S-4

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TABLE OF CONTENTS
INDEX TO FINANCIAL STATEMENTS

As filed with the Securities and Exchange Commission on October 18, 2002

Registration No. 333-            

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

KAISER GROUP HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)

Delaware
(State or other jurisdiction
of incorporation or
organization) 8711
(Primary Standard
Industrial Classification
Code No.) 54-2014870
(I.R.S. Employer
Identification No.)

Kaiser Government Programs, Inc.
(Co-Registrant and Partial Subsidiary Guarantor)

Delaware
(State or other jurisdiction
of incorporation or
organization of Co-
Registrant) 8711
(Primary Standard
Industrial Classification
Code No. of
Co-Registrant) 54-1761768
(I.R.S. Employer
Identification No.
of Co-Registrant)

9302 Lee Highway, Fairfax, Virginia 22031-1207
(703) 934-3600
(Address, including zip code, and telephone number, including area code, of Registrants' and Co-Registrant's principal executive offices)

John T. Grigsby, Jr., President and Chief Executive Officer
9302 Lee Highway
Fairfax, Virginia 22031-1207
(703) 934-3600
(Name, address, including zip code,
& telephone number, including
area code, of agent for service)

Copy to:
James J. Maiwurm, Esq.
Squire, Sanders & Dempsey L.L.P.
14th Floor
8000 Towers Crescent Drive
Tysons Corner, VA 22182-2700
(703) 720-7890

          Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

          If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: o

          If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) 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: o

          If this Form is a post-effective amendment filed pursuant to Rule 462(d) 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: o

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities To Be Registered	Amount To Be Registered (1)(2)	Proposed Maximum Offering Price Per Unit	Proposed Maximum Aggregate Offering Price (1)	Amount of Registration Fee
81/4% Senior Notes due 2007	$40,000,000	100%	$40,000,000	$3,680

(1)

Estimated solely for purposes of computing the registration fee pursuant to Rule 457(f) under the Securities Act of 1933, as amended.

(2)

Includes partial guarantee of Kaiser Government Programs, Inc. No fee is payable pursuant to Rule 457(n).

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.

PROSPECTUS AND CONSENT SOLICITATION STATEMENT

Offer to Exchange
8¹/4% Senior Notes due 2007
(Registered under the Securities Act of 1933)
for up to $40 million liquidation preference of
Series 1 Redeemable Cumulative Preferred Stock
($            million aggregate liquidation preference outstanding)
of

KAISER GROUP HOLDINGS, INC.

(A partial guarantee of the exchange notes is made by our partial subsidiary guarantor,
Kaiser Government Programs, Inc.)

The exchange offer will expire at 5:00 p.m., New York City time, on            2002, unless extended.

•

The exchange notes are being registered with the Securities and Exchange Commission and are being offered in exchange for preferred stock previously issued in an offering exempt from the registration requirements under the federal securities laws. The terms of the exchange offer are summarized below and more fully described in this prospectus/consent solicitation statement.

•

We will exchange up to $40 million liquidation preference of preferred stock that is validly tendered and not withdrawn prior to the expiration of the exchange offer.

•

You may withdraw tenders of preferred stock at any time prior to the expiration of the exchange offer.

•

We will not receive any proceeds from the exchange offer.

•

The exchange notes will mature on December 31, 2007.

•

We will pay interest on the exchange notes at an annual rate of 8¹/4%.

•

Interest is payable quarterly beginning on January 31, 2003.

•

None of our securities is listed on an exchange or NASDAQ, and our exchange notes will not be listed. Our common stock and preferred stock are traded on Over-the-Counter bulletin board "OTCBB" under the symbols "KGHI" and "KGHIP", respectively.

•

The exchange notes will be unsecured senior debt.

•

We may, at our option, redeem the exchange notes at a purchase price equal to 100% of the principal amount plus accrued and unpaid interest at any time. We are obligated to redeem the exchange notes from certain sources of excess cash.

•

Certain of our redemption obligations will be guaranteed by our subsidiary, Kaiser Government Programs, Inc.

•

We also are soliciting holders of the preferred stock for consents to amend the put agreement that gives holders of our preferred stock the right to put the preferred stock to our subsidiary, Kaiser Government Programs, Inc., under certain circumstances. The amendments are necessary to conform the terms of the put agreement with the terms of the exchange notes and are a condition to completing the exchange offer.

See "Risk Factors" beginning on page 7 of this prospectus/consent solicitation statement for a discussion of the risks that should be considered by holders prior to tendering preferred stock.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the exchange notes or determined if this prospectus/consent solicitation statement is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus/consent solicitation statement is October    , 2002

TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS
WHERE YOU CAN FIND MORE INFORMATION
NOTICE TO NEW HAMPSHIRE RESIDENTS
SUMMARY
	Overview
	Rationale for the Exchange Offer
	The Exchange Notes
	The Exchange Offer
	The Consent Solicitation
	The Company
	Risk Factors
RISK FACTORS
CAPITALIZATION
RATIO OF EARNINGS TO FIXED CHARGES
OVERVIEW AND BACKGROUND OF THE EXCHANGE OFFER
THE EXCHANGE OFFER
THE CONSENT SOLICITATION
PROCEDURES FOR PARTICIPATING IN THE EXCHANGE OFFER AND CONSENT SOLICITATION
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
DESCRIPTION OF EXCHANGE NOTES
BUSINESS
SELECTED FINANCIAL DATA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK
MANAGEMENT
EXPERTS
LEGAL MATTERS
INDEX TO FINANCIAL STATEMENTS

You should only rely on the information contained in this document or to which we have referred you. We have not authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The information in this document may not be accurate after the date of this document.

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FORWARD-LOOKING STATEMENTS

        This prospectus/consent solicitation statement contains, and our periodic filings with the SEC and written or oral statements made by our officers and directors to the press, potential investors, securities analysts and others, may contain, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 31E of the Securities Exchange Act of 1934. These forward-looking statements are not historical facts, but rather are predictions and generally can be identified by use of statements that include phrases such as "believe," "expect," "anticipate," "estimate," "intend," "plan," "foresee," or other words or phrases of similar import. Similarly, statements that describe or contain information related to matters such as our intent, belief, or expectation with respect to financial performance, claims resolution, cash availability, stock redemption plans, contract awards and performance, potential acquisitions and joint ventures, and cost-cutting measures are forward-looking statements. These forward-looking statements often reflect a number of assumptions and involve known and unknown risks, uncertainties and other factors that could cause our actual results to differ materially from those currently anticipated in these forward-looking statements. In light of these risks and uncertainties, including those described in the Risk Factors section beginning on page 7, the forward-looking events may not occur.

WHERE YOU CAN FIND MORE INFORMATION

        We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any document we file with the SEC at the SEC's public reference rooms at the following locations:

Public Reference Room
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549 Northeast Regional Office
233 Broadway
New York, NY 10279 Chicago Regional Office
Citicorp Center
500 West Madison Street,
Suite 1400
Chicago, Illinois 60661-2511

        Please call the SEC at 1-800-SEC-0330 for further information on the operations of the public reference rooms. Our SEC filings also are available to the public at the SEC's web site at http://www.sec.gov/edgar/searchedgar/companysearch.html.

        We have filed a registration statement on Form S-4, of which this prospectus/consent solicitation statement is a part, covering the exchange notes offered by this prospectus. As allowed by SEC rules, this prospectus/consent solicitation statement does not contain all of the information set forth in the registration statement and the related exhibits and financial statements. We refer you to the registration statement, and the related exhibits and financial statements for further information. This prospectus is qualified in its entirety by such other information.

NOTICE TO NEW HAMPSHIRE RESIDENTS

        NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.

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SUMMARY

The following summary highlights selected information from this prospectus/consent solicitation statement and may not contain all of the information that is important to you. This prospectus/consent solicitation statement includes specific terms of the exchange notes we are offering in the exchange offer, as well as information regarding our business and detailed financial data. We encourage you to read this entire prospectus/consent solicitation statement and other documents to which we refer.

Overview

        The exchange offer will be completed in simultaneous transactions, each of which is dependent upon consummation of the other. Assuming the conditions of the exchange offer are met:

•

we will exchange up to $40 million principal amount of exchange notes for up to $40 million liquidation preference of preferred stock; and



•

holders of preferred stock representing at least two-thirds of the liquidation preference of the preferred stock subject to put rights as against our subsidiary, Kaiser Government Programs, Inc., will consent to the amendment of the put agreement governing the put rights so the terms of the put rights are consistent with the terms of the exchange notes.

As a result of the exchange offer, holders of preferred stock will receive, for each $1,000 liquidation preference of preferred stock tendered in the exchange offer, $1,000 principal amount of exchange notes.

        Exchange Offer.    We are offering exchange notes in exchange for up to $40 million liquidation preference of preferred stock. Our acceptance of preferred stock tendered in the exchange offer is conditioned on, among other things, holders of at least two-thirds of the liquidation preference of the preferred stock subject to put rights as against our subsidiary, Kaiser Government Programs, Inc., consenting to amendments to the put agreement governing the put rights so the terms of such put rights are consistent with the terms of the exchange notes. A holder of preferred stock may tender all or part of the preferred stock beneficially owned by the holder.

        Consent Solicitation.    Simultaneously with the exchange offer we are seeking a consent from the holders of our preferred stock to amend the put agreement governing put rights as against our subsidiary, Kaiser Government Programs, Inc., in a manner consistent with the terms of the exchange notes. A holder of preferred stock must consent to the proposed amendments in order to tender the holder's preferred stock in the exchange offer. In addition, approval of the amendments by the holders of at least two-thirds of the liquidation preference of the preferred stock subject to the put rights is a condition to proceeding with the exchange offer.

Rationale for the Exchange Offer

        Kaiser Group Holdings, Inc. was formed in December 2000 as a "successor issuer" to Kaiser Group International, Inc. (formerly known as ICF Kaiser International, Inc.), which was reorganized in bankruptcy proceedings under Chapter 11 of the United States Bankruptcy Code in the District of Delaware. The Plan of Reorganization became effective on December 18, 2000. The plan provided, among other things, for the issuance of our preferred stock, together with other consideration, to holders of Kaiser Group International's former 12% Senior Subordinated Notes due 2003 and some other creditors.

        At the time the plan became effective, there was substantial uncertainty as to the performance of some of Kaiser Group International's remaining projects and assets, including Kaiser-Hill Company, LLC, in which we own a 50% interest. Due to this uncertainty, the plan provided that we would emerge from the bankruptcy process without any outstanding long-term debt.

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        After the effectiveness of the plan, our principal remaining obligations (other than to trade and similar creditors) are dividend payments provided for under the terms of our preferred stock. The dividends equal 7% of the liquidation preference of the preferred stock, payable quarterly. Such dividends may not be deductible for federal and state income tax purposes. Because of operating losses suffered by Kaiser Group International in prior years, the deductibility of such dividends previously was not a concern. However, we now expect to have taxable income, perhaps in calendar year 2002 and more certainly in calendar year 2003. Accordingly, we have elected to proceed with the exchange offer with the goal of having a more tax-efficient capital structure on an ongoing basis. The new capital structure will allow us to deduct the interest payable on the exchange notes.

The Exchange Notes

Issuer	Kaiser Group Holdings, Inc.
Securities Offered	We are offering up to $40 million aggregate principal amount of exchange notes.
Maturity Date	The exchange notes will mature on December 31, 2007, which is the date when the preferred stock is required by its terms to be redeemed.
Interest Rate	We will pay an annual rate of interest equal to 81/4%. The dividend rate on the preferred stock is 7%.
Interest Payments	We will make interest payments quarterly, beginning on January 31, 2003.
Ranking	The exchange notes will be unsecured senior debt. The exchange notes will rank senior in right of payment to any of our future subordinated debt and to any unexchanged preferred stock. However, the exchange notes will be effectively subordinated to our present and future secured obligations and to any indebtedness of our subsidiaries, as is the preferred stock.
Redemption and Partial Guarantee	We may redeem the exchange notes at our option, in whole or in part, at any time and from time to time at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest. We are obligated to redeem outstanding exchange notes at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest (i) upon the disposition of shares or assets of our subsidiaries that own direct or indirect interests in Kaiser-Hill Company, LLC to the extent the net cash proceeds of such dispositions exceed $3 million per year, and (ii) to the extent net after-tax proceeds received from Kaiser-Hill (a) are from the disposition of a direct or indirect interest in Kaiser-Hill, (b) are from extraordinary distributions from Kaiser-Hill, or (c) exceed 2.8 times the amount of cash required to pay dividends on our preferred stock and interest on the exchange notes outstanding on the date of issuance of the exchange notes.
	The exchange note redemption obligations correspond to the redemption and put rights of the preferred stock (except that the exchange notes are not redeemable upon a change of control at the option of a holder and are not mandatorily redeemable upon the receipt of certain Nova Hut project funds, as the preferred stock is in each case) and are pari passu and pro rata with the corresponding rights of the preferred stock. The exchange notes will not have a put right against our subsidiary, Kaiser Government Programs, but the redemption obligation described in clause (ii) above will be guaranteed by Kaiser Government Programs.

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Restrictive Covenants	The Indenture governing the exchange notes will not include significant restrictions on our business activities, including incurring additional indebtedness and forming new subsidiaries. However, the Indenture does include restrictions on the ability of our subsidiaries that own direct or indirect interests in Kaiser-Hill to:
	•	incur debt other than obligations with respect to the debt of Kaiser-Hill and the redemption right that corresponds with the preferred stock put right;
	•	issue preferred stock other than to us or a wholly-owned subsidiary that owns a direct or indirect interest in Kaiser-Hill;
	•	agree to restrictions on its ability to pay dividends or make other distributions to us;
	•	enter into transactions with affiliates;
	•	merge or consolidate; and
	•	transfer or sell assets.
	See "Description of Exchange Notes."
The Exchange Offer
The Exchange Offer	We are offering to exchange up to $40 million principal amount of exchange notes for up to $40 million liquidation preference of preferred stock. Participants in the exchange offer will receive cash in an amount equal to accrued but unpaid dividends through the effective date of the exchange. Interest will accrue on the exchange notes from such date.
Minimum Tender Condition	In order for us to consummate the exchange offer, holders of at least $20 million liquidation preference of the outstanding preferred stock must have validly tendered their preferred stock.
Conditions of the Exchange Offer	Our acceptance of the exchange offer is subject to the following conditions, among other things:
	•	the minimum tender condition must be met; and
	•	we must obtain the consents from holders of the preferred stock representing at least two-thirds of the liquidation preference of the preferred stock subject to put rights as against our subsidiary, Kaiser Government Programs, consenting to amendments to the put agreement governing the put rights.
	At any time we can waive any condition to the exchange offer and accept all preferred stock tendered for exchange pursuant to the exchange offer. Additionally, we reserve the right at any time to terminate the exchange offer and not accept for exchange any preferred stock tendered for exchange. See "The Exchange Offer—Conditions of the Exchange Offer."

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Expiration Date	The exchange offer and consent solicitation will expire at 5:00 p.m., New York City time, on            , 2002, unless we extend or earlier terminate them. We can extend the exchange offer and accept all preferred stock tendered for exchange or amend the terms of the exchange offer, and any amendment will apply to the preferred stock tendered pursuant to the exchange offer.
Tax Consequences of the Exchange	The exchange may qualify as a recapitalization under the Internal Revenue Code. If that is the case, a holder that exchanges preferred stock for exchange notes will recognize gain, but not loss, equal to the face amount of the exchange notes received in the exchange over the holder's aggregate adjusted tax basis in the preferred stock exchanged. However, if the Internal Revenue Service were to successfully claim that the exchange does not qualify as a recapitalization, a holder that exchanges preferred stock for exchange notes will recognize gain or loss on the exchange equal to the difference between the face amount of the exchange notes received in the exchange and the holder's adjusted tax basis in the preferred stock exchanged. See "United States Federal Income Tax Considerations."
No Fairness Opinion or Recommendation	We have not obtained an opinion of any third party, nor do we express a view, concerning the fairness of the terms of the exchange offer from a financial point of view. Neither we nor our Board of Directors either recommend or discourage participation in the exchange offer.
The Consent Solicitation
The Consent Solicitation	In connection with the exchange offer, we are soliciting consents from the holders of the preferred stock to approve proposed amendments to the agreement governing the put rights that holders of preferred stock have against our subsidiary, Kaiser Government Programs, in order to conform the put agreement governing such put rights to the terms of the Indenture governing the exchange notes. The proposed amendments will not become operative unless the conditions to the exchange offer are met and will become effective immediately preceding the consummation of the exchange offer.
Requisite Consents	Consents of holders of at least two-thirds of the liquidation preference of the preferred stock subject to the put rights are required to approve the proposed amendments to the put agreement.
Proposed Amendments	The proposed amendments to the agreement governing the put rights will conform the definition of the circumstances that give rise to the put rights to those in the Indenture governing the exchange notes that give rise to a redemption obligation.

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The put agreement gives holders of preferred stock the right to put their preferred stock to Kaiser Government Programs, if Kaiser Government Programs receives distributions from Kaiser-Hill that exceed 2.8 times the amount of cash required to pay dividends on the preferred stock and under other circumstances, including the disposition of our interest in Kaiser-Hill. In order for the put agreement to operate in a manner consistent with the issuance of the exchange notes, the agreement is being amended to refine the definition of the circumstances which give rise to a put right to provide, among other things, that the put right exists if we receive distributions from Kaiser-Hill that exceed 2.8 times the amount of cash required to pay both dividends on the preferred stock and interest on the exchange notes. The definition of the other circumstances under which the put right comes into existence are not amended. A copy of the put agreement, as proposed to be amended, is filed as an exhibit to the registration statement of which this prospectus/consent solicitation statement is a part.

The terms of the Indenture governing the exchange notes require us to redeem the exchange notes under the same circumstances as give rise to a put right in favor of the holders of preferred stock. The redemption obligations and put rights are pari passu and pro rata with one another, in accordance with the principal amount of the exchange notes and the liquidation preference of the preferred stock.

The amendments to the put agreement also would permit Kaiser Government Programs to guarantee our redemption obligation relating to the exchange notes that correspond with the obligations of Kaiser Government Programs under the put agreement.

If the proposed amendments become effective, they will apply to all preferred stock to which put rights apply and each holder of preferred stock not tendered or accepted for exchange pursuant to the exchange offer will be bound by the proposed amendments regardless of whether the holder consented to the proposed amendments.

The Company

        On June 9, 2000, Kaiser Group International, Inc. and 38 of its domestic subsidiaries voluntarily filed for protection under Chapter 11 of the United States Bankruptcy Code in the District of Delaware. Kaiser Group International, Inc. emerged from bankruptcy with a confirmed Plan of Reorganization that was effective on December 18, 2000. Kaiser Group Holdings, Inc. is a Delaware holding company formed on December 6, 2000 for the purpose of owning all of the outstanding stock of Kaiser Group International, Inc. Kaiser Group International, Inc. continues to own the stock of its remaining subsidiaries. In this prospectus/consent solicitation statement, we frequently use the terms "we" and "Kaiser" to refer to Kaiser Group Holdings, Inc., Kaiser Group International, Inc. and other subsidiaries we own.

        We adopted fresh start reporting in our consolidated balance sheet as of December 31, 2000. The American Institute of Certified Public Accountants' Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" (SOP 90-7), requires that under certain

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circumstances resulting from a bankruptcy, a new entity is created for financial reporting purposes upon the emergence of that entity from bankruptcy. Accordingly, the value of the reorganized enterprise becomes the established amount for the emerging balance of shareholders' equity and any accumulated deficit of the predecessor entity is offset against available paid-in-capital to result in an emerging retained earnings of zero. Additionally, assets and liabilities were recorded at their fair values. Since the financial information as of and subsequent to December 31, 2000 has been prepared as if it is of a new reporting entity, a black line has been used to separate new entity information from prior entity information in the Summary Financial Data and Ratio of Earnings to Fixed Charges since such presentations were not prepared on a comparable basis to the prior periods. Financial information with regard to activity occurring prior to December 31, 2000 has been marked as "Predecessor", and financial information with regard to activity as of December 31, 2000 and thereafter is marked herein as "Successor".

        We own Kaiser-Hill Company, LLC equally with CH2M Hill Companies Ltd. Kaiser-Hill is our major asset and source of income. Kaiser-Hill currently serves as the general contractor at the U.S. Department of Energy's Rocky Flats Environmental Technology Site near Denver, Colorado. Kaiser-Hill has performed for the Department of Energy at this site since 1995 and in January 2000 was awarded a new contract to manage the closure of the site within this decade. Rocky Flats is a former Department of Energy nuclear weapons production facility. Under the new contract, Kaiser-Hill is working to stabilize and safely store radioactive materials at the site and other locations, to clean up areas contaminated with hazardous and radioactive waste and to restore much of the 6,000 acre site to the public. The level of success experienced by Kaiser-Hill in achieving timely closure of the Rocky Flats site, and the cost of achieving such closure, are the primary determinants of our long-term financial performance.

        We have a substantial claim, pending resolution, against Nova Hut a.s., the owner of a steel mini-mill in the Czech Republic. The engineering and construction of the mini-mill was completed in 2000 by a subsidiary of Kaiser Group International, Inc. called Kaiser Netherlands, B.V. As a result of disputes between Nova Hut and Kaiser Netherlands regarding the performance of the mini mill, and further, the ability of Nova Hut, which is in financial difficulty, to fund a payment to Kaiser Netherlands, the amount and timing of a recovery, if any, on this claim is uncertain.

        Our principal executive office is located at 9302 Lee Highway, Fairfax, Virginia, 22031-1207 and our telephone number is (703) 934-3600.

Risk Factors

        Before tendering preferred stock in the exchange offer, you should consider carefully the information included in the "Risk Factors" section immediately following this summary, as well as all other information set forth in this prospectus/consent solicitation statement

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RISK FACTORS

You should consider carefully the following factors, in addition to the other information contained in this prospectus/consent solicitation statement, before participating in the exchange offer.

Our long-term future profitability is significantly tied to Kaiser-Hill, which is subject to uncertainties that may adversely affect our operating results.

The fee income we will receive from Kaiser-Hill is dependent upon the ability of Kaiser-Hill to close the Rocky Flats site at a predetermined targeted closing date and cost, both of which are uncertain.

        Our long-term future profitability will be dependent, to a significant extent, on the performance of Kaiser-Hill under its new contract with the Department of Energy. Kaiser-Hill serves as the general contractor at the Rocky Flats Environmental Technology site near Denver, Colorado, a former nuclear weapons production facility. Kaiser-Hill's contract with the Department of Energy includes a performance fee based upon a combination of the actual costs incurred to complete the site closure and the actual date of completion of the closure. If Kaiser-Hill fails to complete the closure within the target cost for the project or fails to complete the closure by March 31, 2007, Kaiser-Hill's fee will be reduced to a level significantly less than the fee estimate currently being used to recognize income on the project and further reduced by 30% of the costs incurred after the target date, up to a maximum of $20 million.

        Kaiser-Hill has historically incurred expenses that are not reimbursable by the Department of Energy pursuant to the federal regulations. Accordingly such expenses, which Kaiser-Hill estimates could approximate up to 15%—20% of the total award fee, would be deducted from the total fee prior to any distributions of net fees to either us or CH2M Hill Companies, Ltd. For reasons similar to those described in the following paragraph, it is difficult to estimate either the amount of net fee to be distributed to the owners of Kaiser-Hill and or the effect, if any, that such unreimbursable costs would have on our future cash flows.

There are substantial performance risks associated with Kaiser-Hill's work at the Rocky Flats site. The performance risks may impact the timing and cost of closing the site, which in turn will impact our fee income from Kaiser-Hill.

        The clean-up and closure of the Department of Energy's Rocky Flats site involve substantial performance risks. Among other things, Kaiser-Hill's activities at the Rocky Flats site involve the clean-up, packaging and transportation of nuclear waste, and the demolition and destruction of facilities where nuclear weapons components were previously produced. Some of these activities have not been previously performed elsewhere, and therefore require the development of innovative and untested approaches. Kaiser-Hill emphasizes safety in its performance, but the nature of the Rocky Flats site and the activities of Kaiser-Hill and its subcontractors at the site are such that serious injuries, or even deaths, are possible. Significant safety incidents at the site could stop or significantly impede the progress of work being performed at the site by Kaiser-Hill and its subcontractors. The Department of Energy contract contemplates that all, or substantially all, of the nuclear waste at Rocky Flats will be transported to other sites operated or managed by the Department of Energy. The appropriate sites for storage of certain of those nuclear wastes have not yet been identified. In addition, third-party objections have arisen with regard to the transportation and storage of nuclear waste at certain sites previously scheduled by the Department of Energy to receive waste from Rocky Flats, including the Department of Energy's Savannah River site in South Carolina. Deliveries of waste to the Savannah River site were delayed as a result of objections interposed by the Governor of South Carolina. Deliveries to the Savannah River site have begun, but it is possible that similar objections will be raised with respect to the transportation and storage of waste from Rocky Flats at other Department of

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Energy sites. Although the Department of Energy contract contemplates that the Department of Energy is responsible for providing transportation and storage sites for nuclear waste from Rocky Flats, an ongoing inability to ship plutonium and other nuclear waste to Department of Energy sites poses a substantial risk to the timely closure of the Rocky Flats site, and could interfere with Kaiser-Hill's ability to earn the fees to which Kaiser-Hill believes it should be entitled. This loss of fee income could adversely affect our operating results.

There are potential substantial liabilities and costs associated with Kaiser-Hill's Department of Energy contract, which may directly and indirectly impact our fee income from Kaiser-Hill.

        Under the Department of Energy contract, Kaiser-Hill is responsible for, and the Department of Energy will not pay for costs associated with, 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. If Kaiser-Hill were found liable for any of these reasons, the associated costs could be substantial, which could have an adverse effect on our operating results.

We face significant contingencies, which may adversely impact our ability to meet our obligations on our debt and preferred stock, to fund our continuing operations and to undertake new operations.

Our cash flow is partially dependent on the wind-down of the Nova Hut project and the probability of receiving our payment from Nova Hut is currently uncertain.

        Our cash flow is partially dependent on the resolution of disputes relating to Kaiser Netherlands' performance under its fixed-price contract for turnkey engineering and construction services relating to the Nova Hut project and on the ability of Nova Hut, which is in financial difficulty, to pay for such services.

We do not have a business plan beyond Kaiser-Hill and the Nova Hut project, and we may or may not undertake new activities.

        Our long-term future profitability will be dependent, to a significant extent, on our ability to develop a business plan for ongoing operations. It is possible that our ongoing business plan will be limited to resolving issues related to the Nova Hut project and participating in the activities of Kaiser-Hill. Our Board of Directors is considering whether we should attempt to develop a new revenue base. Such efforts could, for example, attempt to take advantage of our successful history of performing in the government services market, both independently and through Kaiser-Hill. Our efforts to develop a revenue base separate from Kaiser-Hill may involve start-up activities that involve risks peculiar to activities of this type, which may adversely impact our cash flow and operating results.

We may be unable to obtain performance guarantees, which may limit our ability to undertake new activities.

        Given the reorganization history of Kaiser Group Holdings, Inc., we may not be able to obtain satisfactory contract performance guaranty mechanisms, such as performance bonds and letters of credit, at all or on satisfactory terms, to the extent such mechanisms are needed for new projects. These factors could limit the nature of the business activities in which we could engage should we decide to attempt to develop a new revenue base apart from Kaiser-Hill, which may adversely impact our cash flow and operating results.

We may be unable to generate funds to meet our obligations and we may be unable to access additional capital.

        There can be no assurance that we will be able to continue to generate sufficient funds to meet our obligations, notwithstanding the significant improvements in our operations and financial condition.

8

Although we believe that we will be able to generate sufficient funds to meet our working capital needs for the foreseeable future, our ability to gain access to additional capital, if needed, cannot be assured. The inability to gain access to additional capital may limit our ability to undertake new activities or to meet our existing obligations.

There are significant risks associated with the exchange notes, which could adversely affect the value of the exchange notes.

We have not obtained a fairness opinion, and do not express a recommendation, concerning the exchange offer.

        We have not obtained an opinion of any third party, nor do we express a view, concerning the fairness of the terms of the exchange offer from a financial point of view. Neither we nor our Board of Directors either recommend or discourage participation in the exchange offer.

There may not be a trading market for the exchange notes, which may make it difficult for you to sell your exchange notes.

        The exchange notes are a new issue of securities for which there is currently no established trading market. We cannot assure you that a trading market for the exchange notes will develop. The absence of a trading market adversely will affect the liquidity of your exchange notes, and it may be difficult for you to sell these securities. We do not intend to apply for listing of the exchange notes on any national securities exchange or for quotation through any over-the-counter market. If your exchange notes are traded, they may trade at a substantial discount from their face or liquidation value. Any discount could depend upon a number of factors, including:

•

the market demand for the exchange notes;



•

the market for similar securities;



•

our financial condition and performance;



•

prevailing interest rates generally in the financial markets; and



•

general economic conditions.

The exchange notes may impact our ability to obtain additional financing.

        The exchange notes will represent new outstanding debt for us. Potential lenders may look unfavorably at our total debt level with this additional debt, making it more difficult for us to obtain additional financing which may be necessary or desirable to undertake new activities.

The exchange notes are subordinated to any future secured debt and the repayment of exchange notes is not secured by our assets.

        Our obligation to make payments of principal and interest on the exchange notes is unsecured. As a result, holders of the exchange notes will not have any ability to use our assets as collateral for the repayment of these obligations. In addition, if we become subject to a bankruptcy or liquidation proceeding, the right of holders of the exchange notes to be repaid will be limited to the assets available after all of our secured creditors have been satisfied. These remaining assets will then be distributed among the remaining unsecured creditors, including trade creditors, as well as holders of the exchange notes. As a result, holders of the exchange notes may not recover their investment in these exchange notes. At the present time we do not have any secured or unsecured indebtedness.

9

The exchange notes will be subordinated to liabilities of some of our subsidiaries.

        Substantially all of our operations are conducted, and substantially all of our assets are owned, by our subsidiaries. The exchange notes will effectively be subordinated to all existing and future liabilities of those of our subsidiaries that have not guaranteed the exchange notes. Any right we may have to participate in any distribution of the assets of any of our subsidiaries upon the subsidiary's liquidation, reorganization or insolvency, and any right the holders of the exchange notes may consequently have to participate in the distribution of those assets, will be subject to the claims of the creditors, including trade creditors, of the subsidiary. In addition, in the event we have valid claims as a creditor of a subsidiary that are recognized, these claims would be subordinated to any security interest in the assets of the subsidiary and any indebtedness of the subsidiary senior to that held by us.

Unlike the preferred stock, the exchange notes are not optionally redeemable upon a change of control, nor mandatorily redeemable upon the receipt of certain Nova Hut project funds.

        Our preferred stock is redeemable at the option of the holder upon a change of control as defined in the terms of the preferred stock. The indenture governing the exchange notes does not include such a requirement. In the event of a change of control, the holders of preferred stock could require us to redeem the preferred stock, thus reducing the cash available to us and holders of the exchange notes.

        We are not presently aware of any events that would cause a change of control. However, based on Amendment No. 1 to a Schedule 13D filed with the SEC by Tennenbaum & Co., LLC on or about June 17, 2002, we believe that Tennenbaum & Co., LLC and Michael E. Tennenbaum together own approximately 44% of our common stock. The terms of our preferred stock provide that a change of control occurs when, among other things, a person or "group" (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934) directly or indirectly acquires "beneficial ownership" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of more than 50% of all classes of our common equity (defined in the terms of our preferred stock as capital stock entitled to vote in the election of directors).

        The preferred stock is mandatorily redeemable upon our receipt of certain funds from the Nova Hut project. It is speculative as to whether we will receive any such funds, or any additional funds at all, from the Nova Hut project. However, it is possible that we could receive funds from the Nova Hut project that would require redemption of preferred stock and no corresponding redemption of exchange notes.

You may have difficulty selling preferred stock you do not exchange.

        If the exchange offer is successful, the amount of preferred stock outstanding will be substantially reduced. As a result, it may become much more difficult for holders to sell their preferred stock. In addition, the reduced liquidity of preferred stock outstanding after the exchange could have the effect of reducing the market price at which the preferred stock may be sold.

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CAPITALIZATION

        The following table sets forth our capitalization as of June 30, 2002, and adjusted to give effect to (i) certain transactions subsequent to June 30, 2002 and (ii) the consummation of the exchange offer, as if such transactions and the exchange offer had occurred on June 30, 2002, assuming participation in the exchange by the holders of $40 million liquidation preference of preferred stock. The information set forth below should be read in conjunction with our audited and unaudited financial statements, together with the related notes, included in this prospectus/consent solicitation statement.

	June 30, 2002
	Actual		Adjusted Before Exchange Offer(a)		Adjusted After Exchange Offer(b)
	(Dollars in thousands)
Cash and Cash Equivalents	13,444		8,466		8,064
Restricted Cash (c)	16,406		13,283		13,283
Long-term debt:	—		—		—
Exchange note	—		—		40,000
Preferred stock	62,519		54,000		14,000
Common stock	16		16		16
Capital in excess of par	5,651		5,124		5,121
Accumulated deficit	(3,958	)	(1,942	)	(2,442	)
Treasury Stock	(244	)	(3,504	)	(3,504	)
Accumulated other comprehensive (loss) income	(29	)	(29	)	(29	)
Total Capitalization	63,955		53,665		53,162

(a)

Several transactions completed or planned to be completed subsequent to June 30, 2002 are deemed to be significant to presenting the effects of the exchange offer. These transactions include:

1.

The purchase of 110.610 shares of treasury stock.

2.

The implementation of the ICF Consulting settlement agreement.

3.

The anticipated redemption of 138,594 shares of outstanding preferred stock at liquidation value.

(b)

Adjusted to give effect to the exchange offer, assuming $40 million of exchange notes are exchanged for an equivalent liquidation preference of preferred stock and estimated expenses.

(c)

Held for the purpose of preferred stock redemption obligations and unresolved claims.

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RATIO OF EARNINGS TO FIXED CHARGES

        The table below sets forth our ratio of earnings to fixed charges for the five years ended December 31, 2001 and the six months ended June 30, 2002. The ratio of earnings to fixed charges has been calculated by dividing fixed charges into the sum of fixed charges and income from continuing operations before income tax expense and before equity in earnings or losses of less than fifty-percent owned companies. Fixed charges consist of dividends on preferred stock and interest costs.

        Because the interest rate on the exchange notes (8¹/4%) is higher than the dividend rate on our preferred stock (7%), fixed charges may increase following completion of the exchange offer. However, we expect the effect of the increased rate to be offset, at least in part, by planned redemptions of preferred stock.

		Predecessor Company								Successor Company
		Year ended December 31										Six Month Ended June 30, 2002
		1997		1998		1999		2000		2001
		(Dollars in thousands)
Income (loss) from continuing operations before income taxes, minority interest or income or loss from equity investees, extraordinary item and cumulative effect of accounting change		(36,029	)	(47,160	)	(40,444	)	(3,342	)	(3,861	)	(4,904	)
Total fixed charges:
Preferred stock dividends:		—		—		—		—		3,091		2,172
Interest expense		18,276		20,279		21,065		7,754		—		—
Income (loss) from continuing operations before income taxes, minority interest or income or loss from equity investees, extraordinary item and cumulative effect of accounting change plus fixed charges		(17,753	)	(26,881	)	(19,379	)	4,412		(770	)	(2,732	)
	Ratio of earnings to fixed charges	(a	)	(a	)	(a	)	(a	)	(a	)	(a	)

(a)

Earnings for these periods are inadequate to cover fixed charges. The deficiencies, calculated as the dollar amount of earnings required to attain a ratio of one-to-one, for the years ended 1997, 1998, 1999, 2000, 2001 and the six months ended June 30, 2002, were $36,029, $47,160, $40,444, $3,342, $3,861 and $4,904, respectively.

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OVERVIEW AND BACKGROUND OF THE EXCHANGE OFFER

        Kaiser Group Holdings, Inc. was formed in December 2000 as a "successor issuer" to Kaiser Group International, Inc. (formerly known as ICF Kaiser International, Inc.), which was reorganized in bankruptcy proceedings under Chapter 11 of the United States Bankruptcy Code in the District of Delaware. The Plan of Reorganization became effective on December 18, 2000. The plan provided, among other things, for the issuance of our preferred stock, together with other consideration, to holders of Kaiser's former 12% Senior Subordinated Notes due 2003 and some other specified creditors.

        At the time the plan became effective, there was substantial uncertainty as to the performance of some of Kaiser Group International's remaining projects and assets, including Kaiser-Hill Company, LLC, in which we own a 50% interest. Due to this uncertainty, the plan provided that we would emerge from the bankruptcy process without any outstanding long-term debt.

        After the effectiveness of the plan, our remaining principal obligations (other than to trade and similar creditors) are dividend payments provided for under the terms of our preferred stock. The dividends equal 7% of the liquidation preference of the preferred stock, payable quarterly. Such dividends may not be deductible for federal and state income tax purposes. Because of operating losses suffered by Kaiser Group International in prior years, the deductibility of such dividends previously was not a concern. However, we now expect to have taxable income, perhaps in calendar year 2002 and more certainly in calendar year 2003. Accordingly, we have elected to proceed with the exchange offer with the goal of having a more tax-efficient capital structure on an ongoing basis. The new capital structure will allow us to deduct the interest payable on the exchange notes.

THE EXCHANGE OFFER

Terms of the Exchange Offer

        We are offering to exchange up to $40 million principal amount of exchange notes for preferred stock with a liquidation preference of up to $40 million through the date of the closing of the exchange. Participants in the exchange offer will receive cash in an amount equal to accrued but unpaid dividends on the preferred stock through the effective date of the exchange. Interest will accrue on the exchange notes from such date.

        The exchange offer is conditioned upon, among other things, preferred stock with a liquidation preference of at least $20 million being tendered for exchange. If such minimum amount of the preferred stock is not tendered, or any other condition to the exchange offer is not satisfied and the exchange offer is not consummated, then we reserve the right to abandon the exchange offer.

        A holder of preferred stock may tender all or part of the preferred stock beneficially owned by the holder. We can extend the exchange offer and accept all preferred stock tendered for exchange or amend the terms of the exchange offer, and any amendment will apply to the preferred stock tendered pursuant to the exchange offer. Additionally, we reserve the right at any time to terminate the exchange offer and not accept for exchange any preferred stock tendered for exchange. Preferred stock tendered in the exchange offer may not be withdrawn by the holder once tendered.

        We shall be deemed to have accepted validly tendered preferred stock when, as and if we have given oral or written notice to the exchange agent and solicitation/information agent. The exchange agent and solicitation/information agent will act as agents for the tendering holders of preferred stock for the purposes of receiving the exchange notes from us.

        If any tendered preferred stock is not accepted for exchange because of an invalid tender, the occurrence of other events set forth in this prospectus/consent solicitation statement or otherwise,

13

certificates for any unaccepted preferred stock will be returned, without expense, to the tendering holder as promptly as practicable after the exchange expiration date.

Exchange Expiration Date; Extensions; Waiver; Termination; Amendments

        The exchange expiration date will be                        , 2002 at 5:00 p.m., New York City time, unless we, in our sole discretion, extend the exchange offer, in which case the exchange expiration date will be the latest date and time to which the exchange offer is extended.

        In order to extend the exchange offer, we will notify the exchange agent and solicitation/information agent of any extension by oral notice followed by written notice and will make a public announcement. In either case we will do so prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled exchange expiration date.

        We reserve the right, in our sole discretion:

•

to delay accepting any preferred stock;



•

to extend the expiration date and accept any preferred stock previously tendered;



•

to waive any condition to the exchange offer and accept any preferred stock tendered for exchange;



•

to terminate the exchange offer, whether or not any of the conditions set forth below under "Conditions of the Exchange Offer" shall have been satisfied; and



•

to amend the terms of the exchange offer in any manner by giving oral or written notice of the delay, extension, termination or modification to the exchange agent and solicitation/information agent. Any amendment will apply to preferred stock tendered.

If the exchange offer is amended in a manner determined by us to constitute a material change, we will promptly disclose these amendments by means of a public announcement or a supplement to this prospectus/consent solicitation statement that will be distributed to the registered holders of the preferred stock.

Conditions of the Exchange Offer

        The exchange offer is subject to the following conditions:

•

a minimum of at least $20 million in liquidation preference of preferred stock must be tendered;



•

holders of preferred stock representing at least two-thirds of the liquidation preference of preferred stock with put rights must consent to the proposed amendments to the put agreement;



•

no legal action or proceeding shall have been instituted or threatened with respect to the exchange offer or the consent solicitation, or which, in our sole judgment, materially adversely affect our business, operations or financial condition; and



•

none of the following shall have occurred:



•

any material adverse development in any existing action or proceeding of any nature;



•

any general suspension of trading in, or limitation on prices for, securities on the New York Stock Exchange;



•

a declaration of a banking moratorium by United States authorities or any governmental agency in the United States;



•

the commencement of a war, armed hostilities or other international or national calamity directly or indirectly involving the United States; or

14

•

a material adverse change in general economic, political or financial conditions, if the effect of any economic, political or financial conditions on the financial markets of the United States, in our sole judgment, makes it impracticable to consummate the exchange offer;



•

there shall not have occurred any change, or development involving a prospective change, in or affecting our business or financial affairs which, in our sole judgment, would materially impair the contemplated benefits of the exchange offer or the consent solicitation;



•

no statute, rule or regulation shall have been proposed or enacted, or any action shall have been taken by any governmental authority, which, in our sole judgment, would or might prohibit, restrict or delay consummation of the exchange offer as presently proposed or materially impair the contemplated benefits of the exchange offer or the consent solicitation; and



•

there shall not exist, in our sole judgment, any other actual or threatened legal impediment to the issuance of the exchange notes in the exchange offer.

        At any time, we can waive any condition to the exchange offer and accept all preferred stock tendered for exchange pursuant to the exchange offer.

THE CONSENT SOLICITATION

General

        In connection with the exchange offer, we are soliciting consents from the holders of the preferred stock to approve proposed amendments to the put agreement. Consents of holders of at least two-thirds of the outstanding liquidation preference of preferred stock with put rights are required to approve the proposed amendments to the put agreement. The proposed amendments will become effective only if the conditions of the exchange offer are satisfied or waived and will become effective immediately preceding the consummation of the exchange offer. Our acceptance of the exchange offer is contingent upon our receipt of requisite consents from holders of the preferred stock. If the proposed amendments become effective with respect to the put agreement, they will apply to all preferred stock to which put rights apply.

Proposed Amendments

        The proposed amendments to the agreement governing the put rights will conform the definition of the circumstances that give rise to the put rights to those in the Indenture governing the exchange notes that give rise to a redemption obligation.

        In general terms, the put agreement gives holders of preferred stock the right to put their preferred stock to Kaiser Government Programs if Kaiser Government Programs receives distributions from Kaiser-Hill that exceed 2.8 times the amount of cash required to pay dividends on the preferred stock and under other circumstances, including the disposition of our interest in Kaiser-Hill. In order for the put agreement to operate in a manner consistent with the issuance of the exchange notes, the agreement is being amended to refine the definition of the circumstances that give rise to a put right to provide, among other things, that the put right exists if we receive distributions from Kaiser-Hill that exceed 2.8 times the amount of cash required to pay both dividends on the preferred stock and interest on the exchange notes. The definition of the other circumstances under which the put right comes into existence are not amended. (A copy of the put agreement, as proposed to be amended, is filed as an exhibit to the registration statement of which this prospectus/consent solicitation statement is a part.)

        The terms of the Indenture governing the exchange notes requires us to redeem the exchange notes under the same circumstances as give rise to a put right in favor of the holders of preferred stock. The redemption obligations and put rights are pari passu and pro rata with one another, in

15

accordance with the principal amount of the exchange notes and the liquidation preference of the preferred stock.

        The amendments to the put agreement would also permit Kaiser Government Programs to guarantee our redemption obligation relating to the exchange notes that correspond with the obligations of Kaiser Government Programs under the put agreement.

        The proposed amendments to the put agreement also will include other conforming amendments that are consistent with the changes outlined above.

        A holder of preferred stock must consent to the proposed amendments in order to tender the holder's preferred stock in the exchange offer. In addition, each holder of preferred stock not tendered or accepted for exchange pursuant to the exchange offer will be bound by the proposed amendments if they become effective regardless of whether the holder consented to the proposed amendments.

Solicitation Expiration Date; Extensions; Amendments

        The consent solicitation will expire at 5:00 p.m., New York City time, on                        , 2002, unless we, in our sole discretion, extend the period during which the consent solicitation is open, in which case the solicitation expiration date will be the latest date and time to which the consent solicitation is extended.

        In order to extend the solicitation expiration date, we will make a public announcement prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled solicitation expiration date.

        We reserve the right, in our sole discretion,

•

to delay accepting any consents;



•

to extend the consent solicitation;



•

to terminate the consent solicitation; and



•

to amend the terms of the consent solicitation in any manner by giving oral or written notice of the delay, extension, termination or modification to the exchange agent and solicitation/information agent.

If the consent solicitation is amended in a manner that we determine constitutes an adverse change to the holders of the preferred stock, we will promptly disclose the amendment by means of a public announcement or a supplement to this prospectus/consent solicitation statement that will be distributed to the registered holders of the preferred stock.

Waivers and Nonacceptance of Consents

        We reserve the absolute right to waive any defects or irregularities in the furnishing of the consents. If any consents are not accepted for any reason, the preferred stock to which the consent relates will be returned without expense to the submitting holder as promptly as practicable after the expiration or termination of the consent solicitation.

PROCEDURES FOR PARTICIPATING IN THE EXCHANGE OFFER
AND CONSENT SOLICITATION

General

        As previously discussed, the exchange offer and the consent solicitation are interdependent, and a holder of preferred stock must consent to the proposed amendments to the put agreement in order to

16

tender the holder's preferred stock in the exchange offer. However, you must make a separate decision as to each applicable transaction. The procedures for participating are described below.

Procedures for Tendering Preferred Stock in the Exchange Offer

        The tender of a holder's preferred stock or the tender of consents and our acceptance of it will constitute a binding agreement between the tendering holder and us upon the terms and subject to the conditions set forth in this prospectus/consent solicitation statement and in the applicable letter of transmittal and consent form. Except as described below, a holder who wishes to tender preferred stock for exchange in the exchange offer or tender consents in the consent solicitation must transmit any tendered preferred stock, together with a properly completed and duly executed letter of transmittal and consent form, including all other documents required by the letter of transmittal and consent form to the exchange agent and solicitation/information agent at the address set forth below in this prospectus/consent solicitation statement prior to 5:00 p.m., New York City time, on the exchange/consent solicitation expiration date. The method of delivery of preferred stock, letter of transmittal and consent form and all other required documents is at the election and risk of the holder. If the delivery is by mail, it is recommended that tendering holders use registered mail, properly insured, with return receipt requested. Instead of delivery by mail, it is recommended that the holder use an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure timely delivery.

        Any financial institution that is a participant in The Depository Trust Company's book-entry transfer facility system may make book-entry delivery of the preferred stock by causing The Depository Trust Company to transfer the preferred stock into the exchange agent's and solicitation/information agent's account in accordance with The Depository Trust Company's procedures for this transfer. In connection with a book-entry transfer, a letter of transmittal and consent form need not be transmitted to the exchange agent and solicitation/information agent, provided that the book-entry transfer procedure is completed prior to 5:00 p.m., New York City time, on the exchange/consent solicitation expiration date.

        Each signature on a letter of transmittal and consent form or a notice of revocation, as the case may be, must be guaranteed except that they do not need to be guaranteed if the preferred stock surrendered for exchange is tendered:

•

by a registered holder of the preferred stock who has not completed either the box entitled "Special Issuance Instructions" or the box entitled "Special Delivery Instructions" in the letter of transmittal and consent form; or



•

by an eligible institution.

In the event that a signature on a letter of transmittal and consent form or a notice of revocation, as the case may be, is required to be guaranteed, this guarantee must be by a firm which is a member of a registered national securities exchange or the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or otherwise be an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934. If the letter of transmittal and consent form is signed by a person other than the registered holder of the preferred stock, the tendered preferred stock and consents must be endorsed by the registered holder, with the signature guaranteed by an eligible institution.

        All questions concerning the validity, form, eligibility, including time of receipt, acceptance, and revocation of consents, will be decided by us in our sole discretion, which decision shall be final and binding. We reserve the absolute right to reject any and all preferred stock or consents not properly tendered and to reject any preferred stock or consents which might, in our judgment or that of our counsel, be unlawful for us to accept. We also reserve the absolute right to waive any defects or irregularities or conditions of the exchange offer as to particular preferred stock either before or after

17

the exchange/consent solicitation expiration date, including the right to waive the ineligibility of any holder who seeks to tender preferred stock in the exchange offer or consents in the consent solicitation, whether or not similar defects or irregularities are waived in the case of other holders. Our interpretation of the terms and conditions of the exchange offer and consent solicitation, including the letter of transmittal and its instructions, shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of preferred stock for exchange or tenders of consents must be cured within a period of time as we shall determine. We, the exchange agent and solicitation/information agent, or any other person will not have any duty to give notification of defects or irregularities with respect to tenders of preferred stock and consents and will not incur any liability for failure to give this notification. Tenders of the preferred stock and consents will not be deemed to have been made until any irregularities have been cured or waived.

        If any letter of transmittal and consent form, endorsement, power of attorney or any other document required by the letter of transmittal and consent form is signed by a trustee, executor, corporation or other person acting in a fiduciary or representative capacity, this person should indicate when signing, and, unless waived by us, must submit proper evidence satisfactory to us, in our sole discretion, of the person's authority to act.

        Any beneficial owner of preferred stock whose preferred stock is registered in the name of a broker, dealer, commercial bank, trust company or other nominee, and who wants to tender preferred stock in the exchange offer or tender consents in the consent solicitation, should contact the registered holder promptly and instruct the registered holder to tender on the beneficial owner's behalf. If a beneficial owner wishes to tender directly, the beneficial owner must, prior to completing and executing the letter of transmittal and consent form and tendering preferred stock and consents, make appropriate arrangements to register ownership of the preferred stock in the beneficial owner's name. Beneficial owners should be aware that the transfer of registered ownership may take considerable time.

Guaranteed Delivery Procedures

        Holders who wish to tender their preferred stock and

•

whose preferred stock are not immediately available; or



•

who cannot deliver their preferred stock or any other documents required by the letter of transmittal and consent form to the exchange agent and solicitation/information agent prior to the exchange/consent solicitation expiration date or complete the procedure for book-entry transfer on a timely basis;

may tender their preferred stock according to the guaranteed delivery procedures described in the letter of transmittal and consent form. Pursuant to these procedures:

•

the tender must be made by or through an eligible institution and a notice of guaranteed delivery, as defined in the letter of transmittal and consent form, must be signed by the holder;



•

on or prior to the exchange/consent solicitation expiration date, the exchange agent and solicitation/information agent must have received from the holder and the eligible institution a properly completed and duly executed notice of guaranteed delivery by facsimile transmission, mail or hand delivery setting forth the name and address of the holder, the certificate number or numbers of the tendered preferred stock, and the principal amount of tendered preferred stock, stating that the tender is being made and guaranteeing that, within three business days after the date of delivery of the notice of guaranteed delivery, the tendered preferred stock, a duly executed letter of transmittal and consent form and any other required documents will be deposited by the eligible institution with the exchange agent and solicitation/information agent; and

18

•

the properly completed and executed documents required by the letter of transmittal and the tendered preferred stock in proper form for transfer, or confirmation of a book-entry transfer of the preferred stock into the exchange agent's and solicitation/information agent's account at DTC, must be received by the exchange agent and solicitation/information agent within three business days after the exchange/consent solicitation expiration date.

Any holder who wishes to tender preferred stock pursuant to the guaranteed delivery procedures described above must ensure that the exchange agent and solicitation/information agent receives the notice of guaranteed delivery and letter of transmittal relating to these preferred stock prior to 5:00 p.m., New York City time, on the exchange/consent solicitation expiration date.

Acceptance of Preferred Stock for Exchange and Acceptance of Consents; Issuance of Exchange Notes

        Upon satisfaction or waiver of all the conditions to the exchange offer, we will accept any and all preferred stock that is properly tendered in the exchange offer, and consents properly tendered in the consent solicitation prior to 5:00 p.m., New York City time, on the exchange/consent solicitation expiration date. The exchange notes issued pursuant to the exchange offer will be issued promptly after acceptance of the preferred stock. For purposes of the exchange offer, we will be deemed to have accepted validly tendered preferred stock, when, as and if we have given oral notice followed by written notice to the exchange agent and solicitation/information agent.

Revocation of Consents

        We will process all properly completed and executed letters of transmittal and consent forms we receive, unless we receive from a holder a properly completed and duly executed notice of revocation at any time prior to the exchange/consent solicitation expiration date. Until the exchange/consent solicitation expiration date, any holder may revoke a consent as to any or all preferred stock if we receive notice of revocation.

The Exchange Agent; Solicitation Agent; Information Agent; Assistance

        The Bank of New York is the exchange agent. All tendered preferred stock and consents, executed letters of transmittal and consent forms and other related documents should be directed to the exchange agent as follows:

Exchange Agent

By Registered or Certified Mail:
The Bank of New York
Attention:          
101 Barclay Street, 7 East
New York, New York 10286 By Overnight Courier:
The Bank of New York
Reorganization Department
Attention:          
101 Barclay Street, 7 East
New York, New York 10286 By Hand:
The Bank of New York
Attention: Reorganization
Corporate Trust Services
Window, Ground Level
101 Barclay Street
New York, New York 10286 By Facsimile:
The Bank of New York
Reorganization Department
Attention:          
(212) [TBD]
Confirm by telephone:
(212) [TBD]

        [                        ] is the solicitation/information agent. Questions and requests for assistance and requests for additional copies of the prospectus, a letter of transmittal and other related documents should be addressed to the solicitation/information agent as follows:

[INSERT NAME AND ADDRESS OF
SOLICITATION/INFORMATION AGENT]

19

Fees and Expenses

        We will pay all fees and expenses incurred in connection with the exchange offer, including each of the following:

•

fees and disbursements of our counsel and independent certified public accountants;



•

SEC registration fees; and



•

customary fees and out-of-pocket expenses incurred by the exchange agent or solicitation/information agent for their services in connection with the exchange offer.

        We will pay all transfer taxes, if any, applicable to the exchange of exchange notes pursuant to the exchange offer. If, however, a transfer tax is imposed for any reason other than on the exchange of exchange notes pursuant to the exchange offer, then the amount of the transfer taxes, whether imposed on the registered holder or any other persons, will be payable by the tendering holder. If satisfactory evidence of payment of these taxes or exemption is not submitted with the letter of transmittal and consent form, the amount of these transfer taxes will be billed directly to the tendering holder.

UNITED STATES FEDERAL
INCOME TAX CONSIDERATIONS

        The following discussion sets forth the opinion of Squire, Sanders & Dempsey L.L.P, our counsel, regarding the material United States federal income tax consequences to holders of preferred stock resulting from the exchange and the consent solicitation. The discussion assumes that holders hold the preferred stock and exchange notes as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended. This discussion does not purport to deal with all aspects of United States federal income taxation that may be relevant to holders who may be subject to special federal income tax laws, such as dealers in securities, financial institutions, life insurance companies, individuals who are not citizens or residents of the United States or corporations, partnerships or other entities that are not organized under the laws of the United States or any political subdivision, or persons that hold the preferred stock or the exchange notes as part of a hedge, conversion transaction, straddle, or other risk reduction transaction. In addition, the following discussion does not consider the effect of any applicable foreign, state or local tax laws.

        The discussion below is based upon the current provisions of the Internal Revenue Code, existing and proposed Treasury Regulations promulgated under the Internal Revenue Code, rulings of the Internal Revenue Service, and judicial decisions now in effect as of the date of this prospectus/consent solicitation statement. Such authorities may be repealed, revoked, or modified, possibly with retroactive effect, so as to result in United States federal income tax consequences different from those described below.

        As discussed below, the exchange may constitute a recapitalization under Section 368(a)(1)(E) of the Internal Revenue Code. However, we will not seek a ruling from the Internal Revenue Service regarding any of the tax issues described in this discussion, including the tax treatment of the exchange as a recapitalization. Moreover, as noted in the discussion, issues relevant to the federal income tax consequences of some matters are factual in nature, and other issues involve areas of law that are ambiguous or with respect to which legal authority is lacking and as to which limited guidance is available. It is possible, for example, that the exchange of preferred stock for the exchange notes will be treated as a taxable transaction because the exchange notes do not constitute "securities" and it is possible that treatment as a taxable transaction may be more favorable to a holder than treatment as a recapitalization.

This discussion does not purport to deal with all aspects of United States federal income taxation that, because of specific circumstances applicable to a holder, might be relevant to a holder's decision

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to participate in the exchange or the consent solicitation, or to the ownership and disposition of the preferred stock and exchange notes. Holders are urged to consult their tax advisors concerning the United States federal income tax considerations that may be specific to them as well as any tax consequences arising under the laws of any other taxing jurisdiction.

Tax Consequences to the Holders Upon the Exchange of Preferred Stock

        Importance of Whether the Exchange Notes Constitute "Securities."    The federal income tax consequences to the holders of preferred stock will depend, in part, on whether the exchange notes constitute "securities" for federal income tax purposes. The term "security" is not defined in the Internal Revenue Code or in the Treasury Regulations and has not been clearly defined in court decisions. Although there are a number of factors that may affect the determination of whether a debt instrument is a "security," one of the most important factors is the original term of the instrument, or the length of time between the issuance of the instrument and its maturity. In general, instruments with an original term of more than ten years are likely to be treated as "securities," and instruments with an original term of less than five years are unlikely to be treated as "securities." Because the term of the exchange notes is between five and ten years, it is impossible to be certain regarding the treatment of such exchange notes as "securities." BECAUSE THE ISSUE IS UNCERTAIN, HOLDERS ARE URGED TO CONSULT WITH THEIR TAX ADVISORS AS TO THE PROPER TREATMENT OF THE EXCHANGE NOTES.

Treatment of the Exchange as a Recapitalization Under Internal Revenue Code Section 368. If the exchange notes are treated as securities, the exchange of exchange notes for preferred stock should be treated as a recapitalization under Section 368(a)(1)(E) of the Internal Revenue Code. If the exchange is treated as a recapitalization, a holder that exchanges preferred stock for exchange notes will recognize gain, but not loss, generally equal to

•

the face amount of the exchange notes received in the exchange over



•

the holder's aggregate adjusted tax basis in the preferred stock exchanged.

        Such gain will generally be recognized on the installment method pursuant to section 453 of the Internal Revenue Code (as discussed below). Any recognized gain will generally be treated as capital gain and will be long-term capital gain if the holder held the preferred stock for more than 12 months.

        Treatment of the Exchange as a Taxable Exchange.    If the exchange notes are not treated as securities, the exchange would not be treated as a recapitalization for tax purposes and instead would be treated as a taxable redemption of the preferred stock. In such event, a holder that exchanges preferred stock for exchange notes would recognize gain or loss on the exchange equal to the difference between

•

the face amount of the exchange notes received in the exchange and



•

the holder's adjusted tax basis in the preferred stock exchanged.

        Any gain would generally be recognized on the installment method pursuant to section 453 of the Internal Revenue Code (as discussed below). Any recognized gain would generally be treated as capital gain and would be long-term capital gain if the holder held the preferred stock for more than 12 months. Any loss would be recognized at the time of the exchange and would be a capital loss.

        Possible Treatment of Gain as Dividend.    Because many of the holders of preferred stock also hold our common stock, it is possible that any gain recognized on the exchange of preferred stock for exchange notes may be treated as a dividend to certain holders as opposed to capital gain on the exchange. In order for a redemption of stock (which includes for this purpose the exchange of the preferred stock for the exchange notes) to be treated as a distribution in payment for the stock, the redemption must satisfy one or more tests set forth in Section 302(b) of the Internal Revenue Code. In

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general, under that section, the redemption of preferred stock can be treated as producing dividend income to the holders of such preferred stock if the redemption does not change the relative economic interests or rights of the stockholders. The question of whether such relative economic interests or rights have been changed is a factual question and depends, in part, on the relative percentages of preferred and common stock owned (both before and after the exchange) by the holders of the preferred stock that is redeemed. In general, a holder who owns less than 1% of our preferred stock after the exchange, or a holder who does not own (after the exchange) substantially similar percentages of our common and preferred stock, should be entitled to treat the exchange as a redemption qualifying under Section 302(b) of the Internal Revenue Code. However, this issue is complex and highly dependent on a holder's specific facts and circumstances. Accordingly, a holder should consult his, her, or its own tax advisors with respect to the application of Section 302(b) of the Internal Revenue Code to the exchange.

        Reporting of Gain on the Installment Method.    Section 453 of the Internal Revenue Code provides that gain on an installment sale is recognized under the installment method, unless the taxpayer recognizing such gain elects out of the application of such section. Application of the installment method under Section 453 requires the determination of a gross profit ratio, which ratio is applied to each payment of principal under the installment obligation in question. The gross profit ratio is equal to the total gain on the sale, divided by the sales proceeds. The taxpayer recognizes an amount of gain on each principal payment equal to the gross profit ratio multiplied by the amount of such principal payment. Holders who wish to elect out of the application of Section 453 should consult their tax advisor regarding the mechanics of such election.

        A holder who elects out of the application of Section 453 will recognize the entire gain on the exchange in the year of the exchange. In the case of a holder reporting income on the accrual basis, the gain will be equal to the face amount of the exchange notes received over the holder's basis in the preferred stock surrendered. In the case of a holder reporting income on the cash basis, the gain will be equal to the fair market value of the exchange notes received over the holder's basis in the preferred stock surrendered.

        If (i) any single holder receives more than $150,000 of exchange notes and (ii) at the end of any taxable year, the face amount of all installment obligations (including the exchange notes) held by such taxpayer exceeds $5 million, the provisions of Section 453A of the Internal Revenue Code will apply to such holder. Under such section, the holder will be required to pay (to the United States Treasury) interest on the deferred tax attributable to the gain related to such installment obligations, to the extent such tax is attributable to the amount of such obligations in excess of $5 million. The amount of such tax will be calculated at the highest marginal tax rate applicable to such holder and the interest will be calculated at the applicable underpayment rate for such holder.

        Original Issue Discount on Exchange Notes.    The exchange notes may have "original issue discount." Original issue discount is the excess of the stated redemption price at maturity of the exchange notes over their issue price. The issue price of the exchange notes will equal:

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their fair market value if the exchange notes are treated as traded on an established market within the meaning of the Treasury Regulations;



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the fair market value of the preferred stock, but only if the exchange notes are not treated as traded on an established market and the preferred stock is treated as so traded; or



•

the stated principal amount of the exchange notes, if neither of the previous two alternatives applies.

        For federal income tax purposes, original issue discount that exceeds a de minimis amount accrues to a holder of a new note over the period to maturity based on the constant yield to maturity method, compounded semi-annually, or over such shorter permitted compounding interval selected by the holder. With respect to an original holder of an exchange note, the portion of original issue discount that accrues during the period such holder owns the exchange note:

•

is includable in that holder's gross income for federal income tax purposes; and



•

is added to that holder's tax basis for purposes of determining gain or loss on the maturity, redemption, prior sale or other disposition of that exchange note.

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Disposition of Exchange Notes. A holder generally will recognize gain or loss upon the sale, exchange, redemption, or other disposition of the exchange notes equal to the difference between the amount realized on the disposition and the holder's adjusted tax basis in the exchange notes. In the event a holder is reporting gain with respect to the receipt of the exchange notes on the installment method, the holder's basis in the exchange notes pursuant to Section 453B(b) of the Internal Revenue Code is equal to the excess of the face amount of the exchange note over an amount equal to the income that would be recognized by the holder if the exchange notes were paid in full. The gain or loss recognized on such a disposition generally will be capital gain or loss and will be long-term capital gain or loss if the holder's holding period for the exchange notes is more than 12 months.

Solicitation of the Consents of Holders

        Concurrently with the exchange offer, we are soliciting the consents of the holders of the preferred stock to amend the put agreement. This amendment should not be a taxable event for any holder of the preferred stock because such amendment of the put agreement should not result in a taxable exchange of the preferred stock under Internal Revenue Code Section 1001.

Backup Withholding and Information Reporting

        Under some circumstances, a holder may be subject to backup withholding with respect to the exchange notes issued in the exchange. This withholding generally applies only if the holder:

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fails to furnish the holder's social security or other taxpayer identification number;



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furnishes an incorrect taxpayer identification number;



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is notified by the Internal Revenue Service that the holder has failed to report payment of interest and dividends properly and the Internal Revenue Service has notified us that the holder is subject to backup withholding; or



•

fails, under some circumstances, to provide a certified statement, signed under penalties of perjury, that the taxpayer identification number provided is the holder's correct number and that the holder is not subject to backup withholding.

        The backup withholding rate is 30% for 2002 and 2003, 29% for 2004 and 2005, and 28% for 2006 and thereafter. Any amount withheld from a payment to a holder under the backup withholding rules is allowable as a credit against the holder's federal income tax liability, provided that the required information is furnished to the Internal Revenue Service. Some holders, such as corporations and financial institutions, are not subject to backup withholding. Holders should consult their tax advisors as to their qualification for exemption from backup withholding and the procedure for obtaining this exemption.

        If a holder treats the exchange as a exchange offer under Internal Revenue Code Section 368, such holder will be required to file information regarding such exchange in connection with filing their federal income tax returns for the period in which the exchange occurs.

Tax Consequences to Us Upon the Exchange

        We will not recognize gain or loss on the issuance of exchange notes for preferred stock. Interest payments on the exchange notes will be deductible by us for federal income tax purposes pursuant to the economic performance rules of Section 461(h) of the Internal Revenue Code.

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DESCRIPTION OF EXCHANGE NOTES

        The following is only a summary of the terms of the exchange notes. For a complete description of the terms of the exchange notes, we urge you to read the Indenture and the exhibits to the Indenture which are filed as an exhibit to the registration statement of which this prospectus/consent solicitation is a part and copies of which are available from us upon request. The terms of the exchange notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 as in effect on the date of the Indenture. The definitions of some terms used here are set forth in "Certain Definitions" below. The terms of the exchange notes differ in material respects from the terms of the preferred stock. Holders of preferred stock should review this section carefully.

General

        We will issue the exchange notes in partial exchange for the preferred stock under an Indenture between ourself and The Bank of New York, as trustee (the "Trustee").

        The exchange notes:

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are our general unsecured obligations;



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are limited to an aggregate principal amount of up to $40 million;



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bear interest at an annual rate of 8¹/4% per annum;



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will have interest payable quarterly beginning on January 31, 2003; and



•

mature on December 31, 2007.

        We will issue the exchange notes only in fully registered form in denominations of $1,000 and integral multiples of $1,000. The exchange notes will be represented by a global note registered in the name of a nominee of The Depository Trust Company and, except as described under "Book-Entry, Delivery and Form," will not be issued in certificated form. We expect that interests in the global note will trade in DTC's Same-Day Funds Settlement System and secondary market trading activity in these interests will therefore be required by DTC to settle in immediately available funds.

Methods of Making Payments on the Exchange Notes

        Interest will be payable at the corporate trust office of the Trustee in New York, New York; provided that, at our option, interest payments may be made by checks mailed to the registered holders of the exchange notes.

        The exchange notes will not be entitled to the benefit of any sinking fund or mandatory redemption provisions. The principal of the exchange notes will be payable on the maturity date at the corporate trust office of the Trustee in New York, New York.

Ranking

        The exchange notes are our senior unsecured obligations, and will rank senior in right of payment to any of our future subordinated debt and to any unexchanged preferred stock. However, the exchange notes will be effectively subordinated to our present and future secured obligations and to any indebtedness of our subsidiaries, as is the preferred stock. At the present time neither we nor our subsidiaries has any secured or unsecured indebtedness.

        We are a holding company that derives substantially all of our income from our subsidiaries. We must rely on dividends or other intercompany transfers from our subsidiaries to generate the funds necessary to meet our debt service and other obligations, including payment of principal and interest on

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the exchange notes. The ability of our subsidiaries to pay these dividends or other intercompany transfers is subject to the laws of the jurisdictions where the subsidiaries are located. Claims of creditors against these subsidiaries generally have priority as to the assets of the subsidiaries over our equity interests and the holders of our indebtedness.

Optional and Mandatory Redemption of the Exchange Notes

        We may choose to redeem the exchange notes in whole or in part, at any time, at a redemption price equal to 100% of the aggregate principal amount of the exchange notes, plus accrued and unpaid interest through the redemption date.

        We may redeem the exchange notes at our option, in whole or in part, at any time and from time to time at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest. We are obligated to redeem outstanding exchange notes at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest through the redemption date (i) upon the disposition of shares or assets of our subsidiaries that own direct or indirect interests in Kaiser-Hill Company, LLC to the extent the net cash proceeds of such dispositions exceed $3 million per year, and (ii) to the extent net after-tax proceeds received from Kaiser-Hill (a) are from the disposition of a direct or indirect interest in Kaiser-Hill, (b) are from extraordinary distributions from Kaiser-Hill, or (c) exceed 2.8 times the amount of cash required to pay dividends on our preferred stock and interest on the exchange notes outstanding on the date of issuance of the exchange notes.

        The redemption obligations correspond to the redemption and put rights of the preferred stock (except that the exchange notes are not redeemable upon a change of control at the option of a holder and are not mandatorily redeemable upon the receipt of certain Nova Hut project funds, as the preferred stock is in each case) and are pari passu and pro rata with the corresponding rights of the preferred stock. The exchange notes will not have a put right against our subsidiary, Kaiser Government Programs, but the redemption obligation described in clause (ii) above will be guaranteed by Kaiser Government Programs. The guarantee of Kaiser Government Programs with respect to the redemption obligation in clause (ii) above is an absolute and unconditional guarantee and shall remain in full force and effect until the entire principal of, premium, if any, on, and interest on the exchange notes shall have been paid or provided for in accordance with the terms of the Indenture.

        The Trustee selects the exchange notes to be redeemed from among the outstanding exchange notes on a pro rata basis, by lot or by any other method permitted in the Indenture, if less than all of the exchange notes are to be redeemed at any time. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each holder whose exchange notes are to be redeemed at the registered address of the holder. Interest will cease to accrue on the exchange notes or portions called for redemption on and after the redemption date.

Sinking Fund

        There is no mandatory sinking fund for the exchange notes.

Certain Covenants

        Payment of Exchange Notes in Connection with Plan of Liquidation.    We will not adopt a Plan of Liquidation that provides for or contemplates, or the effectuation is preceded by, (i) the sale, lease, conveyance or other disposition of all or substantially all of our assets otherwise than 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 of our remaining assets to the holders of our Capital Stock unless, prior to making any liquidating distribution pursuant to such Plan of Liquidation, we make provision for the satisfaction of our obligations under the Indenture and the exchange notes.

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        Limitations on Restricted Subsidiary Debt and Preferred Stock.    We will not permit any of our Restricted Subsidiaries, directly or indirectly, to create, incur, assume, guarantee, extend the maturity of or otherwise become liable with respect to any Indebtedness, which, with respect to any Restricted Subsidiary, includes preferred stock of the Restricted Subsidiary, except for the following:

•

Kaiser-Hill; or



•

Indebtedness issued to and held by us or a Wholly-Owned Restricted Subsidiary, except that any subsequent issue or transfer of any Capital Stock that results in any Wholly-Owned Restricted Subsidiary ceasing to be a Wholly-Owned Restricted Subsidiary or any transfer of Indebtedness, other than to a Wholly-Owned Restricted Subsidiary, is deemed, in each case, to constitute the incurrence of Indebtedness by the Restricted Subsidiary;

        Limitations on Restricted Payments.    We will not, and will not permit any of our Restricted Subsidiaries to, directly or indirectly, make any Restricted Payment if, at the time of a potential Restricted Payment, a Default or Event of Default shall have occurred and be continuing or shall occur as a consequence thereof.

        Limitations on Restrictions on Distributions from Restricted Subsidiaries.    We will not, and will not permit any of our Restricted Subsidiaries to, create or otherwise cause or suffer to exist or become effective any consensual Payment Restriction with respect to any of our Restricted Subsidiaries.

        Limitations on Transactions with Affiliates.    We will not, and will not permit any of our 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 our 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 ours or any of our subsidiaries, each of which is an "Affiliate Transaction," except for the following:

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Affiliate Transactions in the ordinary course of business and consistent with past practice that are fair to us or the Restricted Subsidiary and are on terms at least as favorable as would have been obtainable at that time from an unaffiliated party;



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our Board of Directors or the Board of Directors of the Restricted Subsidiary pursuant to a Board Resolution reasonably and in good faith determines that the Affiliate Transaction is fair to us or the Restricted Subsidiary and is on terms at least as favorable as would have been obtainable at that time from an unaffiliated party;



•

for any Affiliate Transaction or series of Affiliate Transactions involving or having a value of more than $1 million, unless a majority of the members of our Board of Directors who are not affiliated with any other party to the Affiliate Transaction reasonably and in good faith determined that the Affiliate Transaction or series of Affiliate Transactions is fair to us or the Restricted Subsidiary, and is on terms at least as favorable as would have been obtainable at that time from an unaffiliated party; and



•

for any Affiliate Transaction or series of Affiliate Transactions involving or having a value of more than $5 million, unless we or the Restricted Subsidiary received an opinion from an Independent Financial Advisor to the effect that the financial terms of the Affiliate Transaction are fair to us or the Restricted Subsidiary from a financial point of view.

        The limitations described in the foregoing paragraph do not apply to:

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transactions exclusively between or among us and any of our Wholly-Owned Restricted Subsidiaries or exclusively between or among any of our Wholly-Owned Restricted Subsidiaries, as long as these transactions are not otherwise prohibited by the Indenture;

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arms-length transactions between us or any of our Wholly-Owned Restricted Subsidiaries and the other owners of any Subsidiary or Joint Venture that is not under control of and does not have Capital Stock or Indebtedness held by us or our Affiliates; and



•

reasonable compensation, indemnification and other benefits paid or made available to our officers, directors and employees or those officers, directors and employees of any Subsidiary of ours for services rendered in the Person's capacity as an officer, director or employee.

        Restrictions on Sale of Stock of Restricted Subsidiaries.    We may not sell or otherwise dispose of any of the Capital Stock of any Restricted Subsidiary of ours unless we either retain ownership of more than 50% of the Common Equity of the Restricted Subsidiary or sell or otherwise dispose of all of the Capital Stock of the Restricted Subsidiary and the Net Cash Proceeds from any such sale or disposition are treated in a manner consistent with the treatment of disposition of assets.

        Limitations on Mergers and Certain Other Transactions.    Neither we nor the Partial Guarantor will:

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in a single transaction or a series of related transactions, 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 our obligations under the exchange notes or the Indenture, to any Person, or



•

adopt a Plan of Liquidation unless, in either case:



•

the Person formed by or surviving the consolidation or merger, if other than us, or to which the sale, lease, conveyance or other disposition or assignment is made (or, in the case of a Plan of Liquidation, the Person to which assets are transferred, each of which is referred to as a "Successor") is a domestic corporation and the Successor assumes by supplemental indenture in a form satisfactory to the Trustee all of our obligations or the obligations of the Partial Guarantor, as the case may be, under the exchange notes and the Indenture;



•

immediately prior to and immediately after and giving effect to the transaction and the assumption of the obligations as set forth in the preceding clause above and the incurrence of any Indebtedness, no Default or Event of Default will have occurred and be continuing; and



•

immediately after and giving effect to the transaction and the assumption of the obligations as set forth in the first clause above and the incurrence of any Indebtedness, and the use of its net proceeds on a pro forma basis, the Consolidated Tangible Net Worth of us or the Partial Guarantor, or the Successor of either, would be at least equal to our Consolidated Tangible Net Worth immediately prior to the transaction.

        The foregoing provisions of the Indenture will not prohibit a transaction whose sole purpose, as determined in good faith by the Board of Directors and evidenced by a Board Resolution, is to change our state of incorporation and the transaction does not have as one of its purposes the evasion of the limitations described above.

        Limitations on Partial Guarantees.    We will not permit any of our Restricted Subsidiaries to guarantee any Indebtedness, except (i) Indebtedness of Kaiser Hill and (ii) as set forth in the Partial Guarantee.

Events of Default

        An "Event of Default" is defined in the Indenture to include any of the following:

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our failure to pay interest on any of the exchange notes when it becomes due and payable and the continuance of any failure for 30 days;

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•

our failure to pay the principal of the exchange notes when it becomes due and payable, whether at stated maturity, upon redemption, upon acceleration or otherwise, including failure to make payment pursuant to any mandatory redemptions;



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our failure to comply with any covenant in the Indenture and continuance of the failure for 60 days after notice of the failure has been given to us by the Trustee or by the holders of at least 25% of the aggregate principal amount of the exchange notes then outstanding;



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our failure or any of our Subsidiaries to make any payment when due or during any applicable grace period, with respect to any Indebtedness of ours or any of our Subsidiaries that has an aggregate outstanding principal amount of $1 million or more;



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a default under any Indebtedness if:



•

the default results in the holder or holders of the Indebtedness causing the Indebtedness to become due prior to its stated maturity; and



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the principal amount of the Indebtedness, together with the principal amount of any other Indebtedness, which maturity has been accelerated, aggregates $1 million or more at any one time outstanding;




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a court or courts of competent jurisdiction have entered one or more final judgments or orders against us or any of our subsidiaries for payment of amounts which exceed $1 million in the aggregate and the judgment or judgments have not been satisfied, stayed, annulled or rescinded within 60 days of being entered; and



•

some events of bankruptcy, insolvency or reorganization involving us or any of our Subsidiaries.

        If an Event of Default, other than an Event of Default resulting from bankruptcy, insolvency or reorganization involving us, has occurred and is continuing under the Indenture, the Trustee by written notice to us, or the holders of at least 25% in aggregate principal amount of the exchange notes then outstanding by written notice to us and the Trustee, may declare all amounts owing under the exchange notes to be due and payable immediately. Upon declaration of acceleration, the aggregate principal and interest on the outstanding notes will immediately become due and payable. If an Event of Default results from bankruptcy, insolvency or reorganization involving us, all outstanding notes will become due and payable without any further action or notice. In some cases, the holders of a majority in aggregate principal amount of the exchange notes then outstanding may waive an existing Default or Event of Default and its consequences, except a default in the payment of principal and interest on the exchange notes as a result of acceleration.

        The holders of exchange notes may not directly enforce the provisions of the Indenture or the exchange notes except as provided in the Indenture. Subject to some limitations, holders of a majority in principal amount of the exchange notes then outstanding may direct the Trustee in its exercise of any trust or power, as long as the direction does not conflict with the terms of the Indenture. The Trustee may withhold from the holders of exchange notes notice of any continuing Default or Event of Default, except any Default or Event of Default in payment of principal and interest on the exchange notes, if the Trustee determines that withholding the notice is in the holders' interest.

        We are required to deliver to the Trustee annually a statement regarding compliance with the mandatory redemption provisions in the Indenture and, upon any Officer of ours becoming aware of any Default or Event of Default, an Officers' Certificate specifying the Default or Event of Default and what action we are taking or propose to take with respect to the Default or Event of Default.

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Discharge of Indenture

        The Indenture will permit us to terminate all of our obligations under the Indenture, other than the obligation to pay the principal and interest on the exchange notes, and some other obligations at any time by taking the following actions:

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depositing in trust with the Trustee, under an irrevocable trust agreement, money or U.S. government obligations in an amount sufficient to pay principal and interest on the exchange notes to their maturity or redemption; and



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complying with some 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 of exchange notes will not recognize income, gain or loss for federal income tax purposes as a result of our exercise of the 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.

Transfer and Exchange

        A Holder of exchange notes will be able to register the transfer of or exchange of their exchange notes only in accordance with the provisions of the Indenture. The Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents, and to pay any taxes and fees required by law or permitted by the Indenture. Without our prior consent, the Trustee is not required:

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to register the transfer or exchange of any exchange note selected for redemption;



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to register the transfer or exchange of any exchange note for a period of 15 days before a selection of exchange notes to be redeemed; or



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to register the transfer or exchange of an exchange note between a record date and the next succeeding interest payment date.

The Holder of an exchange note will be treated as the owner of an exchange note for all purposes.

Amendment, Supplement and Waiver

        Subject to some exceptions, the Indenture or the exchange notes may be amended or supplemented with the consent, which may include consents obtained in connection with a tender offer or exchange offer for notes, of the holders of at least a majority in principal amount of the exchange notes then outstanding, and any existing Default under, or compliance with any provision of, the Indenture may be waived, other than any continuing Default or Event of Default in the payment of the principal or interest on the exchange notes with the consent, which may include consents obtained in connection with a tender offer or exchange offer for notes, of the Holders of a majority in principal amount of the exchange notes then outstanding. Without the consent of any Holder, we or the Trustee may amend or supplement the Indenture or the exchange notes to cure any ambiguity, defect or inconsistency, to provide for uncertificated exchange notes in addition to or in place of certificated exchange notes, to provide for the assumption of our 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, or to add or release any Partial Guarantor pursuant to the terms of the Indenture or the Partial Guarantee.

        We may not, without the consent of each affected Holder of exchange notes:

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extend the maturity of any exchange note;



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affect the terms of any scheduled payment of interest on or principal of the exchange notes, including without limitation any redemption provisions; and

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•

reduce the percentage of Holders necessary to consent to an amendment, supplement or waiver to the Indenture.

        The right of any Holder of exchange notes to participate in any consent required or sought pursuant to any provision of the Indenture, and our obligation to obtain this consent otherwise required from the Holder, may be subject to the requirement that the Holder be the holder of record of any exchange notes with respect to which the consent is required or sought as of a date identified by the Trustee in a notice furnished to Holders in accordance with the terms of the Indenture.

Concerning the Trustee

        The Indenture and provisions of the Trust Indenture Act of 1939 incorporated by reference into the Indenture contain some limitations on the rights of the Trustee, should it become a creditor of ours, to obtain payment of claims in some cases, or to realize on some property received in respect of any claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest, as defined in the Indenture, it must eliminate this conflict or resign.

        The Indenture provides that, in case an Event of Default occurs and is not cured, the Trustee will be 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 these provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any Holder of exchange notes, unless the Holder has offered to the Trustee security and indemnity satisfactory to the Trustee.

Definitions

        Set forth below is a summary of the most significant defined terms used in the Indenture. Reference is made to the Indenture for the full definition of all the terms included within the Indenture.

"Affiliate" of any Person means any Person which directly or indirectly controls or is controlled by, or is under direct or indirect common control with, the referent Person,

•

which beneficially owns or holds 10% or more of any class of the Voting Stock of the referent Person; or



•

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 us or any Wholly Owned Subsidiary of ours,

•

any Wholly Owned Subsidiary of ours; or



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any Subsidiary of ours 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 ours.

        "Attributable Indebtedness," when used with respect to any Sale and Leaseback Transaction, means, as at the time of determination, the greater of

•

the fair market value of the property subject to such Sale and Leaseback Transaction; and

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•

the present value (discounted at a rate equivalent to our 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.

        "Board of Directors" for any Person means the Board of Directors of such Person or any authorized committee of the Board of Directors of such Person.

        "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 (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.

        "Common Equity" of any Person means all Capital Stock of such Person that is generally entitled to

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vote in the election of directors of such Person; or



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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 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) of such Person (excluding any assets that would be classified as "intangible assets" under GAAP) on a consolidated basis at such date, as determined in accordance with GAAP.

        "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.

        "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 (provided, however, that the Preferred Stock outstanding on the date of this Indenture shall not constitute Disqualified Stock).

        "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 from time to time.

        "Holder" means a Person holding a Note.

        "Indebtedness" of any Person at any date means, without duplication:

•

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);

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•

all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments;



•

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;



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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;



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all Capitalized Lease Obligations of such Person;



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all Indebtedness of others secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person;



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all Indebtedness of others guaranteed by, or otherwise the liability of, such Person to the extent of such guarantee or liability; and



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all Attributable Indebtedness.

        "Indenture" means this Indenture as amended, supplemented or modified from time to time.

        "Independent Financial Advisor" means an accounting, appraisal or investment banking firm of nationally recognized standing that is, in the reasonable judgment of our Board of Directors, qualified to perform the task for which it has been engaged and disinterested and independent with respect to us and our Affiliates.

        "Joint Venture" means:

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a corporation of which less than a majority of the aggregate voting power of all classes of the Common Equity is owned by us or our Restricted Subsidiaries; and



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any entity other than a corporation in which we and our Restricted Subsidiaries own less than a majority of the Common Equity of such entity.

        "Kaiser-Hill" means Kaiser-Hill Company, LLC, a Colorado limited liability company and an indirect 50% owned subsidiary of KGP.

"Kaiser International" means Kaiser Group International, Inc., a Delaware corporation which is our wholly owned subsidiary and the owner of 100% of the Common Equity of Kaiser Government Programs, Inc.

        "KGP" means Kaiser Government Programs, Inc., a Delaware corporation which is a wholly owned subsidiary of Kaiser International and the owner of 100% of the Common Equity of K-H Holdings.

        "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).

        "Officer" means our Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, the Treasurer, any Assistant Treasurer, Controller, Secretary or any Vice President, or any other authorized representative designated by our Board of Directors.

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        "Officers' Certificate" means a certificate signed by two Officers, one of whom must be our Chief Executive Officer, Chief Financial Officer or Controller.

        "Opinion of Counsel" means a written opinion from legal counsel who is acceptable to the Trustee. The counsel may be an employee of or counsel to us.

        "Partial Guarantee" means the guarantee substantially in the form of Exhibit D to the Indenture executed and delivered by the Partial Guarantor.

        "Partial Guarantor" means KGP.

        "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

•

this Subsidiary to



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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;



•

make loans or advances to such Person or any other Subsidiary of such Person;



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transfer any of its properties or assets to such Person or any other Subsidiary of such Person; or




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this Person or any other Subsidiary of such Person to receive or retain any



•

dividends, distributions or payments;



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loans or advances; or



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transfer of properties or assets.

        "Permitted Investments" means:

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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;



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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



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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):

•

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

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•

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.

        "Preferred Stock" means our Series 1 Redeemable Cumulative Preferred Stock, $0.01 par value.

        "Qualified Capital Stock" means Capital Stock that is not Disqualified Stock.

        "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 us or a Subsidiary of ours, 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 ours 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 ours or an employee stock ownership plan) of our 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

•

a Permitted Investment; or



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an Investment made with the proceeds of a substantially concurrent sale (other than to a Subsidiary of ours or an employee stock ownership plan) of our Qualified Capital Stock.

        "Restricted Payment" means with respect to any Person:

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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, the declaration of any such dividend, or the making of any other such distribution, by any Restricted Subsidiary shall only constitute a Restricted Payment to the extent of the amounts paid or payable to Persons other than us or a Wholly Owned Restricted Subsidiary);



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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 (other than a payment solely in Qualified Capital Stock);



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any Restricted Investment; or



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any Restricted Debt Payment.

        "Restricted Subsidiary" means Kaiser International, KGP and K-H Holdings and each other Subsidiary of ours, if any, that owns a direct or indirect interest in Kaiser-Hill.

        "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 property or asset. Notwithstanding the foregoing, no transaction exclusively between us and any Wholly Owned Restricted Subsidiary shall be deemed to constitute a Sale and Leaseback Transaction.

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        "Subsidiary" of any Person means:

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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



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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.

        "Trustee" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder.

        "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.

        "Wholly Owned Restricted Subsidiary" of ours means a Restricted Subsidiary of ours, of which 100% of the Common Equity (except for directors' qualifying shares or certain minority interests owned by other Persons solely due to local tax considerations or 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 us or through one or more Wholly Owned Restricted Subsidiaries of ours.

        "Wholly Owned Subsidiary" of ours means a Subsidiary of ours, of which 100% of the Common Equity (except for directors' qualifying shares or certain minority interests owned by other Persons solely due to local tax considerations or 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 us or one or more Wholly Owned Subsidiaries of ours.

Satisfaction and Discharge of Indebtedness

        The Indenture is discharged and canceled upon payment of all the principal and interest on the exchange notes, redemption of all the exchange notes or deposit with the Trustee of funds or obligations issued or guaranteed by the United States sufficient for this payment or redemption.

The Trustee

        The Trustee is The Bank of New York.

        The Trustee performs only those duties as are specifically set forth in the Indenture, except during the continuance of an Event of Default. During the existence of an Event of Default, the Trustee exercises those rights and powers vested in it under the Indenture and uses the same degree of care and skill in its exercise as a prudent person would exercise under the circumstances in the conduct of the person's own affairs. The holders of a majority in outstanding amount of the exchange notes will have the right, during the continuance of an Event of Default, to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee. Subject to these provisions, the Trustee is under no obligation to exercise any of its rights or powers under the Indenture at the request of any of the holders of exchange notes, unless they offer to the Trustee security or indemnity satisfactory to it.

        The Indenture and provisions of the Trust Indenture Act of 1939 incorporated by reference into the Indenture contain limitations on the rights of the Trustee, should it become a creditor of ours, to obtain payment of claims in some cases, or to realize on property received in respect of any of these claims as security or otherwise. The Trustee is permitted to engage in other transactions with us, except that if it acquires any conflicting interest within the meaning of the Trust Indenture Act of 1939, it must eliminate this conflict or resign.

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Book-Entry, Delivery and Form

        The exchange notes are issued in the form of one global note. The global note will be deposited on the issue date with The Depository Trust Company ("DTC") and registered in the name of Cede & Co., as nominee of DTC, or will remain in the custody of the Trustee pursuant to the FAST Balance Certificate Agreement between DTC and the trustee.

        Except as set forth below, the global note may be transferred in whole, and not in part, solely to another nominee of DTC or a successor to DTC or its nominee. All interests in the global notes may be subject to the procedures and requirements of DTC.

Certain Book-Entry Procedures for the Global Note

        The description of the operations and procedures of DTC set forth below are provided solely as a matter of convenience. These operations and procedures are solely within the control of the respective settlement systems and are subject to change by them from time to time. We do not take any responsibility for these operations or procedures, and holders are urged to contact the relevant system or its participants directly to discuss these matters.

        DTC has advised us that it is (i) a limited purpose trust company organized under the laws of the State of New York, (ii) a "banking organization" within the meaning of the New York Banking Law, (iii) a member of the Federal Reserve System, (iv) a "clearing corporation" within the meaning of the Uniform Commercial Code, as amended and (v) a "clearing agency" registered pursuant to Section 17A of the Securities Exchange Act of 1934 (the "Exchange Act"). DTC was created to hold securities for its participants and facilitates the clearance and settlement of securities transactions between participants through electronic book-entry changes to the accounts of its participants, thereby eliminating the need for physical transfer and delivery of certificates. DTC's participants include securities brokers and dealers, including the underwriters, banks and trust companies, clearing corporations and certain other organizations. Indirect access to DTC's system is also available to other entities such as banks, brokers, dealers and trust companies, referred to as "indirect participants," that clear through or maintain a custodial relationship with a participant, either directly or indirectly. Investors who are not participants may beneficially own securities held by or on behalf of DTC only through participants or indirect participants.

        Pursuant to procedures established by DTC, upon deposit of the global note, DTC will credit the accounts of participants in the exchange offer with an interest in the global note. Ownership of the exchange notes will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by DTC, with respect to the interests of participants, and the records of participants and the indirect participants, with respect to the interests of persons other than participants.

        The laws of some jurisdictions may require that some types of purchasers of notes take physical delivery of the exchange notes in definitive form. Accordingly, the ability to transfer interests in the exchange notes represented by a global security to these persons may be limited. In addition, because DTC can act only on behalf of its participants, who in turn act on behalf of persons who hold interests through participants, the ability of a person having an interest in exchange notes represented by a global security to pledge or transfer the interest to persons or entities that do not participate in DTC's system, or to otherwise take actions in respect of the interest, may be affected by the lack of a physical definitive security in respect of the interest.

        So long as DTC or its nominee is the registered owner of a global security, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the exchange notes represented by the global security for all purposes under the indenture. Except as provided below, owners of beneficial interests in a global security will not be entitled to have exchange notes represented by the global security registered in their names, will not receive or be entitled to receive physical delivery of

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certificated exchange notes, and will not be considered the owners or holders thereof under the indenture for any purpose, including with respect to the giving of any direction, instruction or approval to the trustee under the indenture. Accordingly, each holder owning a beneficial interest in a global security must rely on the procedures of DTC and, if the holder is not a participant or an indirect participant, on the procedures of the participant through which the holder owns its interest, to exercise any rights of a holder of notes under the indenture or the global security.

        We understand that under existing market practice, in the event that we request any action of holders of exchange notes, or a holder that is an owner of a beneficial interest in a global security desires to take any action that DTC, as the holder of such global security, is entitled to take, DTC would authorize the participants to take the action and the participants would authorize holders owning through the participants to take the action or would otherwise act upon the instruction of the holders. Neither we nor the Trustee will have any responsibility or liability for any aspect of the records relating to or payments made on account of notes by DTC, or for maintaining, supervising or reviewing any records of DTC relating to the notes.

        Payments with respect to the principal of, and premium, if any, additional interest, if any, and interest on, any exchange notes represented by a global security registered in the name of DTC or its nominee on the applicable record date will be payable by the Trustee to or at the direction of DTC or its nominee in its capacity as the registered holder of the global security representing the exchange notes under the indenture. Under the terms of the indenture, we may treat, and the Trustee may treat, the persons in whose names the exchange notes, including the global note, are registered as the owners of the exchange notes for the purpose of receiving payment on the exchange notes and for any and all other purposes whatsoever. Accordingly, neither we nor the Trustee has or will have any responsibility or liability for the payment of these amounts to owners of beneficial interests in the global security, including principal, premium, if any, additional interest, if any, and interest. Payments by the participants and the indirect participants to the owners of beneficial interests in the global note will be governed by standing instructions and customary market practice and will be the responsibility of the participants or the indirect participants and DTC.

        Transfers between participants in DTC will be effected in accordance with DTC's procedures, and will be settled in same-day funds.

        Although DTC has agreed to the foregoing procedures to facilitate transfers of interests in the global note among participants in DTC, it is under no obligation to perform or to continue to perform such procedures, and such procedures may be discontinued at any time. Neither we 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.

Issuance of Certificated Notes

        If (i) we notify the trustee in writing that DTC is no longer willing or able to act as a depositary or clearing system for the exchange notes or DTC ceases to be registered as a clearing agency under the Exchange Act, and a successor depositary or clearing system is not appointed within 90 days of this notice or cessation, (ii) we, at our option, notify the Trustee in writing that we elect to cause the issuance of exchange notes in definitive form under the indenture or (iii) upon the occurrence and continuation of an event of default under the indenture, then, upon surrender by DTC of the global note, certificated exchange notes will be issued to each person that DTC identifies as the beneficial owner of the exchange notes represented by the global note. Upon any such issuance, the Trustee is required to register the certificated exchange notes in the name of the person or persons or the nominee of any of these persons and cause the same to be delivered to these persons.

        Neither we nor the Trustee shall be liable for any delay by DTC or any participant or indirect participant in identifying the beneficial owners of the related notes and each such person may

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conclusively rely on, and shall be protected in relying on, instructions from DTC for all purposes, including with respect to the registration and delivery, and the respective principal amounts, of the exchange notes to be issued.

BUSINESS

General Overview

        On June 9, 2000, Kaiser Group International, Inc. and 38 of its domestic subsidiaries voluntarily filed for protection under Chapter 11 of the United States Bankruptcy Code in the District of Delaware. Kaiser Group International, Inc. emerged from bankruptcy with a confirmed Plan of Reorganization that was effective on December 18, 2000. We are a Delaware holding company formed on December 6, 2000 for the purpose of owning all of the outstanding stock of Kaiser Group International, Inc., but Kaiser Group International, Inc. continues to own the stock of its remaining subsidiaries.

        Under the Plan of Reorganization, Kaiser Group International, Inc. sold some of its businesses and made payments of cash, stock or notes to various classes of creditors. Currently, we are trying to resolve some outstanding creditors claims through an alternative dispute resolution process. We have only a limited number of activities, assets and liabilities, primarily consisting of the following:

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We own Kaiser-Hill Company, LLC equally with CH2M Hill Companies Ltd. Kaiser-Hill is our major source of income. Kaiser-Hill currently serves as the general contractor at the U.S. Department of Energy's Rocky Flats Environmental Technology Site near Denver, Colorado. Kaiser-Hill has performed for the Department of Energy at this site since 1995 and in January 2000 was awarded a new contract to manage the closure of the site within this decade. Rocky Flats is a former Department of Energy nuclear weapons production facility, and under the new contract, Kaiser-Hill is working to stabilize and safely store radioactive materials at the site and other locations, to clean up areas contaminated with hazardous and radioactive waste, and to restore much of the 6,000 acre site to the public. Kaiser-Hill was formed by Kaiser Group International, Inc. and CH2M Hill Companies, Ltd. solely for the performance of the current and former Rocky Flats contracts. The level of success experienced by Kaiser-Hill in achieving timely closure of the Rocky Flats site, and the cost of achieving such closure, are the primary determinants of our long-term financial performance following the completion of the reorganization process. See "Business—Kaiser-Hill" below for additional information on Kaiser-Hill.



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We have a substantial claim, pending resolution, against the owner of a steel mini-mill for Nova Hut in the Czech Republic. The engineering and construction of the mini-mill was completed in 2000 by a subsidiary of Kaiser Group International, Inc. called Kaiser Netherlands, B.V. See "Business—Nova Hut" below for additional information on the Nova Hut project.



•

Until September 30, 2002 we held a minority ownership interest in ICF Consulting Group, Inc. (a division that Kaiser Group International, Inc. sold in 1999). We continue to hold an 8¹/2% subordinated promissory note of ICF Consulting due June 25, 2006 in the principal amount of $6.4 million as a result of that transaction.



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We have a wholly-owned captive insurance company that is no longer issuing new policies and is solely involved in resolving remaining claims made against previously issued policies.



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We have an ongoing obligation to fund a capped, post-employment medical benefit plan for a fixed group of retirees.

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Kaiser-Hill

        Our major remaining asset and source of income is our 50% ownership interest in Kaiser-Hill Company, LLC, which we own equally with CH2M Hill Companies Ltd. Kaiser-Hill was formed solely for the performance of the current and former Rocky Flats contracts. CH2M Hill designates three of the five members of Kaiser-Hill's Board of Managers and we designate two members.

        Kaiser-Hill currently serves as the general contractor at the U.S. Department of Energy's Rocky Flats Environmental Technology Site near Denver, Colorado. Kaiser-Hill has performed since 1995 at this site, a former Department of Energy nuclear weapons production facility. Kaiser-Hill is working to stabilize and safely store radioactive materials at the site and other locations, clean up areas contaminated with hazardous and radioactive waste, and restore much of the 6,000 acre site to the public. The level of success experienced by Kaiser-Hill in achieving timely closure of the Rocky Flats site, and the cost of achieving such closure, are the primary determinants of our long-term financial performance.

        Effective February 1, 2000, Kaiser-Hill was awarded a new contract pursuant to which Kaiser-Hill is providing services that will complete the restoration of the Rocky Flats site and close it to Department of Energy occupation. The economic terms of the new contract provide that Kaiser-Hill will earn revenue equal to the actual cost of completing the project in addition to a performance fee based on a combination of the actual cost of completing the site closure project and the actual date of completing the project. The performance fee will be based on targets in the contract for the cost and date of completing the project. The potential fee to be earned pursuant to the new contract ranges from $150 million to $460 million based on Kaiser-Hill's costs to complete the site closure being within the range of targeted completion cost of $3.6 billion and $4.8 billion, and completion at various dates between 2005 - 2007. If the project were completed for a total cost in excess of the target cost, then the potential fee would be reduced because Kaiser-Hill will be required to share 30% of all additional costs, subject to a maximum Kaiser-Hill liability of $20 million.

Nova Hut

        Following the reorganization process, Kaiser Group International, Inc. retained its Netherlands subsidiary, Kaiser Netherlands, B.V. Kaiser Netherlands had been responsible for the construction of a steel mini-mill for Nova Hut in the Czech Republic. After construction of the steel mini-mill was complete in 2000, the contract with Nova Hut provided for a maximum of three possible performance tests. The first performance test was completed on November 13, 2000. Kaiser Netherlands believes that the first performance test was successful and that Nova Hut should have agreed to final acceptance of the mini-mill and made final payment of amounts accrued by Kaiser Netherlands throughout the project. Rather, Nova Hut asserted that the first test was not successful. Kaiser Netherlands believes that such contention may have been put forth in response to severe financial constraints on Nova Hut's operations resulting from weakening conditions in the worldwide steel market and of the significant amounts that Kaiser Netherlands believed it was contractually due. To date, this dispute has not been resolved, and Kaiser Netherlands has resorted to legal proceedings to enforce its rights. The primary legal venue at this time is the Delaware bankruptcy proceedings for Kaiser Group International, Inc., where Kaiser Group International, Inc. has asserted claims against Nova Hut and the International Finance Corporation, while rejecting substantial claims involving contract breach from Nova Hut and the International Finance Corporation. The claims filed by Nova Hut and the International Finance Corporation in the Delaware bankruptcy court have been withdrawn. Our claims against Nova Hut and the International Finance Corporation remain active. The cost of the litigation of this dispute, as well as the cost of a possible ongoing presence in Ostrava, Czech Republic, has had, and may continue to have, a negative impact on our cash flow and the cash flow of Kaiser Netherlands.

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        In February 2002, representatives of Nova Hut and the International Finance Corporation met with us under the auspices of a Delaware bankruptcy court-sponsored mediation. The details of these discussions are subject to a confidentiality agreement. At the date of this prospectus/consent solicitation statement, there are no assurances that settlement will ultimately be achieved through the bankruptcy court-sponsored mediation that is still in process.

Other Retained Assets, Activities and Obligations

        Until September 30, 2002 we owned a 10% interest in ICF Consulting Group, Inc., a privately held entity that was retained by Kaiser Group International, Inc. when it sold its Consulting Group in June 1999. We continue to hold an 8¹/2% subordinated note of ICF Consulting due June 25, 2006 in the principal amount of $6.4 million as a result of that transaction.

        We own a captive insurance company that is no longer engaged in issuing new policies but is solely in the process of resolving existing claims. Restrictions on the insurance company's cash balances, maintained to support statutory insurance reserves, will be released as reserve requirements decrease in the future and to the extent such cash balances are not used in payment of resolved claims.

        We also have the obligation to pay certain medical, disability and life insurance benefits to a fixed group of retirees for life. Such plans cover certain individuals who retired from us prior to 1993. There are approximately 653 retirees and dependents currently covered by the plan, the average age of whom is approximately 80. The actuarially determined present value of this obligation, based on the existing commitments, interest rate assumptions and related medical benefit insurance policies, is $7.5 million. Although we intend to try to reduce its remaining exposures relative to the costs of this obligation in the future, there can be no guarantees that this will be feasible, nor can we estimate the amount of potential future savings with any reasonable degree of accuracy.

        Our assets also include those subsidiaries that were not debtors in Kaiser Group International, Inc. bankruptcy proceeding. However, many of those subsidiaries are foreign entities and, except for Kaiser Netherlands which performed services for the Nova Hut project and those subsidiaries related to Kaiser-Hill, subsidiaries that were not debtors in Kaiser Group International, Inc. bankruptcy proceedings do not have material value. It is anticipated that a number of such subsidiaries will be dissolved or otherwise cease to exist or become totally inactive.

        Our Board of Directors will consider whether we will engage in any additional business activities in the future. Among other things, it is anticipated that the Board of Directors will consider whether we should attempt to take advantage of the successful history of Kaiser Group International, Inc. of performing in the government services market, either independently and through Kaiser-Hill or affiliates, in order to develop a new revenue base.

Insurance

        We have a comprehensive risk management and insurance program in place that provides a range of coverages tailored to the needs of the reorganized company. Insurance coverages include policies for fiduciary, crime, directors and officers liability, property, general liability, worker's comp, and professional liability "runoff" coverage to deal with liabilities arising from past activities and projects, if necessary.

        We believe that the insurance coverages that we maintain, including self-insurance, protect against risks that are commensurate for similar businesses of the scope and present operating profile and that related coverage amounts are economically reasonable. At this time, we expect to continue to be able to obtain insurance in amounts generally available to firms with a similar profile. There can be no assurance that the insurance coverage and levels maintained by us will continue to be reasonably available. An insured claim, or uninsured claim for that matter, arising out of pre-reorganization or

40

post-reorganization activities of Kaiser Group International, Inc., if successful and of sufficient magnitude, could have a material adverse effect on our financial position.

Government Regulation

        We 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. No charges presently are known to have been filed against Kaiser Group International, Inc. or our other subsidiaries by these agencies.

Employees

        As of September 30, 2002, we had approximately 15 (full and part-time) employees.

Properties

        We do not own any properties. Our only leased property is located at 9302 Lee Highway, Fairfax, Virginia 22031-1207, and its telephone number is (703) 934-3600. The majority of all leased properties were transferred to others as part of asset sale transactions in 1999 and 2000.

Legal Proceedings

        In the course of our normal business activities, various claims or charges have been asserted and litigation commenced against us 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 us in the event of litigation.

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SELECTED FINANCIAL DATA

        The following statement of operations, basic and diluted (loss) per share data, and balance sheet data, excluding the data for the six months ended and as of June 30, 2002, has been derived from our audited financial statements. The information should be read in conjunction with our historical financial statements, together with the related notes, included in this prospectus/consent solicitation statement.

			Predecessor Company												Successor Company
			Year ended December,															Six Months Ended June 30, 2002
			1997			1998			1999			2000			2001
			(in thousands, except per share data)															(unaudited)
Statement of Operations Data:
	Gross revenue		$	588,700		$	632,600		$	643,044		$	271,385			—			—
	Service revenue (a)			167,500			154,500			186,856			76,018			—			—
	Operating costs			258,154			175,222			203,400			76,242			10,792			5,269
	Operating loss			(90,654	)		(20,722	)		(16,544	)		(224	)		(10,792	)		(5,269	)
	Income (loss) from continuing operations before income taxes, minority interest, extraordinary item and cumulative effect of accounting change			(25,162	)		(39,462	)		(35,260	)		(1,736	)		7,657			2,122
	Net income (loss) before discontinued operations, extraordinary item and cumulative effect of accounting change			(13,940	)		(43,593	)		(39,294	)		40,397			5,240			1,196
Basic and Diluted Earnings (Loss) Per Share:
	Continuing operations before extraordinary item and cumulative effect of accounting change		$	(0.96	)	$	(1.80	)	$	(1.65	)	$	1.74		$	1.92		$	(0.62	)
	Discontinued operations			0.74			(2.07	)		1.42			(0.46	)		(9.11	)		(0.12	)
	Extraordinary item			—			(0.05	)		(0.02	)		5.35			—			—
	Cumulative effect of accounting change, net of tax			—			(0.25	)		—			—			—			—
		Total		(0.22	)		(4.17	)		(0.25	)		6.63			(7.19	)		(0.74	)
	Weighted average common shares outstanding—basic			22,382			24,092			23,823			23,255			1,119			1,589
	Weighted average common shares outstanding—diluted			22,382			24,092			23,823			23,255			1,119			1,589
Other Data:
	Minority interest (b)			(10,867	)		(7,698	)		(5,184	)		(5,999	)		—			—
	Ratio of earnings to fixed charges (c)			(c	)		(c	)		(c	)		(c	)		(c	)		(c	)
Balance Sheet Data (end of period):
	Cash and cash equivalents			20,020			15,267			26,391			41,344			8,848			13,444
	Total assets			399,288			428,071			253,563			106,168			80,891			81,649
	Long-term liabilities (c)			145,590			147,152			131,795			—			—			—
	Redeemable preferred stock			—			—			—			—			62,481			62,519
	Working capital			91,121			3,271			17,116			54,131			23,974			19,929

(a)

Service revenue is calculated by deducting the costs of subcontracted services and other direct costs from the gross revenue and adding our share of the income or loss of joint ventures and affiliated companies.

(b)

Minority interest represents CH2M Hill's fifty-percent profit participation in Kaiser-Hill.

(c)

Earnings for these periods are inadequate to cover fixed charges. The deficiencies, calculated as the dollar amount of earnings required to attain a ratio of one-to-one, for the years ended 1997, 1998, 1999, 2000, 2001 and the six months ended June 30, 2002, were $36,029, $47,160, $40,444, $3,342, $3,861 and $4,904, respectively.

(d)

Includes unamortized discounts.

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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

Years Ended December 31, 2001 and 2000

Equity Income In Earnings of Affiliate

        Our major remaining sources of income is our 50% ownership in Kaiser-Hill, which, as described above, performs all elements of daily and long-term operations associated with the ultimate closure of the Department of Energy's Rocky Flats site.

        During early 2001, Kaiser-Hill reduced its estimate of total cost at completion to $4.5 billion from the original $4.8 billion. This reduction in estimated cost at completion had the financial statement result of increasing its accrual of the fee to be earned over the contract duration from $150.0 million to $180.0 million.

        Kaiser-Hill continued to make favorable progress on the closure contract during 2001 and, during the quarter ended December 31, 2001, amended its estimate for the physical contract completion date from December 31, 2007 to December 31, 2006 and changed its estimate of the total cost to be incurred during the closure contract duration to be below $4.0 billion. Kaiser-Hill management believes that its schedule progression and reductions in estimated total costs to date contribute to its being on course to earn a $340.0 million performance fee over the closure contract duration. Because Kaiser-Hill uses the percentage of completion method for the performance fee recognition on the closure contract, the effect of increasing its performance fee estimate on the project from $180.0 million to $340.0 million resulted in recording additional earnings of $15.8 million as a change in estimate in the fourth quarter. This adjustment was comprised of a revenue increase of $47.8 million, offset by $32.0 million in project contingency reserves. Despite the uncertainties relative to Kaiser-Hill performing on the contract so as to earn a possible $340.0 million in total performance fee, Kaiser-Hill has goals of further improving its ultimate project performance. Goals, however, are not free of risk, and the ability to accurately predict the ultimate results are highly uncertain. See "Risk Factors."

        Kaiser-Hill has historically incurred expenses that are not reimbursable by the Department of Energy pursuant to the Federal regulations. Accordingly such expenses, which Kaiser-Hill estimates could approximate up to 15%—20% of the total award fee, would be deducted from the total fee earned by Kaiser-Hill prior to any distributions of net fees to either us or CH2M Hill Companies Ltd.

        Through 2000, the new contract allowed Kaiser-Hill to invoice the Department of Energy quarterly for the performance fee based on a $340 million target fee pool, less 50% retainage. Thereafter, the quarterly invoicing reverted to a formula such that, unless otherwise approved by Department of Energy, cumulative contract billings may not exceed the minimum fee of $150 million spread over a seven-year timeframe. Based on the Department of Energy's acknowledgement of and concurrence with Kaiser-Hill's revised closure estimates and resulting increase to the estimated performance fee to be earned over the contract duration, Kaiser-Hill has been able to increase the amount of its performance fee invoices to Department of Energy based on the $340 million target fee. However, such invoices will now be subject to the 50% retainage holdback payable at contract completion. Adjusted for the effects of the 50% retainage holdback, the performance fee invoices to Department of Energy increased by approximately $0.8 million per quarter beginning with the second quarter of 2002. In April 2002, we received $1.1 million representing the portion of back payments received from the Department of Energy related to the increase in the estimated performance fee.

        Invoice payments made by the Department of Energy to Kaiser-Hill, less certain Kaiser-Hill reimbursements, will continue to be distributed to Kaiser-Hill owners upon receipt. From the

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commencement of the new contract through June 30, 2002, we have received an aggregate of $21 million from the Department of Energy for such contract.

        In the future, as Kaiser-Hill continues to accrue its performance fee based on the $340 million level (less reserves deemed appropriate under the circumstances), and remains subject to a 50% retainage holdback on its performance fee invoicing, the level of unbilled accounts receivable on its balance sheet will begin to increase substantially. Kaiser-Hill will classify the 50% holdback portion of its performance fee invoicing as long-term unbilled accounts receivable on its balance sheet. The new contract also contains provisions for the Department of Energy to release portions of the retainage holdback prior to contract completion if the Department of Energy deems appropriate. Kaiser-Hill is not able to estimate whether any of the retainage holdback will be released prior to contract completion.

Gain on Demutualization

        During the year ended December 31, 2001, Kaiser Group International, Inc. benefited from the fact that it had purchased retirement annuity contracts during the 1980's for a capped group of employees. Kaiser Group International, Inc. paid 100% of the premiums for the retirement annuity contracts, and such annuities represented the entire amount of this particular retirement benefit obligation to the covered employees at the time. Having paid 100% of the insurance premiums, Kaiser Group International, Inc. became a mutual stockholder in the Prudential Insurance Company. Due to the illiquid nature of ownership in a mutual stockholder organization, Kaiser Group International, Inc. did not have a balance sheet carrying value ascribed to this asset. During November 2001, however, the Prudential Insurance Company demutualized its ownership structure through an initial public offering of its common stock. As a result of the demutualization of the Prudential stockholdings, we became the beneficial holder of approximately 195,000 shares of Prudential common stock and accordingly recorded a gain on the demutualization totaling $5.9 million, net of income tax expense of $2.2 million, in December 2001.

Interest Income

        Interest income earned in 2001 was based in part on available cash balances, generally asset sale proceeds remaining from 2000 and restricted cash balances maintained for statutory purposes by our wholly-owned captive insurance subsidiary. As we used $13.7 million in cash in April 2001 for our initial bankruptcy distribution, interest income declined by $0.6 million during 2001 compared to 2000 and will likely decline in the future based on significant reductions in interest rates during 2001. Interest income will also decline based on the Plan of Reorganization requiring potentially large amounts of available cash balances to be used for purchasing or redeeming outstanding preferred stock once all remaining bankruptcy claims are resolved. Based on the developments in 2001, we recorded a $1.0 million reserve for uncertainties related to the collectibility of the ICF Consulting Group, Inc. promissory notes and the related accrued interest. This reserve was charged to interest income as it had the effect of reversing the interest accrued on the notes during 2001.

Administrative Expenses

        Administrative expenses for the year ended December 31, 2001 consisted largely of costs incurred for activities associated with the bankruptcy proceedings or with winding down of its historical operations, including: $5.0 million incurred for legal and professional fees primarily for bankruptcy claims resolution, including the Nova Hut and IFC claims; $2.8 million incurred for salaries and benefits; $0.9 million incurred for rent, records storage, utilities and repairs; and $1.0 million in other administrative expenses, including insurance, securities issuance costs and other. Also included in the $9.7 million of total general and administrative expense is a $1.0 million non-cash reduction in the

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amount of statutory self-insurance reserves required by our wholly-owned insurance subsidiary occurring in the fourth quarter.

        General and administrative expenses incurred during the quarter ended December 31, 2001 approximated $1.9 million and represented a significant reduction in the run rate of such expenses from the previous three quarters. As the Company continues to make progress on winding down the operations of Kaiser Group International, Inc. and in resolving remaining bankruptcy claims, it anticipates further declines in general and administrative spending.

        In the fourth quarter of 2001, we recorded a $1.1 million impairment charge related to our then 10% interest in ICF Consulting Group, Inc., a privately held entity that was retained by Kaiser Group International, Inc. when it sold its Consulting Group in June 1999. The impairment charge was based on management's assessment of the potential proceeds available if this investment were liquidated.

Loss from Discontinued Operations

        Expenses presented as Results of Operations from Discontinued Operations for the years ended December 31, 2001 and 2000 consist of activities associated with the Nova Hut project. Based on our continued concern over Nova Hut's financial difficulties and the uncertainties of a settlement involving a bankruptcy court-sponsored mediation, during 2001 we reserved approximately $15.6 million of the carrying value of the remaining Nova Hut project assets from $21.6 million to $6.0 million. We also recorded an income tax benefit of $6.2 million associated with this reserve. Other out-of-pocket costs were incurred for winding down the project's site operations during early 2001 included severance and relocation costs for returning project expatriates back to the United States.

        We recognized a total income tax benefit of $3.8 million allocable to the following results (in thousands):

Statements of Operations Category	Pre Income/(Loss)			Applicable Income Tax (Expense)/Benefit
Income from continuing operations before income taxes	$	7,657		$	(2,417	)
(Loss) from discontinued operation		(16,409	)		6,212
				$	3,795

Treatment of Net Operating Loss Carryforwards

        In December 2000 we went through a change in control under the Internal Revenue Code Section (IRC) 382 due to the Chapter 11 bankruptcy reorganization. In September 2001 we determined that the change in control met the stringent guidelines of the bankruptcy exception provided under the Internal Revenue Code. This resulted in our not being subject to the carryforward limitations of IRC Sec. 382. However, we were required to reduce certain carryovers that included net operating losses and credits. We offset the reduction of the carryforwards with the valuation allowance previously established for those carryforwards and, as a result, the effective income tax rate for income from continuing operations differed significantly from statutory rates.

Periods Ended June 30, 2002 and 2001

Equity Income in Earnings of Affiliate

        Equity income in earnings of affiliate represents our 50% portion of the Kaiser-Hill net income. For the three and six months ended June 30, 2002, the equity income in earnings of affiliate were $3.4 million and $7.0 million, respectively, an increase of $0.4 million and $1.2 million over the three and six months ended June 30, 2001, respectively. The increases for the three and six months ended

45

June 30, 2002 are due to an increase in the estimated performance fee to be earned over the duration of Kaiser-Hill's performance on the closure contract. The higher estimated performance fee results from Kaiser-Hill's continued favorable progress on the closure project described above.

        In both the three and six month periods ended June 30, 2002 and 2001, the equity income in earnings of affiliate is net of $1.8 million and $0.9 million, respectively, of amortization of the excess of our carrying value of our investment in Kaiser-Hill over our ownership percentage of the underlying Kaiser-Hill equity. We increased the carrying value of this investment significantly as part of our adoption of Fresh-Start Reporting as of December 31, 2000 and will continue to amortize that difference over the estimated life of the Kaiser-Hill investment of approximately six years.

Gain on Sale of Securities

        We acquired the common stock of Prudential Insurance Company through a demutualization in the fourth quarter of 2001 and at that time recorded a gain of $5.9 million, net of income tax expense of $2.2 million. We disposed of this investment in February 2002 and recorded a gain of $106,000 at the time of the sale.

Interest Income

        Interest income for the three months ended June 30, 2002 was $0.1 million, a decrease of $0.2 million or 62.6% compared with the three months ended June 30, 2001. The decrease is due to a decrease in the available cash balances at June 30, 2002 compared to June 30, 2001 and a significant decrease in interest rates over the same time period. Interest income for the six months ended June 30, 2002 was $0.3 million, a decrease of $1.1 million compared with the six months ended June 30, 2001. This decrease is due to our discontinuance of the accruing of interest income on the previously-held ICF Consulting notes in the first quarter of 2002 due to uncertainties over the collectibility of the combined carrying value of the escrowed cash, the promissory notes and the interest receivable accrued since the divestiture of ICF Consulting in June 1999.

Administrative Expenses

        Administrative expenses for the three and six months ended June 30, 2002 were $2.6 million and $5.3 million, respectively, a decrease of $0.2 million and $1.3 million respectively, compared to the three and six months ended June 30, 2001. Although the majority of the administrative expenses are incurred for legal and professional fees associated with resolving Nova Hut and bankruptcy claims, the decrease in administrative expense is due primarily to reductions in staff salaries and benefits totaling $0.4 million and $0.9 million for the three and six month period. These decreases are due to the our continued progress on winding down the operations of Kaiser Group International, Inc. We anticipate further declines in general and administrative spending as remaining litigation and bankruptcy claims are resolved. Our cost to provide certain post-employment medical benefits to a capped group of retirees is also treated as an administrative expense. In both the three-month and six-month periods ended June 30, 2002 and 2001, the expense related to these benefits was $0.3 million and $0.6 million, respectively.

Income Tax Expense

        We recorded an income tax expense of $0.4 million and $0.9 million on operating income from continuing operations of $0.9 million and $2.1 million during the three and six months ended June 30, 2002, respectively. Our effective income tax rates are 43% and 44%, respectively, and result of the non-deductibility of certain expenditures for federal income tax purposes. For the three and six months ended June 30, 2001, we recorded an income tax expense of $0.9 million and $1.0 million on operating income from continuing operations of $0.5 million and $0.5 million, respectively.

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Loss from Discontinued Operations

        The loss from discontinued operations of $197,000 for the six months ended June 30, 2002 results from activities associated with the Nova Hut project.

Liquidity and Capital Resources

Year Ended December 31, 2001

        We used $13.3 million of cash for operating activities in 2001, inclusive of $0.6 million in cash used to satisfy Class 3 bankruptcy claims (former trade accounts payable not paid until after the Plan of Reorganization was deemed effective in December 2000). This use of cash was generally for the $9.7 million in general and administrative expenses incurred in 2001 in addition to $3.6 million used for severance and professional fees incurred prior to 2001 in connection with the debt restructuring, bankruptcy and winding-down activities in 2000.

        During the year ended December 31, 2001, Kaiser-Hill distributed $7.9 million to us and to the other 50% owner, CH2M Hill.

        At several times during 2001, but primarily in April 2001 as part of our initial bankruptcy distribution, we paid out $13.7 million representing the cash portion of Class 4 bankruptcy claim resolutions. Also as of April 2001, we transferred $12.3 million to a separate reserve cash account to be used to fund the cash portion of any remaining Class 4 bankruptcy claims settlements (including any earned dividends on subsequently issued preferred stock). In June 2001, we used $125,000 to finalize a tender offer to repurchase odd-lot shares of less than 99 in total holdings at $5.00 per common share. Lastly, we used $2.4 million in the payment of 7% cash dividends accrued on our outstanding preferred stock.

Periods Ended June 30, 2002 and 2001

Operating Activities

        We used $4.7 million and $8.0 million of cash during the six months ended June 30, 2002 and June 30, 2001, respectively, primarily for the extinguishment of obligations arising out of the bankruptcy of Kaiser Group International, Inc., including severances, professional fees, retiree benefits and various other wind-down expenditures.

Investing Activities

        We received $6.4 million in distributions from Kaiser-Hill during the period ended June 30, 2002, compared to $2.0 million in the period ended June 30, 2001. The $4.4 million increase in distributions is due to the timing of the second quarter 2001 distribution totaling $2.3 million being received in July 2001, a non-recurring payment of $1.1 million distributed by Kaiser-Hill in April 2002 to each owner reflecting the retroactive application and payment of the upward revision to the Kaiser-Hill performance fee by the DOE. The remaining increase is due to Kaiser-Hill cash distributions resulting from the continued favorable progress in its performance on the closure contract. Pursuant to contractual provisions and as explained above, the favorable progress has resulted in the DOE agreeing to increase Kaiser-Hill's estimated performance fee. We anticipate that, in the near-term, recurring quarterly distributions from Kaiser-Hill will approximate $2.3 million per quarter.

        Additionally, during the first quarter of 2002, we liquidated our holdings of shares of stock of Prudential Insurance Company and received approximately $6.0 million. We had acquired the Prudential stock through the demutualization transaction affected by the insurance company during the fourth quarter of 2001.

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        In June 2002, we collected, through our wholly-owned and discontinued Taiwan subsidiary, $0.7 million, pre-tax, from the net settlement of a previously long-outstanding customer receivable.

        In June 2002 we reached a settlement with ICF Consulting whereby we agreed to restructure the ICF Consulting subordinated notes totaling $6.6 million and accrued interest of $0.7 million, net of reserves, for a new 8¹/2% subordinated promissory note in the principal amount of $6.4 million. In return ICF Consulting withdrew its claims against us, released $0.8 million of escrowed cash and agreed to purchase our 10% ownership in ICF Consulting, carrying value of $1.2 million, for $4.5 million. The escrowed cash was released at the signing of the agreement in July 2002, and the transactions were completed on September 30, 2002. The accompanying balance sheet as of June 30, 2002 does not reflect any adjustments for this transaction because the settlement was not completed until September 30, 2002 and could not be assured until that date.

Financing Activities

        During the six months ended June 30, 2002, we paid $2.2 million in dividends on preferred stock, and acquired 8,977 shares of preferred stock for $0.2 million. As a result of the Prudential stock sale discussed above, we are required, in accordance with the Plan of Reorganization, to use a portion of the proceeds from any asset sales solely for the redemption of the outstanding preferred stock. Pursuant to this requirement, we earmarked approximately $0.6 million of the sale proceeds as restricted cash to be used for the future redemptions of preferred stock.

Liquidity and Capital Resources Outlook

        We currently have no debt as a result of the effectiveness of the Plan of Reorganization. We have financed the initial bankruptcy distribution requirements and follow-on working capital needs in part through the use of the available cash and distributions from Kaiser-Hill and more recently from other asset sale proceeds. Based on (i) current expectations for operating activities and results, (ii) expected Kaiser-Hill distributions, (iii) our current available cash position, (iv) recent trends and projections in liquidity and capital needs, and (v) current expectations of total allowed claims upon the completion of the bankruptcy proceedings, management believes we have sufficient liquidity to cover the required cash distributions resulting from the resolution of claims in the bankruptcy process, our future operating needs and income tax requirements, as well as the dividend requirements applicable to the our preferred stock and interest on the proposed exchange notes. Furthermore, as allowed Class 4 claims are resolved, we continue to review the timing of a partial preferred stock redemption.

        In August 2002, we received notification that a $0.6 million certificate of deposit, formerly collateralizing a letter of credit previously required by Vermont insurance regulators of its wholly owned captive insurance company, will be released from restriction.

        We have obligations to pay dividends on outstanding preferred stock at June 30, 2002. Accordingly, we are required to present the following table assuming that no preferred stock redemptions are made until the mandatory redemption date of December 31, 2007, no additional shares are issued and that all future dividends are paid in cash (irrespective of this disclosure requirement, we are not representing intentions with regard to the timing of preferred stock redemptions). The effect these obligations are expected to have on our liquidity and cash flow in future periods are as follows:

	Total	Less Than One Year	One to Three Years	After Three Years
Preferred Stock dividends	$23,880	$4,342	$8,684	$10,854

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Other Matters

        We have various obligations and liabilities from its continuing operations, including general overhead expenses in connection with maintaining, operating and winding down various entities. Additionally, we believe contingent liabilities may exist in the areas described in Note 7 to the Consolidated Financial Statements for the periods ended June 30, 2002 and 2001.

QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK

        We do not believe that we have significant exposures to market risk as we do not presently have any debt. The interest rate risk associated with our obligation to fund a capped retiree medical obligation is not sensitive to interest rate risk other than through the determination of the present value of its remaining obligation thereunder. A 10% increase or decrease in the average annual prime rate would result in a decrease in the carrying value of the benefits obligation but would not change the actual cost of the benefits.

MANAGEMENT

        The following individuals currently serve as our principal executive officers:

John T. Grigsby Jr., 62, has been our President and Chief Executive Officer since December 18, 2000, the effective date of our Plan of Reorganization. Mr. Grigsby has been a member of our Board of Directors since May 2001. Mr. Grigsby is the President of John Grigsby and Associates, Inc., a firm which he founded in June 1984 to provide consulting assistance to financially distressed and reorganizing companies. Mr. Grigsby has served as the Trustee for the Auto Works Creditors' Trust and has served as chief executive officer of a number of financially distressed companies, including Super Shops, Inc., Auto Parts Club, Reddi Brake, Rose Auto Stores-Florida, Inc. as well as for a number of Chapter 11 debtors, including Pro Set, Inc., Lomas Financial Corporation and Thomson McKinnon Securities, Inc. Mr. Grigsby owns 2,000 shares of our common stock and no shares of preferred stock.

Marijo L. Ahlgrimm, 42, is Executive Vice President and Chief Financial Officer. Prior to becoming Executive Vice President and Chief Financial Officer upon the effectiveness of the Plan of Reorganization, Ms. Ahlgrimm served as Senior Vice President and Corporate Controller of the predecessor Kaiser entities since December, 1997. From 1993 to 1997, Ms. Ahlgrimm was Vice President and Controller of an information technology service provider that was subsequently acquired by TRW in December, 1997. Ms. Ahlgrimm was a manager with PricewaterhouseCoopers LLP from 1985 to 1993. Ms. Ahlgrimm graduated from the University of Wisconsin-Madison (B.B.A.).

        The following individuals currently serve as the members of our Board of Directors:

John T. Grigsby Jr., 62, is a director. Mr. Grigsby has been a member of our Board of Directors since May 2001. See information with respect to Mr. Grigsby listed above in connection with his position as our President and Chief Executive Officer.

Jon B. Bennett, 46, is a director. Mr. Bennett has been a Director of Information Management at Devens Reserve Forces Training Area, a Department of the Army installation, since 1998. Mr. Bennett was Systems Administrator and Analyst at the then Fort Devens from 1995 to 1997, and was the senior Budget Analyst at Fort Devens from 1990 to 1995. Mr. Bennett graduated from Bucknell University (B.A.). Entities managed by Bennett Management Corporation, which is controlled by Mr. Bennett's brother, James Bennett, are significant holders of our Preferred Stock and Common Stock issued in April 2001, as a result of being significant holders of subordinated notes of Kaiser Group International, Inc. Mr. Bennett owns 1,000 shares of our common stock and no shares of preferred stock.

49

James J. Maiwurm, 53, is Chairman of our Board of Directors. Mr. Maiwurm has been a partner of Squire, Sanders & Dempsey L.L.P., Washington, D.C., since February 24, 2001. He was President and Chief Executive Officer of Kaiser Group International, Inc. from April 19, 1999 until the effective date of the Plan, and served as Chairman of the Board of Directors of Kaiser Group International, Inc. from June 1999 until such effective date. Mr. Maiwurm serves on the Board of Managers of Kaiser-Hill Company, LLC. From August 1998 until elected as Kaiser Group International, Inc.'s President and Chief Executive Officer, Mr. Maiwurm was a partner of Squire, Sanders & Dempsey L.L.P., Washington, D.C., and from 1990 to 1998 was a partner of Crowell & Moring LLP, Washington, D.C. Both law firms have served as counsel to Kaiser Group International, Inc. and continue to serve as counsel to Kaiser Holdings. Mr. Maiwurm is a member of the Board of Trustees of Davis Memorial Goodwill Industries, Washington, D.C., a non-profit entity, and the Boards of Directors of Workflow Management, Inc., an integrated graphic arts company providing documents, envelopes and commercial printing to businesses in North America, the stock of which is traded on the NASDAQ National Market System, and Cortez III Service Corporation, a privately-held government services provider. Mr. Maiwurm graduated from the College of Wooster (B.A.) and the University of Michigan (J.D.). Mr. Maiwurm owns 1,000 shares of our common stock and no shares of preferred stock.

EXPERTS

        The consolidated financial statements as of December 31, 2001 and 2000 and for each of the three years in the period ended December 31, 2001 included in this prospectus/consent solicitation statement and registration statement, have been so included on reliance on the report of PricewaterhouseCoopers, LLP, independent accountants given on the authority of said firm as experts in auditing and accounting.

        The consolidated financial statements of Kaiser-Hill Company, LLC and Subsidiary at December 31, 2000 and 2001, and for each of the three years in the period ended December 31, 2001 appearing in this prospectus/consent solicitation statement and registration statement have been audited by Arthur Anderson LLP. We are generally required to obtain a written consent from Arthur Andersen in order to include their audit report for these financial statements in this prospectus/consent solicitation statement. After making all reasonable efforts, we have been unable to obtain Arthur Andersen's updated consent with respect to these financial statements because of the departure from Arthur Andersen of their engagement team leaders. In reliance on the temporary relief provided by the SEC under Securities Act Rule 437(a), we have not filed the written consent of Arthur Andersen as part of this prospectus/consent solicitation statement. Since we have not been able to obtain Arthur Andersen's written consent, you will not be able to sue Arthur Andersen under Section 11 of the Securities Act for material misstatements or omissions, if any, in the registration statement or the prospectus/consent solicitation statement, including the financial statements covered by their report.

LEGAL MATTERS

        Certain legal matters in connection with the exchange offer will be passed upon by Squire, Sanders & Dempsey L.L.P.

50

INDEX TO FINANCIAL STATEMENTS

			Page
I.	Consolidated Financial Statements of Kaiser Group Holdings, Inc. and Subsidiaries as of December 31, 2001 and 2000		F-1
	a.	Report of Independent Accountants	F-2
	b.	Consolidated Balance Sheets as of December 31, 2001 and December 31, 2000	F-3
	c.	Consolidated Statements of Operations for the years ended December 31, 2001,2000 and 1999	F-4
	d.	Consolidated Statements of Shareholders' Equity (Deficit) and Comprehensive Income (Loss) for the years ended December 31, 2001, 2000 and 1999	F-5
	e.	Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999	F-6
	f.	Notes to Consolidated Financial Statements	F-7
II.	Financial Statements of Kaiser-Hill Company LLC as of December 31, 2001 and 2000 and for the three years ended December 31, 2001		F-40
III.	Supplemental Schedule Relating to the Consolidated Financial Statements of Kaiser Group Holdings, Inc. and Subsidiaries for the years ended December 31, 2001, 2000 and 1999		F-52
	a.	Report of Independent Accountants	F-53
	b.	Schedule II: Valuation and Qualifying Accounts	F-54
IV.	Interim Consolidated Financial Statements of Kaiser Group Holdings, Inc. and Subsidiaries as of June 30, 2002 and 2001		F-55
	a.	Consolidated Balance Sheets—June 30, 2002 and December 31, 2001	F-56
	b.	Consolidated Statements of Operations and Comprehensive Income Three and Six Months Ended June 30, 2002 and 2001.	F-57
	c.	Consolidated Statements of Cash Flows—Six Months Ended June 30, 2002 and 2001.	F-58
	d.	Notes to Consolidated Financial Statements.	F-59

51

Kaiser Group Holdings, Inc.
and Subsidiaries

Consolidated Financial Statements as of December 31, 2001 and 2000
and for each of the three years in the period ended December 31, 2001
together with the Report of Independent Public Accountants

F-1

REPORT OF INDEPENDENT ACCOUNTANTS

To Board of Directors and
    Shareholders of Kaiser Group Holdings, Inc.

        In our opinion, the consolidated financial statements listed in the index present fairly, in all material respects, the financial position of Kaiser Group Holdings, Inc. and Subsidiaries at December 31, 2001 and December 31, 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. These financial statements 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 of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        As discussed in Note 1 to the consolidated financial statements, on December 5, 2000, the United States Bankruptcy Court for the District of Delaware confirmed the Company's Plan of Reorganization (the Plan). The Plan became effective on December 18, 2000 and the Company emerged from Chapter 11. In connection with its emergence from Chapter 11, the Company adopted Fresh-Start Reporting as of December 18, 2000 as further described in Note 2 to the consolidated financial statements. At this time there remain significant uncertainties related to the ultimate amount of claims that will be allowed pursuant to the Company's bankruptcy proceedings.

PricewaterhouseCoopers LLP

McLean, Virginia
March 22, 2002

F-2

KAISER GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

			December 31,
			2001			2000
			(In thousands, except share amounts)
ASSETS				SUCCESSOR
Current Assets
Cash and cash equivalents				8,848		$	41,344
Restricted cash and cash equivalents				15,844			16,190
Marketable securities available for sale				6,489			—
Contract receivables, net				—			1,692
Prepaid expenses and other current assets				1,843			2,861
Net assets of discontinued operations				6,000			10,712
		Total Current Assets		39,024			72,799
Other Assets
Investments in and advances to affiliates				29,229			26,692
Notes receivable				6,550			6,550
Deferred tax assets				5,785			—
Other long-term assets				303			127
				41,867			33,369
		Total Assets	$	80,891		$	106,168
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable			$	730		$	2,367
Accrued salaries and benefits				7,482			9,148
Other accrued expenses				4,767			6,848
Preferred stock dividend payable				731			—
Income taxes payable				1,340			305
		Total Current Liabilities		15,050			18,668
Commitments and Contingencies
Preferred stock, par value $.01 per share:
	Authorized — 2,000,000 shares
	Issued and outstanding — 1,136,024 shares in 2001; stated at liquidation value of $55 per share			62,481			—
New Common stock, par value $.01 per share:
	Authorized — 3,000,000 shares
	Issued and outstanding — 1,585,239 shares in 2001			16			—
Old Common stock, par value $.01 per share:
	Authorized — 90,000,000 shares
	Issued and outstanding — 23,414,328 shares in 2000			—			234
Capital in excess of par				7,947			87,266
Accumulated deficit				(4,957	)		—
Accumulated other comprehensive income				354			—
		Total Liabilities and Shareholders' Equity	$	80,891		$	106,168

See notes to consolidated financial statements

F-3

KAISER GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

			Year Ended December 31,
			Successor Company			Predecessor Company
			2001			2000			1999
			(In thousands, except per share amounts)
Gross Revenue			$	—		$	271,385		$	643,044
	Subcontract and direct material costs			—			(195,367	)		(456,188	)
Service Revenue				—			76,018			186,856
Operating Expenses
	Direct labor and fringe benefits			—			64,197			176,582
	Administrative expenses			9,692			8,435			9,055
	Depreciation and amortization			—			1,695			3,379
	Impairment charge			1,100			—			—
	Restructuring charges			—			1,915			14,384
Operating Income (Loss)				(10,792	)		(224	)		(16,544	)
Other Income (Expense)
	Equity income in earnings of affiliate, net of amortization of $3,524 for the year ended December 31, 2001			11,518			4,218			—
	Gain on stock demutualization			5,856			—			—
	Interest income			1,075			2,024			2,349
	Interest expense			—			(7,754	)		(21,065	)
Income (Loss) From Continuing Operations Before Reorganization Items, Income Tax, Minority Interest, and Extraordinary Items				7,657			(1,736	)		(35,260	)
Reorganization items				—			8,611			—
Income (Loss) From Continuing Operations Before Income Tax, Minority Interest, and Extraordinary Items				7,657			6,875			(35,260	)
	Income tax (expense) benefit			(2,417	)		39,521			1,150
Income (Loss) From Continuing Operations Before Minority Interest and Extraordinary Items				5,240			46,396			(34,110	)
	Minority interest in net income of affiliated company			—			(5,999	)		(5,184	)
Income (Loss) From Continuing Operations Before Extraordinary Items				5,240			40,397			(39,294	)
	(Loss) from discontinued operations, net of tax			(10,197	)		(2,966	)		(6,113	)
	Gain (Loss) on sales of discontinued operations, net of tax			—			(7,669	)		40,083
Income (loss) Before Extraordinary Items				(4,957	)		29,762			(5,324	)
	Extraordinary items, net of tax			—			124,542			(600	)
Net Income (Loss)				(4,957	)		154,304			(5,924	)
Preferred stock dividends				(3,091	)		—			—
Income (Loss) Applicable to Common Shareholders			$	(8,048	)	$	154,304		$	(5,924	)
Basic and Diluted Earnings (Loss) Per Common Share:
	Continuing operations, net of tax		$	1.92		$	1.74		$	(1.65	)
	Discontinued operations, net of tax			(9.11	)		(0.46	)		1.42
	Earnings (Loss) Before Extraordinary Items		$	(7.19	)		1.28			(0.23	)
		Extraordinary Items		—			5.35			(0.02	)
Net Earnings (Loss) Per Share			$	(7.19	)	$	6.63		$	(0.25	)
Weighted average shares for basic and diluted earnings (loss) per common share				1,119			23,255			23,823

See notes to consolidated financial statements.

F-4

KAISER GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(In thousands, except share amounts)

								New Common Stock
			Old Common Stock																		Accumulated Other Comprehensive Income (Loss)
												Capital In Excess of Par			Notes Receivable			Accumulated Earnings (Deficit)
			Shares		Par Value			Shares		Par Value
Predecessor Company
Balance, January 1, 1999			24,257,828		$	242		—			—	$	75,422		$	(638	)	$	(134,757	)	$	(3,387	)
	Net (loss)		—			—		—			—		—			—			(5,924	)		—
	Issuances of common stock		145,788			2		—			—		106			—			—			—
	Reacquisition of common stock		(748,116	)		(7	)	—			—		(1,885	)		638			—			—
	Foreign currency translation adjustment included in net income		—			—		—			—		—			—			—			285
Balance, December 31, 1999			23,655,500			237		—			—		73,643			—			(140,681	)		(3,102	)
	Net income		—			—		—			—		—			—			154,304			—
	Reacquisition of common stock		(241,172	)		(3	)	—			—		—			—			—			—
	Reclassification for losses on foreign currency translation adjustment		—			—		—			—		—			—			—			3,102
	Effect of fresh-start reporting:
		Elimination of accumulated earnings	—			—		—			—		13,623			—			(13,623	)		—
Successor Company Balance, December 31, 2000			23,414,328			234		—			—		87,266			—			—			—
	Net (loss)		—			—		—			—		—			—			(4,957	)		—
	Issuances of new common stock		—			—		1,610,889			16		(16	)		—			—			—
	Cancellation of old common stock		(23,414,328	)		(234	)	—			—		234			—			—			—
	Issuance of preferred stock		—			—		—			—		(62,481	)		—			—			—
	Foreign currency translation adjustment		—			—		—			—		—			—			—			(39	)
	Unrealized gain on securities available for sale																					393
	Preferred stock dividends		—			—		—			—		(3,091	)		—			—			—
	Cash buy back of new common stock		—			—		(25,650	)		—		(125	)		—			—			—
	Class 4 allowed claim settlements		—			—		—			—		(13,840	)		—			—			—
Balance, December 31, 2001			—		$	—		1,585,239		$	16	$	7,947		$	—		$	(4,957	)	$	354

KAISER GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)

			Year Ended December 31,
			Successor Company			Predecessor Company
			2001			2000		1999
Net Income (Loss)			$	(4,957	)	$	154,304	$	(5,924	)
Other Comprehensive Income (Loss)
	Foreign currency translation adjustments			(39	)		—		285
	Unrealized gain on securities, net of tax			393			—		—
	Reclassification for losses on foreign currency translation included in net income			—			3,102		—
		Total Comprehensive Income (Loss)	$	(4,603	)	$	157,406	$	(5,639	)

See notes to consolidated financial statements.

F-5

KAISER GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

						For the year ended December 31,
						Successor Company			Predecessor Company
						2001			2000			1999
						(in thousands, except share amounts)
Operating Activities
	Net income (loss)					$	(4,957	)	$	154,304		$	(5,924	)
	Adjustments to reconcile net income (loss) to net cash used in operating activities:
		(Gain) loss on sale of discontinued operations					—			7,669			(40,083	)
		Loss of discontinued operations, net of tax					10,197			2,966			6,113
		Income tax benefit					—			(39,521	)		—
		Reorganization items					—			(8,611	)		—
			Deferred taxes related to continuing operating activities				1,312			—			—
		Gain on stock demutualization					(5,856	)		—			—
		Impairment charge					1,100			—			—
		Extraordinary items					—			(124,542	)		600
		Equity in unconsolidated affiliate					(11,518	)
		Note receivable write-off					—			—			638
		Cash distributions in excess of (less than) earnings from consolidated affiliate companies					—			5,333			(347	)
		Depreciation and amortization					—			1,695			5,163
		Minority interest in net income of affiliate					—			5,999			5,184
		Changes in operating assets and liabilities, net of acquisitions and dispositions:
			Contract receivables, net				1,692			7,403			20,885
			Prepaid expenses and other current assets				1,018			(1,369	)		(126	)
			Accounts payable and accrued expenses				(5,909	)		7,680			(22,866	)
			Income taxes payable				1,035			(6,292	)		4,450
			Other operating activities				(831	)		1,364			—
				Net cash provided by (used in) continuing operating activities before claims resolution and reorganization items			(12,717	)		14,078			(26,313	)
				Distributions to allowed class 3 claim holders			(600	)		—			—
					Net Cash (Used in) Provided by Continuing Operating Activities Before Reorganization Items		(13,317	)		14,078			(26,313	)
					Net cash used in discontinued operations		—			(14,685	)		(33,142	)
					Net Cash Used In Operating Activities Before Reorganization Items		(13,317	)		(607	)		(59,455	)
	Reorganization items						—			8,611			—
		Adjustments to reconcile reorganization items to cash used by reorganization items:
		Revaluation of assets to fair value					—			(16,297	)		—
		Interest Income					—			(976	)		—
		Accrued reorganization expenses					—			3,859			—
		Net cash used in reorganization					—			(4,803	)		—
		Net cash used in operating activities after reorganization items					(13,317	)		(5,410	)		(59,455	)
Investing Activities
	Sales of subsidiaries						—			29,766			145,041
	Distributions from 50% owned affiliate						7,900			5,050			—
	Effect on cash resulting from deconsolidation of 50% owned investments						—			(5,243	)		—
	Purchases of fixed assets						—			—			(2,113	)
					Net Cash Provided by Investing Activities from Continuing Operations		7,900			29,573			142,928
					Net cash used in investing activities of discontinued operations		—			(153	)		(4,941	)
					Net Cash Provided by Investing Activities		7,900			29,420			137,987
Financing Activities
	Distribution of income to minority interest						—			(8,250	)		(3,300	)
	Borrowings under revolving credit facility						—			—			61,855
	Principal payments on revolving credit facility						—			—			(92,584	)
	Release of restricted cash						802			—			—
	Change in cash collateralized letters of credit						—			193			(12,595	)
	Extinguishment of Senior Notes						—			(1,000	)		(12,320	)
	Establishment of cash reserve for unresolved claims						(12,331	)		—			—
	Distribution to allowed class 4 claim holders						(13,065	)		—			—
	Repurchase of New Common stock pursuant to buy back						(125	)		—			—
	Payment of preferred stock dividends						(2,360	)		—			—
	Change in book overdraft						—			—			(8,395	)
					Net Cash Used in Financing Activities		(27,079	)		(9,057	)		(67,339	)
Effect of Exchange Rate Changes on Cash							—			—			(69	)
Increase (Decrease) in Cash and Cash Equivalents							(32,496	)		14,953			11,124
Cash and Cash Equivalents at Beginning of Period							41,344			26,391			15,267
Cash and Cash Equivalents at End of Period						$	8,848		$	41,344		$	26,391

See notes to consolidated financial statements.

F-6

KAISER GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Basis of Presentation

        Kaiser Group Holdings, Inc. is a Delaware holding company that was formed on December 6, 2000 for the purpose of owning all of the outstanding stock of Kaiser Group International, Inc. ("Old Kaiser") which in turn continues to own the stock of its remaining subsidiaries. On June 9, 2000, Old Kaiser and 38 of its domestic subsidiaries voluntarily filed for protection under Chapter 11 of the United States Bankruptcy Code in the District of Delaware (case nos. 00-2263 to 00-2301). Old Kaiser emerged from bankruptcy with an approved plan of reorganization (the Second Amended Plan of Reorganization (the "Plan")) that was effective on December 18, 2000 (the Effective Date). The Company is deemed a "successor issuer" to Old Kaiser by virtue of rule 12-g 3(a) under the Securities Exchange Act of 1934. References to the "Company" or "Kaiser Holdings" in this report refer to Kaiser Group Holdings, Inc. and its consolidated subsidiaries. A summary of the Plan for Old Kaiser can be found in a Current Report on Form 8-K dated December 5, 2000 filed by Old Kaiser.

        Currently, apart from resolving remaining bankruptcy claims, the Company has only a limited number of activities, assets and liabilities, primarily consisting of:

•

the ownership of a 50% interest in Kaiser-Hill Company, LLC ("Kaiser-Hill"), which serves as the general contractor at the U.S. Department of Energy's Rocky Flats Environmental Technology Site near Denver, Colorado, for the performance of a contract for the closure of the site. Kaiser-Hill has performed for the Department of Energy ("DOE") at this site since 1995 and in January 2000 was awarded a new contract to manage the closure of the site within this decade. Rocky Flats is a former DOE nuclear weapons production facility, and under the new closure contract, Kaiser-Hill is working to stabilize and safely store radioactive materials at the site and other locations, to clean up areas contaminated with hazardous and radioactive waste, and to restore much of the 6,000-acre site to the public. The Kaiser-Hill joint venture between Old Kaiser and CH2M Hill Companies, Ltd. was formed solely for the performance of the current and former Rocky Flats contracts. The level of success experienced by Kaiser-Hill in achieving closure of the Rocky Flats site and the cost of achieving such closure, are the primary determinants of the Company's long-term financial performance following the completion of the reorganization process.



•

the resolution and closeout of a completed contract for the engineering and construction of a steel mini-mill for Nova Hut in the Czech Republic ("Nova Hut project").



•

the holding of a minority ownership interest in ICF Consulting Group, Inc. ("ICF Consulting"), a division that Old Kaiser sold in 1999 as well as interest-bearing promissory notes and escrowed cash received in connection with that sale.



•

a wholly owned captive insurance company that is no longer issuing new policies and is simply involved in resolving remaining claims.



•

an ongoing obligation to fund a capped, post-employment medical benefit plan for a fixed group of retirees.

2.    Changes in Accounting Affecting Comparability of Financial Statements

        Adoption of Fresh-Start Reporting:    The Company adopted fresh start reporting in its consolidated balance sheet as of December 31, 2000. The American Institute of Certified Public Accountants' Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" (SOP 90-7), requires that under certain circumstances resulting from a bankruptcy, a new entity

F-7

is created for financial reporting purposes upon the emergence of that entity from bankruptcy. Accordingly, the value of the reorganized enterprise becomes the established amount for the emerging balance of shareholders' equity and any accumulated deficit of the predecessor entity is offset against available paid-in-capital to result in an emerging retained earnings of zero. Additionally, assets and liabilities are recorded at their fair values. Since the financial information as of and subsequent to December 31, 2000 has been prepared as if it is of a new reporting entity, a black line has been shown to separate new entity information from prior entity information on the Statements of Operations, Statements of Comprehensive Income (Loss), Statements of Shareholders' Equity and the Statements of Cash Flows since such presentations were not prepared on a comparable basis to the prior year. Financial information with regard to activity occurring prior to December 31, 2000 has been included in these Financial Statements marked as "Predecessor" and financial information with regard to activity as of December 31, 2000 and thereafter is marked herein as "Successor".

        The value of the emerged enterprise used for fresh start reporting as of December 31, 2000 was $87.5 million and was determined by management with the assistance of independent advisors. The methodology employed involved estimation of the enterprise value taking into consideration a discounted cash flow analysis. The discounted cash flow analysis was based on a seven-year cash flow projection prepared by management—taking into consideration the terminal value of its assets and liabilities as of immediately prior to its emergence from bankruptcy on December 18, 2000. Terminal values of assets and liabilities were determined based either on contracted amounts, actuarial present values and/or management's estimates of the outcome of certain operating activities. Net after-tax cash flows, assuming a 40% effective tax rate, were discounted at 17% in order to take into consideration the risks and uncertainties inherent in such projections. The cash flow projections were based on estimates and assumptions about circumstances and events that have not yet taken place. Estimates and assumptions regarding individual retained matters which form the collective composition of the overall enterprise value as of December 18, 2000 are inherently subject to significant economic and competitive uncertainties and contingencies beyond the control of the Company. Accordingly, there may be differences between projections and actual results because events and circumstances frequently do not occur as expected and may be significant. More specifically, assumptions within the valuation related to the amount and timing of the ultimate performance and related cash flows of the Company's investment in Kaiser-Hill have the greatest impact to the overall enterprise valuation.

        The adjustments that reflected the adoption of "fresh start" reporting, including the December 31, 2000 adjustments to record assets and liabilities at their fair market values, were reflected in the financial statements as a component of Reorganization Items. In addition, the Successor Company's opening balance sheet was further adjusted to eliminate existing equity and to reflect the aforementioned $87.5 million enterprise value.

        Investment in Kaiser-Hill:    Prior to June 8, 2000, through a designated majority representation on Kaiser-Hill Company, LLC's board of managers, the Company had a controlling interest in Kaiser-Hill and therefore consolidated Kaiser-Hill's results of operations with those of its only other remaining business segment, the Engineers and Constructors Group. Effective June 8, 2000, the Company adopted the equity method of accounting for Kaiser-Hill coincident with its signing of an agreement whereby the other 50% owner has the right to designate 3 out of the 5 members of Kaiser-Hill's board of managers. The Company retains the right to designate 2 out of the 5 members of Kaiser-Hill's board of managers. Accordingly, the financial information contained herein for Kaiser-Hill is reflected on a consolidated basis for all periods presented through June 8, 2000, and financial information for periods after June 8, 2000 is reflected on the equity method.

        The fee on the Kaiser-Hill closure contract, ranging from $150.0 to $460.0 million, is primarily based upon the actual costs to complete closure and the actual date of physical closure. Throughout 2001, Kaiser-Hill has reduced its estimated costs to complete. As of December 31, 2001, based upon costs and progress to date, Kaiser-Hill estimates it is on course to earn a $340.0 million fee, and

F-8

recorded additional earnings of $15.8 million as a change in estimate in the fourth quarter. This adjustment was comprised of a revenue increase of $47.8 million, offset by $32.0 million in contingency reserves, primarily related to uncertainty risks and the potential for safety related work delays.

        Discontinued operations:    Through several separate transactions in 1999 and 2000, the Company divested of the majority of its operating activities. The financial operations of the divested operations and non-divested engineering operations have been presented as "discontinued operations" for all periods presented.

3.    General Terms of Plan and Status of Bankruptcy Distributions

        The effectiveness of the Plan as of December 18, 2000 did not in and of itself complete the bankruptcy process. The process of resolving in excess of $500 million of claims initially filed in the Kaiser Group International bankruptcy process is ongoing. Old Kaiser objected to the majority of the unresolved claims, and if such claims are not settled via the objection or dispute resolution processes or other means, they will ultimately be heard and determined by the Bankruptcy Court. Once a claim is resolved with an amount due to the creditor, such portion of the claim is deemed to be an allowed claim by the Bankruptcy Court (an "Allowed Claim"). The Company cannot predict with accuracy when the claims resolution process will be complete or what the total amount of Allowed Claims will be upon completion.

        In very general terms, the Plan contemplated three basic classes of creditors:

•

Allowed "Class 3 claims" against the Old Kaiser bankruptcy estate—generally trade and similar creditors' claims of $20,000 or less—received cash for their claims.



•

Allowed "Class 4 claims", the largest class of claims against the Old Kaiser bankruptcy estate, is made up of creditor claims other than Class 3 claims and equity claims. Class 4 claims included holders of the former Kaiser Group International senior subordinated notes due 2003 ("Old Subordinated Notes"). Holders of allowed Class 4 claims received a combination of cash and Kaiser Holdings preferred and common stock in respect of their claims. Such holders received one share of preferred stock ("New Preferred") and one share of new common stock ("New Common") for each $100 of claims. However, the number of shares of New Preferred issued was reduced by one share for each $55.00 of cash received by the holder of an allowed Class 4 claim.



•

The third class of claims recognized in the Old Kaiser bankruptcy are equity claims, consisting of holders of former Kaiser Group International common stock ("Old Common") and other "Equity Interests" as defined in the Plan. Under the Plan, holders of Equity Interests will receive a number of shares of New Common of Kaiser Holdings equal to 17.65% of the number of shares of such common stock issued to holders of allowed Class 4 Claims. In the initial distribution, one share of Kaiser Holdings New Common was issued for each 96 shares of previously outstanding Old Common. Additional distributions of Kaiser Holdings New Common may be made in the future as additional shares of New Common are issued to holders of newly allowed Class 4 claims, if any. Apart from holders of former Kaiser Group International Old Common, the only holders of Equity Interests of which the Company is aware are the former shareholders of ICT Spectrum Constructors, Inc., a corporation acquired by merger with a subsidiary of Kaiser Group International in 1998. The Bankruptcy Court confirmed the equity nature of those claims.

        Pursuant to the terms of Old Kaiser's Plan, the Company was required to complete its initial bankruptcy distribution within 120 days of the effective date of the Plan. Accordingly, on April 17, 2001, the Company effected its initial distribution. At that time, there were approximately $136.8 million of Class 4 claims that had been allowed in the bankruptcy process. The amount of unresolved claims remaining at April 17, 2001 was approximately $130.5 million.

F-9

        To address the remaining unresolved claims, the Bankruptcy Court issued an order on March 27, 2001, establishing an Alternative Dispute Resolution ("ADR") procedure whereby the remaining claimants and Old Kaiser produce limited supporting data relative to their respective positions and engage in initial negotiation efforts in an attempt to reach an agreed claim determination. If necessary, thereafter, the parties are required to participate in a non-binding mediation before a mediator pre-selected by the Bankruptcy Court. All unresolved claims are subject to the ADR process. Since April 17, 2001, the date of initial distribution, $65.5 million of asserted claims have been withdrawn, negotiated or mediated to an agreed amount, resulting in cash payments approximating $0.8 million and no additional issuances of New Preferred or New Common. As of March 15, 2002, the amount of unresolved claims was approximately $65.0 million. The Company expects that substantial progress will continue to be made in the resolution of claims over the balance of 2002. The Company continues to believe that the amount of Class 4 claims ultimately to be allowed in the Kaiser Group International bankruptcy proceeding will not exceed $150.0 million. As depicted in the claim settlements completed since April 17, 2001, and based on the belief that it is in the best interest of the Company and its current stockholders, the Company has been settling certain remaining Class 4 claims entirely for cash payments in lieu of the combination of cash and new preferred and new common stock as contemplated in Old Kaiser's Plan of Reorganization. The Company intends to continue to use this settlement alternative during its resolution of remaining Class 4 claims, but obviously has no ability to determine the effect of the outcome on its overall financial condition in the event such settlements are accepted in the future.

        With respect to the unresolved claims, the Plan required that, at the date of the initial distribution, sufficient cash reserves were to be retained by the Company such that if all remaining unresolved claims were ultimately deemed allowed at the originally claimed amount, the Company would be able to satisfy the allowed claims, including dividends accruing on related preferred stock, since April 17, 2001. The cash reserve requirement and the fact that the Company had not yet received a substantial cash payment that the Company asserts it is due from the owner of the Nova Hut steel mini-mill in the Czech Republic (see Note 5), limited the amount of cash available at the time of the initial distribution to the holders of allowed Class 4 claims. The Company determined that an aggregate of $25.0 million, or approximately $0.09347 per $1.00 of Allowed and "deemed allowed" Class 4 claims, was available at the time of the initial distribution to Allowed Class 4 claim holders. Thus, more shares of New Preferred were issued than would have been had the claims resolution process advanced more quickly and had more cash been available from the Nova Hut project and/or other sources. Due to the proportion of remaining unresolved Class 4 claims in relation to the total of all resolved and unresolved claims, approximately $12.3 million of the $25.0 million in available cash was reserved on April 17, 2001.

        As discussed above, the exchange ratio of New Common for Old Common (1 new share for each 96 old shares) and the nature of the distribution of shares of common stock to holders of Class 4 claims resulted in there being a number of holders of a relatively small number of shares of New Common stock. Therefore, the Company initiated an offer to purchase all shares of New Common stock distributable to persons who received 99 or fewer shares in the initial distribution for a price equal to $4.50 per share. The offer expired on June 15, 2001 with 25,650 shares being repurchased by the Company under this plan for a total of $115,000.

        In the case of holders of Old Common, the offer to purchase shares was conditioned on the holder's agreement to also sell the holder's right to future distributions of shares of New Common under the Plan. The offer price for such distribution rights was $0.50 per share that would otherwise be distributed. This offer price was determined arbitrarily, based primarily on the Company's current expectation that future distributions of shares of New Common would not exceed 10% of the number of shares distributed at the present time. Holders who wished to sell their right to future distributions

F-10

had to also sell their shares of New Common. On June 15, 2001, the Company repurchased 20,002 rights under this plan for a total cost of $10,000.

4.    Significant Accounting Policies—Successor Company:

        Principles of Consolidation: The consolidated financial statements include all majority-owned or controlled subsidiaries. Investments in unconsolidated affiliated companies are accounted for using the equity method. The difference between the carrying value of the joint venture investment and the Company's underlying equity is amortized on a straight-line basis over the estimated term of the joint venture investment. All significant intercompany balances and transactions have been eliminated.

        Income Taxes: Deferred tax assets and liabilities represent the tax effects of differences between the financial statement carrying amounts and the tax bases carrying amounts of the Company's assets and liabilities. These differences are calculated based upon the statutory tax rates in effect in the years in which the differences are expected to reverse. The effect of subsequent changes in tax rates on deferred tax balances is recognized in the period in which a tax rate change is enacted. The Company evaluates its ability to realize future benefit from all deferred tax assets and establishes valuation allowances for amounts that may not be realizable.

        Earnings Per Share: Basic EPS is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. The weighted average shares outstanding for the year ended December 31, 2001 retroactively adjusts for the conversion of the Old Common to New Common effective with the adoption of fresh-start reporting. As additional distributions of Kaiser Holdings common stock are made to holders of newly allowed Class 4 claims, the conversion ratio of 96 shares may be adjusted to reflect the final total number of shares of New Common (as discussed in Note 3). Because Kaiser Holdings is assumed to be a new entity (as discussed in Note 1) periods prior to the adoption of fresh-start reporting have not been restated.

        Diluted EPS normally includes the weighted-average effect of dilutive securities outstanding during the period. Pursuant to the Company's Plan of Reorganization that was effective as of December 18, 2000, all then outstanding common stock equivalents were cancelled. Accordingly, no anti-dilutive information is presented herein.

        The effect of preferred dividends of $3.1 million has been included in continuing operations in the calculation of basic and diluted earnings per share for the year ended December 31, 2001.

        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 net of tax in shareholders' equity as cumulative translation adjustments.

F-11

        Cash Equivalents and Restricted Cash: The Company considers all highly liquid financial instruments purchased with maturities of three months or less at date of purchase to be cash equivalents. Restricted cash balances consisted of the following at December 31, (in thousands):

		2001		2000
	Letters of credit collateralized by cash	$	600	$	12,711
	Cash reserved for future claim settlements, less payments of cash claim settlements of $775		11,557		—
	Cash balances of wholly owned insurance subsidiary		2,852		2,729
	Escrowed cash		835		750
		$	15,844	$	16,190
Supplemental cash flow information for the year ended December 31, 2001, is as follows:
		2001
	Cash payments for interest	$	—
	Cash payments for income taxes		99
	Reclass of restricted cash to net assets of discontinued operations		11,100
	Non cash transactions:
	Retirement of Old Common		234
	Issuance of Preferred Stock		62,481
	Issuance of New Common		16

        Marketable Securities: In December 2001, the Company recorded a gain on the stock demutualization of a non-affiliated insurance company. The gain was calculated based upon the fair value of the securities on the date of the insurance company's initial public offering. These securities have been classified as available for sale on the balance sheet as of December 31, 2001 as management sold the securities in February 2002. Investments classified as available for sale are measured at fair value in the financial statements with unrealized gains and losses reported, net of tax, in other comprehensive income (loss).

        Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosed amounts of contingent assets and liabilities at the date of the financial statements, and the amounts of revenues and expenses recognized during the reporting period. Such estimates include those related to allowances for contract and notes receivable and accrued interest, deferred tax assets and valuation allowance, recoverability of net assets of discontinued operations and other investments, the amortization period for the excess value attributed to the Kaiser-Hill investment and the remaining Allowed Claims. Actual results could differ from those estimates.

        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.

        Reclassifications: Certain reclassifications have been made to the prior- period financial statements contained herein in order to conform them to the 2001 presentation.

F-12

5.    Net Assets of Discontinued Operations

        The components of the "Net Assets of Discontinued Operations" consist entirely of the carrying value of the net assets of the Nova Hut project and were as follows at December 31:

	2001			2000
Cash	$	6		$	276
Letter of credit cash collateral drawn by Nova Hut		11,100			—
Retained accounts receivable		21,274			20,631
Prepaid expenses and other current assets		1			9
Subcontractor retentions and other accounts payable		(6,276	)		(7,123	)
		26,105			13,793
Allowance for estimated loss		(20,105	)		(3,081	)
	$	6,000		$	10,712

        Although Old Kaiser sold its Metals, Mining and Industry business unit in August, 2000, it retained its Netherlands subsidiary, Kaiser Netherlands, B.V., which had been responsible for a turnkey engineering and construction services contract for the construction of a steel mini-mill in the Czech Republic for Nova Hut. After construction of the mini-mill was complete in 2000, the contract with Nova Hut provided for a maximum of three possible performance tests. The first performance test was completed on November 13, 2000. Kaiser Netherlands believes that the first performance test was successful and that Nova Hut should have agreed to final acceptance of the mini-mill and made final payment of amounts accrued by Kaiser Netherlands throughout the project. Rather, Nova Hut asserted that the first test was not successful. Kaiser Netherlands believes that such contention may have been put forth in response to severe financial constraints on Nova Hut's operations resulting from weakening conditions in the worldwide steel market and of the significant amounts that Kaiser Netherlands believed it was contractually due. To date, this dispute has not been resolved, and Kaiser Netherlands has resorted to legal proceedings to enforce its rights. The primary legal venue at this time is the Delaware bankruptcy proceeding for Kaiser Group International, where Kaiser has asserted claims against Nova Hut and the International Finance Corporation ("IFC"), while rejecting substantial claims involving contract breach from Nova Hut and the IFC. The litigation of this dispute, as well as the cost of a possible ongoing presence in Ostrava, Czech Republic, has had and may continue to have a negative impact on the cash flow of Kaiser Netherlands and Kaiser Holdings.

        Based on the Company's continued concern over Nova Hut's financial difficulties and the uncertainties of a settlement involving the bankruptcy court-sponsored mediation, the Company reduced the carrying value of the remaining Nova Hut project assets from $21.6 million to $6.0 million, in the fourth quarter of 2001, by recording a reserve of approximately $9.8 million, net of a $5.8 million income tax benefit, through a charge to "Loss from Discontinued Operations".

6.    Business Segments and Foreign Operations:

        Business Segments: The Company had no reportable segments at any time during 2001.

        Foreign Operations: Because all of the Company's international operations are presented in the accompanying Statements of Operations as "Discontinued Operations," all of the Company's reported gross revenue and operating income (loss) from continuing operations were from domestic sources. Remaining foreign assets consist solely of the carrying value of the net realizable value of the Nova Hut contract matter (See "Net Assets of Discontinued Operations" and "Other Contingencies").

F-13

7.    Joint Ventures and Affiliated Companies

        Prior to December 31, 2000, the Company had ownership interests in certain unconsolidated corporate joint ventures and affiliated companies. During 1999 and 2000, the Company divested of the majority of such investments (Note 17—Notes Applicable Solely to the Predecessor Company—Divestitures and Acquisitions). At December 31, 2001 and 2000, it retained a 50% investment in Kaiser-Hill (See Notes 1 and 2) and a 10% ownership in ICF Consulting. The Company's net investments in/or amounts due from this corporate joint venture and affiliated company totaled $29.2 million and $26.7 million at December 31, 2001 and 2000, respectively. The Company accounts for the Consulting Group investment using the cost method and for the Kaiser-Hill Company LLC investment using the equity method.

        ICF Consulting Group, Inc.: In 2001, the Company recorded a $1.1 million impairment charge related to this investment. The impairment charge was based on management's estimate of the potential proceeds available to the Company if this investment was liquidated.

        Kaiser-Hill: Summarized financial information of Kaiser-Hill Company was as follows as of December 31 (in thousands):

	2001		2000
Current assets	$	136,056	$	132,485
Non-current assets		17,441		430
Current liabilities		125,377		131,879
Non-current liabilities		12,800		—
Gross revenue		718,788		673,751
Net income		30,084		20,436

        Under Kaiser-Hill's contract with the DOE, Kaiser-Hill is not responsible for, and the DOE pays all costs associated with, any liability, including, without limitation, any claims 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 is responsible, but only for the incremental liability, expense, or remediation caused by Kaiser-Hill.

        The Kaiser-Hill contract further provides that Kaiser-Hill will be reimbursed for the reasonable cost of bonds and insurance allocable to the Rocky Flats contract and for liabilities and expenses incidental to these liabilities, including litigation costs, to third parties not compensated by insurance or otherwise. There is an exception to this reimbursement provision applicable to liabilities caused by the willful misconduct, lack of good faith or failure to exercise prudent business judgment by Kaiser-Hill's managerial personnel.

        With respect to a revolving credit facility obtained by Kaiser-Hill in November 1999, both parents of Kaiser-Hill granted a first lien security interest to the Kaiser-Hill lenders in all of the ownership and equity interest of Kaiser-Hill and have agreed to cure any events of default by Kaiser-Hill on the facility. As of December 31, 2001 and 2000, Kaiser-Hill had $0 and $6.0 million in cash balances outstanding on its revolving credit, respectively.

F-14

8.    Notes receivable

        Kaiser Holdings owns a 10% interest in ICF Consulting Group, Inc., a privately held entity that was retained by Old Kaiser when it sold its Consulting Group in June 1999. In connection with the sale, the Company accepted two promissory notes as part of the total consideration received. Principal payments on an escrowed and non-escrowed note, in the amounts of $3,250,000 and $3,300,000, respectively, are due June 25, 2006. The notes are subject to reduction in the event that certain divestiture-related contingencies are not resolved as originally anticipated in the related sale agreement. Amounts payable by ICF Consulting on such notes are subject to (1) the rights of holders of ICF Consulting's senior lenders and (2) possible reduction as a result of indemnification claims asserted by ICF Consulting pursuant to the agreements entered into by the parties at the time of Old Kaiser's sale of its Consulting Group. Initially as a result of a technical default of financial covenants in its senior credit agreement, ICF Consulting has not made interest payments on the notes since inception in 1999. The accrued amount of interest receivable was $1.7 million and $1.1 million as of December 31, 2001 and 2000, respectively. Under the terms of the notes, overdue interest bears interest at 12¹/2% per annum.

        Also resulting from the sale agreement, the Company is the beneficiary of an escrowed cash balance totaling $835,000 that is currently held as collateral in the event any applicable indemnification claims are made against the Company by ICF Consulting. On February 12, 2001, ICF Consulting presented the escrow agent with notice that it has claims for indemnification from the Company for amounts significantly exceeding the balance of the Escrowed Cash and the Escrowed Note. The Company has reviewed the indemnification claims and believes them to be largely without merit and will vigorously defend its right to be paid the escrowed funds upon their due dates, however there can be no assurance that the Company will be successful in this effort. In December 2001, ICF Consulting proposed a settlement offer to the Company that was far below the value of their claim. The Company rejected the ICF Consulting offer and proposed an alternative settlement that was also rejected by ICF Consulting. Based on the Company's perception of the lack of merit in the ICF Consulting claim, the Company may begin implementation of legal actions to defend the indemnification claim and to pursue the collection of escrowed cash and interest that it is due. Based on the developments in 2001, the Company deemed it prudent to establish a $1.0 million reserve, through a reduction of interest income, for uncertainties over the collectibility of the combined carrying value of the escrowed cash, the promissory notes and the interest receivable.

9.    Preferred Stock

        Kaiser Holdings certificate of incorporation authorizes the issuance of 2,000,000 shares of preferred stock. Resulting from its initial bankruptcy distribution on April 17, 2001 (see Note 3), the Company had $62.5 million in preferred stock outstanding at December 31, 2001. The preferred stock is a series of authorized preferred stock designated as "Series 1 Redeemable Cumulative Preferred Stock," and has a par value of $0.01 per share. The preferred stock ranks ahead of Kaiser Holdings' New Common Stock.

        The certificate of incorporation of Kaiser Holdings and Delaware law permit the Board of Directors to issue additional series of preferred stock, except that the Board of Directors may not authorize the issuance of any securities that rank senior to or on a parity with the Series 1 preferred stock without the consent of holders of at least two-thirds of such preferred stock.

        Cumulative dividends on the preferred stock are payable on a quarterly basis, as of April 30, July 31, October 31 and January 31, either in cash at an annual rate of 7% of the liquidation preference per share or in additional shares of preferred stock at an annual rate of 12% of the per share liquidation preference. Dividends accrue on the preferred stock coincident with the initial distribution date, April 17, 2001. Dividends will not be paid to any affiliate of Kaiser Holdings on

F-15

account of that affiliate's ownership of shares of preferred stock. If Kaiser Holdings fails to pay a quarterly dividend when due, holders of preferred stock will have the right to elect an additional director for each dividend payment missed, up to a maximum of two additional directors, but only until such dividend is paid or provided for in full. The dividend due to holders of record on January 31, 2002, totaling approximately $1.1 million, was paid on February 7, 2002. At December 31, 2001, in addition to the $10.0 million of cash reserves for unresolved claims, the Company had $1.6 million in cash reserved for the payment of accrued dividends on any future issuances of New Preferred issued as a result of remaining bankruptcy claims resolutions (any New Preferred issued as a result of claims resolutions also carries the right to dividends retroactively from April 17, 2001).

        The preferred stock has a liquidation preference of $55 per share plus the amount of unpaid dividends, if any. Upon the liquidation or dissolution of Kaiser Holdings, each holder of preferred stock (other than an affiliate of Kaiser Holdings) is entitled to this per share liquidation preference before any holders of New Common or any other junior securities of Kaiser Holdings receive any payment for their shares. If, in a liquidation or dissolution setting, assets remaining after distribution to holders of debt and other obligations are insufficient to pay all holders of preferred stock the per share liquidation preference, then such assets will be distributed on a proportionate basis to the holders of preferred stock (other than affiliates of Kaiser Holdings) and any securities ranking on a parity with the preferred stock.

        The Company has the option to redeem the New Preferred at any time, in whole or in part, at a redemption price of 100% of the liquidation preference per share plus all accrued and unpaid dividends. In addition, any net proceeds in excess of $3 million in a calendar year received by the Company or any of its direct or indirect subsidiaries from the disposition of assets to an unaffiliated party outside of the ordinary course of business must be used to redeem New Preferred at a redemption price of 100% of the liquidation preference per share plus all accrued and unpaid dividends. Furthermore, to the extent that any cash is received from Nova Hut, it must be used to redeem New Preferred at a redemption price of 100% of the liquidation preference per share plus all accrued and unpaid dividends.

        All outstanding shares of New Preferred are required to be redeemed by the Company on or before December 31, 2007, and if such redemption does not occur, holders of New Preferred will be entitled to elect two-thirds of the directors of the Company. If shares of preferred stock are held by any affiliate of the Company, those shares may not be redeemed pursuant to any of the redemption provisions otherwise applicable to the New Preferred.

        The Company will be required to offer to purchase the New Preferred at 100% of the liquidation preference per share plus all accrued and unpaid dividends in connection with a change of control of Kaiser Holdings.

        Holders of New Preferred generally are entitled to vote with holders of New Common Stock on all matters submitted to a vote of shareholders, with each share of preferred stock being entitled to one-tenth of a vote. In addition, holders of New Preferred have the right to vote separately as a class to exercise their right to elect an additional director due to a failure to pay a quarterly dividend, to elect two-thirds of the directors if the New Preferred is not redeemed by December 31, 2007, and to consent to the issuance of any senior or parity securities. The terms of the New Preferred may not be materially or adversely modified without the consent of holders of at least two-thirds of the New Preferred. If the Company or any of its affiliates holds any New Preferred, they will not be entitled to vote that New Preferred.

        The Plan provides that Major Stockholders (defined as holders of 10% or more of the outstanding shares of New Preferred or New Common, or a person who is an "affiliate" of Kaiser Holdings as defined under the Federal securities laws) have certain registration rights. In general, a Major Stockholder may request Kaiser Holdings to register under the Securities Act of 1933 for the sale of

F-16

all, but not less than all, of the New Preferred and/or New Common owned by the Major Stockholder. Upon request for such a registration from a Major Stockholder, Kaiser Holdings is required to give notice to other Major Stockholders and use its best efforts to cause a registration statement to become effective as expeditiously as possible and maintain such registration statement current for a period of 12 months. Major Stockholders are not entitled to request registration until one year after the Effective Date, and Kaiser Holdings is not obligated to file a registration statement in response to a request from a Major Stockholder until such time as Kaiser Holdings is eligible to use Form S-3 under the Securities Act of 1933 for such an offering. Kaiser Holdings is not required to effect more than one registration for Major Stockholders during any twelve-month period. These registration rights expire on December 31, 2007. The Plan also contemplates that Major Stockholders will have "piggyback" registration rights in connection with a proposed underwritten public offering of Kaiser Holdings New Common or New Preferred solely for cash and for its own account.

Kaiser Government Programs, Inc.'s ("KGP") Put Rights

        KGP is the Company subsidiary that owns the 50% interest in Kaiser-Hill Company LLC. KGP has outstanding put rights, expiring on December 31, 2007, that obligate it to purchase New Preferred owned by a holder of the put right, at the holder's option, under three circumstances:

•

if KGP receives net after-tax proceeds from any cash distributions from Kaiser-Hill that, on a quarterly basis, exceed 2.8 times the amount of cash required to pay all past accrued but unpaid cash dividends on the New Preferred distributed to holders of Old Subordinated Notes pursuant to the Plan, plus the next scheduled quarterly cash dividend on preferred stock;



•

if KGP receives net after-tax proceeds from any direct or indirect disposition of any interest in Kaiser-Hill; or



•

if KGP receives net after-tax proceeds from an extraordinary distribution from Kaiser-Hill.

        Upon exercise of a put, KGP will pay an exercising holder 100% of the liquidation preference of the preferred stock that is the subject of the KGP put rights, plus all accrued and unpaid dividends on the preferred stock. KGP will purchase shares of preferred stock on a pro rata basis based upon the number of shares of preferred stock as to which puts have been properly exercised, but only up to the amount of the available net after-tax proceeds from triggering events. KGP will not purchase any fractional shares. KGP put rights will not become exercisable more frequently than every 12 months unless the cumulative amount of available net after-tax proceeds from triggering events is at least $3 million. KGP put rights are transferable except that puts shall cease to be transferable if KGP determines that any further transfer would require registration of the puts as a class of securities under the Securities Exchange Act of 1934. Kaiser Holdings does not presently plan to arrange for trading of the KGP put rights on the NASD electronic bulletin board or otherwise.

10.    New Common Stock

        The Kaiser Holdings certificate of incorporation authorizes the issuance of 3,000,000 shares of New Common Stock. Pursuant to the Company's Plan, holders of Allowed Class 4 Claims and Allowed Class 5 Equity Interests are to receive shares of New Common Stock under the Plan.

        In connection with its initial distribution out of bankruptcy on or about April 17, 2001, Kaiser Holdings issued to holders of Allowed Class 4 Claims one share of New Common for each $100.00 of such holder's respective Allowed Class 4 Claim. There have been no additional issuances of common stock subsequent to April 17, 2001 related to the settlement of claims.

        Holders of Allowed Class 5 Equity Interests received their pro rata portion of New Common representing 15% of the aggregate amount of New Common to be outstanding following distributions to holders of Allowed Class 4 Claims and Allowed Class 5 Equity Interests. This outcome was accomplished by issuing to each holder of an Allowed Class 5 Equity Interest its pro rata portion of the number of shares of New Common that represents 17.65% of the total number of shares of New Common issued from time to time to holders of Allowed Class 4 Claims.

F-17

        All shares of New Common, at issuance, were duly authorized, fully paid and non-assessable. The holders of such shares will have no preemptive or other rights to subscribe for additional shares. The New Common has a par value of $0.01 per share. Based on its current estimates of the aggregate amount of Allowed Class 4 Claims and cash available for distribution, Kaiser Holdings expects to ultimately issue approximately 1,764,750 shares of New Common to holders of Allowed Class 4 Claims and Allowed Class 5 Equity Interests.

        Old Kaiser never paid cash dividends on its Old Common. Kaiser Holdings anticipates that for the foreseeable future no cash dividends will be paid on the New Common and that Kaiser Holdings' earnings will be utilized to redeem New Preferred or retained for use in the business. The Board of Directors of Kaiser Holdings will determine its dividend policy based on its results of operations, payment of dividends on, and redemption of, New Preferred, financial condition, capital requirements, and other circumstances.

11.    Leases

        The Company has no capital leases or any material noncancelable operating leases with initial or remaining terms in excess of one year at December 31, 2001. The total rental expense for all operating leases was $628,000 during the year ended December 31, 2001.

12.    Income Taxes

        The components of net income (loss) used to compute the (expense) benefit for income taxes for the years ended December 31 were as follows (in thousands):

			Successor Company			Predecessor Company
			2001			2000		1999
Income (loss) from continuing operations before income taxes and minority interests:
	Domestic		$	7,657		$	6,875	$	(35,260	)
	Foreign			—			—		—
			$	7,657		$	6,875	$	(35,260	)
(Expense) benefit for income taxes:
	Federal:
		Current	$	(809	)	$	32,839	$	1,021
		Deferred		(1,222	)		—		—
				(2,031	)		32,839		1,021
	State:
		Current		(296	)		6,682		—
		Deferred		(90	)		—		129
				(386	)		6,682		129
	Foreign:
		Current		—			—		—
		Deferred		—			—		—
			$	(2,417	)	$	39,521	$	1,150

F-18

        The effective income tax (expense) benefit varied from the federal statutory income tax (expense) benefit because of the following differences (in thousands):

		Successor Company			Predecessor Company
		2001			2000			1999
Income tax (expense) benefit computed at federal statutory tax rate		$	2,604	)	$	(2,338	)	$	11,988
Change in tax (expense) benefit from:
	Benefit (use) of previous net operating losses		—			8,942			—
	Reversal of excess accruals		—			3,784			—
	Minority interest earnings		—			2,040			1,763
	State income taxes		(255	)		4,410			85
	Valuation allowance		886			26,675			(12,494	)
	Stock redemption		—			(1,390	)		(76	)
Business meals and entertainment			(35	)		(18	)		(12	)
Restructuring costs			(41	)		—			—
Penalties and fines			(121	)		—			—
Lobbying costs			(51	)		—			—
Reversals and other			(196	)		(2,584	)		(104	)
			187			41,859			(10,838	)
		$	(2,417	)	$	39,521		$	1,150

        The tax effects of the principal temporary differences and carryforwards that give rise to the Company's net deferred tax asset are as follows (in thousands):

	Successor Company
	2001			2000
Net operating loss carryforwards	$	—		$	9,522
Reserves for adjustments and allowances		12,603			6,026
Vacation and incentive compensation accruals		—			321
Tax credit carryforwards		—			2,693
Investment in Kaiser-Hill		(5,037	)		(5,281	)
Write-down of other investments		418
Unrealized gain on marketable securities		(2,466	)		—
Other		267			(75	)
		5,785			13,206
Valuation allowance		—			(13,206	)
	$	5,785		$	—

        The ability to derive future benefit from the elements contributing to the deferred tax asset at December 31, 2001 is dependent on the Company's ability to generate sufficient taxable income prior to expiration. Additionally, in December 2000 the Company went through a change in control under Internal Revenue Code Section (IRC) 382 due to the Chapter 11 bankruptcy reorganization. In September 2001, the Company determined that the change in control met the stringent guidelines of the bankruptcy exception provided under the Internal Revenue Code. This resulted in the Company not being subject to the carryforward limitations of IRC Sec. 382. However, the Company was required to reduce certain carryovers that included net operating losses and credits. As a result, the Company offset the reduction of the carryforwards with the valuation allowance previously established for those carryforwards in the income tax rate reconciliation shown above. If a second change in control under IRC Sec 382 occurs before the end of December 2002, certain elements of the net deferred tax asset may be significantly limited. The Company believes that a second change in control is unlikely to occur

F-19

and the results of its future operations will be sufficient to assure utilization of the tax benefit prior to expiration. Therefore, the remaining valuation allowance has been reversed.

13.    Retiree Benefits Plans

        Post Employment Benefit Plan: As of December 31, 2001 the Company is required to continue to fulfill the provisions of a previously curtailed plan which provides certain medical and dental benefits to a group of retirees. A portion of the benefit is fully insured and a portion is covered by the Company's self-insurance. In respect to the retirees covered by the self-insured plan, the benefits are funded to an insurance company as participants' insurance claims are reimbursed. The Company is considering changing elements of this plan coverage.

        The benefit cost for this curtailed plan for the years ended December 31 consisted of the following (in thousands):

	2001		2000		1999
Interest cost.	$	505	$	412	$	315
Amortization of transition obligation.		—		980		980
Amortization of unrecognized net (gain)		—		—		(627	)
Adjustment for fresh-start accounting due to changes in actuarial assumptions		—		4,084		—
Adjustment for fresh-start accounting due to changes in unrecognized gain and unamortized transition obligation.		—		726		—
Net benefit charge	$	505	$	6,202	$	668

        Because there are no new participants in this plan, there is no current service cost. The change in the status of the plan as of December 31 was as follows (in thousands):

		Successor Company			Predecessor Company
		2001			2000			1999
Benefit obligation at January 1,		$	7,982		$	3,998		$	4,879
	Service cost		—			—			—
	Interest cost		505			412			315
	Benefits paid		(1,014	)		(512	)		(688	)
	Actuarial (gain) loss		979			4,084			(508	)
Benefit obligation at December 31,			8,452			7,982			3,998
	Unamortized transition obligation		—			—			(7,507	)
	Unrecognized net gain (loss)		(979	)		—			5,801
Net benefit obligation at December 31,		$	7,473		$	7,982		$	2,292

        The discount rate used in determining the expense was 6.5% for 2001, 6.8% for 2000 and 7% for 1999. Pursuant to the terms of the plan obligations, changes in medical cost trend rates have no financial impact on the actuarial valuation as the cost of the benefit to the participant has exceeded the Company's commitment. At December 31, 2001, there is a $979,000 unrecognized loss related to changes in actuarial assumptions. This loss will be amortized over five years.

        The unamortized portion of the original transition obligation at December 18, 2000, of $6,527,000, and the unrecognized net gain of $5,801,000 were collectively recognized as a net $726,000 charge to the Statement of Operations as a result of adopting fresh start accounting upon emergence from bankruptcy (See Note 2). Also in connection with the adoption of fresh-start accounting, the Company revised certain actuarial assumptions used in determining the Accumulated Plan Benefit Obligation at December 18, 2000, resulting in an increase to the APBO of over $4.0 million. The Company has

F-20

included this charge in Reorganization Items in the accompanying Statement of Operations. Previously, transition balances were being amortized over 14.5 years.

14.    Benefits and Compensation Plans

        In 2001, the Company discontinued the majority of its previously sponsored employee benefit plans. The Company did continue to sponsor a 401(k) Plan that allowed employees to defer portions of their salary, subject to certain limitations. Total expense for this plan for the year ended December 31, 2001 was $387,000.

15.    Other Contingencies

        Kaiser Holdings has various obligations and liabilities from its continuing operations, including general overhead expenses in connection with maintaining, operating and winding down the various entities and net assets comprising Kaiser Holdings.

16.    Selected Quarterly Financial Information (Unaudited)

For the year ended December 31, 2001 (Successor):		Fourth Quarter			Third Quarter			Second Quarter			First Quarter
Gross Revenue			—			—			—			—
Service Revenue			—			—			—			—
Operating Income (Loss)			(1,949	)		(2,240	)		(2,864	)		(3,739	)
Income (loss) from continuing operations before income tax			6,080			1,032			500			45
Income (loss) from continuing operations			5,478			231			(495	)		26
Loss from Discontinued Operations, net of tax			(9,779	)		(51	)		(367	)		—
Net income (loss)			(4,301	)		180			(862	)		26
Preferred stock dividends			(1,102	)		(1,102	)		(887	)		—
Net Income (Loss) Applicable to Common Shareholders			(5,403	)		(922	)		(1,749	)		26
Basic and Diluted Earnings (Loss) Per Common Share:
	Continuing operations, net of tax	$	3.64		$	(0.55	)	$	(1.28	)	$	0.11
	Discontinued operations, net of tax		(8.74	)		(0.03	)		(0.34	)		—
	Net Earnings (Loss) Per Common Share	$	(5.10	)	$	(0.58	)	$	(1.62	)	$	0.11

Year Ended December 31, 2000 (Predecessor):		Fourth Quarter			Third Quarter			Second Quarter			First Quarter
Gross revenue		$	—		$	—		$	99,595		$	171,790
Service revenue			1,327			2,121			30,251			46,267
Operating income (loss)			2,785			(2,506	)		(1,809	)		5,524
Net income (loss) from continuing operations before discontinued operations and extraordinary items			42,938			5,959			(5,831	)		(2,669	)
Income (loss) from discontinued operations			(2,752	)		(10,190	)		1,964			343
	Net income (loss) before extraordinary items		40,186			(4,231	)		(3,867	)		(2,326	)
Net income (loss)			164,763			(4,266	)		(3,867	)		(2,326	)
Basic and fully diluted per share amounts for:
	Income (loss) before discontinued operations and extraordinary items	$	1.84		$	0.26		$	(0.25	)	$	(0.11	)
	Discontinued operations		(0.12	)		(0.44	)		0.09			0.01
	Income (loss) before extraordinary items		1.72			(0.18	)		(0.16	)		(0.10	)
Extraordinary item			5.35			—			—			—
	Net income (loss)	$	7.07		$	(0.18	)	$	(0.16	)	$	(0.10	)

F-21

17.    Notes Applicable Solely to the Predecessor Company

Significant Accounting Policies

        Principles of Consolidation:    The consolidated financial statements include all majority-owned or controlled subsidiaries. Investments in unconsolidated affiliated companies were accounted for using the equity method. All significant intercompany balances and transactions were eliminated.

        Due to the sale of the majority of Old Kaiser's operations and the reporting of those operations as discontinued in the accompanying Statement of Operations for all periods presented, all remaining components of reported revenue and gross margin are solely attributable the Company's 50% ownership of Kaiser-Hill. Prior to June 8, 2000, through a designated majority representation on Kaiser-Hill's board of managers, the Company had a controlling interest in Kaiser-Hill and therefore consolidated Kaiser-Hill's results of operations with those of its only other remaining business segment, E&C. Effective June 8, 2000, the Company adopted the equity method of accounting for Kaiser-Hill coincident with its signing of an agreement whereby the other 50% owner has the right to designate 3 out of the 5 members of Kaiser-Hill's board of managers. The Company retains the right to designate 2 out of the 5 members of the Kaiser-Hill board of managers. Accordingly, the financial information contained herein for Kaiser- Hill is reflected on a consolidated basis for all periods presented through June 8, 2000, and on the equity basis for financial information applicable for periods after June 8, 2000.

        Fresh-start Reporting and Reorganization Items:    Effective December 18, 2000, the Company adopted the fresh start provisions of AICPA Statement of Position 90-7, Reporting by Entities in Reorganization Under the Bankruptcy Code, (SOP 90-7). As of such date, the Company estimated that the sum of the claims to ultimately be allowed in the bankruptcy proceedings, plus remaining liabilities incurred after June 9, 2000, would exceed the reorganization value of the emerging entity. Additionally, holders of existing voting equity securities immediately before confirmation would receive less than 50 percent of the voting equity securities of the emerged entity thus triggering a change in control. Under these circumstances, SOP 90-7 called for a new reporting entity to be created and assets and liabilities to be recorded at their then current fair values. This accounting treatment is referred to in these statements as fresh-start reporting. The income statement effect of the adjustments to the previous carrying value of various assets and liabilities has been reported in the Statements of Operations as Reorganization Items. Reorganization Items as reported on the accompanying Statements of Operations consist of the net charges made during the period with respect to matters involving the bankruptcy. For the year ended December 31, 2000, Reorganization Items consisted of the following (in thousands):

Professional fees	$	4,827
Severance & retention amounts		2,776
Interest earned on excess cash balances		(976	)
Adjustment of accounts to fair value for fresh-start reporting		(15,238	)
	$	(8,611	)

        Revenue Recognition:    Prior to the divestiture of the majority of its operations, the Company's revenue was derived primarily from long-term contracts of various types. Revenue on time-and-materials contracts was recognized based on actual hours delivered times the contracted hourly billing rate, plus the costs incurred for any materials. Revenue on fixed-priced contracts was recognized using the percentage-of-completion method and is comprised of the portion of expected total contract earnings represented by actual costs incurred to date as a percentage of the contract's total estimated costs at completion. Revenue on cost-reimbursable contracts was recognized to the extent of costs incurred plus a proportionate amount of the contracted fee. Certain cost- reimbursable contracts also include provisions for earning performance-based incentive fees. Such incentive fees are

F-22

included in revenue at the time the amounts can be reasonably determined. Provisions for anticipated contract losses are recognized at the time they become estimable.

        Foreign Currency Translation:    Results of operations for foreign entities were translated using the average exchange rates during the period. Assets and liabilities were translated to U.S. dollars using the exchange rate in effect at the balance sheet date. Resulting translation adjustments were reflected net of tax in shareholders' equity (deficit) as cumulative translation adjustments. The balance of the cumulative translation adjustment was realized in connection with the 2000 sales of the E&C Group.

        Supplemental cash flow information for the years ended December 31, is as follows:

		2000		1999
Cash payments for interest		$	90	$	21,065
Cash payments for income taxes			2,171		820
Non-cash transactions:
	Issuance of common stock		—		44
	Reacquisition of common stock		—		(1,254	)
	Acquisition of promissory note in exchange for sale of a discontinued operation		—		6,550

        Capitalized Software Development Costs:    Certain costs, including consulting expenses and internal labor, incurred to develop major software applications for internal Company use were capitalized and amortized over the estimated useful or economic lives of the software, respectively. Since the Company divested of the majority of its operations during 2000 and no longer had utility for the carrying value of the capitalized software assets, these capitalized costs were written off in connection with the Company's adoption of fresh start accounting as of December 18, 2000. Certain elements of capitalized software were also sold as part of the asset divestitures in 1999. As of December 31, 1999, a total of $2.3 million remained capitalized with an accumulated amortization balance of $0.7 million. Amortization expense of $0.3 million and $0.3 million was recognized during 2000 and 1999, respectively.

        Goodwill:    Goodwill represented the excess of cost of acquired businesses over the fair value of the identifiable net tangible and intangible assets acquired. Goodwill was amortized using the straight-line method over the period for which the Company estimated it would benefit directly from the acquisitions. The range of estimated benefit from the Company's historical acquisitions ranged from five to forty years. The Company periodically evaluated these ranges and the recoverability of goodwill by comparing the estimated future undiscounted operating cash flows for each underlying acquisition to the respective carrying value of goodwill. The Company's remaining goodwill was written off during 2000 as a result of its sale of the remainder of its E&C Group. Accumulated amortization was $8.1 million at December 31, 1999.

        Income Taxes:    Deferred tax assets and liabilities represented the tax effects of differences between the financial statement carrying amounts and the tax bases carrying amounts of the Company's assets and liabilities. These differences were calculated based upon the statutory tax rates in effect in the years in which the differences were expected to reverse. The effect of subsequent changes in tax rates on deferred tax balances was recognized in the period in which a tax rate change was enacted. The Company evaluated its ability to realize future benefit from all deferred tax assets and established valuation allowances for amounts that may not have been realizable. Unless otherwise noted, provisions were not made for U.S. income taxes for the undistributed earnings of the Company's foreign subsidiaries because the Company intended to reinvest such earnings in continuing operations indefinitely.

F-23

        Concentrations of Credit Risk and Major Customers:    The Company maintained cash balances primarily in overnight Eurodollar deposits, investment-grade commercial paper, bank certificates of deposit, and U.S. government securities. The DOE, through the Kaiser-Hill joint venture, accounted for approximately 100% of Kaiser's consolidated gross revenue for the years ended December 31, 2000 and 1999, respectively (all other operating results were presented as "Discontinued Operations" on the Statement of Operations.)

Restructuring Plan

        Over the past few years, the Company implemented various restructuring plans. Restructuring charges recognized in 2000 and 1999 were $1.9 million and $14.4 million, respectively. The components of the charges included costs incurred for involuntary employee severance, facility closure costs associated with closing of marginally profitable office locations, and costs to cease certain operating activities. Employee severance costs reflected a 25% personnel reduction or approximately 250 employees of the Company's wholly owned North American operations and lesser percentage reductions in international operations. Facility closure and related costs included disposal costs of equipment, lease restructuring payments, brokers fees and lease termination costs.

        Restructuring initiatives undertaken as part of the 1999 and 1998 plans were largely completed prior to December 31, 1999, consistent with the Corporation's original plans and intentions. While related actions were originally intended to improve the Company's competitive position, there were no assurances as to their ultimate success or that additional restructuring actions would not be required. This type of restructuring activity, for periods prior to the Company's filing Chapter 11 on June 9, 2000, has been summarized as Restructuring Charges on the Consolidated Statement of Operations during the years ended December 31, 2000 and 1999 and consisted of the following:

		Balance January 1,		Provisions		Uses		Balance December 31,
2000
	Facility downsizing/consolidation	$	355	$	1,915	$	2,270	$	—
		$	355	$	1,915	$	2,270	$	—
1999
	Severance	$	4,499	$	2,211	$	6,710	$	—
	Investment/goodwill impairments		—		3,855		3,855		—
	Debt restructuring activities		—		3,690		3,690		—
	Divestiture activities		700		1,335		2,035		—
	Contingency settlements		—		1,893		1,893		—
	Facility downsizing/consolidation		855		1,400		1,900		355
		$	6,054	$	14,384	$	20,083	$	355

F-24

Divestitures and Acquisitions

        Divestitures: Pursuant to a restructuring plan, the Company divested of several operating units in 1999 and 2000. The intention to divest of certain operating units qualified the related units as discontinued operations for financial reporting purposes.

•

The Engineering & Construction Group's Sale of the Infrastructure and Facilities Division: The Bankruptcy Court approved the sale of the Infrastructure and Facilities line of business on July 17, 2000. On July 28, 2000, Kaiser completed the sale of its Infrastructure and Facilities line of business, which provided engineering services to clients around the world in the transit and transportation, facilities management, water/wastewater treatment, and microelectronics and clean technology sectors. In this transaction, substantially all of the assets of this business were sold to Tyco Group S.A.R.L., the Earth Tech unit of Tyco International Ltd., for a cash purchase price of $30 million.



•

The Engineering & Construction Group's Sale of the Metals, Mining and Industry Division: The Bankruptcy Court approved the sale of the Metals, Mining and Industry line of business on August 17, 2000. Effective as of August 18, 2000, the Company completed the sale of its Metals, Mining and Industry line of business, which provided engineering services to clients around the world in the alumina/aluminum, iron and steel, and mining industry sectors. In this transaction, substantially all of the assets of this business were sold to Hatch Associates, Inc., a subsidiary of The Hatch Group of Canada, for a cash purchase price of $7.0 million.



•

In 2000, the Company recognized a pretax loss for financial reporting purposes of approximately $(0.7) million. After adjusting this loss for items that are not deductible for federal income tax purposes, such as associated goodwill and intangible asset write-offs totaling $19.2 million, the transactions resulted in income tax expense of approximately $7.0 million, resulting in a total loss after tax for financial reporting purposes of approximately $(7.7) million from the collective sales.



•

Environment and Facilities Management Group ("EFM"): On April 9, 1999, the Company sold the majority of the active contracts and investments, and transferred a substantial number of employees of EFM to IT Group, Inc. ("IT") for a cash purchase price of $82.0 million, less $8.0 million retained by IT for EFM's working capital requirements. Contracts that were not sold to IT were completed by the Company as of December 31, 1999. Net of income tax expense of $24.5 million, the Company recognized a gain of $12.0 million from the sale.



•

Consulting Group: On June 30, 1999, the Company sold 90% of its Consulting Group (the "Consulting Group") to CM Equity Partners, L.P. and the Consulting Group's management for $64.0 million in cash and $6.6 million in interest bearing notes. The Company retained 10% ownership (Note 7) in the new and independent consulting company, now known as ICF Consulting Group, Inc. Net of income tax expense of $11.2 million, the Company recognized a gain of $30.3 million from that sale.

        The operating results of the E&C, EFM and Consulting Groups prior to divestiture have been segregated from the Predecessor Company's continuing operations and are reported as a separate line

F-25

item on the Statement of Operations for all periods presented. Details of the net operating results are as follows:

		2000			1999
Gross Revenue		$	158,724		$	311,382
	Subcontracts and materials		(97,210	)		(154,098	)
	Provision for contract losses		—			—
	Equity in net income of unconsolidated affiliates		1,275			4,480
Service Revenue			62,789			161,764
Operating Expenses:
	Direct Labor and fringe		40,606			94,029
	General and administrative		23,225			67,094
	Depreciation & amortization		1,030			2,619
Operating (Loss)			(2,072	)		(1,978	)
Income tax benefit (expense)			(894	)		(4,135	)
(Loss) from discontinued operations		$	(2,966	)	$	(6,113	)

        The segment operating results include all activities that had sole direct benefit to the respective segment. Operating activities that are deemed to benefit more than one segment were managed by the Company and were not allocated to the segments. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies.

        Sale of EDA, Inc. (EDA): Additionally, in August of 1999, the Company sold the majority of the active contracts and transferred selected assets and liabilities associated with this business to Railplan International, Inc. for approximately $1.2 million in cash. The Company recognized a book loss of $2.2 million, net of income tax of $0.1 million, primarily as a result of the write- off of goodwill associated with this entity, which comprises a portion of the total gain on sale of discontinued operations on the Consolidated Statement of Operations.

        Acquisitions: In December, 1999, the Company and the non-employee former shareholders of ICT Spectrum agreed to amend the applicable agreements in a manner that had the result of reducing the amount of the taxable gain created by former shareholder- employees' involuntary departures from the Company. As permitted by the agreement, the shareholders agreed to allow the Company to retain some of the vested shares as payment of the income tax withholding in lieu of cash. In total, the Company retained 255,669 shares and recorded the transaction as a $1.37 million reduction of goodwill and paid-in-capital.

Receivables

        Receivables as of December 31, 2000 consisted of $3.1 million currently due less an allowance of $1.4 million.

        Certain former members of senior management had notes outstanding to the Company for which 396,849 shares of the Company's common stock served as the primary collateral, accordingly the notes were presented as a reduction of total stockholder's equity. The remaining management with such notes left the employment of the Company in 1999 and the related amounts of note principal in excess of the then fair market values of the collateral shares totaling $638,000 were expensed in 1999.

Debt History

        On December 18, 2000, the effective date of the Company's Plan, the $125.0 million in outstanding Senior Subordinated Notes, plus accrued interest at 13% thereon from January 1 to June 9, 2000,

F-26

became an Allowed Class 4 Claim in Old Kaiser's bankruptcy. The Plan provided that the Indenture for the Senior Subordinated Notes was cancelled as of the Plan effective date. Therefore, as of December 18, 2000, the Senior Subordinated Notes no longer represented a debt obligation of Old Kaiser.

        Also, during 2000, the holders of the Senior Subordinated Notes were offered the opportunity to have a right to "put" their New Preferred Stock (expected to be received pursuant to their claim and the terms of the Company's Plan or Reorganization) to Kaiser Government Programs, Inc. (the indirect 100% owner of Old Kaiser's 50% interest in Kaiser-Hill Company LLC) ("KGP"). This opportunity was offered in exchange for the surrender of any remaining rights held by holders of the Senior Subordinated Notes as of August 14, 2000 under a guarantee previously issued by KGP. The exchange offer by KGP expired on November 15, 2000, and the holders of $124,303,000, or 99.4%, principal amount of the Senior Subordinated Notes accepted the exchange offer.

        As of December 31, 2000, outstanding Old Subordinated Notes represented the right to receive (1) cash, New Preferred Stock and New Common Stock distributable under the Plan and (2) to the extent the holder of an Old Subordinated Note accepted the KGP exchange offer, or is a direct or indirect transferee from a holder of Old Subordinated Notes who accepted the KGP exchange offer, the appropriate number of KGP put rights. The carrying value of unamortized issuance costs and original issue discount of $1.4 million and $1.3 million, respectively, at December 18, 2000 were written off as part of the extraordinary gain of $124.5 million recognized from the debt forgiveness in bankruptcy.

        Background to the Debt Restructuring: Given significant uncertainties beginning in 1998, relative to the costs of completing the large fixed price projects that worsened the Company's financial condition beginning in 1998 and the inability to finitely determine the impact of the losses on the Company's liquidity and financing sources, management immediately pursued options for additional financing sources and flexibility. In addition to seeking a replacement working capital facility, the Company's Board of Directors also began considering and pursuing other strategic alternatives, including, but not limited to, the sale of portions of the Company. On December 18, 1998, the Company successfully entered into a new revolving credit facility (the Revolver) which offered cash borrowings and letters of credit up to an aggregate of $60 million. Proceeds totaling $25,000,000 from the Revolver were used to repay all outstanding amounts from the former revolving credit facility and the Company wrote off the unamortized balance of the capitalized costs related to the debt facility and recognized an extraordinary charge of $1.1 million, net of tax of $0.5 million.

        After obtaining the Revolver, the Company again increased the estimate of the total nitric acid projects cost overruns it expected to incur by an additional $19 million. This unanticipated material adverse change to the Company's financial condition triggered a technical event of default pursuant to the Revolver's terms. On April 9, 1999, the Company completed the sale of its EFM Group and used $36 million of the sale proceeds to extinguish the outstanding Revolver cash borrowings. The remaining applicable terms of the Revolver, essentially letter of credit provisions, expired on June 30, 1999—concurrent with the Company's completion of the sale of its Consulting Group. A charge of $0.8 million, net of income taxes of $0.5 was recognized for the write off of the unamortized balance of capitalized costs incurred to originally obtain the facility. Also in connection with the expiration of the Revolver, the Company was required to use $10.0 million of the asset sale proceeds to collateralize certain contract performance guarantee letters of credit that had been outstanding under the expired facility.

        On October 9, 1999, the Company used proceeds from completed asset sales to repurchase $14.0 million of its $15.0 million in outstanding Senior Notes for 88% of their face value. The Company also paid the accrued interest on the repurchased notes. After adjusting the amount of the repurchase discount by the write off of the unamortized issue discount on the notes and the

F-27

unamortized balance of capitalized costs incurred to originally issue the notes, the net gain on the repurchase was $0.2 million after related income taxes of $0.1 million.

        Consummation of an approved debt restructuring plan (detailed elements of the debt restructuring plan are more fully described in Amendment No. 3 to the Form S-4 Registration Statement filed with the Securities and Exchange Commission on October 1, 1999) remained conditioned on the Company's ability to obtain a new bank revolving credit facility satisfactory to the Company and an unofficial committee of the Senior Subordinated Noteholders. The proposals ultimately received from potential lenders did not provide the Company with the necessary level of liquidity and contained provisions that were not compatible with the Company's short and long-term operating needs. Therefore, based on the inability to obtain an acceptable credit facility and on continued financial underperformance of its E&C Group, on December 31, 1999, the Company paid the scheduled interest payment on the $126.0 million in remaining notes and announced that it would delay implementation of the proposed debt restructuring and re-open negotiations with its noteholders and potential lenders regarding modifications to the debt restructuring plan. On June 9, 2000, the Company voluntarily filed for Chapter 11 protection (See Note 1).

        Original Terms of Senior Notes: The 12% Senior Notes (Senior Notes) were due in 2003. Each note unit consisted of $1,000 principal amount of 12% Senior Notes, and 7 warrants, each to purchase one share of the Company's common stock at an exercise price of $2.30 per share. The warrants contained certain anti-dilution provisions and expired on December 31, 1999. On December 31, 1999, 28,000 warrants were exercised for proceeds totaling $64,400.

        Original Terms of Senior Subordinated Notes: The Senior Subordinated Notes consist of 1,000 units, each consisting of $1,000 principal amount 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 expired on December 31, 1998. The Company's obligations under the Subordinated Notes were subordinate to its obligations under the Senior Notes and revolving credit facilities, if any.

        Interest payments were due semiannually on the Senior Notes and the Subordinated Notes (collectively, the Notes). Interest accrued at 13% during 1999 and through to June 9, 2000 as the Company did not achieve and maintain a specified level of earnings. The indentures governing the Notes contained business and financial covenants, including restrictions on additional indebtedness, dividends, acquisitions and certain types of investments, and asset sales.

Building Investment

        With the intent of significantly restructuring fixed operating leases for the Company's corporate headquarters, the Company paid $1.5 million on November 12, 1997, for a 4% ownership interest in a limited liability company (the LLC) that leased the land and owns the buildings leased primarily by the Company for its corporate headquarters. The Company was committed to make additional annual capital contributions to the LLC totaling $600,000 during each of the first three years and $700,000 during each of the fourth through ninth years of the LLC. The ownership in the LLC was to have increased to 16% in fixed annual 2.4% increments in each of the eleventh through fifteenth years of the agreement. Transaction costs totaling $1.7 million were capitalized and amortized over the estimated 15-year life of the LLC.

        Effective October 28, 2000, the Company amended the terms of the building investment agreement assigning all subleases to the LLC, discontinuing all leased space except for month-to-month on a significantly reduced portion of space, eliminating future capital contributions and fixing the maximum amount of the potential future recovery of the investment to $2.8 million at whatever time as the property is sold or refinanced. Simultaneous with this modification, the remaining carrying value of the unamortized transaction costs associated with the original investment of $1.3 million were written-off as a Reorganization Item due to their impairment.

F-28

Leases

        The Company divested of the majority of its lease commitments during the year ended December 31, 2000. Total rent expense for all operating leases was $11,022,000 and $27,407,000 for the years ended December 31, 2000 and 1999, respectively. Sublease rental income was $3,296,000 and $7,161,000 for the years ended December 31, 2000 and 1999, respectively.

Benefits and Compensation Plans

        Historically, the Company sponsored several retirement benefit plans covering substantially all employees who met minimum length of service requirements. These plans included a defined- contribution retirement plan that provided for contributions by the Company based on a percentage of covered compensation, and a 401(k) Plan that allowed employees to defer portions of their salary, subject to certain limitations. Total expense for these plans for the years ended December 31, 2000 and 1999, was $791,000 and $3,880,000, respectively.

        In 2001, the Company discontinued the majority of its previously sponsored employee benefit plans. In addition, all previous common stock-based benefit plans were terminated on December 18, 2000 pursuant to the terms of the Company's Plan of Reorganization (any common stock previously reserved for issuance upon exercises of any of the following plan benefits has also been cancelled). A summary of the previously active plans is as follows:

        Employee Stock Purchase Plan: The Company's Stock Purchase Plan provided for the sale of up to 2.0 million shares of old common stock to all eligible employees. Employees could elect to withhold up to 10% of annual base earnings for the purchase of the Company's old common stock. Options to purchase shares of old common stock were offered quarterly with a purchase price equal to 90% of the lower of the closing market price on the first trading day of the month preceding the quarter or the last trading day of the quarter. During the year ended December 31, 1999, 70,208 shares were sold under the plan. Operation of the Stock Purchase Plan was suspended effective March 31, 1999.

        Fixed Stock Option Plans: The Stock Incentive Plan ("Incentive Plan") provided for the issuance of options to purchase the Company's old common stock and the issuance of stock appreciation rights or restricted shares of common stock. All outstanding options not exercised prior to December 18, 2000 (the "Effective Date") were cancelled.

        On February 28, 1997, the Board of Directors adopted the Non-Employee Directors Compensation and Phantom Stock Plan under which non-employee directors are given phantom stock awards ("PSA's"). In lieu of option grants, each non- employee director of the Company were granted a PSA equal to $20,000 worth of common stock on the date of grant. Three years after the PSA grant, the Company would pay each non-employee director, in cash, the value of the shares to which the PSA relates. Any increases in value of the PSA after the date of grant and prior to the cash payment were expensed in the period of the value increase. No PSA's were granted during 2000. No amounts have ever been nor will ever be paid relative to maturing PSA's. PSA's granted in 1999 totaled 388,892 with initial share values of $0.36. No expense was associated with this plan in 1999.

F-29

        There was no stock option activity under any of the above plans during the year 2000. A summary of stock option activity under all option plans for 1999 is as follows:

		Shares		Option Price	Weighted-Average Exercise Price
Balance, January 1, 1999		3,010,202		$1.24 to $2.42	$	2.62
	Granted	10,000		$1.41	$	1.41
	Expired	(629,422	)	$1.90 to $4.39	$	3.17
	Exercised	—			$	—
Balance, December 31, 1999.		2,390,780		$1.24 to $4.41	$	2.46

        Options exercisable at December 31, 1999 totaled 1,412,808. The following is a summary of fixed stock options outstanding at December 31, 1999 (* denotes "less than"):

	Options Outstanding			Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted-Average Remaining Contract Life (years)	Weighted-Average Exercise Price	Number Exercisable	Weighted-Average Exercise Price
*$1.90	569,762	2.6 years	$1.34	400,417	$1.35
$1.90 to $2.50	1,183,285	3.0 years	$2.30	427,017	$2.18
$2.51 to $3.50	126,347	2.1 years	$2.91	75,175	$2.92
$3.51 to $4.41	511,386	0.9 years	$4.02	510,199	$4.02

        Pro Forma Compensation Cost: Statement of Financial Accounting Standards No. 123, Accounting for Stock-based Compensation (SFAS No. 123), 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 to be recognized over the service period. As alternatively provided by SFAS No. 123, however, the Company elected to provide pro forma fair value disclosures for stock-based compensation. Accordingly, had compensation cost been recognized for awards granted under the Company's stock plans during the years ended December 31, 1999 the pro-forma net income (loss) would have been $(6.1) million, $(0.26) per share. The per share amount reflects both basic and diluted earnings per share.

        The fair value of each option grant under the fixed-price option plans and the fair value of the employees' purchase rights under the employee stock purchase plan were estimated on the date of grant for pro forma computations using the Black-Scholes option-pricing model. The dividend yield was assumed to be zero for 1999. The assumptions used to derive the weighted-average fair value of grants made during the year ended December 31, 1999 were as follows:

Assumptions	Fixed Stock Option Plan:	Employee Stock Purchase Plan:
Volatility	128.3%	128.3%
Risk-free interest rate	5.5%	5.1%
Expected lives	5.0 years	0.3 years
Fair value of grants at date of grant	$1.22	$0.05

18.    Partial Subsidiary Guarantor Information (Unaudited).

        The Company as presented below (Parent and Non-Guarantor Subsidiaries) represents the Company exclusive of Kaiser Government Programs, Inc, which will be the partial subsidiary guarantor of the 8¹/4% Senior Notes due 2007 proposed to be issued.

F-30

KAISER GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 2001
(In thousands)

	Parent and Non-Guarantor Subsidiaries			Subsidiary Guarantor		Eliminations			Kaiser Group Holdings, Inc. Consolidated
Assets
Current Assets
Cash and cash equivalents	$	8,848		$	—	$	—		$	8,848
Restricted cash and cash equivalents		15,844			—		—			15,844
Marketable securities available for sale		6,489			—		—			6,489
Intercompany receivables, net		(25,842	)		25,842		—			—
Prepaid expenses and other current assets		1,843			—		—			1,843
Net assets of discontinued operations		6,000			—		—			6,000
Total Current Assets		13,182			25,842		—			39,024
Other Assets
Investment in and advances to affiliates		60,875			25,280		(56,926	)		29,229
Notes receivable		6,550			—		—			6,550
Deferred tax assets		5,785			—		—			5,785
Other long-term assets		303			—		—			303
		73,513			25,280		(56,926	)		41,867
Total Assets	$	86,695		$	51,122	$	(56,926	)	$	80,891
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable	$	730		$	—	$	—		$	730
Accrued salaries and benefits		7,482			—		—			7,482
Other accrued expenses		4,767			—		—			4,767
Preferred stock dividend payable		731			—		—			731
Income taxes payable		1,340			—		—			1,340
Total Current Liabilities		15,050			—		—			15,050
Commitments and Contingencies
Preferred stock		62,481			—		—			62,481
Common Stock		6,882			1		(6,867	)		16
Capital in excess of par		50,114			—		(42,167	)		7,947
Accumulated Earnings (Deficit)		(48,186	)		51,121		(7,892	)		(4,957	)
Accumulated other comprehensive (loss) income		354			—		—			354
Total Liabilities and Shareholders' Equity	$	86,695		$	51,122	$	(56,926	)	$	80,891

F-31

KAISER GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
Year Ended December 31, 2001
(In thousands)

		Parent and Non-Guarantor Subsidiaries			Subsidiary Guarantor			Eliminations			Kaiser Group Holdings, Inc. Consolidated
Gross Revenue		$	—		$	—		$	—		$	—
	Subcontract and direct material costs		—			—			—			—
Service Revenue			—			—			—			—
Operating Expenses
	Administrative expenses		9,692			—			—			9,692
	Impairment charge		1,100			—			—			1,100
Operating Income (Loss)			(10,792	)		—			—			(10,792	)
Other Income (Expense)
	Equity income in earnings of affiliate		6,922			11,518			(6,922	)		11,518
	Gain on stock demutualization		5,856			—			—			5,856
	Interest income		1,075			—			—			1,075
Income (Loss) From Continuing Operations
Before Income Tax			3,061			11,518			(6,922	)		7,657
	Income tax (expense) benefit		2,179			(4,596	)		—			(2,417	)
Income (Loss) From Continuing Operations			5,240			6,922			(6,922	)		5,240
	Loss from discontinued operations (net of tax)		(10,197	)		—			—			(10,197	)
Net Income (Loss)		$	(4,957	)	$	6,922		$	(6,922	)	$	(4,957	)

F-32

KAISER GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended December 31, 2001
(In thousands)

		Parent and Non-Guarantor Subsidiaries			Subsidiary Guarantor			Eliminations		Kaiser Group Holdings, Inc. Consolidated
Net Cash Provided by (Used in) Operating Activities		$	(5,417	)	$	(7,900	)	$	—	$	(13,317	)
Investing Activities
Distributions from 50% owned affiliate			—			7,900			—		7,900
Proceeds from sale of stock			—			—			—		—
	Net Cash Provided by (Used in) Investing Activities		—			7,900			—		7,900
Financing Activities
Release of restricted cash			802			—			—		802
Establishment of cash reserve for unresolved claims			(12,331	)		—			—		(12,331	)
Distribution to allowed class 4 claim holders			(13,065	)		—			—		(13,065	)
Repurchase of New common stock pursuant to buy back			(125	)		—			—		(125	)
Payment of preferred stock dividends			(2,360	)		—			—		(2,360	)
	Net Cash Provided by (Used in) Financing Activities		(27,079	)		—			—		(27,079	)
Increase (Decrease) in Cash and Cash Equivalents			(32,496	)		—			—		(32,496	)
Cash and Cash Equivalents at Beginning of Period			41,344			—			—		41,344
Cash and Cash Equivalents at End of Period		$	8,848		$	—		$	—	$	8,848

F-33

KAISER GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 2000
(In thousands)

	Parent and Non-Guarantor Subsidiaries			Subsidiary Guarantor		Eliminations			Kaiser Group Holdings, Inc. Consolidated
Assets
Current Assets
Cash and cash equivalents	$	41,344		$	—	$	—		$	41,344
Restricted cash and cash equivalents		16,190			—		—			16,190
Contract Receivables, net		1,692			—		—			1,692
Intercompany receivables, net		(33,188	)		33,188		—			—
Prepaid expenses and other current assets		2,861			—		—			2,861
Net assets of discontinued operations		10,712			—		—			10,712
Total Current Assets		39,611			33,188		—			72,799
Other Assets
Investment in and advances to affiliates		86,858			21,643		(81,809	)		26,692
Notes receivable		6,550			—		—			6,550
Deferred tax assets		—			—		—			—
Other long-term assets		127			—		—			127
		93,535			21,643		(81,809	)		33,369
Total Assets	$	133,146		$	54,831	$	(81,809	)	$	106,168
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and other accrued expenses	$	2,367		$	—	$	—		$	2,367
Accrued salaries and benefits		9,148			—		—			9,148
Other accrued expenses		6,848			—		—			6,848
Preferred stock dividend payable		—			—		—			—
Income taxes payable		305			—		—			305
Total Current Liabilities		18,668			—		—			18,668
Commitments and Contingencies
Preferred stock		—			—		—			—
Common Stock		9,411			1		(9,178	)		234
Capital in excess of par		145,159			—		(57,893	)		87,266
Accumulated Earnings (Deficit)		(40,092	)		54,830		(14,738	)		—
Treasury stock		—			—		—			—
Accumulated other comprehensive (loss) income		—			—		—			—
Total Liabilities and Shareholders' Equity	$	133,146		$	54,831	$	(81,809	)	$	106,168

F-34

KAISER GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
Year Ended December 31, 2000
(In thousands)

		Parent and Non-Guarantor Subsidiaries			Subsidiary Guarantor			Eliminations			Kaiser Group Holdings, Inc. Consolidated
Gross Revenue		$	—		$	271,385		$	—		$	271,385
	Subcontract and direct material costs		—			(195,367	)		—			(195,367	)
Service Revenue			—			76,018			—			76,018
Operating Expenses
	Administrative expenses		10,130			64,197			—			74,327
	Restructuring charges		1,915			—			—			1,915
Operating Income (Loss)			(12,045	)		11,821			—			(224	)
Other Income (Expense)
	Equity income in earnings of affiliate		10,218			4,218			(10,218	)		4,218
	Interest income		1,819			205			—			2,024
	Interest expense		(7,727	)		(27	)		—			(7,754	)
Income (Loss) From Continuing Operations Before Reorganization Items, Income Tax Minority interest and Extraordinary Items			(7,735	)		16,217			(10,218	)		(1,736	)
	Reorganization Items		8,611			—			—			8,611
Income (Loss) From Continuing Operations Before Income Tax, Minority Interest and Extraordinary Items			876			16,217			(10,218	)		6,875
	Income tax (expense) benefit		39,521			—			—			39,521
Income (Loss) From Continuing Operations Before Minority Interest and Extraordinary Items			40,397			16,217			(10,218	)		46,396
	Minority Interest		—			(5,999	)		—			(5,999	)
Income (Loss) From Continuing Operations Before Extraordinary Items			40,397			10,218			(10,218	)		40,397
	Loss from discontinued operations (net of tax)		(2,966	)		—			—			(2,966	)
	Gain (Loss) on sales of discontinued operations, net of tax		(7,669	)		—			—			(7,669	)
Income (Loss) Before Extraordinary Items			29,762			10,218			(10,218	)		29,762
	Extraordinary items, net of tax		124,542			—			—			124,542
Net Income (Loss)		$	154,304		$	10,218		$	(10,218	)	$	154,304

F-35

KAISER GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended December 31, 2000
(In thousands)

		Parent and Non-Guarantor Subsidiaries			Subsidiary Guarantor			Eliminations		Kaiser Group Holdings, Inc. Consolidated
Net Cash Provided by (Used in) Operating Activities		$	(360	)	$	(5,050	)	$	—	$	(5,410	)
Investing Activities
Sales of subsidiaries			29,766			—			—		29,766
Distributions from 50% owned affiliate			—			5,050			—		5,050
Effect on cash resulting from deconsolidation of 50% owned investment			(5,243	)		—			—		(5,243	)
Net cash used in investing activities of discontinued operations			(153	)		—			—		(153	)
Net Cash Provided by (Used in) Investing Activities			24,370			5,050			—		29,420
Financing Activities
Distribution of income to minority interest			(8,250	)		—			—		(8,250	)
Change in collaterialized letters of credit			193			—			—		193
Extinguishment of Senior Notes			(1,000	)		—			—		(1,000	)
	Net Cash Provided by (Used in) Financing Activities		(9,057	)		—			—		(9,057	)
Increase (Decrease) in Cash and Cash Equivalents			14,953			—			—		14,953
Cash and Cash Equivalents at Beginning of Period			26,391			—			—		26,391
Cash and Cash Equivalents at End of Period		$	41,344		$	—		$	—	$	41,344

F-36

KAISER GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1999
(In thousands)

	Parent and Non-Guarantor Subsidiaries			Subsidiary Guarantor		Eliminations			Kaiser Group Holdings, Inc. Consolidated
Assets
Current Assets
Cash and cash equivalents	$	21,148		$	5,243	$	—		$	26,391
Restricted cash and cash equivalents		16,386			—		—			16,386
Contract receivables, net		52,566			105,753		—			158,319
Intercompany receivables, net		(20,463	)		20,463		—			—
Prepaid expenses and other current assets		5,346			4		—			5,350
Total Current Assets		74,983			131,463		—			206,446
Fixed Assets
Furniture, equipment, and leaseholds		14,224			—		—			14,224
Less: Depreciation and amortization		(11,403	)		—		—			(11,403	)
		2,821			—		—			2,821
Other Assets
Goodwill, net		17,581			—		—			17,581
Investment in and advances to affiliates		115,686			1		(105,647	)		10,040
Notes receivable		6,550			—		—			6,550
Capitalized software development costs		1,601			—		—			1,601
Other long-term assets		7,937			587		—			8,524
		149,355			588		(105,647	)		44,296
Total Assets	$	227,159		$	132,051	$	(105,647	)	$	253,563
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable	$	28,743		$	90,813	$	—		$	119,556
Accrued salaries and benefits		12,532			14,717		—			27,249
Other accrued expenses		26,921			—		—			26,921
Deferred revenue		9,015			—		—			9,015
Income taxes payable		6,597			—		—			6,597
Total Current Liabilities		83,808			105,530		—			189,338
Long-term debt		124,218			—		—			124,218
Other		7,577			—		—			7,577
Total Liabilities		215,603			105,530		—			321,133
Commitments and Contingencies
Minority Interest		—			2,333		—			2,333
Common Stock		12,590			—		(12,353	)		237
Capital in excess of par		157,240			—		(83,597	)		73,643
Accumulated Earnings (Deficit)		(155,172	)		24,188		(9,697	)		(140,681	)
Accumulated other comprehensive (loss) income		(3,102	)		—		—			(3,102	)
Total Liabilities and Shareholders' Equity	$	227,159		$	132,051	$	(105,647	)	$	253,563

F-37

KAISER GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
Year Ended December 31, 1999
(In thousands)

		Parent and Non-Guarantor Subsidiaries			Subsidiary Guarantor			Eliminations			Kaiser Group Holdings, Inc. Consolidated
Gross Revenue		$	—		$	643,044		$	—		$	643,044
	Subcontract and direct material costs		—			(456,188	)		—			(456,188	)
Service Revenue			—			186,856			—			186,856
Operating Expenses
	Administrative expenses		8,909			176,728			—			185,637
	Depreciation		3,290			89			—			3,379
	Restructuring charges		14,384			—			—			14,384
Operating Income (Loss)			(26,583	)		10,039			—			(16,544	)
Other Income (Expense)
	Equity income in earnings of affiliate		5,182			—			(5,182	)		—
	Interest income		1,810			539			—			2,349
	Interest expense		(20,853	)		(212	)		—			(21,065	)
Income (Loss) From Continuing Operations Before Income Tax, Minority Interest and Extraordinary Items			(40,444	)		10,366			(5,182	)		(35,260	)
	Income tax (expense) benefit		1,150			—			—			1,150
Income (Loss) From Continuing Operations Before Minority Interest and Extraordinary Items			(39,294	)		10,366			(5,182	)		(34,110	)
	Minority Interest		—			(5,184	)		—			(5,184	)
Income (Loss) From Continuing Operations Before Extraordinary Items			(39,294	)		5,182			(5,182	)		(39,294	)
	Loss from discontinued operations (net of tax)		(6,113	)		—			—			(6,113	)
	Gain (Loss) on sales of discontinued operations, net of tax		40,083			—			—			40,083
Income (Loss) Before Extraordinary Items			(5,324	)		5,182			(5,182	)		(5,324	)
	Extraordinary items, net of tax		(600	)		—			—			(600	)
Net Income (Loss)		$	(5,924	)	$	5,182		$	(5,182	)	$	(5,924	)

F-38

KAISER GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended December 31, 1999
(In thousands)

		Parent and Non-Guarantor Subsidiaries			Subsidiary Guarantor			Eliminations		Kaiser Group Holdings, Inc. Consolidated
Net Cash Provided by (Used in) Operating Activities		$	(64,354	)	$	4,899		$	—	$	(59,455	)
Investing Activities
Sales of subsidiaries			145,041			—			—		145,041
Purchases of fixed assets			(2,113	)		—			—		(2,113	)
Net cash used in investing activities of discontinued operations			(4,941	)		—			—		(4,941	)
	Net Cash Provided by (Used in) Investing Activities		137,987			—			—		137,987
Financing Activities
Borrowings under revolving credit facility			61,855			—			—		61,855
Principal payments on revolving credit facility			(92,584	)		—			—		(92,584	)
Change in cash collateralized letters of credit			(12,595	)		—			—		(12,595	)
Extinguishment of Senior Notes			(12,320	)		—			—		(12,320	)
Distribution of income to minority interest			—			(3,300	)		—		(3,300	)
Change in book overdraft			(8,395	)		—			—		(8,395	)
	Net Cash Provided by (Used in) Financing Activities		(64,039	)		(3,300	)		—		(67,339	)
Effect of Exchange Rate Changes on Cash			(69	)		—			—		(69	)
Increase (Decrease) in Cash and Cash Equivalents			9,525			1,599			—		11,124
Cash and Cash Equivalents at Beginning of Period			11,623			3,644			—		15,267
Cash and Cash Equivalents at End of Period		$	21,148		$	5,243		$	—	$	26,391

F-39

Kaiser-Hill Company, LLC
and Subsidiary

Consolidated Financial Statements as of December 31, 2001 and 2000
and for each of the three years in the period ended December 31, 2001
together with Report of Independent Public Accountants

F-40

Report of Independent Public Accountants

To the Members of
Kaiser-Hill Company, LLC:

        We have audited the accompanying consolidated balance sheets of Kaiser-Hill Company, LLC (a Colorado limited liability company) (the "Company") and Subsidiary as of December 31, 2001 and 2000, and the related consolidated statements of income, members' equity and cash flows for each of the three years in the period ended December 31, 2001. These consolidated financial statements and the supplementary consolidating information referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and supplementary consolidating information based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Kaiser-Hill Company, LLC and Subsidiary as of December 31, 2001 and 2000, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.

        Our audits were made for the purpose of forming an opinion on the consolidated financial statements taken as a whole. The consolidating information contained in Schedules I and II is presented for purposes of additional analysis of the consolidated financial statements, rather than to present the financial position and the results of operations and cash flows of the individual companies. This information has been subjected to the auditing procedures applied in our audits of the consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the consolidated financial statements taken as a whole.

Arthur Andersen LLP

Denver, Colorado
January 25, 2002

F-41

KAISER-HILL COMPANY, LLC AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
as of December 31, 2001 and 2000
(amounts in thousands of dollars)

			2001		2000
Assets
Current assets:
	Cash and cash equivalents		$	19,448	$	7,177
	Current portion of contract receivables			114,380		124,931
	Due from employees			114		22
	Prepaids and other current assets			2,114		355
		Total current assets		136,056		132,485
Contract receivables, net of current portion				17,099		—
Deferred financing costs, net of accumulated amortization of $183 and $95, respectively				342		430
			$	153,497	$	132,915
Liabilities and Members' Equity
Current liabilities:
	Accounts payable and payables to subcontractors		$	94,708	$	101,444
	Current portion of employee incentive plan			9,300		—
	Accrued vacation			11,581		9,627
	Accrued salaries and employee benefits			8,780		14,292
	Payable to Members			1,008		516
	Line of credit			—		6,000
		Total current liabilities		125,377		131,879
Employee incentive plan, net of current portion				12,800		—
				138,177		131,879
Contingencies (Note 7)
Members' equity				15,320		1,036
			$	153,497	$	132,915

The accompanying notes are an integral part of these consolidated financial statements.

F-42

KAISER-HILL COMPANY, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
for the years ended December 31, 2001, 2000 and 1999
(amounts in thousands of dollars)

			2001			2000			1999
Gross revenue			$	718,788		$	673,751		$	646,398
Subcontractor costs and direct material costs				(417,180	)		(417,203	)		(456,015	)
		Service revenue		301,608			256,548			190,383
Direct cost of service and overhead				(271,977	)		(236,671	)		(176,898	)
		Operating income		29,631			19,877			13,485
Other income (expense):
	Interest income			569			669			539
	Interest expense			(116	)		(110	)		(385	)
		Net income before cumulative effect of adoption of a new accounting principle		30,084			20,436			13,639
Cumulative effect of adoption of a new accounting principle (Note 2)				—			—			(839	)
		Net income	$	30,084		$	20,436		$	12,800

The accompanying notes are an integral part of these consolidated financial statements.

F-43

KAISER-HILL COMPANY, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
for the years ended December 31, 2001, 2000 and 1999
(amounts in thousands of dollars)

		Kaiser KH Holdings, Inc.			CH2M Hill Constructors, Inc.			Total
Members' equity, December 31, 1998		$	500		$	500		$	1,000
	Net income		6,400			6,400			12,800
	Distributions		(3,300	)		(3,300	)		(6,600	)
Members' equity, December 31, 1999			3,600			3,600			7,200
	Net income		10,218			10,218			20,436
	Distributions		(13,300	)		(13,300	)		(26,600	)
Members' equity, December 31, 2000			518			518			1,036
	Net income		15,042			15,042			30,084
	Distributions		(7,900	)		(7,900	)		(15,800	)
Members' equity, December 31, 2001		$	7,660		$	7,660		$	15,320

The accompanying notes are an integral part of these consolidated financial statements.

F-44

KAISER-HILL COMPANY, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 2001, 2000 and 1999
(amounts in thousands of dollars)

				2001			2000			1999
Cash flows from operating activities:
	Net income			$	30,084		$	20,436		$	12,800
	Adjustments to reconcile net income to net cash provided by operating activities:
		Cumulative effect of adoption of a new accounting principle			—			—			839
		Amortization			88			88			172
		Changes in assets and liabilities:
			(Increase) decrease in contract receivables		(6,548	)		(17,664	)		17,085
			Increase in due from employees		(92	)		(22	)		—
			Decrease in receivable from Member		—			—			396
			Increase in prepaids and other current assets		(1,759	)		(355	)		—
			(Decrease) increase in accounts payable and payables to subcontractors		(6,736	)		10,972			(24,741	)
			Increase in employee incentive plan		22,100			—			—
			(Decrease) increase in other accrued expenses		(3,558	)		9,202			2,051
			Increase (Decrease) in payable to Members		492			(216	)		(10	)
		Net cash provided by operating activities			34,071			22,441			8,592
Cash flows from financing activities:
	Distributions to Members				(15,800	)		(26,600	)		(6,600	)
	Payment of financing costs				—			—			(300	)
	Proceeds from credit facility				29,900			42,000			—
	Payments on credit facility				(35,900	)		(36,000	)		—
		Net cash used in financing activities			(21,800	)		(20,600	)		(6,900	)
Net increase in cash and cash equivalents					12,271			1,841			1,692
Cash and cash equivalents, beginning of year					7,177			5,336			3,644
Cash and cash equivalents, end of year				$	19,448		$	7,177		$	5,336
Supplemental cash flow information:
	Cash paid for interest			$	28		$	22		$	212
Supplemental noncash financing activity:
	Accrued financing costs			$	—		$	—		$	225

The accompanying notes are an integral part of these consolidated financial statements.

F-45

KAISER-HILL COMPANY, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Organization

        Kaiser-Hill Company, LLC (the "Company") was formed on October 24, 1994. The principal business of the Company is to procure, execute, deliver, and perform under a contract with the Department of Energy ("DOE") to manage the programs and operate the DOE facilities at Rocky Flats Environmental Technology Site ("RFETS") in Golden, Colorado. The mission of the RFETS is directed toward cleanup, deactivation, and preparation for decontamination and disposition of these DOE facilities.

        The Company is a limited liability company owned equally by Kaiser KH Holdings, Inc., a wholly owned subsidiary of Kaiser Group Holdings, Inc. (formerly known as Kaiser Group International, Inc.) ("Kaiser"), and CH2M Hill Constructors, Inc., an indirect wholly owned subsidiary of CH2M Hill Companies, Ltd. ("CH2M Hill") (collectively, the "Members"). Net profits and/or losses and distributions thereof are allocated equally to the Members.

        At December 31, 2001, the Company employed 1,480 hourly workers and 528 salaried workers. Approximately 88% of the hourly employees are represented by United Steel Workers of America (the "Union") under a collective bargaining agreement which expires on January 15, 2007.

        On January 24, 2000, the Company and the DOE entered into a new contract effective February 1, 2000. The new contract is in effect until the physical completion of the Rocky Flats Closure Project including closure, disposal of nuclear material, demolition of facilities, environmental remediation, waste disposal, infrastructure and general site operations. Under the new contract, the Company has the opportunity to earn fee if the total costs incurred are below the contract target cost or the completion of the site closure is before March 31, 2007. In addition, the Company can lose fee if the costs exceed an amount equal to $200 million above the contract target cost or the site closure is after March 31, 2007. The modified maximum and minimum fee available to be earned by the Company through the date of closure is $460.6 million and $150.2 million, respectively.

2.    Significant Accounting Policies

Principles of Consolidation

        The consolidated financial statements include the Company and its wholly owned subsidiary Kaiser-Hill Funding Company, LLC. All intercompany accounts and transactions have been eliminated in the consolidated financial statements.

Revenue Recognition

        Under the previous contract, revenue was recognized using the percentage of completion method whereby revenue was accrued in an amount equal to cost plus management's best estimate of base fee, performance based incentive fees and cost reduction proposal fees to be received.

        Under the new contract, revenue is recognized using the percentage of completion method whereby revenue is accrued in an amount equal to cost plus management's best estimate of fees. Fees are estimated based on projected total contract costs and site closure date. The Company continually monitors its progress towards the completion dates and its estimated costs at completion and will modify its estimates of earnings as needed. Changes in these estimates could have a significant effect on future earnings of the Company.

F-46

Statements of Cash Flows

        For purposes of the statements of cash flows, the Company considers cash in checking and short-term investments with original maturities of three months or less to be cash and cash equivalents.

        The Company maintains its cash accounts primarily with banks located in Colorado, New York and Washington D.C. Cash balances are insured by the FDIC up to $100,000 per bank and cash equivalents are not insured by the FDIC. As of December 31, 2001, the majority of the cash balance was made up of cash equivalents.

New Accounting Policy

        Effective January 1, 1999, the Company adopted Statement of Position 98-5 ("SOP 98-5"), Reporting on the Costs of Start-up Activities, which states that costs of start-up activities, including organizational costs, be expensed when incurred. Upon adoption, the Company recorded a cumulative effect of a change in accounting principle of $839,000 in the accompanying consolidated statements of income. Assuming SOP 98-5 was not adopted in 1999, amortization of start-up activities would have been approximately $609,000 and the remaining $203,000 would have been expensed in 2000.

Income Taxes

        The financial statements do not include a provision for income taxes because the Company is treated as a partnership for income tax purposes and does not incur federal or state income taxes. Instead, its earnings and losses are included in the Members' separate income tax returns.

Use of Estimates

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.

New Accounting Pronouncements

        Effective June 30, 2001, the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards ("SFAS") Nos. 141, "Business Combinations," and 142, "Goodwill and Other Intangible Assets". SFAS No. 141 is effective for acquisitions occurring after June 30, 2001 and provides guidance on accounting for business combinations including the use of the purchase method of accounting as the only acceptable method to account for business combinations. SFAS No. 142 provides guidance on the accounting for goodwill and other intangibles specifically relating to identifying and allocating purchase price to specific identifiable intangible assets. Additionally, SFAS No. 142 provides guidance for the amortization of identifiable intangible assets and states that goodwill shall not be amortized, but rather tested for impairment, at least annually, using a fair value approach. The adoption of SFAS No. 142 will not have a material impact on the Company's financial position.

        In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which establishes accounting standards for recognition and measurement of a liability for an asset retirement obligation and the associated asset retirement cost. This Statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. Management does not expect that the effect SFAS No. 143 will have a material impact on its financial position.

        In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". This Statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 is effective for fiscal years beginning after December 15,

F-47

2001. The provisions of this statement are generally to be applied prospectively. Management does not expect that SFAS No. 144 will have a material impact on its financial position.

Reclassifications

        Certain prior year amounts have been reclassified to conform to the current year presentation.

3.    Related Party Transactions

        In 2001 and 2000, the Members were subcontracted by the Company to perform certain tasks under the DOE contract. The "Payable to Members" in the accompanying balance sheets as of December 31, 2001 and 2000 consists of $118,000 and $540,000, respectively, to Kaiser and $890,000 and ($24,000), respectively, to CH2M Hill for these subcontracted tasks. These payables are non-interest bearing.

        In addition, costs incurred related to work performed by Kaiser and CH2M Hill, the majority of which are reimbursable and billed under the DOE contract, were approximately $0 and $851,000 in 2001, respectively, $0 and $799,000 in 2000, respectively, and $609,000 and $938,000 in 1999, respectively.

4.    Contract Receivables

        Contract receivables as of December 31, 2001 and 2000 primarily represent unbilled receivables due under the DOE contract. Unbilled receivables result from revenue and estimated fee that have been earned by the Company but not billed to the DOE as of the end of the period. The unbilled receivables can be invoiced at contractually defined intervals and milestones. Management anticipates that the current portion of unbilled receivables will be billed and collected in less than one year. In addition, under the terms of the Company's contract with the DOE, the Company receives a cash payment of 50% of the fee due on a quarterly basis. The remainder of the fee will be paid by the DOE upon the completion of the contract. As such, these amounts are classified as non-current in the accompanying consolidated balance sheets.

        The Company's contract receivables result primarily from its long-term contract with the DOE. As a consequence, management believes that credit risk is minimal.

5.    Employee Incentive Plan

        In connection with the closure contract with the DOE, the Company implemented an employee incentive plan. There are two components to the plan. The first component represents a cash bonus which is earned and paid yearly. The second component represents the issuance of performance units. These units are allocated to employees on a yearly basis. The value of these units ultimately depends on the closure date of the site and range from $0 to $1 per unit. Employees remain eligible for these units as long as they are employed by the Company or left in good standing, as defined, and such amounts will be paid in cash at the end of the contract.

        As of December 31, 2001, the Company has issued approximately 22,110,000 performance units and the estimated value to be paid is accrued as employer incentive plan liability. The payment of the unit bonus will take place upon closure of the contract and therefore the associated accrual is classified as a long-term employee incentive plan accrual in the accompanying consolidated balance sheets.

6.    Business Loan and Security Agreement

        Effective November 2, 1999, the Company, including its wholly owned subsidiary Kaiser-Hill Funding Company, LLC, entered into a Business Loan and Security Agreement (the "Agreement") with Bank of America, N.A. ("BOA") replacing its previous agreement with NationsBank, N.A. The term of

F-48

the Agreement is through December 31, 2005. The Company, Kaiser and CH2M Hill granted a first lien security interest to BOA in all of the ownership and equity interest of the Company. As of December 31, 2001 and 2000, the Company has $0 and $6,000,000 outstanding, respectively.

        Under the Agreement, the Company has financing available which provides temporary financing for the payment of the Company's costs incurred under the DOE contract. This financing is utilized throughout the year for periods of less than one month as, under the terms of the DOE contract, the DOE must pay the Company's invoices within three business days of receipt. The funding level under the Agreement can not exceed a Maximum Borrowing Base calculated on the lesser of eligible billed and unbilled government accounts receivable, as defined, or $35,000,000. Under the terms of the Agreement, interest on the advances is calculated either under a rate based upon LIBOR or a rate based upon the higher of the Federal Funds Rate or the Prime Rate.

        The Agreement also contains various covenants, including tangible net worth, fixed charge ratio and minimum cash balances requirements, among other restrictions. Management believes the Company was in compliance with all restrictive covenants.

7.    Contingencies

        The Company's reimbursable costs are subject to audit in the ordinary course of business by various U.S. Government agencies. Management is not presently aware of any significant costs, which have been, or may be, disallowed by any of these agencies.

8.    Employee Benefit Plans

        In accordance with the DOE contract, the Company sponsors several benefit plans covering substantially all employees who meet length of service requirements. These plans include the following defined benefit pension plans: The Rocky Flats Multiple Employer Salaried Retirement Plan and the Kaiser-Hill Retirement Plan for Hourly Production and Maintenance Employees. The Company also sponsors the following defined contribution plans: Kaiser-Hill Company, LLC Savings Plan for Hourly Employees and Rocky Flats Multiple Employer Salaried Thrift Plan, which includes Company matching. The Company contribution amounts for the Savings Plan/Thrift Plan were approximately $1,343,000, $608,000 and $454,000 for 2001, 2000 and 1999, respectively. No amounts were contributed to the Retirement Plans during 2001, 2000 and 1999 because the Plans were overfunded.

        The Company administers these benefit plans with benefits equivalent to the RFETS contractor benefit plans maintained by the contractor that preceded the Company at RFETS. Under the DOE contract, the Company recognizes the cost of benefit plans when paid, and such costs are reimbursed by the DOE. Any excess pension plan assets or unfunded pension plan liability which may currently exist or is remaining at the end of the DOE contract is the responsibility of the DOE.

9.    Subsequent Event

        In March 2002, the Company entered into a lease agreement for the lease of office space through 2005. The Company will be leasing 94,582 square feet for annual estimated base rent expense of $833,000.

F-49

SCHEDULE I

KAISER-HILL COMPANY, LLC AND SUBSIDIARY
SUPPLEMENTARY CONSOLIDATING INFORMATION TO
CONSOLIDATED FINANCIAL STATEMENTS

Balance Sheet
as of December 31, 2001
(amounts in thousands of dollars)

			Kaiser-Hill Company LLC		Kaiser-Hill Funding Company LLC		Eliminations			Consolidated
Assets:
Current assets:
	Cash and cash equivalents		$	19,403	$	45	$	—		$	19,448
	Current portion of contract receivables			114,296		84		—			114,380
	Intercompany receivables			5		—		(5	)		—
	Due from employees			114		—		—			114
	Prepaids and other current assets			2,114		—		—			2,114
		Total current assets		135,932		129		(5	)		136,056
Contract receivables, net of current portion				17,099		—		—			17,099
Investment in Kaiser-Hill Funding Company, LLC				117		—		(117	)		—
Financing costs, net of accumulated amortization of $183				342		—		—			342
			$	153,490	$	129	$	(122	)	$	153,497
Liabilities and Members' Equity:
Current liabilities:
	Accounts payable and payable to subcontractors		$	94,701	$	7	$	—		$	94,708
	Accrued vacation			11,581		—		—			11,581
	Current portion of employee incentive plan			9,300		—		—			9,300
	Accrued salaries and employee benefits			8,780		—		—			8,780
	Intercompany payables			—		5		(5	)		—
	Payable to Members			1,008		—		—			1,008
		Total current liabilities		125,370		12		(5	)		125,377
Employee incentive plan, net of current portion				12,800		—		—			12,800
				138,170		12		(5	)		138,177
Members' equity				15,320		117		(117	)		15,320
			$	153,490	$	129	$	(122	)	$	153,497

F-50

SCHEDULE II

KAISER-HILL COMPANY, LLC AND SUBSIDIARY
SUPPLEMENTARY CONSOLIDATING INFORMATION TO
CONSOLIDATED FINANCIAL STATEMENTS

Statement of Income
for the year ended December 31, 2001
(amounts in thousands of dollars)

			Kaiser-Hill Company LLC			Kaiser-Hill Funding Company LLC			Eliminations			Consolidated
Gross revenue			$	718,788		$	—		$	—		$	718,788
Intercompany revenue				—			183			(183	)		—
Intercompany expense				(183	)		—			183			—
Subcontractor costs and direct material costs				(417,179	)		(1	)		—			(417,180	)
		Service revenue		301,426			182			—			301,608
Direct cost of service and overhead				(271,834	)		(143	)		—			(271,977	)
		Operating income		29,592			39			—			29,631
Other income (expense):
	Interest income			569			—			—			569
	Interest expense			(88	)		(28	)		—			(116	)
Net income			$	30,073		$	11		$	—		$	30,084

F-51

Kaiser Group Holdings, Inc.
and Subsidiaries

Supplemental Schedule Relating to the Consolidated Financial Statements for each
of the three years in the period ended December 31, 2001
together with the Report of Independent Public Accountants

F-52

REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE

To Board of Directors and
    Shareholders of Kaiser Group Holdings, Inc.

        Our audits of the consolidated financial statements referred to in our report dated March 22, 2002 appearing in this Registration Statement also included an audit of the accompanying financial statement schedule. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

PricewaterhouseCoopers LLP

McLean, Virginia
March 22, 2002

F-53

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

KAISER GROUP HOLDINGS, INC. AND SUBSIDIARIES
(in thousands)

Column A			Column B		Column C		Column D			Column E			Column F
Description			Balance at Beginning of Period		Additions Charged to Costs and Expenses		Other			Deductions			Balance at the End of Period
Year Ended December 31, 2001
Deducted from asset account:
	Allowance for doubtful accounts		$	1,419	$	—	$	(181	)	$	(1,238	)	$	—
		Discontinued operations		3,081		16,409		615	(4)		—		$	20,105
			$	4,500	$	16,409	$	434		$	(1,238	)	$	20,105
Year Ended December 31, 2000
Deducted from asset account:
	Allowance for doubtful accounts		$	9,594	$	—	$	—		$	(8,175	)	$	1,419
		Discontinued operations		19,953		—		—			(16,872	)	$	3,081
			$	29,547	$	—	$	—		$	(25,047	)	$	4,500
Year Ended December 31, 1999
Deducted from asset account:
	Allowance for doubtful accounts		$	10,850	$	5,414	$	(2,508	)(3)	$	(4,162	)(1)	$	9,594
		Discontinued operations		29,679		9,225		18,833	(4)		(37,784	)(2)	$	19,953
			$	40,529	$	14,639	$	16,325		$	(41,946	)	$	29,547

(1)

Reflects amounts written off against the allowance and related accounts receivable accounts and settlement of doubtful accounts.

(2)

Reflects losses charged against the provision for contract losses and restructuring charges.

(3)

Reflects deductions to reserves related to amounts divested as part of 1000 asset sales transactions.

(4)

Reflects reclassified additions to reserves.

F-54

Kaiser Group Holdings, Inc.
and Subsidiaries

Interim Consolidated Financial Statements as of June 30, 2002 and 2001

F-55

KAISER GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)

			June 30, 2002			December 31, 2001
			(UNAUDITED)
ASSETS
Current Assets
Cash and cash equivalents			$	13,444		$	8,848
Restricted cash and cash equivalents				16,406			15,844
Marketable securities available for sale				—			6,489
Prepaid expenses and other current assets				1,773			1,843
Net assets of discontinued operations				6,000			6,000
		Total Current Assets		37,623			39,024
Other Assets
Investments in and advances to affiliates				29,805			29,229
Notes receivable				6,550			6,550
Deferred tax assets				7,449			5,785
Other long-term assets				222			303
				44,026			41,867
		Total Assets	$	81,649		$	80,891
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable			$	1,195		$	730
Post-retirement benefit plan obligation				7,333			7,473
Other accrued expenses.				5,818			4,776
Preferred stock dividend payable				709			731
Income taxes payable				2,639			1,340
		Total Current Liabilities		17,694			15,050
Commitments and Contingencies
Preferred stock, par value $.01 per share:
	Authorized — 2,000,000 shares
	Issued — 1,136,707 and 1,136,024 shares at June 30, 2002 and December 31, 2001, respectively
	Outstanding — 1,127,730 and 1,136,024 shares at June 30, 2002 and December 31, 2001, respectively and stated at liquidation value of $55 per share			62,519			62,481
Common stock, par value $.01 per share:
	Authorized — 3,000,000 shares
	Issued and outstanding — 1,590,062 and 1,585,239 shares at June 30, 2002 and December 31, 2001, respectively			16			16
Capital in excess of par				5,651			7,947
Accumulated deficit				(3,958	)		(4,957	)
Treasury stock, 8,977 and 0 preferred shares at cost at June 30, 2002 and December 31, 2001, respectively				(244	)		—
Accumulated other comprehensive (loss) income				(29	)		354
		Total Liabilities and Shareholders' Equity	$	81,649		$	80,891

See notes to consolidated financial statements

F-56

KAISER GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)

				For the Three Months Ended June 30,						For the Six Months Ended June 30,
				2002			2001			2002			2001
Gross Revenue					—			—			—			—
	Subcontract and direct material costs				—			—			—			—
Service Revenue					—			—			—			—
Operating Expenses
	Administrative expenses				2,641			2,864			5,269			6,603
Operating Loss					(2,641	)		(2,864	)		(5,269	)		(6,603	)
Other Income
	Equity income in earnings of affiliate, net of amortization of $881 for each of the three months ended June 30, 2002 and 2001 and $1,762 for each of the six months ended June 30, 2002 and 2001				3,382			3,003			7,026			5,822
	Gain on sale of securities				—			—			106			—
	Interest income				135			361			259			1,326
Income from Continuing Operations Before Income Tax					876			500			2,122			545
Income tax expenses					(379	)		(995	)		(926	)		(1,014	)
Income (Loss) From Continuing Operations					497			(495	)		1,196			(469	)
	Loss from discontinued operations, net of tax				(127	)		(367	)		(197	)		(367	)
Net Income (Loss)					370			(862	)		999			(836	)
Preferred stock dividends					(1,094	)		(887	)		(2,172	)		(887	)
Loss Applicable to Common Shareholders				$	(724	)	$	(1,749	)	$	(1,173	)	$	(1,723	)
Basic and Diluted Loss Per Common Share:
	Continuing operations, net of tax			$	(0.38	)	$	(1.28	)	$	(0.62	)	$	(1.88	)
	Discontinued operations, net of tax				(0.08	)		(0.34	)		(0.12	)		(0.51	)
Net Loss Per Share				$	(0.46	)	$	(1.62	)	$	(0.74	)	$	(2.39	)
Weighted average shares for basic and diluted earnings per common share					1,590			1,079			1,589			720
Comprehensive Income
	Net Income (Loss)			$	370		$	(862	)	$	999		$	(836	)
	Other Comprehensive Income (Loss):
		Realization of gain on securities, net of tax			—			—			(393	)		—
		Change in cumulative foreign translation adjustments			23			(60	)		10			(39	)
			Total Comprehensive Income (Loss)	$	393		$	(922	)	$	616		$	(875	)

See notes to consolidated financial statements.

F-57

KAISER GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

					For the Six Months ended June 30,
					2002			2001
					(Unaudited)
Operating Activities:
	Net income (loss)				$	999		$	(836	)
	Adjustments to reconcile net income to net cash used in operating activities:
		Loss of discontinued operations, net of tax				197			367
		Deferred taxes related to continuing operating activities				(1,423	)		—
		Gain on sale of stock				(106	)		—
		Equity in unconsolidated affiliate				(7,026	)		(5,822	)
		Changes in operating assets and liabilities:
			Contract receivables, net			—			1,458
			Prepaid expenses and other current assets			70			524
			Accounts payable and accrued expenses			1,170			(3,559	)
			Income taxes payable			1,299			32
			Other operating activities			81			681
				Net Cash Used In Operating Activities before claims resolution activities		(4,739	)		(7,155	)
	Distributions to allowed class 3 claim holders					—			(912	)
				Net Cash Used in Operating Activities		(4,739	)		(8,067	)
Investing Activities:
	Distributions from 50% owned affiliate					6,450			1,950
	Proceeds from sale of stock					5,961			—
				Net Cash Provided by Investing Activities		12,411			1,950
Financing Activities:
	Establishment of cash reserve for unresolved claims					—			(12,331	)
	Distribution to allowed class 4 claim holders					—			(12,793	)
	Repurchase of New Common stock pursuant to buy back					—			(125	)
	Transfer to restricted cash					(626	)		—
	Payment of preferred stock dividends					(2,206	)		(156	)
	Purchase of preferred treasury stock					(244	)		—
				Net Cash (Used by) Provided by Financing Activities		(3,076	)		(25,405	)
Increase (decrease) in Cash and Cash Equivalents						4,596			(31,522	)
Cash and Cash Equivalents at Beginning of Period						8,848			41,344
Cash and Cash Equivalents at End of Period					$	13,444		$	9,822

See notes to consolidated financial statements.

F-58

KAISER GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.

Basis of Presentation

        The accompanying consolidated financial statements of Kaiser Group Holdings, Inc. and subsidiaries (the Company), except for the December 31, 2001 balance sheet (derived from audited financial statements), are unaudited and have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP 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 and the other information included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. Certain reclassifications have been made to the prior period financial statements to conform them to the presentation used in the June 30, 2002 financial statements.

        Kaiser Group Holdings, Inc. is a Delaware holding company that was formed on December 6, 2000 for the purpose of owning all of the outstanding stock of Kaiser Group International, Inc. (Old Kaiser), which in turn continues to own the stock of its remaining subsidiaries. On June 9, 2000, Old Kaiser and 38 of its domestic subsidiaries voluntarily filed for protection under Chapter 11 of the United States Bankruptcy Code in the District of Delaware (case nos. 00-2263 to 00-2301). Old Kaiser emerged from bankruptcy with an approved plan of reorganization (the Second Amended Plan of Reorganization (Plan)) that was effective on December 18, 2000 (Effective Date). The Company is deemed a "successor issuer" to Old Kaiser by virtue of Rule 12-g 3(a) under the Securities Exchange Act of 1934. References to the "Company" or "Kaiser Holdings" in this report refer to Kaiser Group Holdings, Inc. and its consolidated subsidiaries. A summary of the Plan for Old Kaiser can be found in a Current Report on Form 8-K dated December 5, 2000 filed by Old Kaiser.

        Currently, apart from resolving remaining bankruptcy claims, the Company has only a limited number of activities, assets and liabilities, primarily consisting of:

•

the ownership of a 50% interest in Kaiser-Hill Company, LLC (Kaiser-Hill), which serves as the general contractor at the U.S. Department of Energy's Rocky Flats Environmental Technology Site near Denver, Colorado, for the performance of a contract for the closure of the site. See Note 6 for summarized financial information.



•

the closeout and resolution of disputes of a completed contract for the engineering and construction of a steel mini-mill for Nova Hut in the Czech Republic (Nova Hut project).



•

the holding of a minority ownership interest in ICF Consulting Group, Inc. (ICF Consulting), a division that Old Kaiser sold in 1999, as well as interest-bearing promissory notes and escrowed cash received in connection with that sale.



•

a wholly owned captive insurance company that is no longer issuing new policies and is simply involved in resolving remaining claims.



•

an ongoing obligation to fund a capped, post-employment medical benefit plan for a fixed group of retirees.

        The Company adopted fresh start reporting in its consolidated balance sheet as of December 31, 2000. The American Institute of Certified Public Accountants' Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" (SOP 90-7), requires that under

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certain circumstances resulting from a bankruptcy, a new entity is created for financial reporting purposes upon the emergence of that entity from bankruptcy. Accordingly, the value of the reorganized enterprise becomes the established amount for the emerging balance of shareholders' equity and any accumulated deficit of the predecessor entity is offset against available paid-in-capital to result in an emerging retained earnings of zero. Additionally, assets and liabilities were recorded at their fair values.

        The value of the emerged enterprise used for fresh start reporting as of December 31, 2000 was $87.5 million and was determined by management with the assistance of independent advisors. The methodology employed involved estimation of the enterprise value taking into consideration a discounted cash flow analysis. The discounted cash flow analysis was based on a seven-year cash flow projection prepared by management, taking into consideration the terminal value of its assets and liabilities as of immediately prior to its emergence from bankruptcy on December 18, 2000. Terminal values of assets and liabilities were determined based either on contracted amounts, actuarial present values and/or management's estimates of the outcome of certain operating activities. Net after-tax cash flows, assuming a 40% effective tax rate, were discounted at 17% in order to take into consideration the risks and uncertainties inherent in such projections. The cash flow projections were based on estimates and assumptions about circumstances and events that have not yet taken place. Estimates and assumptions regarding individual retained matters which form the collective composition of the overall enterprise value as of December 18, 2000 are inherently subject to significant economic and competitive uncertainties and contingencies beyond the control of the Company. Accordingly, there may be differences between projections and actual results because events and circumstances frequently do not occur as expected and may be significant. More specifically, assumptions within the valuation related to the amount and timing of the ultimate performance and related cash flows from the Company's investment in Kaiser-Hill have the greatest impact to the overall enterprise valuation.

2.

General Terms of Plan and Status of Bankruptcy Distributions

        The effectiveness of the Old Kaiser Plan of Reorganization as of December 18, 2000 did not, in and of itself, complete the bankruptcy process. The process of resolving in excess of $500 million of claims initially filed in the bankruptcy is ongoing. Old Kaiser objected to the majority of the unresolved claims, and if such claims are not settled via the objection or dispute resolution processes or other means, they will ultimately be heard and determined by the Bankruptcy Court. Once a claim is resolved with an amount due to the creditor, such portion of the claim is deemed to be an allowed claim by the Bankruptcy Court (an allowed claim). The Company cannot predict with accuracy when the claims resolution process will be complete or what the total amount of allowed claims will be upon completion.

        In very general terms, the Plan contemplated three basic classes of creditors:

•

Allowed "Class 3 claims" against the Old Kaiser bankruptcy estate—generally trade and similar creditors' claims of $20,000 or less—received cash for their claims.



•

Allowed "Class 4 claims", the largest class of claims against the Old Kaiser bankruptcy estate, is made up of creditor claims other than Class 3 claims and equity claims. Class 4 claims included holders of Old Kaiser senior subordinated notes due 2003 (Old Subordinated Notes). Holders of allowed Class 4 claims received a combination of cash and Kaiser Holdings preferred and common stock in respect of their claims. Such holders received one share of Kaiser Holdings' preferred stock (New Preferred) and one share of Kaiser Holdings' common stock (New Common) for each $100 of claims. However, the number of shares of New Preferred issued was reduced by one share for each $55.00 of cash received by the holder of an allowed Class 4 claim.



•

The third class of claims recognized in the Old Kaiser bankruptcy are equity claims, consisting of holders of Old Kaiser common stock (Old Common) and other "Equity Interests" as defined in the Plan. Under the Plan, holders of Equity Interests will receive a number of shares of New

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Common equal to 17.65% of the number of shares of such common stock issued to holders of allowed Class 4 Claims. In the initial distribution, one share of New Common was issued for each 96 shares of previously outstanding Old Common. Additional distributions of New Common may be made in the future as additional shares of New Common are issued to holders of newly allowed Class 4 claims, if any. Apart from holders of Old Common, the only holders of Equity Interests of which the Company is aware are the former shareholders of ICT Spectrum Constructors, Inc., a corporation acquired by merger with a subsidiary of Old Kaiser in 1998. The Bankruptcy Court confirmed the equity nature of those claims.

        Pursuant to the terms of Old Kaiser's Plan, the Company was required to complete its initial bankruptcy distribution within 120 days of the effective date of the Plan. Accordingly, on April 17, 2001, the Company effected its initial distribution. At that time, there were approximately $136.8 million of Class 4 claims that had been allowed in the bankruptcy process. The amount of unresolved claims remaining at April 17, 2001 was approximately $130.5 million.

        To address the remaining unresolved claims, the Bankruptcy Court issued an order on March 27, 2001, establishing an Alternative Dispute Resolution (ADR) procedure whereby the remaining claimants and Old Kaiser produce limited supporting data relative to their respective positions and engage in initial negotiation efforts in an attempt to reach an agreed claim determination. If necessary, the parties are thereafter required to participate in a non-binding mediation before a mediator pre-selected by the Bankruptcy Court. All unresolved claims as of that date are subject to the ADR process. Since April 17, 2001, the date of the initial distribution, $94.9 million of asserted claims have been withdrawn, negotiated or mediated to an agreed amount, resulting in cash payments approximating $0.9 million and issuances of 683 shares of New Preferred and 823 shares of New Common. As of August 9, 2002, the amount of unresolved claims was approximately $43.2 million. The Company expects that substantial progress will continue to be made in the resolution of claims over the balance of 2002. The Company continues to believe that the amount of Class 4 claims ultimately to be allowed in the Old Kaiser bankruptcy proceeding will not exceed $150.0 million. As demonstrated by the claim settlements completed since April 17, 2001, and based on the belief that it is in the best interest of the Company and its current stockholders, the Company has been settling certain remaining Class 4 claims entirely for cash payments in lieu of the combination of cash and New Preferred and New Common as contemplated in the Plan. The Company intends to continue to use this settlement alternative during its resolution of remaining Class 4 claims, but obviously has no ability to determine the effect of the outcome on its overall financial condition in the event such settlements are accepted in the future.

        With respect to the unresolved claims, the Plan required that, at the date of the initial distribution, sufficient cash reserves to be retained by the Company such that if all remaining unresolved claims were ultimately deemed allowed at the originally claimed amount, the Company would be able to satisfy the allowed claims, including dividends accruing on related preferred stock, since April 17, 2001. The cash reserve requirement, and the fact that the Company had not yet received a substantial cash payment the Company asserted it was due from Nova Hut, limited the amount of cash available at the time of the initial distribution to the holders of allowed Class 4 claims. The Company determined that an aggregate of $25.0 million, or approximately $0.09347 per $1.00 of allowed and "deemed allowed" Class 4 claims, was available at the time of the initial distribution to allowed Class 4 claim holders. Thus, more shares of New Preferred were issued than would have been had the claims resolution process advanced more quickly and had more cash been available from the Nova Hut project and/or other sources. Due to the proportion of remaining unresolved Class 4 claims in relation to the total of all resolved and unresolved claims, approximately $12.3 million of the $25.0 million in available cash was reserved and classified as Restricted Cash on April 17, 2001.

        From time-to-time in the future, as remaining unresolved claims are resolved, excess cash to be available from the "reserve" fund (including cash added to "reserve" fund in payment of pro forma

F-61

dividends on retained shares of New Preferred) must be used to redeem outstanding shares of New Preferred.

3.

Treasury Stock

        Pursuant to approval by the Company's Board of Directors, in 2002, the Company has purchased 8,977 shares of outstanding New Preferred at prices ranging from $25.62 to $28.00 per share. The shares are carried at cost.

4.

Earnings Per Share

        Basic earnings per share (EPS) is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. The weighted average shares outstanding for the period ended June 30, 2002 retroactively adjusts for the conversion of the Old Common to New Common effective with the adoption of fresh-start reporting. As additional distributions of New Common are made to holders of newly allowed Class 4 claims, the conversion ratio of 96 shares may be adjusted to reflect the final total number of shares of New Common (as discussed in Note 2).

        Diluted EPS normally includes the weighted-average effect of dilutive securities outstanding during the period. Pursuant to the Plan that was effective as of December 18, 2000, all then outstanding common stock equivalents were cancelled. Accordingly, no anti-dilutive information is presented herein.

        In 2002, the effect of preferred dividends of $1.1 million and $2.2 million has been included in continuing operations in the calculation of basic and diluted earnings per share for the three and six months ended June 30, 2002, respectively. In 2001, the effect of preferred dividends of $0.9 has been included in continuing operations in the calculation of basic and diluted earnings per share for the three and six months ended June 30, 2001.

5.

Net Assets of Discontinued Operations

        The components of the "Net Assets of Discontinued Operations" consist entirely of the carrying value of the net assets of the Nova Hut project. Based on the Company's continued concern over Nova Hut's financial difficulties and the uncertainties of a possible settlement involving the bankruptcy court-sponsored mediation, in the fourth quarter of 2001 the Company established additional reserves to reduce the net carrying value of the remaining Nova Hut project to $6.0 million.

6.

Summarized Financial Information of Kaiser-Hill

        Summarized unaudited financial information of Kaiser-Hill is as follows for the three and six months ended June 30, 2002 and 2001 (in thousands):

	Three Months Ended						Six Months Ended
	June 30, 2002			June 30, 2001			June 30, 2002			June 30, 2001
Gross revenue	$	165,909		$	178,503		$	308,439		$	328,263
Subcontracts and materials		108,545			129,413			201,218			235,159
Service revenue		57,364			49,090			107,221			93,104
Operating expenses		(48,884	)		(41,508	)		(89,732	)		(78,291	)
Other income		47			183			87			354
Net income	$	8,527		$	7,765		$	17,576		$	15,167

7.

Contingencies

        Kaiser Holdings has various obligations and liabilities from its continuing operations, including general overhead expenses in connection with maintaining, operating and winding down the various

F-62

entities and net assets comprising Kaiser Holdings. Additionally, the Company believes contingent liabilities may exist in the following areas:

Nova Hut

        Although Old Kaiser sold its Metals, Mining and Industry business unit in August, 2000, it retained its Netherlands subsidiary, Kaiser Netherlands, B.V., which had been responsible for a turnkey engineering and construction services contract for the Nova Hut project. After construction of the steel mini-mill was complete in 2000, the contract with Nova Hut provided for a maximum of three possible performance tests. The first performance test was completed on November 13, 2000. Kaiser Netherlands believes that the first performance test was successful and that Nova Hut should have agreed to final acceptance of the mini-mill and made final payment of amounts accrued by Kaiser Netherlands throughout the project. Rather, Nova Hut asserted that the first test was not successful. Kaiser Netherlands believes that such contention may have been put forth in response to severe financial constraints on Nova Hut's operations resulting from weakening conditions in the worldwide steel market and of the significant amounts that Kaiser Netherlands believed it was contractually due. To date, this dispute has not been resolved, and Kaiser Netherlands has resorted to legal proceedings to enforce its rights. The primary legal venue at this time is the Delaware bankruptcy proceedings for Old Kaiser, where Old Kaiser has asserted claims against Nova Hut and the International Finance Corporation (IFC), while rejecting substantial claims involving contract breach from Nova Hut and the IFC. The claims filed by Nova Hut and the IFC in the Delaware bankruptcy court have been withdrawn. The Company's claims remain active. The cost of the litigation of this dispute, as well as the cost of a possible ongoing presence in Ostrava, Czech Republic, has had, and may continue to have, a negative impact on the cash flow of Kaiser Netherlands and Kaiser Holdings.

        In February 2002, representatives of the Company, Nova Hut and the IFC met under the auspices of a Delaware bankruptcy court-sponsored mediation. The details of these discussions are subject to a confidentiality agreement. At the date of this Report, there are still no assurances that settlement will ultimately be achieved through the bankruptcy court-sponsored mediation that is still in process.

Kaiser Hill

        Under Kaiser-Hill's contract with the DOE, Kaiser-Hill is not responsible for, and the DOE pays all costs associated with, any liability, including, without limitation, any claims 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 is responsible, but only for the incremental liability, expense, or remediation caused by Kaiser-Hill.

        The Kaiser-Hill contract further provides that Kaiser-Hill will be reimbursed for the reasonable cost of bonds and insurance allocable to the Rocky Flats contract and for liabilities and expenses incidental to these liabilities, including litigation costs, to third parties not compensated by insurance or otherwise. There is an exception to this reimbursement provision applicable to liabilities caused by the willful misconduct, lack of good faith or failure to exercise prudent business judgment by Kaiser-Hill's managerial personnel.

        The clean-up and closure of the DOE's Rocky Flats site involve substantial performance risks. Among other things, Kaiser-Hill's activities at the Rocky Flats site involve the clean-up, packaging and transportation of nuclear waste, and the demolition and destruction of facilities where nuclear weapons

F-63

components were previously produced. Some of the activities have not been previously performed elsewhere, and therefore require the development of innovative and untested approaches. Kaiser-Hill emphasizes safety in its performance, but the nature of the Rocky Flats site and the activities of Kaiser-Hill and its subcontractors at the site are such that serious injuries, or even deaths, are possible. Significant safety incidents at the site could stop or significantly impede the progress of work being performed at the site by Kaiser-Hill and its subcontractors. The DOE contract contemplates that all, or substantially all, of the nuclear waste at Rocky Flats will be transported to other sites operated or managed by the DOE. The appropriate sites for storage of certain of those nuclear wastes have not yet been identified. In addition, third-party objections have arisen with regard to the transportation and storage of nuclear waste at certain sites previously scheduled by the DOE to receive waste from Rocky Flats, including the DOE's Savannah River site in South Carolina. Deliveries of waste to the Savannah River site were delayed as a result of objections interposed by the Governor of South Carolina. Although, deliveries to the Savannah River site have begun, it is possible that similar objections will be raised with respect to the transportation and storage of waste from Rocky Flats at other DOE sites. Although the DOE contract contemplates that the DOE is responsible for providing transportation and storage sites for nuclear waste from Rocky Flats, an ongoing inability to ship plutonium and other nuclear waste to DOE sites poses a substantial risk to the timely closure of the Rocky Flats site, and could interfere with Kaiser-Hill's ability to earn fees to which Kaiser-Hill believes it should be entitled.

        With respect to a revolving credit facility obtained by Kaiser-Hill in November 1999, both parents of Kaiser-Hill granted a first lien security interest to the Kaiser-Hill lenders in all of the ownership and equity interest of Kaiser-Hill and have agreed to cure any events of default by Kaiser-Hill on the facility. As of June 30, 2002 and December 31, 2001, Kaiser-Hill had no outstanding balances on its revolving credit facility.

ICF Consulting

        Kaiser Holdings owns a 10% interest in ICF Consulting, a privately held entity, that was retained by Old Kaiser when it sold its Consulting Group in June 1999. In connection with the sale, the Company accepted two promissory notes as part of the total consideration received. Principal payments on an escrowed and non-escrowed note, in the amounts of $3,250,000 and $3,300,000, respectively, are due June 25, 2006. The notes are subject to reduction in the event that certain divestiture-related contingencies are not resolved as originally anticipated in the related sale agreement. Amounts payable by ICF Consulting on such notes are subject to (1) the rights of holders of ICF Consulting's senior lenders and (2) possible reduction as a result of indemnification claims asserted by ICF Consulting pursuant to the agreements entered into by the parties at the time of Old Kaiser's sale of its Consulting Group. Initially as a result of a technical default of financial covenants in its senior credit agreement, ICF Consulting has not made interest payments on the notes since inception in 1999. Under the terms of the notes, overdue interest bears interest at 12¹/2% per annum.

        Also resulting from the sale agreement, the Company is the beneficiary of an escrowed cash balance totaling $0.8 million held as collateral in the event any applicable indemnification claims are made against the Company by ICF Consulting. On February 12, 2001, ICF Consulting presented the escrow agent with notice that it had claims for indemnification from the Company for amounts significantly exceeding the balance of the escrowed cash and the escrowed note. In December 2001, ICF Consulting proposed a settlement offer to the Company that was far below the stated value of its claims. The Company rejected the ICF Consulting offer and proposed an alternative settlement that was also rejected by ICF Consulting. Based on the developments in 2001, the Company deemed it prudent to establish a $1.0 million reserve, through a reduction of interest income, for uncertainties over the collectibility of the combined carrying value of the escrowed cash, the promissory notes and the interest receivable.

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        In June 2002, a settlement was reached between the Company and ICF Consulting, whereby the Company agreed to restructure the ICF Consulting notes totaling $6.6 million and accrued interest of $0.7 million, net of reserves, for a new promissory note of $6.4 million (New Note). In return ICF Consulting will withdraw its claims against the Company, release the cash in escrow and agree to purchase the Company's 10% ownership in ICF Consulting, carrying value of $1.2 million, for $4.5 million. As of August 13, 2002, the terms of the agreement have not been fully implemented, though the escrow cash was released at the signing of the agreement in July 2002. The accompanying balance sheet does not reflect any adjustments for this transaction because execution of the terms of the settlement cannot be assured. The Company believes that the remaining terms of the agreement will be implemented in the third quarter of 2002.

Kaiser Government Programs, Inc.'s (KGP) Put Rights

        KGP is the Company subsidiary that owns the 50% interest in Kaiser-Hill Company, LLC. KGP has outstanding put rights, expiring on December 31, 2007, that obligate it to purchase New Preferred owned by a holder of the put right, at the holder's option, under three circumstances (KGP Put Rights):

•

if KGP receives net after-tax proceeds from any cash distributions from Kaiser-Hill that, on a quarterly basis, exceed 2.8 times the amount of cash required to pay all past accrued but unpaid cash dividends on the New Preferred distributed to holders of Old Subordinated Notes pursuant to the Plan, plus the next scheduled quarterly cash dividend on New Preferred;



•

if KGP receives net after-tax proceeds from any direct or indirect disposition of any interest in Kaiser-Hill; or



•

if KGP receives net after-tax proceeds from an extraordinary distribution from Kaiser-Hill.

        Upon exercise of a put, KGP will pay an exercising holder 100% of the liquidation preference of the New Preferred that is the subject of the KGP Put Rights, plus all accrued and unpaid dividends on the New Preferred. KGP will purchase shares of New Preferred on a pro rata basis based upon the number of shares of preferred stock as to which puts have been properly exercised, but only up to the amount of the available net after-tax proceeds from triggering events. KGP will not purchase any fractional shares. KGP Put Rights will not become exercisable more frequently than every 12 months unless the cumulative amount of available net after-tax proceeds from triggering events is at least $3 million. KGP Put Rights are transferable,except that the KGP Put Rights shall cease to be transferable if KGP determines that any further transfer would require registration of the KGP Put Rights as a class of securities under the Securities Exchange Act of 1934. Kaiser Holdings does not presently plan to arrange for trading of the KGP Put Rights.

Redemption of New Preferred

        The Company has the option to redeem the New Preferred at any time, in whole or in part, at a redemption price of 100% of the liquidation preference per share plus all accrued and unpaid dividends. In addition, any net proceeds in excess of $3 million in a calendar year received by the Company or any of its direct or indirect subsidiaries from the disposition of assets to an unaffiliated party outside of the ordinary course of business must be used to redeem New Preferred at a redemption price of 100% of the liquidation preference per share plus all accrued and unpaid dividends. Furthermore, to the extent that any cash is received from Nova Hut, it must be used to redeem New Preferred at a redemption price of 100% of the liquidation preference per share plus all accrued and unpaid dividends.

        All outstanding shares of New Preferred are required to be redeemed by the Company on or before December 31, 2007, and if such redemption does not occur, holders of New Preferred will be

F-65

entitled to elect two-thirds of the directors of the Company. If shares of New Preferred are held by any affiliate of the Company, those shares may not be redeemed pursuant to any of the redemption provisions otherwise applicable to the New Preferred.

8.

Partial Subsidiary Guarantor Information (Unaudited).

        The Company as presented below (Parent and Non-Guarantor Subsidiaries) represents the Company exclusive of Kaiser Government Programs, Inc., which will be the partial subsidiary guarantor of the 8¹/4% Senior Notes due 2007 proposed to be issued.

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KAISER GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 2002
(In thousands)

	Parent and Non-Guarantor Subsidiaries			Subsidiary Guarantor		Eliminations			Kaiser Group Holdings, Inc. Consolidated
	(Unaudited)
Assets
Current Assets
Cash and cash equivalents	$	13,444		$	—	$	—		$	13,444
Restricted cash and cash equivalents		16,406			—		—			16,406
Marketable securities available for sale		—			—		—			—
Intercompany receivables, net		(32,292	)		32,292		—			—
Prepaid expenses and other current assets		1,773			—		—			1,773
Net assets of discontinued operations		6,000			—		—			6,000
Total Current Assets		5,331			32,292		—			37,623
Other Assets
Investment in and advances to affiliates		58,209			25,856		(54,260	)		29,805
Notes receivable		6,550			—		—			6,550
Deferred tax assets		7,449			—		—			7,449
Other long-term assets		222			—		—			222
		72,430			25,856		(54,260	)		44,026
Total Assets	$	77,761		$	58,148	$	(54,260	)	$	81,649
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and other accrued expenses	$	1,195		$	—	$	—		$	1,195
Post-retirement benefit plan obligation		7,333			—		—			7,333
Other accrued expenses		5,818			—		—			5,818
Preferred stock dividend payable		709			—		—			709
Income taxes payable		2,639			—		—			2,639
Total Current Liabilities		17,694			—		—			17,694
Commitments and Contingencies
Preferred stock		62,519			—		—			62,519
Common Stock		6,882			1		(6,867	)		16
Capital in excess of par		47,818			—		(42,167	)		5,651
Accumulated Earnings (Deficit)		(56,879	)		58,147		(5,226	)		(3,958	)
Treasury stock		(244	)		—		—			(244	)
Accumulated other comprehensive (loss) income		(29	)		—		—			(29	)
Total Liabilities and Shareholders' Equity	$	77,761		$	58,148	$	(54,260	)	$	81,649

F-67

KAISER GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
Six Months Ended June 30, 2002
(In thousands)

		Parent and Non-Guarantor Subsidiaries			Subsidiary Guarantor			Eliminations			Kaiser Group Holdings, Inc. Consolidated
		(Unaudited)
Gross Revenue		$			$	—		$	—		$	—
	Subcontract and direct material costs		—			—			—			—
Service Revenue			—			—			—			—
Operating Expenses
	Administrative expenses		5,269			—			—			5,269
Operating Income (Loss)			(5,269	)		—			—			(5,269	)
Other Income (Expense)
	Equity in earnings of affiliate		4,256			7,026			(4,256	)		7,026
	Gain on sale of securities		106			—			—			106
	Interest income		259			—			—			259
Income (Loss) From Continuing Operations
Before Income Tax			(648	)		7,026			(4,256	)		2,122
	Income tax (expense) benefit		1,844			(2,770	)		—			(926	)
Income (Loss) From Continuing Operations			1,196			4,256			(4,256	)		1,196
	Loss from discontinued operations (net of tax)		(197	)		—			—			(197	)
Net Income (Loss)		$	999		$	4,256		$	(4,256	)	$	999

F-68

KAISER GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
Three Months Ended June 30, 2002
(In thousands)

		Parent and Non-Guarantor Subsidiaries			Subsidiary Guarantor			Eliminations			Kaiser Group Holdings, Inc. Consolidated
		(Unaudited)
Gross Revenue		$	—		$	—		$	—		$	—
	Subcontract and direct material costs		—			—			—			—
Service Revenue			—			—			—			—
Operating Expenses
	Administrative expenses		2,641			—			—			2,641
Operating Income (Loss)			(2,641	)		—			—			(2,641	)
Other Income (Expense)
	Equity in earnings of affiliate		2,047			3,382			(2,047	)		3,382
	Gain on sale of securities		—			—			—			—
	Interest income		135			—			—			135
Income (Loss) From Continuing Operations
Before Income Tax			(459	)		3,382			(2,047	)		876
	Income tax (expense) benefit		956			(1,335	)		—			(379	)
Income (Loss) From Continuing Operations			497			2,047			(2,047	)		497
	Loss from discontinued operations (net of tax)		(127	)		—			—			(127	)
Net Income (Loss)		$	370		$	2,047		$	(2,047	)	$	370

F-69

KAISER GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Six Months Ended June 30, 2002
(In thousands)

		Parent and Non-Guarantor Subsidiaries			Subsidiary Guarantor			Eliminations		Kaiser Group Holdings, Inc. Consolidated
		(Unaudited)
Net Cash Provided by (Used in) Operating Activities		$	1,711		$	(6,450	)	$	—	$	(4,739	)
Investing Activities
Distributions from 50% owned affiliate			—			6,450			—		6,450
Proceeds from sale of stock			5,961			—			—		5,961
	Net Cash Provided by (Used in) Investing Activities		5,961			6,450			—		12,411
Financing Activities
Transfer of restricted cash			(626	)		—			—		(626	)
Payment of preferred stock dividends			(2,206	)		—			—		(2,206	)
Purchase of preferred treasury stock			(244	)		—			—		(244	)
	Net Cash Provided by (Used in) Financing Activities		(3,076	)		—			—		(3,076	)
Increase (Decrease) in Cash and Cash Equivalents			4,596			—			—		4,596
Cash and Cash Equivalents at Beginning of Period			8,848			—			—		8,848
Cash and Cash Equivalents at End of Period		$	13,444		$	—		$	—	$	13,444

F-70

INFORMATION NOT REQUIRED IN PROSPECTUS/CONSENT SOLICITATION STATEMENT

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

        We are incorporated under the laws of the State of Delaware. Section 145 of the Delaware General Corporation Law provides that a Delaware corporation may indemnify any persons who are, or are threatened to be made, parties to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person was an officer, director, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the corporation's best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his conduct was illegal. A Delaware corporation may indemnify any persons who are, or are threatened to be made, a party to any threatened, pending or completed action or suit by or in the right of the corporation by reason of the fact that such person was a director, officer, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys' fees) actually and reasonably incurred by that person in connection with the defense or settlement of such action or suit, provided such person acted in good faith and in a manner that such person reasonably believed to be in (or not opposed to) the corporation's best interests except that no indemnification is permitted without judicial approval if the officer or directors is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify his against the expenses which such officer or director has actually and reasonably incurred.

        The sections of our Certificate of Incorporation and Bylaws relating to indemnification of directors and officers provide for mandatory indemnification of directors and officers on generally the same terms as permitted by the Delaware Law.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Exhibits (listed according to the number assigned in the table in Item 601 of Regulation S-K).

Exhibit No. 2—Plan of Acquisition, reorganization, arrangement, liquidation or succession

2(a)    Second Amended Plan of Reorganization (Incorporated by reference to Exhibit 2 to Current Report on Form 8-K (Registrant No. 1-12248) filed with the Commission on December 14, 2000)

Exhibit No. 3—Articles of Incorporation and By-laws of the Registrant

3(a)    Certificate of Incorporation of Kaiser Group Holdings, Inc. (Incorporated by reference to Exhibit 3(i) to Current Report on Form 8-K (Registrant No. 1-12248) filed with the Commission on December 14, 2000)

3(b)    By-laws of Kaiser Group Holdings, Inc. (Incorporated by reference to Exhibit 3(ii) to Current Report on Form 8-K (Registrant No. 1-12248) filed with the Commission on December 14, 2000)

Exhibit No. 4—Instruments Defining the Rights of Security Holders, including Indentures

4(a)    Form of Amended and Restated Put Agreement relating to preferred stock of Kaiser Group Holdings, Inc.

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4(b)    Form of Indenture regarding exchange notes registered by and issuable in exchange offer described in this registration statement.

Exhibit No. 5—Opinion re Legality

5    Opinion of Squire, Sanders & Dempsey L.L.P. regarding securities being registered

Exhibit No. 8—Opinion re Tax Matters

8    Opinion of Squire, Sanders & Dempsey L.L.P. regarding tax consequences

Exhibit No. 10—Material Contracts

10(a)    Kaiser Group International, Inc. Employee Stock Ownership Plan (as amended and restated as of January 1, 1996). (Incorporated by reference to Exhibit No. 10(b) to Annual Report on Form 10-K (Registrant No. 1-12248) filed with the Commission on April 17, 2000)

        1.    Amendment No. 1 with the effective date of January 1, 1998 (Incorporated by reference to Exhibit No. 10(b)(1) to Annual Report on Form 10-K (Registrant No. 1-12248) filed with the Commission on April 17, 2000)

        2.    Amendment No. 2 with the effective date of January 1, 1996 (Incorporated by reference to Exhibit No. 10(b)(2) to Annual Report on Form 10-K (Registrant No. 1-12248) filed with the Commission on April 17, 2000)

        3.    Amendment No. 3 dated April 19, 1999. (Incorporated by reference to Exhibit No. 10(b)(3) to Annual Report on Form 10-K (Registrant No. 1-12248) filed with the Commission on April 17, 2000)

        4.    Amendment No. 4 dated June 25, 1999. (Incorporated by reference to Exhibit No. 10(b)(4) to Annual Report on Form 10-K (Registrant No. 1-12248) filed with the Commission on April 17, 2000)

10(b)    Trust Agreement with Vanguard Fiduciary Trust Company dated as of August 31, 1995, for ICF Kaiser International, Inc. Employee Stock Ownership Plan (Incorporated by reference to Exhibit No. 10(c) to Registration Statement on Form S-1 (Registrant No. 33-64655) filed with the Commission on November 30, 1995)

10(c)    ICF Kaiser International, Inc. Retirement Plan (as amended and restated as of March 1, 1993) (and further amended with respect to name change only as of June 26, 1993) (Incorporated by reference to Exhibit No. 10(d) to Quarterly Report on Form 10-Q (Registrant No. 1-12248) for the second quarter of fiscal 1994 filed with the Commission on October 15, 1993)

        1.    Amendment No. 1 dated April 24, 1995 (Incorporated by reference to Exhibit No. 10(d)(1) to Annual Report on Form 10-K (Registrant No. 1- 12248) filed with the Commission on May 23, 1995)

        2.    Amendment No. 2 dated December 15, 1995 (Incorporated by reference to Exhibit No. 10(d)(2) to Transition Report on Form 10-K (Registrant No. 1-12248) for the transition period from March 1, 1995 to December 31, 1995 filed with the Commission on March 29, 1996)

        3.    Amendment No. 3 dated December 13, 1996 (Incorporated by reference to Exhibit No. 10(d)(3) to Registration Statement on Form S-1 (Registrant No. 333-19519) filed with the Commission on January 10, 1997)

        4.    Amendment No. 4 dated April 19, 1999 (Incorporated by reference to Exhibit No. 10(d)(4) to Annual Report on Form 10-K (Registrant No. 1-12248) filed with the Commission on April 17, 2000)

        5.    Amendment No. 5 dated June 25, 1999 (Incorporated by reference to Exhibit No. 10(d)(5) to Annual Report on Form 10-K (Registrant No. 1-12248) filed with the Commission on April 17, 2000)

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        6.    Amendment No. 6 dated August 30, 1999 (Incorporated by reference to Exhibit No. 10(d)(6) to Annual Report on Form 10-K (Registrant No. 1-12248) filed with the Commission on April 17, 2000)

        7.    Amendment No. 7 dated April 13, 2000 (Incorporated by reference to Exhibit 10(d)(7) on Form 8-K (Registrant No. 1-12248) filed with the Commission on May 2, 2000)

        8.    Amendment No. 8 dated June 8, 2000 (Incorporated by reference to Exhibit 10(d)(8) to Quarterly Report on Form 10-Q (Registrant No. 1-12248) for the second quarter of fiscal 2000 filed with the Commission on September 6, 2000)

10(d)    Trust Agreement with Vanguard Fiduciary Trust Company dated as of August 31, 1995, for ICF Kaiser International, Inc. Retirement Plan (Incorporated by reference to Exhibit No. 10(e) to Registration Statement on Form S-1 (Registrant No. 33-64655) filed with the Commission on November 30, 1995)

10(e)    ICF Kaiser International, Inc. Section 401(k) Plan (as amended and restated as of March 1, 1993) (and further amended with respect to name change only as of June 26, 1993) (Incorporated by reference to Exhibit No. 10(f) to Quarterly Report on Form 10-Q (Registrant No. 1-12248) for the second quarter of fiscal 1994 filed with the Commission on October 15, 1993)

        1.    Amendment No. 1 dated April 24, 1995 (Incorporated by reference to Exhibit No. 10(p)(1) to Annual Report on Form 10-K (Registrant No. 1-12248) for fiscal 1995 filed with the Commission on May 23, 1995)

        2.    Amendment No. 2 dated December 15, 1995 (Incorporated by reference to Exhibit No. 10(p)(2) to Transition Report on Form 10-K (Registrant No. 1-12248) for the transition period from March 1, 1995 to December 31, 1995 filed with the Commission on March 29, 1996)

        3.    Amendment No. 3 dated December 13, 1996 (Incorporated by reference to Exhibit No. 10(q)(3) to Registration Statement on Form S-1 (Registrant No. 333-19519) filed with the Commission on January 10, 1997)

        4.    Amendment No. 4 dated April 8, 1999 (Incorporated by reference to Exhibit No. 10(k)(4) to Annual Report on Form 10-K (Registrant No. 1-12248) filed with the Commission on April 17, 2000)

        5.    Amendment No. 5 dated June 25, 1999 (Incorporated by reference to Exhibit No. 10(k)(5) to Annual Report on Form 10-K (Registrant No. 1-12248) filed with the Commission on April 17, 2000)

        6.    Amendment No. 6 dated April 13, 2000 (Incorporated by reference to Exhibit 10(k)(6) on Form 8-K (Registrant No. 1-12248) filed with the Commission on May 2, 2000)

        7.    Amendment dated January 1, 2001. (Incorporated by reference to Exhibit No. 10(m)(7) to Annual Report on Form 10-K (Registrant No. 1-2248) filed with the Commission on March 30, 2001)

10(f)    Trust Agreement with Vanguard Fiduciary Trust Company dated as of March 1, 1989, for the ICF Kaiser International, Inc. Section 401(k) Plan (Incorporated by reference to Exhibit No. 28(b) to Registration Statement on Form S-8 (Registrant No. 33-51460) filed with the Commission on August 31, 1992)

10(g)    Asset Purchase Agreement between The IT Group, Inc. and ICF Kaiser International, Inc. dated March 9, 1999 (Incorporated by reference to Exhibit C to Registration Statement on Form 8-K (Registrant No. 1- 12248) filed with the Commission on April 23, 1999)

10(h)    Exchange offer Agreement among ICF Kaiser International, Inc., ICF Consulting Group Holdings, LLC and Clement International Corporation dated May 21, 1999 (Incorporated by reference to Exhibit C to Registration Statement on Form 8-K (Registrant No. 1-12248) filed with the Commission on July 15, 1999)

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10(i)    Contract between Kaiser-Hill Company, LLC, a subsidiary of the Corporation, and the U.S. Department of Energy dated January 24, 2000 (Incorporated by reference to Exhibit No. 10(o) to Annual Report on Form 10-K (Registrant No. 1-12248) filed with the Commission on April 17, 2000)

10(j)    Master Transaction Agreement between Tyco Group S.a.r.l. and Kaiser Group International, Inc. dated June 9, 2000 (Incorporated by reference to Exhibit 10(p) to Quarterly Report on Form 10-Q (Registrant No. 1-12248) for the second quarter of fiscal 2000 filed with the Commission on September 6, 2000)

        1.    Amendment No. 1 to the Master Transaction Agreement between Tyco Group S.a.r.l. and Kaiser Group International, Inc. dated June 9, 2000 (Incorporated by reference to Exhibit 10(p)(1) to Quarterly Report on Form 10-Q (Registrant No. 1-12248) for the second quarter of fiscal 2000 filed with the Commission on September 6, 2000)

10(k)    Master Transaction Agreement between Hatch Associates, Inc. and Kaiser Group International, Inc. dated July 6, 2000 (Incorporated by reference to Exhibit 10(q) to Quarterly Report on Form 10-Q (Registrant No. 1-12248) for the second quarter of fiscal 2000 filed with the Commission on September 6, 2000)

10(l)    Assignment of Membership Interest in Hunters Branch Leasing, LLC by and between Kaiser Holdings Unlimited, Inc. (Assignor) and Nutley Partners, LC (Assignee), dated January 1, 2001 (Incorporated by reference to Exhibit No. 10(r) to Annual Report on Form 10-K (Registrant No. 1-12248) filed with the Commission on April 2, 2001)

10(m)    Amended and Restated Employment Agreement with John T. Grigsby, Jr., President and Chief Executive Officer, effective as of December 19, 2000.

10(n)    Kaiser Group Holdings, Inc. 2002 Equity Compensation Plan

Exhibit No. 12—Statement Regarding Computation of Ration of Earnings to Fixed Charges

12    Statement regarding computation of ratio of earnings to fixed charges

Exhibit No. 21—Subsidiaries of the Registrant

21    Consolidated subsidiaries of the Registrant as of September 30, 2002

Exhibit No. 23—Consents of Experts and Counsel

23(a)    Consent of Squire, Sanders & Dempsey L.L.P. (included in opinions filed as Exhibits 5 and 8)

23(b)    Consent of PricewaterhouseCoopers LLP

Exhibit No. 24—Power of Attorney

24    Power of Attorney

Exhibit No. 25—Statement of Eligibility of Trustee

25    Statement of Eligibility and Qualification on Form T-1 of Trustee^*

Exhibit No. 99—Additional Exhibits

99    Form of Letter of Transmittal and Consent Form and related documents^*

*

To be filed by amendment

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ITEM 22. UNDERTAKINGS

        (1)  The undersigned registrant hereby undertakes:

        (a)  To file, during any period in which offers and sales are being made, a post-effective amendment to this registration statement:

        (i)    To include any prospectus/consent solicitation statement required by Section 10(a)(3) of the Securities Act;

        (ii)  To reflect in the prospectus/consent solicitation statement any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high and of the estimated maximum offering range may be reflected in the form of prospectus/consent solicitation statement filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in "Calculation of Registration Fee" table in the effective registration statement; and

        (iii)  To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

provided, however, that paragraphs (a)(i) and (a)(ii) do not apply if the registration statement is on Form S-3, Form S-8 or Form F-3, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to Section 13 of 15(d) of the Exchange Act that are incorporated by reference in the registration statement.

        (b)  That for the purposes of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

        (c)  To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

        (2)  Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

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SIGNATURES

        Pursuant to the requirements of the 1933 Act, the registrant has duly caused this amendment to its registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Fairfax, Virginia on October 18, 2002.

KAISER GROUP HOLDINGS, INC.
By:	/s/  JOHN T. GRIGSBY, JR. Name: John T. Grigsby, Jr. Title: President and Chief Executive Officer

        Pursuant to the requirements of the Securities Act of 1933, this Amendment to registration statement on Form S-4 has been signed below by the following persons in the capacities and on the dates indicated.

	(1) Principal executive officer
Date: October 18, 2002	By	/s/  JOHN T. GRIGSBY, JR. John T. Grigsby, Jr. President and Chief Executive Officer
	(2) Principal financial and accounting officer
Date: October 18, 2002	By	/s/  MARIJO L. AHLGRIMM Marijo L. Ahlgrimm Executive Vice President and Chief Financial Officer
	(3) The Board of Directors
Date: October 18, 2002	By	/s/  JOHN T. GRIGSBY, JR. John T. Grigsby, Jr. Director
Date: October 18, 2002	By	* Jon B. Bennett Director
Date: October 18, 2002	By	/s/  JAMES J. MAIWURM James J. Maiwurm Director

*By:
/s/  JOHN T. GRIGSBY, JR. John T. Grigsby, Jr.
Attorney-in-Fact

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EX-4.A

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Exhibit 4(a)

AMENDED AND RESTATED
PUT AGREEMENT

        THIS AMENDED AND RESTATED PUT AGREEMENT (the "Agreement") is entered into as of the    day of                    , 2002, by and among KAISER GOVERNMENT PROGRAMS, INC., a Delaware corporation ("KGP"), KAISER GROUP HOLDINGS, INC., a Delaware corporation (the "Company"), KAISER K-H HOLDINGS, INC., a Delaware corporation ("K-H Holdings"), and THE BANK OF NEW YORK (the "Depositary"), as agent on behalf of those holders of Old Senior Notes (as hereinafter defined) who have elected to exchange their rights under the Guarantee (as hereinafter defined) for the Put (as hereinafter defined) pursuant to the KGP Exchange Offer (as hereinafter defined) and their successors and assigns.

RECITALS

        WHEREAS, KGP previously issued a guarantee (the "Guarantee") of the 12.0% Senior Subordinated Notes due 2003 (the "Old Senior Notes") of Kaiser Group International, Inc., a Delaware corporation ("Kaiser International");

        WHEREAS, on September 1, 2000, KGP commenced an exchange offer pursuant to Section 3(a)(9) of the Securities Act of 1933 (the "KGP Exchange Offer") whereby holders of Old Senior Notes could exchange their rights under the Guarantee for options (the "Puts") to sell to KGP, on the terms and subject to the conditions set forth herein, shares of Preferred Stock (as hereinafter defined) issued to them under the Plan (as hereinafter defined) in partial satisfaction of Kaiser International's obligations under the Old Senior Notes;

        WHEREAS, certain holders of Old Senior Notes elected to exchange their rights under the Guarantee for the Puts pursuant to the KGP Exchange Offer;

        WHEREAS, on                        , 2002, the Company commenced an exchange offer whereby holders of Preferred Stock could exchange their Preferred Stock and related rights under the Puts for up to $40 million of the Company's 8¹/4% Senior Notes dues 2007 (the "New Senior Notes"), which exchange offer was conditioned on the consents to the amendment of this Agreement by the holders of Preferred Stock representing two-thirds of the liquidation preference of the Preferred Stock subject to the Puts; and

        WHEREAS, such consents were obtained in connection with such exchange offer.

ARTICLE I

DEFINITIONS

Section 1.01 Certain Definitions

        As used in this Agreement, the following terms shall have the following respective meanings:

"Affiliate" of any person means any person directly or indirectly controlling or controlled by or under direct or indirect common control with such person. For purposes of this definition, "control", when used with respect to any person, means 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, and the terms "controlling" and "controlled" have meanings correlative to the foregoing.

1

"Base Fixed Charges" means (i) all past accrued but unpaid cash dividends and interest on Base Obligations plus (ii) the next scheduled quarterly payments of cash dividends and interest on Base Obligations.

"Base Obligations" means the liquidation preference of the Preferred Stock plus the principal amount of the New Senior Notes, in each case outstanding after the completion of the exchange of New Senior Notes for Preferred Stock registered on the Company's Form S-4 Registration Statement filed with the Securities and Exchange Commission, Registration No. 333-                        .

"Certificate(s)" means the certificates in the form of Exhibit A hereto representing the Puts.

"Company" means Kaiser Group Holdings, Inc., a Delaware corporation, and its successors and assigns.

"Depositary" means, with respect to the Puts, The Bank of New York (including its successors and assigns), which shall act as paying agent with respect to exercise of the Puts.

"Excess Proceeds" means the net after-tax proceeds received by KGP from (i) any cash distributions from Kaiser-Hill through K-H Holdings, that, on a quarterly basis, exceed 2.8 times the amount of cash required to pay (a) all Base Fixed Changes, (ii) the disposition of any interest in Kaiser-Hill either by means of a disposition by KGP of shares of K-H Holdings or a disposition by K-H Holdings of all or part of its interest in Kaiser-Hill, (iii) any extraordinary distribution from Kaiser-Hill through K-H Holdings, as reasonably determined by the Board of Directors of the Company, and (iv) any interest paid on Excess Proceeds held by the Depositary. Any and all Excess Proceeds distributed to KGP by the Depositary pursuant to Section 3.04(d) shall become operating capital of KGP and shall not be subject to any limitation on use or disposition under this Agreement or the Puts. For purposes of this definition, "net after-tax proceeds" means the aggregate proceeds received by KGP as a result of any of the transactions described in clauses (i), (ii), (iii) or (iv) of this definition of "Excess Proceeds" after providing for any and all taxes that may be or become due relating to such transaction by any member of the Company's consolidated tax group (for United States federal income tax purposes), as reasonably determined by the Company.

"Final Report" means, with respect to each Period of Exercisability, the written report of the Depositary setting forth the name of each Holder that has properly exercised its Put and the number of shares of Preferred Stock with respect to which such Holder has properly exercised its Put and the amount of all Excess Proceeds held by the Depositary.

"Guarantee" means the Guarantee of KGP with respect to the Old Senior Notes.

"Holders" means the holders of Puts, comprised of holders of Old Senior Notes that exchanged their rights under the Guarantee for Puts, together with any successors and assigns of such holders as regards Puts, as reflected from time to time on the Register for the Puts, except that no Affiliate of KGP or the Company shall be considered to be a Holder for purposes of this Agreement.

"Kaiser-Hill" means Kaiser-Hill Company, LLC, a Colorado limited liability company and an indirect, 50% owned subsidiary of KGP.

"Kaiser International" means Kaiser Group International, Inc, a Delaware corporation.

"KGP" means Kaiser Government Programs, Inc., a Delaware corporation.

"KGP Exchange Offer" means the offer commenced on September 1, 2000, pursuant to Section 3(a)(9) of the Securities Act of 1933, whereby holders of Old Senior Notes could exchange their rights under the Guarantee for options to sell to KGP, on the terms and subject to the

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conditions set forth herein, shares of the Preferred Stock issued to such holders under the Plan in partial satisfaction of Kaiser International's obligations under the Old Senior Notes.

"KGP Report" means, with respect to each Period of Exercisability, the report of KGP to the Depositary setting forth the aggregate Purchase Price payable to each Holder, instructions with respect to the pro rata purchase of shares of Preferred Stock and the number of shares of Preferred Stock, if any, for which the Company must cause new stock certificates to be issued to the holders thereof.

"K-H Holdings" means Kaiser K-H Holdings, Inc., a Delaware corporation, which is a wholly-owned subsidiary of KGP and the owner of 50% of the interests in Kaiser-Hill.

"New Senior Notes" means the Company's 8¹/4% Senior Notes due 2007.

"Old Senior Notes" means Kaiser International's 12.0% Senior Subordinated Notes due 2003 issued pursuant to that certain Indenture dated January 11, 1994, as amended, by and between Kaiser International and The Bank of New York, as Trustee.

"Notice of Exercise" means the notice from a Holder substantially in the form of Exhibit C specifying the maximum number of shares of Preferred Stock with respect to which a Put is being exercised.

"Notice of Triggering Event" means the notice of a Triggering Event given to the Holders by the Depositary substantially in the form of Exhibit B.

"Period of Exercisability" means, with respect to any Triggering Event, the thirty-(30) day period during which Holders may exercise Puts.

"Plan" means the Plan of Reorganization of Kaiser International and its debtor subsidiaries, as confirmed by the Bankruptcy Court and as effective.

"Plan Effective Date" means December 18, 2000.

"Preferred Stock" means the Series 1 Redeemable Cumulative Preferred Stock, $0.01 par value, of the Company.

"Purchase Price" means, for any shares of Preferred Stock with respect to which a Put is exercised, (a) 100% of the liquidation preference of such Preferred Stock, plus (b) all accrued and unpaid dividends thereon, as adjusted from time to time.

"Put(s)" means the option(s) to sell Preferred Stock evidenced by the Certificates, the terms and conditions of which are set forth herein.

"Register" means the list of Holders maintained by the Transfer Agent.

"Transfer Agent" means The Bank of New York or any other entity appointed subsequently by KGP for the purpose of maintaining the Register for the registration of ownership and registration of transfer of the Puts.

"Triggering Event" means any event that results in the receipt by KGP of Excess Proceeds (other than the payment of interest on Excess Proceeds); provided, however, in the event that KGP receives Excess Proceeds within twelve (12) months of a previous Triggering Event, then such Triggering Event shall be deemed to have occurred on the date that is the earlier of (i) twelve (12) months following the previous Triggering Event or (ii) the date on which there is an aggregate of three million dollars ($3,000,000) or more of Excess Proceeds.

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ARTICLE II

GENERAL; FORM OF CERTIFICATE;
EXECUTION, DELIVERY AND ISSUANCE OF CERTIFICATES

Section 2.01 General

        (a)  Each Put shall represent an option of the Holder to require KGP to purchase, on a pro rata basis with the Preferred Stock and New Senior Notes, Preferred Stock at the Purchase Price from Excess Proceeds, all subject to the terms and conditions set forth herein. Puts shall be effective only upon the Plan Effective Date and shall be exercisable only upon the occurrence of a Triggering Event. Notwithstanding anything else provided herein or in any Certificate, all Puts shall expire at 5:00 p.m., New York City time, on December 31, 2007.

        (b)  The Puts shall be transferable, except that no transfer shall be effective unless reflected on the register for the Puts maintained by KGP or an entity appointed by KGP to serve as the registrar and transfer agent for the Puts. Notwithstanding anything to the contrary in the immediately preceding sentence, the Puts shall cease to be transferable and shall become nontransferable if the effect of any further transfer would be to cause KGP to be required to register the Puts as a class of securities under the applicable provisions of the Securities Exchange Act of 1934.

Section 2.02 Form of Certificate

        (a)  Puts shall be evidenced solely by certificates representing the option to sell Preferred Stock to KGP on the terms set forth herein and substantially in the form attached as Exhibit A to this Agreement (the "Certificates").

        (b)  The Certificates (i) shall be issued in registered form only; (ii) shall be dated the date of issuance (whether upon initial issuance, exchange or replacement); and (iii) shall contain such legends and endorsements, each as provided by KGP, typed, stamped, printed, lithographed or engraved, as KGP may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any law, rule or regulation applicable to the Puts or KGP, or to conform to customary usage.

Section 2.03 Execution, Delivery and Issuance of Certificates

        (a)  Certificates evidencing the Puts shall be executed promptly by KGP on or after the Plan Effective Date and delivered to the Depositary for subsequent delivery to those holders of Old Senior Notes that exchange their rights under the Guarantee. The Certificates shall be executed on behalf of KGP by its Chairman, Chief Executive Officer or President or by any of its Vice Presidents, either manually or by facsimile signature. In case any officer of KGP whose signature shall have been placed upon any Certificates shall cease to be the Chairman, Chief Executive Officer, President or a Vice President of KGP before issuance and delivery of the Certificates, such Certificates may, nevertheless, be issued and delivered with the same force and effect as though such person had not ceased to be such officer of KGP.

        (b)  The Depositary shall promptly deliver the Certificates to the Holders at the address provided by such Holders in the KGP Exchange Offer letter of transmittal or thereafter provided by any Holder in writing to the Depositary and KGP.

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ARTICLE III

EXERCISE OF PUTS

Section 3.01 Shares Subject to Put; Deposit of Excess Proceeds; Pro Rata Purchase

        (a)  Upon the occurrence of a Triggering Event, subject to the limitations set forth in this Agreement, each Certificate shall entitle the Holder thereof to require KGP to purchase, at the Purchase Price, any or all Preferred Stock issued to a Holder pursuant to the Plan in partial satisfaction of the Kaiser International's obligations under the Old Senior Notes or subsequently purchased from such a Holder or any subsequent transferee.

        (b)  Within five (5) business days of receipt of any Excess Proceeds, KGP shall deliver the Excess Proceeds to the Depositary by wire transfer of immediately available United States funds for the irrevocable benefit of the Holders.

        (c)  KGP shall purchase shares of Preferred Stock, on a pro rata basis, in accordance with the then outstanding liquidation preference of Preferred Stock and principal amount of New Senior Notes, from the Holders based upon the number of shares of Preferred Stock with respect to which Puts have been properly exercised, but only up to the pro rata amount of the then-existing Excess Proceeds available for the Preferred Stock. The rights of the holders of Preferred Stock to Excess Proceeds are pari passu with the corresponding redemption rights of the New Senior Notes. KGP shall not be required to purchase any fractional shares. To the extent KGP cannot purchase Preferred Stock precisely on a pro rata basis, KGP shall use its reasonable discretion in purchasing the maximum number of whole shares of Preferred Stock purchasable from the Excess Proceeds with respect to which Puts have been properly exercised.

Section 3.02 Notice of Triggering Event

        Within fifteen (15) days of the occurrence or deemed occurrence of a Triggering Event, KGP shall give the Depositary written notice that a Triggering Event has occurred. The notice shall specify the Purchase Price per share of Preferred Stock payable to the Holders upon due exercise of the Puts and shall be accompanied by all documentation reasonably required by KGP in connection with the exercise by the Holders of the Puts. Within five (5) business days, the Depositary shall issue a written notice of occurrence of a Triggering Event ("Notice of Triggering Event") to each Holder (with a copy to KGP) at the address provided by such Holder in writing to the Depositary and KGP and contained in the Register. Such notice shall be dated the date of issuance by the Depositary and shall be in the form of Exhibit B hereto and shall be accompanied by a form of Notice of Exercise and all other documentation reasonably required by KGP or the Depositary in connection with exercise of the Puts.

Section 3.03 Exercise of Puts

        Subject to the terms and conditions set forth in this Agreement, Puts may be exercised by the Holders thereof only within the thirty (30) day period following the date of issuance by the Depositary of a Notice of Triggering Event (the "Period of Exercisability") with respect to any Triggering Event by delivering to the Depositary:

        (a)  A Notice of Exercise in the form of Exhibit C specifying the maximum number of shares of Preferred Stock with respect to which the Put is being exercised;

        (b)  Any stock certificate(s) representing the shares of Preferred Stock with respect to which the Put is being exercised, duly endorsed with signature guaranteed, or accompanied by a properly completed separate stock power;

        (c)  An executed Substitute Form W-9;

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        (d)  The Certificate(s); and

        (e)  Such other documentation reasonably required by KGP or the Depositary in connection with exercise of the Puts.

Section 3.04 Reports of the Depositary; Payment of the Purchase Price; Distribution of Funds to KGP; Issuance of New Certificates

        (a)  During each Period of Exercisability, the Depositary shall provide daily reports to KGP, in the form requested by KGP, of the number of shares of Preferred Stock with respect to which Puts have been properly exercised as of the previous business day. On the business day following expiration of each Period of Exercisability, the Depositary shall issue a written report (a "Final Report") setting forth the name of each Holder that has properly exercised its Put, the number of shares of Preferred Stock with respect to which such Holder has properly exercised its Put and the aggregate amount of all Excess Proceeds held by the Depositary.

        (b)  Within five (5) business days following receipt of the Final Report, KGP shall deliver to the Depositary (i) a report setting forth the aggregate Purchase Price payable to each Holder, instructions with respect to the pro rata purchase of shares of Preferred Stock, and the number of shares of Preferred Stock, if any, for which the Company must cause new stock certificates to be issued and the holders thereof (the "KGP Report"), and (ii) new Certificates representing the number of shares of Preferred Stock, if any, with respect to which each Holder's Put remains unexercised.

        (c)  Following receipt of the items listed in subsection (b) of this Section, the Depositary shall promptly issue payment of the aggregate Purchase Price payable to each Holder that has properly exercised its Put, along with new Certificates representing the number of shares of Preferred Stock, if any, with respect to which each Holder's Put remains unexercised. The Depositary shall simultaneously deliver to the Company, all stock certificates representing the Preferred Stock tendered to it, along with the KGP Report setting forth the number of shares of Preferred Stock, if any, for which the Company must cause new stock certificates to be issued and delivered to the holders thereof.

        (d)  Following payment of the Purchase Price in accordance with subsection (c) above, the Depositary shall distribute to KGP all funds that had been held by the Depositary as Excess Proceeds but that were not required to be paid to Holders as a result of the exercise of Puts during the immediately preceding Period of Exercisability, except that the Depositary shall retain and invest for the irrevocable benefit of the Holders of the Puts any Excess Proceeds that represent fractional shares not purchased by KGP as permitted by the provisions of this Agreement.

        (e)  The Company agrees to promptly issue, or cause the transfer agent for the Preferred Stock to issue, stock certificates representing the shares of Preferred Stock not purchased by KGP pursuant to the exercise of Puts and to deliver such stock certificates to the record holders in accordance with the instructions in the Notice of Exercise.

ARTICLE IV

DEPOSITARY

Section 4.01 Nature of Duties and Responsibilities Assumed

        (a)  KGP hereby appoints the Depositary to act as agent on behalf of the Holders as set forth in this Agreement. The Depositary hereby accepts the appointment as agent on behalf of the Holders and agrees to perform that agency upon the terms and conditions set forth in this

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Agreement, by all of which KGP, K-H Holdings, the Company and the Holders, by their acceptance of this Agreement and the Puts, shall be bound. The Depositary shall not by any act under this Agreement be deemed to make any representation as to validity or authorization of the Puts or the Certificates, or as to the number or kind or amount of any property, stock or other securities deliverable upon exercise of any Put or the correctness of the representations of KGP or the Holders made in the documents that the Depositary receives. The Depositary shall not have any duty to calculate or determine any adjustments with respect to the kind and amount of shares or other securities or any property receivable by Holders upon the exercise of Puts, and the Depositary shall have no duty or responsibility in determining the accuracy or correctness of any such calculation. The Depositary shall not (i) be liable for any recital or statement of fact contained in this Agreement or in the Certificates or for any action taken, suffered or omitted by it in good faith in the belief that any Certificate or any other document or any signature is genuine or properly authorized, (ii) be responsible for any failure on the part of any Holder, KGP, K-H Holdings, or the Company to comply with any of its covenants and obligations contained in this Agreement or in the Certificates or (iii) be liable for any act or omission in connection with this Agreement except for its own gross negligence, bad faith or willful misconduct. The Depositary is hereby authorized to accept instructions with respect to the performance of its duties under this Agreement from the Chief Executive Officer, the President, any Vice President, the Chief Financial Officer, the Treasurer, the Secretary or the Assistant Secretary of KGP and to apply to any such officer for instructions (which instructions will be promptly given in writing when requested), and the Depositary shall not be liable for any action taken or suffered to be taken by it in good faith in accordance with the instructions of any such officer, except for its own gross negligence, bad faith or willful misconduct, but in its discretion the Depositary may in lieu of such instructions accept other evidence of such or may require such further or additional evidence as it may deem reasonable. Any application by the Depositary for written instructions from KGP may, at the option of the Depositary, set forth in writing any action proposed to be taken or omitted by the Depositary under this Agreement and the date on and/or after which such action shall be taken or such omission shall be effective. The Depositary shall not be liable for any action taken by, or omission of, the Depositary in accordance with a proposal included in such application on or after the date specified in such application (which date shall not be less than three business days after the date any officer of KGP actually receives such application, unless any such officer shall have consented in writing to any earlier date) unless prior to taking any such action (or the effective date in the case of an omission), the Depositary shall have received written instructions in response to such application specifying the action to be taken or omitted.

        (b)  The Depositary understands that from time to time it will receive from KGP Excess Proceeds, including, as is permitted by the provisions of this Agreement, Excess Proceeds that will be distributed to Holders of the Puts on a delayed basis. The Depositary shall hold all such Excess Proceeds for the irrevocable benefit of the Holders of the Puts and shall invest such Excess Proceeds in an interest-bearing account designated by KGP and identified as the KGP Excess Proceeds account, until such time as such Excess Proceeds are required to be distributed in accordance with the provisions of this Agreement.

        (c)  The Depositary may execute and exercise any of the rights and powers vested in it under this Agreement or perform any duty under this Agreement either itself or by or through its attorneys, agents or employees, and the Depositary shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. The Depositary shall not be under any obligation or duty to institute, appear in or defend any action, suit or legal proceeding in respect of this Agreement, unless first indemnified to its satisfaction, but this provision shall not affect the power of the Depositary to take such action as the Depositary may consider proper, whether with or without such indemnity. The Depositary shall promptly notify KGP and the Company in writing of any claim made or action, suit or proceeding

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instituted against or arising out of or in connection with this Agreement. No provision of this Agreement shall require the Depositary to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties under this Agreement or in the exercise of its rights if there shall be reasonable grounds for believing that repayment of such funds or adequate indemnification against such risk or liability is not reasonably assured to it.

        (d)  KGP will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further acts, instruments and assurances as may reasonably be required by the Depositary in order to enable it to carry out or perform its duties under this Agreement.

        (e)  The Depositary shall not be liable except for the failure to perform such duties as are specifically set forth in this Agreement, and no implied covenants or obligations shall be read into this Agreement against the Depositary, whose duties and obligations shall be determined solely by the express provisions of this Agreement.

        (f)    The Depositary may rely conclusively and shall be protected in acting upon any order, notice, demand, certificate, opinion or advice of counsel (including counsel chosen by the Depositary), statement, instrument, report or other paper or document (not only as to its due execution and the validity and effectiveness of its provisions but also as to the truth and acceptability of any information therein contained) which is believed by the Depositary to be genuine and to be signed or presented by the proper person or persons, except in case of the gross negligence, bad faith or willful misconduct of the Depositary. The Depositary shall not be bound by any notice or demand, or any waiver, modification, termination or rescission of this Agreement or any of the terms hereof, unless evidenced by a writing delivered to the Depositary signed by the proper party or parties and, if the duties or rights of the Depositary are affected, unless it shall give its prior written consent thereto.

        (g)  The Depositary shall not be responsible for the sufficiency or accuracy of the form of, or the execution, validity, value or genuineness of, any document or property received, held or delivered by it hereunder, or of any signature or endorsement thereof, or for any lack of endorsement thereon, or for any description therein, nor shall the Depositary be responsible or liable to the other parties hereto or to anyone else in any respect on account of the identity, authority or rights of the persons executing or delivering or purporting to execute or deliver any document or property or this Agreement. The Depositary shall have no responsibility with respect to the use or application of any funds or other property paid or delivered by the Depositary pursuant to the provisions hereof. Except for its own gross negligence, bad faith or willful misconduct, the Depositary shall not be liable to the other parties hereto or to anyone else for any loss which may be incurred by reason of any investment of any monies which it holds hereunder.

        (h)  The Depositary shall have the right to assume in the absence of written notice to the contrary from the proper person that a fact or an event by reason of which an action would or might be taken by the Depositary does not exist or has not occurred without incurring liability to the other parties hereto or to anyone else for any action taken or omitted, or any action suffered by it to be taken or omitted, in good faith and in the exercise of its own best judgment, in reliance upon such assumption.

Section 4.02 Right to Consult Counsel

        The Depositary may at any time consult with legal counsel of its selection satisfactory to it (who may be legal counsel for KGP, the Company or any Holder), and the Depositary shall incur no liability or responsibility to KGP, the Company or to any Holder for any action taken, suffered or omitted by it in good faith in accordance with the opinion or advice of such counsel.

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Section 4.03 Compensation and Reimbursement; Indemnification

        KGP agrees to pay to The Bank of New York from time to time such compensation for all services rendered by it in any capacity under this Agreement as the parties shall agree from time to time and to reimburse The Bank of New York for reasonable expenses, advances and disbursements incurred in connection with the execution and administration of this Agreement (including the reasonable compensation and the expenses of its counsel). KGP further agrees to indemnify The Bank of New York for, and to hold it harmless against, any and all loss, liability, damage, claim or expense incurred without gross negligence, bad faith or willful misconduct on its part, arising out of or in connection with the acceptance and administration of this Agreement, including reasonable counsel fees, costs and disbursements (it being understood that such fees, costs and disbursements include those incurred to enforce the provisions of this Agreement), or loss suffered by the Depositary in connection with any action, suit or other proceeding or investigation brought against the Depositary involving any claim, or in connection with any claim or demand, which in any way, directly or indirectly, arises out of or relates to this Agreement, the services of the Depositary hereunder, the monies or other property held by it hereunder or any income earned from investment of such monies. The Depositary shall have a lien for the amount of any such expense or loss on the monies and other property held by it hereunder and shall be entitled to reimburse itself from such monies or property for the amount of any such expense or loss, provided that no such reimbursement by the Depositary shall excuse KGP from its obligations to purchase Preferred Stock that is the subject of a properly exercised Put under the terms of this Agreement. For the purposes hereof, the term "expense or loss" shall include all amounts paid or payable to satisfy any claim, demand or liability, or in settlement of any claim, demand, action, suit or proceeding settled with the express written consent of the Depositary, and all costs and expenses, including, but not limited to, reasonable counsel fees, costs and disbursements, paid or incurred in investigating or defending against any such claim, demand, action, suit, proceeding or investigation. The provisions of this Section 4.03 shall survive the termination of this Agreement and the resignation and replacement of the Depositary, and shall extend to the Depositary's service as Transfer Agent.

Section 4.04 Depositary May Hold KGP and Company Securities

        Except as may be limited by applicable law, the Depositary and any stockholder, director, officer or employee of the Depositary may buy, sell or deal in any securities of KGP, the Company or its Affiliates or become pecuniarily interested in transactions in which KGP, the Company or its Affiliates may be interested, or contract with or lend money to KGP, the Company or its Affiliates or otherwise act as fully and freely as though it were not the Depositary under this Agreement. Nothing in this Agreement shall preclude the Depositary from acting in any other capacity for KGP, the Company or for any other person.

Section 4.05 Resignation and Removal; Appointment of Successor

        (a)  No resignation or removal of the Depositary and no appointment of a successor Depositary shall become effective until the acceptance of appointment by the successor Depositary as provided in this Agreement. The Depositary may resign its duties and be discharged from all further duties and liability under this Agreement (except liability arising as a result of the Depositary's own gross negligence, bad faith or willful misconduct) after giving written notice to KGP. KGP may remove the Depositary upon written notice, and the Depositary shall in such case be discharged from all further duties and liabilities under this Agreement, except as set forth above. The Depositary shall, at KGP's expense, cause to be mailed (by first-class mail, postage prepaid) to each Holder of a Put at its last address as shown on the register maintained by the Depositary a copy of said notice of resignation or notice of removal, as the case may be. Upon

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such resignation or removal, KGP shall appoint in writing a new Depositary. If KGP shall fail to make such appointment within a period of thirty (30) days after it has been notified in writing of such resignation by the resigning Depositary or after such removal, then KGP shall become Depositary until a successor Depositary has been appointed, and the Holder of any Put may apply to any court of competent jurisdiction for the appointment of a new Depositary. Any new Depositary, whether appointed by KGP or by such a court, shall be a corporation doing business under the laws of the United States, any state of the United States, or the District of Columbia, in good standing and having a combined capital and surplus of not less than $50,000,000. The combined capital and surplus of any such new Depositary shall be deemed to be the combined capital and surplus as set forth in the most recent annual report of its condition published by such Depositary prior to its appointment, provided that such reports are published at least annually pursuant to law or to the requirements of a federal or state supervising or examining authority. After acceptance in writing of such appointment by the new Depositary, it shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as the Depositary, without any further assurance, conveyance, act or deed; but if for any reason it shall be necessary or expedient to execute and deliver any further assurance, conveyance, act or deed, the same shall be done at the expense of KGP and shall be legally and validly executed and delivered by the resigning or removed Depositary. Not later than the effective date of any such appointment, KGP shall give notice of the appointment to the resigning or removed Depositary. Failure to give any notice provided for in this Section, however, or any defect in such notice, shall not affect the legality or validity of the resignation or removal of the Depositary or the appointment of a new Depositary, as the case may be.

        (b)  Any corporation into which the Depositary or any new Depositary may be merged or any corporation resulting from any consolidation to which the Depositary or any new Depositary shall be a party or any person to whom the Depositary transfers substantially all of its corporate trust business shall be a successor Depositary under this Agreement without any further act, provided that such corporation (i) would be eligible for appointment as successor to the Depositary under the provisions of Section 4.05(a) or (ii) is a wholly-owned subsidiary of the Depositary. Any such successor Depositary shall promptly cause notice of its succession as Depositary to be mailed (by first class mail, postage prepaid) to each Holder at such Holder's last address as shown on the register maintained by the Depositary.

ARTICLE V

PUT TRANSFERS

Section 5.01 Put Register

        (a)  The Puts shall be issued in registered form only. The Transfer Agent shall keep the Register in which, subject to such reasonable regulations as it may prescribe, it shall provide for the registration of the initial ownership of the Puts and the registration of any subsequent transfers of the Puts, as provided in this Agreement.

        (b)  All Certificates issued upon any registration of transfer of Puts shall be the valid obligations of KGP, evidencing the same obligations and entitled to the same benefits under this Agreement as the Certificates surrendered for such registration of transfer.

Section 5.02 Registration of Transfer

        (a)  Transfers of Puts shall be effective only by the registration of such transfers upon the Register maintained by the Transfer Agent. Holders desiring to transfer Puts shall present to the Transfer Agent for registration of transfer the Certificate(s) evidencing the Puts to be transferred, together with a Transfer Form in the form of Exhibit D to this Agreement specifying the number

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of Puts that the Holder desires to transfer. Such Transfer Form shall be duly endorsed or accompanied by a written instrument of transfer in form satisfactory to the Transfer Agent, duly executed by the Holder or its attorney duly authorized in writing. When Certificate(s) are properly presented to the Transfer Agent with a request to register the transfer of the Puts evidenced by the Certificate(s) in accordance with the requirements under this Agreement, the Transfer Agent shall register the transfer as requested, except as set forth in Section 5.02(e).

        (b)  As part of such registration of transfer of Puts, the Transfer Agent shall cause to be issued to the transferee a Certificate evidencing the Puts transferred to it by the transferring Holder. If a Holder is transferring fewer than all Puts evidenced by a Certificate presented for registration of transfer, the Transfer Agent shall issue to the presenting Holder a new Certificate evidencing the Puts not being transferred.

        (c)  No service charge shall be payable by Holders for any registration of transfer of Puts. KGP may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer of Puts.

        (d)  The Transfer Agent shall retain copies of all letters, notices and other written communications received pursuant to this Section 5.02. If KGP has appointed a third party to serve as the Transfer Agent, KGP shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable written notice to the Transfer Agent.

        (e)  The Transfer Agent shall maintain an accurate count of the aggregate number of holders of Puts as contained in the Register. Whenever the aggregate number of Put holders shall be such that KGP, in its sole discretion exercised in good faith, believes that any requested transfer of Puts would result in a requirement to register the Puts under the Securities Exchange Act of 1934, KGP shall have the absolute right to direct the Transfer Agent to refuse to register such requested transfer, in which case the Transfer Agent shall not register any such requested transfer. The Transfer Agent (together with the Company and KGP, if not serving as the Transfer Agent) shall not be liable for any such refusal to register a requested transfer under the circumstances described in this Section 5.02(e), except for its gross negligence, bad faith or willful misconduct.

ARTICLE VI

COVENANTS

Section 6.01 Covenant of KGP

        KGP covenants that it shall not incur any indebtedness for borrowed money (other than guarantees of indebtedness of Kaiser-Hill in accordance with its historical practices and the guarantee of the redemption rights of the New Senior Notes that correspond with the Puts) unless approved by Holders representing a majority of the number of shares of Preferred Stock with respect to which Puts are then outstanding.

Section 6.02 Covenant of K-H Holdings

        K-H Holdings covenants that it shall distribute to KGP any and all (a) cash received by K-H Holdings from time to time from Kaiser-Hill and (b) proceeds received by K-H Holdings from the disposition by K-H Holdings of all or part of its interest in Kaiser-Hill, in each case as promptly as practicable following such receipt from Kaiser-Hill.

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ARTICLE VII

MISCELLANEOUS

Section 7.01 Rights of Action

        All rights of action in respect of this Agreement are vested in the Holders of the Puts, and any Holder of any Put, without the consent of the Depositary or any Holder of any other Put, may, on such Holder's own behalf and for such Holder's own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company suitable to enforce, or otherwise in respect of, such Holder's rights under this Agreement, including the right to exercise such Holder's Puts in the manner provided in this Agreement.

Section 7.02 Money and Other Property Deposited with the Depositary

        Any money, securities or other property which at any time shall be deposited by KGP or on its behalf with the Depositary pursuant to this Agreement shall be assigned, transferred and set over to the Depositary in trust for the purpose for which such moneys, securities or other property shall have been deposited; but such moneys, securities or other property need not be segregated from other funds, securities or other property of the Depositary except to the extent required by law. The Depositary shall distribute any money deposited with it for payment and distribution to any Holder by mailing by first-class mail a check in such amount as is appropriate, to such Holder at the address shown on the Register maintained by the Depositary, or as it may be otherwise directed in writing by KGP. Any money or other property deposited with the Depositary for payment and distribution to any Holder that remains unclaimed for two years, less one day, after the date the money was deposited with the Depositary shall be paid to KGP upon its request.

Section 7.03 Payment of Taxes

        (a)  KGP will pay all taxes and other governmental charges that may be imposed on KGP or the Depositary in respect of any issuance or delivery of the Puts. KGP will not be required, however, to pay any tax or other charge imposed in connection with surrender of any Certificate upon the exercise of Puts, and in case of such payment, KGP, the Depositary and the Company shall not be required to issue any Certificate or any stock certificate or security or pay any cash or distribute any property until such tax or charge has been paid by the Holder or it has been established to the satisfaction of KGP, the Depositary and the Company that no such tax or other charge is due.

        (b)  To the extent that the Depositary determines in good faith that it is or may be liable for the payment of taxes, including withholding taxes, in respect to income derived from the investment of Excess Proceeds or any payment made hereunder, the Depositary may pay such taxes or make the appropriate withholding and payment. Without limiting the generality of the foregoing, the Depositary may withhold from any payment of monies made by it hereunder such amount as the Depositary estimates to be sufficient to provide for the payment of such taxes not yet paid, and may use the sum withheld for that purpose. The Depositary shall be indemnified and held harmless against any liability for taxes or for withholding, and for any penalties or interest in respect of taxes or withholding, as more fully provided in Section 4.03.

Section 7.04 Surrender of Certificates

        Any Certificate surrendered for exercise shall be promptly canceled by the Depositary. The Depositary shall return such canceled Certificates to KGP; provided, if any mutilated Certificate is surrendered to the Depositary and KGP and the Depositary receive evidence to their satisfaction of the destruction, loss or theft of any Certificate, and there is delivered to KGP and the

12

Depositary such security or indemnity as may be reasonably required by them to save each of them harmless, then KGP shall execute and upon its written request the Depositary shall deliver, in exchange for any such mutilated Certificate or in lieu of any such destroyed, lost or stolen Certificate, a replacement Certificate of like tenor.

        Upon the issuance of any new Certificate under this Section 7.04, KGP may require the payment by the Holder of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation to such issuance and other expenses (including the reasonable fees and expenses of the Depositary) in connection with such issuance.

        Every new Certificate executed and delivered pursuant to this Section 7.04 in lieu of any destroyed, lost or stolen Certificate shall constitute an original contractual obligation of KGP, whether or not the destroyed, lost or stolen Certificate shall be at any time enforceable by anyone, and the Holder of such replacement Certificate shall be entitled to the benefits of this Agreement equally and proportionately with any and all other Certificates duly executed and delivered under this Agreement.

        The provisions of this Section 7.04 are exclusive and shall preclude (to the extent lawful) all other rights or remedies with respect to the replacement of mutilated, destroyed, lost or stolen Certificates.

Section 7.05 Notice

        Any notice or communication by KGP, the Company or the Depositary to the others is duly given if in writing and delivered in person, mailed by first-class mail (registered or certified, return receipt requested), or sent by telecopier or overnight air courier guaranteeing next day delivery, to the other's address:

If to KGP or the Company:

Kaiser Government Programs, Inc.
9302 Lee Highway
Fairfax, Virginia 22031-1207
Fax: (703) 934-3973
Attention: President and Chief Executive Officer

or

Kaiser Group Holdings, Inc.
9302 Lee Highway
Fairfax, Virginia 22031-1207
Fax: (703) 934-3973
Attention: President and Chief Executive Officer

cc: Chief Financial Officer

If to the Depositary:

The Bank of New York
101 Barclay Street, 8 W
New York, New York 10286
Fax: (212) 815-5707
Attention: Corporate Trust Administration

        KGP, the Company or the Depositary by notice to the others may designate additional or different addresses for subsequent notices or communications.

13

        All notices and communications by KGP, the Company or the Depositary to the others shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if telecopied; and the next business day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery.

        All distributions, notices or communications required or permitted to be made or given to a Holder shall be mailed by first-class mail to the Holder's address shown in the Register. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders.

        If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it.

Section 7.06 Persons Benefiting

        This Agreement shall be binding upon and inure to the benefit of KGP, K-H Holdings, the Company and the Depositary, and their respective successors and assigns. Nothing in this Agreement is intended or shall be construed to confer upon any person, other than KGP, K-H Holdings, the Company, the Depositary and the Holders, any right, remedy or claim under or by reason of this or any part of this Agreement.

Section 7.07 Counterpart Originals

        The parties may sign any number of copies of this Agreement. Each signed copy shall be an original, but all of them together represent the same agreement.

Section 7.08 Amendments

        KGP, K-H Holdings and the Company may, without the consent of the Holders of the Puts, by supplemental agreement or otherwise, make any changes or corrections in this Agreement (a) to cure any ambiguity or correct or supplement any provision in this Agreement which may be defective or inconsistent with any other provision in this Agreement or to correct any clerical omission or mistake or manifest error contained in this Agreement, (b) to add to the covenants and agreements for the benefit of the Holders, or surrender any rights or power reserved to or conferred upon KGP or the Company in this Agreement, or (c) that do not adversely affect the interests of the Holders in any material respect. Any other changes or amendments to this Agreement may be made, by supplemental agreement or otherwise, upon the consent of holders of Preferred Stock representing two-thirds of the liquidation preference of Preferred Stock that is subject to the Puts. The Depositary shall join with KGP, K-H Holdings and the Company in the execution and delivery of any such supplemental agreements unless it affects the Depositary's own rights, duties or immunities under this Agreement, in which case such party may, but shall not be required to, join in such execution and delivery. Prior to executing any such supplemental agreement, the Depositary shall be entitled to receive, and shall be protected in relying upon, certificates of KGP, K-H Holdings and the Company and an opinion of counsel which state that the proposed supplemental agreement is in compliance with the terms of this Section 7.08.

Section 7.09 Governing Law

THIS AGREEMENT AND EACH PUT ISSUED UNDER THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.

14

Section 7.10 Headings

        The headings of the Articles and Sections of this Agreement have been inserted for convenience of reference only, are not to be considered a part of this Agreement and shall in no way modify or restrict any of the terms or provisions of this Agreement.

(The balance of this page intentionally left blank.)

15

        IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed, as of the day and year first above written.

KAISER GOVERNMENT PROGRAMS, INC.
By:	Name: Title:
KAISER GROUP HOLDINGS, INC.
By:	Name: Title:
KAISER K-H HOLDINGS, INC.
By:	Name: Title:
THE BANK OF NEW YORK, as Depositary
By:	Name: Title:

16

EXHIBIT A

No. Relating to            shares of Preferred Stock

[Form of Put Certificate]

VOID AFTER 5:00 P.M.
NEW YORK, NEW YORK TIME, DECEMBER 31, 2007

PUTS TO SELL PREFERRED STOCK OF
KAISER GROUP HOLDINGS, INC.

        This certifies that                        (the "Holder") is the registered Holder of a Put (the "Put"). This Put Certificate is issued under and in accordance with an Amended and Restated Put Agreement (the "Put Agreement") dated                        , 2002 by and among Kaiser Government Programs, Inc., a Delaware corporation (the "Purchaser"), Kaiser Group Holdings, Inc. a Delaware corporation (the "Company"), Kaiser K-H Holdings, Inc., a Delaware corporation ("K-H Holdings"), and The Bank of New York, as depositary (the "Depositary"), and is subject to the terms and provisions contained in the Put Agreement, to which terms and provisions the Holder of this Put Certificate consents by acceptance of this Put Certificate. The Put may not be exercised by any party other than the Holder. Each Put entitles the Holder, subject to the provisions contained in this Put Certificate and in the Put Agreement, to require the Purchaser to purchase from the Holder up to the number of shares of Series 1 Redeemable Cumulative Preferred Stock, $0.01 par value, of the Company (the "Preferred Stock") set forth above, subject to adjustment as provided herein, on the terms and for the consideration set forth in the Put Agreement. The Put evidenced by this Put Certificate may be exercised in whole or in part only after the occurrence of a Triggering Event (as defined in the Put Agreement). The Put shall not be exercisable after and shall terminate and become void as of the close of business on December 31, 2007.

        The Put Agreement is incorporated in this Put Certificate by reference and made a part of this Put Certificate. Reference is hereby made to the Put Agreement for a full statement of the respective rights, limitations of rights, duties and obligations of the Purchaser, the Company, K-H Holdings, the Depositary and the Holder of the Put. Capitalized terms not defined in this Put Certificate have the meanings ascribed to them in the Put Agreement. A copy of the Put Agreement may be obtained for inspection by the Holder of this Put Certificate upon written request to the Company at 9302 Lee Highway, Fairfax, Virginia 22031-1207, Attention: Sandra Narbesky.

        Upon the occurrence of a Triggering Event, the Holder may exercise this Put by surrendering at the office of the Depositary, (a) this Put Certificate; (b) a properly completed Notice of Exercise; (c) all certificate(s) representing the shares of Preferred Stock with respect to which the Put is being exercised, duly endorsed with signature guaranteed, or accompanied by a properly completed separate stock power; (d) a properly completed Substitute Form W-9; and (e) such other documentation

A-1

reasonably required by the Purchaser or the Depositary in connection with exercise of the Puts, as set forth in the Notice of Triggering Event.

	KAISER GOVERNMENT PROGRAMS, INC.
	By:	Name: Title:
DATED:

A-2

[Form of Reverse of Put Certificate]

KAISER GOVERNMENT PROGRAMS, INC.

        This Put Certificate and all rights under this Put Certificate are transferable by the registered Holder of this Put Certificate, in whole or in part, on the register maintained by the Transfer Agent, upon surrender of this Put Certificate for registration of transfer at the office of the Transfer Agent maintained for such purpose, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Transfer Agent duly executed by, the registered Holder of this Put Certificate or its attorney duly authorized in writing, with signature guaranteed as specified in the attached Transfer Form, except that no transfer or assignment shall be effective, and any attempted transfer or assignment shall be null and void, if the effect of such transfer or assignment would be to cause the Purchaser to be required to register the Puts as a class of securities under the applicable provisions of the Securities Exchange Act of 1934, as amended. Upon any partial exercise or transfer, the Purchaser will issue and deliver to the Holder a new Put Certificate with respect to any portion not exercised or transferred. No service charge shall be made for issuance or transfer of Put Certificates, but the Purchaser may require payment by the Holder of a sum sufficient to cover any tax or other governmental charge payable in connection with any exercise or partial exercise or transfer or partial transfer.

        The number of shares of Preferred Stock purchasable upon exercise of this Put is subject to adjustment, as reasonably determined by the Company, upon the occurrence of any stock dividends, stock splits and reclassification affecting the Preferred Stock.

        The Puts do not entitle any Holder to any of the rights of a stockholder of the Purchaser or the Company.

        This Put Certificate and the Put Agreement are subject to amendment as provided in the Put Agreement.

        This Put Certificate and all rights under this Put Certificate shall be governed by and construed in accordance with the laws of the State of New York, without regard to principles of conflicts of laws.

A-3

EXHIBIT B

        NOTICE OF TRIGGERING EVENT

        The Depositary hereby provides notice to the Holders that a Triggering Event has occurred under the Put Agreement. The Depositary further provides notice that Excess Proceeds of $                        are available to purchase, on a pro rata basis, up to a maximum of                        shares of Preferred Stock that are subject to the Puts, from Holders that complete and deliver a Notice of Exercise and the related required documentation within 30 days of the date of this Notice of Triggering Event, on the terms and conditions specified in the Put Certificate and the Put Agreement.

Date:                        , 200            

THE DEPOSITARY:
By:	Name: Title:

B-1

EXHIBIT C

        NOTICE OF EXERCISE
(to be executed only upon exercise of Put)

        The undersigned hereby irrevocably elects to exercise the Put with respect to up to a maximum of                        shares of Preferred Stock that are subject to the Put represented by the enclosed Put Certificate, on the terms and conditions specified in the Put Certificate and the Put Agreement referred to in the Put Certificate. The Holder hereby surrenders all right, title and interest in the Preferred Stock (as defined in the Put Agreement), delivers the stock certificate(s) representing the Preferred Stock, and directs that the purchase price therefor shall be paid to the Holder and delivered to the address specified below.

Date:                        ,        

	1
(Signature of Owner)
		(Name Printed in Full)
		(Street Address)
		(City)        (State)        (ZIP Code)
		Signature Guaranteed by:

¹

The signature must correspond with the name as written upon the face of the Put Certificate in every particular, without alteration or enlargement or any change whatsoever, and must be guaranteed.

C-1

EXHIBIT D

        TRANSFER FORM

        FOR VALUE RECEIVED the undersigned registered Holder of this Put Certificate hereby sells, assigns and transfers unto the Assignee(s) named below all of the rights of the undersigned under this Put Certificate, with respect to the number of Puts set forth below:

Name of Assignee(s)

Address

Social Security or other identifying number of assignee(s)

Number of Puts to be Transferred (expressed as number of preferred shares)

and does hereby irrevocably constitute and appoint the Transfer Agent as the undersigned's attorney to make such transfer on the register maintained by the Transfer Agent for that purpose, with full power of substitution in the premises.

Date:                    ,        

	1
(Signature of Owner)
(Street Address)
(City)        (State)        (ZIP Code)
Signature Guaranteed by:

¹

The signature must correspond with the name as written upon the face of the Put Certificate in every particular, without alteration or enlargement or any change whatsoever, and must be guaranteed.

D-1

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Exhibit 4(a)

AMENDED AND RESTATED PUT AGREEMENT
ARTICLE I DEFINITIONS
ARTICLE II GENERAL; FORM OF CERTIFICATE; EXECUTION, DELIVERY AND ISSUANCE OF CERTIFICATES
ARTICLE III EXERCISE OF PUTS
ARTICLE IV DEPOSITARY
ARTICLE V PUT TRANSFERS
ARTICLE VI COVENANTS
ARTICLE VII MISCELLANEOUS

EX-4.B

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Exhibit 4(b)

         KAISER GROUP HOLDINGS, INC.,

as Issuer

and

THE BANK OF NEW YORK,

as Trustee

INDENTURE

Dated as of                            , 2002

$40,000,000

8¹/4% Senior Notes due 2007

CROSS-REFERENCE TABLE*

@@Trust Indenture Act Section		Indenture Section
310		7.09
	(a)(2)	7.09
	(a)(3)	N/A
	(a)(4)	N/A
	(a)(5)	**
	(b)	7.07
	(c)	N/A
311	(a)	**
	(b)	**
	(c)	N.A.
312	(a)	**
	(b)	**
	(c)	**
313	(a)	7.10
	(b)	7.10
	(c)	7.10
	(d)	7.10
314	(a)(1)	4.10
	(a)(2)	**
	(a)(3)	**
	(a)(4)	10.04
	(b)	N.A.
	(c)(1)	10.03
	(c)(2)	10.03
	(c)(3)	N.A.
	(d)	N.A.
	(e)	10.04
	(f)	N.A.
315	(a)	7.01(2)
	(b)	7.05, 10.02
	(c)	7.01(1)
	(d)	7.01(3)
	(e)	6.11
316	(a)(last sentence)	2.08
	(a)(1)(A)	6.05
	(a)(1)(B)	6.04
	(a)(2)	N.A.
	(b)	6.07
	(c)	9.04
317	(a)(1)	7.08
	(a)(2)	7.09
	(b)	2.04
318	(c)	10.01

N.A. means not applicable.

*

This Cross-Reference Table is not part of the Indenture.

**

Included pursuant to Section 318(c) of the Trust Indenture Act of 1939.

TABLE OF CONTENTS

		Page
ARTICLE 1	DEFINITIONS AND INCORPORATOIN BY REFERENCE	1
Section 1.01	Definitions	1
Section 1.02	Other Definitions	7
Section 1.03	Incorporation by Reference of Trust Indenture Act	7
Section 1.04	Rules of Construction	8
ARTICLE 2	THE NOTES	8
Section 2.01	Form and Dating	8
Section 2.02	Execution and Authentication	8
Section 2.03	Registrar and Paying Agent	9
Section 2.04	Paying Agent to Hold Money in Trust	9
Section 2.05	Registration of Transfer and Exchange	9
Section 2.06	Replacement Notes	11
Section 2.07	Outstanding Notes	11
Section 2.08	Treasury Notes	11
Section 2.09	Temporary Notes	11
Section 2.10	Cancellation	11
Section 2.11	Defaulted Interest	12
Section 2.12	CUSIP Numbers	12
Section 2.13	Book-Entry Provisions for Global Notes	12
ARTICLE 3	OPTIONAL AND MANDATORY REDEMPTION	13
Section 3.01	Redemption; Redemption Price	13
Section 3.02	Notices to Trustee and Paying Agent	14
Section 3.03	Selection of Notes to be Redeemed	14
Section 3.04	Notice to Holders	14
Section 3.05	Effect of Notice of Redemption	15
Section 3.06	Deposit of Redemption Price	15
Section 3.07	Notes Redeemed in Part	15
ARTICLE 4	COVENANTS	16
Section 4.01	Payment of Notes	16
Section 4.02	Maintenance of Office or Agency	16
Section 4.03	Payment of Notes in Connection with Plan of Liquidation	16
Section 4.04	Limitations on Restricted Subsidiary Debt and Preferred Stock	17
Section 4.05	Limitations on Restricted Payments	17
Section 4.06	Limitations on Restrictions on Distributions from Restricted Subsidiaries	17
Section 4.07	Limitations on Transactions With Affiliates	17
Section 4.08	Restrictions on Sale of Stock of Restricted Subsidiaries	18
Section 4.09	Limitations on Partial Guarantees	18
Section 4.10	SEC and Other Reports	18
Section 4.11	Corporate Existence	19
Section 4.12	Stay, Extension and Usury Laws	19
Section 4.13	Insurance; Books and Records; Compliance with Law	19
Section 4.14	Inspection and Confidentiality	20
Section 4.15	Compliance Certificate	20

i

ARTICLE 5	SUCCESSORS	21
Section 5.01	Limitations on Mergers and Consolidations	21
Section 5.02	Successor Corporation Substituted	21
ARTICLE 6	DEFAULTS AND REMEDIES	22
Section 6.01	Events of Default	22
Section 6.02	Acceleration	23
Section 6.03	Other Remedies	23
Section 6.04	Waiver of Past Defaults	23
Section 6.05	Control by Majority	23
Section 6.06	Limitations on Suits	23
Section 6.07	Rights of Holders to Receive Payment	24
Section 6.08	Collection Suit by Trustee	24
Section 6.09	Trustee May File Proofs of Claim	24
Section 6.10	Priorities	25
Section 6.11	Undertaking for Costs	25
Section 6.12	Restoration of Rights and Remedies	25
ARTICLE 7	TRUSTEE	25
Section 7.01	Duties of Trustee	25
Section 7.02	Rights of Trustee	26
Section 7.03	Individual Rights of Trustee	27
Section 7.04	Trustee's Disclaimer	27
Section 7.05	Notice of Defaults	27
Section 7.06	Compensation and Indemnity	27
Section 7.07	Replacement of Trustee	28
Section 7.08	Successor Trustee by Merger, etc.	29
Section 7.09	Eligibility; Disqualification	29
Section 7.10	Reports by Trustee to Holders	29
ARTICLE 8	DISCHARGE OF INDENTURE	29
Section 8.01	Termination of Company's Obligations	29
Section 8.02	Application of Trust Money	30
Section 8.03	Repayment to Company	30
Section 8.04	Reinstatement	30
ARTICLE 9	AMENDMENTS	31
Section 9.01	Without Consent of Holders	31
Section 9.02	With Consent of Holders	31
Section 9.03	Compliance with Trust Indenture Act	32
Section 9.04	Revocation and Effect of Consents	32
Section 9.05	Notation on or Exchange of Notes	33
Section 9.06	Trustee to Sign Amendments, etc.	33
ARTICLE 10	MISCELLANEOUS	33
Section 10.01	Trust Indenture Act Controls	34
Section 10.02	Notices	34
Section 10.03	Certificate and Opinion as to Conditions Precedent	35
Section 10.04	Statements Required in Certificate or Opinion	35
Section 10.05	Rules by Trustee and Agents	35
Section 10.06	Legal Holidays	35

ii

Section 10.07	No Recourse Against Others	35
Section 10.08	Governing Law	35
Section 10.09	No Adverse Interpretation of Other Agreements	35
Section 10.10	Successors	35
Section 10.11	Severability	36
Section 10.12	Counterpart Originals	36
Section 10.13	Trustee as Paying Agent and Registrar	36
Section 10.14	Table of Contents, Headings, etc.	36
SIGNATURES		37
EXHIBIT A	FORM OF NOTE	A-1
EXHIBIT B	FORM OF LEGEND FOR GLOBAL NOTES	B-1
EXHIBIT C	CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF NOTES	C-1
EXHIBIT D	FORM OF PARTIAL GUARANTEE	D-1

iii

INDENTURE dated as of                            , 2002, between Kaiser Group Holdings, Inc., a Delaware corporation as issuer (the "Company"), and The Bank of New York, a New York banking corporation (the "Trustee").

        The Company has duly authorized the creation of an issue of 8¹/4% Senior Notes due 2007 (the "Notes"), to be issued and, to provide therefor, the Company has duly authorized the execution and delivery of this Indenture. All things necessary to make the Notes, when duly issued and executed by the Company and authenticated and delivered hereunder, the legal, valid and binding obligations of the Company, and to make this Indenture a legal, valid and binding agreement of the Company, have been done.

        Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of the Notes:

ARTICLE 1

DEFINITIONS AND INCORPORATION
BY REFERENCE

Section 1.01    Definitions

"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.

"Agent" means any Registrar or Paying Agent.

        "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.

        "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal, state or foreign law for the relief of debtors.

        "Base Fixed Charges" means (i) all past accrued but unpaid cash dividends and interest on Base Obligations plus (ii) the next scheduled quarterly payments of cash dividends and interest on Base Obligations.

        "Base Obligations" means the liquidation preference of the Preferred Stock plus the principal amount of the Notes, in each case outstanding after the completion of the exchange of Notes for Preferred Stock registered on the Company's Form S-4 Registration Statement filed with the SEC, Registration No. 333-                        .

        "Board of Directors" for any Person means the Board of Directors of such Person or any authorized committee of the Board of Directors of such Person.

        "Board Resolution" for any Person means a duly adopted resolution of the Board of Directors of such Person.

        "Business Day" means any day other than a Legal Holiday.

        "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 (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 garanteed 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.

        "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.

        "Company" means (i) Kaiser Group Holdings, Inc., a Delaware corporation, and (ii) subject to the provisions of Article 5, in replacement of or in addition to Kaiser Group Holdings, Inc., as the case may be, any successor of Kaiser Group Holdings, Inc.

        "Company Order" means a written order or request signed in the name of the Company by its Chairman, President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee.

        "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) of such Person (excluding any assets that would be classified as "intangible assets" under GAAP) on a consolidated basis at such date, as determined in accordance with GAAP.

        "Corporate Trust Office of the Trustee" means the address of the Trustee specified in Section 10.02 or such other address as the Trustee may give notice to the Company.

        "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law.

        "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.

        "Depositary" means, with respect to the Puts and the KGP Put Agreement, The Bank of New York (including its successors and assigns).

        "Depository" means, with respect to the Notes issued in the form of one or more Global Notes, The Depository Trust Company or another Person designated as Depository by the Company, which must be a clearing agency registered under the Exchange Act.

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        "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 (provided, however, that the Preferred Stock outstanding on the date of this Indenture shall not constitute Disqualified Stock).

        "Excess Proceeds" means the net after-tax proceeds received by KGP from (i) any cash distributions from Kaiser-Hill through K-H Holdings, that, on a quarterly basis, exceed 2.8 times the amount of cash required to pay all Base Fixed Charges, (ii) the disposition of any interest in Kaiser-Hill either by means of a disposition by KGP of shares of K-H Holdings or a disposition by K-H Holdings of all or part of its interest in Kaiser-Hill, (iii) any extraordinary distribution from Kaiser-Hill through K-H Holdings, as reasonably determined by the Board of Directors of the Company, and (iv) any interest paid on Excess Proceeds held by the Depositary. Any and all Excess Proceeds distributed to KGP by the Depositary pursuant to Section 3.04(d) of the KGP Put Agreement shall become operating capital of KGP and shall not then be subject to Section 3.01(c) hereof. For purposes of this definition, "net after-tax proceeds" means the aggregate proceeds received by KGP as a result of any of the transactions described in clauses (i), (ii), (iii) or (iv) of this definition of "Excess Proceeds" after providing for any and all taxes that may be or become due relating to such transaction by any member of the Company's consolidated tax group (for United States federal income tax purposes), as reasonably determined by the Company.

        "Exchange Act" means the Securities Exchange Act of 1934, as amended.

        "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 from time to time.

        "Global Note" means a security evidencing all or a portion of the Notes issued to the Depository or its nominee in accordance with Section 2.01 and bearing the legend set forth in Exhibit B.

        "Holder" means a Person holding a Note.

        "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 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; (v) all Capitalized Lease Obligations of such Person; (vi) all Indebtedness of others secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; (vii) all Indebtedness of others guaranteed by, or otherwise the liability of, such Person to the extent of such guarantee or liability; and (viii) all Attributable Indebtedness.

        "Indenture" means this Indenture as amended, supplemented or modified from time to time.

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        "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.

        "Interest Payment Date" has the meaning assigned to such term in the Notes.

        "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 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.

        "Kaiser-Hill" means Kaiser-Hill Company, LLC, a Colorado limited liability company and an indirect 50% owned subsidiary of KGP.

        "Kaiser-Hill Excess Proceeds Triggering Event" means any event that results in the receipt by KGP of Excess Proceeds (other than the payment of interest on Excess Proceeds); provided, however, in the event that KGP receives Excess Proceeds within twelve (12) months of a previous Kaiser-Hill Excess Proceeds Triggering Event, then such Kaiser-Hill Excess Proceeds Triggering Event shall be deemed to have occurred on the date that is the earlier of (i) twelve (12) months following the previous Kaiser-Hill Excess Proceeds Triggering Event or (ii) the date on which there is an aggregate of three million dollars ($3,000,000) or more of Excess Proceeds.

        "Kaiser International" means Kaiser Group International, Inc., a Delaware corporation, which is a wholly owned subsidiary of the Company and the owner of 100% of the Common Equity of KGP.

        "KGP" means Kaiser Government Programs, Inc., a Delaware corporation which is a wholly owned subsidiary of Kaiser International and the owner of 100% of the Common Equity of K-H Holdings.

        "KGP Put Agreement" means the Put Agreement dated September 1, 2000 by and among KGP, the Company, K-H Holdings and the Depositary (as amended and restated as of                        , 2002).

        "K-H Holdings" means Kaiser K-H Holdings, Inc., a Delaware corporation which is a wholly-owned subsidiary of KGP and the owner of 50% of the interests of Kaiser-Hill.

        "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).

        "Notes" means the 8¹/4% Senior Notes due 2007 of the Company issued pursuant to this Indenture.

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        "Officer" means the Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, the Treasurer, any Assistant Treasurer, Controller, Secretary or any Vice President of the Company, or any other authorized representative designated by the Board of Directors of the Company.

        "Officers' Certificate" means a certificate signed by two Officers, one of whom must be the Company's Chief Executive Officer, Chief Financial Officer or Controller.

        "Opinion of Counsel" means a written opinion from legal counsel who is acceptable to the Trustee. The counsel may be an employee of or counsel to the Company.

        "Partial Guarantee" means the guarantee substantially in the form of Exhibit D to this Indenture executed and delivered by the Partial Guarantor

        "Partial Guarantor" means KGP.

        "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 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.

        "Physical Notes" shall have the meaning given such term in Section 2.01.

        "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.

        "Preferred Stock" means the Series 1 Redeemable Cumulative Preferred Stock, $0.01 par value, of the Company.

        "Put(s)" means the option(s) to sell Preferred Stock under the KGP Put Agreement.

        "Qualified Capital Stock" means Capital Stock that is not Disqualified Stock.

        "Responsible Officer" shall mean, when used with respect to the Trustee, any officer within the corporate trust department of the Trustee, including any vice president, assistant vice president,

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assistant secretary, assistant treasurer, trust officer or any other officer of the Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such person's knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Indenture.

        "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 a 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 (other than a payment solely in Qualified Capital Stock); (iii) any Restricted Investment; or (iv) any Restricted Debt Payment.

        "Restricted Subsidiary" means Kaiser International, KGP and K-H Holdings and each other Subsidiary of the Company, if any, that owns a direct or indirect interest in Kaiser-Hill.

        "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 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.

        "SEC" means the Securities and Exchange Commission.

        "Securities Act" means the Securities Act of 1933, as amended.

        "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.

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        "Supplemental Indenture" shall mean any supplemental indenture, in form satisfactory to the Trustee, executed and delivered pursuant to (a) Article 9 of this Indenture or (b) Sections 4.09 or 5.01(a)(A) of this Indenture.

        "TIA" means the Trust Indenture Act of 1939, as amended, as in effect on the date hereof, except as provided in Section 9.03.

        "Trustee" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder.

        "Unrestricted Subsidiary" means all Subsidiaries of the Company other than Restricted Subsidiaries.

        "U.S. Government Obligations" means direct obligations of the United States of America for the payment of which the full faith and credit of the United States of America is pledged.

        "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.

        "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 or certain minority interests owned by other Persons solely due to local tax considerations or 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 tax considerations or 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.

Section 1.02    Other Definitions

Term	Defined in Section
"Affiliate Transaction"	4.08(a)
"Asset Disposition	3.01(b)(ii)
"Event of Default"	6.01
"incur"	4.04(a)
"Legal Holiday"	10.06
"Net Cash Proceeds	3.01(b)(iii)
"Participants"	2.13
"Paying Agent"	2.03
"Registrar"	2.03
"Successor"	5.01

Section 1.03    Incorporation by Reference of Trust Indenture Act

        Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture.

        All terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them.

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Section 1.04    Rules of Construction

        Unless the context otherwise requires:

(1)

a term has the meaning assigned to it;



(2)

an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP;



(3)

"or" is not exclusive;



(4)

words in the singular include the plural, and in the plural include the singular; and



(5)

provisions apply to successive events and transactions.

ARTICLE 2

THE NOTES

Section 2.01    Form and Dating

        The Notes and the Trustee's certificate of authentication thereof shall be substantially in the form of Exhibit A annexed hereto, which is hereby incorporated in and expressly made a part of this Indenture. The Notes may have notations, legends or endorsements required by law, stock exchange rules or usage. The Company and the Trustee shall approve any notation, legend or endorsement on the Notes. Each Note shall be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof.

        Notes may be issued initially in the form of one or more permanent Global Notes in registered form, substantially in the form set forth in Exhibit A, deposited with the Trustee, as custodian for the Depository, and shall bear the legend set forth on Exhibit B. The aggregate principal amount of any Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depository, as hereinafter provided.

        Notes may also be issued in the form of certificated Notes in registered form, substantially in the form set forth in Exhibit A (the "Physical Notes")

        The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of this Indenture and to the extent applicable the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby.

Section 2.02    Execution and Authentication

        Two Officers shall sign the Notes for the Company by manual or facsimile signature. The Company's seal shall be reproduced on the Notes and may be in facsimile form.

        If an Officer whose signature is on a Note no longer holds that office at the time the Note is authenticated, the Note nevertheless shall be valid.

        A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture.

        The Trustee shall authenticate Notes from time to time for issue only in exchange for a like principal amount of Notes, in each case upon the receipt of a Company Order. The aggregate principal amount of Notes outstanding at any time may not exceed $40,000,000, except as provided in Section 2.06.

        The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each

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reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate.

Section 2.03    Registrar and Paying Agent

        The Company shall maintain an office or agency where Notes may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company shall notify the Trustee of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar.

Section 2.04    Paying Agent to Hold Money in Trust

        The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal of, premium, if any, or interest on the Notes, and will notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary) shall have no further liability for the money. If the Company or a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent.

Section 2.05    Registration of Transfer and Exchange

        (a) Transfer and Exchange of Physical Notes. When Physical Notes are presented to the Registrar with a request:

        (i) to register the transfer of the Physical Notes; or

        (ii) to exchange such Physical Notes for an equal number of Physical Notes of other authorized denominations,

the Registrar shall register the transfer or make the exchange as requested if the requirements under this Indenture as set forth in this Section 2.05 for such transactions are met; provided, however, that the Physical Notes presented or surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by a written instrument of transfer in form satisfactory to the Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing.

        (b) Restrictions on Exchange of a Physical Note for a Beneficial Interest in a Global Note. A Physical Note may not be exchanged for a beneficial interest in a Global Note except upon satisfaction of the requirements set forth below. Upon receipt by the Registrar of a Physical Note, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Registrar, together with a Company Order directing the Registrar to make, or to direct the Depository to make, an endorsement on the applicable Global Note to reflect an increase in the aggregate amount of the Notes represented by the Global Note, then the Registrar shall cancel such Physical Note and cause, or direct the Depository to cause, in accordance with the standing instructions and procedures existing between the Depository and the Registrar, the principal amount of Notes represented by the applicable Global Note to be increased accordingly. If no Global Note is then outstanding, the Company shall issue and

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the Trustee shall, upon a Company Order in accordance with Section 2.02, authenticate such a Global Note in the appropriate principal amount.

        (c) Transfer and Exchange of Global Notes. The transfer and exchange of Global Notes or beneficial interests therein shall be effected through the Depository in accordance with this Indenture (including the restrictions on transfer set forth herein) and the procedures of the Depository therefor.

        (d) Transfer of a Beneficial Interest in a Global Note for a Physical Note. Any Person having a beneficial interest in a Global Note may upon request exchange such beneficial interest for a Physical Note. Upon receipt by the Registrar of a Company Order, or such other form of instructions as is customary for the Depository, from the Depository or its nominee on behalf of any Person having a beneficial interest in a Global Note and upon receipt by the Trustee of a written order or such other form of instructions as is customary for the Depository or the Person designated by the Depository as having such a beneficial interest containing registration instructions then the Registrar will cause, in accordance with the standing instructions and procedures existing between the Depository and the Registrar, the aggregate principal amount of the applicable Global Note to be reduced and, following such reduction, the Company will execute and, upon receipt of an authentication order in the form of an Officers' Certificate in accordance with Section 2.02, the Trustee will authenticate and deliver to the transferee a Physical Note. Notes issued in exchange for a beneficial interest in a Global Note pursuant to this Section 2.05(d) shall be registered in such names and in such authorized denominations as the Depository, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Registrar in writing. The Registrar shall deliver such Physical Notes to the Persons in whose names such Physical Notes are so registered.

        (e) Restrictions on Transfer and Exchange of Global Notes. Notwithstanding any other provisions of this Indenture, a Global Note may not be transferred as a whole except by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of such successor Depository.

        The Registrar shall retain copies of all letters, notices and other written communications received pursuant to Section 2.13 or this Section 2.05. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable written notice to the Registrar.

        No service charge shall be made to a Holder for any registration of transfer or exchange (except as otherwise expressly permitted herein), but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith.

        Without the prior consent of the Company, the Registrar is not required (a) to register the transfer or exchange of any Note selected for redemption, (b) to register the transfer or exchange of any Note for a period of 15 days before a selection of Notes to be redeemed or (c) to register the transfer or exchange of a Note between a record date and the next succeeding interest payment date.

        The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Note (including any transfers between or among Holders or beneficial owners of interests in any Global Note) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by the terms of, this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof.

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Section 2.06    Replacement Notes

        If any mutilated Note is surrendered to the Trustee, or the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Note, the Company shall issue and the Trustee, upon receipt of a Company Order, shall authenticate a replacement Note if the Trustee's requirements are met. The Trustee or the Company may require that the Holder supply an indemnity bond that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent or any authenticating agent from any loss which any of them may suffer if a Note is replaced. The Company may charge for its expenses in replacing a Note.

        Every replacement Note is an additional obligation of the Company.

Section 2.07    Outstanding Notes

        The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation and those described in this Section 2.07 as not outstanding.

        If a Note is replaced pursuant to Section 2.06, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser.

        If the principal amount of any Note is considered paid under Section 4.01, it ceases to be outstanding and interest on it ceases to accrue.

        Except as set forth in Section 2.08, a Note does not cease to be outstanding because the Company or an Affiliate holds the Note.

Section 2.08    Treasury Notes

        In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company or by any Affiliate of the Company shall be considered as though not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes which a Responsible Officer of the Trustee actually knows are so owned shall be so disregarded.

Section 2.09    Temporary Notes

        Until definitive Notes are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of definitive Notes but may have variations that the Company considers appropriate for temporary Notes. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Notes in exchange for temporary Notes.

Section 2.10    Cancellation

        The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee shall dispose of all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation in accordance with its customary procedures. Unless the Company shall direct by a written order signed by two Officers that canceled Notes be returned to it, certification of their destruction shall be delivered to the Company. The Company may not issue new Notes to replace Notes that it has paid or that have been delivered to the Trustee for cancellation, provided, however, that the Trustee shall not be required to destroy Notes.

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Section 2.11    Defaulted Interest

        If the Company defaults in a payment of interest on the Notes, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, any interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01. The Company shall fix each such special record date and payment date. At least 15 days before the record date, the Company (or the Trustee, in the name of and at the expense of the Company) shall mail to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid.

Section 2.12    CUSIP Numbers

        The Company in issuing the Notes may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Notes or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Notes, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the CUSIP numbers.

Section 2.13    Book-Entry Provisions for Global Notes

        (a) The Global Notes initially shall (i) be registered in the name of the Depository or the nominee of such Depository, (ii) be delivered to the Trustee as custodian for such Depository and (iii) bear legends as set forth in Exhibit B.

        Members of, or participants in, the Depository ("Participants") shall have no rights under this Indenture with respect to any Global Note held on their behalf by the Depository, or the Trustee as its custodian, or under the Global Note, and the Depository may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of the Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depository or impair, as between the Depository and Participants, the operation of customary practices governing the exercise of the rights in a Holder of any Note.

        (b)  Transfers of Global Notes shall be limited to transfers in whole, but not in part, to the Depository, its successors or their respective nominees. Interests of beneficial owners in the Global Notes may be transferred or exchanged for Physical Notes in accordance with the rules and procedures of the Depository and the provisions of Section 2.05. In addition, Physical Notes shall be transferred to all beneficial owners in exchange for their beneficial interests in Global Notes if (i) the Depository notifies the Company that it is unwilling or unable to continue as Depository for any Global Note and a successor Depository is not appointed by the Company within 90 days of such notice or (ii) an Event of Default has occurred and is continuing and the Registrar has received a request from the Depository to issue Physical Notes.

        (c)  In connection with the transfer of Global Notes as an entirety to beneficial owners pursuant to paragraph (b) of this Section 2.13, the Global Notes shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall upon receipt of Company Order authenticate and deliver, to each beneficial owner identified by the Depository in exchange for its beneficial interest in the Global Notes, an equal aggregate principal amount of Physical Notes of authorized denominations.

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        (d)  The Holder of any Global Note may grant proxies and otherwise authorize any Person, including Participants and Persons that may hold interests through Participants, to take any action which a Holder is entitled to take under this Indenture or the Notes.

ARTICLE 3

OPTIONAL AND MANDATORY REDEMPTION

Section 3.01    Redemption; Redemption Price

        (a)  Optional Redemption. The Notes will be redeemable at the option of the Company, in whole or in part, at 100% percent of their principal amount, together with accrued and unpaid interest thereon to the redemption date.

(b) Redemption Upon Disposition of Assets. (i) In the event that the Company or any Restricted Subsidiary of the Company engages in any Asset Disposition (as defined in this Section 3.01(b)), the Company shall apply, or cause such Restricted Subsidiary to apply, 100% of the Net Cash Proceeds (as defined in this Section 3.01(b)) of such Asset Disposition to redeem Notes (other than Notes held by any Affiliate of the Company) at a redemption price equal to 100% of their principal amount, together with accrued and unpaid interest thereon to the redemption date.

        (ii) For purposes of this Section 3.01(b), "Asset Disposition" means any sale, lease, transfer or other disposition (or series of related sales, leases, transfers or dispositions that are part of a common plan) (each, for purposes of this definition, referred to as a "disposition") of shares of a Restricted Subsidiary of the Company or of any property or other assets by any Restricted Subsidiary of the Company, including any disposition by means of a merger, consolidation or similar transaction, other than (A) a disposition as between the Company and a Restricted Subsidiary or between Restricted Subsidiaries of the Company, (B) a disposition of inventory or collection of receivables in the ordinary course of business, (C) a disposition of obsolete or worn out equipment or equipment that is no longer useful in the conduct of the business of the Restricted Subsidiaries and that is disposed of in each case in the ordinary course of business, (D) dispositions of property for net proceeds which, when taken collectively with the net proceeds of any other such dispositions under this clause (D) that were consummated since the beginning of the calendar year in which such disposition is consummated, do not exceed $3,000,000.

        (iii) For purposes of this Section 3.01(b), "Net Cash Proceeds" means cash payments received (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, but excluding any other consideration received in the form of assumption of indebtedness or other obligations relating to the properties or assets subject to an Asset Disposition) from an Asset Disposition, in each case net of (A) all legal, title and recording tax expenses, commissions and other fees and expenses incurred, and all Federal, state, foreign and local taxes required to be paid or accrued as a liability under GAAP, as a consequence of such Asset Disposition, (B) all distributions and other payments required to be made to any person owning a beneficial interest in assets subject to sale or minority interest holders in Subsidiaries or joint ventures as a result of such Asset Disposition, (C) the deduction of appropriate amounts to be provided by the seller as a reserve, in accordance with GAAP and as reasonably determined by the Board of Directors of the Company, against any liabilities associated with the assets disposed of in such Asset Disposition, and (D) any portion of the purchase price from an Asset Disposition placed in escrow (whether as a reserve for adjustment of the purchase price, for satisfaction or indemnities in respect of such Asset Disposition or otherwise in connection with such Asset Disposition), provided, however, that upon the termination of such escrow, Net Cash Proceeds shall be increased by any portion of funds therein released to the Company or any Subsidiary.

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        (c) Redemption Upon Kaiser-Hill Excess Proceeds Triggering Event. In the event of a Kaiser-Hill Excess Proceeds Triggering Event, the Company shall apply Excess Proceeds to redeem Notes (other than Notes held by any Affiliate of the Company) at a redemption price equal to 100% of their principal amount, together with accrued and unpaid interest thereon to the redemption date.

        (d) Relative Rights of Holders of Notes and Preferred Stock. The rights of the Holders of Notes and holders of Preferred Stock with respect to redemption as described in Sections 3.01(b) and 3.01(c) as to the Notes and the corresponding terms of the Preferred Stock and the KPG Put Agreement as to the Preferred Stock shall be pari passu and pro rata in accordance with the principal amount of the Notes and the liquidation preference of Preferred Stock, in each case outstanding as of the date of notice of redemption and not held by Affiliates of the Company. Payments to Holders of the Notes under the circumstances referred to in this Section 3.01(d) shall, to the extent practicable, be made on a basis consistent with payments to the holders of Preferred Stock under such circumstances.

        (e) Interest Ceases to Accrue. On and after a redemption date, interest will cease to accrue on the Notes or portions thereof called for redemption.

Section 3.02    Notices to Trustee and Paying Agent

        If the Company elects to redeem Notes pursuant to Section 3.01 and Section 5 of the Notes, it shall notify the Trustee and the Paying Agent in writing of the redemption date and the principal amount of Notes to be redeemed. The Company shall give each notice provided for in this Section 3.02 at least 60 days before the redemption date, together with an Officers' Certificate stating that such redemption shall comply with the conditions contained herein and in the Notes.

Section 3.03    Selection of Notes to be Redeemed

        If less than all of the Notes are to be redeemed at any time, the Trustee shall select the Notes to be redeemed in compliance with the requirements of the principal national securities exchange, if any, on which the Notes being redeemed are listed or, if the Notes are not listed on a national securities exchange, on a pro rata basis, by lot or by such other method as the Trustee shall deem fair and appropriate.

        The Trustee shall make the selection from the Notes outstanding and not previously called for redemption. The Trustee promptly shall notify the Company in writing of such Notes selected for redemption and, in the case of Notes selected for partial redemption, the principal amount to be redeemed. The Trustee may select for redemption portions (equal to $1,000 or any integral multiple thereof) of the principal of Notes that have denominations larger than $1,000. The Notes and portions thereof the Trustee selects shall be in amounts of $1,000 or integral multiples of $1,000. Provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption.

Section 3.04    Notice to Holders

        At least 30 days but not more than 60 days prior to a redemption date, the Company shall mail or cause the mailing of a notice of redemption by first-class mail to each Holder of Notes to be redeemed and the Trustee and Paying Agent.

        The notice shall identify the Notes, including "CUSIP" number, to be redeemed and shall state:

(1)

the redemption date;



(2)

the redemption price and the amount of accrued interest, if any, to be paid;



(3)

the name and address of the Paying Agent;

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(4)

that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price and accrued interest, if any;



(5)

that, unless the Company defaults in making the redemption payment, interest on Notes called for redemption ceases to accrue on and after the redemption date and the only remaining right of the Holders is to receive payment of the redemption price, together with accrued and unpaid interest thereon to the redemption date, upon surrender to the Trustee or the Paying Agent of the Notes so redeemed;



(6)

if any Note is being redeemed in part, the portion of the principal amount (equal to $1,000 or any integral multiple thereof) of such Note to be redeemed, and that, on and after the redemption date, upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion thereof shall be issued without charge to the Holder; and



(7)

if less than all of the Notes are to be redeemed, the identification of the particular Notes (or portion thereof) to be redeemed, as well as the aggregate principal amount of Notes to be redeemed and the aggregate principal amount of Notes estimated to be outstanding after the redemption.

At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense.

Section 3.05    Effect of Notice of Redemption

        Once notice of redemption is mailed, Notes called for redemption become due and payable on the redemption date and at the redemption price and shall cease to bear interest from and after the redemption date (unless the Company shall default in the payment of the redemption price or accrued interest). Upon surrender to the Paying Agent, such Notes shall be paid at the redemption price, plus accrued interest to the redemption date but any interest installment with respect to an Interest Payment Date that is on or prior to such redemption date shall be payable on such Interest Payment Date to Holders of record at the close of business on the record date referred to in the Notes.

Section 3.06    Deposit of Redemption Price

        At least one Business Day prior to the redemption date, the Company shall deposit with the Paying Agent money sufficient to pay the redemption price of and accrued interest on all Notes or portions thereof to be redeemed on that date.

        If any Note surrendered for redemption in the manner provided in this Indenture shall not be so paid on the redemption date due to the failure of the Company to deposit sufficient funds with the Paying Agent, interest shall continue to accrue from the redemption date until such payment is made on the unpaid principal and, to the extent lawful, on any interest not paid on such unpaid principal, in each case at the date and in the manner provided in the Notes.

Section 3.07    Notes Redeemed in Part

        Upon surrender of a Note that is redeemed in part, the Company shall issue and the Trustee shall authenticate for the Holder a new Note equal in principal amount to the unredeemed portion of the Note surrendered.

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ARTICLE 4

COVENANTS

Section 4.01    Payment of Notes

        The Company shall pay the principal of, premium, if any, and interest on the Notes on the dates and in the manner provided in the Notes. Principal of, premium, if any, and interest shall be considered paid on the date due if the Paying Agent, other than the Company or a Subsidiary of the Company, holds on that date money deposited by the Company designated for and sufficient to pay all principal of, premium, if any, and interest then due.

        The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the then applicable interest rate on the Notes to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace period) at the same rate to the extent lawful.

Section 4.02    Maintenance of Office or Agency

        The Company will maintain, in the Borough of Manhattan, The City of New York, an office or agency (which may be an office of the Trustee or the Registrar) where Notes may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee.

        The Company also from time to time may designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and from time to time may rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency.

        The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.03.

Section 4.03    Payment of Notes in Connection with Plan of Liquidation

        Neither the Board of Directors nor the stockholders of the Company may adopt a Plan of Liquidation that provides for or contemplates, or the effectuation of which is preceded by, (i) the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company otherwise than 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 of the remaining assets of the Company to the holders of the Company's Capital Stock unless, prior to making any liquidating distribution pursuant to such Plan of Liquidation, the Company makes provision for the satisfaction of its obligations hereunder and under the Notes. The Company shall be deemed to have made provision for such payments only if the Company delivers in trust to the Trustee or Paying Agent (other than the Company or a Subsidiary) money or U.S. Government Obligations maturing as to principal and interest in such amounts and at such times as are sufficient without consideration of any reinvestment of such principal or interest to pay, when due, the principal of and interest on the Notes and also delivers to the Trustee an Opinion of Counsel or a tax ruling to the effect that Holders of the Notes will not recognize income, gain or

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loss for federal income tax purposes as a result of such action 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 if such action has not been taken; provided, however, that the Company shall not make any liquidating distribution until after the Company shall have certified to the Trustee with an Officers' Certificate at least five days prior to the making of any liquidating distribution that it has complied with the provisions of this Section 4.03 and that no Default or Event of Default then exists or would occur as a result of any such liquidating distribution.

Section 4.04 Limitations on Restricted Subsidiary Debt and Preferred Stock

        After the date hereof, 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 Indebtedness (i) of Kaiser-Hill or (ii) 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).

Section 4.05    Limitations on Restricted Payments

        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 a Default or Event of Default shall have occurred and be continuing or shall occur as a consequence thereof.

Section 4.06    Limitations on Restrictions on Distributions from Restricted Subsidiaries

        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.

Section 4.07    Limitations on Transactions With Affiliates

        (a)  The Company will not, and will not permit any of its Restricted Subsidiaries to, make any loan, advance, guarantee or capital contribution to or for the benefit of, or sell, lease, transfer or otherwise dispose of any of its properties or assets to or for the benefit of, or make any Investment in, or purchase or lease any property or assets from, or enter into or amend any contract, agreement or understanding with or for the benefit of, any Affiliate of the Company or any of its Subsidiaries (each an "Affiliate Transaction"), other than Affiliate Transactions in the ordinary course of business and consistent with past practice that are fair to the Company or such Restricted Subsidiary, as the case may be, and are on terms at least as favorable as would have been obtainable at such time from an unaffiliated party, unless the Board of Directors of the Company or such Restricted Subsidiary, as the case may be, pursuant to a Board Resolution reasonably and in good faith determines that such Affiliate Transaction is fair to the Company or such Restricted Subsidiary, as the case may be, and is on terms at least as favorable as would have been obtainable at such time from an unaffiliated party.

        (b)  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) $1,000,000 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

17

would have been obtainable at such time from an unaffiliated party and (ii) $5,000,000 unless the Company or such Restricted Subsidiary, as the case may be, has received an opinion from an Independent Financial Advisor to the effect that the financial terms of such Affiliate Transaction are fair to the Company or such Restricted Subsidiary, as the case may be, from a financial point of view.

        (c)  The provisions of Sections 4.07(a) and 4.07(b) 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.

Section 4.08 Restrictions on Sale of Stock of Restricted Subsidiaries

        The Company may not sell or otherwise dispose of any of the Capital Stock of any Restricted Subsidiary of the Company unless (i) (a) the Company shall retain ownership of more than 50% of the Common Equity of such Restricted Subsidiary or (b) all of the Capital Stock of such Restricted Subsidiary shall be sold or otherwise disposed of, and (ii) the Net Cash Proceeds from any such sale or disposition are applied in a manner consistent with the provisions of Section 3.01(b).

Section 4.09    Limitations on Partial Guarantees

        The Company will not permit any of its Restricted Subsidiaries to guarantee any Indebtedness except (i) Indebtedness of Kaiser-Hill and (ii) as set forth in the Partial Guarantee.

Section 4.10    SEC and Other Reports

        (a)  At any time that the Company has a class of securities registered under the Exchange Act, the Company shall file with the Trustee, within 15 days after it files the same with the SEC, copies of its annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) which the Company or any Subsidiary of the Company is required to file with the SEC pursuant to Section 12, 13 or 15(d) of the Exchange Act. The Company shall cause any annual report furnished to its stockholders generally and any quarterly or other financial reports furnished by it to its stockholders generally to be filed with the Trustee and mailed to the Holders at their addresses appearing in the register of Notes maintained by the Registrar.

        (b)  At any time that the Company does not have a class of securities registered under the Exchange Act, the Company shall furnish to the Trustee (who is hereby authorized and directed to furnish a copy thereof to any Person requesting the same in writing) and shall mail (or cause to be mailed by the Trustee at the Company's expense) to each of the Holders at their addresses as set forth in the register of Notes maintained by the Registrar within 60 days after the close of each of the first three quarters of each fiscal year and within 105 days after the close of each fiscal year consolidated balance sheets of the Company as of the end of each such quarter or fiscal year, as the case may be, and consolidated statements of income and cash flow of the Company for the period commencing at the end of the Company's previous fiscal year and ending with the end of such quarter or fiscal year, as the case may be, all such financial statements setting forth in comparative form the corresponding figures for the corresponding period of the preceding fiscal year, all in reasonable detail and duly certified (subject to year-end adjustments) by an Officer of the Company as having been prepared in accordance with GAAP consistently applied, and, in the case of annual consolidated financial

18

statements, certified by independent public accountants of established national reputation, and a discussion and analysis of the results of operations and financial condition of the Company and its subsidiaries for the periods presented, which discussion and analysis shall be prepared by the management of the Company in a manner responsive to the requirements of Item 303 (or any successor item or section) of Regulation S-K promulgated by the SEC. All financial statements shall be prepared in accordance with GAAP consistently applied, except for changes with which the Company's independent public accountants concur and except that quarterly statements may be subject to year-end adjustments.

        (c)  The Company shall furnish to the Trustee (who is hereby authorized and directed to furnish a copy thereof to any Holder or to the designee of any Holder, in either case upon submission of a confidentiality agreement reasonably acceptable to the Company, requesting the same in writing) within 45 days after the close of each of the first three quarters of each fiscal year and within 90 days after the close of each fiscal year of the Company a report of the Company's compliance with the provisions of Section 3.01(b) and (c) hereof shall be prepared in good faith by the management of the Company and accompanied by an Officers' Certificate.

        (d)  Delivery of the above-referenced reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates).

Section 4.11    Corporate Existence

        Subject to the provisions of Sections 4.08 and 5.01, the Company shall, and shall cause each Restricted Subsidiary to, do or cause to be done all things necessary to preserve and keep in full force and effect its rights (charter and statutory), licenses and franchises, except in such cases where a failure to do so would not have a material adverse effect on (a) the business, prospects, assets or financial condition of the Company and its Restricted Subsidiaries taken as a whole, or (b) the Holders.

Section 4.12    Stay, Extension and Usury Laws

        The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead or in any manner whatsoever claim or take the benefit or advantage of any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the Company's obligation to pay the Notes; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law insofar as such law applies to the Notes, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law has been enacted.

Section 4.13    Insurance; Books and Records; Compliance with Law

        (a)  The Company will and will cause each Subsidiary to maintain insurance with financially sound and responsible insurance companies on all its property in at least such amounts and against at least such risks (but including in any event public liability, product liability and business interruption) as are usually insured against in the same general area by companies engaged in the same or a similar business.

        (b)  The Company will and will cause each Subsidiary to keep proper books of record and account in which full and correct entries shall be made of all financial transactions and the assets and business of the Company and each Subsidiary, in accordance with GAAP consistently applied to the Company and its Subsidiaries taken as a whole.

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        (c)  The Company will and will cause each Subsidiary to comply with all statutes, laws, ordinances or government rules and regulations to which it is subject, non-compliance with which would materially adversely affect the business, prospects, earnings, properties, assets or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole.

Section 4.14    Inspection and Confidentiality

        (a)  The Company shall, and shall cause each of its Subsidiaries to, permit authorized representatives of the Trustee to visit and inspect the properties of the Company or its Subsidiaries, all upon reasonable prior notice and at such reasonable times during normal business hours and as often as may be reasonably requested.

        (b)  The Trustee and its authorized representatives referred to in Section 4.14(a) agree not to use any information obtained pursuant to this Section 4.14 for any unlawful purpose and to keep confidential and not to disclose any such information to any Person except that (i) the recipient of the information may disclose any information that becomes publicly available other than as a result of disclosure by such recipient, (ii) the recipient of the information may disclose any information that its counsel reasonably concludes is necessary to be disclosed by law, pursuant to any court or administrative order or ruling or in any pending legal or administrative proceeding or investigation after prior written notice, reasonable under the circumstances, to the Company and (iii) the recipient of the information may disclose any information necessary to be disclosed pursuant to any provision of the TIA.

Section 4.15    Compliance Certificate

        (a)  The Company shall deliver to the Trustee, within 105 days after the end of each fiscal year of the Company, an Officers' Certificate stating that a review of the activities of the Company and its Restricted Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to each such Officer signing such Officers' Certificate, that to the best of such Officer's knowledge the Company has kept, observed, performed and fulfilled each covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions hereof (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which such Officer may have knowledge and what action the Company is taking or proposes to take with respect thereto) and that to the best of such Officer's knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of, premium, if any, or interest on the Notes are prohibited or, if such event has occurred, a description of the event and what action the Company is taking or proposes to take with respect thereto. Such compliance shall be determined without regard to periods of grace or requirements of notice.

        (b)  So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.10 shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article 3 or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation.

        (c)  The Company, so long as any of the Notes are outstanding, will deliver to the Trustee, within five Business Days of any Officer becoming aware of any Default or Event of Default under this

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Indenture, an Officers' Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto.

ARTICLE 5

SUCCESSORS

Section 5.01    Limitations on Mergers and Consolidations

        (a)  Neither the Company nor the Partial Guarantor, 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 this 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 or the Partial Guarantor, as the case may be, under the Notes and this Indenture;

        (B) immediately prior to and immediately after and giving effect to such transaction and the assumption of the obligations as set forth in clause (A) above and the incurrence of any Indebtedness to be incurred in connection therewith, no Default or Event of Default shall have occurred and be continuing;

        (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, the Consolidated Tangible Net Worth of the Company or the Partial Guarantor, as the case may be, or the Successor of either, 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

        (D) an Officers' Certificate and an Opinion of Counsel (from a counsel who shall not be an employee of the Company) have been delivered to the Trustee to the effect that the conditions set forth in the preceding clauses (A), (B) and (C) have been satisfied.

        (b)  The provisions of Section 5.01(a) will not prohibit a transaction the sole purpose of which (as determined in good faith by the Board of Directors of the Company and evidenced by a Board Resolution) is to change the state of incorporation of the Company and such transaction does not have as one of its purposes the evasion of the limitations described above.

Section 5.02    Successor Corporation Substituted

        (a)  Upon any consolidation or merger, or any sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company or any assignment of its obligations under this Indenture or the Notes in accordance with Section 5.01, the Successor formed by such consolidation or into or with which the Company is merged or to which such sale, lease, conveyance or other disposition or assignment is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such Successor had been named as the Company herein.

        (b)  Subject to the provisions of Section 4.03, in the event of any such sale, lease, conveyance or other disposition (other than a transfer by way of lease), the Company or any Successor which theretofore shall have been substituted for the Company pursuant to the provisions of this Article 5 shall be discharged from all obligations and covenants under this Indenture and the Notes and may, but need not be, liquidated and dissolved.

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ARTICLE 6

DEFAULTS AND REMEDIES

Section 6.01    Events of Default

        An "Event of Default" occurs if:

(1)

the Company fails to pay interest on any of the Notes when it becomes due and payable and such failure continues for 30 days;



(2)

the Company fails to pay the principal or premium, if any, of the Notes when it becomes due and payable, whether at stated maturity, upon redemption, upon acceleration or otherwise (including failure to make any mandatory redemptions);



(3)

the Company fails to comply with any covenant in this Indenture and such failure continues 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;



(4)

the Company or any of its Subsidiaries fail to make any payment when due or during any applicable grace period in respect of any Indebtedness of the Company or any of its Subsidiaries that has an aggregate outstanding principal amount of $1,000,000 or more;



(5)

the Company defaults under any Indebtedness, whether such Indebtedness existed on the date of this Indenture or thereafter shall be created, if (A) such default results in the holder or holders of such Indebtedness causing such Indebtedness to become due prior to its stated maturity and (B) the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness the maturity of which has been so accelerated, aggregate $1,000,000 or more at any one time outstanding;



(6)

one or more final judgments or orders that exceed $1,000,000 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;



(7)

the Company or any of its Subsidiaries pursuant to or within the meaning of any Bankruptcy Law:



(a)

commences a voluntary case,



(b)

consents to the entry of an order for relief against it in an involuntary case,



(c)

consents to the appointment of a Custodian of it or for all or substantially all of its property, or



(d)

makes a general assignment for the benefit of its creditors; or




(8)

a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:



(a)

is for relief against the Company or any of its Subsidiaries as debtor in an involuntary case,



(b)

appoints a Custodian of the Company or any of its Subsidiaries or a Custodian for all or substantially all of the property of the Company or any of its Subsidiaries, or



(c)

orders the liquidation of the Company or any of its Subsidiaries,

and the order or decree remains unstayed and in effect for 60 days.

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Section 6.02    Acceleration

        If an Event of Default (other than an Event of Default with respect to the Company specified in clause (7) or (8) of Section 6.01) occurs and is continuing, 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 notice to the Company and the Trustee, may declare all amounts owing under the Notes to be due and payable immediately for an amount equal to 100% of the principal amount of the Notes plus accrued and unpaid interest, if any, to date of payment. Upon such declaration of acceleration, the aggregate principal of and interest on the Notes shall immediately become due and payable. If an Event of Default with respect to the Company specified in clause (7) or (8) of Section 6.01 occurs, such an amount shall ipso facto become and be immediately due and payable without any declaration, notice or other act on the part of the Trustee or any Holder. The Holders of a majority in aggregate principal amount of the Notes then outstanding by written notice to the Trustee may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal or interest on the Notes that has become due solely as a result of such acceleration) have been cured or waived.

Section 6.03    Other Remedies

        If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of, premium, if any, or interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture.

        The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All remedies are cumulative to the extent permitted by law.

Section 6.04    Waiver of Past Defaults

        Subject to the provisions of Section 6.07 and Section 9.02, the Holders of a majority in principal amount of the then outstanding Notes by notice to the Trustee may waive an existing Default or Event of Default and its consequences, except a continuing Default or Event of Default specified in clause (1), (2), (7) or (8) of Section 6.01 or any provision hereof that cannot be modified or amended without the consent of the Holder so affected pursuant to Section 9.02. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon.

Section 6.05    Control by Majority

        The Holders of a majority in principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture, that the Trustee determines may be unduly prejudicial to the rights of other Holders, or that may involve the Trustee in personal liability.

Section 6.06    Limitations on Suits

        Except as provided in Section 6.07, a Holder may pursue a remedy with respect to this Indenture or the Notes only if:

(1)

the Holder gives to the Trustee written notice of a continuing Event of Default;

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(2)

the Holders of at least 25% in principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy;



(3)

such Holder or Holders offer to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense;



(4)

the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and



(5)

during such 60-day period the Holders of a majority in principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request.

A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over another Holder.

Section 6.07    Rights of Holders to Receive Payment

        Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal of, premium, if any, and interest on the Note, on or after the respective due dates expressed in the Note, or to bring suit for the enforcement of any such payment on or after such respective dates, is absolute and unconditional and shall not be impaired or affected without the consent of the Holder.

Section 6.08    Collection Suit by Trustee

        If an Event of Default specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the amount of principal, premium, if any, and interest remaining unpaid on the Notes, determined in accordance with Section 6.02, and interest on overdue principal and, to the extent lawful, premium, if any, and interest, and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel.

Section 6.09    Trustee May File Proofs of Claim

        The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders allowed in any judicial proceedings relative to the Company, its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any Custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.06. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.

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Section 6.10    Priorities

        If the Trustee collects any money pursuant to this Article 6, it shall pay out the money in the following order:

        First: to the Trustee for amounts due under Section 7.06;

        Second: to Holders for amounts due and unpaid on the Notes for interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for interest;

        Third: to Holders for amounts due and unpaid on the Notes for principal and premium, if any, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal and premium, if any, respectively; and

        Fourth: as a court of competent jurisdiction may direct.

        The Trustee may fix a record date and payment date for any payment to Holders pursuant to this Section 6.10.

Section 6.11    Undertaking for Costs

        In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 or a suit by Holders of more than 10% in principal amount of the then outstanding Notes.

Section 6.12    Restoration of Rights and Remedies

        If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every case, subject to any determination in such proceeding, the Company, the Trustee and the Holder shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted.

ARTICLE 7

TRUSTEE

Section 7.01    Duties of Trustee

(1)

If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in such exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.



(2)

Except during the continuance of an Event of Default:



(a)

the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and



(b)

in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates

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or opinions furnished to the Trustee and conforming to the requirements of this Indenture; however, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture.

(3)

The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that:



(a)

this paragraph does not limit the effect of paragraph (2) of this Section 7.01;



(b)

the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and



(c)

the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05.




(4)

Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (1), (2) and (3) of this Section 7.01.



(5)

No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity satisfactory to it against any loss, liability or expense.



(6)

The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law.

Section 7.02    Rights of Trustee

        Subject to the provisions of Section 7.01:

(1)

The Trustee may conclusively rely on any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document.



(2)

Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel and an Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon.



(3)

The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent (other than an agent who is an employee of the Trustee) appointed with due care.



(4)

The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers conferred upon it by this Indenture.



(5)

Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company.



(6)

The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee security or indemnity satisfactory to the Trustee against the costs, expenses and liabilities which may be incurred by it in compliance with such request or direction.

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(7)

The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney at the sole cost of the Company and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation.



(8)

The rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and each Agent, custodian and other Person employed to act hereunder.

Section 7.03    Individual Rights of Trustee

        The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or any of its Affiliates with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights.

Section 7.04    Trustee's Disclaimer

        The Trustee makes no representation as to the validity or adequacy of this Indenture or the Notes. It shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision hereof. It shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee. It shall not be responsible for any statement or recital herein or any statement in the Notes other than its certificate of authentication.

Section 7.05    Notice of Defaults

        If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to Holders, as their names and addresses shall appear on the Notes register, a notice of the Default or Event of Default within 60 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, premium, if any, or interest on any Note, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of Holders.

Section 7.06    Compensation and Indemnity

        The Company shall pay to the Trustee such compensation as the Company and the Trustee may from time to time agree upon in writing for its acceptance of this Indenture and all services rendered hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable disbursements, advances and expenses incurred by it. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel.

        The Company shall indemnify each of the Trustee and any predecessor Trustee against any and all loss, damage, claim, liability or expense including taxes (other than taxes based upon, measured by or determined by the income of the Trustee), incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, except as set forth in the next paragraph. The Trustee promptly shall notify the Company of any claim for which it may seek indemnity. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of

27

such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld.

        The Company need not reimburse any expense or indemnify against any loss or liability incurred by the Trustee through negligence or bad faith.

        To secure the Company's payment obligations in this Section 7.06, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal of, premium, if any, and interest on particular Notes.

        When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(7) or (8) occurs, the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law.

        The provisions of this Section shall survive the termination of this Indenture and the resignation or removal of the Trustee.

Section 7.07    Replacement of Trustee

        A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section 7.07.

        The Trustee may resign and be discharged from the trust hereby created by so notifying the Company. The Holders of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company. The Company may remove the Trustee if:

(1)

the Trustee fails to comply with Section 310(b) of the TIA;



(2)

the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law;



(3)

a Custodian or public officer takes charge of the Trustee or its property; or



(4)

the Trustee becomes incapable of acting.

        If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company.

        If a successor Trustee does not take office within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee (at the expense of the Company), the Company or the Holders of at least 10% in principal amount of the then outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee.

        If the Trustee fails to comply with Section 310 of the TIA, any Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee.

        A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the Lien provided for in Section 7.06. Notwithstanding replacement of the Trustee pursuant to this Section 7.07, the Company's obligations under Section 7.06 shall continue for the benefit of the retiring Trustee.

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Section 7.08    Successor Trustee by Merger, etc.

        Subject to Section 7.09, if the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee.

Section 7.09    Eligibility; Disqualification

        There shall at all times be a Trustee hereunder which shall be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, shall be authorized under such laws to exercise corporate trust power, shall be subject to supervision or examination by federal or state (or the District of Columbia) authority and shall have a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition.

Section 7.10    Reports by Trustee to Holders

        To the extent required by TIA § 313(a), within 60 days after May 15 of each year commencing with 2003 and for as long as there are Notes outstanding hereunder, the Trustee shall mail to each Holder the Company's brief report dated as of such date that complies with TIA § 313(a). The Trustee also shall comply with TIA § 313(b), (c) and (d). A copy of such report at the time of its mailing to Holders shall be filed with the SEC, if required, and each stock exchange, if any, on which the Notes are listed.

        The Company shall promptly notify the Trustee if the Notes become listed on any national securities exchange and the Trustee shall comply with Section 313(d) of the TIA.

ARTICLE 8

DISCHARGE OF INDENTURE

Section 8.01    Termination of Company's Obligations

        This Indenture shall cease to be of further effect (except that the Company's obligations under Section 7.06 and the Trustee's and Paying Agent's obligations under Section 8.03 shall survive) when all outstanding Notes theretofore authenticated and issued have been delivered (other than destroyed, lost or stolen Notes that have been replaced or paid) to the Trustee for cancellation and the Company has paid all sums payable hereunder. In addition, the Company may terminate all of its obligations under this Indenture if:

(1)

the Company irrevocably deposits in trust with the Trustee or, at the option of the Trustee, with a trustee satisfactory to the Trustee and the Company under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee, money or U.S. Government Obligations sufficient to pay principal of, premium, if any, and interest on the Notes to maturity and to pay all other sums payable by it hereunder; provided that (i) the trustee of the irrevocable trust shall have been irrevocably instructed to pay such money or the proceeds of such U.S. Government Obligations to the Trustee and (ii) the Trustee shall have been irrevocably instructed to apply such money or the proceeds of such U.S. Government Obligations to the payment of said principal, premium and interest with respect to the Notes;



(2)

the Company delivers to the Trustee an Officers' Certificate stating that all conditions precedent to satisfaction and discharge of this Indenture have been complied with, and an Opinion of Counsel to the same effect;



(3)

no Default or Event of Default shall have occurred and be continuing on the date of such deposit; and

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(4)

the Company shall have delivered to the Trustee an Opinion of Counsel from nationally recognized counsel acceptable to the Trustee or a tax ruling to the effect that the Holders of the Notes will not recognize income, gain or loss for federal income tax purposes as a result of the Company's exercise of its option under this Section 8.01 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 if such option had not been exercised.

In such event, this Indenture shall cease to be of further effect (except as provided in the next succeeding paragraph), and the Trustee, upon request of the Company, shall execute proper instruments acknowledging confirmation of and discharge under this Indenture.

        However, the Company's obligations in Sections 2.03, 2.04, 2.05, 2.06, 4.01, 4.02, 7.06 and 7.07 and the Company's, the Trustee's and Paying Agent's obligations in Section 8.03 shall survive until the Notes are no longer outstanding. Thereafter, only the Company's obligations in Section 7.06 and the Trustee's and Paying Agent's obligations in Section 8.03 shall survive.

        After such irrevocable deposit made pursuant to this Section 8.01 and satisfaction of the other conditions set forth herein, the Trustee upon request of the Company shall acknowledge in writing the discharge of the Company's obligations under this Indenture except for those surviving obligations specified above.

        In order to have money available on a payment date to pay principal of, premium, if any, or interest on the Notes, the U.S. Government Obligations shall be payable as to principal or interest on or before such payment date in such amounts as will provide the necessary money. U.S. Government Obligations shall not be callable at the issuer's option.

Section 8.02    Application of Trust Money

        The Trustee or a trustee satisfactory to the Trustee and the Company shall hold in trust money or U.S. Government Obligations deposited with it pursuant to Section 8.01. It shall apply the deposited money and the money from U.S. Government Obligations through the Paying Agent and in accordance with this Indenture to the payment of principal of, premium, if any, and interest on the Notes.

Section 8.03    Repayment to Company

        The Trustee and the Paying Agent shall promptly pay to the Company upon written request any excess money or securities held by them at any time.

        The Trustee and the Paying Agent shall pay to the Company upon written request any money held by them for the payment of principal, premium, if any, or interest that remains unclaimed for two years after the date upon which such payment shall have become due; provided, however, that the Company shall have either caused notice of such payment to be mailed to each Holder entitled thereto no less than 30 days prior to such repayment or within such period shall have published such notice in a financial newspaper of general circulation published in The City of New York. After payment to the Company, Holders entitled to the money must look to the Company for payment as general creditors unless an applicable abandoned property law designates another Person, and all liability of the Trustee and such Paying Agent with respect to such money shall cease.

Section 8.04    Reinstatement

        If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with Section 8.01 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.01 until such time as the Trustee or Paying

30

Agent is permitted to apply all such money or U.S. Government Obligations in accordance with Section 8.01; provided, however, that if the Company has made any payment of principal of, premium, if any, or interest on any Notes because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent.

ARTICLE 9

AMENDMENTS

Section 9.01    Without Consent of Holders

        The Company and the Trustee may amend this Indenture or the Notes or waive any provision hereof without the consent of any Holder:

(1)

to cure any ambiguity, defect or inconsistency;



(2)

to comply with Section 5.01;



(3)

to provide for uncertificated Notes in addition to certificated Notes;



(4)

to make any change that does not adversely affect the legal rights hereunder of any Holder;



(5)

to surrender any right or power herein conferred upon the Company;



(6)

to modify, eliminate or add to the provisions of this Indenture to such extent as shall be necessary to effect the qualification of the Indenture under the TIA, or under any similar federal statute hereafter enacted; or



(7)

to add or release any Partial Guarantor pursuant to the terms of this Indenture or the Partial Guarantees.

        Upon the request of the Company, accompanied by a resolution of the Board of Directors authorizing the execution of any such supplemental indenture, and upon receipt by the Trustee of the documents described in Section 9.06, the Trustee shall join with the Company in the execution of any supplemental indenture authorized or permitted by the terms of this Indenture and make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into any supplemental indenture that affects its own rights, duties, liabilities or immunities under this Indenture or otherwise. After an amendment or waiver under this Section 9.01 becomes effective, the Company shall mail to the Holders of each Note affected thereby a notice briefly describing the amendment or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture.

Section 9.02    With Consent of Holders

        Except as provided in this Section 9.02, the Company and the Trustee may amend this Indenture or the Notes with the written consent (including consents obtained in connection with a tender offer or exchange offer for Notes) of the Holders of at least a majority in principal amount of the then outstanding Notes.

        Upon the request of the Company, accompanied by a resolution of the Board of Directors of the Company authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence of the consent of the Holders as aforesaid, and upon receipt by the Trustee of the documents described in Section 9.06, the Trustee shall join with the Company in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's own rights, duties,

31

liabilities or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture.

        It shall not be necessary for the consent of the Holders under this Section 9.02 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof.

        The Holders of a majority in principal amount of the Notes then outstanding may waive compliance in a particular instance by the Company with any provision of this Indenture or the Notes (including waivers obtained in connection with a tender offer or exchange offer for Notes). However, without the consent of each Holder affected, an amendment or waiver under this Section 9.02 may not:

(1)

reduce the amount of Notes whose Holders must consent to an amendment, supplement or waiver;



(2)

reduce the rate of or change the time for payment of interest, including default interest, on any Note;



(3)

reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to optional redemption or mandatory repurchase of the Notes under this Indenture,



(4)

make any Note payable in money other than that stated in the Note;



(5)

make any change in Section 6.04 or 6.07 in this paragraph of this Section 9.02; or



(6)

waive a continuing Default or Event of Default in the payment of principal of or interest on the Notes.

        The right of any Holder to participate in any consent required or sought pursuant to any provision of this Indenture (and the obligation of the Company to obtain any such consent otherwise required from such Holder) may be subject to the requirement that such Holder shall have been the Holder of record of any Notes with respect to which such consent is required or sought as of a date identified by the Trustee or the Company in a notice furnished to Holders in accordance with the terms of this Indenture.

Section 9.03    Compliance with Trust Indenture Act

        Every amendment to this Indenture or the Notes shall comply in form and substance with the TIA as then in effect.

Section 9.04    Revocation and Effect of Consents

        Until an amendment (which includes any supplement) or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder or subsequent Holder may revoke the consent as to his or her Note or portion of a Note if the Trustee receives written notice of revocation before the date the amendment or waiver becomes effective. An amendment or waiver becomes effective in accordance with its terms and thereafter binds every Holder.

        The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment or waiver. If the Company elects to fix a record date for such purpose, the record date shall be fixed at (i) the later of 30 days prior to the first solicitation of such consent or the date of the most recent list of Holders furnished to the Trustee prior to such solicitation, or (ii) such other date as the Company shall designate. If a record date is fixed, then notwithstanding the provisions of the immediately preceding paragraph, those Persons who were Holders at such record date (or their duly designated proxies), and only those Persons, shall be entitled

32

to consent to such amendment or waiver or to revoke any consent previously given, whether or not such Persons continue to be Holders after such record date. No consent shall be valid or effective for more than 90 days after such record date unless consents from Holders of the principal amount of Notes required hereunder for such amendment or waiver to be effective shall have also been given and not revoked within such 90-day period.

        After an amendment or waiver becomes effective it shall bind every Holder, unless it is of the type described in any of clauses (1) through (6) of Section 9.02. In such case, the amendment or waiver shall bind each Holder of a Note who has consented to it and every subsequent Holder of a Note that evidences the same debt as the consenting Holder's Note.

Section 9.05    Notation on or Exchange of Notes

        The Trustee may place an appropriate notation about an amendment or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall authenticate new Notes that reflect the amendment or waiver.

Section 9.06    Trustee to Sign Amendments, etc.

        The Trustee shall sign any amendment or supplemental indenture authorized pursuant to this Article 9 if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, but need not, sign it. In signing or refusing to sign such amendment or supplemental indenture, the Trustee shall be entitled to receive and, subject to Section 7.01, shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel stating that such amendment or supplemental indenture is authorized or permitted by this Indenture, that it is not inconsistent herewith and that it will be legal, valid and binding upon the Company in accordance with its terms.

ARTICLE 10

MISCELLANEOUS

Section 10.01    Trust Indenture Act Controls

        If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA § 318(c), the imposed duties shall control.

33

Section 10.02    Notices

        Any notice or communication by the Company or the Trustee to the other is duly given if in writing and delivered in Person or mailed by first-class mail (registered or certified, return receipt requested), telecopier or overnight air courier guaranteeing next day delivery, to the other's address:

If to the Company:
Kaiser Group Holdings, Inc. 9302 Lee Highway Fairfax, Virginia 22031-1207 Attention: Chief Executive Officer
cc:	Office of General Counsel
If to the Trustee:
The Bank of New York 101 Barclay Street, 8 West New York, New York 10286 Attention: Corporate Trust Administration Facsimile: 212-815-5707

        The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications.

        All notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery.

        Any notice or communication to a Holder shall be mailed by first-class mail to the Holder's address shown on the register kept by the Registrar. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders.

        If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it.

        If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time.

Section 10.03    Certificate and Opinion as to Conditions Precedent

        Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee:

(1)

an Officers' Certificate (which shall include the statements set forth in Section 10.04) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been complied with; and



(2)

an Opinion of Counsel (which shall include the statements set forth in Section 10.04) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been complied with.

34

Section 10.04    Statements Required in Certificate or Opinion

        Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to Section 314(a)(4) of the TIA) shall include:

(1)

a statement that the Person making such certificate or opinion has read such covenant or condition;



(2)

a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;



(3)

a statement that, in the opinion of such Person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and



(4)

a statement as to whether or not, in the opinion of such Person, such condition or covenant has been complied with.

Section 10.05    Rules by Trustee and Agents

        The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions.

Section 10.06    Legal Holidays

        A "Legal Holiday" is a Saturday, a Sunday or a day on which banking institutions in The City of New York or at a place of payment are authorized or obligated by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period.

Section 10.07    No Recourse Against Others

        A director, officer, employee or stockholder of the Company, as such, shall not have any liability for any obligations of the Company under the Notes or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability.

Section 10.08    Governing Law

THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.

Section 10.09    No Adverse Interpretation of Other Agreements

        This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or a Subsidiary. Any such indenture, loan or debt agreement may not be used to interpret this Indenture.

Section 10.10    Successors

        All agreements of the Company in this Indenture and the Notes shall bind its successor. All agreements of the Trustee in this Indenture shall bind its successor.

35

Section 10.11    Severability

        In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

Section 10.12    Counterpart Originals

        The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.

Section 10.13    Trustee as Paying Agent and Registrar

        The Company initially appoints the Trustee as Paying Agent and Registrar.

Section 10.14    Table of Contents, Headings, etc.

        The Table of Contents, Cross-Reference Table and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof.

Section 10.15    Waiver of Jury Trial.

        Each of the Company and the Trustee hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Indenture, the Notes or the transactions contemplated hereby.

36

SIGNATURES
KAISER GROUP HOLDINGS, INC. as Issuer
By:	President and Chief Executive Officer
THE BANK OF NEW YORK as Trustee
By:

37

EXHIBIT A

[FORM OF NOTE]

KAISER GROUP HOLDINGS, INC.

8¹/4% SENIOR NOTE DUE 2007

CUSIP No.            

No.            $                  

Kaiser Group Holdings, Inc., a Delaware corporation (the "Company"), for value received promises to pay to [            ], or registered assigns, the principal sum of                         Dollars on December 31, 2007.

Interest Payment Dates: April 30, July 31, October 31 and January 31

Record Dates: April 15, July 15, October 15, January 15

Reference is made to the further provisions of this Security contained herein, which will for all purposes have the same effect as if set forth at this place.

IN WITNESS WHEREOF, the Company has caused the Security to be signed manually or by facsimile by its duly authorized officers.

Dated:

KAISER GROUP HOLDINGS, INC.

By:
By:	(SEAL)

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Trustee's Certificate of Authentication

        This is one of the Notes referred to in the within-mentioned Indenture.

Dated:	THE BANK OF NEW YORK as Trustee
	By:
		Authorized Signatory

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[REVERSE OF SECURITY]
8¹/4% SENIOR NOTE DUE 2007

        Certain capitalized terms used but not defined herein shall have the meanings given to them in the Indenture under which this Note is issued.

        1. Interest.    Kaiser Group Holdings, Inc., a Delaware corporation (the "Company," which term shall include any Successor under the Indenture), promises to pay interest on the principal amount of this Note at 8¹/4%. The Company will pay interest quarterly on April 30, July 31, October 31, and January 31 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"). Interest on the Notes will accrue from the most recent date on which interest has been paid or, if no interest has been paid, from the date of issuance; provided, that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date shall be January 31, 2003. The Company shall pay interest on overdue principal from time to time on demand at the rate of 1% per annum in excess of the interest rate then in effect; it shall pay interest on overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months.

        2. Method of Payment.    The Company will pay interest on the Notes (except defaulted interest) to the Persons who are registered Holders of Notes at the close of business on the record date next preceding the Interest Payment Date, even if such Notes are cancelled after such record date and on or before such Interest Payment Date. Holders must surrender Notes to a Paying Agent to collect principal payments. The Company will pay the principal of, premium, if any, and interest on the Notes in money of the United States of America that at the time of payment is legal tender for payment of public and private debts ("U.S. Legal Tender"). The Company, however, may pay such amounts by check payable in such U.S. Legal Tender. It may mail an interest check to a Holder's registered address.

        3. Paying Agent and Registrar.    Initially, The Bank of New York (the "Trustee") will act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar or co-registrar without notice to any Holder. The Company may act in any such capacity.

        4. Indenture and Partial Guarantees.    The Company issued the Notes under an Indenture dated as of                             , 2002 (the "Indenture") between the Company and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code §§ 77aaa-77bbbb) ("TIA"), as in effect on the date of execution of the Indenture until such time as the Indenture is qualified under the TIA, and thereafter as in effect on the date on which the Indenture is qualified under the TIA. The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. Capitalized and certain other terms used herein and not otherwise defined have the meanings set forth in the Indenture. The Notes are unsecured general obligations of the Company limited to $40,000,000 in aggregate principal amount.

        5. Optional and Mandatory Redemption.    The Notes will be redeemable, at the option of the Company, in whole or in part, at any time, at 100% percentage of principal amount, together with accrued and unpaid interest, if any, thereon to the redemption date. The Company shall be obligated to redeem Notes (i) upon the disposition of shares or assets of Restricted Subsidiaries to the extent the Net Cash Proceeds of such dispositions exceed $3,000,000 per year, (ii) to the extent net after-tax proceeds received from Kaiser-Hill exceed 2.8 times the amount of cash required to pay dividends on the Preferred Stock and interest on the Notes outstanding on the date of issuance of the Notes and

A-3

(iii) in the event of a disposition of the Company's interest in Kaiser-Hill or an extraordinary distribution from Kaiser-Hill. The redemption obligations described in clauses (i) and (ii) of the preceding sentence are pari passu and pro rata with the corresponding rights of the Preferred Stock. The redemption obligation described in clause (ii) above is guaranteed by Kaiser Government Programs, Inc.

        If fewer 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 shall cease to accrue on the Notes or portions thereof called for redemption.

        6. Denominations, Transfer, Exchange.    The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture.

        7. Persons Deemed Owners.    The registered Holder of a Note may be treated as its owner for all purposes.

        8. Unclaimed Funds.    If funds for the payment of principal or interest remain unclaimed for two years, the Trustee and the Paying Agent will repay the funds to the Company at its request. After that, all liability of the Trustee and Paying Agent with respect to such funds shall cease.

        9. Discharge.    The Company may be discharged from its obligations under the Indenture and the Notes, except for certain provisions thereof, upon satisfaction of certain conditions specified in the Indenture.

        10. Amendments and Waivers.    Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent (which may include consents obtained in connection with a tender offer or exchange offer for Notes) of the Holders of at least a majority in principal amount of the Notes then outstanding, and any existing Default under, or compliance with any provision of, the Indenture may be waived (other than any continuing Default or Event of Default in the payment of interest on or the principal of the Notes, with the consent (which may include consents obtained in connection with a tender offer or exchange offer for Notes) of the Holders of a majority in principal amount of the Notes then outstanding. Without the consent of any Holder, the Company and the Trustee may amend or supplement the Indenture or the Notes to cure any ambiguity, defect or inconsistency; to provide for the assumption of the Company's obligations to Holders in the case of a merger or acquisition; to provide for uncertificated Notes in addition to or in place of certificated Notes; to make any change that does not adversely affect the legal rights of any Holder; to surrender any right or power conferred upon the Company in the Indenture or the Notes; or to modify, eliminate or add to the provisions of the Indenture or the Notes to such extent as shall be necessary to effect the qualification of the Indenture under the TIA or under any similar federal statute hereafter enacted.

        The right of any Holder to participate in any consent required or sought pursuant to any provision of the Indenture (and the obligation of the Company to obtain any such consent otherwise required from such Holder) may be subject to the requirement that such Holder shall have been the Holder of record of any Notes with respect to which such consent is required or sought as of a date identified by the Trustee or the Company in a notice furnished to Holder in accordance with the terms of the Indenture.

A-4

        Without the consent of each Holder affected, the Company may not take certain actions, including: (i) reduce the amount of Notes whose Holders must consent to an amendment, supplement or waiver; (ii) reduce the rate of or change the time for payment of interest, including default interest, on any Note; (iii) reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to optional redemption or mandatory repurchase of the Notes under the Indenture; (iv) make any Note payable in money other than that stated in this Note; (v) make any change in certain provisions of the Indenture regarding a waiver of past Defaults and the rights of Holders to receive payment.

        11. Restrictive Covenants.    The Indenture contains certain covenants which, among other things, limit: (i) the incurrence of additional Indebtedness by the Company and Restricted Subsidiaries; (ii) the payment of dividends; (iii) the repurchase of capital stock or subordinated indebtedness; (iv) the making of certain other distributions, loans and investments; (v) the sale of assets and the sale of the stock of Restricted Subsidiaries; (vi) the creation of restrictions on the ability of Restricted Subsidiaries to pay dividends or make other payments to the Company; and (vii) the ability of the Company and Restricted Subsidiaries to enter into certain transactions with Affiliates or to merge, consolidate or transfer substantially all assets. These restrictions are subject to important qualifications and exceptions. The Company must report to the Trustee on compliance with such limitations.

        12. Defaults and Remedies.    Events of Default include: default in payment of interest on the Notes for 30 days; default in payment of principal on the Notes; failure by the Company for 60 days after notice to it to comply with any of its other agreements in the Indenture or the Notes; certain defaults under other Indebtedness; certain final judgments that remain undercharged; and certain events of bankruptcy or insolvency. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be immediately due and payable for an amount equal to 100% of the principal amount of the Notes plus accrued interest to the date of payment, except that in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes become due and payable immediately without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Notes. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders notice of any continuing default (except a default in payment of principal or interest) if it determines that withholding notice is in their interests. The Company must furnish an annual compliance certificate to the Trustee.

        13. Trustee Dealings with Company.    The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not Trustee.

        14. No Recourse Against Others.    A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes.

        15. Authentication.    This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent.

        16. Abbreviations.    Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (—tenants in common), TEN ENT (—tenants by the entireties), JT TEN (—joint tenants with right of survivorship and not as tenants in common), CUST (—Custodian), and U/G/M/A (—Uniform Gifts to Minors Act).

A-5

        17. CUSIP Numbers.    Pursuant to a recommendation promulgated by the Commission on Uniform Security Identification Procedures, the Company has caused CUSIP Numbers to be printed on the Notes as a convenience to the Holders of the Notes. No representation is made to the accuracy of such numbers as provided on the Notes, and reliance may be placed only on the other identification numbers printed thereon.

        18. Governing Law.    THIS NOTE AND THE INDENTURE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.

        The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Request may be made to:

Kaiser Group Holdings, Inc.
9302 Lee Highway
Fairfax, Virginia 22031-1207
Attention: Chief Executive Officer

A-6

ASSIGNMENT

        To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to

(Insert assignee's Soc. Sec. or tax I.D. No.)

(Print or type assignee's name, address and zip code)

and irrevocably appoint                                                                                        to transfer this Note on the books of the Company. The agent may substitute another to act for him.

Date:
	Your Signature:
	(Sign exactly as your name appears on the face of this Note)

Signature Guarantee:                                     

Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent's Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.

A-7

EXHIBIT B

FORM OF LEGEND FOR GLOBAL NOTES

        Any Global Note authenticated and delivered hereunder shall bear a legend in substantially the following form:

        THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS NOTE IS NOT EXCHANGEABLE FOR NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS NOTE (OTHER THAN A TRANSFER OF THIS NOTE AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.

        UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

B-1

EXHIBIT C

CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF NOTES

Re: 8¹/4% Senior Notes due 2007
(the "Notes"), of Kaiser Group Holdings, Inc.

        This Certificate relates to $            principal amount of Notes held in the form of*    a beneficial interest in a Global Note or*             Physical Notes by            (the "Transferor").

The Transferor:*

        o has requested by written order that the Registrar deliver in exchange for its beneficial interest in the Global Note held by the Depository a Physical Note or Physical Notes in definitive, registered form of authorized denominations and an aggregate principal amount equal to its beneficial interest in such Global Note (or the portion thereof indicated above); or

        o has requested that the Registrar by written order to exchange or register the transfer of a Physical Note or Physical Notes.

        In connection with such request and in respect of each such Note, the Transferor does hereby certify that the Transferor is familiar with the Indenture relating to the above captioned Notes and the restrictions on transfers thereof as provided in Section 2.05 of such Indenture.

[INSERT NAME OF TRANSFEROR]
By:
	[Authorized Signatory]

Date:                                         

*Check applicable box.

C-1

EXHIBIT D

FORM OF PARTIAL GUARANTEE

        FOR VALUE RECEIVED, Kaiser Government Programs, Inc., a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Partial Guarantor", which term includes any successor corporation under the Indenture dated as of                        , 2002, as supplemented (herein called the "Indenture") referred to in the Notes to which this Partial Guarantee relates), hereby unconditionally guarantees to the Trustee and the Holders from time to time of the Notes, observance of the redemption obligation set forth in Section 3.01(d) of the Indenture (the "Guaranteed Obligation").

        In addition, the Partial Guarantor hereby unconditionally agrees that upon default by the Company in the payment when due of the Guaranteed Obligations, the Partial Guarantor will forthwith pay the same, without further notice or demand.

        The obligations of the Partial Guarantor hereunder shall be absolute and unconditional and, except as otherwise provided herein, shall remain in full force and effect until the entire principal of, premium, if any, on, and interest on the Notes shall have been paid or provided for in accordance with the provisions of the Indenture, and such obligations shall not be affected, modified or impaired upon the happening from time to time of any event, including without limitation any of the following, whether or not with notice to, or the consent of, the Partial Guarantor:

        (a)  the waiver, surrender, compromise, settlement, release, or termination of any or all of the obligations, covenants, or agreements of the Company under the Indenture or the Notes, unless the waiver, surrender, compromise, settlement, release or termination is made specifically applicable to the Partial Guarantor;

        (b)  the failure to give notice to the Partial Guarantor of the occurrence of an Event of Default;

        (c)  the waiver, compromise, or release of the payment, performance or observance by the Company of any or all of its obligations, covenants or agreements contained in the Indenture, unless such waiver, compromise or release is specifically applicable to the Partial Guarantor;

        (d)  the extension of time for payment of any principal of, premium, if any, on, or interest on any Notes or for any other payments under the Indenture or of the time for performance of any other obligations, covenants or agreements under or arising out of the Indenture, unless such extension of time is specifically applicable to the Partial Guarantor;

        (e)  the modification or amendment (whether material or otherwise) of any obligation, covenant, or agreement set forth in the Indenture or the Notes, unless such modification or amendment is specifically applicable to the Partial Guarantor;

        (f)    the taking or the omission of any of the actions referred to in the Indenture and any of the actions under the Notes;

        (g)  any failure, omission, delay, or lack on the part of the Trustee to enforce, assert or exercise any right, power or remedy conferred on the Trustee in the Indenture, or any other act or acts on the part of the Trustee or any of the Holders from time to time of the Notes;

        (h)  the voluntary or involuntary liquidation, dissolution, sale, or other disposition of all or substantially all of the assets, marshalling of assets and liabilities, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition with creditors, or readjustment of, or other similar proceedings affecting the Partial Guarantor, or the Company or any of the assets of any of them, or any allegation or contest of the validity of this Partial Guarantee in any such proceeding;

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        (i)    to the extent permitted by law, the release or discharge by operation of law of the Company from the performance or observance of any obligation, covenant, or agreement contained in the Indenture, unless the Partial Guarantor is also released or discharged by operation of law;

        (j)    the default or failure of the Partial Guarantor or the Trustee fully to perform any of its obligations set forth in the Indenture or the Notes; or

        (k)  the invalidity of the Indenture or the Notes or any part thereof.

        No set-off, counterclaim, reduction, or diminution of any obligation, or any defense of any kind or nature which the Partial Guarantor has or may have against the Trustee shall be available hereunder to the Partial Guarantor against the Trustee to reduce the payments of the Partial Guarantor under this Partial Guarantee.

        The Partial Guarantor shall be released from all of its obligations under this Partial Guarantee if:

        (a)  the Partial Guarantor has sold all or substantially all of its assets or the Company and its Restricted Subsidiaries have sold all of the Capital Stock of the Partial Guarantor owned by them, in each case in a transaction in compliance with Sections 3.01(b) and 5.01 of the Indenture; or

        (b)  The Partial Guarantor merges with or into or consolidates with, or transfers all or substantially all of its assets to, the Company or another Partial Guarantor in a transaction in compliance with Section 5.01 of the Indenture;

and in each such case, the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for in the Indenture relating to such transactions have been complied with.

        No stockholder, officer, director or incorporator, as such, past, present or future, of the Partial Guarantor shall have any liability under this Partial Guarantee by reason of his or its status as such stockholder, officer, director or incorporator.

        This Partial Guarantee shall be governed by and construed in accordance with the laws of the State of New York, without regard to principles of conflicts of laws.

        All terms used in this Partial Guarantee which are defined in the Indenture shall have the meanings assigned to them in the Indenture.

        Unless the certificate of authentication on the Note to which this Partial Guarantee is endorsed has been executed by or on behalf of the Trustee, by the manual signature of its, or its Authenticating Agent's, authorized signatories, this Partial Guarantee shall not be valid or obligatory for any purpose.

        IN WITNESS WHEREOF, the Partial Guarantor has caused this Partial Guarantee to be duly executed.

Dated:                        2002	KAISER GOVERNMENT PROGRAMS, INC.
[CORPORATE SEAL]	By:
		Title
Attest:
Secretary

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Exhibit 4(b)

CROSS-REFERENCE TABLE
TABLE OF CONTENTS
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE
ARTICLE 2 THE NOTES
ARTICLE 3 OPTIONAL AND MANDATORY REDEMPTION
ARTICLE 4 COVENANTS
ARTICLE 5 SUCCESSORS
ARTICLE 6 DEFAULTS AND REMEDIES
ARTICLE 7 TRUSTEE
ARTICLE 8 DISCHARGE OF INDENTURE
ARTICLE 9 AMENDMENTS
ARTICLE 10 MISCELLANEOUS

EX-5

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Exhibit 5

        SQUIRE, SANDERS & DEMPSEY L.L.P.
8000 Towers Crescent Drive, 14^th Floor
Vienna, Virginia 22182-2700

October 18, 2002

Kaiser Group Holdings, Inc.
9302 Lee Highway
Fairfax, Virginia 22031

Re: Kaiser Group Holdings, Inc.
Registration Statement on Form S-4
Registration No. 333-          

Ladies and Gentlemen:

        Reference is made to the Registration Statement on Form S-4 (Registration No. 333-            ) (the "Registration Statement") filed by Kaiser Group Holdings, Inc., a Delaware corporation (the "Company"), with the Securities and Exchange Commission under the Securities Act of 1933, as amended, with respect to 8¹/4% Senior Notes due December 31, 2007 (the "Exchange Notes"). The Exchange Notes will be issuable pursuant to an exchange offer (the "Exchange Offer") to be made by the Company, in exchange for up to $40 million liquidation preference of preferred stock of the Company that is validly tendered and not withdrawn prior to the expiration of the exchange offer, all as described in the Registration Statement.

        We have reviewed the Registration Statement and the related exhibits, including the form of the Indenture under which the Exchange Notes will be issuable. In addition, we have examined originals, or copies authenticated to our satisfaction, of such corporate records, certificates and other documents, and such matters of law, as we have deemed necessary or appropriate for purposes of this opinion. We have relied upon certificates of officers of the Company as to various factual matters contained in those certificates.

        In our examination of all of the foregoing, we have assumed the genuineness of all signatures, the legal capacity of natural persons executing documents, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such copies. We have assumed the final form of the Indenture will not differ materially from the form filed as an exhibit to the Registration Statement.

        Based on the foregoing, we are of the opinion that, when the Exchange Notes have been (a) executed by the Company and authenticated by the trustee for the Exchange Notes in accordance with the provisions of the Indenture governing the Exchange Notes, and (b) delivered by the Company in accordance with the terms of the Exchange Offer as contemplated in the Registration Statement, the Exchange Notes will be valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as may be limited by applicable bankruptcy, insolvency, moratorium, reorganization, fraudulent transfer or similar laws relating to or affecting the enforcement of creditors' rights generally and subject to general principles of equity (whether considered in a proceeding at law or in equity).

        We express no opinion as to the laws of any jurisdiction other than the federal laws of the United States, the laws of the State of New York, and the General Corporation Law of the State of Delaware.

        We consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to our firm under the caption "Legal Matters" in the prospectus contained in the Registration Statement. In giving such consent, we do not admit we come within the category of persons whose consent is required by the Securities Act of 1933 or the rules under that Act.

Respectfully submitted,

/s/ Squire, Sanders & Dempsey L.L.P.

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Exhibit 5

EX-8

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Exhibit 8

SQUIRE, SANDERS & DEMPSEY L.L.P.
8000 Towers Crescent Drive, 14^th Floor
Vienna, Virginia 22182-2700

October 18, 2002

Kaiser Group Holdings, Inc.
9302 Lee Highway
Fairfax, Virginia 22031

Re: Offer to Exchange 8¹/4% Senior Notes due 2007 for up to $40 Million Liquidation
Preference of Series 1 Redeemable Cumulative Preferred Stock

Ladies and Gentlemen:

        In connection with our representation of Kaiser Group Holdings, Inc. (the "Company"), you have requested our opinion as to the material United States federal income tax consequences to the Company, and to the Holders of the Company's Series 1 Redeemable Cumulative Preferred Stock (the "Preferred Stock"), with respect to the exchange by such Holders of up to $40 million liquidation preference of such Preferred Stock for newly-issued 8¹/4% Senior Notes due December 31, 2007, in the principal amount of $40 million (the "Exchange Offer"). In addition, you have requested our opinion as to the material United States federal income tax consequences to the Holders of such Preferred Stock with respect to a proposed solicitation (the "Solicitation") of such Holders for consents to amend a certain put agreement giving the Holders of such Preferred Stock the right to put the Preferred Stock to a subsidiary of the Company under certain circumstances.

        We have reviewed and prepared the Form S-4 Registration Statement (the "Registration Statement") to be filed with the Securities and Exchange Commission in connection with the Exchange Offer and Solicitation and, in particular, the section entitled "United States Federal Income Tax Considerations" and, in our opinion, and assuming that the Exchange Offer and the Solicitation are effected in the manner described in the Registration Statement, the discussion therein is a full, complete, and accurate summary of the material United States federal income tax consequences of the Exchange Offer and Solicitation.

        This opinion, and the discussion contained in the Registration Statement, are based on the Internal Revenue Code, the Treasury Regulations thereunder, Internal Revenue Service rulings interpreting the foregoing, and pertinent judicial authority, all as in effect on the date hereof, and presume that no substantial changes in such authorities will be promulgated or occur between the date hereof and the proposed Exchange Offer and Solicitation that would affect the opinion rendered hereby.

        We hereby consent to (i) the filing of this opinion with the Securities and Exchange Commission as an exhibit to the Registration Statement and (ii) the references to our firm in the Registration Statement under the heading "United States Federal Income Tax Considerations." In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended.

Respectfully submitted,

/s/ Squire, Sanders & Dempsey L.L.P.

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Exhibit 8

EX-10.M

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Exhibit 10(m)

AMENDED AND RESTATED
EMPLOYMENT AGREEMENT

        THIS AGREEMENT is effective as of December 18, 2000, the effective date of the Plan of Reorganization of Kaiser Group International, Inc. ("Effective Date"), by and among Kaiser Group Holdings, Inc. and Kaiser Group International, Inc., each a Delaware corporation (collectively, the "Corporation"), and John T. Grigsby, Jr., presently a resident of Florida (the "Executive").

        WHEREAS, as of the Effective Date, the Executive will become President and Chief Executive Officer of Kaiser Group Holdings, Inc.;

        WHEREAS, the Executive will also be a director and officer of Kaiser Group International, Inc. and will be carried on the payroll of that entity; and

        WHEREAS, the Corporation and the Executive wish to document the terms of their employment relationship;

        NOW, THEREFORE, in consideration of the premises and the mutual agreements made herein, and intending to be legally bound hereby, the Corporation and the Executive agree as follows:

        1.    Employment; Duties.

        (a)    Employment; Employment Period.    The Corporation shall employ the Executive to serve as President and Chief Executive Officer of Kaiser Group Holdings, Inc. for an "evergreen" period of twelve months, meaning that the remaining term of this Agreement shall at all times be twelve months, provided that either Kaiser Group Holdings, Inc. or the Executive may terminate this Agreement in accordance with Section 6. The term of this Agreement, as in effect from time to time, and subject to termination as provided in Section 6, is referred to herein as the "Employment Period."

        (b)    Reporting.    The Executive shall report to the Board of Directors of Kaiser Group Holdings, Inc.

        (c)    Authorities and Responsibilities.    The Executive shall have authorities and responsibilities normally attendant to the position he holds.

        2.    Compensation and Fringe Benefits.

        (a)    Base Compensation.    Effective January 1, 2002, the Corporation shall pay the Executive a base salary at the rate of $210,000 per annum in substantially equal regular installments (but no less frequently than monthly) in accordance with the Corporation's regular practice for compensating executive personnel. The Corporation and the Executive recognize and agree that the level of effort required on the part of the Executive may change from time to time during the Employment Period. Accordingly, the Executive's base compensation shall be adjusted by mutual agreement of the Executive and the Compensation Committee of the Board of Directors of Kaiser Group Holdings, Inc. from time to time during the course of the Employment Period.

        (b)    Incentive Compensation.

(i)

Incentive Compensation for Claims Reduction. The Corporation shall pay the Executive incentive compensation equal to five (5) percent of the amount that the total Class 4 Allowed Claims are less than $150,000,000, but in no event shall such incentive compensation exceed $500,000.

(ii)

Incentive Compensation for Other Achievements. The Corporation shall pay the Executive incentive compensation equal to five (5) percent of the following:

– The recoveries received after January 1, 2002 from the Taiwan Branch claims, the LPN claim and the Colt Engineering litigation.

–
The assets made available to the Corporation from Monument Select Insurance Company which exceed $4,000,000.

–
The monies from the Claims Reserve Fund in excess of $9,000,000 which are used to redeem the Corporation's Preferred Stock.

The total of the incentive compensation payable to the Executive from these achievements shall not exceed $200,000.

Payment of the incentive compensation referred to in this Section 2(b) shall be made from time to time based on estimates of the amount due to the Executive and agreed upon by the Executive and the Compensation Committee of the Board of Directors of Kaiser Group Holdings, Inc.

        (c)    Fringe Benefits.    The Executive shall be entitled to such fringe benefits as are generally made available by the Corporation to executive personnel and those customarily made available to individuals holding the positions held by the Executive. The Executive also will be reimbursed for reasonable expenses incurred in connection with travel and entertainment related to the Corporation's business and affairs and will be paid by the Corporation in a manner consistent with past practice and as amended by any subsequent changes of corporate policy.

        (d)    Commuting and Living Expenses.    During the initial phase of his employment by the Corporation, the Executive shall commute from his home to the Corporation's offices in Fairfax, Virginia, and will incur commuting and living expenses in connection with such travel. The Corporation shall reimburse the Executive for such expenses upon submission of appropriate supporting documentation. In addition, to the extent such reimbursements are taxable to the Executive for Federal, state or local tax purposes, such reimbursements to the Executive shall be "grossed-up."

        (e)    Severance.    The Executive shall not be entitled to any severance upon conclusion of the Employment Period.

        3.    Trade Secrets.    Except as is required in his employment hereunder, the Executive shall not use or disclose any of the Corporation's trade secrets or other confidential information. The term "trade secrets or other confidential information" includes, by way of example, matters of a technical nature, such as scientific, trade and engineering secrets, "know-how," formulae, secret processes or machines, inventions, computer programs (including documentation of such programs) and research projects, and matters of a business nature, such as proprietary information about costs, profits, markets, sales, lists of customers, and other information of a similar nature to the extent not available to the public, and plans for future development. After termination of this Agreement, the Executive shall not use or disclose trade secrets or other confidential information unless such information becomes a part of the public domain other than through a breach of this Agreement or is disclosed to the Executive by a third party who is entitled to receive and disclose such information. The terms "trade secrets" and "confidential information" exclude (a) information known by the Executive prior to the Executive's employment by the Corporation or any of its affiliates; (b) information which is publicly available or which is generally known in the industry through no breach of duty of confidentiality by the Executive; and (c) information which the Executive receives from a third party without any breach of duty of confidentiality by such third party.

        4.    Return of Documents and Property.    (a) Upon the effective date of notice of the Executive's or the Corporation's election to terminate this Agreement, or (b) at any time upon the request of the

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Corporation, the Executive (or his heirs or personal representative) shall deliver to the Corporation (i) all documents and materials containing trade secrets or other confidential information relating to the Corporation's business and affairs, and (ii) all documents, materials and other property belonging to the Corporation, which in either case are in the possession or under the control of the Executive (or his heirs or personal representative).

        5.    Discoveries and Works.    All discoveries and works made or conceived by the Executive during his employment by the Corporation, jointly or with others, that relate to the Corporation's activities shall be owned by the Corporation. The term "discoveries and works" includes, by way of example, inventions, computer programs (including documentation of such programs), technical improvements, processes, drawings and works of authorship. The Executive shall (a) promptly notify, make full disclosure to, and execute and deliver any documents requested by, the Corporation to evidence or better assure title to such discoveries and works in the Corporation, (b) provide reasonable assistance, at no cost to the Executive, to the Corporation in obtaining or maintaining for itself at its own expense United States and foreign patents, copyrights, trade secret protection or other protection of any and all such discoveries and works, and (c) promptly execute, whether during his employment by the Corporation or thereafter, all applications or other endorsements necessary or appropriate to maintain patents and other rights for the Corporation and to protect its title thereto. Any discoveries and works which, within six months after the termination of the Executive's employment by the Corporation, are made, disclosed, reduced to a tangible or written form or description, or are reduced to practice by the Executive and which directly relate to the Corporation's activities at the time of such termination shall, as between the Executive and the Corporation, be presumed to have been made during the Executive's employment by the Corporation. Set forth on Schedule 5 attached hereto is a list of inventions, patented or unpatented, including a brief description thereof, which are owned by the Executive, which the Executive conceived or made prior to his employment by the Corporation and which are excluded from this Agreement.

        6.    Termination.

        (a)  Upon 60 days' prior written notice the Corporation may terminate the Executive's employment, with or without "cause," as defined in Section 6(f) below. Upon 60 days' prior written notice the Executive may terminate his employment, with or without "good reason," as defined in Section 6(e) below. Upon any termination of the Executive's employment for any reason, the Corporation shall:

(i)

pay to the Executive any unpaid salary through the date of termination; and



(ii)

provide to or for the benefit of the Executive the benefits, if any, otherwise expressly provided under this Section.

Any payments under this Section 6 that are to be made in connection with the termination of Executive's employment will be paid in cash (with deduction of such amount as may be required to be withheld under applicable law and regulations) within ten business days of Executive's termination of employment. All other compensation and employment benefit arrangements provided for in this Agreement shall cease upon such termination of employment except to the extent required by law or otherwise expressly provided by such arrangement.

        (b)  In the event the Corporation terminates the Executive's employment without "cause" or the Executive terminates his employment for "good reason," then, in addition to the benefits provided for under Sections 6(a)(i) and 6(a)(ii), the Corporation shall pay to the Executive a severance payment equal to three months of the Executive's base compensation then in effect.

        (c)  In the event the Corporation terminates the Executive's employment for "cause," then the Executive shall not be entitled to any additional benefits other than those provided for under Section 6(a)(i) and 6(a)(ii).

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        (d)  In the event the Executive terminates his employment without "good reason," then the Executive shall not be entitled to any additional benefits other than those provided for under Section 6(a)(i) and 6(a)(ii).

        (e)  For purposes of this Agreement, the Executive shall be considered to have "good reason" to terminate his employment if without his express written consent (i) the responsibilities of the Executive are substantially reduced (except in connection with the termination of his employment voluntarily by the Executive or by the Corporation for "cause") or (ii) the Executive's base salary is reduced other than as contemplated by Section 2(a).

        (f)    For purposes of this Agreement, the Corporation shall have "cause" to terminate the Executive's employment hereunder upon (i) the continued, willful and deliberate failure of the Executive to perform his duties, in a manner substantially consistent with the manner prescribed by the Board of Directors of Kaiser Group Holdings, Inc. (other than any such failure resulting from his incapacity due to physical or mental illness), (ii) the engaging by the Executive in misconduct materially and demonstrably injurious to the Corporation, or (iii) the conviction of the Executive of commission of a felony, whether or not such felony was committed in connection with the Corporation's business.

        7.    Enforcement.    The Executive agrees that the Corporation's remedies at law for any breach or threat of breach by him of the provisions of Sections 3, 4 and 5 hereof will be inadequate, and that the Corporation shall be entitled to an injunction or injunctions to prevent breaches of the provisions of Sections 3, 4 and 5 hereof and to enforce specifically the terms and provisions thereof, in addition to any other remedy to which the Corporation may be entitled at law or equity. The Executive shall be entitled to reimbursement by the Corporation for any reasonable costs or attorneys fees incurred in collecting payments due to the Executive pursuant to this Agreement.

        8.    Severability.    Should any provision of this Agreement be determined to be unenforceable or prohibited by any applicable law, such provision shall be ineffective to the extent, and only to the extent, of such unenforceability or prohibition without invalidating the balance of such provision or any other provision of this Agreement, and any such unenforceability or prohibition in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

        9.    Assignment.    The Executive's rights and obligations under this Agreement shall not be assignable by the Executive. The Corporation's rights and obligations under this Agreement shall not be assignable by the Corporation without the Executive's prior written consent. In the event of any such assignment by the Corporation, all rights of the Corporation hereunder shall inure to the benefit of the assignee.

        10.    Notices.    Any notice required or permitted under this Agreement shall be deemed to have been effectively made or given if in writing and personally delivered or mailed properly addressed in a sealed envelope, postage prepaid by certified or registered mail. Unless otherwise changed by notice, notice shall be properly addressed to Executive if addressed to:

John T. Grigsby, Jr.
2255 Glades Road
Suite 307E
Boca Raton, FL 33431

and properly addressed to the Corporation if addressed to:

Kaiser Group Holdings, Inc.
9302 Lee Highway
Fairfax, Virginia 22031-1207
Attn: Chairman of the Board

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With a copy to:

James J. Maiwurm
Squire, Sanders & Dempsey L.L.P.
8000 Towers Crescent Drive, Suite 1400
Vienna, Virginia 22182-2700

        11.    Miscellaneous.    This Agreement constitutes the entire agreement, and supersedes all prior agreements, of the parties hereto relating to the subject matter hereof, and there are no written or oral terms or representations made by either party other than those contained herein. The validity, interpretation, performance and enforcement of this Agreement shall be governed by the laws of the Commonwealth of Virginia. The headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.

        IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the Effective Date.

/s/ John T. Grigsby, Jr. John T. Grigsby, Jr., Executive
KAISER GROUP HOLDINGS, INC.
By:	/s/ James J. Maiwurm James J. Maiwurm Chairman of the Board

5

SCHEDULE 5

Inventions Owned by the Executive

NONE

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Exhibit 10(m)

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

EX-10.N

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Exhibit 10(n)

KAISER GROUP HOLDINGS, INC.
2002 EQUITY COMPENSATION PLAN
(Adopted September 20, 2002; Approved by Shareholders                         , 2003)

1.  Purpose

        The purpose of the Plan is to advance the long-term interests of Kaiser Group Holdings, Inc. by (i) motivating key personnel by means of long-term incentive compensation, (ii) furthering the identity of interests of participants with those of the shareholders of the Corporation through the ownership and performance of the Common Stock of the Corporation, and (iii) permitting the Corporation to attract and retain directors and key personnel upon whose judgment the successful conduct of the business of the Corporation largely depends. Toward this objective, the Committee may grant stock options, stock appreciation rights, restricted stock awards, phantom stock and/or performance shares to key employees of, and consultants to, the Corporation and its Subsidiaries, and to non-employee directors of the Corporation, on the terms and subject to the conditions set forth in the Plan.

2.    Definitions

        2.1  "Administrative Policies" means the administrative policies and procedures adopted and amended from time to time by the Committee to administer the Plan.

        2.2  "Award" means any form of stock option, stock appreciation right, restricted stock award, phantom stock or performance share granted under the Plan, whether singly, in combination, or in tandem, to a Participant by the Committee pursuant to such terms, conditions, restrictions and limitations, if any, as the Committee may establish by the Award Agreement or otherwise.

        2.3  "Award Agreement" means a written agreement with respect to an Award between the Corporation and a Participant establishing the terms, conditions, restrictions and limitations applicable to an Award. To the extent an Award Agreement is inconsistent with the terms of the Plan, the Plan shall govern the rights of the Participant thereunder.

        2.4  "Board" means the Board of Directors of the Corporation.

        2.5  "Change In Control" means a change in control of the Corporation of a nature that would be required to be reported (assuming such event has not been previously reported) in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act (or a successor provision thereto), provided that, without limitation, a Change In Control shall be deemed to have occurred at such time after September 20, 2002 as (i) any "person", within the meaning of Section 14(d) of the Exchange Act, becomes the beneficial owner, directly or indirectly, of securities of the Corporation representing 50% or more of the combined voting power of the Corporation's then outstanding securities, or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors cease for any reason to constitute at least a majority thereof unless the election or the nomination for election, by the Corporation's shareholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period.

        2.6  "Change In Control Price" means the higher of (i) the mean of the high and low trading prices for the Corporation's Common Stock on the Stock Exchange on the date of determination of the Change In Control or (ii) the highest price per share actually paid for the Common Stock in connection with the Change In Control of the Corporation.

        2.7  "Code" means the Internal Revenue Code of 1986, as amended from time to time.

        2.8  "Committee" means the Compensation Committee of the Board, or such other committee designated by the Board, authorized to administer the Plan under Section 3 hereof. The Committee, in its discretion, may delegate to a senior executive officer of the Corporation all or part of the Committee's authority and duties with respect to Awards to individuals who are not subject to the

reporting and other provisions of Section 16 of the Exchange Act. In the event of any such delegation, references herein to the "Committee" shall, to the extent of such permitted delegation, be deemed to be references to such senior executive officer as well. The Committee may revoke or amend the terms of a delegation at any time, but such action shall not invalidate any prior actions of any such senior executive officer that were consistent with the terms of the Plan.

        2.9  "Common Stock" means Common Stock, par value $.01, of the Corporation.

        2.10 "Corporation" means Kaiser Group Holdings, Inc.

        2.11 "Exchange Act" means the Securities Exchange Act of 1934, as amended.

        2.12 "Key Employee" means an employee of the Corporation or a Subsidiary who holds a position of responsibility in a managerial, administrative or professional capacity, or a consultant to the Corporation, in either case whose performance, as determined by the Committee in the exercise of its sole and absolute discretion, can have a significant effect on the growth, profitability and success of the Corporation.

        2.13 "Participant" means any individual to whom an Award has been granted by the Committee under this Plan.

        2.14 "Plan" means the Kaiser Group Holdings, Inc. 2002 Equity Compensation Plan, as amended from time to time.

        2.15 "Stock Exchange" means the exchange, automatic quotation system or such other market price reporting system on which the Common Stock is traded or quoted designated by the Committee after it determines that such other system is both reliable and reasonably accessible.

        2.16 "Subsidiary" means a corporation or other business entity in which the Corporation directly or indirectly owns fifty percent (50%) or more of the voting equity.

3.    Administration

        (a)  The Plan shall be administered under the supervision of the Committee composed of not less than two directors, each of whom shall be a "Non-Employee Director" under Rule 16b-3 under the Exchange Act or any successor rule or act.

        (b)  Members of the Committee shall serve at the pleasure of the Board of Directors, and may resign by written notice filed with the Chairman or the Secretary of the Corporation.

        (c)  A vacancy in the membership of the Committee shall be filled by the appointment of a successor member by the Board of Directors. Until such vacancy is filled, the remaining members shall constitute a quorum and the action at any meeting of a majority of the entire Committee, or an action unanimously approved in writing, shall constitute action of the Committee. Subject to the express provisions of this Plan, the Committee shall have conclusive authority to construe and interpret the Plan, any Award Agreement entered into hereunder and to establish, amend and rescind Administrative Policies for the administration of this Plan and shall have such additional authority as the Board of Directors may from time to time determine to be necessary or desirable.

4.    Eligibility

        Any Key Employee or director of the Corporation is eligible to become a Participant in the Plan.

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5.    Shares Available

        (a)  Shares of Common Stock available for issuance under the Plan may be authorized and unissued shares or treasury shares. Subject to the adjustments provided for in Sections 17 and 18 hereof:

        (i)    The maximum number of shares of Common Stock available for grant of Awards under the Plan shall be 150,000;

        (ii)  Not more than 125,000 shares of Common Stock shall be available for the award of incentive stock options under the Plan; and

        (iii)  The maximum number of shares that may be covered by stock options granted under the Plan to any Participant in any one calendar year shall be 35,000.

        (b)  For purposes of calculating the number of shares of Common Stock deemed to be granted hereunder, each Award, whether denominated in stock options, stock appreciation rights, restricted stock, performance shares or phantom stock, shall be deemed to be a grant of a number of shares of Common Stock equal to the number of shares represented by the stock options, shares of restricted stock, performance shares, shares of phantom stock or stock appreciation rights set forth in the Award, provided, however:

        (i)    in the case of any Award as to which the exercise of one right nullifies the exercisability of another (including, by way of illustration the grant of a stock option with Tandem SARs (as hereinafter defined)), the number of shares deemed to have been granted shall be the maximum number of shares (and/or cash equivalents) that could have been acquired upon the maximum exercise or settlement of the Award; and

        (ii)  in the case of performance share awards providing for payments in excess of 100% of the number of shares set forth in the Award Agreement, the number of shares granted shall be deemed to be the maximum number of shares (and/or the cash equivalent thereof) issuable under the Award at the highest level of performance.

        (c)  Any shares for which an Award is granted hereunder that are released from such Award for any reason shall become available for other Awards to be granted under the Plan. Notwithstanding the foregoing, for purposes of calculating the number of shares available for regrant in any year, the portion of any Award that has been settled by the payment of cash or the issuance of shares of Common Stock, or a combination thereof, shall not be available for re-grant under the Plan, irrespective of the value of the settlement or the method of its payment. The settlement of an Award shall not be deemed to be the grant of an Award hereunder.

6.    Term

        The Plan shall become effective as of September 20, 2002 subject to approval of the Plan by the Corporation's shareholders. No Awards shall be exercisable or payable before approval of the Plan has been obtained from the Corporation's shareholders. Any Award made under the Plan prior to the date of approval by the shareholders shall be void if shareholder approval is not obtained.

7.    Participation

        The Committee shall select, from time to time, Participants from directors and those Key Employees who, in the opinion of the Committee, can further the Plan's purposes, and the Committee shall determine the type or types of Awards to be made to the Participant. The terms, conditions and restrictions of each Award shall be set forth in an Award Agreement.

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8.    Stock Options

        (a)    Grants.    Awards may be granted in the form of stock options. Stock options may be incentive stock options within the meaning of section 422 of the Code or non-statutory stock options (i.e., stock options which are not incentive stock options), or a combination of both, or any particular type of tax advantage option authorized by the Code from time to time.

        (b)    Terms and Conditions of Options.    An option shall be exercisable in whole or in such installments and at such times as may be determined by the Committee; provided, however, that no stock option shall be exercisable more than ten (10) years after the date of grant thereof. The option exercise price shall be established by the Committee, but such price shall not be less than the per share fair market value of the Common Stock, as determined by the Committee, on the date of the stock option's grant subject to adjustment as provided in Sections 17 or 18 hereof.

        (c)    Restrictions Relating to Incentive Stock Options.    Stock options issued in the form of incentive stock options shall, in addition to being subject to all applicable terms, conditions, restrictions and/or limitations established by the Committee, comply with section 422 of the Code. Incentive Stock Options shall be granted (i) only to employees of the Corporation and its subsidiaries within the meaning of section 424 of the Code and (ii) within ten (10) years after the date of adoption of this Plan. The aggregate fair market value (determined as of the date the option is granted) of shares with respect to which incentive stock options are exercisable for the first time by an individual during any calendar year (under this Plan or any other plan of the Corporation or any Subsidiary which provides for the granting of incentive stock options) may not exceed $100,000 or such other number as may be applicable under the Code from time to time. Any incentive stock option that is granted to any employee who is, at the time the option is granted, deemed for purposes of section 422 of the Code, or any successor provision, to own shares of the Corporation possessing more than ten percent of the total combined voting power of all classes of shares of the Corporation or of a parent or subsidiary of the Corporation, shall have an option exercise price that is at least one hundred ten percent (110%) of the fair market value of the shares at the date of grant and shall not be exercisable after the expiration of five years from the date it is granted.

        (d)    Additional Terms and Conditions.    The Committee may, by way of the Award Agreement or otherwise, establish such other terms, conditions, restrictions and/or limitations, if any, on any stock option Award, provided they are not inconsistent with the Plan.

        (e)    Payment.    Upon exercise, a Participant may pay the option exercise price of a stock option in cash or shares of Common Stock, Stock Appreciation Rights or a combination of the foregoing, or such other consideration as the Committee may deem appropriate. The Committee shall establish appropriate methods for accepting Common Stock and may impose such conditions as it deems appropriate on the use of such Common Stock to exercise a stock option.

9.    Stock Appreciation Rights

        (a)    Grants.    Awards may be granted in the form of stock appreciation rights ("SARs"). SARs shall entitle the recipient to receive a payment equal to the appreciation in market value of a stated number of shares of Common Stock from the price stated in the Award Agreement to the market value of the Common Stock on the date of exercise or surrender. An SAR may be granted in tandem with all or a portion of a related stock option under the Plan ("Tandem SARs"), or may be granted separately ("Freestanding SARs"). A Tandem SAR may be granted either at the time of the grant of the related stock option or at any time thereafter during the term of the stock option. An SAR may be exercised no sooner than six months after it is granted. In the case of SARs granted in tandem with stock options granted prior to the grant of such SARs, the appreciation in value shall be appreciation from the option exercise price of such related stock option to the market value of the Common Stock on the date of exercise.

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        (b)    Terms and Conditions of Tandem SARs.    Subject to limitations contained in the preceding paragraph, a Tandem SAR shall be exercisable to the extent, and only to the extent, that the related stock option is exercisable. Upon exercise of a Tandem SAR as to some or all of the shares covered by an Award, the related stock option shall be cancelled automatically to the extent of the number of SARs exercised, and such shares shall not thereafter be eligible for grant under Section 5 hereof.

        (c)    Terms and Conditions of Freestanding SARs.    Freestanding SARs shall be exercisable in whole or in such installments and at such times as may be determined by the Committee. The base price of a Freestanding SAR shall also be determined by the Committee; provided, however, that such price shall not be less that the fair market value of the Common Stock, as determined by the Committee, on the date of the award of the Freestanding SAR.

        (d)    Deemed Exercise.    The Committee may provide that an SAR shall be deemed to be exercised at the close of business on the scheduled expiration date of such SAR, if at such time the SAR by its terms is otherwise exercisable and, if so exercised, would result in a payment to the participant.

        (e)    Additional Terms and Conditions.    The Committee may, consistent with the Plan, by way of the Award Agreement or otherwise, determine such other terms, conditions, restrictions and/or limitations, if any, on any SAR Award, including but not limited to determining the manner in which payment of the appreciation in value shall be made.

10.  Restricted Stock Awards

        (a)    Grants.    Awards may be granted in the form of Restricted Stock Awards. Restricted Stock Awards shall be awarded in such numbers and at such times as the Committee shall determine.

        (b)    Award Restrictions.    Restricted Stock Awards shall be subject to such terms, conditions, restrictions, or limitations as the Committee deems appropriate including, by way of illustration but not by way of limitation, restrictions on transferability, requirements of continued employment or individual performance or the financial performance of the Corporation. The Committee may modify, or accelerate the termination of, the restrictions applicable to a Restricted Stock Award under such circumstances as it deems appropriate.

        (c)    Rights as Shareholders.    During the period in which any restricted shares of Common Stock are subject to the restrictions imposed under the preceding paragraph, the Committee may, in its discretion, grant to the Participant to whom such restricted shares have been awarded all or any of the rights of a shareholder with respect to such shares, including, by way of illustration but not by way of limitation, the right to vote such shares and to receive dividends.

        (d)    Evidence of Award.    Any Restricted Stock Award granted under the Plan may be evidenced in such manner as the Committee deems appropriate, including, without limitation, book-entry registration or issuance of a stock certificate or certificates.

11.  Phantom Stock

        (a)    Grants.    Awards may be granted in the form of Phantom Stock Awards. Phantom Stock Awards shall entitle the Participant to receive the market value or the appreciation in value of an equivalent number of shares of Common Stock on a settlement date determined by the Committee.

        (b)    Additional Terms and Conditions.    The Committee may, consistent with the plan, by way of Award Agreement or otherwise, determine such other terms, conditions, restrictions or limitations, if any, on any Award of Phantom Stock.

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12.  Performance Shares

        (a)    Grants.    Awards may be granted in the form of performance shares. "Performance Shares" means interests the entitlement to which is based upon the attainment of predetermined Performance Targets as hereinafter defined during a Performance Period as hereinafter defined. At the end of the Performance Period, Performance Shares shall be converted into Common Stock (or Common Stock and cash, as determined by the Award Agreement) and distributed to Participants based upon such entitlement.

        (b)    Performance Criteria.    The Committee may grant an Award of Performance Shares to Participants as of the first day of each Performance Period. As used herein, the term "Performance Period" means the period during which a Performance Target is measured and the term "Performance Target" means the predetermined goals established by the Committee. A Performance Target will be established at the beginning of each Performance Period. If at the end of the Performance Period, the Performance Target is fully met, the Performance Shares will be converted 100% into shares of Common Stock (or the cash equivalent thereof, as determined by the Award Agreement) and issued to the Participant. Award payments in excess of 100% shall be permitted based upon an attainment in excess of 100% of the Performance Target. If the Performance Target has not been fully met, Performance Shares will be converted and delivered only to the extent, if any, provided at the time of the grant of such Award for conversion based upon partial attainment of the Performance Target and the balance of the Performance Shares will be forfeited to the Corporation and available for reissuance pursuant to Section 5 hereof. Award payments made in cash rather than the issuance of Common Stock shall not, by reason of such payment in cash, result in additional shares being available for reissuance pursuant to Section 5 hereof.

        (c)    Additional Terms and Conditions.    The Committee may, consistent with the terms of this Plan, by way of the Award Agreement or otherwise, determine the manner of payment of Awards of Performance Shares and other terms, conditions, restrictions or limitations, if any, on any Award of Performance Shares.

13.  Payment of Awards

        Except as otherwise provided herein Award Agreements may provide that, at the discretion of the Committee, payment of Awards may be made in cash, Common Stock, a combination of cash and Common Stock, or any other form of property as the Committee shall determine. Further, the terms of Award Agreements may provide for payment of Awards in the form of a lump sum or installments, as determined by the Committee.

14.  Dividends and Dividend Equivalents

        If an Award is granted in the form of a Restricted Stock Award, Phantom Stock Award or a Freestanding SAR, the Committee may choose, at the time of the grant of the Award, to include as part of such Award an entitlement to receive dividends or dividend equivalents, subject to such terms, conditions, restrictions or limitations, if any, as the Committee may establish. Dividends and dividend equivalents shall be paid in such form and manner and at such time as the Committee shall determine. All dividends or dividend equivalents which are not paid currently may, at the Committee's discretion, accrue interest or be reinvested into additional shares of Common Stock.

15.  Termination of Employment

        The Committee may adopt Administrative Policies determining the entitlement of Participants who cease to be employed by either the Corporation or Subsidiary whether because of death, disability, resignation, termination or retirement pursuant to an established retirement plan or policy of the

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Corporation or of its applicable Subsidiary. Such matters may also be dealt with under the terms of Award Agreements.

16.  Assignment and Transfer

        The rights and interests of a Participant under the Plan may not be assigned, encumbered or transferred except (a) in the event of the death of a Participant, by will or the laws of descent and distribution, and (b) as may be explicitly set forth in an Award Agreement.

17.  Adjustments Upon Changes in Capitalization

        In the event of any change in the outstanding shares of Common Stock by reason of any reorganization, recapitalization, stock split, stock dividend, combination or exchange of shares, merger, consolidation or any change in the corporate structure or shares of the Corporation, the maximum aggregate number and class of shares as to which Awards may be granted under the Plan and the shares issuable pursuant to then outstanding Awards (and the exercise price of any outstanding stock options) shall be appropriately adjusted by the Committee, whose determination shall be final.

18.  Extraordinary Distributions and Pro-Rata Repurchases

        In the event the Corporation shall at any time when an Award is outstanding make an Extraordinary Distribution (as hereinafter defined) in respect of Common Stock or effect a ProRata Repurchase of Common Stock (as hereinafter defined), the Committee shall consider the economic impact of the Extraordinary Distribution or Pro-Rata Repurchase on Participants and make such adjustments as it deems equitable under the circumstances. The determination of the Committee shall, subject to revision by the Board of Directors, be final and binding upon all Participants.

        (a)  As used herein, the term "Extraordinary Distribution" means any dividend or other distribution of

        (i)    cash, where the aggregate amount of such cash dividend or distribution together with the amount of all cash dividends and distributions made during the preceding twelve months, when combined with the aggregate amount of all Pro-Rata Repurchases (for this purpose, including only that portion of the aggregate purchase price of such Pro-Rata Repurchases which is in excess of the Fair Market Value of the Common Stock repurchased during such twelve month period), exceeds ten percent (10%) of the aggregate Fair Market Value of all shares of Common Stock outstanding on the record date for determining the shareholders entitled to receive such Extraordinary Distribution or

        (ii)  any shares of capital stock of the Corporation (other than shares of Common Stock), other securities of the Corporation, evidences of indebtedness of the Corporation or any other person or any other property (including shares of any Subsidiary of the Corporation), or any combination thereof.

        (b)  As used herein "Pro-Rata Repurchase" means any purchase of shares of Common Stock by the Corporation or any Subsidiary thereof, pursuant to any tender offer or exchange offer, subject to Section 13(e) of the Exchange Act or any successor provision of law, or pursuant to any other offer available to substantially all holders of Common Stock; provided, however, that no purchase of shares of the Corporation or any Subsidiary thereof made in open market transactions shall be deemed a Pro-Rata Repurchase.

19.  Withholding Taxes

        The Corporation or the applicable Subsidiary shall be entitled to deduct from any payment under the Plan, regardless of the form of such payment, the amount of all applicable income and employment

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tax required by law to be withheld with respect to such payment or may require the Participant to pay to it such tax prior to and as a condition of the making of such payment. The Committee may allow a Participant to pay the amount of taxes required by law to be withheld from an Award by withholding from any payment of Common Stock due as a result of such Award, or by permitting the Participant to deliver to the Corporation shares of Common Stock having a fair market value, as determined by the Committee, equal to the amount of such required withholding taxes.

20.  Regulatory Approvals and Listings

        Notwithstanding anything contained in this Plan to the contrary, the Corporation shall have a no obligation to issue or deliver certificates of Common Stock evidencing Restricted Stock Awards or any other Award payable in Common Stock prior to (a) the obtaining of any approval from any governmental agency which the Corporation shall, in its sole discretion, determine to be necessary or advisable, (b) the admission of such shares to listing on the Stock Exchange and (c) the completion of any registration or other qualification of said shares under any state or federal law or ruling of any governmental body that the Corporation shall, in its sole discretion, determine to be necessary or advisable.

21.  No Right to Continued Employment or Grants

        Participation in the Plan shall not give any Key Employee any right to remain in the employ of the Corporation or any Subsidiary or any director the right to remain as a director of the Corporation. The Corporation or, in the case of employment with a Subsidiary, the Subsidiary, reserves the right to terminate the employment of any Key Employee at any time. The adoption of this Plan shall not be deemed to give any Key Employee or any other individual any right to be selected as a Participant, to be granted any Awards hereunder or if granted an Award in any year, to receive Awards in any subsequent year.

22.  Amendment

        The Corporation reserves the right to amend, modify or terminate this Plan at any time by action of its Board of Directors, or, by action of the Board of Directors with the consent of a Participant, to amend, modify or terminate any outstanding Award or Award Agreement, except that the Corporation may not, without shareholder approval, adopt any amendment which would (a) materially increase the benefits accruing to Participants under the Plan, (b) materially increase the number of shares of Common Stock which may be issued under the Plan (except as specified in Section 17), or (c) materially modify the requirements as to eligibility for participation in the Plan. Moreover, no action may be taken by the Corporation (without the consent of the Participant) that will impair the validity of any Award then outstanding or that will prevent any incentive stock options issued or to be issued under this Plan from being "incentive stock options" as defined under section 422 of the Code or any successor provision.

23.  Governing Law

        The Plan shall be governed by and construed in accordance with the laws of the State of Delaware, except as preempted by applicable Federal law.

24.  Change In Control

        (a)    Stock Options.    In the event of a Change In Control, options not otherwise exercisable at the time of a Change In Control shall become fully exercisable immediately prior to such Change In Control and, in the discretion of the Committee, (i) the options shall be assumed, or an equivalent option substituted, by any successor corporation to the Corporation, or (ii) the Corporation shall make

8

provisions for the Participant to exercise the options for a minimum of ten (10) days prior to the Change In Control as to all shares subject to the options.

        (b)    Stock Appreciation Rights.    In the event of a Change In Control, Tandem SARs not otherwise exercisable upon a Change In Control shall become exercisable to the extent that the related Stock Option is exercisable. Freestanding SARs not otherwise exercisable upon a Change In Control shall also become fully exercisable upon such Change In Control.

        (i)    The Corporation shall make payment to Participants with respect to SARs in cash in an amount equal to the appreciation in the value of the SAR from the base price specified in the Award Agreement to the Change In Control Price.

        (ii)  Such cash payments to Participants shall be due and payable, and shall be paid by the Corporation, immediately upon the occurrence of such Change In Control; and

        (iii)  After the payment provided for in (ii) above, Participants shall have no further rights under SARs outstanding at the time of such Change In Control.

        (c)    Restricted Stock Awards.    In the event of a Change In Control, all restrictions previously established with respect to Restricted Stock Awards will conclusively be deemed to have been satisfied. Participants shall be entitled to have issued to them the shares of Common Stock described in the applicable Award Agreements, free and clear of any restriction or restrictive legend, except that if, upon the advice of counsel to the Corporation, shares of Common Stock cannot lawfully be issued without restriction, then the Corporation shall make payment to Participants in cash in an amount equal to the Change In Control Price of the Common Stock that otherwise would have been issued:

        (i)    Such cash payments to Participants shall be due and payable, and shall be paid by the Corporation, immediately upon the occurrence of such Change In Control; and

        (ii)  After the payment provided for in (i) above, Participants shall have no further rights under Restricted Stock Awards outstanding at the time of such Change In Control of the Corporation.

        (d)    Phantom Stock.    In the event of a Change In Control:

        (i)    all restrictions and conditions, if any, previously established with respect to Phantom Stock Awards will conclusively be deemed to have been satisfied and fulfilled, and the Corporation shall make payment to Participants in cash in an amount necessary to satisfy the Participants' rights under Phantom Stock Awards in accordance with the amounts otherwise payable by the Corporation pursuant to the Award Agreement;

        (ii)  Such cash payments shall be made to Participants by the Corporation immediately prior to the occurrence of such Change In Control; and

        (iii)  After the payment provided for in (ii) above, the Participants shall have no further rights under Phantom Stock Awards outstanding at the time of such change of control of the Corporation.

        (e)    Performance Shares.    In the event of a Change In Control:

        (i)    All previously established Performance Targets will be conclusively deemed to have been met. Participants shall be entitled to a pro-rata proportion of the shares of Common Stock which would have been issued to them upon conversion of any outstanding Performance Shares at the end of the Performance Period (based upon the applicable Performance Targets, which are conclusively deemed to have been met by reason of the Change In Control), payable in the manner specified in subsection (ii) hereof. The pro-rata proportion of the shares of Common Stock to be issued shall be equal to a fraction, the numerator of which is the duration of the

9

Performance Period prior to such Change In Control and the denominator of which is the original length of the Performance Period;

        (ii)  In lieu of issuing shares of Common Stock upon such conversion of Performance Shares, the Corporation shall make payment to Participants in cash in an amount equal to the Change In Control Price of the shares of Common Stock that would have been issued under paragraph (i) above;

        (iii)  Such cash payments to Participants shall be due and payable, and shall be paid by the Corporation, immediately upon the occurrence of such Change In Control; and

        (iv)  After the payment provided for in (ii) above, the Participants shall have no further rights under awards of Performance Shares outstanding at the time of such Change In Control of the Corporation.

        (f)    Miscellaneous.    Upon a Change In Control, no action shall be taken which would adversely affect the rights of any Participant or the operation of the Plan with respect to any Award to which the Participant may have become entitled hereunder on or prior to the date of the Change In Control or to which he may become entitled as a result of such Change In Control.

25.  No Right, Title, or Interest In Corporation Assets

        No Participant shall have any rights as a shareholder as a result of participation in the Plan until the date of issuance of a stock certificate in his name except, in the case of Restricted Stock Awards, to the extent such rights are granted to the Participant under Section 10(c) hereof. To the extent any person acquires a right to receive payments from the Corporation under this Plan, such rights shall be no greater than the rights of an unsecured creditor of the Corporation.

26.  Payment by Subsidiaries

        Settlement of Awards to employees of Subsidiaries shall be made by and at the expense of such Subsidiary. Except as prohibited by law, if any portion of an Award is to be settled in shares of Common Stock, the Corporation shall sell and transfer to the Subsidiary, and the Subsidiary shall purchase, the number of shares necessary to settle such portion of the Award.

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Exhibit 10(n)

KAISER GROUP HOLDINGS, INC. 2002 EQUITY COMPENSATION PLAN (Adopted September 20, 2002; Approved by Shareholders , 2003)

EX-21

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Exhibit 21

KAISER GROUP HOLDINGS, INC.
9302 Lee Highway, Fairfax, Virginia 22031
(703) 934-3600

Kaiser Group Holdings, Inc.'s consolidated subsidiaries are listed below. Consolidated subsidiaries which are less than wholly owned are indicated by the ownership percentage figure in parentheses following the name of the consolidated subsidiary.

Consolidated Subsidiary						Jurisdiction of Formation
I.	Kaiser Group International, Inc.					Delaware
	II.	Henry J. Kaiser Development Corporation, Inc.				Delaware
	II.	Kaiser Engineers Group, Inc.				Delaware
		III.	Henry J. Kaiser Company			Nevada
		III.	Kaiser Engineers, Inc.			Ohio
			IV.	KRGW Company (Canada), Inc.		Canada
			IV.	Kaiser Overseas Engineering, Inc.		Delaware
			IV.	Kaiser Engineers and Constructors, Inc.		Nevada
				V.	Kaiser Engenharia, S.A. (50%)	Portugal
			IV.	Kaiser Engineers International, Inc.		Nevada
				V.	Kaiser Panama S.A.	Panama
				V.	Kaiser Engenharia, S.A. (50%)	Portugal
			IV.	KE Services Corporation		Delaware
	II.	Kaiser Engineers Massachusetts, Inc.				Delaware
	II.	Kaiser Government Programs, Inc.				Delaware
		III.	Kaiser K-H Holdings, Inc.			Delaware
			IV.	Kaiser-Hill Company, LLC (50%)		Colorado
				V.	Kaiser-Hill Funding Company, L.L.C. (98%)	Delaware
			IV.	Kaiser-Hill Funding Company, L.L.C. (1%)		Delaware
	II.	Kaiser Hanford Company				Delaware
	II.	Kaiser Holdings Unlimited, Inc.				Delaware
		III.	Excell Development Construction, Inc.			Delaware
		III.	Kaiser Engineers Eastern Europe, Inc.			Delaware
			IV.	Kaiser Netherlands B.V. (10%)		Netherlands
		III.	Kaiser Netherlands B.V. (90%)			Netherlands
	II.	Kaiser Technology Holdings, Inc.				Delaware
		III.	Kaiser Advanced Technology, Inc.			Idaho
			IV.	ICF Kaiser Advanced Technology of New Mexico, Inc.		New Mexico
	II.	Monument Select Insurance Company				Vermont
	II.	MSIC, Inc.				Delaware
	II.	Tudor Engineering Company				Delaware

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Exhibit 21

KAISER GROUP HOLDINGS, INC. 9302 Lee Highway, Fairfax, Virginia 22031 (703) 934-3600

EX-24

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Exhibit 24

KAISER GROUP HOLDINGS, INC.

Power of Attorney from a Director of the Corporation

        The undersigned director of Kaiser Group Holdings, Inc. (the "Corporation") hereby appoints John T. Grigsby, Jr. as his true and lawful attorney to execute (in the name of and on behalf of and as attorney for the undersigned) the Registration Statement, claims for exemption, and other appropriate filings, and any and all amendments thereto, relating to the 8¹/4% Senior Notes due 2007, which the Corporation will issue in exchange for preferred stock of the Corporation previously issued in an offering exempt from the registration requirements under the federal securities laws, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission and appropriate state securities or "blue sky" commissions and officials.

Dated: September 27, 2002
/s/ Jon B. Bennett	, Director
Print Name: Jon B. Bennett

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Exhibit 24

KAISER GROUP HOLDINGS, INC. Power of Attorney from a Director of the Corporation

EX-25

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Exhibit 25

FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE

CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)        o

THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)

New York (State of incorporation if not a U.S. national bank)	13-5160382 (I.R.S. employer identification no.)
One Wall Street, New York, N.Y. (Address of principal executive offices)	10286 (Zip code)

KAISER GROUP HOLDINGS, INC.
(Exact name of obligor as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	54-2014870 (I.R.S. employer identification no.)
9302 Lee Highway Fairfax, Virginia (Address of principal executive offices)	22031 (Zip code)

Kaiser Government Programs, Inc.
(Exact name of obligor as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	54-1761768 (I.R.S. employer identification no.)
9302 Lee Highway Fairfax, Virginia (Address of principal executive offices)	22031 (Zip code)

8¹/4% Senior Notes due 2007
(Title of the indenture securities)

1.	General information. Furnish the following information as to the Trustee:
	(a)	Name and address of each examining or supervising authority to which it is subject.

Name	Address
Superintendent of Banks of the State of New York	2 Rector Street, New York, N.Y. 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York	33 Liberty Plaza, New York, N.Y. 10045
Federal Deposit Insurance Corporation	Washington, D.C. 20429
New York Clearing House Association	New York, New York 10005

	(b)	Whether it is authorized to exercise corporate trust powers.
		Yes.
2.	Affiliations with Obligor.
	If the obligor is an affiliate of the trustee, describe each such affiliation.
	None.
16.	List of Exhibits.
	Exhibits identified in parentheses below, on file with the Commission, are incorporated herein by reference as an exhibit hereto, pursuant to Rule 7a-29 under the Trust Indenture Act of 1939 (the "Act") and 17 C.F.R. 229.10(d).
	1.	A copy of the Organization Certificate of The Bank of New York (formerly Irving Trust Company) as now in effect, which contains the authority to commence business and a grant of powers to exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed with Registration Statement No. 33-29637.)
	4.	A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1 filed with Registration Statement No. 33-31019.)
	6.	The consent of the Trustee required by Section 321(b) of the Act. (Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.)
	7.	A copy of the latest report of condition of the Trustee published pursuant to law or to the requirements of its supervising or examining authority.

2

SIGNATURE

        Pursuant to the requirements of the Act, the Trustee, The Bank of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York, and State of New York, on the 9th day of October, 2002.

THE BANK OF NEW YORK
By:	/s/  MARY LAGUMINA
Name:	MARY LAGUMINA
Title:	VICE PRESIDENT

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Exhibit 7

Consolidated Report of Condition of

THE BANK OF NEW YORK

of One Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,

a member of the Federal Reserve System, at the close of business June 30, 2002, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act.

		Dollar Amounts In Thousands
ASSETS
Cash and balances due from depository institutions:
	Noninterest-bearing balances and currency and coin	$	2,850,111
	Interest-bearing balances		6,917,898
Securities:
	Held-to-maturity securities		1,201,319
	Available-for-sale securities		13,227,788
Federal funds sold in domestic offices			1,748,562
Securities purchased under agreements to resell			808,241
Loans and lease financing receivables:
	Loans and leases held for sale		974,505
	Loans and leases, net of unearned income		36,544,957
	LESS: Allowance for loan and lease losses		578,710
	Loans and leases, net of unearned income and allowance		35,966,247
Trading Assets			6,292,280
Premises and fixed assets (including capitalized leases)			860,071
Other real estate owned			660
Investments in unconsolidated subsidiaries and associated companies			272,214
Customers' liability to this bank on acceptances outstanding			467,259
Intangible assets
	Goodwill		1,804,922
	Other intangible assets		70,679
Other assets			4,639,158
Total assets		$	78,101,914
LIABILITIES
Deposits:
	In domestic offices	$	29,456,619
	Noninterest-bearing		11,393,028
	Interest-bearing		18,063,591
	In foreign offices, Edge and Agreement subsidiaries, and IBFs		26,667,608
	Noninterest-bearing		297,347
	Interest-bearing		26,370,261
Federal funds purchased in domestic offices			1,422,522
Securities sold under agreements to repurchase			466,965
Trading liabilities			2,946,403
Other borrowed money: (includes mortgage indebtedness and obligations under capitalized leases)			1,844,526
Bank's liability on acceptances executed and outstanding			469,319

Subordinated notes and debentures		1,840,000
Other liabilities		5,998,479
Total liabilities	$	71,112,441
Minority interest in consolidated subsidiaries		500,154
EQUITY CAPITAL
Perpetual preferred stock and related surplus		0
Common stock		1,135,284
Surplus		1,055,509
Retained earnings		4,244,963
Accumulated other comprehensive income		(53,563	)
Other equity capital components		0
Total equity capital		6,489,319
Total liabilities minority interest and equity capital	$	78,101,914

        I, Thomas J. Mastro, Senior Vice President and Comptroller of the above-named bank do hereby declare that this Report of Condition is true and correct to the best of my knowledge and belief.

Thomas J. Mastro,
Senior Vice President and Comptroller

        We, the undersigned directors, attest to the correctness of this statement or resources and liabilities. We declare that it has been examined by us, and to the best of our knowledge and belief has been prepared in conformance with the instructions and is true and correct.

Thomas A. Renyi
Gerald L. Hassell
Alan R. Griffith } Directors

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Exhibit 25

SIGNATURE

Exhibit 7

Consolidated Report of Condition of THE BANK OF NEW YORK of One Wall Street, New York, N.Y. 10286 And Foreign and Domestic Subsidiaries,