Additional Paid-in
Capital................ 63,786 -- 41,674 (41,674) 63,786
Notes Receivable Related
to Common Stock........ (1,732) -- -- -- (1,732)
Retained Earnings
(Deficit).............. (33,343) 720 962 (1,682) (33,343)
Cumulative Translation
Adjustment............. -- -- (1,297) -- (1,297)
-------- ------ -------- -------- --------
$211,915 $1,883 $111,919 (44,295) $281,422
======== ====== ======== ======== ========
</TABLE>
F-34
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ICF KAISER INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 28, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON- ICF KAISER
PARENT SUBSIDIARY GUARANTOR INTERNATIONAL, INC.
COMPANY GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ---------- ------------ ------------ -------------------
<S> <C> <C> <C> <C> <C>
Gross Revenue........... $ 1,293 $10,220 $851,586 $(1,581) $861,518
Subcontract and direct
material costs....... (711) (4,463) (400,645) -- (405,819)
Equity in income of
joint ventures and
affiliated companies
and subsidiaries..... (3,168) -- 4,753 2,502 4,087
------- ------- -------- ------- --------
Service Revenue......... (2,586) 5,757 455,694 921 459,786
Operating Expenses
Operating expenses.... (18,357) 4,381 452,423 (1,581) 436,866
Depreciation and
amortization......... 1,616 324 7,292 -- 9,232
------- ------- -------- ------- --------
Operating Income
(Loss)................. 14,155 1,052 (4,021) 2,502 13,688
Gain on sale of
investment........... -- -- 551 -- 551
Interest income....... 954 11 971 (137) 1,799
Interest expense...... (14,683) -- (253) 137 (14,799)
------- ------- -------- ------- --------
Income (Loss) Before
Income Taxes........... 426 1,063 (2,752) 2,502 1,239
Income tax provision.. (2,087) (397) (416) -- (2,900)
------- ------- -------- ------- --------
Net Income (Loss)....... (1,661) 666 (3,168) 2,502 (1,661)
Preferred stock
dividends and
accretion............ 2,154 -- -- -- 2,154
------- ------- -------- ------- --------
Net Income (Loss)
Available for Common
Shareholders........... $(3,815) $ 666 $ (3,168) $ 2,502 $ (3,815)
======= ======= ======== ======= ========
</TABLE>
F-35
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ICF KAISER INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED FEBRUARY 28, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON- ICF KAISER
PARENT SUBSIDIARY GUARANTOR INTERNATIONAL, INC.
COMPANY GUARANTORS SUBSIDIARIES CONSOLIDATED
------- ---------- ------------ -------------------
<S> <C> <C> <C> <C>
Net Cash Provided by
(Used in) Operating
Activities.............. $(3,942) $ 990 $ 5,135 $ 2,183
------- ----- ------- -------
INVESTING ACTIVITIES
Investments in
subsidiaries and
affiliates, net of cash
acquired................ -- -- (622) (622)
Sale of subsidiaries and
subsidiary assets....... -- -- 2,600 2,600
Purchases of fixed
assets.................. (13) (992) (1,421) (2,426)
Other investing
activities.............. (600) -- -- (600)
------- ----- ------- -------
Net Cash Provided by
(Used in) Investing
Activities............ (613) (992) 557 (1,048)
------- ----- ------- -------
FINANCING ACTIVITIES
Borrowings under credit
facility agreement...... 5,000 -- -- 5,000
Principal payments on
other borrowings........ -- -- (1,172) (1,172)
Repurchases of redeemable
preferred stock and
related warrants........ -- -- (799) (799)
Proceeds from issuances
of common stock......... 395 -- -- 395
Repurchases of common
stock................... (180) -- -- (180)
Preferred stock
dividends............... (1,950) -- -- (1,950)
Debt issuance costs...... (149) -- -- (149)
------- ----- ------- -------
Net Cash Provided by
(Used in) Financing
Activities............ 3,116 -- (1,971) 1,145
------- ----- ------- -------
Effect of Exchange Rate
Changes on Cash......... -- -- 444 444
------- ----- ------- -------
Increase (Decrease) in
Cash and Cash
Equivalents............. (1,439) (2) 4,165 2,724
Cash and Cash Equivalents
at Beginning of Period.. 14,278 10 11,221 25,509
------- ----- ------- -------
Cash and Cash Equivalents
at End of Period........ $12,839 $ 8 $15,386 $28,233
======= ===== ======= =======
</TABLE>
F-36
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ICF KAISER INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 28, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON- ICF KAISER
PARENT SUBSIDIARY GUARANTOR INTERNATIONAL, INC.
COMPANY GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------ ------------ -------------------
<S> <C> <C> <C> <C> <C>
Gross Revenue $ 804 $18,337 $633,940 $(1,424) $651,657
Subcontract and direct
material costs....... (443) (4,850) (266,876) -- (272,169)
Equity in income of
joint ventures and
affiliated companies
and subsidiaries..... (16,834) -- 328 19,726 3,220
-------- ------- -------- ------- --------
Service Revenue......... (16,473) 13,487 367,392 18,302 382,708
Operating Expenses
Operating expenses.... (17,630) 16,776 371,948 (1,424) 369,670
Depreciation and
amortization......... 1,770 207 7,582 -- 9,559
Usual items, net...... 6,580 -- 2,129 -- 8,709
-------- ------- -------- ------- --------
Operating Loss.......... (7,193) (3,496) (14,267) 19,726 (5,230)
Loss on sale of
investment........... -- -- (925) -- (925)
Interest income....... 843 6 641 -- 1,490
Interest expense...... (7995) (28) (189) -- (8,212)
-------- ------- -------- ------- --------
Loss Before Income Taxes
and Extraordinary
Item................... (14,345) (3,518) (14,740) 19,726 (12,877)
Income tax (provision)
benefit.............. 1,817 626 (2,094) -- 349
-------- ------- -------- ------- --------
Net Loss Before
Extraordinary Item..... (12,528) (2,892) (16,834) 19,726 (12,528)
Extraordinary loss on
early extinguishment
of debt.............. (5,969) -- -- -- (5,969)
-------- ------- -------- ------- --------
Net Loss................ (18,497) (2,892) (16,834) 19,726 (18,497)
Preferred stock
dividends and
accretion............ 4,896 -- -- -- 4,896
Redemption of
redeemable preferred
stock................ 1,929 -- -- -- 1,929
-------- ------- -------- ------- --------
Net Loss Available for
Common Shareholders.... $(25,322) $(2,892) $(16,834) $19,726 $(25,322)
======== ======= ======== ======= ========
</TABLE>
F-37
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ICF KAISER INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED FEBRUARY 28, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON- ICF KAISER
PARENT SUBSIDIARY GUARANTOR INTERNATIONAL, INC.
COMPANY GUARANTORS SUBSIDIARIES CONSOLIDATED
-------- ---------- ------------ -------------------
<S> <C> <C> <C> <C>
Net Cash Provided by
Operating Activities... $ 3,057 $ 16 $11,034 $ 14,107
-------- ---- ------- --------
INVESTING ACTIVITIES
Investments in
subsidiaries and
affiliates, net of cash
acquired............... -- -- (2,755) (2,755)
Purchases of fixed
assets................. (553) (15) (820) (1,388)
-------- ---- ------- --------
Net Cash Used in
Investing
Activities......... (553) (15) (3,575) (4,143)
-------- ---- ------- --------
FINANCING ACTIVITIES
Borrowings under credit
facility agreement..... 10,000 -- -- 10,000
Principal payments on
credit facility and
other borrowings....... (45,070) -- (1,940) (47,010)
Proceeds from issuance
of senior subordinated
notes and related
warrants............... 121,488 -- -- 121,488
Reacquisition of senior
subordinated notes and
related warrants....... (31,559) -- -- (31,559)
Repurchases of
redeemable preferred
stock and related
warrants............... (26,564) -- (799) (27,363)
Repurchase of preferred
stock.................. (4,850) -- -- (4,850)
Proceeds from issuances
of common stock........ 640 -- -- 640
Repurchases of common
stock.................. (3,722) -- -- (3,722)
Principal payments from
notes receivable
related to common
stock.................. 993 -- -- 993
Preferred stock
dividends.............. (5,321) -- -- (5,321)
Debt issuance costs..... (6,307) (6,307)
Other financing
activities............. 151 -- -- 151
-------- ---- ------- --------
Net Cash Provided by
(Used in) Financing
Activities......... 9,879 -- (2,739) 7,140
-------- ---- ------- --------
Effect of Exchange Rate
Changes on Cash........ -- -- (40) (40)
-------- ---- ------- --------
Increase in Cash and
Cash Equivalents....... 12,383 1 4,680 17,064
Cash and Cash
Equivalents at
Beginning of Period.... 1,895 9 6,541 8,445
-------- ---- ------- --------
Cash and Cash
Equivalents at End of
Period................. $ 14,278 $ 10 $11,221 $ 25,509
======== ==== ======= ========
</TABLE>
F-38
<PAGE>
===============================================================================
NO DEALER, SALESMAN, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMA-
TION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS EXCHANGE OFFER
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE INITIAL PURCHASER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECU-
RITY OTHER THAN THOSE TO WHICH IT RELATES NOR DOES IT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIV-
ERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUM-
STANCES, 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 AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 13
The Exchange Offer....................................................... 14
Capitalization........................................................... 22
Selected Consolidated Financial Data..................................... 23
Unaudited Pro Forma Consolidated Financial Statements.................... 24
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 29
Business................................................................. 39
Management............................................................... 52
Executive Compensation................................................... 57
Security Ownership....................................................... 62
Description of the Credit Facility....................................... 64
Description of $125 Million of 12% Senior Subordinated Notes due 2003.... 66
Description of the Notes................................................. 67
Certain Federal Income Tax Considerations................................ 87
Old Notes Registration Rights; Additional Interest....................... 90
Old Notes Transfer Restrictions.......................................... 92
Book Entry; Delivery and Form............................................ 95
Plan of Distribution..................................................... 96
Legal Matters............................................................ 97
Experts.................................................................. 97
Index to Consolidated Financial Statements............................... F-1
</TABLE>
===============================================================================
===============================================================================
---------------------------
PROSPECTUS
---------------------------
[LOGO OF ICF KAISER APPEARS HERE]
OFFER TO EXCHANGE $1,000
PRINCIPAL AMOUNT OF ITS
12% SENIOR SUBORDINATED NOTES
DUE 2003, SERIES B
WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT FOR EACH $1,000
PRINCIPAL AMOUNT OF ITS OUTSTANDING
12% SENIOR SUBORDINATED NOTES
DUE 2003, SERIES A
The Exchange Agent for the Exchange Offer is:
Bankers Trust Company
(800) 735-7777
By Facsimile:
(615) 835-3701
Confirmation by Telephone:
(615) 835-3572
By Mail:
BT Services Tennessee, Inc Reorganization Unit
P.O. Box 292737
Nashville, TN 37229-2737
By Hand:
Bankers Trust Company
Corporate Trust and Agency Group
Receipt & Delivery Window
123 Washington Street, 1st Floor
New York, New York 10006
By Overnight Mail or Courier:
BT Services Tennessee, Inc.
Corporate Trust and Agency Group
Reorganization Unit
648 Grassmere Park Road
Nashville, TN 37211
JANUARY 31, 1997
===============================================================================
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO 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 31ST DAY OF JANUARY, 1997.
ICF Kaiser International, Inc.
(Registrant)
/s/ James O. Edwards
Date: January 31, 1997 By __________________________________
JAMES O. EDWARDS, CHAIRMAN OF THE
BOARD AND CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
(1) Principal executive officer
/s/ James O. Edwards
Date: January 31, 1997 By __________________________________
JAMES O. EDWARDS, CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
(2) Principal financial and accounting officer
/s/ Richard K. Nason
Date: January 31, 1997 By __________________________________
RICHARD K. NASON, EXECUTIVE VICE
PRESIDENT AND CHIEF FINANCIAL
OFFICER
II-1
<PAGE>
(3) The Board of Directors
/s/ Tony Coelho
Date: January 31, 1997 By __________________________________
TONY COELHO, DIRECTOR
/s/ James O. Edwards
Date: January 31, 1997 By __________________________________
JAMES O. EDWARDS, DIRECTOR
Date: January 31, 1997 /s/ Maynard H. Jackson
By __________________________________
MAYNARD H. JACKSON, DIRECTOR
/s/ Thomas C. Jorling
Date: January 31, 1997 By __________________________________
THOMAS C. JORLING, DIRECTOR
/s/ Rebecca P. Mark
Date: January 31, 1997 By __________________________________
REBECCA P. MARK, DIRECTOR
/s/ Richard K. Nason
Date: January 31, 1997 By __________________________________
RICHARD K. NASON, DIRECTOR
/s/ Marc Tipermas
Date: January 31, 1997 By __________________________________
MARC TIPERMAS, DIRECTOR
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO 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 31ST DAY OF JANUARY, 1997.
Cygna Consulting Engineers and
Project Management, Inc.
(Registrant)
/s/ Michael K. Goldman
Date: January 31, 1997 By __________________________________
MICHAEL K. GOLDMAN
PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
(1) Principal executive officer
/s/ Michael K. Goldman
Date: January 31, 1997 By __________________________________
MICHAEL K. GOLDMAN,
PRESIDENT
(2) Principal financial and accounting officer
/s/ Richard K. Nason
Date: January 31, 1997 By __________________________________
RICHARD K. NASON,
TREASURER
(3) The Board of Directors
/s/ Michael K. Goldman
Date: January 31, 1997 By __________________________________
MICHAEL K. GOLDMAN
SOLE DIRECTOR
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO 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 31ST DAY OF JANUARY, 1997.
ICF Kaiser Government Programs, Inc.
(Registrant)
/s/ James O. Edwards
Date: January 31, 1997 By __________________________________
JAMES O. EDWARDS
PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
(1) Principal executive officer
/s/ James O. Edwards
Date: January 31, 1997 By __________________________________
JAMES O. EDWARDS
PRESIDENT
(2) Principal financial and accounting officer
/s/ Richard K. Nason
Date: January 31, 1997 By __________________________________
RICHARD K. NASON
TREASURER
II-4
<PAGE>
(3) The Board of Directors
/s/ James O. Edwards
Date: January 31, 1997 By __________________________________
JAMES O. EDWARDS
DIRECTOR
/s/ Marc Tipermas
Date: January 31, 1997 By __________________________________
MARC TIPERMAS
DIRECTOR
/s/ Kenneth A. Schweers
Date: January 31, 1997 By __________________________________
KENNETH A. SCHWEERS
DIRECTOR
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO 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 31ST DAY OF JANUARY, 1997.
PCI Operating Company, Inc.
(Registrant)
/s/ Michael K. Goldman
Date: January 31, 1997 By __________________________________
MICHAEL K. GOLDMAN
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
(1) Principal executive officer
/s/ Michael K. Goldman
Date: January 31, 1997 By __________________________________
MICHAEL K. GOLDMAN
CHIEF EXECUTIVE OFFICER
(2) Principal financial and accounting officer
/s/ Richard K. Nason
Date: January 31, 1997 By __________________________________
RICHARD K. NASON
TREASURER
(3) The Board of Directors
/s/ Michael K. Goldman
Date: January 31, 1997 By __________________________________
MICHAEL K. GOLDMAN
SOLE DIRECTOR
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO 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 31ST DAY OF JANUARY, 1997.
Systems Applications International,
Inc.
(Registrant)
/s/ Michael K. Goldman
Date: January 31, 1997 By __________________________________
MICHAEL K. GOLDMAN
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
(1) Principal executive officer
/s/ Michael K. Goldman
Date: January 31, 1997 By __________________________________
MICHAEL K. GOLDMAN,
CHIEF EXECUTIVE OFFICER
(2) Principal financial and accounting officer
/s/ Cheryl R. Aratoon
Date: January 31, 1997 By __________________________________
CHERYL R. ARATOON,
SENIOR VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
(3) The Board of Directors
/s/ Michael K. Goldman
Date: January 31, 1997 By __________________________________
MICHAEL K. GOLDMAN
SOLE DIRECTOR
II-7
