-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A8jK/0p/4wE0Swu43I9c5oHVcYt0lWO2ZCdFNgidxRWtl1K3Wot86LH1ppNK+7Cc 9Up6H0pQ0tuIKsYVOsoRbQ== 0000928385-99-001308.txt : 19990416 0000928385-99-001308.hdr.sgml : 19990416 ACCESSION NUMBER: 0000928385-99-001308 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990415 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ICF KAISER INTERNATIONAL INC CENTRAL INDEX KEY: 0000856200 STANDARD INDUSTRIAL CLASSIFICATION: HAZARDOUS WASTE MANAGEMENT [4955] IRS NUMBER: 541437073 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-12248 FILM NUMBER: 99595018 BUSINESS ADDRESS: STREET 1: 9300 LEE HWY CITY: FAIRFAX STATE: VA ZIP: 22031 BUSINESS PHONE: 7039343600 MAIL ADDRESS: STREET 1: 9300 LEE HWY CITY: FAIRFAX STATE: VA ZIP: 22031 FORMER COMPANY: FORMER CONFORMED NAME: ICF INTERNATIONAL INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN CAPITAL & RESEARCH CORP /DE/ DATE OF NAME CHANGE: 19910314 10-K 1 FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ---------------- Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ---------------- For the fiscal year ended December 31, 1998 Commission File No. 1-12248 ---------------- ICF KAISER INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 54-1437073 (State or other (I.R.S. Employer jurisdiction of Identification No.) incorporation or organization) 9300 Lee Highway, Fairfax, Virginia (Address of principal executive offices) 22031-1207 (Zip Code) Registrant's telephone number, including area code: (703) 934-3600 Name of each exchange on which registered: New York Stock Exchange Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value $0.01 per share Preferred Stock Purchase Rights Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes No. X Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of Common Stock held by non-affiliates of the registrant was $14.5 million based on the New York Stock Exchange Composite Tape closing price of $0.75 on March 31, 1999. On March 31, 1999, there were 24,270,978 shares of Common Stock outstanding. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART I Item 1. Business ICF Kaiser International, Inc., through its operating subsidiaries, is one of the nation's largest engineering, construction, program management, and consulting services companies. In 1998, the Company's Environment and Facilities Management (EFM), ICF Kaiser Engineers and Constructors (E&C), and Consulting Groups provided fully integrated services in the public and private sectors in a variety of areas, including the environment, infrastructure, transportation, industry, energy, information technology, housing, economic development, and microelectronics markets. In 1999, the Company sold certain of its assets and, as a result, ceased certain of its operations. The "Company" or "ICF Kaiser" in this Report refers to ICF Kaiser International, Inc. and/or any of its consolidated subsidiaries. In the second half of 1998, the Board of Directors formed a Special Committee to consider strategic alternatives for the Company. The Committee was formed in response to strains brought about by cost overruns associated with certain Nitric Acid Projects. The Special Committee engaged a financial advisor and, with its assistance, evaluated various opportunities available to the Company, including the sale of one or more of the Company's operating groups. In March 1999, the Company entered into an agreement pursuant to which it agreed to sell the majority of its active contracts, and to transfer certain personnel--all related to its EFM Group--to The IT Group, Inc. of Monroeville, Pennsylvania, for proceeds of $82 million, less $8 million retained by The IT Group, Inc. for working capital. The sale closed on April 9, 1999. The Company retained the net working capital assets of the EFM Group and its 50% ownership interest in Kaiser-Hill Company, LLC, the entity that serves as the integrating management contractor at the U.S. Department of Energy's Rocky Flats Environmental Technology Site near Denver, Colorado. Also in March 1999, the Company signed a letter of intent to sell its Consulting Group to certain members of that Group's current management and CM Equity Partners, L.P. (CMEP), an equity investment firm based in New York City, for aggregate consideration of approximately $75 million. As of the date of this Annual Report Form 10-K, the Company expects the sale to be completed by mid-1999. Upon completion of the Consulting Group sale, management will focus on efforts to realign and restructure its remaining operations, largely the E&C operations, to return the Company to profitability. The E&C Group has performed a mixture of public- and private-sector engineering and construction work since the inception of its predecessor, Kaiser Engineers, in 1914. Unless otherwise noted, all discussions contained in this Report reflect the historical business operations of the Company during 1998 and prior. Specifically, the Company's financial information included in this Report does not give effect to the transactions discussed above or any other events that have occurred since December 31, 1998. Certain financial data as of and for the years ended December 31 is as follows:
1998 1997 1996 ---------- ---------- ---------- (in thousands) Gross revenue................................ $1,210,421 $1,108,116 $1,248,443 Service revenue.............................. $ 345,462 $ 426,086 $ 532,116 Operating income (loss)...................... $ (78,361) $ 18,069 $ 21,180 Assets....................................... $ 419,836 $ 399,288 $ 365,973
Most of the Company's contract backlog is related to public- and private- sector engineering and construction projects that span from one to five years. The Company ended 1998 with $3.2 billion in contract backlog. The backlog of the EFM and Consulting Groups totaled $658 million and $540 million, respectively, at December 31, 1998. The Company expects to work off 42% of the $2 billion backlog of the E&C Group and 1 Kaiser-Hill. The reduction from $4.1 billion at December 31, 1997 is due primarily to the completion of another year of the Kaiser-Hill Rocky Flats contract, resulting in the conversion of approximately $632.6 million of the 1997 backlog into revenue in 1998. Exclusive of the Rocky Flats backlog at December 31, 1998, the Company's backlog decreased by 5.8% from December 31, 1997. The Company's headquarters is located at 9300 Lee Highway, Fairfax, Virginia 22031-1207, and its telephone number is (703) 934-3600. The Company's four regional headquarters are located as follows:
Western United States Eastern United States Asia/Pacific Europe/Africa/Middle East - --------------------- --------------------- ------------ ------------------------- 2101 Webster Street Gateway View Plaza Q.V. 1 Building, Regal House, Suite 1000 1600 West Carson St George's Terrace, London Road, Oakland, CA Pittsburgh, PA Perth, WA 6000 Australia Twickenham, Middlesex, 94612- 3060 15219 61-89-366-5366 TW1-3QQ, England (510) 419- 6000 (412) 497-2000 44-181-892-4433
Other domestic offices include Tempe, Arizona; Los Angeles, Sacramento, San Diego, San Rafael, and Sherman Oaks, California; Mystic, Connecticut; Golden, Colorado; Washington, DC; Brooksville, Ft. Lauderdale, Jacksonville, Lake City, Miami, Orlando, Ruskin, and Tampa, Florida; Atlanta, Georgia; Boise, Idaho; Ashland and Hawesville, Kentucky; Ruston, Louisiana; Baltimore, Beltsville and Lexington Park, Maryland; Boston, Massachusetts; Kansas City, Missouri; Albuquerque, New Mexico; New York City; Greensboro and Research Triangle Park, North Carolina; Middletown, Pennsylvania; Baytown and Houston, Texas; Lehi and Ogden, Utah; Richmond, Virginia; and Seattle, Washington. The Company's other international offices include Brisbane and Sydney, Australia; Toronto, Ontario, Canada; Ostrava and Prague, Czech Republic; Paris, France; Hong Kong; Budapest, Hungary; Mexico City, Mexico; Rio de Janeiro, Brazil; Manila, the Philippines; Lisbon, Portugal; Moscow, Russia; and Istanbul, Turkey. Before the sale of its Environment and Facilities Management Group, the Company also had offices at Sacramento, California; Lakewood, Colorado; Titusville, Florida; Savannah, Georgia; Chicago, Illinois; Edgewood and Hollywood, Maryland; Las Vegas, Nevada; Iselin and Mount Arlington, New Jersey; Los Alamos and Santa Fe, New Mexico; Albany and Tonawanda, New York; Greensboro, North Carolina; and Richland, Washington. ICF Kaiser International, Inc. is a Delaware corporation incorporated in 1987 under the name American Capital and Research Corporation. It is the successor to ICF Incorporated, a nationwide consulting firm organized in 1969. In 1988, the Company acquired the Kaiser Engineers business, which dates from 1914. As of March 31, 1999, ICF Kaiser had 4,854 employees. Following the completion of the EFM sale on April 9, 1999, there were 583 fewer employees. Overview of Markets Served by the Company Environmental. In the environmental market in 1998, the Company provided services in connection with the remediation of hazardous and radioactive waste, waste minimization and disposal, risk assessment, global warming and acid rain, alternative fuels, and clean up of harbors and waterways. Demand for ICF Kaiser's environmental services was driven by a number of factors, including the need to restore contaminated sites formerly used for weapons production or military bases; the need to comply with federal, state, and municipal environmental regulation and enforcement regarding the quality of the environment; the need to bring aging production facilities into compliance with current environmental regulations; the need to minimize waste generation on an ongoing basis; and the need to reduce or forestall liability associated with pollution-related injury and damage. In addition, there is a growing international market arising from the increased awareness of the need for additional and/or initial environmental regulations, studies, and remediation. A significant portion of future U.S. Departments of Defense (DOD) and Energy (DOE) environmental expenditures will be directed to cleaning up hundreds of military bases with thousands of contaminated sites and to restoring contaminated former nuclear weapons facilities. DOD has stated that there is an urgent need to ensure that the hazardous wastes present at these sites (often located near population centers) do not pose a threat 2 to the surrounding population, and, in connection with the closure of many military bases, there is an economic incentive to make sure that the environmental restoration enables these sites to be developed commercially by the private sector. DOE has long recognized the need to stabilize and safely store nuclear weapons materials such as plutonium, to clean up areas contaminated with hazardous and radioactive waste, and restore the weapons sites to the public. Significant environmental laws have been enacted in the United States in response to public concern about the environment. These laws and the implementing regulations affected nearly every industrial activity, and efforts to comply with the requirements of these laws, create demand for the Company's services. The principal federal legislation that has created a substantial market for the Company, and therefore has the most significant effect on the Company's business, includes the following: The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) of 1980, as amended by the Superfund Amendments and Reauthorization Act (SARA) of 1986, established the Superfund program to clean up existing, often abandoned, hazardous waste sites and provides for penalties and punitive damages for noncompliance with U.S. Environmental Protection Agency (EPA) orders. The Resource Conservation and Recovery Act (RCRA) of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984 (HSWA), provides a comprehensive scheme for the regulation of hazardous waste from the time of generation to its ultimate disposal (and sometimes thereafter), as well as the regulation of persons engaged in the treatment, storage, and disposal of hazardous waste. The Clean Air Act as amended in 1970 empowered EPA to establish and enforce National Ambient Air Quality Standards, National Emission Standards for Hazardous Air Pollutants, and limits on the emission of various pollutants. The 1990 amendments to the Clean Air Act substantially increased the number of sources emitting a regulated air pollutant which will be required to obtain an operating permit; the amendments also address the issues of acid rain and ozone protection. The Clean Water Act of 1972, originally the Federal Water Pollution Control Act of 1948, established a system of standards, permits, and enforcement procedures for the discharge of pollutants to surface water from industrial, municipal, and other wastewater sources. The Toxic Substance Control Act, enacted in 1976, established requirements for identifying and controlling toxic chemical hazards to human health and the environment. Infrastructure and Transportation. Both the domestic and international infrastructure and transportation markets are driven by the need to maintain and expand ports, roads, highways, rail and bus systems, bridges, people movers, airports, and water resource facilities. Increasingly, environmental concerns, such as wastewater treatment and the reduction of automotive air pollutant emissions, have become a driving force behind new infrastructure and transportation initiatives. These markets primarily are funded by government dollars, although the private sector is seeking an increased role, particularly in international projects where there is a critical need for infrastructure and transportation projects because of the population growth of major cities. Industry. The industry market in a modern, global economy provides the base for the production of industrial metals and chemicals. This market is driven by the need to maintain and retrofit existing plants, to build new facilities such as those required for the burgeoning microelectronics industry, to replace aging production capacity with newer, more efficient and more environmentally responsible facilities, and to reduce costs, improve quality, and enhance competitiveness. Basic industrial materials include iron, steel, alumina/aluminum, chemicals, and copper. Other Markets. Traditionally DOD has maintained most of its own facilities and performed its own facility activities, but it is now in the process of transferring many of these responsibilities to private contractors and private owners. The "privatization" market has been created by the government's selling an asset or revenue stream--such as military housing and electric, water, and wastewater utilities on a military base--to a private company, which is then responsible for maintenance and operation. The "outsourcing" market has been created by private contractors' taking over site activities currently conducted by government, often military, personnel. The information technology market is driven by the increasing need for software and software tools to manage such diverse activities as financial management, accounting, and reporting capabilities; forecasting wholesale power pricing by independent and electric bulk power marketers; energy-use patterns; and energy use, billing, and monitoring. 3 Business Groups During the fiscal year ended December 31, 1998, the Company was organized into three business groups: Environment and Facilities Management (EFM); ICF Kaiser Engineers and Constructors (E&C); and Consulting. Please refer to the Company's consolidated financial statements for information concerning the historical financial performance of each of these Groups. In April 1999, the Company sold certain assets related to its EFM Group. See above. Following is a description of each business group's activities. Environment and Facilities Management (EFM) Before the sale of the EFM Group, the Company's largest single contract was managed by the EFM Group and performed through Kaiser-Hill Company, LLC, a limited liability company owned equally by the Company and CH2M Hill Companies, Ltd. (Kaiser-Hill). After the EFM sale, the Company retained its 50% ownership of Kaiser-Hill. In 1995, Kaiser-Hill won DOE's Performance Based Integrating Management contract at DOE's Rocky Flats Environmental Technology Site near Denver, Colorado. Rocky Flats is a former DOE nuclear weapons- production facility, and under the five-year contract, Kaiser-Hill is working to stabilize and safely store more than 14 tons of plutonium at the site, to clean up areas contaminated with hazardous and radioactive waste, and to restore much of the 6,000-acre site to the public. The EFM Group oversaw major program management and technical support contracts for U.S. government agencies, particularly DOE and DOD. Examples of the Group's projects in 1998 include providing technical support for environmental restoration projects at certain of DOE's former weapons production facilities; conducting hazardous, toxic, and radioactive waste cleanups for the U.S. Army under two Total Environmental Restoration Contracts (TERC); and providing technical and analytical support to the EPA Superfund, RCRA, and other environmental programs. Another focus of this Group was to provide support to DOD's privatization and outsourcing initiatives. As part of a joint venture, the group provided facilities management support to NASA and the U.S. Air Force at the Kennedy Space Center and nearby rocket launch sites under a $2.2 billion contract. Under the multi-year TERC contracts, the EFM Group provided environmental restoration services to the U.S. Army Corps of Engineers (USACE) at federal installations in California, Arizona, Nevada, and Utah (USACE South Pacific Division) and in the Eastern Atlantic states encompassing USACE's Baltimore, Maryland, District. The services provided under the TERCs include remedial investigation and feasibility studies of contaminated sites and performing remedial action and site cleanup activities. The Group also provided environmental services to USACE, Savannah (Georgia) District, under several contracts, including a contract to support the Corps' South Atlantic Division. Tasks performed by the Group under this contract include site assessments, risk assessments, remedial investigations, feasibility studies, remedial design, and construction support at sites throughout the Savannah District, especially at the Milan Army Ammunition Plant in Tennessee. Under a similar contract with the U.S. Army Environmental Center, the Group provided a full range of technical support for site investigation and remediation projects at Aberdeen Proving Ground and other Army facilities. Under contracts with DOE, the Group also conducted environmental restoration and cleanup activities at DOE's Los Alamos National Laboratory in New Mexico and provided support services for major projects at DOE's Hanford Site in Richland, Washington. The Environment and Facilities Management Group was responsible for all of the Company's environmental services to private-sector businesses, including compliance planning, audits, and permitting; risk assessment, site investigations, and feasibility studies; remedial design, construction, and construction management; operation and maintenance of remedial systems; decontamination and decommissioning of facilities; and community relations, Clean Air Act strategies, and expert witness support. Private-sector environmental clients include chemical plants; aerospace manufacturers; iron, steel, and aluminum producers; oil and gas refineries; pharmaceutical companies; the communications industry; and heavy industrial manufacturers. Representative projects included providing remedial design, procurement, and construction management services for a Superfund site remediation project; and engineering and specification development for an in-situ groundwater remediation system at a paint manufacturing facility in Maryland. 4 ICF Kaiser Engineers and Constructors (E&C) All of the E&C Group's markets are global in nature, and the Group provides engineering, procurement, construction, program management, and consulting services in numerous technology sectors through companies managed and staffed by local professionals in Australia, Brazil, the Czech Republic, England, France, the Philippines, Portugal, Taiwan, Turkey, and the United States, as well as through project offices throughout the world. To capitalize on international opportunities while minimizing its business development risks, the Group has established international business relationships through joint ventures, marketing agreements, and direct equity investments. Industry Services. The E&C Group's engineering, procurement, construction, project management, and consulting services to the industrial market involve work with the iron, steel, alumina/aluminum, copper, and other minerals and metals industries, as well as chemicals and heavy manufacturing. Current projects include detailed design engineering, procurement, and construction management for the expansion of an alumina refinery in Western Australia; engineering and design services for an aluminum smelter expansion project in the Midwestern United States; and upgrades for coke manufacturing operations at a major steelmill in China. The Group assists clients in private industry by providing the engineering, construction, and program management skills needed to maintain and retrofit existing plants and replace aging production capacity with newer, more environmentally responsible facilities. A very significant international industrial project is a mini-mill project for Nova Hut, a.s., an integrated steel maker based in the Ostrava region of the Czech Republic. In March 1996, ICF Kaiser was awarded a contract to provide turnkey engineering and construction of the first phase of a facility that will receive liquid steel from Nova Hut's existing steelmaking facilities. The facility will include a ladle metallurgy furnace and a single-strand dual slab caster. ICF Kaiser also is responsible for site development and related infrastructure. The successful startup in late 1997 included preliminary acceptance of the first phase of the facility by the owners, as well as production of steel ahead of schedule. Under a second-phase contract awarded in 1997, the E&C Group is installing an equalizing furnace, a reversing two-stand steckel mill, and associated facilities. It is expected that the second phase will be completed in late 1999. Infrastructure Services. The E&C Group provided engineering and construction management services to build rail and bus systems, highways and bridges, airports, high-speed rail, peoplemovers, and water resources projects in domestic and international markets. Infrastructure funding at the federal, state, and local levels is expected to increase in 1999, which will provide opportunity for growth in the Group's infrastructure services business. The Group currently is active in major U.S. metropolitan areas, providing planning, design, construction management, and program management services in Seattle (light rail project), San Francisco (commuter rail system renovation), and Orlando (light rail initiative). In the international infrastructure market, the Group's large-scale construction infrastructure skills are at work in Manila, the Philippines, where it is the program manager for the construction of a light rail transit line, a project for which ICF Kaiser supported development and financing since inception; in Portugal, where the Group provides program management of the overhaul and upgrade of Portugal's main intercity freight and passenger rail lines; and in Turkey, where the Group is providing construction management services for the first phase of a light rail system as part of a joint venture. The major ports of many of the world's cities have serious water pollution problems, and the E&C Group is helping to improve the condition of many harbors and waterways. In its largest harbor project, the Group continues as the construction manager of the cleanup of Boston Harbor, one of the largest environmental projects in the country, under a contract extension that runs through 2002. Since the inception of the project in 1988, the Group has served as its construction manager and currently manages construction workers, engineers, architects, and support personnel working to construct a wastewater treatment plant on Deer Island in Boston Harbor, 5 Massachusetts. The Group also is providing construction management services for the construction of the Walnut Hill Water Treatment Facility for the metropolitan Boston area. In Brazil, the E&C Group is providing program management services for the construction of sanitation and wastewater systems for communities surrounding Guanabara Bay. Consulting The Consulting Group serves customers in domestic and international markets, including both public- and private-sector organizations. Among its major customers are U.S. government agencies, especially EPA; U.S. private-sector organizations, particularly major energy producers, such as utilities and oil companies; and governments and businesses around the world, as well as multinational banks, development organizations, and treaty organizations. The Consulting Group draws upon the talents of its multidisciplinary professional staff to support customers within five lines of business. In March 1999, the Company signed a letter of intent to sell its Consulting Group to certain members of that Group's current management and CM Equity Partners, L.P. (CMEP), an equity investment firm based in New York City, for aggregate consideration of approximately $75 million. The Company expects the sale to be completed by mid-1999. Energy. This line of business supports the development of corporate and technical plans for managing power resources and energy projects (including transmission and distribution, power generation, and customer service), provides economic assessments of short- and long-term market conditions for various fuels, and provides expert support in litigation and regulatory proceedings. The Consulting Group assists its customers in identifying market opportunities, commercializing new technologies, and developing public policy; it links energy markets with energy technology. Environmental. This line of business assists customers in developing plans and policies, evaluating options for managing environmental responsibilities in the most cost-effective manner, and identifying and employing the best available technologies and practices. The Group has special expertise in such areas as industrial and municipal waste management, air pollution control, chemical accident prevention, and groundwater and drinking water management. The Consulting Group also provides technical and regulatory support to EPA's Office of Solid Waste, focusing on human health and ecological risk assessment and waste characterization. Global environmental issues are also a particular area of focus within the Consulting Group. The Consulting Group works with U.S., international, and private-sector organizations that fund global environmental work and has been actively involved in supporting international environmental treaties. Working on global change issues for EPA for 16 years, the Company supports the EPA's Global Change Division, providing services related to the reduction of methane and other greenhouse gases. Transportation. Transportation-related capabilities include an in-depth working knowledge of the legislative and policy issues facing the transportation industry; broad modeling and economic analytical capabilities that evaluate the full range of economic and policy trade-offs inherent in transportation decisions; and extensive planning and mission support experience with multinational and government organizations that operate in transportation-related areas throughout the globe. Economic and Community Development. This practice provides training, technical assistance, program support, and research services related to affordable housing and community development. Additionally, the Consulting Group helps federal agencies, cities, states, and nonprofit organizations to design and implement programs that provide affordable, cost-effective housing, to promote business and economic development, and to help revitalize deteriorated neighborhoods. Information Management. The Group assists clients in developing decision support systems that facilitate the collection and use of information to track performance, identify opportunities, and improve decision making. 6 The Group offers a number of simulation models and proprietary applications. By combining consulting expertise with information technology skills, the Group helps its customers deal with the unique challenges of their business environments. General Information about the Company Competition and Contract Award Process The market for the Company's services is highly competitive. The Company and its consolidated subsidiaries compete with many other engineering, construction, program management, and consulting services firms ranging from small firms to large multinational firms having substantially greater financial, management, and marketing resources than the Company. Other competitive factors include quality of services, technical qualifications, reputation, geographic presence, price, and the availability of key professional personnel. Private-Sector Work. Competition for private-sector work generally is based on several factors, including quality of work, reputation, price, and marketing approach. The Company's objective is to establish and maintain a strong competitive position in its areas of operations by adhering to its basic philosophy of delivering high-quality work in a timely fashion within its clients' budget constraints. Public-Sector Work. Most of the Company's contracts with public-sector clients are awarded through a competitive bidding process that places no limit on the number or type of offerors. The process usually begins with a government Request for Proposal (RFP) that delineates the size and scope of the proposed contract. Proposals are evaluated by the government on the basis of technical merit (for example, response to mandatory solicitation provisions, corporate and personnel qualifications, and experience) and cost. The Company believes that its experience and ongoing work strengthen its technical qualifications and, thereby, enhance its ability to compete successfully for future government work. Teaming Arrangements and Joint Ventures. In both the private and public sectors, the Company, acting either as a prime contractor or as a subcontractor, may join with other firms to form a team or a joint venture that competes for a single contract or submits a single proposal. Because a team of firms or a joint venture almost always can offer a stronger set of qualifications than any firm standing alone, these arrangements often are very important to the success of a particular competition or proposal. The Company maintains a large network of business relationships with other companies and has drawn repeatedly upon these relationships to form winning teams. Contract Structure. The Company's consolidated subsidiaries operate under a number of different types of contract structures with its private- and public- sector clients, the most common of which are Cost Plus and Fixed Price. Under Cost-Plus contracts, the Company's costs are reimbursed with a fee (either fixed or percentage of cost) and/or an incentive or award fee offered to provide inducement for effective project management. A variation of Cost Plus contracts are time-and-materials contracts under which the Company is paid at a specified fixed hourly rate for direct labor hours worked. Under Fixed-Price contracts, the Company is paid a predetermined amount for all services provided as detailed in the design and performance specifications agreed to at the project's inception, and under which the Company retains more performance risk than under Cost-Plus contracts. While these Fixed-Price contracts can result in higher profit margins, they also can be costly if the Company experiences cost overruns that are not recoverable from the client. Customers The Company's domestic clients include DOE and other federal departments and agencies; major corporations in the energy, transportation, chemical, steel, aluminum, mining, and manufacturing industries; utilities; and a variety of state and local government agencies throughout the United States. DOE accounted for approximately 54% of the Company's consolidated gross revenue for the year ended December 31, 1998, approximately 56% for the year ended December 31, 1997, and approximately 69% for the year ended December 31, 1996. 7 The Company's international clients include both private firms and foreign government agencies. For the years ended December 31, 1998, 1997, and 1996, foreign clients accounted for approximately 10.1%, 14.2%, and 5.8% of the Company's consolidated gross revenue, respectively. For information concerning gross revenue, operating income, and identifiable assets of the Company's business by geographic area, see Note 12 to the consolidated financial statements. Backlog Backlog refers to the aggregate amount of gross contract revenue remaining to be earned pursuant to signed contracts extending beyond one year. The Company ended 1998 with $3.2 billion in contract backlog. The backlog of the EFM and Consulting Groups totaled $658 million and $540 million, respectively, at December 31, 1998. The Company expects to work off 42% of the $2 billion backlog. The reduction from $4.1 billion at December 31, 1997 is due primarily to the completion of another year of the Kaiser-Hill Rocky Flats contract, resulting in the conversion of approximately $632.6 million of the 1997 backlog into revenue in 1998. Exclusive of the Rocky Flats backlog at December 31, 1998, the Company's backlog decreased by 5.6% from December 31, 1997. Because of the nature of its contracts, the Company does not calculate the amount or timing of service revenue that might be earned pursuant to these contracts. The Company believes that backlog is not a predictor of future gross or service revenue. Differences in contracting practices between the public and private sectors result in the Company's backlog being weighted heavily toward contracts associated with departments and agencies of the federal government. Backlog under contracts with the federal government that extend beyond the government's current fiscal year includes the full contract amount, including, in many cases, amounts anticipated to be earned in option periods and certain performance fees, even though annual funding of the amounts under such contracts generally must be appropriated by Congress before funds can be expended during any year under such contracts. In addition, departments and/or agencies must allocate the appropriated funds to these specific contracts and thereafter authorize work or task orders to be performed under these specific contracts. Such authorizations are generally for periods considerably shorter than the duration of the work the Company expects to perform under a particular contract and generally cover only a percentage of the contract revenue. Because of these factors, the amount of federal government contract backlog for which funds have been appropriated and allocated, and task orders issued, at any given date is a substantially smaller amount than the total federal government contract backlog as of that date. In the event that option periods under any given contract are not exercised or funds are not appropriated, allocated, or authorized to be spent under any given contract, the amount of backlog attributable to that contract would not result in revenue to the Company. All contracts and subcontracts with departments and/or agencies of the federal government are subject to termination, reduction, or modification at any time at the discretion of the government. Potential Environmental Liability The assessment, analysis, remediation, handling, management, and disposal of hazardous substances necessarily involve significant risks, including the possibility of damages or personal injuries caused by the escape of hazardous materials into the environment, and the possibility of fines, penalties, or other regulatory action. These risks include potentially large civil and criminal liabilities for violations of environmental laws and regulations, and liabilities to customers and to third parties for damages arising from performing services for clients. Potential Liabilities Arising Out of Environmental Laws and Regulations All facets of the Company's business are conducted in the context of a rapidly developing and changing statutory and regulatory framework. The Company's operations and services are affected by and subject to regulation by a number of federal agencies, including EPA and the Occupational Safety and Health Administration, as well as applicable state and local regulatory agencies. 8 CERCLA addresses cleanup of sites at which there has been a release or threatened release of hazardous substances into the environment. Increasingly, there are efforts to expand the reach of CERCLA to make environmental contractors responsible for cleanup costs by claiming that environmental contractors are owners or operators of hazardous waste facilities or that they arranged for treatment, transportation, or disposal of hazardous substances. Several recent court decisions have accepted these claims. Should the Company be held responsible under CERCLA for damages caused while performing services or otherwise, it may be forced to bear such liability by itself, notwithstanding the potential availability of contribution or indemnity from other parties. RCRA governs hazardous waste generation, treatment, transportation, storage, and disposal. RCRA, or EPA-approved state programs at least as stringent, govern waste handling activities involving wastes classified as "hazardous." Substantial fees and penalties may be imposed under RCRA and similar state statutes for any violation of such statutes and the regulations thereunder. Potential Liabilities Involving Clients and Third Parties In performing services for its clients, the Company could potentially be liable for breach of contract, personal injury, property damage, and negligence (including improper or negligent performance or design, failure to meet specifications, and breaches of express or implied warranties). The damages available to a client, should it prevail in its claims, are potentially large and could include consequential damages. Environmental contractors, in connection with work performed for clients, potentially face liabilities to third parties from various claims, including claims for property damage or personal injury stemming from a release of hazardous substances or otherwise. Claims for damage to third parties could arise in a number of ways, including through a sudden and accidental release or discharge of contaminants or pollutants during the performance of services; through the inability, despite reasonable care, of a remedial plan to contain or correct an ongoing seepage or release of pollutants; through the inadvertent exacerbation of an existing contamination problem; or through reliance on reports or recommendations prepared by the Company. Personal injury claims could arise contemporaneously with performance of the work or long after completion of the project as a result of alleged exposure to toxic or hazardous substances. In addition, increasing numbers of claimants assert that companies performing environmental remediation should be adjudged strictly liable, i.e., liable for damages even though its services were performed using reasonable care, on the grounds that such services involved "abnormally dangerous activities." Clients frequently attempt to shift various liabilities arising out of remediation of their own environmental problems to contractors through contractual indemnities. Such provisions seek to require the Company to assume liabilities for damage or personal injury to third parties and property and for environmental fines and penalties. The Company has endeavored to protect itself from potential liabilities resulting from pollution or environmental damage by obtaining indemnification from its private-sector clients and intends to continue this practice in the future. Under most of these contracts, the Company has been successful in obtaining such indemnification; however, such indemnification generally is not available if such liabilities arise as a result of breaches by the Company of specified standards of care or if the indemnifying party has insufficient assets to cover the liability. The Company will continue its efforts to minimize the risks and potential liability associated with its remediation activities by performing all remediation contracts in a professional manner and by carefully reviewing any and all remediation contracts it signs in an effort to ensure that its environmental clients accept responsibility for their own environmental problems. For EPA contracts involving field services in connection with Superfund response actions, the Company is eligible for indemnification under Section 119 of CERCLA for pollution and environmental damage liability resulting from release or threatened release of hazardous substances. Some of the Company's clients (including private clients, DOE, and DOD) are Potentially Responsible Parties (PRPs) under CERCLA. Under the Company's contracts with these PRPs, the Company has the right to seek contribution from these PRPs for liability imposed on the Company in connection with its work at these clients' CERCLA sites and generally 9 qualifies for the limitations on liabilities under CERCLA Section 119(a). In addition, in connection with contracts involving field services at certain of DOE's weapons facilities, the Company is indemnified under the Price-Anderson Act, as amended, against liability claims arising out of contractual activities involving a nuclear incident. Recently, EPA has constricted significantly the circumstances under which it will indemnify its contractors against liabilities incurred in connection with CERCLA projects. There are other proposals both in Congress and at the regulatory agencies to further restrict indemnification of contractors from third-party claims. Under Kaiser-Hill's contract with DOE, Kaiser-Hill is not responsible for, and DOE pays all costs associated with, any liability (including without limitation, a claim involving strict or absolute liability and any civil fine or penalty, expense, or remediation cost, but limited to those of a civil nature), which may be incurred by, imposed on, or asserted against Kaiser-Hill arising out of any act or failure to act, condition, or exposure which occurred before Kaiser-Hill assumed responsibility on July 1, 1995 ("pre- existing conditions"). To the extent the acts or omissions of Kaiser-Hill constitute willful misconduct, lack of good faith, or failure to exercise prudent business judgment on the part of Kaiser-Hill's managerial personnel and cause or add to any liability, expense, or remediation cost resulting from pre-existing conditions, Kaiser-Hill is responsible, but only for the incremental liability, expense, or remediation caused by Kaiser-Hill. The Kaiser-Hill contract further provides that Kaiser-Hill shall be reimbursed for the reasonable cost of bonds and insurance allocable to the Rocky Flats contract and for liabilities (and expenses incidental to such liabilities, including litigation costs) to third parties not compensated by insurance or otherwise. The exception to this reimbursement provision applies to liabilities caused by the willful misconduct or lack of good faith of Kaiser-Hill's managerial personnel or the failure to exercise prudent business judgment by Kaiser-Hill's managerial personnel. In connection with its services to its environmental, infrastructure, and industrial clients, the Company works closely with federal and state government environmental compliance agencies, and occasionally contests the conclusions those agencies reach regarding the Company's compliance with permits and related regulations. To date, the Company never has paid a fine in a material amount or had material liability imposed on it for pollution or environmental damage in connection with its services; however, there can be no assurance that the Company will not have substantial liability imposed on it for any such damage in the future. Insurance The Company has a comprehensive risk management and insurance program that provides a structured approach to protecting the Company. Included in this program are coverages for general, automobile, pollution impairment, and professional liability; for workers' compensation; and for employers and property liability. The Company believes that the insurance it maintains, including self-insurance, is in such amounts and protects against such risks as is customarily maintained by similar businesses operating in comparable markets. At this time, the Company expects to continue to be able to obtain general, automobile, and professional liability; workers' compensation; and employers and property insurance in amounts generally available to firms in its industry. There can be no assurance that this situation will continue, and if insurance of these types is not available, it could have a material adverse effect on the Company. The Company has pollution insurance coverage on a claims-made basis, in amounts and on terms that are economically reasonable, against possible liabilities that may be incurred in connection with its conduct of its environmental business. An uninsured claim arising out of the Company's environmental activities, however, if successful and of sufficient magnitude, could have a material adverse effect on the Company. Government Regulation The Company has a substantial number of cost-reimbursement contracts with the U.S. government, the costs of which are subject to audit by the U.S. government. As a result of pending audits related to fiscal years 1986 forward, the government has asserted, among other things, that certain costs claimed as reimbursable under 10 government contracts either were not allowable or not allocated in accordance with federal procurement regulations. The Company is actively working with the government to resolve these issues. The Company has provided for its estimate of the potential effect of issues that have been quantified, including its estimate of disallowed costs for the periods currently under audit and for periods not yet audited. Many of the issues, however, have not been quantified by the government or the Company, and others are qualitative in nature, and their potential financial impact, if any, is not quantifiable by the government or the Company at this time. This provision will be reviewed periodically as discussions with the government progress. The Company may, from time to time, either individually or in conjunction with other government contractors operating in similar types of businesses, be involved in U.S. government investigations for alleged violations of procurement or other federal laws and regulations. The Company currently is the subject of a number of U.S. government investigations and is cooperating with the responsible government agencies involved. No charges presently are known to have been filed against the Company by these agencies. Management does not believe that there will be any material adverse effect on the Company's financial position, results of operations, or cash flows as a result of these investigations. Federal agencies that are the Company's regular customers (including DOE, EPA, and DOD) have formal policies against awarding contracts that would present actual or potential conflicts of interest with other activities of the contractor. Because the Company provides a broad range of services in environmental and related fields for the federal government, state governments, and private customers, there can be no assurance that government conflict-of-interest policies will not restrict the Company's ability to pursue business in the future. Because some of the Company's consolidated subsidiaries provide the federal government with nuclear energy and defense-related services, these subsidiaries and a substantial number of their employees are required to have and maintain security clearances from the federal government. These subsidiaries and their employees have been able to obtain these security clearances in the past, and the Company has no reason to believe that there would be any problems in this area in the future; however, there can be no assurance that the required security clearances will be obtained and maintained in the future. Because of its nuclear energy and defense-related services, the Company is subject to foreign ownership, control, and influence (FOCI) regulations imposed by the federal government and designed to prevent the release of classified information to contractors who are under foreign control or influence. FOCI issues arise particularly in connection with foreign ownership of the Company's Common Stock, foreign bank participation in the Company's credit line, and increased foreign sources of the Company's gross revenue. The Company has implemented procedures designed to insulate such subsidiaries from any FOCI that might affect the Company. There can be no assurance that such measures will prevent FOCI policies from affecting the ability of the Company's subsidiaries to secure and maintain certain types of federal government contracts. Employees As of March 31, 1999, ICF Kaiser had 4,854 employees, and the Company believes that its relations with its employees are good. Following the completion of the EFM sale on April 9, 1999, there were 583 fewer employees. Of the total remaining employees, 1,763 persons are employed at Kaiser-Hill's Rocky Flats site in Colorado. A total of 1,357 of the Rocky Flats employees are represented by the United Steelworkers of America, Local 8031; almost all of the union employees are contracted out to other companies working at Rocky Flats. The Company believes that its relations with the union are good. Item 2. Properties The Company's operations are conducted in leased facilities or in facilities provided by the federal government or other clients. The Company's headquarters is located at 9300 Lee Highway, Fairfax, Virginia 22031-1207, and its telephone number is (703) 934-3600. The Company's regional headquarters and other offices are listed on page 2 of this Report. Because the Company's operations generally do not require the maintenance of unique facilities, suitable office space is available for lease in all of the geographic areas currently served. The 11 Company believes that adequate space to conduct its operations will be available for the foreseeable future. For information concerning an investment by the Company in the Fairfax, Virginia, land and buildings where the Company's headquarters are located, see Notes 4 and 9 to the consolidated financial statements. Item 3. Legal Proceedings In the course of the Company's normal business activities, various claims or charges have been asserted and litigation commenced against the Company arising from or related to properties, injuries to persons, and breaches of contract, as well as claims related to acquisitions and dispositions. Claimed amounts may not bear any reasonable relationship to the merits of the claim or to a final court award. In the opinion of management, an adequate reserve has been provided for final judgments, if any, in excess of insurance coverage, that might be rendered against the Company in such litigation. See Item 1-- "General Information about the Company--Potential Environmental Liability" and "Government Regulation," Item 7--"Other Items," and Note 13 to the consolidated financial statements. Item 4. Submission of Matters to a Vote of Security Holders--None PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Since September 14, 1993, the Common Stock has traded on the New York Stock Exchange (NYSE) under the symbol "ICF". At March 31, 1999, there were 1,501 shareholders of record. On March 31, 1999, the closing price of the Common Stock as reported by the NYSE was $0.75. The following table sets forth, for the periods indicated, the high and low sales prices for the Common Stock as reported by the NYSE:
Common Stock Price ------------------- High Low --------- --------- Year Ended December 31, 1997 First Quarter............................................ $ 2.625 $ 1.875 Second Quarter........................................... 2.750 1.875 Third Quarter............................................ 2.875 2.125 Fourth Quarter........................................... 2.813 2.000 Year Ended December 31, 1998 First Quarter............................................ $ 3.000 $ 2.063 Second Quarter........................................... 3.063 2.188 Third Quarter............................................ 2.313 1.125 Fourth Quarter........................................... 1.813 1.188
The Company's Transfer Agent and Registrar is EquiServe, First Chicago Trust Division (formerly First Chicago Trust Company of New York), P.O. Box 2536, Jersey City, NJ 07303-2536. The Shareholder Relations telephone number is (201) 324-0498, and the First Chicago Web site address is http://www.fctc.com. The Company has never paid cash dividends on its Common Stock. The Board of Directors anticipates that no cash dividends will be paid on its Common Stock for the foreseeable future and that the Company's earnings will be retained for use in the business. The Board of Directors determines the Company's Common Stock dividend policy based on the Company's results of operations, payment of dividends on preferred stock, financial condition, capital requirements, and other circumstances. The Company's debt agreements currently do not permit dividends to be paid on its capital stock. See Note 6 to the consolidated financial statements. 12 Item 6. Selected Financial Data The selected consolidated financial data of the Company for the years ended December 31, 1998, 1997, and 1996, the ten months ended December 31, 1995, and the year ended February 28, 1995, have been derived from the Company's audited consolidated financial statements. This information should be read in conjunction with the consolidated financial statements and the related notes thereto appearing elsewhere in this Report and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Certain reclassifications have been made to the prior period financial statements to conform to the presentation used in the December 31, 1998, financial statements. Selected Consolidated Financial Data (in thousands, except per share data)
Ten Months Year Ended Ended December February Year Ended December 31, 31, 28, 1998 1997 1996 1995 1995 ---------- ---------- ---------- -------- -------- Statement of Operations Data: Gross revenue............................... $1,210,421 $1,108,116 $1,248,443 $916,744 $861,518 Service revenue(1).......................... 345,462 426,086 532,116 425,896 459,786 Operating income (loss)..................... (78,361) 18,069 21,180 17,505 13,688 Income (loss) before income taxes, minority interest, and extraordinary item and cumulative effect of accounting change..... (97,101) 2,561 14,484 6,303 1,239 Net income (loss) before extraordinary item and cumulative effect of accounting change..................................... (93,442) (4,987) 5,834 2,252 (1,661) Basic and Diluted Earnings (Loss) Per Share: Before extraordinary item and cumulative effect of accounting change................ $ (3.87) $ (0.22) $ 0.17 $ 0.02 $ (0.18) Extraordinary item......................... (0.05) -- -- -- -- Cumulative effect of accounting change, net of tax..................................... (0.25) -- -- -- -- ---------- ---------- ---------- -------- -------- Total..................................... $ (4.17) $ (0.22) $ 0.17 $ 0.02 $ (0.18) ========== ========== ========== ======== ======== Weighted average common shares outstanding-- basic...................................... 24,092 22,382 22,035 21,132 20,957 Weighted average common shares outstanding-- diluted.................................... 24,092 22,382 22,057 21,606 20,957 Balance Sheet Data (end of period): Total assets................................ $ 429,053 $ 399,288 $ 369,462 $370,179 $281,422 Working capital............................. 2,289 91,121 113,898 84,589 91,640 Long-term liabilities....................... 147,152 145,590 161,951 125,818 133,130 Redeemable preferred stock.................. -- -- 19,787 19,617 Shareholders' equity (deficit).............. (63,118) 27,327 34,892 28,427 27,624
- -------- (1) Service revenue is derived by deducting the costs of subcontracted services and direct project costs from gross revenue and adding the Company's share of the equity in income of unconsolidated joint ventures and affiliated companies. 13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Complications resulting from difficulties in executing several large fixed price contracts involving the construction of plants to produce nitric acid (the Nitric Acid Projects) caused the Company to recognize provisions for total contract cost overruns totaling $66.0 million in 1998. A significant amount of management's activities in 1998 were focused on responding to the myriad of ramifications stemming from the substantial loss. As discussed in the following overview, management has now addressed the predominant issues related to completing the Nitric Acid Projects and financing the related cost overruns. Initially, the Company believed that it would incur cost overruns on only one of the four Nitric Acid Projects being performed by the Company's Engineers & Constructors (E&C) Group. Accordingly, as of December 1997, it reversed all profit previously recognized on that specific project. However, as time passed and as progress was made toward completion of all of the contracts, it became apparent that the other contracts would incur sizeable cost overruns as well. The Company's inability to control effectively many conditions surrounding the projects--including issues involving subcontractor productivity, reengineering work, customer demands and changes in project management--paired with other inherent difficulties in large project cost estimation processes, resulted in the Company's recording cost overrun charges of $40.0 million, $7.0 million, and $19.0 million in the second, third, and fourth quarters of 1998, respectively. On April 15, 1999, the last plant began initial operations and the other three plants were operating and producing nitric acid above contract-specific minimums. The Company entered into settlement arrangements with several of the Nitric Acid Project customers and subcontractors in order to minimize the remaining uncertainties associated with these projects and to enable the Company to make a reasonable determination of completion estimates. The Company will also continue to pursue claims recoveries against certain subcontractors but has not included any estimate for recoveries in the total recorded $66.0 million cost overrun. The Company performed extensive reviews and analyses aimed at identifying the causes of the Nitric Acid Project problems in an effort to mitigate the risk of similar problems occurring in the future. Partly as a result of these reviews, the Company recognized an additional charge totaling $10.2 million to reflect the adjustment of the earned progress to date on several other large fixed-price projects as well as to provide for reasonable estimates of reserves for certain risks associated with those projects. In anticipation of the cash flow and liquidity issues that likely would result from the Nitric Acid Project cost overruns and intentions for restructuring actions, in the latter part of 1998, management began to seek additional sources of financing. Additionally, in the second half of 1998, the Board of Directors formed a Special Committee to consider strategic alternatives for the Company. The Special Committee retained a financial advisor to assist with the potential sale of a portion(s) of the Company. The Special Committee and senior management have since been focused on completing both processes, i.e., securing and preserving the short-term financing and the simultaneous sale of corporate operating assets. In December 1998, the Company secured an alternate revolving line of credit, which provided access to increased working capital. However, continued erosion on the Nitric Acid Projects, combined with growth in the Company's federal government business areas, soon pushed the Company to maximum available borrowing levels. Since December 1998, the Company has had to amend the revolver, resulting in cash borrowing and letter of credit access up to an aggregate of $30 million with a requirement to provide $10 million in cash collateral for existing letters of credit and an accelerated expiration date of June 30, 1999. Additionally the Company has had to extend the average age of its vendor obligations and carefully manage all cash disbursement activity. The payment delays to trade creditors may, at least in the short term, have a negative impact upon the Company's current and future ability to generate and secure business opportunities. Also in December 1998, the Company received proposals for the purchase of several of its major operating activities. After reviewing recommendations from its financial advisor, the Board of Directors instructed management to enter into negotiations for the sale of the majority of the assets associated with two of its operating groups. 14 On March 9, 1999, the Company entered into a definitive asset purchase agreement (the EFM Agreement) with The IT Group, Inc. (IT) for the sale of the Company's Environment and Facilities Management Group (EFM). Pursuant to the terms of the EFM Agreement, on April 9, 1999, the Company sold the majority of the active contracts and investments, and transferred a substantial number of employees to IT for a purchase price of $82 million, less $8 million to be retained by IT for EFM's working capital requirements. IT also acquired the Company's interest in various operating leases for equipment and facilities used by EFM. The Company retained its 50% ownership in Kaiser-Hill. In March 1999, the Company also announced its intentions to sell its Consulting Group. On March 8, 1999, a non-binding letter of intent was signed with CM Equity Partners, L.P. (CMEP), an equity investment firm based in New York City, and the Group's management for the sale of the majority of the assets associated with the Consulting Group for $75 million, which is currently expected to be completed by mid-year 1999. The cash proceeds from the completed sale of EFM and the pending Consulting Group sale, net of income taxes and transaction costs, and from the liquidation of the remaining EFM assets will be used to pay down the cash borrowings on the Company's revolving line of credit and contribute to resolving existing liquidity constraints. The Company also will continue to pursue the realignment of its capital structure, the continued reductions of its cost structure, and the increased focus on risk mitigation and effective resource allocation, all of which are aimed at improving the profitability of the Company's remaining operations. The Company is committed to implementing proper management controls and the processes necessary to deliver high- quality, profitable projects throughout its operations. A plan that management began implementing late in 1998 provides for the discontinuance of unprofitable market areas, the realignment of staff within the Company to meet current needs, and the reduction of significant overhead costs in light of the divestitures of two of its operating groups. At the inception of the plan's execution in 1998, the Company recognized a $7.7 million charge for the costs of office realignment and discontinuing operations in certain markets and a $9.4 million charge for severance and other restructuring costs. Management expects to complete execution of the plan by June 30, 1999. Despite the severe financing constraints experienced by the Company, the Company has continued to secure new projects, including several major contracts. Significant examples include: . the third quarter EFM award of a five-year, $1.1 billion contract to a new joint venture among Northrop Grumman, Wackenhut Corporation, and the Company to manage base operations for NASA and the U.S. Air Force at Kennedy Space Center, Cape Canaveral Air Station, and several other Air Force bases . E&C's award of the $44.0 million follow-on operations and maintenance contract to the Boston Harbor Wastewater Treatment construction project that it performed over the last 11 years. . EFM's award of a $9.7 million contract by the Indiana Department of Environment for decontamination and demolition at the former Continental Steel Superfund Site in Kokomo, Indiana. . E&C's award of the $25.0 million Walnut Hill Water Treatment contract to provide construction management services for the construction of the largest water-treatment facility in New England to be located in Marlborough, Massachusetts. The Company ended 1998 with $3.2 billion in contract backlog. The backlog of the EFM and Consulting Groups totaled $658 million and $540 million, respectively, at December 31, 1998. The Company expects to work off 42% of the $2 billion backlog. The reduction from $4.1 billion at December 31, 1997 is due primarily to the completion of another year of the Kaiser-Hill Rocky Flats contract, resulting in the conversion of approximately $632.6 million of the 1997 backlog into revenue in 1998. Exclusive of the Rocky Flats backlog at December 31, 1998, the Company's backlog decreased by 5.6% from December 31, 1997. Results of Operations The following discussion describes the Company's results of operations for the years ended December 31, 1998, 1997, and 1996. Due to the magnitude of the effect of many of the nonrecurring adjustments and transactions described above, many of the analyses that follow have been adjusted to focus on the Company's core operations. 15 Gross Revenue(1)(2) The Company's gross revenue by operating group for each of the years ended December 31 are as follows (in millions):
1998 1997 1996 -------- -------- -------- Kaiser-Hill....................................... $ 632.6 $ 588.7 $ 544.0 Engineering and Construction (E&C)................ 374.1 337.8 266.8 Environment and Facilities Management (EFM)....... 105.3 88.1 355.6 Consulting Group.................................. 105.4 93.1 86.9 Eliminations...................................... (7.0) (0.4) (4.9) -------- -------- -------- Total........................................... $1,210.4 $1,108.1 $1,248.4 ======== ======== ========
- -------- (1) Gross revenue represents services provided to customers with whom the Company has a primary contractual relationship. Included in gross revenue are costs of certain services subcontracted to third parties and other reimbursable direct project costs such as materials procured by the Company on behalf of its customers. (2) Certain reclassifications have been made to the prior period information to conform to the current period presentation. Kaiser-Hill Kaiser-Hill is a 50% owned joint venture between ICF Kaiser International, Inc. and CH2M Hill formed solely to perform the U.S. Department of Energy's Rocky Flats Closure Project awarded in late 1995. The contract is cost-plus incentive fee in nature, accordingly, the changes in gross revenue earned by Kaiser-Hill during the comparable periods are largely reflective of increased levels of reimburseable subcontractor costs being incurred as the contract progress continues. Environment and Facilities Management Group (EFM) The EFM Group derived revenues primarily from large environmental and facilities management projects with federal government and commercial customers. Fluctuations in the historic annual results above are attributable to: . an increase in 1998 gross revenue of $18.3 million and $43.1 million compared to 1997 and 1996, respectively, predominantly from large environmental restoration contracts for the Baltimore and Sacramento districts of the U.S. Army Corps of Engineers, and . the termination in September 1996 of the Company's then largest contract, the Hanford contract, which generated $293.4 million in gross revenue that year. Engineers & Constructors Group (E&C) The E&C Group provides design engineering, procurement, and construction services to domestic and international clients in the industrial, water, transportation and transit, and infrastructure markets. Fluctuations in the historic annual results above are attributable to: . the acquisition on March 19, 1998, of ICT Spectrum Constructors, Inc., a construction contractor, based in Boise, Idaho, specializing in construction management of fabrication plants and other facilities for semiconductor and microelectronics customers resulting in $87.2 million in gross revenue from January 1, 1998. 16 . a reduction of $22.5 million of revenue recognized in 1998 compared to 1997 from the Nitric Acid Projects, partially reflective of the decreasing volume of activity on the projects as they neared completion and partially of the reversal of revenue as a result of changes in estimates of contract losses at completion and an increase of $39.8 million in 1998 over 1996 earnings, reflective of the start-up phase of several of those projects in late 1996. . a reduction of $4.3 million in 1998 revenue compared to 1997 generated by the Company's Australia, and Asian activities. The decline was largely due to the winding down of certain large projects and due to the negative impacts of foreign currency volatility in the region, both during the third quarter of 1998. The effects of these decreases in gross revenue on operating income, however, were offset in 1998 and 1997 as a major new joint venture project was secured and began operating in late 1997, the equity results of which are reflected as a component of the Company's service revenue and not as gross revenue. . a decrease of $14.5 million in revenue in 1998 compared to 1997 resulting from the 1997 completion of contracts for a major U.S. industrial client. . total gross revenue of $77.8 million, $76.7 million and $27.2 million generated by the Nova Hut steel mini-mill contract in the Czech Republic in 1998, 1997 and 1996, respectively. The increases reflect the contract's inception in 1996 and the ensuing advancement in 1997 and 1998 to stages of the project involving the procurement of significant amounts of subcontracted labor and direct materials. Currently contracted portions of this project are expected to be completed during late 1999. . a decrease of $4.0 million was also experienced in 1998 versus 1997 on the Boston Harbor project which progressed toward completion of the more construction-laden phases and into the operations and maintenance phases. Consulting Group The Consulting Group provides energy, information technology, environmental, economic, and community development consulting services to governmental and commercial clients. The Consulting Group completed 1998 with the highest gross revenue, $105.4 million, and the largest work force, now totaling nearly 750 employees, in its history. The Group's headcount and labor base both grew by 18% during 1998 compared to 1997 and by 13% in 1997 compared to 1996 in response to growth experienced in contract awards. Historically, revenue from the U.S. Environmental Protection Agency (the EPA) represented a majority of the Group's total business. In 1998 and 1997, the percentage of the Group's revenues derived from the EPA represented 45.5% and 49.0% of total Consulting Group revenue, respectively, yet increased by $1.3 million in absolute terms in 1998 over 1997. 17 Service Revenue(1) The Company's service revenue by operating group for each of the three years ended December 31 is as follows (in millions):
1998 1997 1998 (2) 1997 (2) Change 1996 (2) Change ------ --- ------ --- ------ ------ --- ------ Kaiser-Hill............. $154.5 24% $167.5 28% (8)% $168.0 31% 0% Environment and Facilities Management (EFM).................. 52.0 49% 53.8 61% (3)% 155.4 44% (65)% Engineering and Construction (E&C)..... 55.0 15% 131.8 39% (58)% 138.2 52% (5)% Consulting.............. 81.7 77% 71.3 77% 15 % 68.4 79% 5 % Equity in income of joint ventures and affiliated companies... 6.0 -- 2.3 -- 161% 4.0 -- (43)% Eliminations............ (3.7) -- (0.6) -- -- (1.9) -- -- ------ ------ ------ $345.5 29% $426.1 38% (19)% $532.1 43% (20)% ====== ====== ====== Adjusted for all effects of the Nitric Acid projects............... $412.6 35% $420.7 40% (2)% $530.5 43% (21)% ====== ====== ====== Adjusted for the effects of acquisitions and the Nitric Acid projects... $402.9 37% $420.7 40% (4)% $530.5 43% (21)% ====== ====== ======
- -------- (1) Service revenue is derived by deducting the costs of subcontracted services and materials from gross revenue and adding the Company's share of the equity in income of unconsolidated joint ventures and affiliated companies. (2) This column reflects each operating group's service revenue as a percentage of its gross revenue. Service revenue decreased by $80.6 million during 1998 compared to 1997. The majority of the decrease was due to the $76.2 million loss reserve established primarily in E&C to cover estimated cost overruns on the Nitric Acid Projects and also for revised profit margin estimates at completion on other large fixed price projects. Although management believes that adequate provision for loss reserves and profit estimates for these fixed-price contracts has been reflected in these results, no assurance can be given that there will be no additional future adjustments. Service revenue from the Rocky Flats contract decreased by $13.0 million during 1998 compared to 1997. This decrease is attributable to Kaiser-Hill's continuing strategy to subcontract more of the overall contract tasks and to emphasize its primary role as the overall services integrator on the Rocky Flats contract. Because the contract primarily reimburses Kaiser-Hill for its actual costs incurred plus an incentive fee on performance-based completion milestones, the shift from direct labor to subcontracted costs has no impact to Kaiser-Hill's actual profitability. As with all contracts involving incentive-based fee arrangements, the Company estimates the amount of fees it believes it will earn and recognizes revenue equal to the estimated fee percentage multiplied by the related base of costs. During the third quarter of 1998, the Company determined that Kaiser-Hill was not going to earn the same amount of fees as in 1997, and accordingly adjusted the fee revenue on a cumulative basis down to the revised estimate. Decline in service revenue of $9.6 million from the Nova Hut contract compared to 1997 is as a result of progression into a phase of the contract that is subcontractor-intensive and as a result, the Company recognized a $5.7 million negative adjustment in the third quarter of 1998. The revenue adjustment was necessary to reflect earned progress resulting from the loss of a change order modification which was previously considered highly probable of being attained. The service revenue decreases discussed above were somewhat offset by $9.7 million of service revenue generated by the 1998 acquisition of ICF Kaiser Advanced Technology. Increases for both periods in service revenue from the Consulting Group paralleled the increases in, and remained a relatively consistent percentage of, that group's gross revenue. 18 Equity in income from joint ventures and affiliated companies increased by $3.7 million in 1998 compared to 1997 due primarily to a joint venture contract awarded in late 1997 for an alumina refinery expansion project in Australia. The sale in 1996 of the Company's interest in a pulverized coal injection operation accounted for the 1997 decline in joint venture equity from 1996 of $1.7 million. Service revenue as a percentage of gross revenue, adjusted for the effects of the Nitric Acid Projects and acquisitions, decreased to 37% for 1998 compared to 40% for 1997 and 43% for 1996. Kaiser-Hill's service revenue percentage to gross revenue decreased to 24% for 1998 compared to 29% and 31% for 1997 and 1996, respectively. Adjusting service revenue further to exclude the effects of Kaiser-Hill, the percentage to gross revenue increased to 66% for 1998 compared to 63% and 53% for 1997 and 1996, respectively. This increase is largely driven by a migration in the mix of the Company's E&C contracts which are less construction intensive and more professional services oriented compared to recent history. Operating Expenses The Company's operating expenses as a percentage of service revenue by operating group for each of the years ended December 31 are as follows (in millions):
1998 1997 1996 ---- ---- ---- Service Revenue(1)............................................ 100% 100% 100% Operating Expenses Direct labor and fringe benefits............................ 68% 68% 71% Group overhead(2)........................................... 22% 21% 18% Corporate general and administrative (3).................... 6% 5% 5% Depreciation and amortization............................... 2% 2% 2% --- --- --- Operating Income(4)........................................... 2% 4% 4% === === ===
- -------- (1) Service revenue has been adjusted to exclude all of the effects of the Nitric Acid Projects. (2) Group overhead represents those general and administrative costs incurred by the Company's operating groups for which an indirect benefit is generally not derived by any other operating group. (3) Corporate general and administrative expenses consist of costs incurred by the Company which provide some indirect benefit to all operating groups. (4) Operating Income as presented here excludes the effects of the severance and restructuring and unusual charges recorded during 1998. The acquisition of ICF Kaiser Advanced Technology in 1998 added direct labor and fringe benefits expense of $5.8 million. Apart from acquired direct labor, other direct labor spending decreased by $12.8 million, or 4%, in 1998 compared to 1997, resulting in total direct labor and fringe benefit expense during 1998 of to $106.7 million. This reduction is due primarily to decreases in Kaiser-Hill's direct labor of $8.0 million and $16.8 compared to 1997 and 1996, respectively. These reductions reflect Kaiser-Hill's migration to using more subcontractors to execute work on the Rocky Flats contract. Another $102.1 million of the 1998 decrease in direct labor from 1996 was due to the loss of EFM's Hanford contract, which terminated in September, 1996. Adjusting to exclude the Rocky Flats and the Hanford contracts, the Company's direct labor and fringe benefit costs as a percentage of service revenue were 76.0%, 56.0%, and 50.0% for the fiscal periods ended December 31, 1998, 1997, and 1996 respectively. General and administrative, or indirect, expenses are incurred within each of the operating groups and at the corporate level. Total group overhead represents those general and administrative costs incurred by the Company's operating groups for which an indirect benefit is generally not derived by or allocated to any other 19 operating group. Conversely, corporate general and administrative costs are not allocated to group results and consist of expenses incurred by the Company which provide some indirect benefit to all operating groups. Group overhead expenses increased by $5.4 million, or 6.0%, during 1998 compared to 1997. The 1998 group overhead increase reflects the inclusion of $3.0 million in general and administrative costs incurred by ICF Kaiser Advanced Technology during 1998, a $0.7 million charge in the first quarter of 1998 to establish reserves for contingencies; and lastly, a combination of other increases in expenses related to marketing, administration, and unbillable technical labor, which were not incurred at similar levels during the same periods in 1997. Group overhead decreased by $9.0 million, or 9.4%, in 1997 compared to 1996 as a result of the Company's cost-reduction initiatives undertaken in late 1996 and 1997. Significant reductions were realized in indirect salaries, facilities expenses, consultants' costs, and amortization expense. Corporate general and administrative expense increased by $0.9 million, or 4.0%, in 1998 versus 1997. The positive effects of reductions in corporate general and administrative costs were more than offset by administrative cost increases undertaken for matters that are non-recurring in nature. Specifically, numerous activities were undertaken by management and the Board of Directors in 1998 as a precursor to realigning the Company's unprofitable operations. Management believes it can significantly reduce the Company's current annual overhead and general and administrative cost structures and began execution late in 1998 of its cost reduction plan. Also in 1998 the Company recognized a $7.7 million charge for the costs of office realignment and discontinuing operations in certain markets and a $9.4 million charge for severance and other restructuring costs and has presented the charges individually on the Consolidated Statements of Operations. Gain on Sale of Investment In December 1996, the Company sold the majority of its investment in a pulverized coal injection operation for $16.6 million, resulting in a $9.4 million pretax gain. The buyer exercised an option on January 5, 1998, to purchase the remaining investment for $2.4 million. The Company recognized a total pretax gain on the option of $1.0 million during 1997 as the carrying value of the option was increased to reflect its then current fair market value. The Company's investment in this operation generated $0.8 million and $2.8 million in equity income in 1997 and 1996, respectively. Interest Expense The Company's average annual outstanding debt and the related average effective interest rates for 1998, 1997, and 1996 were $151.7 million and 13.3%, $140.8 million and 13.0%, and $131.0 million and 13.2%, respectively. Interest expense increased by $2.0 million in 1998 compared to 1997, primarily as a result of additional borrowings to fund the Nitric Acid Projects overruns. Interest expense increased $0.9 million in 1997 from 1996, a $1.8 million increase of which was the result of the Company's late 1996 issuance of $15 million in 12% Senior Notes due in 2003. The proceeds from these Senior Notes were used primarily to redeem preferred stock, which carried an annual dividend requirement of $1.95 million. The 1997 increase was then offset partially by a one-time, $0.9 million reduction in interest expense realized from the Company's favorable resolution and reversal of a previously established liability for potential interest costs associated with a foreign income tax matter. Interest income is earned on available cash balances generated primarily by Kaiser-Hill and foreign operations. All other cash flows not required for operations are used to pay down outstanding cash borrowings. Income Tax Expense The income tax provision for all periods presented excludes the minority's interest in Kaiser-Hill's operating income because it is owned partially by another company and is a flow-through entity for income tax purposes. 20 In 1998, the Company recognized a tax benefit of $11.4 million on a loss before taxes of $97.1 million. This loss can be used as a future tax benefit totaling $35.1 million; however, due to uncertainty over the ability to realize the entire amount, the Company provided a valuation allowance of $22.4 million against the future benefit. However, management believes that future earnings, including anticipated gains from the sale of portions of the Company's operating assets, will generate sufficient taxable income within the next year to realize the entire net $34.7 million deferred tax asset currently reflected on the balance sheet, in addition to the $22.4 million of benefit currently included in the valuation allowance. Other 1998 changes in income tax expense versus 1997 include a $1.8 million foreign income tax expense established for the anticipated repatriation to the U.S. of Australian earnings, used for domestic working capital needs, and a $0.7 million provision for the permanent book-tax difference expected for the redemption of $1.8 million in non-recourse loans to officers and former employees, which were collateralized solely by shares of the Company's common stock. At the inception of the loans, the collateral value exceeded the loans' face value. In 1997, the Company recognized a tax benefit of $3.3 million on pre-tax income of $2.6 million primarily as a result of completing a study of historic research and experimental expenditures for certain open tax years, enabling the Company to recognize a benefit for research tax credits of $1.9 million. Extraordinary Item In December 1998, initial proceeds totaling $25.0 million from the new revolver were used to repay all outstanding amounts from the former revolving credit facility. Accordingly, the Company wrote off the unamortized balance of the capitalized costs related to the original issue of the debt and recognized an extraordinary charge of $1.1 million. The Company did not recognize any income tax benefit associated with this charge Cumulative Effect of Accounting Change In April 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued a Statement of Position 98-5 Reporting on the Costs of Start-Up Activities (SOP 98-5). The SOP requires costs of organization and start-up activities to be expensed as incurred. The Company elected early adoption of the Statement effective April 1, 1998 and, at that time, reported the cumulative effect of the change as a one-time, non- cash charge of $6.0 million after tax, or $0.25 per share. The Company's amortization expense in 1998 was reduced by $1.6 million because the cumulative charge included balances for items that were previously amortizing. Liquidity and Capital Resources Operating activities: As of December 31, 1998, the Company had funded approximately $40 million of the total estimated $66 million Nitric Acid Project cost overruns. This use of cash was in part offset by the effects on cash balances of increasing the average age of vendor payables, resulting in a total net operating use of cash of $29.4 million in 1998. The Company generated significant cash flows from operations during 1997, due in part to increased activity in large commercial projects that had provisions in the contract terms for milestone-based payments which were collected prior to contract performance. Differences in the timing of the cash payments made to suppliers on some of these large projects versus the collection of customer trade receivables also contributed favorably to the 1997 operating cash flows. Cash flows generated from operations in 1996 were impacted favorably by similar timing differences and impacted negatively by the Company's timing of supplier payments made related to the termination of the Hanford contract in late 1996. 21 Investing activities: Proceeds totaling $2.4 million and $16.5 million from the December 31, 1996 installment sale of the Company's ownership interest in a pulverized coal injection operation were collected in 1998 and 1997, respectively. Investments, including capitalized labor, were made in 1998 and 1997 totaling $4.5 million and $4.9 million, respectively, for capital purchases. Such investment levels remained relatively consistent with that of recent history and included the implementation costs of new accounting and project management software, which began in 1995 and will continue in various phases throughout 1999. In light of the planned completion of the software project in 1999, which is a critical factor in the Company's Year-2000 readiness plan, and of the sale of two of its operating groups, the Company anticipates reductions in future requirements for purchased capital expenditures. With the intent significantly restructuring fixed operating leases for the Company's corporate headquarters, the Company paid $1.5 million on November 12, 1997, for a 40% ownership interest in a limited liability company (the LLC) that leases the land and owns the buildings leased primarily by the Company for its corporate headquarters. The Company is committed to make additional annual capital contributions to the L.L.C. totaling $600,000 annually during each of the first three years and $700,000 annually during each of the fourth through ninth years of the LLC. The ownership in the LLC will increase 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 will be amortized over the estimated 15-year life of the LLC. Financing activities: In 1998, the Company realized that it was going to incur significant cost overruns on the Nitric Acid Projects. Due to the significant risks, difficulties and uncertainties involved in estimating the total costs to complete these large fixed price projects, the Company increased the total completed project cost estimates several times in 1998. Given the completion cost uncertainties 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 flexibilities. 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. As a result of the activities, the Company successfully entered into a new revolving credit facility (the Revolver) on December 18, 1998 which offered additional flexibility and access to additional cash borrowings compared to the predecessor revolving facility. The new Revolver provides for cash borrowings and letters of credit up to an aggregate of $60 million. The total available credit is based on a percentage of the Company's eligible billed and unbilled accounts receivable, up to the $60 million maximum. The Company and certain of its subsidiaries, which are guarantors of the Revolver, have granted a security interest in certain accounts receivable and other assets and pledged their respective stock to the lenders. The Revolver limits the payment of cash dividends on common stock, prohibits the issuance of certain types of additional indebtedness, limits certain investments and acquisitions, limits the amount of outstanding letters of credit to $35 million, prohibits the sale of certain assets, and requires the maintenance of specified financial ratios. The Revolver contains provisions for prime interest rate borrowings with margins dependent upon the Company's financial operating results, and expires on December 31, 2000. As of December 31, 1998, the Company had $30.7 million in cash borrowings and $26.7 million in letters of credit outstanding under the Revolver. The letters of credit outstanding under the Revolver are in support of contract performance guarantees, primarily on international projects. The weighted average interest rate incurred on revolver borrowings for 1998 and 1997 was 8.9% and 8.5%, respectively. As of December 31, 1998, the Company had $2.6 million of additional credit available from the Revolver. Soon after obtaining the Revolver, the Company again increased the estimate of the total Nitric Acid Projects cost overruns by an additional $19 million. This material adverse change to the Company's financial condition triggered a technical event of default pursuant to the Revolver's terms. Apart from the financial effects of this latest increased estimate of the Nitric Acid Project overruns, the Company was in compliance with all other of the Revolver's restrictive financial covenants at December 31, 1998. Subsequent to the event of default, the lender has permitted the Company to borrow and obtain letters of credit pursuant to all other terms of the 22 Revolver, primarily conditioned on the Revolver provision that proceeds from asset sales be used to repay outstanding cash borrowings. That provision combined with the fact that the Company was actively pursuing the sale of significant operating assets was sufficient assurance for the lenders to continue to permit the use of the facility until such time as an asset sale was completed. On April 9, 1999, the Company completed the sale of its EFM Group (see Note 3 to the Consolidated Financial Statements) and used $36 million of the sale proceeds to extinguish outstanding Revolver cash borrowings. The Company has also received an amendment to the Revolver (the Amended Revolver) providing for cash borrowing and letters of credit up to an aggregate of $30 million. The Amended Revolver will expire on June 30, 1999 and will also require the Company to provide $10.0 million in cash collateral for existing letters of credit. The distributions of Kaiser-Hill earnings to the minority interest owner in 1998, 1997, and 1996 totaled $10.3 million, $13.9 million, and $2.4 million, respectively. Kaiser-Hill currently has a $50 million receivables purchase facility to support its working capital requirements. The receivables purchase facility contains certain program fees, specified minimum tangible net worth requirements, and default provisions for delinquent receivables. The receivables purchase facility expires on June 30, 1999, and is non-recourse to Kaiser-Hill's owners. The Company anticipates being able to renegotiate the purchase facility in annual increments beyond the 1999 expiration. Liquidity and Capital Resource Outlook Management believes that the cash proceeds from the completed EFM sale and the pending Consulting Group sale will yield sufficient short-term liquidity to bridge the Company's financing needs until such time as the Company can secure other longer-term alternatives. Specifically, the cash proceeds from divestitures will be used to retire outstanding cash borrowings from the revolving credit facility, provide required collateral for contract performasnce guarantees, pay overdue vendor obligations and contribute to supporting the future realigned working capital requirements and capital expenditures of the Company's remaining operations including required interest obligations of the Series B Senior and the Senior Subordinated Notes. Subsequent to the sale of the EFM and Consulting Groups, however, as well as between the closing dates of the sales, the Company's remaining E&C operations will require access to a revolving credit line containing provisions for access to letters of credit typically required to support certain contract performance obligations. The Company has obtained an amended, $30 million, revolver (the Amended Revolver) from its current lenders through June 30, 1999. The terms of the Amended Revolver include similar restrictive financial covenants as the Revolver and in addition required the Company to collateralize $10.0 million of its total contract performance guarantees which are currently addressed by noncollateralized letters of credit. In the event that access to a replacement revolving line cannot be secured by June 30, 1999, the Company will have to use available cash, generated largely from asset sales: to collateralize its contract performance guarantees. In the event the Consulting Group sale is not consummated, the Company believes the cash flows from ongoing operations of the Consulting Group, Kaiser-Hill, and the E&C Group would most likely generate sufficient collateral, in the form of current trade accounts receivable, to adequately support a borrowing base to secure the size of revolving credit line needed to fund short-term borrowing needs of the Company's remaining operations, as well as the letter-of-credit capacity needed primarily by the E&C Group. A factor critical, however, to the Company's success in securing a sufficient and affordable working capital facility in the near term, in all of the above scenarios, is its ability to remove sufficient overhead costs from remaining operations and demonstrate improved operating results. Although management believes it will be able to accomplish these milestones, there can be no assurance that it will be able to do so. Regardless of the outcome of the pending Consulting Group sale, over the long term the Company will need to realign its capital structure. Assuming the sale of the Consulting Group is completed, the net proceeds may be used to reinvest in the Company's business, pay down debt on the Amended Revolver or offer to purchase the Company's outstanding Notes. The Company is considering alternatives for the use of the net proceeds of the Consulting group sale and the realignment of its capital structure. These alternatives will include means by which the Company's outstanding debt may be reduced to levels that can be supported by cash flows of the remaining operations. 23 The Company will continue to explore options that would provide additional capital for longer-term objectives and operating needs, including the possibility for divestiture of additional operating assets, replacements for the Company's long-term debt, and additional equity infusions. Other Matters Bath Contingency: In March 1998, the Company entered into a $187 million maximum price contract to construct a ship building facility. In May 1998, the Company subsequently learned that estimated costs to perform the contract as reflected in actual proposed subcontracts were approximately $30 million higher than the cost estimates originally used as the basis for contract negotiation between the Company and the customer. After learning this, the Company advised the customer that it was not required to perform the contract in accordance with its terms as a result of a mutual mistake among them in negotiating that contract. In October 1998, the customer presented an initial draft of a claim against the Company requesting payment for estimated damages and entitlements pursuant to the terminated contract. The Company and the customer are currently discussing the customer's draft claim. No provision for loss for this matter has been included in the Company's financial results to date as management does not believe that it has sufficient information at this time to reasonably estimate the outcome of the negotiations. Acquisition Contingency: The ICF Kaiser common shares exchanged for the stock of ICT Spectrum in the March, 1998 acquisition, carry the guarantee that the fair market value of each share of stock will reach $5.36 by March 1, 2001. In the event that the fair market value does not attain the guaranteed level, the Company is obligated to make up the shortfall either through the payment of cash or by issuing additional shares of common stock with a total value equal to the shortfall, depending upon the Company's preference. Pursuant to the terms of the Agreement, however, the total number of contingently issuable shares of common stock cannot exceed an additional 1.5 million. Given that the quoted fair market value of the stock at December 31, 1998 was $1.44 per share, and that the Company's current debt instruments restrict the amount of cash that can be used for acquisitions, the assumed issuance of an additional 1.5 million shares would not completely extinguish the purchase price contingency. The Company therefore would be required to obtain an amendment to current debt instruments or replace them in order to complete a cash fill-up. Any future distribution of cash or common stock would be recorded as a charge to the Company's paid-in-capital. Until the earlier of the contingent purchase price resolution or March 1, 2001, any additional shares assumed to be issued because of shortfalls in fair market value will be included in the Company's diluted earnings per share calculations, unless they are antidilutive. The exchanged shares also contain restrictions preventing their sale prior to March 1, 2001. On March 29, 1999, one ex-ICT Spectrum shareholder, individually and on behalf of all others similarly situated, filed a class action lawsuit alleging false and misleading statements made in a private offering memorandum, and otherwise, in connection with the Company's acquisition of ICT Spectrum in 1998. Year-2000 Readiness: Similar to many organizations that use computer programs in their operations, the Company is addressing the impact of the Year-2000 issue on its business. The Year-2000 issue is the result of computer programs that were written using two digits rather than four to identify the year in a date field. Although it is possible that certain programs could function if left uncorrected, there is a significant risk that computer programs will recognize any two digit date containing "00" to be referring to the year 1900 rather than the year 2000. This could result in system failures and miscalculations causing disruptions to regular operations. The Company has developed and implemented a plan to achieve Year-2000 readiness. The Year-2000 program, led and coordinated at the corporate level, consists of senior management from all Company disciplines, and is being executed and implemented by teams in each of the Company's operating groups throughout the world. The Company has identified the following five areas in which Year-2000 readiness and/or risk assessment are critical operations: 24 (1) software applications used by management to run and monitor the business ("Internal Systems"); (2) the hardware and related software used internally to run the core business--such as desk-top hardware and software applications, communications networks, and systems used in the operation of office facilities ("Hardware, Network, and Facilities Systems"); (3) software that the Company has either purchased, designed, developed, written, or interfaced, and sold to customers ("Customer Systems"); (4) software used by the Company's significant vendors or subcontractors that could disrupt the flow of the Company's activities in the event that the system malfunctions ("Vendor Systems"); and (5) systems critical to the operations of Kaiser-Hill ("Kaiser-Hill Systems"). Within each category, the Company has identified and assigned criticality priorities to the various systems. Levels of system criticality were defined as those that might have a significant adverse effect to the Company in any of the areas of safety, environmental, legal, financial, and service-delivery capabilities. Internal Systems: Management's ongoing assessment of the majority of its Internal Systems began in 1995 and 1996 with the replacement of its main-frame based financial and project management software systems with new client-server applications. The phased conversion to the new systems began in 1996 and will be completed by September 1999. The costs of the new software, external consultants, and the internal cost of implementation labor is being capitalized and amortized over a period of five years. This investment in the new software applications was $1.7 million, $0.9 million, and $2.6 million in 1998, 1997, and 1996, respectively. Depreciation expense related to these investments totaled $1.2 million, $0.9 million and $0.6 million in 1998, 1997, and 1996, respectively. The total remaining costs, excluding internal labor, of this aspect of the Year-2000 project, including nonrecurring costs associated with the historical archival of main-frame-based computer data, is estimated to be less than $1.0 million. Hardware, Network and Facilities Systems: The Company has completed the inventory and assessment of these systems and is currently in the replacement mode. Estimated costs of $0.2 million will be incurred to replace these critical systems, primarily including the replacement of embedded technology in items such as telephone switches. The Company will most likely finance the majority of this obligation through operating leases just as it does for the majority of its annual ongoing needs for technology updates for desk-top hardware and software. Accordingly, the charges will be expensed as the lease financing is paid. Customer Systems: The Company also is assessing the risk surrounding Year- 2000 readiness in its customer systems, i.e. risk that may have been created through the Company's contracts for services in which the Company's professionals wrote and delivered software source code, or procured third party software for modification and/or resale to customers. Based on the service orientations of the Company's business, which historically did not make wide use of computer software applications, management does not anticipate significant contract exposures emanating from the improper functioning of delivered source code that would still be covered under nonexpired contract warranty provisions. There can be no assurances that the Company's customers would be unable to seek such compensation even if the contracts do not provide for it. Vendor Systems: The Company is also corresponding with all vendors and subcontractors related to the Vendor Systems that have been identified through reasonable risk assessment techniques as critical to the Company's operations regarding their Year-2000 readiness. Compliance assessment in this area will be ongoing throughout 1999. The Company will devise contingency plans in the event it believes significant risk to a disruption of service to the Company is not being adequately mitigated. Currently, management does not anticipate the need for contingency plans. Of course, the ability of parties to be compensated for monetary or other damages resulting from Year-2000 readiness risks is unknown. Kaiser-Hill Systems: Kaiser-Hill also has a Year-2000 readiness program, separate from that of the Company. The United States Department of Energy (DOE) owns all property and equipment at the Rocky Flats Environmental Technology Site near Denver, Colorado. While DOE bears the Year-2000 risk at Rocky Flats, 25 Kaiser-Hill manages and uses the DOE property in its execution of the site closure contract. One work element of the Rocky Flats contract requires that Kaiser-Hill plan and execute DOE's Year-2000 readiness activities at the site. Costs incurred by Kaiser-Hill in the execution of the readiness activities are fully reimbursed by the DOE. Additionally, Kaiser-Hill is eligible for performance award fees for attaining certain plan performance milestones, and is succeptible to penalties in the event certain plan milestones are not attained. Total contract expenses incurred by Kaiser-Hill for these Year-2000 activities totaled approximately $17.0 million through 1998. Successful progress on the plan execution to date has resulted in Kaiser-Hill being awarded $0.5 million in performance award fees through March 31, 1999, as well as attaining reductions to the total amount of potential penalties, limiting the remaining potential penalty exposure to $0.5 million. Although there can be no guarantee of complete readiness by the beginning of the year 2000, the Company believes each of the business areas described above will be Year-2000 ready or be substantially ready by November 1999 such that further remediation and testing, if any, will not be significant. In the event the Company does not complete its program, or fails to properly identify and modify critical business applications, there may be an interruption to the Company's business that may have a material adverse affect on its business, future financial condition and results of operations. In addition, Year-2000- related disruptions in the general economy may also have a materially adverse effect on the Company's future financial condition and results of operations. At this time, the Company has not developed a "worst case" scenario or an overall Year-2000 contingency plan but will do so when, if ever, management believes such plans are warranted. Management believes that the majority of the risks to its critical business operations are within the Company's control and ability to address. (see "Forward-Looking Information" below). Market Risk The Company does not believe that it has significant exposures to market risk. The majority of its foreign contracts are denominated and executed in the applicable local currency. The interest rate risk associated with the majority of the Company's borrowing activities is fixed, however, a 10% increase or decrease in the average annual prime rate would result in an increase or decrease of .72% multiplied by the weighted-average amount of fluctuating rate borrowings outstanding during a period. Forward-Looking Statements From time to time, certain disclosures in reports and statements released by the Company, or statements made by its officers or directors, will be forward- looking in nature. These forward-looking statements may contain information related to the Company's intent, belief, or expectation with respect to contract awards and performance, potential acquisitions and joint ventures, and cost-cutting measures. In addition, these forward-looking statements contain a number of factual assumptions made by the Company regarding, among other things, future economic, competitive, and market conditions. Because the accurate prediction of any future facts or conditions may be difficult and involve the assessment of events beyond the Company's control, actual results may differ materially from those expressed or implied in such forward-looking statements. The Company is availing itself of the safe harbor provisions provided in the Private Securities Litigation Reform Act of 1995 by cautioning readers that the forward-looking statements that use words such as the Company "believes," "anticipates," "expects," "estimates," and "believes" are subject to certain risks and uncertainties which could cause actual results of operations to differ materially from expectations. These forward-looking statements will be contained in the Company's federal securities laws filings or in written or oral statements made by the Company's officers and directors to press, potential investors, securities analysts, and others. Any such written or oral forward-looking statements should be considered in context with the risk factors discussed below: . the Company requires access to a revolving credit line to fund short-term borrowing needs of the Company's total remaining operations, as well as the letter of credit capacity needed primarily by the 26 E&C Group. The Company may not be able to generate collateral to support a borrowing base of sufficient size to obtain such credit or may not be able to improve operating results enough, by removing overhead costs or otherwise, to be able to obtain such credit. . the Company may be precluded from attaining other satisfactory contract performance guarantee mechanisms, such as performance bonding capabilities. . the Company may consider the sale of various operating groups in order to generate liquidity sufficient to meet its obligations. In the event that planned sales of operations cannot be consummated on a timely basis, the Company will need access to other sources of working capital to adequately fund its remaining operations. . the Company may not be able to maintain existing contracts at current levels and may not be able to realize increased contract performance levels assumed for contracts. The Company is involved in a number of fixed-price contracts under which the Company can benefit from cost savings or performance efficiencies, but if certain pricing and performance assumptions prove inaccurate, unrecoverable cost overruns can occur. . the Company may not be awarded new contracts for which it is competing in its established markets or these awards may be delayed; in addition, the Company may not be able to win contracts in the new markets it is targeting. General economic conditions in the international arena, especially Asia and Latin America, could negatively impact the Company's current international business and its ability to expand in international markets. . the Company's EFM and Consulting Groups are very dependent on federal government contracts, which are subject to annual funding approvals and cost audits, and may be terminated at any time, with or without cause; a large number of federal government contracts are included in the Company's contract backlog, which potentially means that not all contract backlog will become future revenue of the Company; . the Company may not be able to make acquisitions and or enter into joint ventures, and if made, acquisitions and joint ventures may take more time to contribute favorably to the Company's financial results than was formerly assumed. The Company is highly leveraged and is subject to restrictive covenants that limit its ability to fund potential acquisitions and joint ventures beyond certain levels established in its debt agreements. . a large portion of the Company's business has been and is generated either directly or indirectly as a result of federal and state environmental laws, regulations, and programs; a reduction in the number or scope of these laws, regulations, or programs could materially affect the Company's business. In addition, environmental work poses risks of large civil and criminal liabilities for violations of environmental laws and regulations, and liabilities to customers and to third parties for damages arising from the Company's performing environmental services to its clients. A large fine or penalty imposed on the Company could negatively impact contract performance fees under certain existing contracts or otherwise negatively affect the Company's financial results. Item 7.a Quantitative and Qualitative Information about Market Risk See "Market Risk" in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Item 8. Financial Statements and Supplementary Data The Financial Statements and Supplementary Data appear on pages F-1 through F-33 and S-1 hereto. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures None 27 PART III Item 10. Directors and Executive Officers of the Registrant The Board of Directors currently consists of the following eight directors.
Term to Expire -------------- Thomas C. Jorling......................................... 1999 Hazel R. O'Leary.......................................... 1999 Tony Coelho............................................... 2000 Jarrod M. Cohen........................................... 2000 James T. Rhodes........................................... 2000 James O. Edwards.......................................... 2001 Keith M. Price............................................ 2001 Michael E. Tennenbaum..................................... 2001
Effective July 1, 1998, the Company enlarged the class of directors whose terms expire at the 2000 Annual Meeting of Shareholders and elected Mr. Cohen to fill the resulting vacancy. Mr. Cohen's election was pursuant to a written agreement among the Company and Mr. Cohen. Directors Whose Terms Expire in 1999 Thomas C. Jorling, 58, has been Vice President, Environmental Affairs, of International Paper Company since 1994. Mr. Jorling was the Commissioner of the New York State Department of Environmental Conservation from 1987 to 1994. Prior to that, Mr. Jorling was a professor of environmental studies and director of the center for environmental studies at Williams College in Massachusetts. In addition, Mr. Jorling served from 1977 to 1979 as Assistant Administrator for Water and Hazardous Material at the U.S. Environmental Protection Agency. Mr. Jorling has been a Director of ICF Kaiser International, Inc. since 1995. Mr. Jorling graduated from the University of Notre Dame (B.S.), Washington State University (M.S.), and Boston College (LL.B.). Hazel R. O'Leary, 60, has been Chairman of the firm of O'Leary Associates, Inc. since she left her position as Secretary of the Department of Energy (DOE) in January 1997. President Clinton selected Mrs. O'Leary to be the Secretary of Energy in December 1992, and she assumed her duties in January 1993. During her four-year tenure as Secretary, Mrs. O'Leary effectively downsized DOE's number of employees by 27 percent and its budget by $10 billion over five years and focused all of DOE's activities around five areas: science and technology, national security, energy research, environmental quality, and economic productivity. Immediately before her appointment as Secretary of Energy, Mrs. O'Leary was president of the wholly owned natural gas subsidiary of Northern States Power (NSP), a $2 billion diversified utility holding company headquartered in Minneapolis; she had been executive vice president of the holding company from 1989 to 1992. Mrs. O'Leary has over 25 years of experience in sustainable energy policy and large project development. She has been a Director of ICF Kaiser International, Inc. since March 1997. She also currently serves on the Board of Directors of AES Company, the global power company, and on the non-profit Boards of Africare, Morehouse College (Atlanta), and The Keystone Center where she chairs the Energy Policy Group. Mrs. O'Leary graduated from Fisk University (B.A.) and Rutgers University Law School (J.D.). 28 Directors Whose Terms Expire in 2000 Tony Coelho, 56, former Congressman and Majority Whip of the U.S. House of Representatives, is a consultant to Tele-Communications, Inc. and Chairman of the Board of International Thoroughbred Breeders, Inc. From October 1995 to September 1997, he served as Chairman and CEO of ETC w/tci, Inc., an education and training technology company. From 1989 to June 1995, Mr. Coelho was a Managing Director of the New York investment banking firm Wertheim Schroder & Company, and from 1990 to June 1995 he also served as President and CEO of Wertheim Schroder Investment Services. Mr. Coelho has been a Director of ICF Kaiser International, Inc. since 1990. In addition, he is a director of Service Corporation International, Cyberonics, Inc., Kistler Aerospace Corporation, AutoLend Group, Inc., and Pinnacle Global Group, Inc. He is also a member of Fleishman-Hillard, Inc.'s international advisory board. Since his appointment by President Clinton in 1994, Mr. Coelho has served as Chairman of the President's Committee on Employment of People with Disabilities. Mr. Coelho represented California's Central Valley in Congress from 1979 to 1989. Jarrod M. Cohen, 32, is the Managing Director of J.M. Cohen and Company since January 1999. He was the Managing Director, head of Proprietary Investing, and head of Risk Management for Cowen and Company from April 1996 to December 1998. Previously, from September 1989 until April 1996, Mr. Cohen was the Portfolio Manager for the Cowen Opportunity Fund and Co-head of Cowen Small Cap Approach. Cowen and Company is one of the Company's significant shareholders. An agreement between Mr. Cohen and the Company is described on page 42 of this Report. James T. Rhodes, 57, has been the Chairman and Chief Executive Officer of the Institute of Nuclear Power Operations (INPO) since March 1998. INPO is a nonprofit corporation established by the nuclear utility industry in 1979 to promote the highest levels of safety and reliability in the operation of nuclear electric generating plants. Dr. Rhodes retired as President and Chief Executive Officer of Virginia Power in August 1997. He joined Virginia Power in 1971 as a nuclear physicist and held increasingly responsible positions throughout that company. In 1985 he became senior vice president-power operations and in 1988, senior vice president-finance; in 1989 he was elected President and CEO. Prior to joining Virginia Power, Dr. Rhodes worked as a project engineer in the U.S. Army Nuclear Power Program from 1964 to 1968. Prior to his retirement from Virginia Power, Dr. Rhodes was a director of the Edison Electric Institute, NationsBank, N.A., the Nuclear Energy Institute, the Southeastern Electric Exchange, and Virginia Power. Dr. Rhodes has been a Director of ICF Kaiser International, Inc. since February 1998. Dr. Rhodes graduated from North Carolina State University (B.S.), Catholic University (M.S.), and Purdue University (Ph.D., Atomic Energy Commission Fellow ). Directors Whose Terms Expire in 2001 James O. Edwards, 55, was Chairman of the Board and Chief Executive Officer of ICF Kaiser International, Inc. or its predecessors from 1985 to 1998. In 1974, he joined ICF Incorporated, the predecessor of ICF Kaiser International, Inc., and was its Chairman and Chief Executive Officer from 1985 until the 1987 establishment of ICF Kaiser International, Inc. Mr. Edwards graduated from Northwestern University (B.S.I.E.) and Harvard University (M.B.A., High Distinction, George F. Baker Scholar). Keith M. Price, 62, has been President and Chief Executive Officer of ICF Kaiser International, Inc. since November 1998. Mr. Price has been a Director of ICF Kaiser International, Inc. since May 1997. He has been a consultant to various U.S. and international engineering and construction companies since 1994. From 1991 to 1994, he was first Managing Director of Transportation Systems and Engineering and then Managing Director of Operations for Transmanche-Link, a joint venture of ten major European contractors that held a contract to design, manufacture, and construct the tunnel transportation for the Chunnel, an $11 billion project that links England to France. Prior to his positions with Transmanche-Link, Mr. Price had a 27-year career with Morrison- Knudsen where he held a number of senior management positions and was a director. Mr. Price graduated from Pepperdine University (M.B.A.). In addition to Mr. Price whose positions with the company and business experience are described above, the names of the Company's other executive officers, who are elected annually, and their ages (as of March 31, 1999), principal corporate positions, and business experience are set forth below. 29 Michael E. Tennenbaum, 63, has been the Managing Member of Tennenbaum & Co., LLC since June 1996. Mr. Tennenbaum also is currently the Chief Executive of Tennenbaum Securities, LLC, and he has held this position since May 1997. Previously, from February 1993 until June 1996, Mr. Tennenbaum was a Senior Managing Director of Bear, Stearns & Co., Inc. In addition, Mr. Tennenbaum was previously a member of the Board of Directors of Bear, Stearns & Co., Inc. and also held the position of Vice Chairman, Investment Banking. Mr. Tennenbaum's responsibilities at Bear, Stearns & Co., Inc. included managing the firm's Risk Arbitrage, Investment Research, and Options Departments. Mr. Tennenbaum has served on the Boards of Directors of Arden Group, Inc.; Bear, Stearns & Co., Inc.; Jenny Craig, Inc.; Sun Gro Horticulture, Inc.; and Tosco Corporation. Mr. Tennenbaum graduated from the Georgia Institute of Technology (B.S.I.E.) and Harvard University (M.B.A., with Distinction). Executive Officers Thomas P. Grumbly, 49, has been President of the Environment & Facilities Management Group of ICF Kaiser International, Inc. since January 1, 1998. He joined the Company in April 1997 as President of the Federal Programs Group and was responsible for combining the Company's private environmental practice with its federal programs practice into the E&FM Group in late 1997. From 1996 to April 1997, Mr. Grumbly was Under Secretary of the U.S. Department of Energy; prior to becoming Under Secretary, he was DOE's Assistant Secretary for Environmental Management. Mr. Grumbly graduated from Cornell University (B.A.), University of Toronto (M.A.), and the University of California, Berkeley (Master in Public Policy). Sudhakar Kesavan, 44, has been an Executive Vice President of the Company and President of the Company's Consulting Group since December 1996. He has held senior management positions in the Company's Consulting Group since 1983. Prior to joining the Company, Mr. Kesavan worked for the Indian subsidiary of the Royal Dutch/Shell Company. Mr. Kesavan graduated from the Indian Institute of Technology (B. Tech), Indian Institute of Management (P.G.D.M.) and the Massachusetts Institute of Technology. (S.M.). Richard A. Leupen, 45, has been President of the Engineers & Constructors Group of ICF Kaiser International, Inc. since August, 1998. He has held senior management positions in the Company's Engineers & Constructors Group since 1995. Prior to joining the Company, Mr. Leupen worked for Protech Pty. Ltd. Mr. Leupen graduated from the University of South Wales in Australia (B.S.). Timothy P. O'Connor, 34, has been Senior Vice President and Chief Financial Officer of ICF Kaiser International, Inc. since December 1998. He had been Treasurer of the Company since May 1997. From 1990 until 1995, Mr. O'Connor was employed by Lockheed Martin Corporation of Bethesda, Maryland, where he held a number of financial positions. Prior to that, Mr. O'Connor worked for General Electric Company and Lazard Freres and Co. of New York. Mr. O'Connor, who is a Certified Cash Manager, graduated from the University of Delaware (B.S.). Paul Weeks, II, 55, has been Senior Vice President, General Counsel, and Secretary of ICF Kaiser International, Inc. since 1990. He joined ICF Incorporated in May 1987 as its Vice President, General Counsel, and Secretary. From 1973 to 1987 he was employed by Communications Satellite Corporation, where from 1983 to 1987 he was Assistant General Counsel for Corporate Matters. Mr. Weeks graduated from Princeton University (B.S.E.E.) and The National Law Center of George Washington University (J.D.). Section 16(a) Beneficial Ownership Reporting Compliance The U.S. Securities and Exchange Commission (SEC) requires the Company to tell its shareholders when certain persons fail to report their transactions in the Company's equity securities to the SEC on a timely basis. During the fiscal year ended December 31, 1998, Messrs. Rhodes and Cohen failed to timely file an initial report on Form 3 and Mr. Edwards failed to timely file a report on Form 4. All of such filings have since been made. Based upon a review of SEC Forms 3, 4, and 5, and based on representations that no Forms 3, 4, and 5 other than those already filed were required to be filed, the Company believes that all Section 16(a) filing requirements 30 applicable to its officers, directors, and beneficial owners of more than 10% of its equity securities other than the delinquencies disclosed in this paragraph were timely met. Item 11. Executive Compensation The following table shows the compensation received by each person who served as the Company's Chief Executive Officer ("CEO") during fiscal 1998, the four other most highly compensated executive officers of the Company who were serving as of December 31, 1998 and two other most highly compensated executive officers who were no longer serving the Company as of December 31, 1998 (the "Named Executive Officers") for the three years ended December 31, 1998. 31 SUMMARY COMPENSATION TABLE
Long-term Compensation Annual Compensation Awards ------------------------------ ------------------------------ (g) (a) (b) (e) (f) Securities (i) Name, Principal (c) (d) Other Annual Restricted Underlying All Other Position, and Salary Bonus Compensation Stock Award(s) Options Compensation Fiscal Period ($) ($)(a) ($)(a) ($)(a) (#)(a) (c) --------------- -------- -------- ------------ -------------- --------------- ------------ Keith M. Price, Current President and CEO(d) Fiscal 1998............ $141,347 $ 50,000 (b) 0 200,000 options $ 52,068 James O. Edwards, Former Chairman and CEO(e) Fiscal 1998............ $375,006 0 $49,520(b) $362,600(e) 0 $155,402 Fiscal 1997............ $386,542 0 (b) 0 0 $ 15,243 Fiscal 1996............ $350,000 $175,000 (b) $ 47,500(e) 40,000 options $ 13,098 Michael F. Gaffney, Executive Vice President(f) Fiscal 1998............ $250,016 0 (b) 0 40,000 options $ 3,938 Fiscal 1997............ $239,050 $ 15,000 (b) 0 40,000 options $ 14,266 Fiscal 1996............ $197,897 $ 80,000 (b) 0 9,900 options $ 14,893 Sudhakar Kesavan, Executive Vice President(g) Fiscal 1998............ $274,052 $ 69,656 (b) 0 0 $ 3,031 Fiscal 1997............ $225,014 $ 27,000 (b) $ 14,515(g) 50,000 options $ 12,696 Fiscal 1996............ $164,492 $ 72,771 (b) $ 28,538(g) 56,600 options $ 12,127 Thomas P. Grumbly, Executive Vice President(h) Fiscal 1998............ $257,312 0 (b) 0 0 $ 3,926 Fiscal 1997............ $163,472 $ 75,000 (b) $ 14,784(h) 100,000 options $ 13,453 Richard Leupen, Executive Vice President(i) Fiscal 1998............ $207,357 $146,000 (b) 0 200,000 options $ 57,514 Fiscal 1997............ $168,064 $ 80,000 (b) 0 0 $ 25,151 Fiscal 1996............ $132,185 $ 12,500 (b) 0 0 $ 23,732 Marc Tipermas, Former President and Chief Operating Officer(j) Fiscal 1998............ $231,613 0 $142,909(b) 0 0 $736,857 Fiscal 1997............ $336,545 $ 50,000 $ 42,593(b) 0 0 $ 13,989 Fiscal 1996............ $293,285 $100,000 (b) $ 28,463(j) 26,400 options $ 13,800 David Watson, Former Executive Vice President(k) Fiscal 1998............ $239,313 0 (b) $ 59,850(k) 0 $318,453 Fiscal 1997............ $275,018 $ 60,000 (b) $104,832(k) 0 $ 90,662 Fiscal 1996............ $227,899 $115,000 $ 8,376(b) $ 18,975(k) 94,800 options $ 29,574
- -------- (a) Cash bonuses are reported for the year of service, for which the cash bonus was earned, even if pre-paid or paid in a subsequent year. Restricted stock and options are reported for the year of service for which the stock and/or options were earned, even if the grant date falls in a subsequent fiscal year. No dividends are paid on any shares of restricted stock. (b) Any amounts shown in the "Other Annual Compensation" column do not include any perquisites or other personal benefits because the aggregate amount of such compensation for each of the Named Executive Officers did not exceed the lesser of (i) $50,000 or (ii) 10% of the combined salary and bonus for the Named Executive Officer for the stated fiscal period. The amount shown in column (e) of the table for Dr. Tipermas for Fiscal 1997 and Mr. Watson for Fiscal 1996 were amounts reimbursed for the payment of taxes. 32 (c) The Company's 1998 contributions to the Named Executive Officers pursuant to the Company's Retirement Plan will not be determined or made until September 1999. The Company will disclose these contributions for the Named Executive Officers in the Report for the 2000 Annual Meeting of Shareholders if the Named Executive Officer is the CEO or one of the other four most highly compensated executive officers in Fiscal 1999. (d) Mr. Price was appointed President and CEO of the Company as of August 5, 1998. As a result, the information for Fiscal 1998, represents all compensation paid to or earned by Mr. Price during the five-month period commencing on his hire date through December 31, 1998. On August 27, 1998, Mr. Price entered into an employment agreement with the Company, pursuant to which he is entitled to receive an annual base salary of $375,000 through August 4, 1999, subject to adjustment. For a fuller description of the terms of this agreement, please refer to the discussion under "Certain Relationships and Related Transactions--Current Directors" at page 43 of this Report. The amount in column (a) represents a signing bonus paid to Mr. Price in connection with his agreeing to serve as President and CEO of the Company. The amounts in column (i) of the table for Mr. Price comprise the following: Fiscal 1998 $ 1,757 Company match under the Company's Section 401(k) Plan $ 3,770 Spouse travel $ 943 Car allowance $45,598 Relocation expenses
(e) Mr. Edwards resigned as Chairman and CEO of the Company effective November 6, 1998. As a result, the information for fiscal 1998, represents all compensation paid to or earned by Mr. Edwards during the eleven months of such year during which the Company employed him, including amounts paid pursuant to Mr. Edwards' severance arrangements with the Company. Mr. Edwards also was paid $49,520 in fiscal 1998 and $49,039 in fiscal 1999 for consulting services. See "Certain Relationships and Related Transactions--Current Directors" at page 42 of this Report. These shares fully vest on November 6, 1999 or, if earlier, on a change of control. For his service in 1998, Mr. Edwards was awarded 200,000 shares of Restricted Stock on November 6, 1998. The closing price of the Company's Common Stock on November 6, 1998 was $1.813. For his service in fiscal 1996, Mr. Edwards was awarded 20,000 shares of Restricted Stock on March 4, 1997. The closing price of the Company's Common Stock on March 4, 1997, was $2.375. As of December 31, 1998, Mr. Edwards owned a total of 220,000 Restricted Shares; the closing price of the Company's Common Stock on December 31, 1998, was $1.438; the aggregate value of these holdings is $316,360. The amounts shown in column (i) of the table for Mr. Edwards comprise the following: Fiscal 1998 $ 2,545 Spouse travel $ 2,857 Company match under the Company's Section 401(k) Plan $150,000 Severance payments Fiscal 1997 $ 2,731 Company match under the Company's Section 401(k) Plan $ 10,184 Company Retirement Plan Contribution for 1997 made in September 1998 $ 2,328 Spouse travel Fiscal 1996 $ 9,492 Company Retirement Plan contribution for 1996 made in September 1997 $ 2,731 Company match under the Company's Section 401(k) Plan $ 875 Imputed income for Company-paid life insurance
33 (f) Mr. Gaffney resigned from his position effective March 17, 1999. The amounts shown in column (i) of the table for Mr. Gaffney comprise the following: Fiscal 1998 $ 361 Spouse travel $ 3,304 Company match under the Company's Section 401(k) Plan $ 273 Imputed income for Company-paid life insurance Fiscal 1997 $ 3,225 Company match under the Company's Section 401(k) Plan $ 273 Imputed income for Company-paid life insurance $10,184 Company Retirement Plan Contribution for 1997 made in September 1998 $ 584 Spouse travel Fiscal 1996 $ 9,492 Company Retirement Plan contribution for 1996 made in September 1997 $ 3,188 Company match under the Company's Section 401(k) Plan $ 660 Imputed income for Company-paid life insurance $ 1,553 Spouse travel
(g) For his service in fiscal 1997, Mr. Kesavan was awarded 5,400 shares of Restricted Stock on March 9, 1998. The closing price of the Company's Common Stock on March 9, 1998, was $2.688. These Restricted Shares fully vest on March 9, 2001, provided Mr. Kesavan remains an employee of the Company. For his service in fiscal 1996, Mr. Kesavan was awarded 12,016 Restricted Shares on March 4, 1997. The closing price of the Company's Common Stock on March 4, 1997, was $2.375. These Restricted Shares vest on January 1, 2000, provided Mr. Kesavan remains an employee of the Company. As of December 31, 1998, Mr. Kesavan owned a total of 17,416 Restricted Shares; the closing price of the Company's Common Stock on December 31, 1998, was $1.438 the aggregate value of these holdings is $25,044. The amounts shown in column (i) of the table for Mr. Kesavan comprise the following: Fiscal 1998 $ 2,500 Company match under the Company's Section 401(k) Plan $ 531 Spouse travel Fiscal 1997 $ 2,423 Company match under the Company's Section 401(k) Plan $10,184 Company Retirement Plan Contribution for 1997 made in September 1998 $ 89 Imputed income for Company-paid life insurance Fiscal 1996 $ 9,492 Company Retirement Plan contribution for 1996 made in September 1997 $ 2,405 Company match under the Company's Section 401(k) Plan $ 230 Imputed income for Company-paid life insurance
(h) Mr. Grumbly joined the Company in April 1997. As a result, compensation for 1997 represents amounts paid during an only eight month period. For his service in fiscal 1997, Mr. Grumbly was awarded 5,500 shares of Restricted Stock on March 9, 1998. The closing price of the Company's common stock on March 9, 1998, was $2.688. These Restricted Shares fully vest on March 9, 2001, provided Mr. Grumbly remains an employee of the Company. The amounts show in column (i) of the table for Mr. Grumbly comprise the following: Fiscal 1998 $ 3,346 Company match under the Company's Section 401(k) Plan $ 580 Spouse travel Fiscal 1997 $ 3,269 Company match under the Company's Section 401(k) Plan $10,184 Company Retirement Plan contribution for 1997 made in September 1998
34 (i) The amounts shown in column (i) of the table for Leupen comprise the following: Fiscal 1998 $ 1,385 Company match under the Company's Section 401(k) Plan $ 7,897 Company Retirement Plan contribution for 1997 made in September 1998 $31,452 Relocation expenses $11,191 Car Allowance $ 5,589 Spouse travel Fiscal 1997 $10,247 Company Retirement Plan contribution for 1997 $14,904 Car Allowance Fiscal 1996 $ 8,828 Company Retirement Plan contribution for 1996 $14,904 Car allowance
(j) Dr. Tipermas ceased to be employed by the Company as of August 7, 1998. As a result, the amounts shown for fiscal 1998 represent all compensation paid or earned during the 12 months of fiscal 1998 that the Company employed Dr. Tipermas, including amounts paid pursuant to Dr. Tipermas' severance arrangements with the Company. Dr. Tipermas also was paid $142,909 in fiscal 1998 and $43,269 in fiscal 1999 for consulting services. See "Certain Relationships and Related Transactions." For his service in fiscal 1996, Dr. Tipermas was awarded 9,900 shares of Restricted Stock on March 20, 1997. The closing price of the Company's Common Stock on March 20, 1997, was $2.875. Of these Restricted Shares, 3,300 shares are vested, subject to a restriction on sale prior to March 4, 2000, and the balance were forfeited upon termination of Dr. Tipermas' employment. As of December 31, 1998, Dr. Tipermas owned a total of 3,300 Restricted Shares; the closing price of the Company's Common Stock on December 31, 1998, was $1.438; the aggregate value of these holdings is $4,745. The amounts shown in column (i) of the table for Dr. Tipermas comprise the following: Fiscal 1998 $ 3,400 Company match under the Company's Section 401(k) Plan $ 515 Spouse travel $ 442 Imputed income for Company-paid life insurance $732,500 Severance payment Fiscal 1997 $ 3,231 Company match under the Company's Section 401(k) Plan $ 10,184 Company Retirement Plan contribution for 1997 made in September 1998 $ 429 Imputed income for Company-paid life insurance $ 145 Spouse travel Fiscal 1996 $ 9,492 Company Retirement Plan contribution for 1996 made in September 1997 $ 3,202 Company match under the Company's Section 401(k) Plan $ 706 Imputed income for Company-paid life insurance $ 400 Spouse travel
(k) Mr. Watson ceased to be employed by the Company, effective August 17, 1998. As a result, the information set forth in the table shows all compensation paid to or earned by Mr. Watson during the 10-month period of fiscal 1998 that he was employed, including amounts paid pursuant to Watson's severance arrangements with the Company. See "Certain Relationships and Related Transactions--Former Directors/Executive Officers" at page 45 of this Report. For his service in fiscal 1997, Mr. Watson was awarded 39,000 shares of Restricted Stock on March 9, 1998. The closing price of the Company's Common Stock on March 9, 1998, was $2.688. For his service in fiscal 1996, Mr. Watson was awarded 6,600 Restricted Shares on March 20, 1997. The closing price of the Company's Common Stock on March 20, 1997, was $2.875. All of the Restricted Shares granted to Mr. Watson were fully vested upon the termination of his employment by the Company. As of December 31, 1998, Mr. Watson owned a total of 45,600 Restricted Shares; the closing price of the Company's Common Stock on December 31, 1998, was $1.438; the aggregate value of these holdings is $65,573. The amounts shown in column (i) of the table for Mr. Watson comprise the following: 35 Fiscal 1998 $ 4,886 Lump-sum relocation payment made in 1998 $ 3,400 Company match under the Company's Section 401(k) Plan $ 10,148 Spouse travel $300,019 Lump-sum severance payment Fiscal 1997 $ 77,160 Lump-sum relocation payment made in 1997 $ 3,173 Company match under the Company's Section 401(k) Plan $ 10,184 Company Retirement Plan Contribution for 1997 made in September 1998 $ 145 Spouse travel Fiscal 1996 $ 9,492 Company Retirement Plan contribution for 1996 made in September 1997 $ 3,192 Company match under the Company's Section 401(k) Plan $ 908 Imputed income for Company-paid life insurance $ 15,982 Reimbursed relocation expense
The following table shows all individual grants of stock options made during the fiscal year ended December 31, 1998 to each of the named executive officers identified in the summary compensation table on page 32 of this report. No grants were made during such period to Messrs. Edwards, Grumbly, Tipermas or Watson. OPTION GRANTS IN LAST FISCAL YEAR
(a) (b) (c) (d) (e) (f) Number of % of Total Securities Options Granted Grant Date Underlying Options to Employees in Exercise Price Present Value Name Granted (#) Fiscal Year(a) ($/Sh)(b) Expiration Date $(c) ---- ------------------ --------------- -------------- ------------------ ------------- Michael F. Gaffney(d)... 40,000 3.7% $2.50 February 27, 2003 $ 62,900 Sudhakar Kesavan(d)..... 50,000 4.7% $2.50 February 27, 2003 $ 78,625 Richard Leupen(d)....... 50,000 4.7% $2.50 February 27, 2003 $ 84,425 Richard Leupen(e)....... 150,000 14.0% $1.33 September 14, 2001 $100,815 Keith M. Price(f)....... 150,000 14.0% $1.39 September 3, 2001 $105,360 Keith M. Price(g)....... 50,000 4.7% $1.24 November 4, 2001 $ 31,330
- -------- (a) The Company granted a total of 1,075,500 options to its employees in the last fiscal year. (b) The exercise price is the average closing price of the Company's common stock on each of the 20 trading days prior to the date of grant, with the 20th day being the trading date immediately preceeding the date of grant. (c) Grant date present value is determined using the Black-Scholes Model. Since the Model makes assumptions about future variables, the actual value of the options may be greater or less than the values stated in the table. The calculations from which the above values were derived assume no dividend yield, volatility of approximately 71.6%, exercise at or near the expiration date, and a risk-free rate of return of 5.2% based on the average monthly U.S. Treasury bill rate for five-year maturities on the date of grant. No downward adjustments were made to the grant date option values stated in the table to account for potential forfeiture or the nontransferable nature of these options. (d) Five-year options, granted February 27, 1998, vesting in equal increments over four years, with the first 25% vesting one year from the date of grant. (e) Three-year options granted September 14, 1998, vesting 50% on the date of grant and 50% on January 1, 1999. (f) Three-year options granted September 3, 1998, vesting 50% on February 5, 1999 and 50% on August 4, 1999. (g) Three-year options granted November 4, 1998, vesting 50% on May 4, 1999 and 50% on November 4, 1999. 36 The following table shows certain information concerning the value as of December 31, 1998 of unexercised options held by each of the Named Executive Officers identified in the Summary Compensation Table on page 32 of this Report. None of such Named Executive Officers exercised stock options during the fiscal year ended December 31, 1998. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
(a) (b) (c) (d) (e) Shares Number of Securities Value of Unexercised Acquired on Value Underlying Unexercised In-the-Money Options Exercise Realized Options at 12/31/98 (#) at 12/31/98 ($) Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable* ---- ----------- -------- ------------------------- -------------------------- Keith M. Price.......... 0 0 0/200,000 $0/$17,100(1) James O. Edwards........ 0 0 190,000/0 N/A(2) Michael F. Gaffney...... 0 0 50,475/59,425 N/A(2) Sudhakar Kesavan........ 0 0 20,621/94,606 N/A(2) Thomas P. Grumbly....... 0 0 25,000/75,000 N/A(2) Richard Leupen.......... 0 0 75,000/125,000 8,100/$8,100(3) Marc Tipermas........... 0 0 151,400/0 N/A(2) David Watson............ 0 0 42,450/77,350 N/A(2)
- -------- The exercise price of all options is the average closing price of the Company's Common Stock on each of the 20 trading days prior to the date of grant, with the 20th day being the trading date immediately preceding the date of grant. The closing price of the Company's Common Stock on December 31, 1998, was $1.38 per share. (1) 150,000 of the in-the-money options held by Mr. Price were granted at an exercise price of $1.39 per share on September 14, 1998 and 50,000 were granted at an exercise price of $1.24 per share on November 4, 1998. (2) None of the options held by this person were in-the-money as of December 31, 1998. (3) All of the in-the-money options held by Mr. Leupen were granted at an exercise price of $1.33 per share on September 3, 1998. Employment Contracts and Termination of Employment and Change-in-Control Arrangements In connection with their employment with the Company during the year ended December 31, 1998, seven of the executive officers, who are named in the Summary Compensation Table have or had employment contracts. In connection with the termination of their employment with the Company, three of these executive officers received severance packages. These arrangements are described under "Certain Relationships and Related Transactions--Current Directors" and "--Former Directors/Executive Officers" on pages 41-5 of this Report. In April 1994, the then-named Compensation Committee of the Board of Directors approved the adoption of the Company's Senior Executive Officers Severance Plan (the "SEOSP"). In December 1994, the SEOSP was amended to clarify (a) that once an officer becomes a participant in the SEOSP, he or she will continue to be eligible for SEOSP benefits throughout his or her employment by the Company and (b) that the SEOSP is intended to set a minimum severance benefit for the participant. If a participant is entitled to a greater benefit under his or her employment agreement with the Company, then such arrangement prevails over the lower SEOSP benefit. In May 1997, the SEOSP was further amended to increase the minimum benefit under the SEOSP from three months to six months of the participant's average monthly salary. This amendment reflects the fact that six months is the practical minimum severance for senior executives; the Company has never paid less. The 1997 amendment also removed the 18-month overall cap on the SEOSP benefit to provide the same severance (one month of severance for each year of service) across all years worked; to require that the Company and a SEOSP participant execute mutual general releases in order to obtain the SEOSP benefit; and to clarify what is meant by "continuing directors" in the definition of "good cause." 37 The eligible participants in the SEOSP are the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Executive Vice President (Corporate Development), the Group Presidents, the Treasurer, the General Counsel, and any officer as designated by the Compensation & Human Resources Committee. As of March 31, 1999, there were four persons whose severance payments are governed by the SEOSP. A participant is eligible to receive severance payments if the Company terminates his or her employment without "cause" or if the participant terminates his or her employment for "good reason." "Cause" and "good reason" are defined in the SEOSP. Average monthly salary is defined in the SEOSP as the participant's average monthly gross salary excluding all bonuses for the six months prior to employment termination. Severance benefits may be paid under the SEOSP in two installments or, with the approval of the Compensation & Human Resources Committee, in a lump sum. The SEOSP provides that severance pay will not be considered compensation for purposes of the Retirement Plan or the Section 401(k) Plan; severance pay will not increase Years of Service for those Plans' purposes. As of March 31, 1999, severance benefits have been paid under the SEOSP to three participants. Compensation and Human Resources Committee Interlocks and Insider Participation The members of the Compensation & Human Resources Committee are Hazel O'Leary (Chairperson), Thomas C. Jorling, and James T. Rhodes, none of whom are employed by the Company. For the year ended December 31, 1998, there were no director relationships that require disclosure under this section. Compensation of Non-employee Directors Effective March 1, 1997 Directors who are not employees of the Company ("Non-employee Directors") are paid $1,000 for attendance at each meeting of the Board of Directors; they are paid $1,000 for attendance at each meeting of a committee of the Board of Directors of which the Director is a member. In addition, each Non-employee Director receives an annual retainer of $20,000, payable in advance in quarterly installments, and is reimbursed for his or her expenses incurred in connection with his or her Board service. Directors of the Company who are employees of the Company are not compensated separately for their service as Directors. On February 28, 1997, the Board of Directors adopted the ICF Kaiser International, Inc. Non-employee Directors Compensation and Phantom Stock Plan, which provides for the cash compensation discussed in the preceding paragraph. In addition, in lieu of option grants under the Non-employee Directors Stock Option Plan adopted in 1991, each Non-employee Director of the Company is granted a Phantom Stock Award ("PSA") equal to $20,000 worth of Common Stock on the date of grant; the date of grant is the date of the annual board meeting which occurs immediately following the conclusion of the Annual Meeting of Shareholders. Three years after the PSA grant, the Company will pay each Non-employee Director in cash the value of the shares to which the PSA relates. The number of shares of Common Stock to which the PSA relates will be determined using the average closing prices of the Common Stock for the 20 trading days immediately prior to the date of grant. The same method will be used to determine the value of the phantom stock as of the date of the cash payout. In lieu of receiving cash compensation pursuant to the terms of the ICF Kaiser International, Inc. Non-employee Directors Compensation and Phantom Stock Plan described above, beginning January 1, 1999, Mr. Coelho is being paid an annual fee of $120,000. In addition, Mr. Coelho was granted 100,000 options, expiring November 4, 2001, vesting 50% on May 4, 1999 and 50% on November 4, 1999 with an exercise price of $1.24. These amounts are being paid to Mr. Coelho as consideration for his services as Chairman of the Board of Directors. 38 In 1998, the Non-employee Directors were awarded the following Phantom Stock Units under the ICF Kaiser International, Inc. Non-employee Directors Compensation and Phantom Stock Plan:
Per Share Price Total Value of (20-trading day Total Number of Common Stock average at Phantom Stock Date of Non-employee Director on Date of Grant May 1, 1998) Units Granted Cash Payout - --------------------- ---------------- --------------- --------------- ----------- Tony Coelho............. $20,001 $2.85 7,018 May 4, 2001 Maynard H. Jackson, Jr.(1)................. $20,001 $2.85 7,018 May 4, 2001 Thomas C. Jorling....... $20,001 $2.85 7,018 May 4, 2001 Hazel R. O'Leary........ $20,001 $2.85 7,018 May 4, 2001 Keith M. Price(2)....... $20,001 $2.85 7,018 May 4, 2001 James T. Rhodes......... $20,001 $2.85 7,018 May 4, 2001 Michael E. Tennenbaum... $20,001 $2.85 7,018 May 4, 2001
- -------- (1) Mr. Jackson resigned from the Board of Directors effective February 8, 1999. (2) Subsequent to the date these Phantom Stock Units were granted, Mr. Price was appointed to serve as President and Chief Executive Officer of the Company. Item 12. Security Ownership of Certain Beneficial Owners and Management The following table sets forth information as of the April 12, 1999, regarding each person known by the Company to beneficially own 5% or more of the outstanding Common Stock of the Company. A person is deemed to be a beneficial owner of the Company's Common Stock if that person has voting or investment power (or voting and investment powers) over any shares of Common Stock or has the right to acquire such shares pursuant to exercisable options or warrants within 60 days from April 12, 1999.
Name and Address of Beneficial Owners Amount and Nature of Beneficial Percent of of More Than 5% of the Ownership of Shares of Common Common Stock Common Stock of the Company Stock of the Company(a) of the Company ------------------------------ ------------------------------- -------------- Cowen and Company; Cowen Incorporated;.................... 1,627,000(b) 7.0% Joseph M. Cohen; Jarrod M. Cohen Financial Square New York, NY 10005-3597 State of Wisconsin Investment Board............................ 2,092,200(c) 8.62% P.O. Box 7842 Madison, WI 53707 Tennenbaum & Co., LLC;............ 2,100,000(d) 8.65% Michael E. Tennenbaum 1999 Avenue of the Stars Los Angeles, CA 90067
- -------- (a) For the purposes of this table, a person or group is deemed to have "beneficial ownership" of any shares of Common Stock which such person has the right to acquire within 60 days after the date set forth in the introductory paragraph above. However, for purposes of computing the percentage of outstanding shares of Common Stock held by each person or group of persons named above, any security which such person or group of persons has or have the right to acquire from the Company within 60 days from the date set forth in the introductory paragraph above is not deemed to be outstanding for the purposes of computing the percentage ownership of any other person. (b) Includes 49,000 shares held by Jarrod Cohen directly and 1,578,000 shares held by SG Cowen Securities, of which Joseph Cohen is Chairman. Jarrod Cohen is the son of Joseph Cohen. The information with respect to the shares of Common Stock beneficially owned by Joseph M. Cohen, and Jarrod M. Cohen is based on information from Mr. Jarrod Cohen and is current as of March 31, 1999. Mr. Joseph Cohen is an individual who may be deemed to control SG Cowen Securities Corporation. 39 (c) The information with respect to the shares of Common Stock beneficially owned by the State of Wisconsin Investment Board is based on a Report on Schedule 13G, Amendment No. 2 , which was filed with the SEC reporting share ownership information as of December 31, 1998. (d) The information with respect to the shares of Common Stock beneficially owned by Tennenbaum & Co., LLC and Michael E. Tennenbaum is based on a Report on Schedule 13D dated December 19, 1997, which was filed with the SEC reporting share information as of December 18, 1997. Based on information from Mr. Tennenbaum, this information also is current as of the date of this Report. The following table sets forth information regarding the beneficial ownership of shares of Common Stock of the Company by each director, and by executive officers named in the Summary Compensation Table on page 32 of this Report, and by all directors and current executive officers as a group. The information set forth below is current as of April 12, 1999, except that information with respect to ownership of shares of Common Stock in the Company's Employee Stock Ownership Plan, Section 401(k) Plan, and Retirement Plan is current as of December 31, 1998. The information is based on the Company's review of public reports filed by each director/executive officer.
Certain Beneficial Owners Amount and Nature of Percent of of Shares of Common Beneficial Ownership Common Stock Stock of Shares of Common of the Company of the Company Stock of the Company(a) (*Less than 1%) ------------------- ----------------------- --------------- (i) Directors Tony Coelho.......................... 77,727(b) * Jarrod M. Cohen...................... 1,627,000(c) 6.70% James O. Edwards..................... 593,613(d) 2.45% Thomas C. Jorling.................... 22,727(e) * Hazel R. O'Leary..................... 16,727(f) * Keith M. Price....................... 117,569(g) * James T. Rhodes...................... 7,018(h) * Michael E. Tennenbaum................ 2,107,018(i) 8.65% (ii) Executive Officers Named in the Summary Compensation Table Michael F. Gaffney................... 75,536(j) * Former Executive Vice President Thomas Grumbly....................... 50,412(k) * Executive Vice President Sudhakar Kesavan..................... 63,416(l) * Executive Vice President Richard A. Leupen.................... 162,500(m) * Executive Vice President Marc Tipermas........................ 185,422(n) * Former President and Chief Operating Officer David Watson......................... 118,997(o) * Former Executive Vice President (iii) All Directors and Current Execu- tive Officers as a Group (13 Per- sons) 4,970,496(p) 20.48%
- -------- (a) For the purposes of this table, a person or group is deemed to have "beneficial ownership" of any shares of Common Stock which such person has the right to acquire within 60 days after the date set forth in the introductory paragraph above. However, for purposes of computing the percentage of outstanding shares of Common Stock held by each person or group of persons named above, any security which such person or group of persons has or have the right to acquire from the Company within 60 days from the date set forth in the introductory paragraph above is not deemed to be outstanding for the purposes of computing the percentage ownership of any other person. 40 (b) Mr. Coelho's share ownership includes 59,000 shares that may be acquired within 60 days of April 12, 1999 upon the exercise of stock options. He also owns directly 2,000 other shares. Mr. Coelho has 16,727 Phantom Stock Units which are fully described on pages 38-9 of this Report. (c) Mr. Cohen's share ownership includes 49,000 shares owned by him directly and 1,578,000 shares held by SG Cowen Securities Corporation ("SG Cowen"). The shares held by SG Cowen are included in the table, because Mr. Cohen's father is Chairman of SG Cowen and, as a result may be deemed to control SG Cowen. The information in the table is based on information received from Mr. Cohen and is current as of March 31, 1999. (d) Mr. Edwards' share ownership includes 2,882 shares allocated to his ESOP account, 2,505 shares allocated to his Section 401(k) Plan account, 75,293 shares allocated to his Retirement Plan account, and 190,000 shares that may be acquired within 60 days of April 12, 1999 upon the exercise of stock options. Mr. Edwards owns 20,000 Restricted Shares. Mr. Edwards also owns directly 302,933 other shares. (e) Mr. Jorling's share ownership includes 6,000 shares that may be acquired within 60 days of April 12, 1999 upon the exercise of stock options. Mr. Jorling has 16,727 Phantom Stock Units which are fully described on pages 38-9 of this Report. (f) Ms. O'Leary has 16,727 Phantom Stock Units which are fully described on pages 38-9 of this Report. (g) Mr. Price has 16,727 Phantom Stock Units which are fully described on pages 38-9 of this Report. Mr. Price's share ownership includes 842 shares allocated to his Sectioni 401(k) account and 100,000 shares that may be acquired within 60 days of April 12, 1999, upon the exercise of stock options. (h) Mr. Rhodes has 7,018 Phantom Stock Units which are fully described on pages 38-9 of this Report. (i) Mr. Tennenbaum is the Managing Member of and may be deemed to control Tennenbaum & Co., LLC, which owns 2,100,000 shares of Common Stock. Mr. Tennenbaum also has 7,018 Phantom Stock Units which are fully described on page 38-9 of this Report. (j) Mr. Gaffney's share ownership includes 586 shares allocated to his Retirement Plan account and 74,950 shares that may be acquired within 60 days of April 12, 1999 upon exercise of option. (k) Mr. Grumbly's share ownership includes 412 shares allocated to his Section 401(k) Plan and 50,000 shares that may be acquired within 60 days of April 12, 1999 upon exercise of options. (l) Mr. Kesavan's share ownership includes 4,321 shares allocated to his ESOP account, 2,049 allocated to his Retirement Plan account, and 47,552 shares that may be acquired within 60 days of the April 12, 1999 upon the exercise of options. Mr. Kesavan also owns 9,494 other shares. (m) Mr. Leupen's shares ownership includes 162,500 shares that may be acquired within 60 days of April 12, 1999. (n) Dr. Tipermas' share ownership includes 7,955 shares allocated to his ESOP account, 16,267 shares allocated to his Retirement Plan account and 151,400 shares that may be acquired within 60 days of April 12, 1999, upon exercise of optioins. He also owns 3,300 Restricted Shares and 6,500 other shares. (o) Mr. Watson's share ownership includes 23,298 shares allocated to his Section 401(k) Plan account, 66,150 shares that may be acquired within 60 days of April 12, 1999, upon exercise of options and 29,549 other shares directly. (p) This total includes 80,944 Phantom Stock Units, 13,618 shares allocated to ESOP accounts, 3,759 shares in Section 401(k) Plan accounts, 80,654 shares allocated to individuals under the Retirement Plan or held in directed investment accounts under the Retirement Plan, 701,419 shares that may be acquired within 60 days of April 12, 1999, upon the exercise of stock options, and 20,000 Restricted Shares that will be vested within 60 days of April 12, 1999, and 4,070,102 other shares. Item 13. Certain Relationships and Related Transactions Current Directors Tony Coelho. In lieu of receiving cash compensation pursuant to the terms of the ICF Kaiser International, Inc. Non-employee Directors Compensation and Phantom Stock Plan described above, beginning January 1, 1999, Mr. Coelho is being paid an annual fee of $120,000. In addition, Mr. Coelho was granted 100,000 options, expiring November 4, 2001, vesting 50% on May 4, 1999 and 50% on November 4, 1999 with an exercise price 41 of $1.24. These amounts are being paid to Mr. Coelho as consideration for his services as Chairman of the Board of Directors. Jarrod M. Cohen. On March 13, 1998, the Company and Mr. Jarrod M. Cohen (for himself, Cowen and Company, Cowen Incorporated, and Joseph M. Cohen, collectively, the "Cohen Parties") signed an agreement pursuant to which the Company agreed, upon receipt of Mr. Cohen's written request at any time between July 1 and December 31, 1998, to enlarge the class of directors whose terms expire at the 2000 Annual Meeting of Shareholders and elect Mr. Cohen to fill the resulting vacancy. The Cohen Parties agreed (i) to withdraw any previous consents and agreed not to consent to be a nominee for election to the Board of Directors at the Company's 1998 Annual Meeting of Shareholders, (ii) to vote in favor of the Company-proposed nominees for election at the 1998 Annual Meeting of Shareholders, and (iii) to be present, in person or by Report, or otherwise be deemed to be present (to the extent permitted by law) at meetings for which they were given notice for the purpose of determining the presence of a quorum at such meetings. In addition, the Cohen Parties agreed (a) not to subject any of the Company's voting securities to a voting trust or voting agreement; (b) not to solicit proxies or become a participant in a solicitation in opposition to any recommendation of the Board of Directors of the Company; (c) not to join with others or otherwise act in concert with others for the purpose of acquiring, holding, voting, or disposing of voting securities of the Company; (d) not to become, alone or in conjunction with others, an acquiring person as defined in the Company's Shareholders Rights Plan; and (e) not to dispose of any voting securities of the Company to any person who, to the knowledge of the Cohen Parties, as a result of acquiring such voting securities would become an acquiring person as defined in the Company's Shareholder Rights Plan. The provisions of (a) through (e) above apply during the period from March 13, 1998 to the date Mr. Cohen or any other designee of the Cohen Parties ceases to be a member of the Board of Directors. It was agreed that if the Cohen Parties obtained the express written consent of a majority of the directors of the Company who are not designated by the Cohen Parties, then the provisions of (a) through (e) above would not apply. James O. Edwards. Effective May 1, 1997, the Company entered into an employment agreement with Mr. Edwards for his services as Chairman and Chief Executive Officer of the Company through December 31, 1999. In addition to delineating Mr. Edwards' areas of responsibility and reporting line, the agreement provided for a base annual salary of $400,000 beginning on April 1, 1997 (with $25,000 increases in each of the next two years); annual bonus compensation to be determined by the Compensation & Human Resources Committee of the Company's Board of Directors; severance payments as provided under the Company's Senior Executive Officers Severance Plan; eligibility under the Company's employee benefit plans; and a one-year non-competition period following voluntary or "for cause" employment termination. The agreement also provided for the grant on December 31, 1998, of 200,000 shares of Restricted Stock under the Company's Stock Incentive Plan; 100,000 of these shares to vest on December 31, 1999, with the balance vesting on December 31, 2000. Vesting terms in the event of termination of Mr. Edwards' employment or his death also are outlined in the agreement. As part of his employment agreement with the Company, Mr. Edwards' outstanding indebtedness to the Company on May 1, 1997, was restructured. On November 6, 1998, Mr. Edwards entered into an agreement with the Company, pursuant to which the parties mutually agreed to terminate Mr. Edwards' employment agreement. In consideration of Mr. Edwards agreeing to terminate his employment agreement, the Company agreed to compensate him with cash in the aggregate amount of $850,000, all of which has been paid. The Company further agreed (i) to provide Mr. Edwards and his dependents with continued health, welfare, and life insurance benefits through April 30, 1999, (ii) to accelerate the vesting of 30,000 options previously granted pursuant to the Company's Stock Incentive Plan, (iii) consistent with the terms of his employment agreement, to award 200,000 shares of restricted Common Stock, which shares vest upon the earlier of November 6, 1999, or the merger, consolidation, sale of stock, or sale of substantially all of the assets of, the Company, and (iv) to forgive approximately $1,396,139 of indebtedness previously owed by Mr. Edwards to the Company. In addition, Mr. Edwards agreed to provide 42 certain consulting services to the Company through January 31, 1999, for which he was compensated with approximately $98,559 of cash payments. The Company will pay on Mr. Edwards' behalf the amount of $10,000 for legal fees incurred by him in connection with the negotiation of this Agreement. In exchange for the benefits received by Mr. Edwards which are described in this paragraph, Mr. Edwards agreed to terminate his employment agreement and execute a full general release as to the Company and its affiliated parties. Keith M. Price. Effective August 5, 1998, the Company entered into an employment agreement with Mr. Price for his services as President and Chief Operating Officer of the Company through August 5, 1999. In addition to delineating Mr. Price's areas of responsibility and reporting line, the agreement provided for a base annual salary of $375,000; a signing bonus of $100,000, $50,000 of which was paid upon commencement of employment and $50,000 on January 1, 1999; annual bonus compensation of not less than 50% of base annual salary; severance payments equal to the balance of base annual compensation for the one year contract term; eligibility under the Company's employee benefit plans, and a one-year, non-competition period following termination of employment for any reason other than employment through the term of the contract. The agreement also provided for the grant of three-year options to purchase 150,000 shares of the Company's common stock, 50% of the options to vest on February 5, 1999 and 50% on August 4, 1999. Effective August 5, 1998, Mr. Price was promoted to Chief Executive Officer and the Company agreed to extend the term of Mr. Price's contract to two years commencing August 5, 1998 and to grant Mr. Price three year options to purchase an additional 50,000 share of the Company's common stock, 50% of the options to vest on May 4, 1999 and 50% to vest on November 4, 1999, subject to his continued employment through such dates. Michael E. Tennenbaum. On March 13, 1998, the Company and Mr. Michael E. Tennenbaum signed an agreement pursuant to which the Company agreed to nominate, recommend, and solicit proxies for Mr. Tennenbaum's election as a Director of the Company at the May 1, 1998, Annual Meeting of Shareholders for a three-year term expiring at the 2001 Annual Meeting of Shareholders, and until his successor is duly elected. The Company and Mr. Tennenbaum agreed that during the period from March 13, 1998, to the earlier of (i) March 13, 2003, and (ii) the day after the date Mr. Tennenbaum, Tennenbaum & Co., LLC, and their affiliates cease to be the beneficial owners of any of the Company's voting securities (the "Restricted Securities"), Mr. Tennenbaum and Tennenbaum & Co., LLC (the "Tennenbaum Parties") shall not acquire, directly or indirectly, any voting securities of the Company if, following such acquisition, the Tennenbaum Parties and their affiliates would, directly or indirectly, be the beneficial owners of more than 19.5% of the total combined voting power of all issued and outstanding securities of the Company. The agreement states that the limitation set forth in the immediately preceding sentence shall not be violated if the Tennenbaum Parties and their affiliates become entitled to exercise voting power in excess of 19.5% as a result of any event or circumstance other than the acquisition by the Tennenbaum Parties or their affiliates of beneficial ownership of additional voting securities of the Company. The Company agreed not to take any action, including without limitation, any amendment to its Shareholders Rights Plan that would prevent the Tennenbaum Parties from acquiring additional securities within the limitations set forth above. The Tennenbaum Parties agreed that they (a) would not subject any Restricted Securities to any voting trust or voting agreement; (b) would not recruit or engage in organizing persons not nominated by the Board of Directors to oppose the Board of Directors nominated candidates in an election; (c) would not financially support a Report contest for Board of Directors candidates to oppose the candidates nominated by the Board of Directors; (d) would not provide any material, non-public information gained in Mr. Tennenbaum's position as a Director to opposing Board candidates, except as required by law, and then only after giving notice to the Company; (e) would not join a partnership, limited partnership, syndicate, or other group or otherwise act in concert with others for the purpose of acquiring, holding, voting, or disposing of voting securities of the Company; and (f) would be present, in person or by Report, or otherwise be deemed to be present (to the extent permitted by law), at meetings for which they were given notice for the purpose of determining the presence of a quorum as such meetings. The provisions of (a) through (f) above apply during the period during which Mr. Tennenbaum (or another affiliate of the Tennenbaum Parties) is a member of the Board of Directors, and for a period of 90 days thereafter. It was agreed that if the Tennenbaum Parties obtained the express written consent of a majority of the directors of the Company who are not designated by the Tennenbaum Parties, then the 19.5% ownership limitation and the provisions of (a) through (f) above would not apply. Finally, the Company agreed to reimburse the Tennenbaum Parties for reasonable and necessary documented out-of-pocket expenses incurred by them in connection with their proposals to the Board of Directors of the Company and the potential solicitation of proxies for the election of directors of the Company, which reimbursement was made in the amount of $16,307. 43 Current Executive Officers Thomas P. Grumbly On April 7, 1997, the Company entered into an employment agreement with Mr. Grumbly for his services as Executive Vice President and President, Federal Programs Group. In addition to delineating Mr. Grumbly's areas of responsibility and reporting line, the agreement provides for: a base annual salary of $250,000 beginning April 28, 1997, subject to annual increases of $10,000; signing bonus of $50,000 for the period ended December 31, 1997; an additional bonus opportunity to be determined by the Compensation & Human Resources Committee and based on Company performance; eligibility under the Company's employee benefit plans and 12 months severance in the event Mr. Grumbly is terminated other than for cause. The agreement also provided for the grant of 100,000 options, 25% of which vest on each of the first four anniversaries of the grant date. On March15, 1999, in consideration for Mr. Grumbly's remaining in the employ of the Company for a period of at least 30 days after the closing of the sale of EFM, the Company agreed to: increase Mr. Grumbly's annual compensation to $270,000 effective February 1, 1999; pay health insurance for a 12-month period following termination; pay a bonus of $50,000; payout the 12-month severance upon the closing of the EFM transaction; vest ICF Kaiser common stock options; and waive the non-competition provisions of the April 1997 employment agreement. Richard A. Leupen The Company entered into an employment agreement with Mr. Leupen for his services as President of the Engineers and Constructors Group and Executive Vice President of the Company for the period October 5, 1998 through August 4, 2001. In addition to delineating Mr. Leupen's areas of responsibility and reporting line, the agreement provides for a base annual salary of $300,000 beginning on October 5, 1998, subject to annual increases to be determined by the Compensation & Human Resources Committee; a relocation bonus of $46,000; bonus compensation of $35,000 for the period ended June 30, 1998, not less than $75,000 for the period ended December 31, 1998, not less than $150,000 for the period ended August 4, 1999; signing bonus of $100,000, payable in two equal increments on August 4, 1998 and January 1, 1999; eligibility under the Company's employee benefit plans; reimbursement of relocation and related expenses for Mr. Leupen and his family; and a one-year non-competition following termination for "cause" of Mr. Leupen's employment. The agreement also provided for the grant of 150,000 options, 50% of which vested immediately and the remainder vested on January 1, 1999. In addition, Mr. Leupen has the right to elect to be reinstated in his prior position with Kaiser Engineers Pty. Ltd., headquartered in Perth, Western Australia. Either party may terminate the agreement upon thirty (30) days' prior written notice; the Company may terminate the agreement for "cause", or Mr. Leupen may terminate the agreement for "good reason". In the event that the agreement is terminated without "cause" by the Company or by Mr. Leupen without "good reason" in the event that his responsibilities are substantially reduced or materially changed or in the event that the Company is the subject of a voluntary or involuntary bankruptcy, Mr. Leupen is entitled to receive a severance payment equal to two times his annual base salary in effect of such termination. In the event that Mr. Leupen terminated the agreement for other "good reason" (as defined in the agreement), he is entitled to receive a severence payment equal to one time his annual base salary then in effect. Former Directors/Executive Officers Michael F. Gaffney. Effective January 1, 1997, the Company entered into an employment agreement with Mr. Gaffney for his services as Senior Vice President of the Company through December 31, 1999. In addition to delineating Mr. Gaffney's areas of responsibility and reporting line, the agreement provides for a base annual salary of $230,000 for the 15-month period beginning January 1, 1997 (with a $20,000 annual increase for the next 12- month period and a $25,000 annual increase for the remaining months); annual bonus compensation to be determined by reference to sales targets, operating group revenue and profit targets, and other qualitative factors as determined by the Compensation & Human Resources Committee of the Company's Board of Directors; a specified severance payment; eligibility under the Company's employee benefit plans; and a six month non-competition period following employment termination. On March 8, 1999, Mr Gaffney entered into an agreement with the Company, pursuant to which the parties mutually agreed to terminate Mr. Gaffney's employment agreement. In consideration of Mr. Gaffney agreeing to terminate his employment agreement, the Company agreed to compensate him with cash in the aggregate amount of $200,000 and to continue health, welfare, and life insurance benefits for Mr. Gaffney and his dependents through April 30, 1999. In exchange for the benefits received by Mr. Gaffney which are described in this paragraph, Mr. Gaffney agreed to terminate his employment agreement; enter into a six-month non-competition agreement, and execute a full general release as to the Company and its affiliated parties. 44 Marc Tipermas. Effective May 1, 1997, the Company entered into an employment agreement with Dr. Tipermas for his services as President and Chief Operating Officer of the Company through December 31, 1999. Dr. Tipermas also was a Director of the Company at the time of such agreement. In addition to delineating Dr. Tipermas' areas of responsibility and reporting line, the agreement provided for a minimum base salary of $350,000 from April 1, 1997, with $25,000 increases in each of the following two years; annual bonus compensation to be determined by the Compensation & Human Resources Committee of the Company's Board of Directors; severance payments as provided under the Company's Senior Executive Officers Severance Plan (with a minimum of two years); eligibility under the Company's employee benefit plans; a cash payment of $50,000 (net of taxes) in return for an agreement not to sell shares of Common Stock without Compensation Committee approval; and a one-year non- competition period following voluntary or "for cause" employment termination. The agreement also provided for the grant on December 31, 1998, of 150,000 shares of Restricted Stock under the Company's Stock Incentive Plan; 75,000 of these shares vest on December 31, 1999, with the balance vesting on December 31, 2000. Vesting terms in the event of termination of Dr. Tipermas' employment or his death also are outlined in the agreement. On August 7, 1998, Dr. Tipermas entered into an agreement with the Company, pursuant to which the parties mutually agreed to terminate Dr. Tipermas' employment agreement. In consideration of Dr. Tipermas agreeing to terminate his employment agreement, the Company paid him $732,500 in cash. The Company further agreed (i) to provide Dr. Tipermas and his dependents with continued health, welfare and life insurance benefits through January 31, 1999, (ii) to accelerate the vesting of 19,800 options previously granted pursuant to the Company's Stock Incentive Plan, and (iii) consistent with the terms of his Employment Agreement, to award 150,000 shares of restricted Common Stock, which shares vest upon the earlier of November 6, 1999, or the merger, consolidation, sale of stock, or sale of substantially all of the assets of the Company. All unexercised options held by Dr. Tipermas on November 6, 1999 will expire. In addition, Dr. Tipermas agreed to provide certain consulting services to the Company through January 31, 1999, for which he was compensated with approximately $186,178 of cash payments. The Company also will pay on Dr. Tipermas' behalf the amount of $8,781 for legal fees incurred by him in connection with the negotiation of this agreement. In exchange for the benefits received by Dr. Tipermas which are described in this paragraph, Dr. Tipermas agreed to terminate his employment agreement and execute a full general release as to the Company and its affiliated parties. David Watson. Effective November 13, 1995, the Company entered into an employment agreement with Mr. Watson for his services as Executive Vice President and President of the International Operations Group of the Company through November 13, 1998. This agreement was subsequently amended, effective December 1, 1996, to provides for Mr. Watson's services as Executive Vice President, and President of the ICF Kaiser Engineers & Constructors Group through December 1, 1999. In addition to delineating Mr. Watson's areas of responsibility, the amended agreement provides for a minimum base annual salary of $275,000, and bonuses in the range of $25,000 to $100,000 for fiscal 1996 and in amounts to be determined by the Compensation Committee for future years; severance payments as provided under the Company's Senior Executive Officers Severance Plan; and reimbursement of relocation expenses up to a maximum of $50,000. The amended agreement also provided for the grant (i) on December 15, 1995 of 20,000 stock options, 6,250 of which were vested immediately and the remainder to vest in three equal increments on each annual anniversary of the grant date, and (ii) on January 24, 1997 of 75,000 additional options, 18,750 of which vested upon grant, and the remainder to vest in three equal increments on each annual anniversary of the grant date. In return for the benefits afforded Mr. Watson in his employment agreement, Mr. Watson agreed to a one-year non-competition and non-solicitation period following termination of his employment for any reason. On August 17, 1998, Mr. Watson entered into an agreement with the Company, pursuant to which the parties mutually agreed to terminate Mr. Watson's employment agreement. In consideration of Mr. Watson agreeing to terminate his employment agreement, the Company paid him $300,019 in cash in October 1998. The Company further agreed (i) to enable Mr. Watson to use the Company's Corporate Membership at a private club through December 31, 1999, (ii) to accelerate the vesting of 45,600 shares of restricted stock previously granted, and (iii) reimburse up to $2,500 of legal fees incurred by Mr. Watson in connection with the negotiation of this agreement. In exchange for the benefits received by Mr. Watson which are described in this paragraph, Mr. Watson agreed to terminate his employment agreement, execute a full general release as to the Company and its affiliated parties, and further agreed not to compete with the Company for a period of one year following the termination of his employment by the Company. 45 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) Documents filed as part of this Report
Page ---- 1. Consolidated Financial Statements of ICF Kaiser International, Inc. and Subsidiaries a. Report of Independent Accountants.................................... F-1 b. Consolidated Balance Sheets as of December 31, 1998 and December 31, 1997................................................................. F-2 c. Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996.............................................. F-3 d. Consolidated Statements of Shareholders' Equity (Deficit) and Comprehensive Income (Loss) for the years ended December 31, 1998, 1997 and 1996........................................................ F-4 e. Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996.............................................. F-5 f. Notes to Consolidated Financial Statements........................... F-6 2. Supplemental Schedule Relating to the Consolidated Financial Statements of ICF Kaiser International, Inc. and Subsidiaries for the years ended December 31, 1998, 1997 and 1996. a.Schedule II: Valuation and Qualifying Accounts........................ S-1
All Schedules except the one listed above have been omitted because they are not applicable or not required or because the required information is included elsewhere in the financial statements in this filing. (b) Exhibits 3. Exhibits (listed according to the number assigned in the table in Item 601 of Regulation S-K). Exhibit No. 3--Articles of Incorporation and By-laws of the Registrant 3(a) Restated Certificate of Incorporation of ICF Kaiser International, Inc. (restated through June 26, 1993) (Incorporated by reference to Exhibit No. 3(a) to Quarterly Report on Form 10-Q (Registrant No. 1-12248) for the second quarter of fiscal 1994 filed with the Commission on October 15, 1993) 3(b) Amended and Restated By-laws of ICF Kaiser International, Inc. (as amended through June 23, 1995) (Incorporated by reference to Exhibit No. 3(b) to Quarterly Report on Form 10-Q (Registrant No. 1-12248) for the second quarter of fiscal 1995 filed with the Commission on October 13, 1995) Exhibit No. 3--Articles of Incorporation and By-laws of the Subsidiary Guarantors 3(c) Articles of Incorporation of Cygna Consulting Engineers and Project Management, Inc. (Incorporated by reference to Exhibit No. 3(c) to Registration Statement on Form S-1 Registration No. 333-19519 filed with the Commission on January 10, 1997) 3(d) By-laws of Cygna Consulting Engineers and Project Management, Inc. (Incorporated by reference to Exhibit No. 3(d) to Registration Statement on Form S-1 Registration No. 333-19519 filed with the Commission on January 10, 1997) 3(e) Certificate of Incorporation of ICF Kaiser Government Programs, Inc. (Incorporated by reference to Exhibit No. 3(e) to Registration Statement on Form S-1 Registration No. 333-19519 filed with the Commission on January 10, 1997) 3(f) By-laws of ICF Kaiser Government Programs, Inc. (Incorporated by reference to Exhibit No. 3(f) to Registration Statement on Form S-1 Registration No. 333-19519 filed with the Commission on January 10, 1997) 46 3(g) Certificate of Incorporation of Systems Applications International, Inc. (Incorporated by reference to Exhibit No. 3(i) to Registration Statement on Form S-1 Registration No. 333-19519 filed with the Commission on January 10, 1997) 3(h) By-laws of Systems Applications International, Inc. (Incorporated by reference to Exhibit No. 3(j) to Registration Statement on Form S-1 Registration No. 333-19519 filed with the Commission on January 10, 1997) 3(i) Certificate of Incorporation of EDA, Incorporated (Incorporated by reference to Exhibit No. 3(k) to Annual Report on Form 10-K (Registrant No. 1-12248) for fiscal year 1997 filed with the Commission on March 31, 1998) 3(j) Amended and Restated By-laws of EDA, Incorporated (Incorporated by reference to Exhibit No. 3(l) to Annual Report on Form 10-K (Registrant No. 1-12248) for fiscal year 1997 filed with the Commission on March 31, 1998) 3(k) Certificate of Incorporation of Global Trade & Investment, Inc. (Incorporated by reference to Exhibit No. 3(o) to Annual Report on Form 10-K (Registrant No. 1-12248) for fiscal year 1997 filed with the Commission on March 31, 1998) 3(l) Amended and Restated By-laws of Global Trade & Investment, Inc. (Incorporated by reference to Exhibit No. 3(p) to Annual Report on Form 10-K (Registrant No. 1-12248) for fiscal year 1997 filed with the Commission on March 31, 1998) 3(m) Certificate of Incorporation of ICF Kaiser Europe, Inc. (Incorporated by reference to Exhibit No. 3(q) to Annual Report on Form 10-K (Registrant No. 1-12248) for fiscal year 1997 filed with the Commission on March 31, 1998) 3(n) By-laws of ICF Kaiser Europe, Inc. (Incorporated by reference to Exhibit No. 3(r) to Annual Report on Form 10-K (Registrant No. 1-12248) for fiscal year 1997 filed with the Commission on March 31, 1998) 3(o) Certificate of Incorporation of ICF Kaiser / Georgia Wilson, Inc. (Incorporated by reference to Exhibit No. 3(s) to Annual Report on Form 10-K (Registrant No. 1-12248) for fiscal year 1997 filed with the Commission on March 31, 1998) 3(p) By-laws of ICF Kaiser / Georgia Wilson, Inc. (Incorporated by reference to Exhibit No. 3(t) to Annual Report on Form 10-K (Registrant No. 1- 12248) for fiscal year 1997 filed with the Commission on March 31, 1998) 3(q) Certificate of Incorporation of ICF Kaiser Overseas Engineering, Inc. (Incorporated by reference to Exhibit No. 3(u) to Annual Report on Form 10-K (Registrant No. 1-12248) for fiscal year 1997 filed with the Commission on March 31, 1998) 3(r) Amended and Restated By-laws of ICF Kaiser Overseas Engineering, Inc. (Incorporated by reference to Exhibit No. 3(v) to Annual Report on Form 10-K (Registrant No. 1-12248) for fiscal year 1997 filed with the Commission on March 31, 1998) 3(s) Certificate of Incorporation of ICF Kaiser Engineers Pacific, Inc. (Incorporated by reference to Exhibit No. 3(w) to Annual Report on Form 10-K (Registrant No. 1-12248) for fiscal year 1997 filed with the Commission on March 31, 1998) 3(t) Amended and Restated By-laws of ICF Kaiser Engineers Pacific, Inc. (Incorporated by reference to Exhibit No. 3(x) to Annual Report on Form 10-K (Registrant No. 1-12248) for fiscal year 1997 filed with the Commission on March 31, 1998) 3(u) Certificate of Incorporation of ICF Kaiser Remediation Company (Incorporated by reference to Exhibit No. 3(y) to Annual Report on Form 10-K (Registrant No. 1-12248) for fiscal year 1997 filed with the Commission on March 31, 1998) 3(v) By-laws of ICF Kaiser Remediation Company (Incorporated by reference to Exhibit No. 3(z) to Annual Report on Form 10-K (Registrant No. 1-12248) for fiscal year 1997 filed with the Commission on March 31, 1998) 47 3(w) Certificate of Incorporation of ICF Kaiser Advanced Technology, Inc. (Incorporated by reference to Exhibit No. 3(y) to Annual Report on Form 10-K (Registrant No. 1-12248) for fiscal year 1997 filed with the Commission on March 31, 1998) (incorporated by reference to Exhibit E No. 3 (aa) to Quarterly Report on Form 10-Q (Registrant No. 1-12248) for the third quarter of fiscal 1997 filed with the Commission on November 16, 1998). 3(x) By-laws of ICF Kaiser Advanced Technology, Inc. (Incorporated by reference to Exhibit No. 3(z) to Annual Report on Form 10-K (Registrant No. 1-12248) for fiscal year 1997 filed with the Commission on March 31, 1998) (incorporated by reference to Exhibit No. 3 (bb) to Quarterly Report on Form 10-Q (Registrant No. 1-12248) for the third quarter of fiscal 1997 filed with the Commission on November 16, 1998). Exhibit No. 4--Instruments Defining the Rights of Security Holders, including Indentures 4(a) Indenture dated as of January 11, 1994, between ICF Kaiser International, Inc. and The Bank of New York, as Trustee (Incorporated by reference to Exhibit No. 4(a) to Quarterly Report on Form 10-Q (Registrant No. 1- 12248) for the third quarter of fiscal 1994 filed with the Commission on January 14, 1994) 1. First Supplemental Indenture dated as of February 17, 1995 (Incorporated by reference to Exhibit No. 4(a)(1) to Annual Report on Form 10-K (Registrant No. 1-12248) for fiscal year 1995 filed with the Commission on May 23, 1995) 2. Second Supplemental Indenture dated September 1, 1995 (Incorporated by reference to Exhibit No. 4(a) (2) to Registration Statement on Form S- 1 Registration No. 33-64655 filed with the Commission on November 30, 1995) 3. Third Supplemental Indenture dated October 20, 1995 (Incorporated by reference to Exhibit No. 4(a)(3) to Registration Statement on Form S-1 Registration No. 33-64655 filed with the Commission on November 30, 1995) 4. Fourth Supplemental Indenture dated as of March 8, 1996 (Incorporated by reference to Exhibit No. 4 (a)(4) to Transition Report on Form 10-K (Registrant No. 1-12248) for the transition period from March 1, 1995 to December 31, 1995 filed with the Commission on March 29, 1996) 5. Fifth Supplemental Indenture dated as of June 24, 1996 (Incorporated by reference to Exhibit No. 4 (a)(5) to Registration Statement on Form S-1 Registration No. 333-16937 filed with the Commission on November 27, 1996) 6. Sixth Supplemental Indenture dated as of December 3, 1997 (Incorporated by reference to Exhibit No. 4(a)(6) to Annual Report on Form 10-K (Registrant No. 1-12248) for fiscal year 1997 filed with the Commission on March 31, 1998) 7. Seventh Supplemental Indenture dated as of August 13, 1998. (incorporated by reference to Exhibit No. 4(a)(7) to Quarterly Report on Form 10-Q (Registrant No. 1-12248) for the third quarter of fiscal 1997 filed with the Commission on November 16, 1998). 4(b) Form of 12% Senior Subordinated Note due 2003 (Incorporated by reference to Exhibit No. 4(b) to Quarterly Report on Form 10-Q (Registrant No. 1- 12248) for the third quarter of fiscal 1994 filed with the Commission on January 14, 1994) 4(c) Form of Common Stock Purchase Warrant expiring May 15, 1999 (as amended and restated through January 11, 1994) (Incorporated by reference to Exhibit No. 4(e) to Quarterly Report on Form 10-Q (Registrant No. 1- 12248) for the third quarter of fiscal 1994 filed with the Commission on January 14, 1994) 48 4(d) Rights Agreement, dated as of January 13, 1992, between ICF Kaiser International, Inc. and Office of the Secretary, ICF Kaiser International, Inc. as Rights Agent, including (1) Form of Certificate of Designations of Series 4 Junior Preferred Stock; (2) Form of Rights Certificate; and (3) Summary of Rights to Purchase Preferred Stock (Incorporated by reference to Exhibit No. 4(h) to Quarterly Report on Form 10-Q (Registrant No. 0-18025) for the third quarter of fiscal 1992 filed with the Commission on January 14, 1992) 4(e) Warrant Agreement dated as of January 11, 1994, between the Registrant and The Bank of New York, as Warrant Agent (Incorporated by reference to Exhibit No. 4(c) to Quarterly Report on Form 10-Q (Registrant No. 1- 12248) for the third quarter of fiscal 1994 filed with the Commission on January 14, 1994) 4(f) Indenture dated as of December 23, 1996, between ICF Kaiser International, Inc. and The Bank of New York, as Trustee, including Guarantees, dated December 23, 1996, by each of the Subsidiary Guarantors (Incorporated by reference to Exhibit No. 4(g) to Registration Statement on Form S-1 Registration No. 333-19519 filed with the Commission on January 10, 1997) 1. First Supplemental Indenture dated as of December 3, 1997 (Incorporated by reference to Exhibit No. 4(a)(6) to Annual Report on Form 10-K (Registrant No. 1-12248) for fiscal year 1997 filed with the Commission on March 31, 1998. 2. Second Supplemental Indenture dated as of August 13, 1998. (Incorporated by reference to Exhibit No. 4(g)(2) to Quarterly Report on Form 10-Q (Registrant No. 1-12248) for the third quarter of fiscal /1997/ filed with the Commission on November /16/, /1998/). 4(g) Form of 12% Senior Note due 2003, Series B (Incorporated by reference to Exhibit No. 4(i) to Registration Statement on Form S-1 Registration No. 333-19519 filed with the Commission on January 10, 1997) 4(h) Warrant Agreement dated as of December 23, 1996, between ICF Kaiser International, Inc. and The Bank of New York, as Warrant Agent (Incorporated by reference to Exhibit No. 4(j) to Registration Statement on Form S-1 Registration No. 333-19519 filed with the Commission on January 10, 1997) 4(i) Form of Warrant expiring December 31, 1999 issued under Warrant Agreement dated as of December 23, 1996 (Incorporated by reference to Exhibit No. 4(k) to Registration Statement on Form S-1 Registration No. 333-19519 filed with the Commission on January 10, 1997) Exhibit No. 10 -- Material Contracts 10(a) Loan and Security Agreement dated as of December 18, 1998, with Madeleine L.L.C, as agent 10(b) ICF Kaiser International, Inc. Employee Stock Ownership Plan (as amended and restated as of March 1, 1993) (and further amended with respect to name change only as of June 26, 1993) (Incorporated by reference to Exhibit No. 10(c) to Quarterly Report on Form 10-Q (Registrant No. 1- 12248) for the second quarter of fiscal 1994 filed with the Commission on October 15, 1993) 1. Amendment No. 1 dated April 24, 1995 (Incorporated by reference to Exhibit No. 10(l)(1) to Annual Report on Form 10-K (Registrant No. 1- 12248) for fiscal 1995 filed with the Commission on May 23, 1995) 2. Amendment No. 2 dated December 15, 1995 (Incorporated by reference to Exhibit No. 10(b)(2) to Transition Report on Form 10-K (Registrant No. 1-12248) for the transition period from March 1, 1995 to December 31, 1995 filed with the Commission on March 29, 1996) 3. Amendment No. 3 dated December 13, 1996 (Incorporated by reference to Exhibit No. 10(b)(3) to Registration Statement on Form S-1 Registration No. 333-19519 filed with the Commission on January 10, 1997) 49 10(c) 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 Registration No. 33-64655 filed with the Commission on November 30, 1995) 10(d) ICF Kaiser International, Inc. Retirement Plan (as amended and restated as of March 1, 1993) (and further amended with respect to name change only as of June 26, 1993) (Incorporated by reference to Exhibit No. 10(d) to Quarterly Report on Form 10-Q (Registrant No. 1-12248) for the second quarter of fiscal 1994 filed with the Commission on October 15, 1993) 1. Amendment No. 1 dated April 24, 1995 (Incorporated by reference to Exhibit No. 10(d)(1) to Annual Report on Form 10-K (Registrant No. 1- 12248) filed with the Commission on May 23, 1995.) 2. Amendment No. 2 dated December 15, 1995 (Incorporated by reference to Exhibit No. 10(d)(2) to Transition Report on Form 10-K (Registrant No. 1-12248) for the transition period from March 1, 1995 to December 31, 1995 filed with the Commission on March 29, 1996) 3. Amendment No. 3 dated December 13, 1996 (Incorporated by reference to Exhibit No. 10(d)(3) to Registration Statement on Form S-1 Registration No. 333-19519 filed with the Commission on January 10, 1997) 10(e) Trust Agreement with Vanguard Fiduciary Trust Company dated as of August 31, 1995, for ICF Kaiser International, Inc. Retirement Plan (Incorporated by reference to Exhibit No. 10(e) to Registration Statement on Form S-1 Registration No. 33-64655 filed with the Commission on November 30, 1995) 10(f) Consolidated, Amended and Restated Deed of Lease Agreement between HMCE Associates Limited Partnership R.L.L.P. (as Landlord) and ICF Kaiser Hunters Branch Leasing, Inc. (as Tenant), dated November 12, 1997, for the lease of the Registrant's headquarters in Fairfax, Virginia known as Hunters Branch--Phase I (Incorporated by reference to Exhibit No. 10(g) to Annual Report on Form 10-K (Registrant No. 1-12248) filed with the Commission on March 25, 1997). 10(g) Consolidated, Amended and Restated Deed of Lease Agreement between HMCE Associates Limited Partnership R.L.L.P. (as Landlord) and ICF Kaiser Hunters Branch Leasing, Inc. (as Tenant), dated November 12, 1997, for the lease of space in the building adjacent to the Registrant's headquarters in Fairfax, Virginia known as Hunters Branch--Phase II (Incorporated by reference to Exhibit No. 10(h) to Annual Report on Form 10-K (Registrant No. 1-12248) filed with the Commission on March 25, 1997). 10(h) Contribution Agreement by and among HMCE Associates Limited Partnership R.L.L.P.; ICF Kaiser Hunters Branch Leasing, Inc.; and IFA Nutley Partners, LLC dated November 3, 1997 (Incorporated by reference to Exhibit No. 10(i) to Annual Report on Form 10-K (Registrant No. 1-12248) filed with the Commission on March 25, 1997). 10(i) ICF Kaiser International, Inc. Stock Incentive Plan (as amended and restated through March 1, 1996) (Incorporated by reference to Exhibit No. 10(j) to Registration Statement on Form S-1 Registration No. 333- 16937 filed with the Commission on November 27, 1996) 10(j) Contract (#DE-AC3495RF00825) between Kaiser-Hill Company, LLC, a subsidiary of the Corporation, and the U.S. Department of Energy dated as of April 4, 1995. [IN ACCORDANCE WITH RULE 202 OF REGULATION S-T, THIS EXHIBIT NO. 10(k) WAS FILED IN PAPER ON MAY 23, 1995, ON FORM SE PURSUANT TO A CONTINUING HARDSHIP EXEMPTION is incorporated herein by reference thereto] 1. Modifications 1 to 40 to Contract #DE-AC3495RF00825 (Incorporated by reference to Exhibit No. 10(p)(l) to Registration Statement on Form S- 1 Registration No. 333-16937 filed with the Commission on November 27, 1996) 50 2. Modifications 42 to 46 to Contract #DE-AC3495RF00825 (Modification 41 not received) (Incorporated by reference to Exhibit No. 10(p)(2) to Annual Report on Form 10-K (Registrant No. 1-12248) filed with the Commission on March 25, 1997) 3. Modifications 47 to 81 to Contract #DE-AC3495RF00825 (Modifications 72 and 78 not received) 10(k) 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 Registration No. 333-19519 filed with the Commission on January 10, 1997) 10(l) Trust Agreement with Vanguard Fiduciary Trust Company dated as of March 1, 1989, for the ICF Kaiser International, Inc. Section 401(k) Plan (Incorporated by reference to Exhibit No. 28(b) to Registration Statement on Form S-8 Registration No. 33-51460 filed with the Commission on August 31, 1992) Exhibit No. 10--Material Contracts (management contracts, compensatory plans, or arrangements.) 10(aa) Agreement dated as of May 19, 1997 with James O. Edwards, Chairman and Chief Executive Officer of the Registrant (Incorporated by reference to Exhibit No. 10(ll) to Quarterly Report on Form 10-Q (Registrant No. 1- 12248) for the second quarter of fiscal 1997 filed with the Commission on August 14, 1997) 1. Agreement dated as of November 6, 1998, terminating Mr. Edwards' employment agreement . 10(bb) ICF Kaiser International, Inc. 1998 Compensation (IC) Plan for Senior Executives (adopted by the Board of Directors on February 27, 1998) (Incorporated by reference to Exhibit No. 10(bb) to Annual Report on Form 10-K (Registrant No. 1-12248) filed with the Commission on March 25, 1997). 10(cc) ICF Kaiser International, Inc. Non-employee Director Stock Option Plan (as amended and restated as of June 26, 1993) (Incorporated by reference to Exhibit No. 10(bb) to Quarterly Report on Form 10-Q (Registrant No. 1-12248) for the second quarter of fiscal 1994 filed with the Commission on October 15, 1993) 10(dd) Agreement dated as of May 19, 1997 with Marc Tipermas, President and Chief Operating Officer of the Registrant (Incorporated by reference to Exhibit No. 10(mm) to Quarterly Report on Form 10-Q (Registrant No. 1- 12248) for the second quarter of fiscal 1997 filed with the Commission on August 14, 1997) 1. Agreement dated as of August 7, 1998, terminating Dr. Tipermas' employment agreement. 10(ee) ICF Kaiser International, Inc. Senior Executive Officers Severance Plan as approved by the Compensation Committee of the Board of Directors on April 4, 1994, and adopted by the Board of Directors on May 5, 1994, as further amended through May 1, 1997 (Incorporated by reference to Exhibit No. 10(ee) to Annual Report on Form 10-K (Registrant No. 1- 12248) filed with the Commission on March 25, 1997). 51 10(ff) Employment Agreement with Thomas P. Grumbly, Executive Vice President of the Registrant, effective as of April 7, 1997. 1. Letter dated March 15, 1999, amending Mr. Grumbly's employment agreement. 10(gg) ICF Kaiser International, Inc. Consultants, Agents and Part-Time Employees Stock Plan dated as of June 23, 1995 (Incorporated by reference to Exhibit No. 99 to Registration Statement on Form S-8 Registration No. 33-60665 filed with the Commission on June 28, 1995) 10(hh) ICF Kaiser International, Inc. Stock Incentive Plan (as amended and restated through March 1, 1996) (Incorporated by reference to Exhibit No. 10 (j) to Registration Statement on Form S-1 Registration No. 333- 16937 filed with the Commission on November 27, 1996) 10(ii) Amended Employment Agreement dated as of December 1, 1996, with David Watson, Executive Vice President and President, ICF Kaiser Engineers and Constructors Group of the Registrant (Incorporated by reference to Exhibit No. 10(kk) to Annual Report on Form 10-K (Registrant No. 1- 12248) filed with the Commission on March 25, 1997). 1. Agreement and Mutual Release dated August 17, 1998, terminating Mr. Watson's employment agreement. 10(jj) Intentionally Omitted. 10(kk) Employment Agreement with Michael F. Gaffney, Executive Vice President of the Registrant, effective as of January 1, 1997 (Incorporated by reference to Exhibit No. 10(kk) to Annual Report on Form 10-K (Registrant No. 1-12248) for fiscal year 1997 filed with the Commission on March 31, 1998). 1. Agreement dated March 8, 1999, terminating Mr. Gaffney's employment agreement. 10(ll) Letter Agreement with Cowen Incorporated and Jarrod M. Cohen, dated as of March 13, 1998 (Incorporated by reference to Exhibit No. 10(ll) to Annual Report on Form 10-K (Registrant No. 1-12248) for fiscal year 1997 filed with the Commission on March 31, 1998) (Incorporated by reference to Exhibit No. 10(mm) to Annual Report on Form 10-K (Registrant No. 1-12248) filed with the Commission on March 25, 1997). 10(mm) ICF Kaiser International, Inc. Non-employee Directors Compensation and Phantom Stock Plan as adopted by the Board of Directors on February 28, 1997, with an effective date of March 1, 1997 10(nn) Letter Agreement with Tennenbaum & Co., L.L.C. and Michael E. Tennenbaum, dated as of March 13, 1998 (Incorporated by reference to Exhibit No. 10(nn) to Annual Report on Form 10-K (Registrant No. 1- 12248) for fiscal year 1997 filed with the Commission on March 31, 1998) 10(oo) Employment Agreement with Keith M. Price, President and Chief Executive Officer of the Registrant, effective as of August 27, 1998 (Incorporated by reference to Exhibit No. 10(oo) to Quarterly Report on Form 10-Q (Registrant No. 1-12248) for the Third quarter of 1998 filed with the Commission on November 16, 1998). 1. Terms of Promotion for Mr. Price effective as of November 4, 1998. Exhibit No. 21--Consolidated Subsidiaries of the Registrant as of April 12, 1999 Exhibit No. 23--Consent of PricewaterhouseCoopers, LLP Exhibit No. 27--Financial Data Schedule. This schedule contains summary financial information extracted from the consolidated financial statements of ICF Kaiser International, Inc. as of December 31, 1998 and 1997 and for the three years ended December 31, 1998 and is qualified in its entirety by reference to such financial statements. (c) Reports on Form 8-K On November 6, 1998, the Company filed a Current Report on Form 8-K. Pursuant to Item 5 of its Report, the Company disclosed that James O. Edwards had resigned as its Chief Executive Officer, effective November 4, 1998. 52 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ICF Kaiser International, Inc. (Registrant) /s/ Keith M. Price By: _________________________________ Keith M. Price, President and Chief Executive Officer Date: April 15, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. (1) Principal executive officer /s/ Keith M. Price President and Chief April 15, 1999 ______________________________________ Executive Officer Keith M. Price
(2) Principal financial and accounting officer /s/ Timothy P. O'Connor Senior Vice President and April 15, 1999 _____________________________________ Chief Financial Officer Timothy P. O'Connor
(3) Board of Directors /s/ Tony Coelho Director April 15, 1999 ______________________________________ Tony Coelho /s/ Jarrod M. Cohen Director April 15, 1999 ______________________________________ Jarrod M. Cohen /s/ James O. Edwards Director April 15, 1999 ______________________________________ James O. Edwards /s/ Thomas C. Jorling Director April 15, 1999 ______________________________________ Thomas C. Jorling /s/ Hazel R. O'Leary Director April 15, 1999 ______________________________________ Hazel R. O'Leary /s/ Keith M. Price Director April 15, 1999 ______________________________________ Keith M. Price /s/ James T. Rhodes Director April 15, 1999 ______________________________________ James T. Rhodes Director April 15, 1999 ______________________________________ Michael E. Tennebaum
53 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of ICF Kaiser International, Inc. In our opinion, the consolidated financial statements listed in Item 14(a) of this Form 10-K present fairly, in all material respects, the financial position of ICF Kaiser International, Inc. and Subsidiaries at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. 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 generally accepted auditing standards 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 the opinion expressed above. In addition, in our opinion, the financial statement schedule referred to in Item 14(a), when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. Due to substantial operating losses incurred in 1998 and the resulting liquidity constraints, the Company engaged in an evaluation of strategic alternatives available to it, including the sale of one or more of the Company's operating groups. Management's progress to date and future plans regarding these matters are discussed more fully in Note 2 to the consolidated financial statements. PricewaterhouseCoopers LLP April 15, 1999 McLean, Virginia F-1 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, ------------------ 1998 1997 -------- -------- (In thousands, except share amounts) ASSETS Current Assets Cash and cash equivalents.................................. $ 15,267 $ 20,020 Contract receivables, net.................................. 284,078 264,030 Prepaid expenses and other current assets.................. 12,841 15,090 Deferred income taxes...................................... 34,673 15,281 -------- -------- Total Current Assets.................................... 346,859 314,421 -------- -------- Fixed Assets Furniture, equipment, and leaseholds....................... 43,996 45,681 Less depreciation and amortization......................... (37,411) (37,968) -------- -------- 6,585 7,713 -------- -------- Other Assets Goodwill, net.............................................. 49,292 47,323 Investments in and advances to affiliates.................. 7,728 7,038 Capitalized software development costs..................... 5,062 4,085 Other...................................................... 13,527 18,708 -------- -------- 75,609 77,154 -------- -------- Total Assets............................................ $429,053 $399,288 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current Liabilities Debt currently payable..................................... $ 30,729 $ 15 Accounts payable........................................... 189,906 121,190 Accrued salaries and benefits.............................. 37,931 37,654 Other accrued expenses..................................... 43,846 26,902 Deferred revenue........................................... 40,011 36,527 Income taxes payable....................................... 2,147 1,012 -------- -------- Total Current Liabilities............................... 344,570 223,300 Long-term Liabilities Long-term debt............................................. 137,488 141,004 Other...................................................... 9,664 4,586 -------- -------- Total Liabilities....................................... 491,722 368,890 -------- -------- Commitments and Contingencies Minority Interest.......................................... 449 3,071 Shareholders' Equity (Deficit)............................. -- -- Preferred stock............................................ -- -- Common stock, par value $.01 per share: Authorized--90,000,000 shares Issued and outstanding-- 24,257,828 and 22,475,904 shares.................................................. 242 225 Additional paid-in capital................................. 75,422 67,116 Notes receivable collateralized by common stock............ (638) (2,422) Accumulated deficit........................................ (134,757) (34,225) Accumulated other comprehensive income (loss).............. (3,387) (3,367) -------- -------- Total Shareholders' Equity (Deficit).................... (63,118) 27,327 -------- -------- Total Liabilities and Shareholders' Equity (Deficit).... $429,053 $399,288 ======== ========
See notes to consolidated financial statements. F-2 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, ------------------------------------------- 1998 1997 1996 ------------- ------------- ------------- (In thousands, except per share amounts) Gross Revenue..................... $ 1,210,421 $ 1,108,116 $ 1,248,443 Subcontract and direct material costs.......................... (794,794) (677,431) (720,342) Provision for contract losses... (76,210) (6,900) -- Equity in income of joint ventures and affiliated companies...................... 6,045 2,301 4,015 ------------- ------------- ------------- Service Revenue................... 345,462 426,086 532,116 Operating Expenses Direct labor and fringe benefits....................... 282,562 289,571 380,400 Group overhead.................. 92,151 86,792 95,747 Corporate general and administrative................. 22,983 22,059 24,441 Depreciation and amortization... 9,048 9,595 10,348 Severance and restructuring charges........................ 9,407 -- -- Other unusual charges........... 7,672 -- -- ------------- ------------- ------------- Operating Income (Loss)........... (78,361) 18,069 21,180 Other Income (Expense) Gain on sale of investment...... -- 1,018 9,384 Interest income................. 1,539 1,750 1,254 Interest expense................ (20,279) (18,276) (17,334) ------------- ------------- ------------- Income (Loss) Before Income Tax, Minority Interest, Extraordinary Item, and Cumulative Effect of Accounting Change................ (97,101) 2,561 14,484 Income tax expense (benefit).... (11,357) (3,319) 2,607 ------------- ------------- ------------- Income (Loss) Before Minority Interest, Extraordinary Item, and Cumulative Effect of Accounting Change........................... (85,744) 5,880 11,877 Minority interest in net income of subsidiaries................ 7,698 10,867 6,043 ------------- ------------- ------------- Income (Loss) Before Extraordinary Item and Cumulative Effect of Accounting Change................ (93,442) (4,987) 5,834 Extraordinary item.............. 1,090 -- -- ------------- ------------- ------------- Income (Loss) Before Cumulative Effect of Accounting Change...... (94,532) (4,987) 5,834 Cumulative Effect of Accounting Change, net of tax............. 6,000 -- -- ------------- ------------- ------------- Net Income (Loss)................. (100,532) (4,987) 5,834 Preferred stock dividends and accretion...................... -- -- 2,178 ------------- ------------- ------------- Net Income (Loss) Available for Common Shareholders.............. $ (100,532) $ (4,987) $ 3,656 ============= ============= ============= Basic and Fully Diluted Earnings (Loss) Per Share: Income (Loss) Before Extraordinary Item and of Cumulative Effect of Accounting Change......................... $ (3.87) $ (0.22) $ 0.17 Extraordinary item............ (0.05) -- -- ------------- ------------- ------------- Income (Loss) Before Cumulative Effect of Accounting Change.... (3.92) (0.22) 0.17 Cumulative effect of accounting change, net of tax.......................... (0.25) -- -- ------------- ------------- ------------- Net Income (Loss) Per Share..... $ (4.17) $ (0.22) $ 0.17 ============= ============= ============= Weighted average shares for basic earnings (loss) per share........ 24,092 22,382 22,035 Effect of dilutive stock options........................ -- -- 22 ------------- ------------- ------------- Weighted average shares for diluted earnings (loss) per share............................ 24,092 22,382 22,057 ============= ============= =============
See notes to consolidated financial statements. F-3 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
Common Stock --------------------- Accumulated Additional Accumulated Other Shareholders' Paid-in Notes Earnings Comprehensive Equity Shares Par Value Capital Receivable (Deficit) Income (Deficit) ---------- --------- ---------- ---------- ----------- ------------- ------------- (In thousands, except share amounts) Balance, January 1, 1996................... 21,263,828 $213 $64,654 $(1,732) $ (32,894) $(1,814) $ 28,427 Net income............. -- -- -- -- 5,834 -- 5,834 Preferred stock dividends............. -- -- -- -- (1,965) -- (1,965) Preferred stock accretion............. -- -- -- -- (213) -- (213) Issuances of common stock................. 1,153,014 11 2,650 -- -- -- 2,661 Reacquisition of common stock................. (105,000) (1) (426) -- -- -- (427) Foreign currency translation adjustment............ -- -- -- -- -- 470 470 Other.................. -- -- 105 -- -- -- 105 ---------- ---- ------- ------- --------- ------- -------- Balance, December 31, 1996................... 22,311,842 223 66,983 (1,732) (29,238) (1,344) 34,892 Net loss............... -- -- -- (4,987) -- (4,987) Issuances of common stock................. 319,300 3 644 -- -- -- 647 Reacquisition of common stock................. (155,238) (1) (511) -- -- -- (512) Foreign currency translation adjustment............ (2,023) (2,023) Other.................. -- -- -- (690) -- -- (690) ---------- ---- ------- ------- --------- ------- -------- Balance, December 31, 1997................... 22,475,904 225 67,116 (2,422) (34,225) (3,367) 27,327 ---------- ---- ------- ------- --------- ------- -------- Net loss............... -- -- -- (100,532) -- (100,532) Issuances of common stock................. 1,941,446 19 8,856 -- -- 8,875 Reacquisition of common stock................. (159,522) (2) (550) -- -- -- (552) Foreign currency translation adjustment............ (20) (20) Other.................. -- -- -- 1,784 -- -- 1,784 ---------- ---- ------- ------- --------- ------- -------- Balance, December 31, 1998................... 24,257,828 $242 $75,422 $ (638) $(134,757) $(3,387) $(63,118) ========== ==== ======= ======= ========= ======= ========
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Year Ended December 31, -------------------------- 1998 1997 1996 --------- ------- ------ Net Income (Loss) .................................. $(100,532) $(4,987) $5,834 Other Comprehensive Income (Loss) Foreign currency translation adjustments.......... (20) (2,023) 470 --------- ------- ------ Total Comprehensive Income (Loss)............... $(100,552) $(7,010) $6,304 ========= ======= ======
See notes to consolidated financial statements. F-4 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, ---------------------------- 1998 1997 1996 --------- -------- ------- (In thousands) Operating Activities Net income (loss)............................... $(100,532) $ (4,987) $ 5,834 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization................... 9,048 9,595 10,348 Provision for losses............................ 29,679 1,195 1,881 Provision for deferred income taxes............. (13,210) (4,586) 2,127 Charge for cumulative effect of accounting change......................................... 6,000 -- -- Note receivable write-off....................... 1,784 -- -- Extraordinary item.............................. 1,090 -- -- Earnings in excess of cash distributions from joint ventures and affiliated companies........ (1,044) (91) (374) Minority interest in net income of subsidiaries................................... 7,698 10,867 6,043 Gain on sale of investment...................... -- (1,018) (9,384) Changes in operating assets and liabilities, net of acquisitions and dispositions: Contract receivables, net...................... (23,679) (42,494) 2,638 Prepaid expenses and other current assets...... 506 (2,268) 1,843 Accounts payable and accrued expenses.......... 45,403 41,573 (24,781) Deferred revenue............................... 3,484 14,698 7,727 Income tax payable............................. 1,129 160 -- Other liabilities.............................. 5,954 3,296 (2,202) Other operating activities...................... (2,748) 251 (334) --------- -------- ------- Net Cash Provided by (Used in) Operating Activities................................... (29,438) 26,191 1,366 --------- -------- ------- Investing Activities Investments in subsidiaries and affiliates, net of cash acquired............................... 3,456 (4,074) (1,317) Sales of subsidiaries and/or investments........ 2,400 17,028 -- Purchases of fixed assets....................... (4,494) (4,888) (4,910) --------- -------- ------- Net Cash Provided by (Used in) Investing Activities................................... 1,362 8,066 (6,227) --------- -------- ------- Financing Activities Borrowings under revolving credit facility...... 139,629 104,500 114,000 Principal payments on revolving credit facility....................................... (112,875) (121,000) (98,500) Proceeds from issuance of senior notes.......... -- -- 14,700 Repurchase of preferred stock................... -- -- (20,000) Distribution of income to minority interest..... (10,320) (13,950) (2,428) Change in book overdraft........................ 8,395 (2,667) 2,827 Proceeds from issuances of common stock......... 155 213 383 Repurchases of common stock..................... -- (251) -- Preferred stock dividends....................... -- -- (2,615) Debt issuance costs............................. (1,380) (624) (1,427) Other financing activities...................... -- -- 924 --------- -------- ------- Net Cash Provided by (Used in) Financing Activities................................... 23,604 (33,779) 7,864 --------- -------- ------- Effect of Exchange Rate Changes on Cash.......... (281) (708) 228 --------- -------- ------- Increase (Decrease) in Cash and Cash Equivalents..................................... (4,753) (230) 3,231 Cash and Cash Equivalents at Beginning of Period.......................................... 20,020 20,250 17,019 --------- -------- ------- Cash and Cash Equivalents at End of Period....... $ 15,267 $ 20,020 $20,250 ========= ======== ======= Supplemental cash flow information is as follows: Cash payments for interest...................... $ 20,051 $ 18,649 $24,701 Cash payments for income taxes.................. 936 402 765 Non-cash transactions: Issuance of common stock........................ 8,720 434 2,175 Reacquisition of common stock................... (552) (261) (427)
See notes to consolidated financial statements. F-5 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Significant Accounting Policies Nature of Operations: ICF Kaiser International, Inc. and subsidiaries (the Company) provides engineering, construction, program management, and consulting services primarily to the public and private environmental, infrastructure, industry, and energy markets domestically and internationally. Principles of Consolidation: The consolidated financial statements include all majority-owned or controlled subsidiaries. Investments in unconsolidated joint ventures and affiliated companies are accounted for using the equity method. The difference between the cost of joint venture investments and the Company's underlying equity is amortized on a straight-line basis over the estimated lives of the related investments. All significant intercompany balances and transactions have been eliminated. Revenue Recognition: The Company's revenue is derived primarily from long- term contracts of various types. Revenue on time-and-materials contracts is recognized based on actual hours delivered times the contracted hourly billing rate, plus the costs incurred for any materials. Revenue on fixed-priced contracts is 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 is 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 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. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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. Actual results could differ from those estimates. 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 (deficit) as cumulative translation adjustments. 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. A short-term restricted cash equivalent of $600,000, supporting an outstanding letter of credit at December 31, 1998, as well as restricted cash balances of the wholly owned insurance subsidiary, totaling $2,441,000 and $1,165,000 at December 31, 1998 and 1997, respectively, were included in prepaid expenses and other current assets on the balance sheet. Fixed Assets: Furniture and equipment are carried at cost or fair value at acquisition if acquired through the purchase of a business, and are depreciated using the straight-line method over their estimated useful lives, ranging from three to ten years. Leasehold improvements are carried at cost and are amortized using the straight-line method over the remaining lease terms. Capitalized Software Development Costs: Certain costs, including consulting expenses and internal labor, incurred to develop major software applications for internal Company use, as well as for external software F-6 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) product sales are capitalized and amortized over the estimated useful or economic lives of the software, respectively. Amortization expense of $1,260,000 and $1,049,000 was recognized during 1998 and 1997, respectively.
1998 1997 ------ ------ Internal use software........................................ $7,136 $5,444 External use software........................................ 816 321 ------ ------ Total capitalized software................................. 7,952 5,765 Accumulated amortization..................................... (2,890) (1,680) ------ ------ $5,062 $4,085 ====== ======
Goodwill: Goodwill represents the excess of cost of acquired businesses over the fair value of the identifiable net tangible and intangible assets acquired. Goodwill is amortized using the straight-line method over the period for which the Company estimates it will benefit directly from the acquisitions. The range of estimated benefit from the Company's historical acquisitions ranges from five to forty years. The Company periodically evaluates 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. Management does not believe there has been any impairment in the value of goodwill at December 31, 1998. Accumulated amortization was $20,145,000 and $17,463,000, at December 31, 1998 and 1997, respectively. Income Taxes: Deferred tax assets and liabilities represent the tax effects of differences between the financial statement carrying amounts and the tax basis 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 reserve allowances for amounts that may not be realizable. Unless otherwise noted, provisions are not made for U.S. income taxes for the undistributed earnings of the Company's foreign subsidiaries because the Company intends to reinvest such earnings in continuing operations indefinitely. Undistributed earnings of foreign subsidiaries for which income taxes have not been provided approximated $3.8 million at December 31, 1998. 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. The Company grants uncollateralized credit to its customers. Approximately 63% of the Company's contract receivables at December 31, 1998, were from agencies of the U.S. government (see Note 4). Recent Accounting Pronouncements: In 1998, and for all comparable periods, the Company adopted the Financial Accounting Standards Board Statement of Financial Accounting Standards (SFAS) No. 130 --Reporting Comprehensive Income. Comprehensive income is defined as the change in equity during a period from transactions and other events and circumstances with non-owner sources. Also in 1998, the Company adopted SFAS No. 131--Disclosures About Segments of an Enterprise and Related Information. SFAS No. 131 superseded SFAS 14, Financial Reporting for Segments of a Business Enterprise, replacing the "industry segment" approach with the "management" approach. Pursuant to the management approach, the determination of reportable segments is based on the internal organizational formats and management reporting formats used by the Company in making operating, investing, resource allocation and performance assessment. SFAS 131 also requires disclosures about products and services, geographic areas, and major customers. F-7 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) In February 1998, the Financial Accounting Standards Board issued SFAS Statement No. 132--Employers' Disclosures about Pensions and Other Post- retirement Benefits. The Statement merely revises employers' disclosures about pension and other post-retirement benefit plans. The Company adopted the new SFAS No. 132 disclosure requirements in its financial statements for the year ended December 31, 1998 and for all comparable periods. In April 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position 98-5-- Reporting on the Costs of Start-Up Activities (SOP 98-5). The SOP requires costs of organization and start-up activities to be expensed as incurred. The Company elected early adoption of SOP 98-5 effective April 1, 1998 and, at that time, reported the cumulative effect of the change as a one-time, non- cash charge of $6,000,000, net of a tax benefit of $2,930,000. Reclassifications: Certain reclassifications have been made to the prior- period financial statements contained herein in order to conform to the 1998 presentation. 2. Liquidity and Capital Resource Outlook Management believes that the cash proceeds from the completed EFM sale and the pending Consulting Group sale will yield sufficient short-term liquidity to bridge the Company's financing needs until such time as the Company can secure other longer-term alternatives. Specifically, the cash proceeds from divestitures will be used to retire outstanding cash borrowings from the revolving credit facility, provide required collateral for contract performance guarantees, pay overdue vendor obligations and contribute to supporting the future realigned working capital requirements and capital expenditures of the Company's remaining operations including required interest obligations of the Series B Senior and the Senior Subordinated notes. Subsequent to the sale of the EFM and Consulting Groups, however, as well as between the closing dates of the sales, the Company's remaining E&C operations will require access to a revolving credit line containing provisions for access to letters of credit typically required to support certain contract performance obligations. The Company has obtained an amended, $30 million, revolver (the Amended Revolver) from its current lenders through June 30, 1999. The terms of the Amended Revolver include similar restrictive financial covenants as the Revolver and in addition required the Company to collateralize $10.0 million of its total contract performance guarantees which are currently addressed by noncollateralized letters of credit. In the event that access to a replacement revolving line cannot be secured by June 30, 1999, the Company will have to use available cash, generated largely from asset sales; to collateralize its contract performance guarantees. In the event the Consulting Group sale is not consummated, the Company believes the cash flows from ongoing operations of the Consulting Group, Kaiser-Hill, and the E&C Group would most likely generate sufficient collateral, in the form of current trade accounts receivable, to adequately support a borrowing base to secure the size of revolving credit line needed to fund short-term borrowing needs of the Company's remaining operations, as well as the letter-of-credit capacity needed primarily by the E&C Group. A factor critical, however, to the Company's success in securing a sufficient and affordable working capital facility in the near term, in all of the above scenarios, is its ability to remove sufficient overhead costs from remaining operations and demonstrate improved operating results. Although management believes it will be able to accomplish these milestones, there can be no assurance that it will be able to do so. Regardless of the outcome of the pending Consulting Group sale, over the long term the Company will need to realign its capital structure. Assuming the sale of the Consulting Group is completed, the net proceeds may be used to reinvest in the Company's business, pay down debt on the Amended Revolver or offer to purchase the Company's outstanding Notes. The Company is considering alternatives for the use of the net proceeds of the Consulting Group sale and the realignment of its capital structure. These alternatives will include means by which the Company's outstanding debt may be reduced to levels that can be supported by cash flows of the remaining operations. The Company also will continue to explore options that would provide additional capital for longer-term objectives and operating needs, including the possibility for divestiture of additional operating assets, replacements for the Company's long-term debt, and additional equity infusions. F-8 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 3. Acquisitions and Dispositions Acquisition of ICT Spectrum: On February 17, 1998, the Company's Board of Directors approved the acquisition of ICT Spectrum Constructors, Inc., a construction contractor, based in Boise, Idaho, specializing in construction management of fabrication plants and other facilities for semiconductor and microelectronics customers. Each share of ICT Spectrum stock was exchanged for shares of ICF Kaiser stock, resulting in the issuance of 1.5 million shares of ICF Kaiser common stock and a total purchase price of $8,040,000. The acquisition of $18.5 million in total assets and $13.7 million in total liabilities accounted for as a purchase, resulted in approximately $4.8 million in goodwill, which is being amortized over 12 years. The purchase was completed on March 19, 1998 and the Company's Consolidated Statement of Operations includes the operating results of the acquired entity from January 1, 1998. The exchanged ICF Kaiser shares carry the guarantee that the fair market value of each share of stock will reach $5.36 by March 1, 2001. In the event that the fair market value does not attain the guaranteed level, the Company is obligated to make up the shortfall either through the payment of cash or by issuing additional shares of common stock, depending upon the Company's preference. Pursuant to the terms of the Agreement, however, the total number of contingently issuable shares of common stock cannot exceed an additional 1.5 million. Given the quoted fair market value of the Company's common stock at December 31, 1998 was $1.44 per share, and that the Company's current debt instruments restrict the amount of cash that can be used for acquisitions, the assumed issuance of an additional 1.5 million shares would not completely extinguish the purchase price contingency. Any future distribution of cash or common stock would be recorded as a charge to the Company's paid-in-capital. Until the earlier of the contingent purchase price resolution or March 1, 2001, any additional shares assumed to be issued because of shortfalls in fair market value will be included in the Company's diluted earnings per share calculations, unless they are antidilutive. The exchanged shares also contain restrictions preventing their sale prior to March 1, 2001. Sale of the Environment and Facilities Management Group (EFM): On March 9, 1999, the Company entered into a definitive asset purchase agreement (the EFM Agreement) with The IT Group, Inc. (IT) for the sale of the Company's Environment and Facilities Management Group (EFM), exclusive of the Kaiser- Hill subsidiary. Pursuant to the terms of the EFM Agreement, 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 for a cash purchase price of $82 million, less $8 million retained by IT for EFM's working capital requirements. Intent to sell the Consulting Group: In March 8, 1999, the Company signed a non-binding letter of intent for the sale of its Consulting Group to CM Equity Partners, L.P. and the Group's management. While final terms of the sale are being negotiated, the transaction is expected to be completed by mid-year 1999. Sale of Gary PCI: In December 1996, the Company sold the majority of its investment in Gary PCI Ltd. L.P. (owners of pulverized coal injection operations) and a related entity and certain related contractual rights for $16.6 million resulting in a $9.4 million pretax gain. The buyer exercised an option on January 5, 1998, to purchase the remaining equity investment for $2.4 million. The Company recognized a total pretax gain of $1.0 million during 1997 as the carrying value of the option was increased to reflect fair market value. The sales price for both installments was included in other current assets in the accompanying balance sheets and was collected in January of each of the subsequent years. F-9 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 4. Contract Receivables Contract receivables consisted of the following at December 31 (in thousands):
1998 1997 -------- -------- U.S. government agencies: Currently due......................................... $ 20,193 $ 19,650 Retention............................................. 3,030 2,695 Unbilled.............................................. 156,025 114,921 -------- -------- 179,248 137,266 -------- -------- Commercial clients and state and municipal governments: Currently due......................................... 74,184 97,909 Retention............................................. 21,267 18,952 Unbilled.............................................. 20,229 17,045 -------- -------- 115,680 133,906 -------- -------- 294,928 271,172 Less allowances for uncollectible receivables........... (10,850) (7,142) -------- -------- $284,078 $264,030 ======== ========
Unbilled receivables result from revenue that has been earned but not billed. The unbilled receivables can be invoiced at contractually defined intervals or milestones, as well as upon completion of the contract or the U.S. government cost audit. Retention balances are billable at contract completion or upon attainment of other specified contract milestones. Other unbilled amounts consist primarily of indirect costs that will be billed on cost-reimbursable government contracts upon completion of applicable cost audits by the government. Consistent with industry practice, these receivables are classified as current assets. The balance of unbilled receivables with U.S. government agencies includes $5.3 million in claims to which the Company believes it is entitled, and recovery of which may take more than one year. The Company anticipates that the remaining unbilled receivables will be substantially billed and collected within one year. In 1996, the Company accelerated its process for obtaining approval from the U.S. government to invoice certain indirect costs on cost-reimbursable contracts, prior to the completion of government audits of such costs. The net effect of the accelerated ability to invoice these costs resulted in the recognition of approximately $3.3 million of Consulting Group gross revenue and operating income in 1996. 5. Joint Ventures and Affiliated Companies The Company has ownership interests in certain unconsolidated corporate joint ventures and affiliated companies. The Company's net investments in and advances to these corporate joint ventures and affiliated companies totaled $7.7 million and $7.0 million at December 31, 1998 and 1997, respectively. Combined F-10 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) summarized financial information of all of the Company's unconsolidated corporate joint ventures and affiliated companies as of December 31, was as follows (in thousands):
1998 1997 1996 ------- ------- ------- Current assets...................................... $20,390 $23,661 $26,558 Non-current assets.................................. 12,462 10,182 7,887 Current liabilities................................. 21,602 20,479 13,314 Non-current liabilities............................. 2,641 -- 53 Gross revenue....................................... 24,546 41,285 28,742 Net income.......................................... 5,318 7,522 11,930
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 40% ownership interest in a limited liability company (the LLC) that leases the land and owns the buildings leased primarily by the Company for its corporate headquarters. The Company is committed to make additional annual capital contributions to the LLC totaling $600,000 annually during each of the first three years and $700,000 annually during each of the fourth through ninth years of the LLC. The ownership in the LLC will increase 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 will be amortized over the estimated 15-year life of the LLC. 6. Debt The Company's long-term debt was as follows at December 31 (in thousands):
1998 1997 -------- -------- 12% Senior Subordinated Notes due 2003.................... $125,000 $125,000 12% Senior Notes due 2003, Series B....................... 15,000 15,000 Revolving credit facility................................. 30,729 4,000 Other notes............................................... -- 15 -------- -------- 170,729 144,015 Less unamortized discount................................. 2,512 2,996 -------- -------- 168,217 141,019 Less current maturities................................... 30,729 15 -------- -------- $137,488 $141,004 ======== ========
All long-term debt, net of current maturities, outstanding at December 31, 1998, is due in 2003. Background to 1998 financing developments: In 1998, the Company realized that it was going to incur significant cost overruns on four large fixed-price contracts to construct plants to produce nitric acid (the Nitric Acid Projects). Due to the significant risks, difficulties and uncertainties involved in estimating the total costs to complete these large fixed price projects, the Company increased the total completed project cost estimates several times in 1998. Given the completion cost uncertainties and the inability to finitely determine the impact F-11 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) of the losses on the Company's liquidity and financing sources, management immediately pursued options for additional financing sources and flexibilities. In addition to seeking a replacement revolving credit facility, the Company's Board of Directors also began considering and pursuing other potential alternatives, including, but not limited to, the sale of a portion of the Company. Revolving Credit Facility: As a result of the sourcing activities, the Company successfully entered into a new revolving credit facility (the Revolver) on December 18, 1998 which offered additional flexibility and access to additional cash borrowings as compared to the predecessor revolving facility. The new Revolver provides for cash borrowings and letters of credit up to an aggregate of $60 million. The total available credit is based on a percentage of eligible billed and unbilled accounts receivable, up to the $60 million maximum. The Company and certain of its subsidiaries, which are guarantors of the Revolver, have pledged their stock and granted a security interest in certain accounts receivable and other assets. The Revolver limits the payments of cash dividends on common stock, prohibits the issuance of certain types of additional indebtedness, limits certain investments and acquisitions, limits the amount of outstanding letters of credit to $35 million, prohibits the sale of certain assets, and requires the maintenance of specified financial ratios. The Revolver contains provisions for prime interest rate borrowings with margins dependent upon the Company's financial operating results, and expires on December 18, 2000. As of December 31, 1998, the Company had $30.7 million in cash borrowings and $26.7 million of letters of credit outstanding under the Revolver. The letters of credit outstanding under the Revolver are in support of contract performance guarantees, primarily on international projects. The weighted average interest rate incurred on revolver borrowings for 1998 and 1997 was 8.9% and 8.5%, respectively. As of December 31, 1998, the Company had $2.6 million of additional credit available from the Revolver. Soon after obtaining the Revolver, the Company again increased the estimate of the total Nitric Acid Projects cost overruns by an additional $19 million. This material adverse change to the Company's financial condition triggered a technical event of default pursuant to the Revolver's terms. Subsequent to the event of default, the lender did permit the Company to borrow and obtain letters of credit pursuant to all other terms of the Revolver, primarily conditioned on the Revolver provision that proceeds from asset sales be used to repay outstanding cash borrowings. That provision combined with the fact that the Company was actively pursuing the sale of significant operating assets was sufficient assurance for the lenders to continue to permit the use of the facility until such time as an asset sale was completed. On April 9, 1999, the Company completed the sale of its EFM Group (Note 3) and used $36 million of the sale proceeds to extinguish outstanding Revolver cash borrowings. The Company has also received a commitment from the Revolver's financial institutions for an amendment to the Revolver (the Amended Revolver) providing for cash borrowing and letters of credit up to an aggregate of $30 million. The Amended Revolver will expire on June 30, 1999 and will also require the Company to provide $10.0 million in cash collateral for existing letters of credit. Extraordinary Item: Proceeds totaling $25,000,000 from the Revolver were used to repay all outstanding amounts from the former revolving credit facility. Accordingly, the Company wrote off the unamortized balance of the capitalized costs related to the original issue the debt and recognized an extraordinary charge of $1,090,000. The Company did not recognize any income tax benefit associated with this charge. Senior and Subordinated Notes: On December 23, 1996, the Company privately issued 15,000 Units, each Unit consisting of $1,000 principal amount of 12% Senior Notes due in 2003, Series A (Series A 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 contain certain anti-dilution provisions and expire on December 31, 1999. Payment of the F-12 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) principal, premium if any and interest on the Series A Senior Notes are unconditionally guaranteed by 10 of the Company's wholly owned subsidiaries (Note 16). The discounted issue price of $14.7 million was allocated to the warrants and the notes in the amounts of $0.1 million and $14.6 million, respectively. In January 1997, the Company registered $15.0 million of 12% Senior Notes due in 2003, Series B (Series B Senior Notes) with the U.S. Securities and Exchange Commission. In March 1997 the Company completed the exchange of the Series B Senior Notes for Series A Senior Notes. The terms of the Series B Senior Notes are substantially identical (including principal amount, interest rate, and maturity) to the terms of the Series A Senior Notes. Interest has and will continue to accrue at 13% until the Company achieves and maintains a specified level of earnings. On January 11, 1994, the Company issued 125,000 Units, each consisting of $1,000 principal amount of the Company's 12% Senior Subordinated Notes due 2003 (Subordinated Notes) and 4.8 warrants, each to purchase one share of the Company's common stock at an exercise price of $5.00 per share. The warrants expired on December 31, 1998. In March 1996, the interest rate on the Subordinated Notes was increased by 1% until the Company achieves and maintains a specified level of earnings. The Company's obligations under the Subordinated Notes are subordinate to its obligations under the Company's revolving credit facility and the Series B Senior Notes. Interest payments are due semiannually on the Series B Senior Notes and the Subordinated Notes (collectively, the Notes). Subsequent to December 31, 1998, the Company may prepay the Notes at a premium. The indentures governing the Notes contain business and financial covenants, including restrictions on additional indebtedness, dividends, acquisitions and certain types of investments, and asset sales. At December 31, 1998, the fair value, derived from the average of quoted financial institution market prices, of the Series B Senior Notes and Subordinated Notes was approximately $15.0 million and $75.0 million, respectively. The capitalized balance of Note issuance costs totaled $3.3 million and $4.0 million, respectively, at December 31, 1998 and 1997, and are being amortized over the Note terms. Kaiser Hill Receivables Purchase Facility: The Company's Kaiser-Hill subsidiary has a $50 million receivables purchase facility to support its working capital requirements for a U.S. Department of Energy contract. The receivables purchase facility contains certain program fees, requires the subsidiary to maintain a specified tangible net worth, and contains certain letter-of-credit and default provisions for delinquent receivables. The receivables purchase facility expires on June 30, 1999, and is non-recourse to the Company and its other consolidated subsidiaries. 7. Capital Stock Notes Receivable Collateralized by Common Stock: Certain current and former members of senior management have outstanding notes to the Company for which 396,849 shares of the Company's common stock serve as the primary collateral. Several of the managers left the employ of the Company in 1998 and the related amount of note principal in excess of the then fair market value of the collateral shares totaling $1,784,000 was expensed. Subsequent to December 31, 1998, all of the notes were called or came due and all of the collateral shares were tendered to the Company in lieu of note payment. Shareholder Rights Plan: The Shareholder Rights Plan (Rights Plan) provides the Board of Directors (the Board) with the ability to negotiate with a person or group that might, in the future, make an unsolicited attempt to acquire control of the Company. The Rights Plan provides for one Right (Right) for each outstanding share of the Company's common stock. Each right entitles the holder to purchase 1/100 of a share of Series 4 Junior Preferred Stock at a purchase price of $50. The Rights generally may cause substantial dilution to a person or F-13 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) group that attempts to acquire the Company on terms not approved by the Board. The Rights expire on January 13, 2002. Preferred Stock: The Company's 200 shares of Series 2D Senior Preferred Stock were redeemed in 1996 for $20 million. The other authorized classes of preferred stock consist of 200 shares of Series 1 Junior Convertible Preferred Stock, par value $0.01 per share and 500,000 shares of Series 4 Junior Preferred Stock, par value $0.01 per share. There were no preferred shares issued or outstanding as of December 31, 1998 or 1997. 8. Earnings Per Share Basic EPS excludes dilution and is computed on the basis of the weighted- average number of common shares outstanding for the period. Diluted EPS includes the weighted-average effect of dilutive securities outstanding during the period. Summary information of other common stock equivalents not included in the 1998 and 1997 per share calculations because of their anti-dilutive impact is as follows:
Weighted- Year Ended Number of Average Range of December Other Common Remaining Exercise Weighted-Average 31, Stock Equivalents Contract Life Prices Exercise Price ---------- ----------------- ------------- ------------- ---------------- --- 1998...... 3,390,290 2.5 years $1.24 - $6.87 $2.96 1997...... 3,475,077 2.1 years $1.90 - $6.90 $3.83
F-14 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 9 Income Taxes The components of income (loss) used to compute the provision (benefit) for income taxes for the years ended December 31 were as follows (in thousands):
1998 1997 1996 -------- ------- ------- Income (loss) before income taxes and minority interests: Domestic.................................... $(97,791) $ 675 $13,900 Foreign..................................... 690 1,886 584 -------- ------- ------- $(97,101) $ 2,561 $14,484 ======== ======= ======= Provision (benefit) for income taxes: Federal: Current................................... $ -- $ 129 $ -- Deferred.................................. (10,341) (4,231) 1,660 -------- ------- ------- (10,341) (4,102) 1,660 -------- ------- ------- State: Current................................... 232 374 55 Deferred.................................. (2,747) (854) 864 -------- ------- ------- (2,515) (480) 919 -------- ------- ------- Foreign: Current................................... 1,621 764 425 Deferred.................................. (122) 499 (397) -------- ------- ------- 1,499 1,263 28 -------- ------- ------- $(11,357) $(3,319) $ 2,607 ======== ======= =======
The effective income tax provision (benefit) varied from the federal statutory income tax provision (benefit) because of the following differences (in thousands):
1998 1997 1996 -------- ------- ------ Income tax (benefit) computed at federal statutory tax rate............................ $(33,014) $ 896 $5,069 Change in tax (benefit) from: Goodwill amortization........................ 1,102 1,024 996 Minority interest earnings................... (2,617) (3,803) (2,115) State income taxes........................... (2,548) (312) 597 Foreign taxes................................ 2,908 316 (427) Valuation allowance.......................... 22,031 -- (2,100) Stock redemption............................. 646 -- -- Business meals and entertainment............. 455 342 449 Research and experimentation credits......... (551) (1,881) -- Other........................................ 231 99 138 -------- ------- ------ 21,657 (4,215) (2,462) -------- ------- ------ $(11,357) $(3,319) $2,607 ======== ======= ======
F-15 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The tax effects of the principal temporary differences and carryforwards that give rise to the Company's deferred tax asset (net) are as follows (in thousands):
1998 1997 -------- ------- Reserves for adjustments and allowances................... $ 23,686 $13,162 Vacation and incentive compensation accruals.............. 5,264 3,275 Tax credit carryforwards.................................. 3,008 2,472 Net operating loss carryforwards.......................... 25,899 555 Gain on sale of investment................................ 155 (767) Restricted stock.......................................... 2,669 -- Unbilled revenue.......................................... (2,616) (1,680) Other..................................................... 253 (516) -------- ------- 58,318 16,501 Valuation allowance....................................... (23,645) (1,220) -------- ------- $ 34,673 $15,281 ======== =======
Certain components of the deferred tax asset at December 31, 1998 are subject to expiration: $0.5 million of the $25.9 million of net operating loss carryforwards expire within the next five years, and the remaining $25.4 million expire by 2018; $1.0 million of the $3.0 million tax credit carryforwards have no expiration and $2.0 million expire by 2012. The ability to derive benefit from these carryforwards in the future is dependant on the Company's ability to generate sufficient taxable income prior to the expiration dates. The Company provided for an additional valuation allowance of $22.4 million in 1998 as management believes that the Company is not currently assured of being able to derive future benefit from a portion of the deferred tax asset. The Company believes that expected levels of pretax earnings, including anticipated gains from the divestiture of portions of the Company will generate sufficient future taxable income to be able to realize the net $34.7 million deferred tax asset within the next year. Until such sales are finalized, however, the valuation allowance is deemed necessary. Additionally, in the event that the Company does not generate significant additional taxable income, either through asset sales or through profitable operations, the Company's ability to fully utilize the deferred tax assets could be reduced. The remaining $1.2 million of the valuation allowance at December 31, 1998 is attributed to foreign income tax benefits also not currently assured of realization. 10. Leases Annual future minimum payments and corresponding receipts on noncancelable operating leases and subleases, respectively, for office space and equipment with initial or remaining terms in excess of one year at December 31, 1998 are as follows, net of the amount of EFM Lease commitments sold on April 9, 1999 (Note 3) (in thousands):
Lease Sublease Year Amount Amount ---- -------- -------- 1999....................................................... $ 16,781 $ 4,512 2000....................................................... 14,304 2,346 2001....................................................... 11,113 524 2002....................................................... 9,611 535 2003....................................................... 8,823 498 Thereafter................................................. 71,203 2,715 -------- ------- $131,835 $11,130 ======== =======
F-16 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The total rental expense for all operating leases was $28,733,000, $27,576,000, and $31,686,000 for the years ended December 31, 1998, 1997, and 1996, respectively. Sublease rental income was $5,482,000, $4,617,000, and $3,887,000 for the years ended December 31, 1998, 1997, 1996, respectively. 11. Benefits and Compensation Plans Employee Stock Purchase Plan: The Company's Stock Purchase Plan provides for the sale of up to 2.0 million shares of common stock to all eligible employees. Employees may elect to withhold up to 10% of annual base earnings for the purchase of the Company's common stock. Options to purchase shares of common stock are 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 years ended December 31, 1998 and 1997, respectively, 98,551 and 101,927 shares were sold under the plan. Operation of the Plan was suspended effective March 31, 1999. Fixed Stock Option Plans: A Stock Incentive Plan (Incentive Plan) provides for the issuance of options, stock appreciation rights, restricted shares, and restricted stock units of up to an aggregate of 6.0 million shares of the Company's common stock. Awards are made to employees at the discretion of the Compensation and Human Resources Committee of the Board (Committee). Vesting periods, determined by the Committee, are generally in equal installments over three to six years. At December 31, 1998, 1,114,738 shares were available for grant under this plan. 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 will be granted a PSA equal to $20,000 worth of common stock on the date of grant. Three years after the PSA grant, the Company will 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 will be expensed in the period of the value increase. PSA's granted in 1998 and 1997 totaled 49,126 and 48,545, respectively, with initial share values of $2.85 and $2.06, respectively. Expense associated with this plan of $76,000 and $83,000 was recognized in 1998 and 1997, respectively. The precursor to the above plan was the Non-Employee Directors Stock Option Plan (Non-Employee Plan) which provided each non-employee director of the Company an immediately exercisable option to purchase 3,000 shares of the Company's common stock for each year of service. The Non-Employee Plan does not specify a maximum number of available shares. As of December 31, 1998, there are 135,000 shares of common stock reserved for issuance upon the exercise of options granted under this plan and 60,000 are outstanding. This Plan was suspended following adoption of the Non-Employee Directors Compensation and Phantom Stock Plan. The Company's Consultants, Agents, and Part-Time Employees Stock Option Plan (Consultants Plan) provides for the issuance of options or restricted shares of up to 1.0 million shares of the Company's common stock to consultants, agents, and part-time employees. The vesting period is a minimum of one year. In 1998, 100,000 options were granted and 200,000 options were granted in 1997. At December 31, 1998, there were 688,200 options available for grant. In 1997, 100,000 of the options granted contained a provision for a cash payment equal to one half of the difference between $4.00 and the lesser average market price through December 19, 1998. All three plans provide that the option or grant price is not to be less than the fair market value on the date of grant. Under the Incentive and Non- Employee Directors Plans, an option's maximum term is 10 years. As of December 31, 1998, there have been no options granted under these plans with terms greater than five years. An option's maximum term under the Consultants Plan is five years. F-17 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) A summary of stock option activity under all option plans is as follows:
Weighted-Average Shares Option Price Exercise Price --------- --------------- ---------------- Balance, January 1, 1996........ 2,451,673 $2.34 to $17.00 $5.16 Granted......................... 187,200 $1.90 to $3.77 $3.30 Expired......................... (451,940) $2.50 to $17.00 $8.69 Exercised....................... (4,002) $3.00 to $3.50 $2.68 --------- Balance, December 31, 1996...... 2,182,931 $1.90 to $9.59 $4.29 Granted......................... 885,019 $1.91 to $4.00 $2.39 Expired......................... (572,961) $2.23 to $9.59 $5.77 --------- Balance, December 31, 1997...... 2,494,989 $1.90 to $6.90 $3.27 Granted......................... 1,175,500 $1.24 to $2.99 $1.95 Expired......................... (659,957) $1.90 to $6.07 $3.92 Exercised....................... (330) $2.23 $2.23 --------- Balance, December 31, 1998...... 3,010,202 $1.24 to $4.42 $2.62 ========= =============== =====
Options exercisable at December 31, 1998 and 1997, were 1,408,203 and 1,217,617, respectively. The weighted-average remaining contractual life on options outstanding at December 31, 1998, was 2.8 years. There were 87,501 exercisable options outstanding at a price below the fair market value of the Company's common stock at December 31, 1998. The following is a summary of fixed stock options outstanding at December 31, 1998:
Options Outstanding Options Exercisable -------------------------------------------------- ---------------------------- Weighted-Average Range of Number Remaining Weighted-Average Number Weighted-Average Exercise Prices Outstanding Contract Life (years) Exercise Price Exercisable Exercise Price --------------- ----------- --------------------- ---------------- ----------- ---------------- <$1.90 560,000 3.5 years $1.34 87,501 $1.34 $1.90 to $2.50 1,292,830 3.7 years $2.31 342,621 $2.19 $2.51 to $3.50 451,234 1.4 years $2.91 373,409 $2.90 $3.51 to $5.00 706,138 1.5 years $4.01 604,672 $3.99
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 elects 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, 1998, 1997, and 1996, respectively, the net loss would have been $(101.3) million, [$(4.20) per share], $(5.7) million, [$(0.26) per share], and $5.2 million [$0.14 per share]. These per share amounts reflect 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 are 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 both F-18 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) periods below. The weighted-average of all other significant assumptions of weighted-average fair value of grants made during the years ended December 31 are as follows:
1998 1997 1996 --------- --------- --------- Fixed Stock Option Plans: Volatility................................ 71.6% 61.4% 63.4% Risk-free interest rate................... 5.2% 6.2% 5.8% Expected lives............................ 5.0 years 5.0 years 5.0 years Fair value of grants...................... $1.20 $1.22 $1.92 Employee Stock Purchase Plan: Volatility................................ 71.6% 61.4% 63.4% Risk-free interest rate................... 4.7% 5.1% 5.0% Expected lives............................ 0.3 years 0.3 years 0.3 years Fair value of grants...................... $0.36 $1.40 $0.95
Retirement Benefits Plans: The Company sponsors several retirement benefit plans covering substantially all employees who meet minimum length of service requirements. These plans include a defined-contribution retirement plan that provides for contributions by the Company based on a percentage of covered compensation, and a 401(k) Plan that allows employees to defer portions of their salary, subject to certain limitations. Total expense for these plans for the years ended December 31, 1998, 1997, and 1996, was $7,383,000, $7,266,000, and $7,427,000, respectively. As of December 31, 1998, the Retirement Plan, 401(k) Plan, and a discontinued Employee Stock Ownership Plan owned 849,908, 417,176, and 1,519,200 shares, respectively, of the Company's common stock. Collective Bargaining Agreements: Certain of the Company's employees are covered by union-sponsored, collectively bargained, multi-employer benefit plans. Contributions and costs are determined in accordance with the provisions of negotiated labor contracts or terms of the plans. Pension expense for these plans was $413,000, $482,000, and $9,097,000 for the years ended December 31, 1998, 1997, and 1996, respectively. Postemployment Benefit Plan: The Company also continues to fulfill the provisions of a previously curtailed plan which provides certain medical and dental benefits to a group of former retirees. The benefits, which are limited to a fixed amount, are funded to the insurance company as participants' insurance claims are reimbursed. The benefit cost for this curtailed plan for the years ended December 31 consisted of the following (in thousands):
1998 1997 1996 ----- ----- ------ Interest cost.......................................... $ 359 $ 412 $ 525 Amortization of transition obligation.................. 980 980 980 Amortization of unrecognized net gain.................. (591) (563) (409) ----- ----- ------ Net benefit charge..................................... $ 748 $ 829 $1,096 ===== ===== ======
F-19 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Because there are no new particpants 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):
1998 1997 ------- ------- Benefit obligation at January 1,.......................... $ 5,508 $ 6,161 Service cost............................................ -- -- Interest cost........................................... 359 412 Benefits paid........................................... (740) (856) Actuarial gain.......................................... (248) (209) ------- ------- Benefit obligation at December 31,........................ 4,879 5,508 Unamortized transition obligation....................... (8,487) (9,467) Unrecognized net gain................................... 5,920 6,263 ------- ------- Net benefit obligation liability at December 31,.......... $(2,312) $(2,304) ======= =======
The discount rate for both 1998 and 1997 was 7%. The 1998 health-care cost trend rate is 5%, effective until 2013 when the cost will be in excess of the Company's maximum obligation. If the trend rate were increased by 1% for each year, the benefit obligation as of December 31, 1998 would increase by approximately $148,000 or 3%. The transition obligation is being amortized over 14.5 years. 12. Major Customers, Business Segments, and Foreign Operations Major Customers: Gross revenue from the U.S. Department of Energy totaled $653,631,000, $622,190,000, and $866,361,000 for the years ended December 31, 1998, 1997 and 1996, respectively. Business Segments: In 1998, the Company adopted Statement of Financial Accounting Standards No. 131--Disclosures About Segments of an Enterprise and Related Information (SFAS 131) which requires the reporting of certain financial information by business segment. For purposes of providing segment information, the Company's four business segments are: . the Engineers and Constructors Group (E&C) which provides engineering and construction services to commercial and state and local entities in the areas of industry, infrastructure, transportation, and microelectronics; . the Environment and Facilities Management Group (EFM) which oversees major program management and technical support contracts for U.S. government agencies; . the Kaiser-Hill Company, LLC (Kaiser-Hill) which performs and manages the Department of Energy's multibillion-dollar management contract at Rocky Flats; . the Consulting Group (Consulting) which provides energy, information technology, environmental, economic, and community development consulting services to industry and governmental clients as well as private-sector environmental clients. These segments are used for internal management purposes primarily because of the similarities in products and services, customers, and regulatory environments. The 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 are managed by the Company and are not allocated to the segments. Asset information by reportable segment is not reported, because the Company does not maintain or use such information for internal management purposes. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies except that the Company allocates some expenses to the operating segments F-20 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) according to a methodology designed by management for internal reporting purposes and involves estimates and assumptions. Financial data for the business segments are as follows (in thousands):
Intersegment Kaiser-Hill E&C EFM Consulting Eliminations Other Total ----------- --------- --------- ---------- ------------ ------- ---------- 1998 Gross Revenue............... $ 632,600 $ 374,100 $ 105,300 $105,400 $(6,979) $ $1,210,421 Subcontracts and materials................. (478,100) (242,890) (53,300) (23,700) 3,196 (794,794) Provision for contract losses.................... -- (76,210) -- -- -- (76,210) Equity income of affiliates................ -- -- -- -- -- 6,045 6,045 --------- --------- --------- -------- ------- ------- ---------- Service Revenue............. 154,500 55,000 52,000 81,700 (3,783) 6,045 345,462 Operating Expenses: Direct labor and fringe.... 138,300 78,300 26,600 38,100 1,262 282,562 General and administrative............ -- 48,800 19,800 29,800 (6,249) -- 92,151 --------- --------- --------- -------- ------- ------- ---------- Segment Income/(Loss)....... $ 16,200 $ (72,100) $ 5,600 $ 13,800 1,204 6,045 (29,251) ========= ========= ========= ======== ======= Corporate overhead......... 22,983 22,983 Depreciation/amortization.. 9,048 9,048 Severance and restructuring............. 9,407 9,407 Other unusual charges...... 7,672 7,672 ---------- Operating Income/(Loss)..... $ (78,361) ========== 1997 Gross Revenue............... $ 588,700 $ 337,800 $ 88,100 $ 93,100 $ 416 $ $1,108,116 Subcontracts and materials................. (421,200) (199,100) (34,300) (21,800) (1,031) (677,431) Provision for contract losses.................... (6,900) (6,900) Equity income of affiliates................ -- -- -- -- -- 2,301 2,301 --------- --------- --------- -------- ------- ------- ---------- Service Revenue............. 167,500 131,800 53,800 71,300 (615) 2,301 426,086 Operating Expenses: Direct labor and fringe.... 145,500 80,100 30,800 33,300 (129) 289,571 General and administrative............ -- 42,700 18,900 26,100 (908) -- 86,792 --------- --------- --------- -------- ------- ------- ---------- Segment Income/(Loss)....... $ 22,000 $ 9,000 $ 4,100 $ 11,900 422 2,301 49,723 ========= ========= ========= ======== ======= Corporate overhead......... 22,059 22,059 Depreciation/amortization.. 9,595 9,595 ---------- Operating Income............ $ 18,069 ========== 1996 Gross Revenue............... $ 544,000 $ 266,800 $ 355,600 $ 86,900 $(4,857) $ $1,248,443 Subcontracts and materials................. (376,000) (128,600) (200,200) (18,500) 2,958 (720,342) Equity income of affiliates................ -- -- -- -- -- 4,015 4,015 --------- --------- --------- -------- ------- ------- ---------- Service Revenue............ 168,000 138,200 155,400 68,400 (1,899) 4,015 532,116 Operating Expenses: Direct labor and fringe.... 155,100 75,300 121,600 28,900 (500) 380,400 General and administrative............ -- 53,100 14,800 26,000 1,847 -- 95,747 --------- --------- --------- -------- ------- ------- ---------- Segment Income/(Loss)....... $ 12,900 $ 9,800 $ 19,000 $ 13,500 (3,246) 4,015 55,969 ========= ========= ========= ======== ======= Corporate overhead......... 24,441 24,441 Depreciation/amortization.. 10,348 10,348 ---------- Operating Income............ $ 21,180 ==========
F-21 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Foreign Operations: Gross revenue and operating income from foreign operations and foreign assets of all consolidated subsidiaries were as follows for the years ended December 31 (in thousands):
1998 1997 1996 ---------- ---------- ---------- Foreign gross revenue: Europe.................................. $ 89,155 $ 86,937 $ 37,105 Asia-Pacific............................ 31,460 44,871 31,327 Other................................... 1,387 25,876 3,676 ---------- ---------- ---------- 122,002 157,684 72,108 Domestic gross revenue.................... 1,088,419 950,432 1,176,335 ---------- ---------- ---------- Total gross revenue................... $1,210,421 $1,108,116 $1,248,443 ========== ========== ========== Foreign operating income (loss): Europe.................................. $ 2,106 $ 11,153 $ 1,346 Asia-Pacific............................ 2,068 2,209 1,002 Other................................... (22,457) 785 (422) ---------- ---------- ---------- (18,283) 14,147 1,926 Domestic operating income (loss).......... (60,078) 3,922 19,254 ---------- ---------- ---------- Total operating income (loss)......... $ (78,361) $ 18,069 $ 21,180 ========== ========== ========== Foreign assets: Europe.................................. $ 42,241 $ 34,900 $ 17,666 Asia-Pacific............................ 18,312 15,071 13,562 Other................................... 1,649 833 24 ---------- ---------- ---------- 62,202 50,804 31,252 Domestic assets........................... 366,851 348,484 338,210 ---------- ---------- ---------- Total assets.......................... $ 429,053 $ 399,288 $ 369,462 ========== ========== ==========
F-22 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 13. Contingencies Certain Contracts: In March 1998, the Company entered into a $187 million maximum price contract to construct a ship-building facility. The Company subsequently learned that estimated costs to perform the contract as reflected in actual proposed subcontracts were approximately $30 million higher than the cost estimates used as the basis for contract negotiation between the Company and the customer. After learning this, the Company advised the customer that it was not required to perform the contract in accordance with its terms. Negotiations with the customer resulted in an interim agreement under which both parties reserved their rights and, on a day-to-day basis, the Company continued to execute certain transitional on-site activities. The customer terminated the interim agreement with the Company effective August 14, 1998. In October 1998, the customer presented an initial draft of a claim against the Company requesting payment for estimated damages and entitlements pursuant to the terminated contract. The Company and the customer are currently discussing the customer's draft claim. No provision for loss for this matter has been included in the Company's financial results to date as management does not believe that it has sufficient information at this time to reasonably estimate the outcome of the negotiations. As a result of uncertainties surrounding the costs to complete certain large fixed-price contracts, including the Nitric Acid Projects, the Company recorded a $76.2 million charge during the year ended December 31, 1998 to establish $66.0 million in reserves intended to cover its estimate of the nitric acid contract cost overruns and charges totaling $10.2 million to reflect the adjustment of the earned progress to date on several other fixed price projects. Although management believes that, based on information currently available, an adequate provision for loss reserves for these fixed- price contracts has been reflected in the financial statements, no assurance can be given that the full amount of any claims will be realized or that the loss provision is entirely adequate. Litigation, Claims and Assessments: In the course of the Company's normal business activities, various claims or charges have been asserted and litigation commenced against the Company arising from or related to properties, injuries to persons, and breaches of contract, as well as claims related to acquisitions and dispositions. Claimed amounts may not bear any reasonable relationship to the merits of the claim or to a final court award. In the opinion of management, adequate reserves have been provided for final judgments, if any, in excess of insurance coverage, that might be rendered against the Company in such litigation. The continued adequacy of reserves is reviewed periodically as progress on such matters ensues. The Company may from time to time, either individually or in conjunction with other government contractors operating in similar types of businesses, be involved in U.S. government investigations for alleged violations of procurement or other federal laws and regulations. The Company currently is the subject of a number of U.S. government investigations and is cooperating with the responsible government agencies involved. No charges presently are known to have been filed against the Company by these agencies. The Company has provided for its estimate of the potential effect of these investigations, and the continued adequacy of reserves is reviewed periodically as progress on such matters ensues. The Company has a substantial number of cost-reimbursement contracts with the U.S. government, the costs of which are subject to audit by the U.S. government. As a result of pending audits related to fiscal years 1986 forward, the government has asserted, among other things, that certain costs claimed as reimbursable under government contracts either were not allowable or not allocated in accordance with federal procurement regulations. The Company is actively working with the government to resolve these issues. The Company has provided for its estimate of the potential effect of issues that have been quantified, including its estimate of disallowed costs for the periods currently under audit and for periods not yet audited. The government or the Company, however, has not quantified many of the issues,, and others are qualitative in nature, and their potential financial impact, if any, is not quantifiable by the government or the Company at this time. The continued F-23 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) adequacy of provisions for reserves is reviewed periodically as progress with the government on such matters ensues. Contract warranties and performance guarantees: In the course of the Company's normal business activities, many of its contracts contain provisions for warranties and performance guarantees. As progress on contracts ensues, the Company regularly updates the estimates of the costs to perform such contingencies and reserves a proportionate amount of the total related contract value until such time as the contingency is resolved. 14. Unusual Items Severance and restructuring: Largely as a result of significant changes in senior management positions of the Company in 1998 as well as enacted Company- wide profitability improvement initiatives, the Company recorded charges totaling $9.4 million. These charges included $7.6 million related to employee separation costs, substantially all of which was for estimated management position reductions and terminations. The charge was based on plans that identified the number and functions of employees to be terminated. As of March 31, 1998, less than $1.0 million of the reduction plan remained to be settled. Remaining terminations and settlements will occur in 1999. Other unusual charges: A $7.7 million charge was also taken in 1998 to address: . cost estimates for discontinuing certain E&C markets in 1998, including Taiwan, Panama and Mexico, and . increased provisions for estimated settlement costs of certain existing litigation. 15. Selected Quarterly Financial Information (Unaudited) Quarterly financial information for fiscal quarters for the years ended December 31 is presented in the following tables (in thousands, except per share amounts):
Fourth Third Second First Quarter Quarter Quarter Quarter -------- -------- -------- -------- 1998 Gross revenue........................ $300,625 $292,528 $312,012 $305,256 Service revenue...................... 89,761 82,476 65,962 107,263 Operating income (loss).............. (19,357) (31,444) (36,020) 8,460 Net income (loss) before extraordinary item and cumulative effect of accounting change......... (25,928) (38,291) (29,668) 445 Net income (loss).................... (27,018) (38,291) (35,668) 445 Basic and fully diluted per share amounts for: Income (loss) before cumulative effect of accounting change $ (1.08) $ (1.58) $ (1.23) $ .02 Extraordinary item................. (.05) -- -- -- Cumulative effect of accounting change............................ -- -- (.25) -- -------- -------- -------- -------- Net income (loss).................. $ (1.13) $ (1.58) $ (1.48) $ .02 ======== ======== ======== ========
F-24 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fourth Third Second First Quarter Quarter Quarter Quarter -------- -------- -------- -------- 1997 Gross revenue........................ $268,400 $332,173 $241,586 $265,957 Service revenue...................... 96,424 116,103 109,581 103,978 Operating income (loss).............. (3,112) 7,194 7,389 6,598 Net income (loss).................... (5,157) 120 3 47 Basic and fully diluted per share amounts for net income (loss)....... $ (.23) $ (.01) $ -- $ --
At March 31, 1999, there were 24,270,978 shares of common stock outstanding held by 1,501 holders of record. 16. Guarantor Subsidiaries Pursuant to U.S. Securities and Exchange Commission rules regarding publicly held debt, the Company is required to provide financial information for wholly owned subsidiaries of ICF Kaiser International, Inc. (Subsidiary Guarantors) that unconditionally guarantee the payment of the principal, premium, if any, and interest on the Company's Subordinated Notes and its Series B Senior Notes. Subsequent to the sale of EFM, the Subsidiary Guarantors are Cygna Consulting Engineers and Project Management, Inc; ICF Kaiser Government Programs, Inc; Systems Applications International, Inc; EDA, Incorporated; Global Trade & Investment, Inc; ICF Kaiser Europe, Inc; ICF Kaiser/Georgia Wilson, Inc; ICF Kaiser Overseas Engineering, Inc; ICF Kaiser Engineers Pacific, Inc; and ICF Kaiser Advanced Technology, Inc. Presented below is condensed consolidating financial information for ICF Kaiser International, Inc. (Parent Company), the Subsidiary Guarantors, and the Non-Guarantor Subsidiaries. The information, except for the December 31, 1998 condensed consolidating balance sheet, is unaudited. Investments in subsidiaries have been presented using the equity method of accounting. The Company does not have a formal tax-sharing arrangement with its subsidiaries and has allocated taxes to its subsidiaries based on the Company's overall effective tax rate. In the Company's opinion, presentation of separate financial statements for each individual Subsidiary Guarantor would not provide additional information that is material to investors. Therefore, the Subsidiary Guarantors are combined in the presentation below. F-25 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEET December 31, 1998 (In thousands)
ICF Kaiser Parent Subsidiary Non-Guarantor International, Inc. Company Guarantors Subsidiaries Eliminations Consolidated -------- ---------- ------------- ------------ ------------------- ASSETS Current Assets Cash and cash equivalents............ $ 2,414 $ 3,822 $ 9,031 $ -- $ 15,267 Contract receivables, net.................... (5,283) 134,256 155,105 -- 284,078 Intercompany receivables, net....... 184,700 10,030 (194,730) -- -- Prepaid expenses and other current assets... 2,185 448 10,208 -- 12,841 Deferred income taxes... 30,367 3,245 1,061 -- 34,673 -------- -------- -------- ------- -------- Total Current Assets.... 214,383 151,801 (19,325) -- 346,859 -------- -------- -------- ------- -------- Fixed Assets Furniture, equipment, and leasehold improvements........... 4,589 3,456 35,951 -- 43,996 Less depreciation and amortization........... (4,040) (3,155) (30,216) -- (37,411) -------- -------- -------- ------- -------- 549 301 5,735 -- 6,585 -------- -------- -------- ------- -------- Other Assets Goodwill, net........... -- 8,745 40,547 -- 49,292 Investment in and advances to affiliates............. (64,556) 116 6,189 65,979 7,728 Capitalized software development costs...... 4,296 766 5,062 Other................... 4,910 523 8,094 -- 13,527 -------- -------- -------- ------- -------- (55,350) 9,384 55,596 65,979 75,609 -------- -------- -------- ------- -------- Total Assets............ $159,582 $161,486 $ 42,006 $65,979 $429,053 ======== ======== ======== ======= ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Current portion of long- term debt.............. $ 30,729 $ -- $ -- $ -- $ 30,729 Accounts payable and other accrued expenses............... 39,759 121,833 72,160 -- 233,752 Accrued salaries and employee benefits...... 7,818 13,999 16,114 -- 37,931 Other................... 1,910 1,335 38,913 -- 42,158 -------- -------- -------- ------- -------- Total Current Liabilities............ 80,216 137,167 127,187 -- 344,570 Long-term Liabilities Long-term debt, less current portion........ 137,487 -- 1 -- 137,488 Other................... 2,000 26 7,638 -- 9,664 -------- -------- -------- ------- -------- Total Liabilities....... 219,703 137,193 134,826 -- 491,722 -------- -------- -------- ------- -------- Minority interests in subsidiaries........... -- 449 -- -- 449 Shareholders' Equity Common stock............ 230 8,179 121 (8,288) 242 Additional paid-in capital................ 75,200 2,596 58,544 (60,918) 75,422 Accumulated earnings (deficit).............. (134,913) 13,339 (148,368) 135,185 (134,757) Accumulated other comprehensive income (loss)................. (638) (270) (3,117) -- (4,025) -------- -------- -------- ------- -------- Total Shareholders' Equity (Deficit)....... (60,121) 23,844 (92,820) 65,979 (63,118) -------- -------- -------- ------- -------- Total Liabilities and Shareholders' Equity (Deficit).............. $159,582 $161,486 $ 42,006 $65,979 $429,053 ======== ======== ======== ======= ========
F-26 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS Year Ended December 31, 1998 (In thousands)
ICF Kaiser Parent Subsidiary Non-Guarantor International, Inc. Company Guarantors Subsidiaries Eliminations Consolidated --------- ---------- ------------- ------------ ------------------- Gross Revenue........... $ 1,120 $737,546 $ 471,755 $ -- $1,210,421 Subcontract and direct material costs....... (527) (564,284) (229,983) -- (794,794) Provision for contract losses............... -- -- (76,210) -- (76,210) Equity in income of joint ventures and affiliated companies............ (101,187) -- 6,621 100,611 6,045 --------- -------- --------- -------- ---------- Service Revenue......... (100,594) 173,262 172,183 100,611 345,462 Operating Expenses Operating expenses.... (16,750) 156,584 257,862 -- 397,696 Depreciation and amortization......... 2,513 1,340 5,195 -- 9,048 Severance and restructuring charges.............. 9,407 -- -- -- 9,407 Other unusual charges.............. 2,882 -- 4,790 -- 7,672 --------- -------- --------- -------- ---------- Operating Income (Loss)................. (98,646) 15,338 (95,664) 100,611 (78,361) Other Income (Expense) Gain on sale of investment........... -- -- -- -- -- Interest and investment income.... 248 516 775 -- 1,539 Interest expense...... (280) (1,722) (18,277) -- (20,279) --------- -------- --------- -------- ---------- Income (Loss) Before Income Taxes, Minority Interests, Extraodrinary Item, and Cumulative Effect of Accounting Change...... (98,678) 14,132 (113,166) 100,611 (97,101) Income tax expense (benefit)............ 764 727 (12,848) -- (11,357) --------- -------- --------- -------- ---------- Income Before Minority Interests, Extraordinary Item, and Cumulative Effect of Accounting Change...... (99,442) 13,405 (100,318) 100,611 (85,744) Minority interest in net income of subsidiaries......... -- 7,698 -- -- 7,698 --------- -------- --------- -------- ---------- Income Before Extraordinary Item, and Cumulative Effect of Accounting Change...... (99,442) 5,707 (100,318) 100,611 (93,442) Extraordinary item..... 1,090 -- -- -- 1,090 Cumulative effect of accounting change, net of tax................ -- 754 5,246 -- 6,000 --------- -------- --------- -------- ---------- Net Income (Loss)....... $(100,532) $ 4,953 $(105,564) $100,611 $ (100,532) ========= ======== ========= ======== ==========
F-27 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS Year Ended December 31, 1998 (In thousands)
ICF Kaiser Parent Subsidiary Non-Guarantor International, Inc. Company Guarantors Subsidiaries Eliminations Consolidated --------- ---------- ------------- ------------ ------------------- Net Cash Provided by (Used in) Operating Activities............. $ (28,568) $ 3,899 $(4,769) $-- $ (29,438) --------- -------- ------- ---- --------- Investing Activities Sales of subsidiaries and subsidiary assets............... -- -- 2,400 -- 2,400 Purchases of fixed assets............... (2,208) (15) (2,271) -- (4,494) Investments in subsidiaries and affiliates, net of cash acquired........ 4,094 -- (638) -- 3,456 --------- -------- ------- ---- --------- Net Cash Provided by (Used in) Investing Activities......... 1,886 (15) (509) -- 1,362 --------- -------- ------- ---- --------- Financing Activities Borrowings under credit facility...... 139,629 -- -- -- 139,629 Principal payments on credit facility...... (112,860) -- (15) -- (112,875) Distribution of income to minority interest............. -- (10,320) -- -- (10,320) Change in book overdraft............ 8,395 -- -- -- 8,395 Proceeds from issuances of common stock................ 155 -- -- -- 155 Debt issuance costs... (1,380) -- -- -- (1,380) --------- -------- ------- ---- --------- Net Cash Provided by (Used in) Financing Activities......... 33,939 (10,320) (15) -- 23,604 --------- -------- ------- ---- --------- Effect of Exchange Rate Changes on Cash........ -- -- (281) -- (281) --------- -------- ------- ---- --------- Increase (Decrease) in Cash and Cash Equivalents............ 7,257 (6,436) (5,574) -- (4,753) Cash and Cash Equivalents at Beginning of Period.... (4,843) 10,258 14,605 -- 20,020 --------- -------- ------- ---- --------- Cash and Cash Equivalents at End of Period................. $ 2,414 $ 3,822 $ 9,031 $-- $ 15,267 ========= ======== ======= ==== =========
F-28 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEET December 31, 1997 (In thousands)
ICF Kaiser Parent Subsidiary Non-Guarantor International, Inc. Company Guarantors Subsidiaries Eliminations Consolidated -------- ---------- ------------- ------------ ------------------- ASSETS Current Assets Cash and cash equivalents............ $ (4,843) $ 10,258 $ 14,605 $ -- $ 20,020 Contract receivables, net.................... 3,210 96,921 163,899 -- 264,030 Intercompany receivables, net....... 136,629 (2,529) (134,100) -- -- Prepaid expenses and other current assets... 4,781 476 9,833 -- 15,090 Deferred income taxes... 14,749 -- 532 -- 15,281 -------- -------- --------- -------- -------- Total Current Assets.... 154,526 105,126 54,769 -- 314,421 -------- -------- --------- -------- -------- Fixed Assets Furniture, equipment, and leasehold improvements........... 4,284 2,505 38,892 -- 45,681 Less depreciation and amortization........... (3,729) (2,275) (31,964) -- (37,968) -------- -------- --------- -------- -------- 555 230 6,928 -- 7,713 -------- -------- --------- -------- -------- Other Assets Goodwill, net........... -- 4,793 42,530 -- 47,323 Investment in and advances to affiliates............. 45,584 54 4,983 (43,583) 7,038 Capitalized software development costs...... 3,812 273 4,085 Other................... 4,344 1,794 12,570 -- 18,708 -------- -------- --------- -------- -------- 53,740 6,641 60,356 (43,583) 77,154 -------- -------- --------- -------- -------- Total Assets............ $208,821 $111,997 $ 122,053 $(43,583) $399,288 ======== ======== ========= ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Current portion of long- term debt.............. $ -- $ -- $ 15 $ -- $ 15 Accounts payable and other accrued expenses............... 26,852 80,315 40,925 -- 148,092 Accrued salaries and employee benefits...... 6,938 16,722 13,994 -- 37,654 Other................... 1,294 426 35,819 -- 37,539 -------- -------- --------- -------- -------- Total Current Liabilities............ 35,084 97,463 90,753 -- 223,300 Long-term Liabilities Long-term debt, less current portion........ 141,004 -- -- -- 141,004 Other................... 2,437 26 2,123 -- 4,586 -------- -------- --------- -------- -------- Total Liabilities....... 178,525 97,489 92,876 -- 368,890 -------- -------- --------- -------- -------- Minority interests in subsidiaries........... -- 3,071 -- -- 3,071 Shareholders' equity Common stock............ 214 148 129 (266) 225 Additional paid-in capital................ 66,888 2,796 58,548 (61,116) 67,116 Accumulated earnings (deficit).............. (34,384) 8,757 (26,397) 17,799 (34,225) Accumulated other comprehensive income (loss)................. (2,422) (264) (3,103) -- (5,789) -------- -------- --------- -------- -------- Total Shareholders' Equity................. 30,296 11,437 29,177 (43,583) 27,327 -------- -------- --------- -------- -------- Total Liabilities and Shareholders' Equity... $208,821 $111,997 $ 122,053 $(43,583) $399,288 ======== ======== ========= ======== ========
F-29 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS Year Ended December 31, 1997 (In thousands)
ICF Kaiser Parent Subsidiary Non-Guarantor International, Inc. Company Guarantors Subsidiaries Eliminations Consolidated ------- ---------- ------------- ------------ ------------------- Gross Revenue........... $ 727 $ 608,156 $ 499,233 $ -- $1,108,116 Subcontract and direct material costs....... (608) (428,582) (248,241) -- (677,431) Provision for contract losses............... -- -- (6,900) -- (6,900) Equity in income of joint ventures and affiliated companies............ (6,059) -- 2,328 6,032 2,301 ------- --------- --------- ------ ---------- Service Revenue......... (5,940) 179,574 246,420 6,032 426,086 Operating Expenses Operating expenses.... (3,982) 156,273 246,131 -- 398,422 Depreciation and amortization......... 2,350 1,092 6,153 -- 9,595 ------- --------- --------- ------ ---------- Operating Income (Loss)................. (4,308) 22,209 (5,864) 6,032 18,069 Other Income (Expense) Gain on sale of investment........... -- -- 1,018 -- 1,018 Interest and investment income.... 570 671 567 (58) 1,750 Interest expense...... (570) (984) (16,775) 53 (18,276) ------- --------- --------- ------ ---------- Income (Loss) Before Income Taxes and Minority Interests..... (4,308) 21,896 (21,054) 6,027 2,561 Income tax expense (benefit)............ 679 4,513 (8,511) -- (3,319) ------- --------- --------- ------ ---------- Income Before Minority Interests.............. (4,987) 17,383 (12,543) 6,027 5,880 Minority interest in net income of subsidiaries......... -- 10,867 -- -- 10,867 ------- --------- --------- ------ ---------- Net Income (Loss) ...... $(4,987) $ 6,516 $ (12,543) $6,027 $ (4,987) ======= ========= ========= ====== ==========
F-30 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS Year Ended December 31, 1997 (In thousands)
ICF Kaiser Parent Subsidiary Non-Guarantor International, Inc. Company Guarantors Subsidiaries Eliminations Consolidated --------- ---------- ------------- ------------ ------------------- Net Cash Provided by (Used in) Operating Activities............. $ 21,088 $ 12,153 $(7,544) $ 494 $ 26,191 Investing Activities Sales of subsidiaries and subsidiary assets............... -- -- 17,028 -- 17,028 Purchases of fixed assets............... (1,871) (53) (2,964) -- (4,888) Investments in subsidiaries and affiliates, net of cash acquired........ -- (100) (3,974) -- (4,074) --------- -------- ------- ----- --------- Net Cash Provided by (Used in) Investing Activities......... (1,871) (153) 10,090 -- 8,066 --------- -------- ------- ----- --------- Financing Activities Borrowings under credit facility...... 104,500 -- -- -- 104,500 Principal payments on credit facility...... (121,000) -- -- -- (121,000) Distribution of income to minority interest............. -- (13,950) -- -- (13,950) Change in book overdraft............ (2,667) -- -- -- (2,667) Proceeds from issuances of common stock................ 213 -- -- -- 213 Repurchases of common stock................ (251) -- -- -- (251) Debt issuance costs... (624) -- -- -- (624) --------- -------- ------- ----- --------- Net Cash Used in Financing Activities......... (19,829) (13,950) -- -- (33,779) --------- -------- ------- ----- --------- Effect of Exchange Rate Changes on Cash........ -- -- (708) -- (708) --------- -------- ------- ----- --------- Increase (Decrease) in Cash and Cash Equivalents............ (612) (1,950) 1,838 494 (230) Cash and Cash Equivalents at Beginning of Period.... (4,231) 12,208 12,767 (494) 20,250 --------- -------- ------- ----- --------- Cash and Cash Equivalents at End of Period................. $ (4,843) $ 10,258 $14,605 $ -- $ 20,020 ========= ======== ======= ===== =========
F-31 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS Year Ended December 31, 1996 (In thousands)
ICF Kaiser Parent Subsidiary Non-Guarantor International, Inc. Company Guarantors Subsidiaries Eliminations Consolidated ------- ---------- ------------- ------------ ------------------- Gross Revenue........... $ 2,024 $ 560,609 $ 685,810 $ -- $1,248,443 Subcontract and direct material costs....... (777) (384,061) (335,504) -- (720,342) Equity in income of joint ventures and affiliated companies............ 5,081 -- 2,895 (3,961) 4,015 ------- --------- --------- ------- ---------- Service Revenue......... 6,328 176,548 353,201 (3,961) 532,116 Operating Expenses Operating expenses.... (1,835) 166,552 335,874 (3) 500,588 Depreciation and amortization......... 2,065 1,175 7,108 -- 10,348 ------- --------- --------- ------- ---------- Operating Income........ 6,098 8,821 10,219 (3,958) 21,180 Other Income (Expense) Gain on sale of investment........... -- -- 9,384 -- 9,384 Interest and investment income.... 284 376 863 (269) 1,254 Interest expense...... (284) (934) (16,324) 208 (17,334) ------- --------- --------- ------- ---------- Income (Loss) Before Income Taxes and Minority Interests..... 6,098 8,263 4,142 (4,019) 14,484 Income tax expense (benefit)............ 264 520 1,823 -- 2,607 ------- --------- --------- ------- ---------- Income Before Minority Interests.............. 5,834 7,743 2,319 (4,019) 11,877 Minority interest in net income of subsidiaries......... -- 6,043 -- -- 6,043 ------- --------- --------- ------- ---------- Net Income.............. 5,834 1,700 2,319 (4,019) 5,834 Preferred stock dividends and accretion............ 2,178 -- -- -- 2,178 ------- --------- --------- ------- ---------- Net Income Available for Common Shareholders.... $ 3,656 $ 1,700 $ 2,319 $(4,019) $ 3,656 ======= ========= ========= ======= ==========
F-32 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS Year Ended December 31, 1996 (In thousands)
ICF Kaiser Parent Subsidiary Non-Guarantor International, Inc. Company Guarantors Subsidiaries Eliminations Consolidated -------- ---------- ------------- ------------ ------------------- Net Cash Provided by (Used in) Operating Activities............. $(16,387) $13,954 $ 2,929 $ 870 $ 1,366 -------- ------- ------- ------- -------- Investing Activities Purchases of fixed assets............... (2,002) (102) (2,828) -- (4,932) Investments in subsidiaries and affiliates, net of cash acquired........ -- (225) (1,092) -- (1,317) Sale of fixed assets.. -- -- 22 -- 22 -------- ------- ------- ------- -------- Net Cash Used in Investing Activities......... (2,002) (327) (3,898) -- (6,227) -------- ------- ------- ------- -------- Financing Activities Borrowings under credit facility...... 114,000 -- -- -- 114,000 Principal payments on credit facility...... (98,500) -- -- -- (98,500) Proceeds from issuance of senior notes ..... 14,700 -- -- -- 14,700 Repurchases of preferred stock...... (20,000) -- -- -- (20,000) Distribution of income to minority interest............. -- (2,428) -- -- (2,428) Change in book overdraft............ 2,827 -- -- -- 2,827 Proceeds from issuances of common stock................ 383 -- -- -- 383 Preferred stock dividends............ (2,615) -- -- -- (2,615) Debt issuance costs... (1,427) -- -- -- (1,427) Other financing activities........... -- -- 924 -- 924 -------- ------- ------- ------- -------- Net Cash Provided by (Used in) Financing Activities......... 9,368 (2,428) 924 -- 7,864 -------- ------- ------- ------- -------- Effect of Exchange Rate Changes on Cash........ -- -- 228 -- 228 -------- ------- ------- ------- -------- Increase (Decrease) in Cash and Cash Equivalents............ (9,021) 11,199 183 870 3,231 Cash and Cash Equivalents at Beginning of Period.... 4,790 1,009 12,584 (1,364) 17,019 -------- ------- ------- ------- -------- Cash and Cash Equivalents at End of Period................. $ (4,231) $12,208 $12,767 $ (494) $ 20,250 ======== ======= ======= ======= ========
F-33 SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS ICF KAISER INTERNATIONAL, INC AND SUBSIDIARIES (in thousands)
Column A Column B Column C Column D Column E -------- -------------------- ----------------------- ---------- -------------- Add itions ----------------------- Balance at beginning Charged to costs Balance at end Description of Period and expenses Other Deductions of period ----------- -------------------- ---------------- ------ ---------- -------------- Year Ended December 31, 1998 Deducted from asset ac- count: Allowance for doubtful accounts $ 7,142 15,111 1,756(5) 13,159(1) $10,850 Deducted from asset account and included in other liabilities: provision for future losses on contracts 1,199 76,210 47,730 29,679 ------- ------- ------ ------- ------- $ 8,341 $91,321 $1,756 $60,889 $40,529 ======= ======= ====== ======= ======= Year Ended December 31, 1997 Deducted from asset ac- count: Allowance for doubtful accounts $ 9,450 1,195 1,150(5) 4,653(1) $ 7,142 Deducted from asset account and included in other liabilities: provision for future losses on contracts 1,517 494 812 1,199 ------- ------- ------ ------- ------- $10,967 $ 1,689 $1,150 $ 5,465 $ 8,341 ======= ======= ====== ======= ======= Year Ended December 31, 1996 Deducted from asset account: Allowance for doubtful accounts $ 9,435 1,881 175(3) 3,490(1) $ 9,450 1,449(5) Deducted from asset account and included in other liabilities: provision for future losses on contracts 2,274 300 491(4) 1,548(2) 1,517 ------- ------- ------ ------- ------- $11,709 $ 2,181 $2,115 $ 5,038 $10,967 ======= ======= ====== ======= =======
- -------- (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. (3) Reflects net allowance for doubtful accounts from the purchase of a subsidiary. (4) Reflects provision for future contract losses provided for in connection with the purchase of a subsidiary. (5) Reflects other additions to reserves. S-1 EX-10.A 2 EXHIBIT 10(A) Exhibit 10(a) LOAN AND SECURITY AGREEMENT THIS LOAN AND SECURITY AGREEMENT (this "Agreement") is entered into as of December 18, 1998, among ICF KAISER INTERNATIONAL, INC., a Delaware corporation ("Borrower"), with its chief executive office located at 9300 Lee Highway, Fairfax, Virginia 22031-1207, each subsidiary of the Borrower that is a signatory hereto or that is joined to this Agreement pursuant to Section 18.7 hereof (each a "Subsidiary Guarantor" and collectively, the "Subsidiary Guarantors"), each of the financial institutions signatories hereto (such financial institutions, together with their respective successors and assigns, each a "Lender" and collectively, the "Lenders"), and MADELEINE L.L.C., a New York limited liability company ("Madeleine"), with a place of business at 450 Park Avenue, New York, New York 10022, as administrative agent for the Lenders (in such capacity, the "Administrative Agent"). WHEREAS, the Borrower, certain subsidiaries of the Borrower, the Existing Lender (as hereafter defined) and First Union Capital Markets (as successor to CoreStates Bank, N.A.), as agent for the Existing Lender, are parties to an Amended and Restated Credit Agreement, dated as of December 3, 1997, as amended (the "Existing Credit Agreement"); and WHEREAS, the parties desire to enter into this Agreement, as a successor agreement to the Existing Credit Agreement; NOW, THEREFORE, the parties agree as follows: 1. DEFINITIONS AND CONSTRUCTION. 1.1 Definitions. As used in this Agreement, the following terms shall have the following definitions: "Acceptable Bank" means Norwest Bank or any bank organized under the laws of the United States or any State thereof whose long- term debt securities or whose holding company's long-term debt securities are rated A or better by Standard & Poor's Corporation or A or better by Moody's Investors Service Inc. "Account Debtor" means any Person who is or who may become obligated under, with respect to, or on account of, an Account. "Accounts" means all currently existing and hereafter arising accounts, contract rights, and all other forms of obligations owing to Borrower or any Subsidiary Guarantor arising out of the sale or lease of goods or the rendition of services by Borrower or such Subsidiary Guarantor, irrespective of whether earned by performance, and any and all credit insurance, guaranties, or security therefor. "Administrative Agent" has the meaning set forth in the preamble to this Agreement, and shall include any successor administrative agent. "Advances" has the meaning set forth in Section 2.1(a). "Affiliate" means, as applied to any Person, any other Person who directly or indirectly controls, is controlled by, is under common control with or is a director or officer of such Person. For purposes of this definition, (i) "control" means the possession, directly or indirectly, of the power to vote 10% or more of the securities having ordinary voting power for the election of directors or Persons 1 performing similar functions or the direct or indirect power to direct the management and policies of a Person, (ii) each Company is an Affiliate of each other Company, and (iii) any Person of which Borrower is a partner or member is an Affiliate of each Company. "Agents" means Administrative Agent and Collateral Agent and shall include any successor to each such Agent. "Agent Advances" has the meaning set forth in Section 2.1(g). "Agent Loans" has the meaning set forth in Section 2.1(f). "Agent-Related Persons" means the respective Agents, together with their respective Affiliates, and the officers, directors, employees, counsel, agents and attorneys-in-fact of such Agents and such Affiliates. "Agreement" has the meaning set forth in the preamble hereto. "Assignee" has the meaning set forth in Section 15.1(a). "Assignment and Acceptance" has the meaning set forth in Section 15.1(a) and shall be substantially in the form of Exhibit 15.1. "Assignment of Claims Act" means the Assignment of Claims Act of 1940, as amended from time to time, codified at 31 U.S.C. ss. 3727 and 41 U.S.C. ss. 15, and the rules and regulations promulgated thereunder. "Assignment of Claims Act Notices" has the meaning set forth in Section 6.18. "Authorized Person" means any officer or other employee of Borrower. "Availability" means, as of the date of determination, the difference (so long as such difference is a positive number) between (a) the lesser of (i) the Borrowing Base and (ii) the Maximum Revolving Amount and (b) the Revolving Facility Usage. "Average Exposure" has the meaning set forth in Section 2.6(a). "Average Unused Portion of Maximum Revolving Amount" means, as of any date of determination, (a) the Maximum Revolving Amount, less (b) the sum of (i) the average Daily Balance of Advances that were outstanding during the immediately preceding month, plus (ii) the average Daily Balance of the undrawn Letters of Credit that were outstanding during the immediately preceding month. "Bankruptcy Code" means the United States Bankruptcy Code (11 U.S.C. ss. 101 et seq.), as amended, and any successor statute. "Benefit Plan" means a "defined benefit plan" (as defined in Section 3(35) of ERISA) for which Borrower, any Subsidiary of Borrower, or any ERISA Affiliate has been an "employer" (as defined in Section 3(5) of ERISA) within the past six (6) years. "Borrower" has the meaning set forth in the preamble hereto. 2 "Borrowing" means a borrowing hereunder consisting of Advances made on the same day by Lenders, or by Administrative Agent in the case of an Agent Loan or an Agent Advance. "Borrowing Base" has the meaning set forth in Section 2.1(a). "Business Day" means any day that is not a Saturday, Sunday, or other day on which national banks are authorized or required to close. "Change of Control" means (i) any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act) of 20% or more of the voting power of the then outstanding common stock of Borrower, (ii) during any period of 12 consecutive calendar months, individuals who were directors of Borrower on the first day of such period shall cease to constitute a majority of the board of directors of Borrower, provided that a director who has resigned or is replaced during such time shall not be included in any determination of whether a Change of Control has occurred pursuant to this clause (ii) to the extent such director is replaced by a successor director elected by a majority of those directors who were directors at the commencement of such period, (iii) except to the extent not prohibited by Section 7.3, Borrower shall cease to directly or indirectly own and control, of record and beneficially, 100% of the then outstanding capital stock of each Subsidiary Guarantor free and clear of all Liens, (iv) either Keith M. Price or Timothy P. O'Connor shall cease to manage and be involved in the day-to-day operations of the Borrower and its Subsidiaries and a successor, reasonably acceptable to the Administrative Agent, is not appointed within thirty (30) days of the cessation of such management and involvement or (v) a "Change of Control", as such term is defined under either of the Indentures, shall occur. "Closing Date" means the date of the first to occur of the making of the initial Advance or the issuance of the initial Letter of Credit. "Code" means the New York Uniform Commercial Code. "Collateral" means each of the following: (a) the Accounts, (b) the Companies' Books, (c) the Equipment, (d) the General Intangibles, (e) the Inventory, (f) the Negotiable Collateral, (g) the Real Property Collateral, (h) any money, or other assets of any Company that now or hereafter come into the possession, custody or control of any Agent or the Lender Group, and (i) the proceeds and products, whether tangible or intangible, of any of the foregoing, including proceeds of insurance covering any or all of the Collateral, and any and all Accounts, 3 Companies' Books, Equipment, General Intangibles, Inventory, Negotiable Collateral, Real Property, money, deposit accounts, or other tangible or intangible property resulting from the sale, exchange, collection, or other disposition of any of the foregoing, or any portion thereof or interest therein, and the proceeds thereof. "Collateral Access Agreement" means a landlord waiver, mortgagee waiver, bailee letter, or acknowledgment agreement of any warehouseman, processor, lessor, consignee, or other Person in possession of, having a Lien upon, or having rights or interests in the Equipment or Inventory, in each case, in form and substance satisfactory to Administrative Agent. "Collateral Agent" means the Person selected by the Administrative Agent, after consultation with Borrower, to perform the duties of Collateral Agent as set forth in this Agreement and such other duties as the Administrative Agent shall determine. "Collateral Agent's Account" has the meaning set forth in Section 2.7. "Collections" means all cash, checks, notes, instruments, and other items of payment (including, insurance proceeds, proceeds of cash sales, rental proceeds, and tax refunds). "Commitment" means, at any time with respect to a Lender, the principal amount set forth beside such Lender's name under the heading "Commitment" on Schedule C-1 or on Annex I of the Assignment and Acceptance pursuant to which such Lender became a Lender hereunder in accordance with the provisions of Section 15.1, as such Commitment may be adjusted from time to time in accordance with the provisions of Section 15.1, and "Commitments" means, collectively, the aggregate amount of the Commitments of all of Lenders. "Companies" means Borrower and the Subsidiary Guarantors; each of the Borrower and Subsidiary Guarantors may be referred to herein as a "Company". "Companies' Books" means all of the books and records of the Companies including: ledgers; records indicating, summarizing, or evidencing the Companies' properties or assets (including the Collateral) or liabilities; all information relating to the Companies' business operations or financial condition; and all computer programs, disk or tape files, printouts, runs, or other computer prepared information; provided, however, that the term "Companies' Books" shall not include books, records or information that may not be provided to the Agents or the Lender Group under applicable law or regulations other than financial information with respect to the Borrower and its Subsidiaries generally and financial information with respect to the Accounts (the "Restricted Records"); provided, further, that, if Administrative Agent determines that any such Restricted Records are necessary to monitor or enforce the rights or remedies of the Agents or the Lender Group pursuant to any Loan Document, Borrower (i) shall use its best efforts to obtain consent from the applicable Governmental Authority for Administrative Agent to have access to such Restricted Records, subject to such limitations as may be required by such Governmental Authority, and (ii) shall provide such Restricted Records to Administrative Agent, redacted as necessary to comply with applicable law and regulations. "Compliance Certificate" means a certificate substantially in the form of Exhibit C-1 and delivered by the chief executive officer, chief financial officer or chief accounting officer of Borrower to Administrative Agent. "Consolidated Group" means Borrower and its Subsidiaries as reflected from time to time in Borrower's consolidated financial statements, prepared in accordance with GAAP, provided that 4 the Consolidated Group shall include Kaiser-Hill and K-H Funding to the extent reflected in Borrower's consolidated financial statements in accordance with GAAP. "Contribution Agreement" means an Indemnity, Subrogation and Contribution Agreement to be executed by each of the Companies, substantially in the form of Exhibit C-2, as the same may be amended or otherwise modified from time to time. "Daily Balance" means the amount of an Obligation owed at the end of a given day. "deems itself insecure" means that the Person deems itself insecure in accordance with the provisions of Section 1-208 of the Code. "Default" means an event, condition, or default that, with the giving of notice, the passage of time, or both, would be an Event of Default. "Designated Account" means account number 2014122 098094 of Borrower maintained with Borrower's Designated Account Bank, or such other deposit account of Borrower (located within the United States) which has been designated, in writing and from time to time, by Borrower to Administrative Agent and Collateral Agent. "Designated Account Bank" means First Union National Bank, whose office is located at McLean, Virginia, and whose ABA number is 031201467. "Dilution" means, in each case based upon the experience of the immediately prior twelve (12) months, the result of dividing the Dollar amount of (a) bad debt write-downs, other than write downs disclosed in a writing delivered to Administrative Agent on or prior to the Closing Date, discounts, advertising, returns, promotions, credits, or other dilution with respect to the Accounts, by (b) the Companies' Collections (excluding extraordinary items) plus the Dollar amount of clause (a). "Dilution Reserve" means, as of any date of determination, an amount sufficient to reduce the Lenders' advance rate against Eligible Accounts and Eligible Unbilled Accounts by one percentage point for each percentage point by which Dilution is in excess of 5%. "Disbursement Letter" means an instructional letter executed and delivered by Borrower to Administrative Agent and Collateral Agent regarding the extensions of credit to be made on the Closing Date, the form and substance of which shall be satisfactory to each such Agent. "Dollars" or "$" means United States dollars. "Dutch Receivables Pledge" means the Dutch Supplemental Deed of Pledge of Receivables made by ICF Kaiser Netherlands B.V. in favor of Administrative Agent, in form and substance satisfactory to Administrative Agent, as the same may be amended or otherwise modified from time to time. "EBITDA" means, with respect to any fiscal period of Borrower, an amount equal to the sum for such fiscal period of (i) Net Income, plus (ii) provision for taxes based on income, plus (iii) Interest Expense, plus (iv) depreciation, amortization and other non-cash charges, in each case of the Consolidated Group. 5 "Eligible Accounts" means those Accounts created by a Company (other than ICF Kaiser Europe, Inc.) in the ordinary course of business, that arise out of such Company's rendition of services, that strictly comply with each and all of the representations and warranties respecting Accounts made by such Company to Lender Group in the Loan Documents, and that are and at all times continue to be acceptable to Administrative Agent in all respects; provided, however, that standards of eligibility may be fixed and revised from time to time by Administrative Agent, in its reasonable credit judgment. Eligible Accounts shall not include the following: (a) Accounts for which (i) an invoice has not been rendered to the applicable Account Debtor or (ii) the Account Debtor has failed to pay within 120 days of invoice date; (b) Accounts owed by an Account Debtor or its Affiliates where 50% or more of all Accounts owed by that Account Debtor (or its Affiliates) are deemed ineligible under clause (a) (ii) above; (c) Accounts with respect to which the Account Debtor is an employee, Excluded Affiliate, or agent of Borrower or any of its Subsidiaries; (d) Accounts that are not payable in Dollars or with respect to which the Account Debtor: (i) does not maintain its chief executive office in the United States, or (ii) is not organized under the laws of the United States, any State thereof or the District of Columbia, or (iii) is the government of any foreign country or sovereign state, or of any state, province, municipality, or other political subdivision thereof, or of any department, agency, public corporation, or other instrumentality thereof, unless (y) the Account is supported by an irrevocable letter of credit reasonably satisfactory to Administrative Agent (as to form, substance, and issuer or domestic confirming bank) that has been delivered to Administrative Agent and is directly drawable by Administrative Agent, or (z) the Account is covered by credit insurance for which Administrative Agent is a loss payee, in form and amount, and by an insurer, reasonably satisfactory to Administrative Agent; (e) Accounts with respect to which the Account Debtor is either (i) the United States or any department, agency, or instrumentality of the United States (exclusive, however, of Accounts with respect to which the applicable Company has (x) complied, to the satisfaction of Administrative Agent, with the Assignment of Claims Act or (y) pursuant to Section 6.18, delivered to Administrative Agent Assignment of Claims Act Notices satisfactory to Administrative Agent), or (ii) any state or city Governmental Authority (exclusive, however, of (A) Accounts owed by any such Governmental Authority that does not have a statutory counterpart to the Assignment of Claims Act, (B) Accounts owed by any such Governmental Authority that does have a statutory counterpart to the Assignment of Claims Act and with respect to which Borrower has (x) complied with such applicable statutory counterpart to the satisfaction of Administrative Agent or (y) pursuant to Section 6.18, delivered to Administrative Agent Assignment of Claims Act Notices satisfactory to Administrative Agent, and (C) Accounts owed by any such Governmental Authority if the aggregate amount of all Accounts owed by such Governmental Authority do not exceed $1,000,000); (f) Accounts with respect to which the Account Debtor is a creditor of any Company and has, by notification to any Company, any action or otherwise, made known its intention to assert a right of setoff, has asserted a right of setoff, has disputed its liability, or has made any claim with respect to the Account; (g) Accounts with respect to an Account Debtor (other than the United States or any department, agency or instrumentality of the United States) whose total obligations owing to the 6 Companies, taken as a whole, exceed 20% of all Eligible Accounts and Eligible Unbilled Accounts, to the extent of the obligations owing by such Account Debtor in excess of such percentage; (h) Accounts with respect to which the Account Debtor is subject to any Insolvency Proceeding, or becomes insolvent, or goes out of business; (i) Accounts the collection of which Administrative Agent, in its reasonable credit judgment, believes to be doubtful by reason of the Account Debtor's financial condition; (j) (i) Accounts with respect to which the services giving rise to such Account have not been performed and accepted by the Account Debtor or with respect to which the Account Debtor's obligations on the Account is conditional, whether because further action is required to be performed by the applicable Company, approval of a Person is required to be obtained, or otherwise, or (ii) the Account otherwise does not represent a final sale; provided that, where payment by the Account Debtor under an Account is required upon the completion of certain actions, the obtaining of certain approvals or the achievement of certain milestones, to the extent of the amount of such required payment, such Account shall be deemed an Eligible Account if the applicable Company determines in good faith that the applicable action has been taken, the applicable approval has been obtained or the applicable milestones have been achieved in accordance with the contract giving rise to such Account and such Account otherwise qualifies as an Eligible Account; (k) Accounts with respect to which the Account Debtor is located in the states of New Jersey, Minnesota, Indiana, or West Virginia (or any other state that requires a creditor to file a Business Activity Report or similar document in order to bring suit or otherwise enforce its remedies against such Account Debtor in the courts or through any judicial process of such state), unless the Subsidiary Guarantor owning such Account has qualified to do business in New Jersey, Minnesota, Indiana, West Virginia, or such other states, or has filed a Notice of Business Activities Report with the applicable division of taxation, the department of revenue, or with such other state offices, as appropriate, for the then-current year, or is exempt from such filing requirement; and (l) Accounts which include a "retainage" or "hold-back" from the amount due with respect to such Accounts, to the extent of the amount of such "retainage" or "hold-back." "Eligible Unbilled Account" means an Account which satisfies all of the standards of eligibility for an Eligible Account except that an invoice for such Account has not been rendered to the applicable Account Debtor; provided, however, that the invoice for such Account is rendered to the Account Debtor within 45 days of the creation thereof. "Equipment" means all of the Companies' present and hereafter acquired owned machinery, machine tools, motors, equipment, furniture, furnishings, fixtures, vehicles (including motor vehicles and trailers), tools, parts, goods (other than consumer goods, farm products, or Inventory), wherever located in the United States of America, including, (a) any interest of any Company in any of the foregoing, and (b) all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing. "ERISA" means the Employee Retirement Income Security Act of 1974, 29 U.S.C. ss.ss. 1000 et seq., amendments thereto, successor statutes, and regulations or guidance promulgated thereunder. 7 "ERISA Affiliate" means (a) any corporation subject to ERISA whose employees are treated as employed by the same employer as the employees of any Company under IRC Section 414(b), (b) any trade or business subject to ERISA whose employees are treated as employed by the same employer as the employees of any Company under IRC Section 414(c), (c) solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any organization subject to ERISA that is a member of an affiliated service group of which any Company is a member under IRC Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any party subject to ERISA that is a party to an arrangement with any Company and whose employees are aggregated with the employees of any Company under IRC Section 414(o). "ERISA Event" means (a) a Reportable Event with respect to any Benefit Plan or Multiemployer Plan, (b) the withdrawal of Borrower, any of its Subsidiaries or ERISA Affiliates from a Benefit Plan during a plan year in which it was a "substantial employer" (as defined in Section 4001(a)(2) of ERISA), (c) the providing of notice of intent to terminate a Benefit Plan in a distress termination (as described in Section 4041(c) of ERISA), (d) the institution by the PBGC of proceedings to terminate a Benefit Plan or Multiemployer Plan, (e) any event or condition (i) that provides a basis under Section 4042(a)(1), (2), or (3) of ERISA for the termination of, or the appointment of a trustee to administer, any Benefit Plan or Multiemployer Plan, or (ii) that may result in termination of a Multiemployer Plan pursuant to Section 4041A of ERISA, (f) the partial or complete withdrawal within the meaning of Sections 4203 and 4205 of ERISA, of Borrower or any of its Subsidiaries or ERISA Affiliates from a Multiemployer Plan, or (g) providing any security to any Plan under Section 401(a)(29) of the IRC by Borrower or any of its Subsidiaries or any of their ERISA Affiliates. "Event of Default" has the meaning set forth in Section 8. "Excluded Affiliate" means an Affiliate of Borrower or any of its Subsidiaries, with respect to which Borrower or such Subsidiary possesses, directly or indirectly, (i) the power to vote 40% or more of the securities having ordinary voting power for the election of directors or Persons performing similar functions or (ii) the direct or indirect power to direct the management and policies of such Affiliate. "Existing Credit Agreement" has the meaning set forth in the first "Whereas" clause hereto. "Existing Lender" means, collectively, each of the lenders that are a party to the Existing Credit Agreement. "FEIN" means Federal Employer Identification Number. "Foreign Account Debtor" means an Account Debtor described in clauses (i), (ii) or (iii) of paragraph (d) of the definition of Eligible Accounts. "Funding Date" means the date on which a Borrowing occurs or a Letter of Credit is issued. "GAAP" means generally accepted accounting principles as in effect from time to time in the United States, consistently applied. "General Intangibles" means all of the Companies' present and future general intangibles and other personal property (including contract rights, rights arising under common law, statutes, 8 or regulations, choses or things in action, goodwill, patents, trade names, trademarks, servicemarks, copyrights, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, rights to payment and other rights under any royalty or licensing agreements, infringement claims, computer programs, information contained on computer disks or tapes, literature, reports, catalogs, deposit accounts, insurance premium rebates, tax refunds, and tax refund claims), other than goods, Accounts, and Negotiable Collateral. "Governing Documents" means the certificate or articles of incorporation, by-laws, or other organizational or governing documents of any Person. "Governmental Authority" means any nation or government, any federal, state, city, town, municipality, county, local or other political subdivision thereof or thereto and any department, commission, board, bureau, instrumentality, agency or other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Hazardous Materials" means (a) substances that are defined or listed in, or otherwise classified pursuant to, any applicable laws or regulations as "hazardous substances," "hazardous materials," "hazardous wastes," "toxic substances," or any other formulation intended to define, list, or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP toxicity", (b) oil, petroleum, or petroleum derived substances, natural gas, natural gas liquids, synthetic gas, drilling fluids, produced waters, and other wastes associated with the exploration, development, or production of crude oil, natural gas, or geothermal resources, (c) any flammable substances or explosives or any radioactive materials, and (d) asbestos in any form or electrical equipment that contains any oil or dielectric fluid containing levels of polychlorinated biphenyls in excess of 50 parts per million. "Indebtedness" means, with respect to any Person, without duplication: (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes, or other similar instruments and all reimbursement or other obligations of such Person in respect of letters of credit, bankers acceptances, interest rate swaps, or other financial products, (c) all obligations of such Person under capital leases, (d) all obligations or liabilities of others secured by a Lien on any property or asset of such Person, irrespective of whether such obligation or liability is assumed, and (e) any obligation of such Person guaranteeing or intended to guarantee (whether guaranteed, endorsed, co-made, discounted, or sold with recourse to such Person) any indebtedness, capital lease, dividend, letter of credit, or other financial obligation (other than operating leases) of any other Person. "Indentures" means collectively (i) the Indenture, dated as of January 11, 1994, as supplemented or amended from time to time, with respect to Borrower's $125,000,000 12% Senior Subordinated Notes due 2003 and (ii) the Indenture, dated as of December 23, 1996, as supplemented or amended from time to time, with respect to the Borrower's $15,000,000 12% Senior Notes due 2003. "Insolvency Proceeding" means any proceeding commenced by or against any Person under any provision of the Bankruptcy Code or under any other bankruptcy or insolvency law, foreign or domestic, assignments for the benefit of creditors, formal or informal moratoria, compositions, extensions generally with creditors, or proceedings seeking reorganization, arrangement, or other similar relief. "Intangible Assets" means, with respect to any Person, that portion of the book value of all of such Person's assets that would be treated as intangibles under GAAP. 9 "Interest Expense" means total interest obligations (paid or accrued) of the Consolidated Group, determined in accordance with GAAP on a basis consistent with the latest audited financial statements of the Consolidated Group. "Inventory" means all present and future inventory in which any Company has any interest, including goods held for sale or lease or to be furnished under a contract of service and all of such Company's present and future raw materials, work in process, finished goods, and packing and shipping materials, wherever located. "IRC" means the Internal Revenue Code of 1986, as amended, and the regulations thereunder. "Kaiser-Hill" means Kaiser-Hill Company, LLC, a limited liability company formed under the laws of Colorado, owned equally by ICF Kaiser Government Programs, Inc. and CH2M Hill Constructors, Inc. "K-H Funding" means Kaiser-Hill Funding Company, L.L.C., a limited liability company formed under the laws of the Sate of Delaware, owned in the following percentages by Kaiser-Hill (98%), ICF Kaiser Government Programs, Inc. (1%), and CH2M Hill Constructors, Inc. (1%). "L/C" has the meaning set forth in Section 2.2(a). "L/C Guaranty" has the meaning set forth in Section 2.2(a). "Lender" and "Lenders" have the respective meanings set forth in the preamble hereto, and shall include any other Person made a party to this Agreement in accordance with the provisions of Section 15.1. "Lender Group" means, individually and collectively, each of the individual Lenders and each Agent. "Lender Group Expenses" means all reasonable costs or expenses (including taxes and insurance premiums) required to be paid by Borrower or any other Company under any of the Loan Documents that are paid or incurred by any of Lender Group; fees or charges paid or incurred by any of Lender Group in connection with any of Lender Group's transactions with the Companies, including, fees or charges for photocopying, notarization, couriers and messengers, telecommunication, public record searches (including tax lien, judgment and UCC searches and including searches with the patent and trademark office, the copyright office, or the department of motor vehicles), filing, recording, publication, appraisal (including periodic Collateral appraisals) and environmental audits; costs and expenses incurred by any of Lender Group in the disbursement of funds to Borrower (by wire transfer or otherwise); charges paid or incurred by any of Lender Group resulting from the dishonor of checks; costs and expenses paid or incurred by any of Lender Group to correct any default or enforce any provision of the Loan Documents, or in gaining possession of, maintaining, handling, preserving, storing, shipping, selling, preparing for sale, or advertising to sell the Collateral or any portion thereof, irrespective of whether a sale is consummated; costs and expenses paid or incurred by any of Lender Group in examining the Companies' Books; costs and expenses of third party claims or any other suit paid or incurred by any of Lender Group in enforcing or defending the Loan Documents or in connection with the transactions contemplated by the Loan Documents or any of Lender Group's relationship with Borrower or any other Company; and any of Lender Group's reasonable attorneys' fees and expenses incurred in advising, structuring, drafting, reviewing, administering, amending, terminating, enforcing (including attorneys fees and expenses incurred in connection with a 10 "workout," a "restructuring," or an Insolvency Proceeding concerning Borrower or any Company), defending, or concerning the Loan Documents, irrespective of whether suit is brought. "Letter of Credit" means an L/C or an L/C Guaranty, as the context requires. "Lien" means any interest in property securing an obligation owed to, or a claim by, any Person other than the owner of such property, whether such interest shall be based on the common law, statute, or contract, whether such interest shall be recorded or perfected, and whether such interest shall be contingent upon the occurrence of some future event or events or the existence of some future circumstance or circumstances, including the lien or security interest arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment, deposit arrangement, security agreement, adverse claim or charge, conditional sale or trust receipt, or from a lease, consignment, or bailment for security purposes and also including reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases, and other title exceptions and encumbrances affecting Real Property. "Loan Account" has the meaning set forth in Section 2.10. "Loan Documents" means this Agreement, the Pledge Agreements, the Trademark Security Agreement, the Contribution Agreement, any Joinder Agreement, the Dutch Receivables Pledge, the Disbursement Letter, the Letters of Credit, the Lockbox Agreements, any Assignment of Claims Act Notices, any Mortgage, any note or notes executed by Borrower and payable to any Lender in connection with this Agreement, and any other agreement entered into, now or in the future, in connection with this Agreement. "Lockbox Account" means a depositary account established pursuant to one of the Lockbox Agreements. "Lockbox Agreements" means those certain Lockbox Operating Procedural Agreements and those certain Depository Account Agreements, in form and substance satisfactory to the Agents, each of which is among one or more Companies, the Collateral Agent, and one of the Lockbox Banks. "Lockbox Banks" means Bank of America (NationsBank) and Wells Fargo. "Lockboxes" has the meaning set forth in Section 2.7. "Madeleine" has the meaning set forth in the preamble hereto. "Margin" has the meaning set forth in Section 2.6(a). "Material Adverse Change" means (a) a material adverse change in the business, prospects, operations, results of operations, assets, liabilities or condition (financial or otherwise) of any Company or of the Consolidated Group, taken as a whole, (b) the material impairment of any Company's ability to perform its obligations under the Loan Documents to which it is a party or of the Agents or the Lender Group to enforce the Obligations or realize upon the Collateral, (c) a material adverse effect on the value of the Collateral or the amount that the Agents or the Lender Group would be likely to receive (after giving consideration to delays in payment and costs of enforcement) in the liquidation of such Collateral, or (d) a material impairment of the priority of the Agents or the Lender Group's Liens with respect to the Collateral, provided that the events described in a separate writing delivered to the Administrative Agent prior to the Closing Date shall not constitute a Material Adverse Change. 11 "Material Contract" means any agreement or contract of any Company or any Subsidiary of a Company (excluding subcontracts the costs of which by their terms are paid by such Company's or Subsidiary's customer) which (a) involves consideration to such Company or Subsidiary of $5,000,000 or more, (b) involves consideration by such Company or Subsidiary of $1,000,000 or more, (c) imposes financial obligations on any Company or any Subsidiary of a Company of $1,000,000 or more (other than any agreement that by its terms may be terminated by any Company or any Subsidiary of a Company upon sixty (60) days' notice or less) or (d) is otherwise material (or together with related agreements and contracts, is material) to the business, operations, condition (financial or otherwise), performance, prospects or properties of any Company, provided that Material Contracts shall include the Material Customer Contracts, and provided further that, notwithstanding the foregoing, Administrative Agent may, in its reasonable business judgment, reduce the Dollar amounts specified in clauses (a), (b) and (c) above without declaring an Event of Default. "Material Customer Contracts" means, collectively, each agreement or contract of any Company pursuant to which any Company may reasonably be expected to receive gross revenues of $5,000,000 or more during the term thereof, provided that, notwithstanding the foregoing, Administrative Agent may, in its reasonable business judgment, reduce the foregoing Dollar amount without declaring an Event of Default. "Maturity Date" has the meaning set forth in Section 3.4. "Maximum Revolving Amount" means $60,000,000. "Mortgage" has the meaning set forth in Section 6.17. "Multiemployer Plan" means a "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA) to which Borrower, any of its Subsidiaries, or any ERISA Affiliate has contributed, or was obligated to contribute, within the past six (6) years. "Negotiable Collateral" means, with respect to any Company, all of such Company's present and future letters of credit, notes, drafts, instruments, investment property, security entitlements, securities (including the shares of stock of direct Subsidiaries of such Company), documents, personal property leases (wherein such Company is the lessor), chattel paper, and such Company's Books relating to any of the foregoing. "Net Income" means, for any period, the net income (or net loss) of the Consolidated Group for such period after giving effect to deduction of or provision for all operating expenses, all taxes and reserves (including reserves for deferred taxes) and all other proper deductions, all determined in accordance with GAAP, provided that there shall be excluded: (i) any restoration of any contingency reserve for extraordinary items, except to the extent that the provision for such reserve was made out of income during such period, (ii) any net gains or losses on the sale or other disposition, not in the ordinary course of business, of capital assets, provided that there shall also be excluded any related charges for taxes thereon, (iii) any net gain arising from the collection of the proceeds of any insurance policy, (iv) any write-up of any asset, and (v) any other extraordinary item. "Net Proceeds" means: (a) with respect to the sale or other disposition of any asset (other than any capital stock or debt security) by Borrower or any of its Subsidiaries (including in connection with any sale-leaseback), the excess, if any, of (i) the aggregate amount received in cash (including any cash received by way of deferred payment pursuant to a note receivable, other non-cash consideration or otherwise, but only as and when such cash is so received) in connection with such sale 12 or other disposition, over (ii) the sum of (A) the principal amount of any Indebtedness which is secured by any such asset (other than Indebtedness assumed by the purchaser of such asset) or which is required to be, and is, repaid in connection with the sale or other disposition thereof (other than Indebtedness hereunder), (B) the reasonable out-of-pocket expenses and fees incurred by the Borrower or its Subsidiaries in connection with such sale or other disposition (but only to the extent that such out-of-pocket expenses and fees, if paid to an Affiliate of Borrower, are approved by the Administrative Agent in its sole discretion exercised reasonably), and provided that all such expenses and fees are set forth on a certificate provided to the Administrative Agent, and (C) federal and state taxes incurred in connection with such sale or other disposition, whether payable at such time or thereafter; and (b) with respect to the sale or other disposition of any capital stock or debt security by Borrower or any of its Subsidiaries, excluding any sale or disposition of capital stock of Borrower pursuant to employee stock option or purchase plans of Borrower, the excess of (i) the aggregate amount received in cash (including any cash received by way of deferred payment pursuant to a note receivable, other non-cash consideration or otherwise, but only as and when such cash is so received) in connection with such sale or other disposition, over (ii) the sum of (A) the reasonable fees, commissions and other out-of-pocket expenses incurred by Borrower or its Subsidiaries in connection with such sale or other disposition (but only to the extent such fees, commissions and expenses, if paid to an Affiliate of Borrower, are approved by the Administrative Agent in its sole discretion exercised reasonably and provided that all such fees, commissions, discounts and expenses are set forth on a certificate provided to the Administrative Agent) and (B) federal and state taxes incurred in connection with such sale or other disposition, whether payable at such time or thereafter. "Non-Recourse Indebtedness" means Indebtedness of a Single Purpose Subsidiary that (a) is not a Subsidiary Guarantor (or required to be joined to this Agreement as a Subsidiary Guarantor pursuant to Section 18.7) and (b) except for ICF Kaiser Defense Programs, Inc. (but only to the extent that the aggregate Indebtedness incurred by ICF Kaiser Defense Programs, Inc. does not exceed $4,900,000), is not in existence on the Closing Date, with respect to which: (i) the sole legal recourse for collection of principal, premium, if any, and interest and all other obligations on or with respect to such Indebtedness is against (A) the specific property identified in the instruments evidencing or securing such Indebtedness and such property was acquired with the proceeds of such Indebtedness or such Indebtedness was incurred within 90 days of the acquisition of such property, and/or (B) the capital stock or other equity of such Single Purpose Subsidiary, provided that such Single Purpose Subsidiary has no assets other than the specific property acquired with the proceeds of such Indebtedness and such other assets as may be reasonably required for the limited operations of such Single Purpose Subsidiary; and (ii) neither Borrower nor any Subsidiary of Borrower, other than such Single Purpose Subsidiary (A) is directly or indirectly liable to make any payment thereon (other than as permitted by the following clause (B)), (B) has any guarantee obligation in respect of such Indebtedness or such Single Purpose Subsidiary (other than a guarantee as to which recourse is limited to the capital stock or other equity of such Single Purpose Subsidiary), or (C) has pledged or granted any Lien or encumbrances on any assets as collateral or security with respect thereto, other than the capital stock or other equity of such Single Purpose Subsidiary. "Notes" means the promissory notes issued by Borrower pursuant to the Indentures. "Obligations" means all loans, Advances, debts, principal, interest (including any interest that, but for the provisions of the Bankruptcy Code, would have accrued), contingent reimbursement obligations under any outstanding Letters of Credit, premiums, liabilities (including all amounts charged to Borrower's Loan Account pursuant hereto), obligations, fees, charges, costs, or Lender Group Expenses (including any fees or expenses that, but for the provisions of the Bankruptcy Code, would have accrued), 13 lease payments, guaranties, covenants, and duties owing by any Company to the Agents or the Lender Group of any kind and description (whether pursuant to or evidenced by the Loan Documents or pursuant to any other agreement between the Agents or the Lender Group and any Company, and irrespective of whether for the payment of money), whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including any debt, liability, or obligation owing from any Company to others that the Agents or the Lender Group may have obtained by assignment or otherwise, and further including all interest not paid when due and all Lender Group Expenses that any Company is required to pay or reimburse by the Loan Documents, by law, or otherwise. "Originating Lender" has the meaning set forth in Section 15.1(e). "Overadvance" has the meaning set forth in Section 2.5. "Participant" means any Person to which a Lender has sold a participation interest in its rights under the Loan Documents. "Pay-Off Letter" means a letter agreement, in form and substance reasonably satisfactory to the Administrative Agent, from Existing Lender respecting the amount necessary to repay in full all of the obligations of Borrower owing to Existing Lender and obtain a termination or release of all of the Liens existing in favor of Existing Lender in and to the properties or assets of the Companies. "PBGC" means the Pension Benefit Guaranty Corporation as defined in Title IV of ERISA, or any successor thereto. "Permitted Businesses" means the businesses of providing consulting, engineering or construction services to public and private sector clients in the environment, energy, infrastructure and industry markets. "Permitted Liens" means (a) Liens in favor of any Agent for the benefit of Lender Group, (b) Liens for unpaid taxes that either (i) are not yet due and payable or (ii) are the subject of Permitted Protests, (c) Liens set forth on Schedule P-1, (d) the interests of lessors under operating leases and purchase money Liens of lessors under capital leases to the extent that the acquisition or lease of the underlying asset is permitted under Section 7.21 and so long as the Lien only attaches to the asset purchased or acquired and only secures the purchase price of the asset, (e) Liens arising by operation of law in favor of warehousemen, landlords, carriers, mechanics, materialmen, laborers, or suppliers, incurred in the ordinary course of business of the Companies and not in connection with the borrowing of money, and which Liens either (i) are for sums not yet due and payable, or (ii) are the subject of Permitted Protests, (f) Liens arising from deposits made in connection with obtaining worker's compensation or other unemployment insurance, (g) Liens or deposits to secure performance of bids, tenders, or leases (to the extent permitted under this Agreement), incurred in the ordinary course of business of the Companies and not in connection with the borrowing of money, (h) Liens arising by reason of security for surety or appeal bonds in the ordinary course of business of the Companies, (i) Liens of or resulting from any judgment or award that would not cause a Material Adverse Change and as to which the time for the appeal or petition for rehearing of which has not yet expired, or in respect of which a Company is in good faith prosecuting an appeal or proceeding for a review, and in respect of which a stay of execution pending such appeal or proceeding for review has been secured, (j) Liens with respect to the Real Property Collateral that are exceptions to the commitments for title insurance issued in connection with any Mortgages, as accepted by the Administrative Agent, (k) with respect to any Real Property that is not part of the Real Property Collateral, easements, rights of way, zoning and similar covenants and restrictions, and similar encumbrances that customarily exist on properties of Persons engaged in similar activities and similarly situated and that in any event do not 14 materially interfere with or impair the use or operation of the Collateral by the Company or the value of Lender Group's Lien thereon or therein, or materially interfere with the ordinary conduct of the business of any Company, (l) Liens securing Non-Recourse Indebtedness and Indebtedness permitted by Section 7.1(j), and (m) Liens (not otherwise permitted) which secure obligations not exceeding (as to the Borrower and the other Companies) $500,000 in an aggregate amount at any time outstanding, provided that such Liens are limited to assets other than Accounts and General Intangibles. "Permitted Protest" means the right of any Company to protest any Lien other than any such Lien that secures the Obligations, tax (other than payroll taxes or taxes that are the subject of a United States federal tax lien), or rental payment, provided that (a) a reserve with respect to such obligation is established on the books of the affected Company in an amount that is reasonably satisfactory to Administrative Agent, (b) any such protest is instituted and diligently prosecuted by such Company in good faith, and (c) Administrative Agent is satisfied that, while any such protest is pending, there will be no impairment of the enforceability, validity, or priority of any of the Liens of Lender Group, or of any Agent for the benefit of Lender Group, in and to the Collateral. "Person" means and includes natural persons, corporations, limited liability companies, limited partnerships, general partnerships, limited liability partnerships, joint ventures, trusts, land trusts, business trusts, or other organizations, irrespective of whether they are legal entities, and governments and agencies and political subdivisions thereof. "Personal Property Collateral" means all Collateral other than the Real Property Collateral. "Plan" means any employee benefit plan, program, or arrangement maintained or contributed to by any Company or with respect to which any Company may incur liability. "Pledge Agreements" means the Pledge and Security Agreements made by each of the Borrower, the Subsidiary Guarantors and the corporate parent of each Subsidiary Guarantor in favor of the Administrative Agent, each in the form of Exhibits P-1, P-2 or P-3 hereto, as applicable, as the same may be amended or otherwise modified from time to time. "Pro-Rata Share" means, with respect to a Lender, a fraction (expressed as a percentage), the numerator of which is the amount of such Lender's Commitment and the denominator of which is the aggregate amount of the Commitments. "Real Property" means any estates or interests in real property now owned or hereafter acquired by any Company. "Real Property Collateral" means any estates or interests in owned real property hereafter acquired by any Company. "Reference Rate" means the variable rate of interest per annum most recently announced by The Chase Manhattan Bank, N.A., or any successor thereto, as its "prime rate," irrespective of whether such announced rate is the best rate available from such financial institution. "Report" has the meaning set forth in Section 17.16(a). 15 "Reportable Event" means any of the events described in Section 4043(c) of ERISA or the regulations thereunder other than a Reportable Event as to which the provision of thirty (30) days' notice to the PBGC is waived under applicable regulations. "Required Lenders" means, at any time, Administrative Agent together with such other Lenders whose Pro Rata Shares together with Administrative Agent aggregate sixty-six and two-thirds percent (66-2/3%) or more of the Commitments. "Retiree Health Plan" means an "employee welfare benefit plan" within the meaning of Section 3(1) of ERISA that provides benefits to individuals after termination of their employment, other than as required by Section 601 of ERISA. "Revolving Facility Usage" means, as of any date of determination, the aggregate amount of Advances and undrawn or unreimbursed Letters of Credit outstanding. "Settlement" has the meaning set forth in Section 2.1(h)(i). "Settlement Date" has the meaning set forth in Section 2.1(h)(i). "Single Purpose Subsidiary" means as to any Person, a Subsidiary of such Person the activities of which are limited to (a) ownership of all or a portion of the interests in a single project constituting one or more Permitted Businesses, either directly or through the ownership of the capital stock or other equity of another Person, and (b) the development, engineering, design, project management, construction or operation of such project; ICF Kaiser Defense Programs, Inc. shall be deemed to be a Single Purpose Subsidiary for all purposes hereunder. "Solvent" means, with respect to any Person on a particular date, that on such date (a) at fair valuations, all of the properties and assets of such Person are greater than the sum of the debts, including contingent liabilities, of such Person, (b) the present fair salable value of the properties and assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person is able to realize upon its properties and assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, and (d) such Person does not intend to, and does not believe that it will, incur debts beyond such Person's ability to pay as such debts mature. In computing the amount of contingent liabilities at any time, it is intended that such liabilities will be computed at the amount that, in light of all the facts and circumstances existing at such time, represents the amount that reasonably can be expected to become an actual or matured liability. "Specified Liens" has the meaning set forth in Section 3.3(b). "Subsidiary" of a Person means a corporation, partnership, limited liability company, or other entity in which that Person directly or indirectly owns or controls the shares of stock or other ownership interests having ordinary voting power to elect a majority of the board of directors (or appoint other comparable managers) of such corporation, partnership, limited liability company, or other entity; provided, however, that neither Kaiser-Hill nor K-H Funding shall constitute a Subsidiary so long as Borrower does not own beneficially in excess of 50% of the membership interests in either such entity. "Subsidiary Guarantors" has the meaning set forth in the preamble hereto. 16 "Tangible Net Worth" means, as of any date of determination, the difference of (a) total stockholder's equity of the Consolidated Group, minus (b) the sum of: (i) all Intangible Assets of the Consolidated Group, (ii) all prepaid expenses of the Consolidated Group, and (iii) all amounts due to the Consolidated Group from Affiliates. "Total Debt" means, at any time, the aggregate amount of Indebtedness of the Consolidated Group for borrowed money plus the aggregate amount of the Consolidated Group's obligations under capitalized leases. "Trademark Security Agreement" means each Trademark Security Agreement dated the date hereof, each substantially in the form of Exhibit T-1, made by the Borrower and certain Subsidiary Guarantors in favor of the Administrative Agent, as the same may be amended or otherwise modified from time to time. "Voidable Transfer" has the meaning set forth in Section 19.8. 1.2 Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP. When used herein, the term "financial statements" shall include the notes and schedules thereto. Whenever the term "Borrower" is used in respect of a financial covenant or a related definition, it shall be understood to mean the Consolidated Group unless the context clearly requires otherwise. 1.3 Code. Any terms used in this Agreement that are defined in the Code shall be construed and defined as set forth in the Code unless otherwise defined herein. 1.4 Construction. Unless the context of this Agreement clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the term "including" is not limiting, and the term "or" has, except where otherwise indicated, the inclusive meaning represented by the phrase "and/or." The words "hereof," "herein," "hereby," "hereunder," and similar terms in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. An Event of Default shall "continue" or be "continuing" until such Event of Default has been waived in writing by the requisite members of Lender Group. Section, subsection, clause, schedule, and exhibit references are to this Agreement unless otherwise specified. Unless the context of this Agreement clearly requires otherwise, the phrases "aggregate amount," "aggregate value" and "in the aggregate" mean the total aggregate amount or value (as applicable) during the term of this Agreement. Any reference in this Agreement or in the Loan Documents to this Agreement or any of the Loan Documents shall include all alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, and supplements, thereto and thereof, as applicable. 1.5 Schedules and Exhibits. All of the schedules and exhibits attached to this Agreement shall be deemed incorporated herein by reference. 2. LOAN AND TERMS OF PAYMENT. 2.1 Revolving Advances. (a) Subject to the terms and conditions of this Agreement, each Lender agrees to make advances ("Advances") to Borrower in an amount at any one time outstanding not to exceed such Lender's Pro Rata Share of an amount equal to the lesser of (i) the Maximum Revolving Amount less the outstanding balance of all undrawn or unreimbursed Letters of Credit, or (ii) the Borrowing Base less the 17 aggregate amount of all undrawn or unreimbursed Letters of Credit. For purposes of this Agreement, "Borrowing Base", as of any date of determination, shall mean the result of: (x) the lesser of (i) the sum of (A) 85% of Eligible Accounts (other than Accounts with respect to which the Account Debtor is a Foreign Account Debtor), that have been outstanding less than 90 days from the invoice date, plus (B) 80% of Eligible Accounts (other than Accounts with respect to which the Account Debtor is a Foreign Account Debtor) that have been outstanding 90 days or more but less than 120 days from the invoice date, plus (C) 90% of Eligible Accounts with respect to which the Account Debtor is a Foreign Account Debtor, plus (D) the lesser of (1) 65% of Eligible Unbilled Accounts and (2) $25,000,000, minus (E) the amount, if any, of the Dilution Reserve, and (ii) an amount equal to the Companies' Collections with respect to Accounts for the immediately preceding 60 day period, minus (y) the aggregate amount of reserves, if any, established by Administrative Agent under Section 2.1(b) and Section 10, from time to time. (b) Anything to the contrary in Section 2.1(a) above notwithstanding, Administrative Agent may, in its reasonable business judgment, create reserves against or reduce Lender Group's advance rates based upon Eligible Accounts or Eligible Unbilled Accounts without declaring an Event of Default. Lenders shall have no obligation to make Advances hereunder to the extent such Advances would cause the outstanding Obligations to exceed the Maximum Revolving Amount. Amounts borrowed pursuant to this Section 2.1 may be repaid and, subject to the terms and conditions of this Agreement, reborrowed at any time during the term of this Agreement. (c) Procedure for Borrowing. Each Borrowing shall be made upon Borrower's irrevocable request therefor delivered to each of Administrative Agent and Collateral Agent (which notice must be received by each of Administrative Agent and Collateral Agent (i) by 12:00 noon (New York time) on the Business Day of the requested Funding Date, in the case of any Borrowing in an amount of less than $5,000,000 and (ii) by 12:00 noon (New York time) on the second Business Day immediately prior to the requested Funding Date, in the case of any Borrowing in an amount of $5,000,000 or greater) specifying (i) the amount of the Borrowing and (ii) the requested Funding Date, which shall be a Business Day. The amount of each Borrowing shall not be less than $1,000,000. (d) Agent's Election. Administrative Agent shall elect, in its discretion and by notice to the Collateral Agent, (i) to have the terms of Section 2.1(e) apply to any requested Borrowing, or (ii) cause Collateral Agent to make an Agent Loan pursuant to the terms of Section 2.1(f) in the amount of the requested Borrowing. (e) Making of Advances. (i) In the event that Administrative Agent shall elect to have the terms of this Section 2.1(e) apply to a requested Borrowing as described in Section 2.1(d), then promptly after receipt of a request for a Borrowing pursuant to Section 2.1(c), the Collateral Agent shall notify Lenders, not later than 1:00 p.m. (New York time) on the Funding Date applicable thereto (or not later than 3:00 p.m. (New York time) on the Business Day immediately preceding the Funding Date applicable thereto, in the case of requested Borrowings in an amount of $5,000,000 or greater), by telephone and promptly confirmed by telecopy, or other similar form of transmission, of the requested Borrowing. Each Lender shall make the amount of such Lender's Pro Rata Share of the requested Borrowing available to Collateral Agent in same day funds, to such account of Collateral Agent as Collateral Agent 18 may designate, not later than 3:00 p.m. (New York time) on the Funding Date applicable thereto. After Collateral Agent's receipt of the proceeds of such Advances, upon satisfaction of the applicable conditions precedent set forth in Sections 3.1 and 3.2, Collateral Agent shall make the proceeds of such Advances available to Borrower on the applicable Funding Date by transferring same day funds equal to the proceeds of such Advances received by Collateral Agent to the Designated Account; provided, however, that, subject to the provisions of Section 2.1(k), Administrative Agent shall instruct Collateral Agent not to request any Lender to make, and no Lender shall have the obligation to make, any Advance if Administrative Agent shall have received written notice from any Lender that (A) one or more of the applicable conditions precedent set forth in Section 3.1 or 3.2 will not be satisfied on the requested Funding Date for the applicable Borrowing, or (B) the requested Borrowing would exceed the Availability on such Funding Date. Administrative Agent and Collateral Agent shall not otherwise be required to determine whether the applicable conditions precedent set forth in Sections 3.1 or 3.2 have been satisfied on the Funding Date applicable thereto prior to making, in its sole discretion, any Agent Loan. (ii) Unless Administrative Agent and Collateral Agent receive notice from a Lender on or prior to the Closing Date or, with respect to any Borrowing after the Closing Date, at least one (1) Business Day prior to the date of such Borrowing, that such Lender will not make available as and when required hereunder to Collateral Agent for the account of Borrower the amount of such Lender's Pro Rata Share of the Borrowing, Administrative Agent and Collateral Agent may assume that each Lender has made or will make such amount available to Collateral Agent in immediately available funds on the Funding Date and Collateral Agent may (but shall not be so required), in reliance upon such assumption, make available to Borrower on such date a corresponding amount. If and to the extent any Lender shall not have made its full amount available to Collateral Agent in immediately available funds and Collateral Agent shall have made available to Borrower such amount, then such Lender shall on the Business Day following such Funding Date make such amount available to Collateral Agent, together with interest at the Reference Rate for the first three (3) days from and after the date the relevant payment is due and thereafter at the interest rate then applicable to Advances. A notice from Administrative Agent or Collateral Agent submitted to any Lender with respect to amounts owing under this subsection shall be conclusive, absent manifest error. If such amount is paid to Collateral Agent such payment to Collateral Agent shall constitute such Lender's Advance on the Funding Date for all purposes of this Agreement. If such amount is not paid to Collateral Agent on the Business Day following the Funding Date, Administrative Agent will notify Borrower of such failure to fund and, upon demand by Administrative Agent, Borrower shall pay such amount to Collateral Agent, together with interest thereon for each day elapsed since the date of such Borrowing, at a rate per annum equal to the interest rate then applicable to Advances. The failure of any Lender to make any Advance on any Funding Date shall not relieve any other Lender of any obligation hereunder to make an Advance on such Funding Date, but no Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on such Funding Date. (f) Making of Agent Loans. (i) In the event Administrative Agent shall elect to have the terms of this Section 2.1(f) apply to a requested Borrowing as described in Section 2.1(d), Collateral Agent shall make an Advance in the amount of such Borrowing (any such Advance made solely by Collateral Agent pursuant to this Section 2.1(f) being referred to as an "Agent Loan" and such Advances being referred to collectively as "Agent Loans") available to Borrower on the Funding Date applicable thereto by transferring same day funds to Borrower's Designated Account. Each Agent Loan is an Advance hereunder and shall be subject to all the terms and conditions applicable to other Advances, except that all payments thereon shall be payable to Collateral Agent solely for the account of the Collateral Agent 19 (and for the account of the holder of any participation interest with respect to such Advance). Subject to the provisions of Section 2.1(k), Administrative Agent shall not cause Collateral Agent to make any Agent Loan if Administrative Agent and Collateral Agent shall have received written notice from any Lender, that (i) one or more of the applicable conditions precedent set forth in Sections 3.1 or 3.2 will not be satisfied on the requested Funding Date for the applicable Borrowing, or (ii) the requested Borrowing would exceed the Availability on such Funding Date. Administrative Agent and Collateral Agent shall not otherwise be required to determine whether the applicable conditions precedent set forth in Sections 3.1 or 3.2 have been satisfied on the Funding Date applicable thereto prior to making, in its sole discretion, any Agent Loan. (ii) Agent Loans shall be secured by the Collateral and shall constitute Advances and Obligations hereunder, and shall bear interest at the rate then applicable to Advances pursuant to Section 2.6. (g) Agent Advances. (i) Administrative Agent hereby is authorized by Borrower and Lenders, from time to time in Administrative Agent's sole discretion, (1) after the occurrence of a Default or an Event of Default (but without constituting a waiver of such Default or Event of Default) or (2) at any time that any of the other applicable conditions precedent set forth in Section 3.1 or 3.2 have not been satisfied, to make or to cause Collateral Agent to make Advances to Borrower on behalf of Lenders which Administrative Agent, in its reasonable business judgment, deems necessary or desirable (A) to preserve or protect the Collateral, or any portion thereof, (B) to enhance the likelihood of, or maximize the amount of, repayment of the Obligations, or (C) to pay any other amount chargeable to any Company pursuant to the terms of this Agreement, including Lender Group Expenses and the costs, fees, and expenses described in Section 10 (any of the Advances described in this Section 2.1(g) being hereinafter referred to as "Agent Advances"); provided, that Administrative Agent shall not make or cause Collateral Agent to make any Agent Advances to Borrower without the consent of Required Lenders if the amount outstanding thereof would exceed $5,000,000 in the aggregate at any one time. (ii) Agent Advances shall be repayable by Borrower on demand and secured by the Collateral, shall constitute Advances and Obligations hereunder, and shall bear interest at the rate then applicable to Advances pursuant to Section 2.6. (h) Settlement. It is agreed that each Lender's funded portion of the Advances is intended by Lenders to be equal at all times to such Lender's Pro Rata Share of the outstanding Advances. Such agreement notwithstanding, each Agent and Lenders agree (which agreement shall not be for the benefit of or enforceable by the Companies) that in order to facilitate the administration of this Agreement and the other Loan Documents, settlement among them as to the Advances, Agent Loans and Agent Advances shall take place on a periodic basis in accordance with the following provisions: (i) Collateral Agent shall request settlement ("Settlement")with Lenders, on a weekly basis, or on a more frequent basis as agreed in writing by Administrative Agent and Collateral Agent, (1) for Administrative Agent, with respect to each Agent Advance, (2) for Collateral Agent, with respect to each Agent Loan, and (3) with respect to Collections received, as to each Lender, by notifying Lenders by telephone and promptly confirmed by telecopy, or other similar form of transmission, of such requested Settlement, no later than 4:00 p.m. (New York time) on the Business Date immediately preceding the date of such requested Settlement (the "Settlement Date"). Such notice of a Settlement shall include a summary statement of the amount of outstanding Advances, Agent Loans 20 and Agent Advances for the period since the prior Settlement, the amount of repayments received in such period, and the amounts allocated to each Lender of the principal, interest, fees, and other charges for such period. Subject to the terms and conditions contained herein (including Section 2.1(h)(ii)): (y) if a Lender's balance of the Advances, Agent Loans and Agent Advances exceeds such Lender's Pro Rata Share of the Advances, Agent Loans and Agent Advances as of a Settlement Date, then, Collateral Agent shall by no later than 4:00 p.m. (New York time) on such Settlement Date transfer in same day funds to the account of such Lender as Lender may designate, an amount such that each such Lender shall, upon receipt of such amount, have as of the Settlement Date, its Pro Rata Share of the Advances, Agent Loans and Agent Advances; and (z) if a Lender's balance of the Advances, Agent Loans and Agent Advances is less than such Lender's Pro Rata Share of the Advances, Agent Loans and Agent Advances as of a Settlement Date, such Lender shall by no later than 4:00 p.m. (New York time) on such Settlement Date transfer in same day funds to such account of Collateral Agent as Collateral Agent may designate, an amount such that each such Lender shall, upon transfer of such amount, have as of such Settlement Date, its Pro Rata Share of the Advances, Agent Loans and Agent Advances. Such amounts made available to Collateral Agent under clause (z) of the immediately preceding sentence shall be applied against the amounts of the applicable Agent Loan or Agent Advance and shall, together with the portion of such Agent Loan or Agent Advance representing Administrative Agent's and Collateral Agent's (in their capacity as Lenders) Pro Rata Share thereof, constitute Advances of such Lenders. If any such amount is not made available to Collateral Agent by any Lender on the Settlement Date applicable thereto to the extent required by the terms hereof, Collateral Agent shall be entitled to recover, for the benefit of Administrative Agent or Collateral Agent, as applicable, such amount on demand from such Lender together with interest thereon at the Reference Rate for the first three (3) days from and after such Settlement Date and thereafter at the interest rate then applicable to Advances. (ii) In determining whether a Lender's balance of the Advances, Agent Loans and Agent Advances is less than, equal to, or greater than such Lender's Pro Rata Share of the Advances, Agent Loans and Agent Advances as of a Settlement Date, Collateral Agent shall, as part of the relevant Settlement, apply to such balance the portion of payments actually received by Collateral Agent with respect to principal, interest and fees payable by Borrower and allocable to Lenders hereunder, and proceeds of Collateral. To the extent that a net amount is owed to any such Lender after such application, such net amount shall be distributed by Collateral Agent to that Lender as part of such Settlement; provided, however, that the first annual fee payable by Borrower under Section 2.11(a) on the Closing Date shall be distributed to Lenders within two (2) Business Days following the Closing Date without regard to the netting of amounts owing to or owed by any Lender as part of a Settlement. (iii) Between Settlement Dates, Collateral Agent, to the extent no Agent Advances or Agent Loans are outstanding, may pay over to Collateral Agent (in its capacity as Lender) any payments received by Collateral Agent, which in accordance with the terms of this Agreement would be applied to the reduction of the Advances, for application to Collateral Agent's (in its capacity as Lender) Pro Rata Share of the Advances. If, as of any Settlement Date, Collections received since the then immediately preceding Settlement Date have been applied to Collateral Agent's (in its capacity as Lender) Pro Rata Share of the Advances other than to Agent Loans, as provided for in the previous sentence, Collateral Agent shall pay to Lenders, to be applied to the outstanding Advances of such Lenders, an amount such that each Lender shall, upon receipt of such amount, have, as of such Settlement Date, its Pro Rata Share of the Advances. During the period between Settlements, Administrative Agent with respect to Agent Advances, Collateral Agent with respect to Agent Loans and each Lender with respect to the Advances other than Agent Loans and Agent Advances, shall be entitled to interest at the applicable rate or rates payable under this Agreement on the daily amount of funds employed by Agents or Lenders, as applicable. 21 (i) Notation. Collateral Agent shall record on its books the principal amount of the Advances owing to each Lender, including Agent Loans and Agent Advances owing to Administrative Agent or Collateral Agent, as applicable, and the interests therein of each Lender, from time to time. In addition, each Lender is authorized, at such Lender's option, to note the date and amount of each payment or prepayment of principal of such Lender's Advances in its books and records, including computer records, such books and records constituting rebuttably presumptive evidence, absent manifest error, of the accuracy of the information contained therein. (j) Lenders' Failure to Perform. All Advances (other than Agent Loans and Agent Advances) shall be made by Lenders simultaneously and in accordance with their Pro Rata Shares. It is understood that (i) no Lender shall be responsible for any failure by any other Lender to perform its obligation to make any Advances hereunder, nor shall any Commitment of any Lender be increased or decreased as a result of any failure by any other Lender to perform its obligation to make any Advances hereunder, and (ii) no failure by any Lender to perform its obligation to make any Advances hereunder shall excuse any other Lender from its obligation to make any Advances hereunder. (k) Overadvances. (i) Administrative Agent may make or may cause Collateral Agent to make voluntary Overadvances without the written consent of Required Lenders for amounts charged to the Loan Account for interest, fees or Lender Group Expenses pursuant to Section 2.1(g)(i)(2)(C). Administrative Agent may or may cause Collateral Agent to, but such Agents shall not be obligated to, knowingly and intentionally continue to make Advances to Borrower if, at any time, (1) either (A) the outstanding Revolving Facility Usage would not exceed the Borrowing Base by more than $5,000,000 or (B) (y) the outstanding Revolving Facility Usage would not exceed the Borrowing Base by more than the amount proposed by Administrative Agent and agreed to by Required Lenders, and (z) such Advances are made pursuant to a plan (proposed by Administrative Agent and agreed to by Required Lenders) for the elimination of the outstanding Revolving Facility Usage in excess of the Borrowing Base, and (2) the outstanding Revolving Facility Usage (except for and excluding amounts charged to the Loan Account for interest, fees or Lender Group Expenses) does not exceed the Maximum Revolving Amount. The foregoing provisions are for the sole and exclusive benefit of Agents and Lenders and are not intended to benefit Borrower or any other Company in any way. The Agent Advances and Agent Loans, as applicable, that are made pursuant to this Section 2.1(k) shall be subject to the same terms and conditions as any other Agent Loan or Agent Advance, except that the rate of interest applicable thereto shall be the rates set forth in Section 2.6(c)(i) without regard to the presence or absence of a Default or Event of Default; provided, that Required Lenders may, at any time, revoke Administrative Agent's authorization contained in this Section 2.1(k) to make Overadvances (except for and excluding amounts charged to the Loan Account for interest, fees, or Lender Group Expenses), any such revocation to be in writing and to become effective upon Administrative Agent's receipt thereof; provided further, however, that the making of such Overadvances shall not constitute a waiver of such Event of Default arising therefrom. (ii) In the event Administrative Agent obtains actual knowledge that Revolving Facility Usage exceeds the amount permitted by the preceding paragraph, regardless of the amount of or reason for such excess, Administrative Agent shall notify Lenders as soon as practicable (and prior to making or causing Collateral Agent to make any (or any further) intentional Overadvances (except for and excluding amounts charged to the Loan Account for interest, fees or Lender Group Expenses) unless Administrative Agent determines that prior notice would result in imminent harm to the Collateral or its value), and Lenders thereupon shall, together with Administrative Agent, jointly determine the terms of arrangements that shall be implemented with Borrower intended to reduce, within a reasonable time, the outstanding principal amount of the Advances to Borrower to an amount permitted by the preceding paragraph. In the event any Lender disagrees over the terms of reduction and/or 22 repayment of any Overadvance, the terms of reduction and/or repayment thereof shall be implemented according to the determination of Required Lenders. (iii) Each Lender shall be obligated to settle with Collateral Agent as provided in Section 2.1(h) for the amount of such Lender's Pro Rata Share of any unintentional Overadvances reported to such Lender, any intentional Overadvances made as permitted under this Section 2.1(k), and any Overadvances resulting from the charging to the Loan Account of interest, fees or Lender Group Expenses. 2.2 Letters of Credit. (a) Subject to the terms and conditions of this Agreement, Administrative Agent agrees to cause Collateral Agent on behalf of the Lenders, to issue Letters of Credit for the account of Borrower (each an "L/C") or to issue guarantees of payment (each such guaranty, an "L/C Guaranty") with respect to letters of credit issued by an issuing bank for the account of Borrower. Each letter of credit issued for the account of Borrower and which is the subject of an L/C Guaranty shall be issued by an Acceptable Bank. Administrative Agent and Collateral Agent shall have no obligation to issue or cause the issuance of an L/C or L/C Guaranty if any of the following would result: (i) the aggregate amount of all undrawn and unreimbursed Letters of Credit, would exceed the Borrowing Base less the amount of outstanding Advances; or (ii) the aggregate amount of all undrawn or unreimbursed Letters of Credit would exceed the lower of: (x) the Maximum Revolving Amount less the amount of outstanding Advances less reserves established under Section 2.1(b) or Section 10; or (y) $35,000,000; or (iii) the outstanding Obligations would exceed the Maximum Revolving Amount. Borrower expressly understands and agrees that Collateral Agent shall have no obligation to arrange for the issuance by issuing banks of the letters of credit that are to be the subject of L/C Guarantees except as requested by Administrative Agent and in compliance with the terms and conditions of this Agreement. Borrower and the Lender Group acknowledge and agree that certain of the letters of credit that are to be the subject of L/C Guarantees may be outstanding on the Closing Date. Each Letter of Credit shall expire on a date (the "Expiry Date") that is (i) no later than 15 days prior to the date on which this Agreement is scheduled to terminate under Section 3.4 or (ii) one (1) year from the date of issuance, whichever is earlier, (unless such Letter of Credit shall have been collateralized on or prior to such Expiry Date in accordance with Section 2.2(e)) and all such Letters of Credit shall be in form and substance acceptable to Agents in their sole discretion. If Collateral Agent is obligated to advance funds under a Letter of Credit, Borrower immediately shall reimburse such amount to Collateral Agent and, in the absence of such reimbursement, the amount so advanced immediately and automatically shall be deemed to be an Advance and, thereafter, shall bear interest at the rate then applicable to Advances under Section 2.6. Subject to the provisions of Section 2.1(k), Administrative Agent shall instruct Collateral Agent not to issue any Letter of Credit, and no Lender shall have the obligation to participate in any Letter of Credit, if Administrative Agent shall have received written notice from any Lender that (A) one or more of the applicable conditions precedent set forth in Section 3.1 or 3.2 will not be satisfied on the requested issuance date for the applicable Letter of Credit, or (B) the requested Letter of Credit would exceed the Availability on the date of issuance. Administrative Agent and Collateral Agent shall not otherwise be required to determine whether the 23 applicable conditions precedent set forth in Sections 3.1 or 3.2 have been satisfied on the date of issuance applicable thereto prior to issuing any Letter of Credit. (b) Borrower hereby agrees to indemnify, save, defend, and hold Agents and Lender Group harmless from any loss, cost, expense, or liability, including payments made by Agents and Lender Group, expenses, and reasonable attorneys fees incurred by Agents and Lender Group arising out of or in connection with any Letter of Credit. Borrower agrees to be bound by the issuing bank's regulations and interpretations of any letters of credit guarantied by an L/C Guaranty and by Collateral Agent's interpretation of any L/C, even though this interpretation may be different from Borrower's own, and Borrower understands and agrees that Agents and Lender Group shall not be liable for any error, negligence, or mistake, whether of omission or commission, in following Borrower's instructions or those contained in the letter of credit or L/C (as applicable) or any modifications, amendments, or supplements thereto. Borrower understands that the L/C Guarantees may require Agents and/or Lender Group to indemnify the issuing bank for certain costs or liabilities arising out of claims by Borrower against such issuing bank. Borrower hereby agrees to indemnify, save, defend, and hold Agents and Lender Group harmless with respect to any loss, cost, expense (including reasonable attorneys fees), or liability incurred by Agents and Lender Group under any L/C Guaranty as a result of Agents' and/or Lender Group's indemnification of any such issuing bank. (c) Borrower hereby authorizes and directs any bank that issues a letter of credit guaranteed by an L/C Guaranty to deliver to Collateral Agent all instruments, documents, and other writings and property received by the issuing bank pursuant to such letter of credit, and to accept and rely upon Collateral Agent's instructions and agreements with respect to all matters arising in connection with such letter of credit and the related application. Borrower may or may not be the "applicant" or "account party" with respect to such letter of credit. (d) Any and all charges, commissions, fees, and costs incurred by Agents or Lender Group relating to the letters of credit guaranteed by an L/C Guaranty shall be considered Lender Group Expenses for purposes of this Agreement and immediately shall be reimbursable by Borrower to Collateral Agent. (e) Immediately upon the termination of this Agreement, Borrower agrees to either (i) provide cash collateral to be held by Collateral Agent in an amount equal to 105% of the maximum amount of Agents' and Lender Group's obligations under all Letters of Credit, or (ii) cause to be delivered to the Collateral Agent (x) releases of all of Lender Group's obligations under outstanding Letters of Credit and/or (y) one or more letters of credit, in form satisfactory to the Agents, securing Agents' and Lender Group's Obligations under all Letters of Credit. At Administrative Agent's discretion, any proceeds of Collateral received by Agents or Lender Group after the occurrence and during the continuation of an Event of Default may be held as the cash collateral required by this Section 2.2(e). (f) If by reason of (i) any change in any applicable law, treaty, rule, or regulation or any change in the interpretation or application by any Governmental Authority of any such applicable law, treaty, rule, or regulation, or (ii) compliance by the Agents, issuing bank or Lender Group with any direction, request, or requirement (irrespective of whether having the force of law) of any Governmental Authority or monetary authority including, without limitation, Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect (and any successor thereto): (A) any reserve, deposit, or similar requirement is or shall be imposed or modified in respect of any Letters of Credit issued hereunder, or 24 (B) there shall be imposed on the Agents, issuing bank or Lender Group any other condition regarding any letter of credit, L/C or L/C Guaranty, as applicable, issued pursuant hereto; and the result of the foregoing is to increase, directly or indirectly, the cost to the Agents, issuing bank or Lender Group of issuing, making, guaranteeing, or maintaining any letter of credit, L/C or L/C Guaranty, as applicable, or to reduce the amount receivable in respect thereof by such Agent, issuing bank or Lender Group, then, and in any such case, Administrative Agent may, at any time within a reasonable period after the additional cost is incurred or the amount received is reduced, notify Borrower, and Borrower shall pay on demand such amounts as the issuing bank or Administrative Agent may specify to be necessary to compensate the Agents, issuing bank or Lender Group for such additional cost or reduced receipt, together with interest on such amount from the date of such demand until payment in full thereof at the rate set forth in Section 2.6(a) or (c)(i), as applicable. The determination by the issuing bank or Administrative Agent, as the case may be, of any amount due pursuant to this Section 2.2(f), as set forth in a certificate setting forth the calculation thereof in reasonable detail, shall, in the absence of manifest or demonstrable error, be final and conclusive and binding on all of the parties hereto. 2.3 Participations in Letters of Credit. (a) Purchase of Participations. Immediately upon issuance of any Letter of Credit in accordance with Section 2.2, each Lender shall be deemed to have irrevocably and unconditionally purchased and received without recourse or warranty, an undivided interest and participation in the Letter of Credit issued by Collateral Agent and any other credit support or enhancement provided through Collateral Agent in connection therewith, equal to such Lender's Pro Rata Share of the face amount of such Letter of Credit (including, without limitation, all obligations of Collateral Agent with respect thereto, and any security therefor or guaranty pertaining thereto). (b) Documentation. Upon the request of any Lender, Collateral Agent shall furnish to such Lender copies of any letter of credit, guaranty, security agreement or reimbursement agreement executed in connection therewith, application for any letter of credit and credit support or enhancement provided through Collateral Agent in connection with the issuance of any Letter of Credit, and such other documentation as may reasonably by requested by such Lender. (c) Obligations Irrevocable. The obligations of each Lender to make payments to Collateral Agent with respect to any Letter of Credit or other credit support or enhancement provided through Collateral Agent with respect to a Letter of Credit, and the obligations of Borrower to make payments to Collateral Agent, for the account of Lenders, shall be irrevocable, not subject to any qualification or exception whatsoever, including, without limitation, any of the following circumstances: (i) any lack of validity or enforceability of this Agreement or any of the other Loan Documents; (ii) the existence of any claim, setoff, defense, or other right which Borrower may have at any time against a beneficiary named in a letter of credit or L/C or any transferee of any letter of credit or L/C (or any Person for whom any such transferee may be acting), any Lender, Agent or issuing bank, or any other Person, whether in connection with this Agreement, any Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transactions between such Borrower or any other Person and the beneficiary named in any letter of credit or L/C); 25 (iii) any draft, certificate, or any other document presented under the Letter of Credit proving to be forged, fraudulent, invalid, or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Loan Documents; or (v) the occurrence of any Default or Event of Default. 2.4 Payments. (a) Payments by Borrower. (i) All payments to be made by Borrower shall be made without set-off, recoupment, deduction, or counterclaim. Except as otherwise expressly provided herein, all payments by Borrower shall be made to Collateral Agent for the account of Lenders or Agents, as the case may be, at Collateral Agent's address set forth in a written notice delivered to Borrower, and shall be made in immediately available funds, no later than 2:00 p.m. (New York time) on the date specified herein. Any payment received by Collateral Agent later than 2:00 p.m. (New York time), at the option of Collateral Agent, shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue until such following Business Day. (ii) Whenever any payment is due on a day other than a Business Day, such payment shall be made on the following Business Day, and such extension of time shall in such case be included in the computation of interest or fees, as the case may be. (iii) Unless Administrative Agent and Collateral Agent receive notice from Borrower prior to the date on which any payment is due to Lenders that Borrower will not make such payment in full as and when required, Administrative Agent and Collateral Agent may assume that Borrower has made such payment in full to Collateral Agent on such date in immediately available funds and Administrative Agent may or may cause Collateral Agent to (but shall not be so required), in reliance upon such assumption, distribute to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent Borrower has not made such payment in full to Collateral Agent, each Lender shall repay to Collateral Agent on demand such amount distributed to such Lender, together with interest thereon at the Reference Rate for each day from the date such amount is distributed to such Lender until the date repaid. (iv) Immediately upon the receipt by the Borrower or any of its Subsidiaries of any Net Proceeds from the issuance, sale, assignment, transfer or other disposition of any capital stock, debt securities or assets of Borrower or any of its Subsidiaries, Borrower shall make a prepayment of any outstanding Advances or other outstanding Obligations in an amount equal to the amount of such Net Proceeds. (v) Immediately upon the receipt by any Company of any insurance proceeds, Borrower shall prepay outstanding Advances or other outstanding Obligations in an amount equal to the insurance proceeds received by such Company, except to the extent such insurance proceeds are required by a binding agreement to be paid to a third Person. Such insurance proceeds shall be applied to the outstanding Advances or other outstanding Obligations. 26 (b) Apportionment and Application of Payments. Aggregate principal and interest payments shall be apportioned ratably among Lenders (according to the unpaid principal balance of the Advances to which such payments relate held by each Lender) and payments of the fees (other than fees designated for an Agent's separate account) shall, as applicable, be apportioned ratably among Lenders. All payments shall be remitted to Collateral Agent and all such payments not relating to principal or interest on specific Advances, or not constituting payment of specific fees and all proceeds of Collateral received by Collateral Agent, shall be applied, first, to pay any fees or Lender Group Expenses then due to Agents from Borrower; second, to pay any fees or Lender Group Expenses then due to Lenders from Borrower; third, to pay interest due in respect of all Agent Loans and Agent Advances; fourth, to pay interest due in respect of all Advances (other than Agent Loans and Agent Advances); fifth, to pay or prepay principal of Agent Loans and Agent Advances; sixth, ratably to pay principal of the Advances (other than Agent Loans and Agent Advances) and unreimbursed obligations in respect of Letters of Credit, which may include the cash collateralization of Obligations with respect to undrawn Letters of Credit; and seventh, ratably to pay any other Obligations due to Agents or any Lender by Borrower. Collateral Agent shall promptly distribute to each Lender, pursuant to the applicable wire transfer instructions received from each Lender in writing, such funds as it may be entitled to receive, subject to a Settlement delay as provided for in Section 2.1(h). 2.5 Overadvances. If, at any time or for any reason, the amount of Obligations owed by Borrower to Lender Group pursuant to Sections 2.1 and 2.2 is greater than either the Dollar or percentage limitations set forth in Sections 2.1 or 2.2 (an "Overadvance"), Borrower immediately shall pay to the Collateral Agent, in cash, the amount of such excess. Such payment shall be used by Collateral Agent, first, to eliminate such Overadvance, and second, if a Default or Event of Default has occurred and is continuing, to repay all Advances outstanding under Section 2.1 and, thereafter, to be held by the Collateral Agent as cash collateral to secure Borrower's obligation to repay the Collateral Agent for all amounts paid pursuant to Letters of Credit. If, following elimination of such Overadvance, no Default or Event of Default has occurred and is continuing, any remaining amount shall, upon the written request of Borrower, be transferred by Collateral Agent to the Designated Account. 2.6 Interest and Letter of Credit Fees: Rates, Payments, and Calculations. (a) Interest Rate. Except as provided in clause (b) below, all Obligations (except for undrawn Letters of Credit), shall bear interest at a per annum rate equal to the Reference Rate plus the margin (the "Margin") in effect from time to time in accordance with the chart set forth below. For purposes of the chart set forth below, "Average Exposure" means the sum of (A) the average daily balance of Advances that were outstanding during the immediately preceding month plus (B) the average daily balance of the undrawn Letters of Credit that were outstanding during the immediately preceding month; provided, however, that for the period from the Closing Date to, but not including, the first day of the next succeeding calendar month, the "Average Exposure" for such period means the sum of (A) the average daily balance of Advances that were outstanding during such period plus (B) the average daily balance of the undrawn Letters of Credit that were outstanding during such period. The Average Exposure shall be calculated by the Collateral Agent on the first day of each calendar month and shall be conclusive absent manifest error. As of the Closing Date and through and including the date of termination of this Agreement, the Margin shall be the applicable per annum rate set forth in the table below:
----------------------------------- --------------------------------------- Average Exposure % Margin over Reference Rate ----------------------------------- --------------------------------------- less than or equal to $30,000,000 1.75 ----------------------------------- ---------------------------------------
27
------------------------------------ --------------------------------------- Average Exposure % Margin over Reference Rate ------------------------------------ --------------------------------------- greater than $30,000,000 2.50 less than or equal to $40,000,000 ------------------------------------ --------------------------------------- greater than $40,000,000 3.00 ------------------------------------ ---------------------------------------
(b) Letter of Credit Fee. Borrower shall pay the Collateral Agent, for the ratable benefit of the Lender Group, a fee (in addition to the charges, commissions, fees, and costs described in Section 2.2(d)) equal to 2.75% per annum times the aggregate undrawn amount of all outstanding Letters of Credit payable monthly in arrears on the first day of each month. (c) Default Rate. Upon the occurrence and during the continuation of an Event of Default, (i) all Obligations (except for undrawn Letters of Credit), shall bear interest at a per annum rate equal to three (3) percentage points above the rate otherwise in effect pursuant to Section 2.6(a), and (ii) the Letter of Credit fee provided in Section 2.6(b) shall be increased to 5.75% per annum times the amount of the aggregate undrawn amount of all outstanding Letters of Credit. (d) Minimum Interest. In no event shall the rate of interest chargeable hereunder for any day be less than 9.25% per annum. To the extent that interest accrued hereunder at the rate set forth herein would be less than the foregoing minimum daily rate, the interest rate chargeable hereunder for such day automatically shall be deemed increased to the minimum rate. To the extent that interest accrued hereunder at the rate set forth herein (including the minimum interest rate) would yield less than the foregoing minimum amount, the interest rate chargeable hereunder for the period in question automatically shall be deemed increased to that rate that would result in the minimum amount of interest being accrued and payable hereunder. (e) Payments. Interest and Letter of Credit fees payable hereunder shall be due and payable, in arrears, on the first day of each month during the term hereof. Borrower hereby authorizes the Administrative Agent, and Administrative Agent shall, cause the Collateral Agent, without prior notice to Borrower, to charge such interest and Letter of Credit fees, all Lender Group Expenses (as and when incurred), the charges, commissions, fees, and costs provided for in Section 2.2(d) (as and when accrued or incurred), the fees and charges provided for in Section 2.11 (as and when accrued or incurred), and all payments due under any Loan Document to Borrower's Loan Account, which amounts thereafter shall accrue interest at the rate then applicable to Advances hereunder; provided, however, that, upon prior written notice to Borrower, Administrative Agent may, in its sole discretion, cause Collateral Agent to discontinue charging interest, Lender Group Expenses and the fees and charges referred to above to Borrower's Loan Account at any time. Any interest not paid when due shall be compounded and shall thereafter accrue interest at the rate then applicable to Advances hereunder. (f) Computation. The Reference Rate as of the date of this Agreement is 7.75% per annum. In the event the Reference Rate is changed from time to time hereafter, the applicable rate of interest hereunder automatically and immediately shall be increased or decreased by an amount equal to such change in the Reference Rate. All interest and fees chargeable under the Loan Documents shall be computed on the basis of a 360 day year for the actual number of days elapsed. (g) Intent to Limit Charges to Maximum Lawful Rate. In no event shall the interest rate or rates payable under this Agreement, plus any other amounts paid in connection herewith, exceed the highest rate permissible under any law that a court of competent jurisdiction shall, in a final 28 determination, deem applicable. Borrower and Lender Group, in executing and delivering this Agreement, intend legally to agree upon the rate or rates of interest and manner of payment stated within it; provided, however, that, anything contained herein to the contrary notwithstanding, if said rate or rates of interest or manner of payment exceeds the maximum allowable under applicable law, then, ipso facto as of the date of this Agreement, Borrower is and shall be liable only for the payment of such maximum as allowed by law, and payment received from Borrower in excess of such legal maximum, whenever received, shall be applied to reduce the principal balance of the Obligations to the extent of such excess. 2.7 Collection of Accounts. Except for (i) Collections of the Subsidiary Guarantors listed on Schedule 2.7 that are deposited in the lockboxes or accounts corresponding to such Subsidiary Guarantors listed on Schedule 2.7, which lockboxes and accounts shall not in the aggregate have funds on deposit in excess of $500,000 at any time and (ii) ICF Kaiser Netherlands B.V. and its Accounts, General Intangibles and Negotiable Collateral and the Collections arising therefrom, the Companies shall at all times maintain lockboxes (the "Lockboxes") and, promptly, and in any event within three (3) Business Days after the Closing Date, shall instruct all Account Debtors (or with respect to Accounts existing on the Closing Date, make other arrangements satisfactory to the Administrative Agent) with respect to the Accounts, General Intangibles, and Negotiable Collateral of the Companies to remit all Collections in respect thereof to such Lockboxes, provided that ICF Kaiser Netherlands B.V. transfers to such Lockboxes the proceeds of all of its Collections that are not used to pay customary expenses, consistent with past practices, in connection with the operation of its businesses outside of the United States. The Companies, Collateral Agent, and the Lockbox Banks shall enter into the Lockbox Agreements satisfactory to the Agents, which among other things shall provide for the opening of a Lockbox Account for the deposit of Collections at a Lockbox Bank. The Companies agree that all Collections and other amounts received by the Companies from any Account Debtor or any other source immediately upon receipt shall be deposited into a Lockbox Account. No Lockbox Agreement or arrangement contemplated thereby shall be modified by any Company without the prior written consent of the Agents. Upon the terms and subject to the conditions set forth in the Lockbox Agreements, all amounts received in each Lockbox Account shall be wired each Business Day into an account (the "Collateral Agent's Account") maintained by Collateral Agent at a depositary selected by the Collateral Agent. 2.8 Crediting Payments; Application of Collections. The receipt of any Collections by the Collateral Agent (whether from transfers to the Collateral Agent by the Lockbox Banks pursuant to the Lockbox Agreements or otherwise) shall be applied to reduce the Obligations outstanding under Section 2.1 if such Collection item is a wire transfer of immediately available federal funds and is made to the Collateral Agent's Account, or at such time as such Collection is otherwise immediately available funds. Anything to the contrary contained herein notwithstanding, any Collection item shall be deemed received by the Collateral Agent only if it is immediately available funds received into the Collateral Agent's Account on a Business Day on or before 2:00 p.m., New York time. If any Collection item is received into the Collateral Agent's Account on a non-Business Day or after 2:00 p.m. New York time on a Business Day, it shall be deemed to have been received by the Collateral Agent as of the opening of business on the immediately following Business Day. 2.9 Designated Account. The Agents on behalf of the Lender Group are authorized to make the Advances and issue the Letters of Credit under this Agreement based upon telephonic or other instructions received from anyone purporting to be an Authorized Person, or without instructions if pursuant to Sections 2.6 and 2.10. Borrower agrees to establish and maintain the Designated Account with the Designated Account Bank for the purpose of receiving the proceeds of the Advances made hereunder. Unless otherwise agreed by the Agents and Borrower, any Advance requested by Borrower and made hereunder shall be made to the Designated Account. 29 2.10 Maintenance of Loan Account; Statements of Obligations. Collateral Agent on behalf of Administrative Agent and Lender Group shall maintain an account on its books in the name of Borrower (the "Loan Account") on which Borrower will be charged with all Advances made by the Lender Group to Borrower or for Borrower's account (including all Agent Loans and Agent Advances), including accrued interest, fees, the Lender Group Expenses, and any other payment Obligations of Borrower. In accordance with Section 2.8, the Loan Account will be credited with all payments received by Collateral Agent from Borrower or for Borrower's account, including all amounts received in the Collateral Agent's Account from any Lockbox Bank. Collateral Agent on behalf of Administrative Agent and Lender Group shall render statements regarding the Loan Account to Borrower, including principal, interest, fees, and including an itemization of all charges and expenses constituting Lender Group Expenses owing, and such statements shall be conclusively presumed to be correct and accurate and constitute an account stated between Borrower and Lender Group unless, within thirty (30) days after receipt thereof by Borrower, Borrower shall deliver to the Agents written objection thereto describing the error or errors contained in any such statements. 2.11 Fees. Borrower shall pay to Collateral Agent for the benefit of Lender Group (to be distributed among Lender Group as set forth in a separate writing among them) the following fees: (a) Annual Fee. On the Closing Date and on each anniversary of the Closing Date, a fee of $500,000. (b) Unused Line Fee. On the first day of each month during the term of this Agreement, an unused line fee in an amount equal to .375% per annum times the Average Unused Portion of the Maximum Revolving Amount. (c) Fee. On the six month anniversary of the Closing Date, a fee in an amount equal to .25% of the Maximum Revolving Amount, and on the eighteenth month anniversary of the Closing Date, a fee in an amount equal to .75% of the Maximum Revolving Amount. (d) Financial Examination, Documentation, and Appraisal Fees. Upon receipt of an invoice therefor, (A) an audit or examination fee of $650 per day per examiner, plus out-of-pocket expenses, for each financial analysis and examination (i.e., audits) of any Company performed by personnel employed by one or both Agents; (B) the cost of each third party appraisal required by Section 4.6 plus out-of-pocket expenses for each such appraisal; and, (C) the actual charges paid or incurred by the Agents if they elect to employ the services of one or more third Persons to perform such financial analyses and examinations (i.e., audits) of any Company; and (e) Servicing Fee. On the first day of each month during the term of this Agreement, and thereafter so long as any Obligations are outstanding, a servicing fee in an amount equal to $10,000. Each of the foregoing fees is non-refundable and shall be earned and due and payable on the dates indicated above, provided that the audit or examination fee described in Section 2.11(d)(A) shall be earned as and when an audit or examination specific to the Companies is performed and the other charges described in Section 2.11(d) shall be earned when incurred. 3. CONDITIONS; TERM OF AGREEMENT. 3.1 Conditions Precedent to the Initial Advance and Letters of Credit. The obligation of Lender Group to make the initial Advance or to issue the initial Letter of Credit is subject to the 30 fulfillment, to the satisfaction of Lender Group and its counsel, of each of the following conditions on or before the Closing Date: (a) the Closing Date shall occur on or before December 30, 1998; (b) Administrative Agent shall be satisfied that its financing statements have been accepted for filing in each applicable filing office; (c) Administrative Agent shall have received each of the following documents, duly executed and delivered, and each such document shall be in full force and effect: i. the Lockbox Agreements; ii. the Disbursement Letter; iii. the Pay-Off Letter, together with UCC termination statements and other documentation evidencing the termination by Existing Lender of its Liens in and to the properties and assets of the Companies; iv. the Trademark Security Agreement; v. the Pledge Agreements and the Dutch Receivables Pledge; vi. the Contribution Agreement; and vii. Assignment of Claims Act Notices for each Account existing as of the Closing Date, with respect to which the Account Debtor is (A) the United States, or any department, agency or instrumentality thereof, or (B) a state or city Governmental Authority, except to the extent such Account is not deemed an ineligible Account by reason of clause (ii)(A) or (ii)(C) of paragraph (e) of the definition of "Eligible Accounts" set forth in Section 1.1; (d) Administrative Agent shall have received a certificate from the Secretary of each Company attesting to the resolutions of such Company's Board of Directors authorizing its execution, delivery, and performance of this Agreement and the other Loan Documents to which such Company is a party and authorizing specific officers of such Company to execute the same; (e) Administrative Agent shall have received copies of each Company's Governing Documents, as amended, modified, or supplemented to the Closing Date, certified by the Secretary of such Company; (f) Administrative Agent shall have received a certificate of status with respect to each Company, dated within thirty (30) days of the Closing Date, such certificate to be issued by the appropriate officer of the jurisdiction of organization of such Company, which certificate shall indicate that such Company is in good standing in such jurisdiction; (g) Administrative Agent shall have received certificates of status with respect to each Company, each dated within thirty (30) days of the Closing Date, such certificates to be issued by the appropriate officer of the jurisdictions in which the failure of such Company to be duly qualified or 31 licensed would constitute a Material Adverse Change, which certificates shall indicate that such Company is in good standing in such jurisdictions; (h) Administrative Agent shall have received a certificate of insurance, together with the endorsements thereto, as are required by Section 6.10, the form and substance of which shall be satisfactory to Administrative Agent and its counsel; (i) Administrative Agent shall have received such Collateral Access Agreements from lessors, warehousemen, bailees, and other third persons as Administrative Agent may require; (j) Administrative Agent shall have received an opinion of the Companies' counsel in form and substance reasonably satisfactory to Administrative Agent; (k) Administrative Agent shall have received satisfactory evidence that all tax returns required to be filed by any Company have been timely filed and all taxes upon the Companies or their respective properties, assets, income, and franchises (including real property taxes and payroll taxes) have been paid prior to delinquency, except such taxes that are the subject of a Permitted Protest; (l) Administrative Agent shall be satisfied as to the implementation by Borrower of a cash management system reasonably satisfactory to Administrative Agent, which cash management system shall include, among other things, the procedures provided for in Sections 2.7 and 2.8; (m) there shall be no pending claim, investigation or litigation with respect to any Company by any state or federal government entity except as disclosed on Schedule 5.10 and any claim, investigation or litigation disclosed on such schedule shall be satisfactory to Administrative Agent and Lenders in all respects; (n) Intentionally Omitted; (o) Administrative Agent shall have received an enterprise valuation of Borrower and its Subsidiaries prepared by Ernst & Young LLP at the request of Administrative Agent, satisfactory in form and substance to Administrative Agent; (p) Administrative Agent shall have received a copy of the takeover audit of Borrower and its Subsidiaries, satisfactory in form and substance to Administrative Agent; (q) Administrative Agent shall have received a Company prepared balance sheet, income statement, and statement of cash flow covering the operations of the Consolidated Group on a consolidated and consolidating basis for the month of October, 1998; (r) Administrative Agent shall have received a complete copy of each Material Contract, including, without limitation, each Indenture, accompanied by a certificate of the chief executive officer, chief financial officer or Secretary of Borrower as to the completeness thereof; (s) Borrower shall have a minimum of $5,000,000 of unrestricted cash balances and Availability after the repayment of all amounts owing to the Existing Lender and all fees and expenses incurred in connection with the transactions contemplated by this Agreement and based upon a Borrowing Base calculated using information as of a date no earlier than November 30, 1998, 32 rolled forward to a date acceptable to the Agents and provided that accounts payable of the Companies are at a level and in a condition satisfactory to the Administrative Agent; and (t) all other documents and legal matters in connection with the transactions contemplated by this Agreement shall have been delivered, executed, or recorded and shall be in form and substance satisfactory to Administrative Agent and its counsel and the fees and disbursements of Schulte Roth & Zabel LLP and all other accrued and unpaid Lender Group Expenses shall be paid if invoiced as of the Closing Date. 3.2 Conditions Precedent to all Advances and all Letters of Credit. The following shall be conditions precedent to all Advances and all Letters of Credit hereunder: (a) the representations and warranties contained in this Agreement and the other Loan Documents shall be true and correct in all respects on and as of the date of such extension of credit, as though made on and as of such date (except to the extent that such representations and warranties relate solely to or are expressly made as of an earlier date); (b) no Default or Event of Default shall have occurred and be continuing on the date of such extension of credit, nor shall either result from the making thereof; and (c) no injunction, writ, restraining order, or other order of any nature prohibiting, directly or indirectly, the extending of such credit shall have been issued and remain in force by any Governmental Authority against any Company, any Agent, the Lender Group, or any of their Affiliates. 3.3 Condition Subsequent. As a condition subsequent to the initial closing hereunder, Borrower shall perform or cause to be performed the following (the failure by Borrower to so perform or cause to be performed constituting an Event of Default): (a) within 30 days of the Closing Date, deliver to the Administrative Agent (i) the certified copies of the policies of insurance, together with the endorsements thereto, as are required by Section 6.10, the form and substance of which shall be satisfactory to Administrative Agent and its counsel, and (ii) a one-year monthly cash flow budget, by Material Customer Contract, prepared by Borrower and Ernst & Young LLP, satisfactory in form and substance to Administrative Agent and the Lenders; (b) use its best efforts to deliver, within 45 days of the Closing Date, to the Administrative Agent, evidence, satisfactory to the Administrative Agent, that the Liens identified on Schedule 3.3(b) (the "Specified Liens") have been released of record; and (c) on or before February 26, 1999, replace all existing bank accounts of the Companies at First Union National Bank (including, without limitation, the Designated Account) to accounts established at any other bank; provided that the Companies may maintain bank accounts at First Union National Bank to the extent necessary to provide for the payment of checks outstanding in the ordinary course of business. 3.4 Term. This Agreement shall become effective upon the execution and delivery hereof by Borrower, the Subsidiary Guarantors, each of the Lenders and each of the Agents, and shall continue in full force and effect for a term ending on the date (the "Maturity Date") that is two (2) years from the Closing Date, unless sooner terminated pursuant to the terms hereof. The foregoing notwithstanding, Administrative Agent (on behalf of Lender Group) shall have the right to terminate Lender 33 Group's obligations under this Agreement immediately and without notice upon the occurrence and during the continuation of an Event of Default. 3.5 Effect of Termination. On the date of termination of this Agreement, all Obligations (including contingent reimbursement obligations of Borrower with respect to any outstanding Letters of Credit, except as permitted by clause (x) or (y) in Section 2.2(e)(ii)) immediately shall become due and payable without notice or demand. No termination of this Agreement, however, shall relieve or discharge the Companies of their duties, Obligations, or covenants hereunder, and Lender Group's continuing security interests in the Collateral shall remain in effect until all Obligations have been fully and finally discharged and Lender Group's obligation to provide additional credit hereunder is terminated. 3.6 Early Termination by Borrower. Borrower has the option, at any time upon thirty (30) days' prior written notice to Administrative Agent, to terminate this Agreement by paying to Collateral Agent (for the ratable benefit of Lender Group), in cash, the Obligations (including an amount equal to 105% of the undrawn amount of the Letters of Credit, unless final documentation has been executed with respect to the arrangements permitted under clauses (x) and (y) of Section 2.2(e)(ii)), in full, without premium or penalty. 4. CREATION OF SECURITY INTEREST. 4.1 Grant of Security Interest. Each of the Companies hereby grants to Administrative Agent for the benefit of Lender Group a continuing security interest in all currently existing and hereafter acquired or arising Personal Property Collateral in order to secure prompt repayment of any and all Obligations and in order to secure prompt performance by the Companies of their covenants and duties under the Loan Documents. The security interests of the Administrative Agent for the benefit of Lender Group in the Personal Property Collateral shall attach to all Personal Property Collateral without further act on the part of the Agents, Lender Group or any Company. Anything contained in this Agreement or any other Loan Document to the contrary notwithstanding, no Company has authority, express or implied, to dispose of any item or portion of the Personal Property Collateral, except as expressly permitted under Section 7.4. 4.2 Negotiable Collateral. In the event that any Collateral, including proceeds, is evidenced by or consists of Negotiable Collateral, Borrower shall notify Administrative Agent and, immediately upon the request of Administrative Agent, shall cause such Negotiable Collateral to be endorsed to Administrative Agent and to be delivered into Administrative Agent's physical possession. 4.3 Collection of Accounts, General Intangibles, and Negotiable Collateral. At any time after the occurrence and during the continuance of an Event of Default, the Agents or their designees may (a) notify customers or Account Debtors of the Companies that the Accounts, General Intangibles, or Negotiable Collateral have been assigned to Administrative Agent or that Administrative Agent for the benefit of Lender Group has a security interest therein, and (b) collect the Accounts, General Intangibles, and Negotiable Collateral directly and charge the collection costs and expenses to the Loan Account. Each Company agrees that in such circumstances it will hold in trust for Lender Group, as Administrative Agent's trustee, any Collections that it receives and immediately will deliver said Collections to Administrative Agent in their original form as received by such Company. 4.4 Delivery of Additional Documentation Required. At any time upon the request of either Agent, each Company shall execute and deliver to Administrative Agent all financing statements, continuation financing statements, mortgages, fixture filings, security agreements, pledges, assignments, endorsements of certificates of title, applications for title, affidavits, reports, notices, schedules of accounts, 34 letters of authority, and all other documents that such Agent reasonably may request, in form satisfactory to such Agent, to perfect and continue perfected Administrative Agent's security interests for the benefit of Lender Group in the Collateral, and in order to fully consummate all of the transactions contemplated hereby and under the other the Loan Documents. 4.5 Power of Attorney. Each Company hereby irrevocably makes, constitutes, and appoints Administrative Agent and Collateral Agent (and any of such Agents' officers, employees, or agents designated by such Agents) as such Company's true and lawful attorney, with power to (a) if such Company refuses to, or fails timely to execute and deliver any of the documents described in Section 4.4, sign the name of such Company on any of the documents described in Section 4.4, (b) at any time that an Event of Default has occurred and is continuing, sign such Company's name on any invoice or bill of lading relating to any Account, drafts against Account Debtors, schedules and assignments of Accounts, verifications of Accounts, and notices to Account Debtors, (c) send requests for verification of Accounts, (d) endorse such Company's name on any Collection item that may come into Lender Group's possession, (e) at any time that an Event of Default has occurred and is continuing, notify the post office authorities to change the address for delivery of such Company's mail to an address designated by Administrative Agent, to receive and open all mail addressed to such Company, and to retain all mail relating to the Collateral and forward all other mail to such Company, (f) at any time that an Event of Default has occurred and is continuing, make, settle, and adjust all claims under such Company's policies of insurance and make all determinations and decisions with respect to such policies of insurance, and (g) at any time that an Event of Default has occurred and is continuing, settle and adjust disputes and claims respecting the Accounts directly with Account Debtors, for amounts and upon terms that Administrative Agent determines to be reasonable, and Administrative Agent may cause to be executed and delivered any documents and releases that Administrative Agent determines to be necessary. The appointment of the Agents as such Company's attorney, and each and every one of the Agents' rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully and finally repaid and performed and Lender Group's obligation to extend credit hereunder is terminated. 4.6 Right to Inspect and to Conduct Appraisals. The Agents (through any of their respective officers, employees, or agents) shall have the right, at the expense of Borrower, from time to time hereafter, to inspect the Companies' Books and to check, test, and appraise the Collateral in order to verify the Companies' financial condition or the amount, quality, value, condition of, or any other matter relating to, the Collateral. In addition, on an annual basis, the Agents shall receive from Ernst & Young, LLP, at the expense of the Borrower, an update of the enterprise valuation delivered to the Administrative Agent pursuant to Section 3.1(o). 5. REPRESENTATIONS AND WARRANTIES. In order to induce Lender Group to enter into this Agreement, the Companies jointly and severally make the following representations and warranties which shall be true, correct, and complete in all respects as of the date hereof, and shall be true, correct, and complete in all respects as of the Closing Date, and at and as of the date of the making of each Advance or Letter of Credit, made thereafter, as though made on and as of the date of such Advance or Letter of Credit (except to the extent that such representations and warranties relate solely to or are expressly made as of an earlier date) and such representations and warranties shall survive the execution and delivery of this Agreement: 5.1 No Encumbrances. The Companies have good and indefeasible title to the Collateral, free and clear of Liens except for Permitted Liens. 35 5.2 Eligible Accounts. The Eligible Accounts and Eligible Unbilled Accounts are bona fide existing obligations created by the rendition of services to Account Debtors in the ordinary course of the Companies' business, and such Accounts, to the extent not excluded from the definition of "Eligible Accounts" pursuant to paragraph (j) thereof, are unconditionally owed to a Company without defenses, disputes, offsets, counterclaims, or rights of return or cancellation. The services giving rise to such Eligible Accounts and Eligible Unbilled Accounts, to the extent such Accounts are not excluded from the definition of "Eligible Accounts" pursuant to paragraph (j) thereof, have been performed and unconditionally accepted by such Account Debtor. No Company has received notice of actual or imminent bankruptcy, insolvency, or material impairment of the financial condition of any Account Debtor regarding any Eligible Account or Eligible Unbilled Account. Each Company that owns an Account the Account Debtor of which is the United States or a State, or any department, agency or instrumentality thereof, has executed and delivered to Administrative Agent an Assignment of Claims Act Notice with respect to such Account, to the extent required pursuant to Section 3.1(c)(vii) or Section 6.18. Upon filing such Assignment of Claims Act Notice with such Account Debtor and/or as instructed in a cover memorandum prepared by Borrower and attached to such Assignment of Claims Act Notice, such Assignment of Claims Act Notice will be effective under the Assignment of Claims Act (or if applicable, under such State's statutory counterpart to the Assignment of Claims Act) to require such Account Debtor to remit the proceeds of such Account directly to Collateral Agent for the benefit of Lender Group. 5.3 Other Subsidiaries. Except for (i) the Subsidiaries described in Schedule 5.3 or organized under the laws of any jurisdiction outside of the United States of America or (ii) ICF Kaiser Engineers Eastern Europe, Inc. and ICF Kaiser Technology Holdings, Inc. as long as either such Subsidiary listed in this clause (ii) owns no assets, other than equity interests in another Person, and conducts no business, the Subsidiaries of the Borrower that are not Subsidiary Guarantors do not conduct any business and do not own any assets with a fair market value in excess of $5,000,000 in the aggregate for all such Subsidiaries and $1,000,000 for any such individual Subsidiary. 5.4 Equipment. All of the Equipment is used or held for use in the Companies' business and is fit for such purposes. 5.5 Location of Inventory and Equipment. The Equipment is not stored with a bailee, warehouseman, or similar party (without Administrative Agent's prior written consent) and is located only at the locations identified on Schedule 6.12 or otherwise permitted by Section 6.12. 5.6 Intentionally Omitted. 5.7 Location of Chief Executive Office; FEIN. The chief executive office of Borrower is located at the address indicated in the preamble to this Agreement and Borrower's FEIN is 54-1437073. The chief executive office of each other Company and each other Company's FEIN is set forth on Schedule 5.7. 5.8 Due Organization and Qualification; Subsidiaries. (a) Each Company is duly organized and existing and in good standing under the laws of the jurisdiction of its incorporation and qualified and licensed to do business in, and in good standing in, any state where the failure to be so licensed or qualified reasonably could be expected to cause a Material Adverse Change. (b) Set forth on Schedule 5.8 is a complete and accurate list of (x) each Company's state of incorporation and each jurisdiction in which such Company is qualified to do business, 36 and (y) each Company's direct and indirect Subsidiaries, showing: (i) the jurisdiction of their incorporation; (ii) the number of shares of each class of common and preferred stock authorized for each of such Subsidiaries; and (iii) the number and the percentage of the outstanding shares of each such class owned directly or indirectly by such Company. All of the outstanding capital stock of each such Subsidiary has been validly issued and is fully paid and non- assessable. (c) Except as set forth on Schedule 5.8, no capital stock (or any securities, instruments, warrants, options, purchase rights, conversion or exchange rights, calls, commitments or claims of any character convertible into or exercisable for capital stock) of any direct or indirect Subsidiary of Borrower is subject to the issuance of any security, instrument, warrant, option, purchase right, conversion or exchange right, call, commitment or claim of any right, title, or interest therein or thereto. 5.9 Due Authorization; No Conflict. (a) The execution, delivery, and performance by each Company of this Agreement and the Loan Documents to which such Company is a party have been duly authorized by all necessary corporate action. (b) The execution, delivery, and performance by each Company of this Agreement and the Loan Documents to which such Company is a party do not and will not (i) violate any provision of federal, state, or local law or regulation (including Regulations T, U, and X of the Federal Reserve Board) applicable to such Company, the Governing Documents of such Company, or any order, judgment, or decree of any court or other Governmental Authority binding on such Company, (ii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any Material Contract, (iii) result in or require the creation or imposition of any Lien of any nature whatsoever upon any properties or assets of such Company, other than Permitted Liens, or (iv) require any approval of stockholders or any approval or consent of any Person under any Material Contract (except as may be required under the Assignment of Claims Act). (c) Other than the filing of appropriate financing statements, fixture filings, Assignment of Claims Act Notices and mortgages, the execution, delivery, and performance by each Company of this Agreement and the Loan Documents to which each Company is a party do not and will not require any registration with, consent, or approval of, or notice to, or other action with or by, any federal, state, foreign, or other Governmental Authority or other Person. (d) This Agreement and the Loan Documents to which each Company is a party, and all other documents contemplated hereby and thereby, when executed and delivered by such Company will be the legally valid and binding obligations of such Company, enforceable against such Company in accordance with their respective terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors' rights generally. (e) The Liens granted by each Company to Administrative Agent (for the benefit of Lender Group) in and to its properties and assets pursuant to this Agreement and the other Loan Documents are validly created, perfected, and first priority Liens, subject only to Permitted Liens. (f) No Company has been notified by any Account Debtor, Governmental Authority or instrumentality, accreditation agency or any other Person, during the immediately preceding 24-month period, that such party has rescinded or not renewed, or intends to rescind or not renew, any such permit, license, accreditation, certification, authorization, approval, consent or agreement granted by it to 37 such Company or to which it and such Company are parties where such event would affect the collectibility or enforceability of the Accounts or cause a Material Adverse Change in the operation of the Companies. 5.10 Litigation. There are no actions or proceedings pending by or against any Company or any Subsidiary of a Company before any court or administrative agency, and no Company has knowledge or belief of any pending, threatened, or imminent litigation, governmental investigations, or claims, complaints, actions, or prosecutions against any Company or any Subsidiary of a Company except for: (a) matters that if decided adversely to such Company or such Subsidiary of a Company would result in liability to such Company or such Subsidiary of a Company of less than $100,000; (b) matters disclosed on Schedule 5.10; and (c) matters arising after the date hereof that, if decided adversely to such Company or such Subsidiary of a Company, would not cause a Material Adverse Change. 5.11 Financial Statements; No Material Adverse Change. All financial statements relating to the Consolidated Group or any of the Companies that have been delivered by any Company to Lender Group have been prepared in accordance with GAAP (except, in the case of unaudited financial statements, for the lack of footnotes and being subject to year-end audit adjustments) and fairly present the Consolidated Group's or such Company's, as applicable, financial condition as of the date thereof and results of operations for the period then ended. There has not been a Material Adverse Change with respect to the Consolidated Group or any Company since the date of the latest financial statements submitted to Lender Group on or before the Closing Date. 5.12 Solvency. The Consolidated Group and each of the Companies are Solvent. No transfer of property is being made by any Company and no obligation is being incurred by any Company in connection with the transactions contemplated by this Agreement or the other Loan Documents with the intent to hinder, delay, or defraud either present or future creditors of any Company. 5.13 Employee Benefits. None of Borrower, any of its Subsidiaries, or any of their ERISA Affiliates maintains or contributes to any Benefit Plan, other than those listed on Schedule 5.13. Borrower, each of its Subsidiaries and each ERISA Affiliate have satisfied the minimum funding standards of ERISA and the IRC with respect to each Benefit Plan to which it is obligated to contribute. No ERISA Event has occurred nor has any other event occurred that may result in an ERISA Event that reasonably could be expected to result in a Material Adverse Change. None of Borrower or its Subsidiaries or any ERISA Affiliate is required to provide security to any Benefit Plan under Section 401(a)(29) of the IRC. 5.14 Environmental Condition. Except as disclosed on Schedule 5.14 and except for such matters or conditions that are in compliance in all material respects with all applicable laws and regulations: (i) none of the Companies' or their respective Subsidiaries' properties or assets has ever been used by any Company or any Subsidiary of a Company or, to the best of any Company's knowledge, by previous owners or operators, in the disposal of, or to produce, store, handle, treat, release, or transport, any Hazardous Materials; (ii) none of the Companies' or their respective Subsidiaries' properties or assets has ever been designated or identified in any manner pursuant to any environmental protection statute as a Hazardous Materials disposal site, or a candidate for closure pursuant to any environmental protection statute; (iii) no Lien arising under any environmental protection statute has attached to any revenues or to any real or personal property owned or operated by any Company or any Subsidiary of a Company; and (iv) no Company nor any Subsidiary of a Company has received a summons, citation, notice, or directive from the Environmental Protection Agency or any other federal or foreign governmental agency concerning any action or omission by any Company or any Subsidiary of a Company resulting in the releasing or disposing of Hazardous Materials into the environment. 38 5.15 No Default. Except as disclosed on Schedule 5.15, no Company nor Subsidiary of a Company is in default with respect to (i) any note, indenture, loan agreement, mortgage, lease, deed, or other agreement to which such Company or such Subsidiary is a party or by which it is bound, which default could reasonably be expected to cause a Material Adverse Change or (ii) any Material Contract. 5.16 Material Contracts; Restrictive Agreements. Except for such changes as have been provided to Administrative Agent in writing, (i) each Material Customer Contract to which any Company or any Subsidiary of a Company is a party is set forth in Part I of Schedule 5.16 and (ii) each other Material Contract to which any Company or any Subsidiary of a Company is a party is set forth in Part II of Schedule 5.16. Borrower has provided to Administrative Agent or its counsel each definitive written agreement relating to each such Material Customer Contract and Material Contract. Except as set forth in Part III of Schedule 5.16, no Company nor Subsidiary of a Company is a party to or bound by any agreement or instrument or subject to any corporate or other restriction, the performance or observance of which has caused or, as far as such Company or Subsidiary can reasonably foresee, may cause a Material Adverse Change. 5.17 Government Contracts. No Company nor Subsidiary of a Company is in receipt of any notice from any Governmental Authority that such Company or such Subsidiary of a Company is disqualified, barred or suspended from bidding on or performing any contract or proposed contract. 5.18 Year 2000 Compliance. Any reprogramming required to address the Year 2000 problem (i.e., the inability of certain computer applications to recognize correctly and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999) and to permit the proper functioning, in and following the year 2000, of (a) the Companies' and their Subsidiaries' computer systems and (b) equipment containing embedded microchips (including systems and equipment supplied by others or with which the Companies' or their Subsidiaries' systems interface) and the testing of all such systems and equipment, as so reprogrammed, will, or in the case of systems and equipment supplied by others or with which the Companies' or their Subsidiaries' systems interface, to the best of each Company's knowledge, will be completed by October 30, 1999. The cost to the Companies and their Subsidiaries of such reprogramming and testing and of the reasonably foreseeable consequences of the Year 2000 problem to the Companies and their Subsidiaries (including, without limitation, reprogramming errors and the failure of others' systems and equipment) will not result in an Event of Default or cause a Material Adverse Change. 5.19 Specified Liens. No Company has any obligation with respect to any Specified Lien to any Person that is the secured party with respect to any such Specified Lien. 6. AFFIRMATIVE COVENANTS. Each of the Companies hereby jointly and severally covenants and agrees that, so long as any credit hereunder shall be available and until full and final payment of the Obligations, the Companies shall do all of the following: 6.1 Accounting System. Maintain a standard and modern system of accounting that enables the Companies to produce financial statements in accordance with GAAP, and maintain records pertaining to the Collateral that contain information as from time to time may be requested by any Agent. 6.2 Collateral Reporting. Provide the Agents with the following documents at the following times in form and substance satisfactory to the Agents: (a) on a monthly basis and, in any event, by no later than the 10th Business Day of each fiscal month of Borrower during the term of this Agreement 39 with respect to the following clauses (i) and (ii) and the 5th Business Day of each fiscal month of Borrower during the term of this Agreement with respect to the following clause (iii), (i) a detailed calculation of the Borrowing Base, (ii) a schedule, in form and substance satisfactory to the Collateral Agent, of the Eligible Unbilled Accounts, and (iii) a detailed aging, by total, of the Eligible Accounts, (b) on a monthly basis and, in any event, by no later than the 15th day of each month during the term of this Agreement, a summary aging, by vendor, of Borrower's accounts payable and any book overdraft, (c) if requested by an Agent, on each Business Day, notice of all disputes or claims not previously reported, (d) upon request, copies of invoices in connection with the Accounts, customer statements, credit memos, remittance advices and reports, deposit slips, purchase orders and invoices, (e) on a quarterly basis, a detailed list of Borrower's customers by contract, (f) on a monthly basis, a calculation of the Dilution for the prior month; and (g) such other reports as to the Collateral or the financial condition of the Companies as any Agent may request from time to time. Original invoices shall be mailed by the Companies to each Account Debtor and, at Administrative Agent's direction after the occurrence and during the continue of an Event of Default, the invoices shall indicate on their face that the Account has been assigned to the Administrative Agent and that all payments are to be made directly to the Collateral Agent. 6.3 Financial Statements, Reports, Certificates. Deliver to Administrative Agent with copies to each Lender: (a) as soon as available, but in any event within thirty (30) days after the end of each month during each of Borrower's fiscal years, a company prepared balance sheet, income statement, and statement of cash flow covering the operations of the Consolidated Group on a consolidated and consolidating basis during such period; and (b) as soon as available, but in any event within one hundred and five (105) days after the end of each of Borrower's fiscal years, consolidated and consolidating financial statements of the Consolidated Group for each such fiscal year, audited by independent certified public accountants reasonably acceptable to Administrative Agent and certified, without any qualifications, by such accountants to have been prepared in accordance with GAAP, together with a certificate of such accountants addressed to Administrative Agent stating that such accountants do not have knowledge of the existence of any Default or Event of Default. Such audited financial statements shall include a balance sheet, profit and loss statement, and statement of cash flow and, if prepared, such accountants' letter to management. In addition to the above, the Borrower also shall deliver to Administrative Agent, with a copy to each Lender, Borrower's Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and Form 8-K Current Reports, and any other filings made by Borrower with the Securities and Exchange Commission, if any, as soon as the same are filed, or any other information that is provided by Borrower to its shareholders, and any other report reasonably requested by Administrative Agent relating to the financial condition of the Companies. Each month, together with the financial statements provided pursuant to Section 6.3(a), Borrower shall deliver to Administrative Agent, with a copy to each Lender, a certificate signed by the chief financial officer or treasurer of each Company to the effect that: (i) all financial statements delivered or caused to be delivered to Administrative Agent hereunder have been prepared in accordance with GAAP (except, in the case of unaudited financial statements, for the lack of footnotes and being subject to year-end audit adjustments) and fairly present the financial condition of the Consolidated Group, (ii) the representations and warranties of the Companies contained in this Agreement and the other Loan Documents are true and correct in all material respects on and as of the date of such certificate, as though made on and as of such date (except to the extent that such representations and warranties relate solely to or are expressly made as of an earlier date), (iii) for each month that also is the date on which a financial covenant in Section 7.20 or Section 7.21 is to be tested, a Compliance Certificate demonstrating in reasonable detail compliance at the end of such period with the applicable financial covenants contained in Section 7.20 or Section 7.21, and (iv) on the date of delivery of such certificate to Administrative Agent 40 there does not exist any condition or event that constitutes a Default or Event of Default (or, in the case of clauses (i), (ii), or (iii), to the extent of any non-compliance, describing such non-compliance as to which he or she may have knowledge and what action the Companies have taken, are taking, or propose to take with respect thereto). At least five (5) days prior to the Closing Date, Borrower shall have issued written instructions to its independent certified public accountants authorizing them to communicate with Administrative Agent and to release to Administrative Agent whatever financial information concerning the Companies that Administrative Agent may reasonably request. Each Company hereby irrevocably authorizes and directs all auditors and accountants to deliver to Administrative Agent, at Borrower's expense, copies of such Company's financial statements, papers related thereto, and other accounting records of any nature in their possession, and to disclose to Administrative Agent any information they may have regarding such Company's business affairs and financial condition. 6.4 Other Reports. Deliver to Administrative Agent the following additional reports, each to be certified as to accuracy by the chief financial officer of Borrower: (a) Quarterly Status Reports. Within thirty (30) days after the end of each fiscal quarter of each fiscal year, a contract status report, substantially in the form of Exhibit 6.4(a), with respect to each Material Customer Contract. (b) Nitric Acid Monthly Reports. Within thirty (30) days after the end of each month and until all four nitric acid projects of the Companies, as described in Schedule 6.4(b), are completed, a monthly report containing information with respect to the actual cost to complete and cash flows of each nitric acid project set forth in Schedule 6.4(b); in each such report, which shall be substantially in the form of Exhibit 6.4(b), the actual information required to be contained therein shall be compared to the project cost to complete and cash flows for each such nitric acid project as set forth in Schedule 6.4(b). (c) New Contract Report. At the time each new Material Customer Contract is entered into by a Company, a report containing a summary of the material terms of such Material Customer Contract, a budget setting forth the projected costs and cash flows relating to such Material Customer Contract, and a complete copy of such Material Customer Contract attached thereto. 6.5 Tax Returns. Make available, or if requested by Administrative Agent, deliver to Administrative Agent copies of each of the Companies' future federal income tax returns, and any amendments thereto, within 30 days of the filing thereof with the Internal Revenue Service. 6.6 Intentionally Omitted. 6.7 Title to Equipment. Upon Administrative Agent's request, immediately deliver or caused to be delivered to Administrative Agent, properly endorsed, any and all evidences of ownership of, certificates of title, or applications for title to any items of material owned Equipment. 6.8 Maintenance of Equipment. Maintain the Equipment in good operating condition and repair (ordinary wear and tear excepted), and make all necessary replacements thereto so that the value and operating efficiency thereof shall at all times be maintained and preserved. Other than those items of Equipment that constitute fixtures on the Closing Date, the Companies shall not permit any item of Equipment to become a fixture to real estate or an accession to other property, and such Equipment shall at all times remain personal property. 41 6.9 Taxes. Cause all assessments and taxes, whether real, personal, or otherwise, due or payable by, or imposed, levied, or assessed against any of the Companies or any of their respective Subsidiaries or properties to be paid in full, before delinquency or before the expiration of any extension period, except to the extent that the validity of such assessment or tax shall be the subject of a Permitted Protest. The Companies shall make, and cause their Subsidiaries to make, due and timely payment or deposit of all such federal, state, and local taxes, assessments, or contributions required of them by law, and will execute and deliver to Administrative Agent, on demand, appropriate certificates attesting to the payment thereof or deposit with respect thereto. The Companies will make, and cause their Subsidiaries to make, timely payment or deposit of all tax payments and withholding taxes required of them by applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon request, furnish the Administrative Agent with proof satisfactory to Administrative Agent indicating that the Companies and such Subsidiaries have made such payments or deposits. 6.10 Insurance. (a) At its expense, keep the Personal Property Collateral insured against loss or damage by fire, theft, explosion, sprinklers, and all other hazards and risks, and in such amounts, as are ordinarily insured against by other owners in similar businesses. The Companies also shall maintain business interruption, public liability, product liability, and property damage insurance relating to the Companies' ownership and use of the Personal Property Collateral, as well as insurance against larceny, embezzlement, and criminal misappropriation. (b) All such policies of insurance shall be in such form, with such companies, and in such amounts as may be reasonably satisfactory to Administrative Agent. All insurance required herein shall be written by companies which are admitted or otherwise authorized to do insurance business in the States of Virginia and New York. All hazard insurance and such other insurance as Administrative Agent shall specify, shall contain a standard mortgagee endorsement, or an equivalent endorsement satisfactory to Administrative Agent, showing Administrative Agent (for the ratable benefit of Lenders) as a loss payee thereof. Every policy of insurance referred to in this Section 6.10 shall contain an agreement by the insurer that it will not cancel such policy except after thirty (30) days' prior written notice to Administrative Agent (or ten (10) days' prior written notice, in the case of cancellation due to non-payment of premium) and that any loss payable thereunder shall be payable notwithstanding any act or negligence of any Company or Administrative Agent which might, absent such agreement, result in a forfeiture of all or a part of such insurance payment. Borrower shall deliver to Administrative Agent certified copies of such policies of insurance and evidence of the payment of all premiums therefor. (c) Original policies or certificates thereof satisfactory to Administrative Agent evidencing such insurance shall be delivered to Administrative Agent prior to the expiration of the existing or preceding policies. Borrower shall give Administrative Agent prompt notice of any loss covered by such insurance, and Administrative Agent shall have the right to adjust any loss. Administrative Agent shall have the right to adjust all losses payable under any such insurance policies without any liability to the Companies whatsoever in respect of such adjustments and, if an Event of Default has occurred and is continuing, no Company shall adjust losses under such insurance policies without the prior written consent of Administrative Agent. If any insurance company shall refuse to permit Administrative Agent to adjust losses, Borrower shall adjust such losses in accordance with the written directions of Administrative Agent. Any monies received as payment for any loss under any insurance policy including the insurance policies mentioned above, shall, except to the extent otherwise provided in Section 2.4(a)(v), be paid over to Administrative Agent (for the ratable benefit of Lenders) to be applied at the option of Administrative Agent either to the prepayment of the Obligations without premium, in such order or manner as 42 Administrative Agent may elect and direct Administrative Agent, or shall be disbursed to Borrower under stage payment terms satisfactory to Administrative Agent for application to the cost of repairs, replacements, or restorations. All repairs, replacements, or restorations shall be effected with reasonable promptness and shall be of a value at least equal to the value of the items or property destroyed prior to such damage or destruction. Upon the occurrence of an Event of Default, Administrative Agent shall have the right to apply all prepaid premiums available in accordance with the terms of the applicable insurance policies to the payment of the Obligations in such order or form as Administrative Agent shall determine and direct Administrative Agent. (d) No Company shall take out separate insurance concurrent in form or contributing in the event of loss with that required to be maintained under this Section 6.10, unless Administrative Agent is included thereon as additional named insured with the loss payable to Administrative Agent (for the ratable benefit of Lenders) under a standard mortgagee endorsement acceptable to the Administrative Agent. Borrower immediately shall notify Administrative Agent whenever such separate insurance is taken out, specifying the insurer thereunder and full particulars as to the policies evidencing the same, and originals of such policies immediately shall be provided to Administrative Agent. 6.11 No Set-offs or Counterclaims. Make payments hereunder and under the other Loan Documents by or on behalf of Borrower without set-off or counterclaim and free and clear of, and without deduction or withholding for or on account of, any federal, state, or local taxes. 6.12 Location of Equipment. Keep the Equipment only at the locations identified on Schedule 6.12; provided, however, that Borrower may amend Schedule 6.12 so long as such amendment occurs by written notice to the Agents not less than thirty (30) days prior to the date on which the Equipment is moved to such new location, so long as such new location is within the United States, and so long as, at the time of such written notification, the Companies provide to Administrative Agent any financing statements or fixture filings necessary to perfect and continue perfected Administrative Agent's security interests (for the benefit of Lender Group) in such assets and also provide to Administrative Agent, if so requested, a Collateral Access Agreement. 6.13 Compliance with Laws. Comply and cause their Subsidiaries to comply with the requirements of all applicable laws, rules, regulations, and orders of any Governmental Authority, including the Fair Labor Standards Act and the Americans With Disabilities Act, other than laws, rules, regulations, and orders the non-compliance with which, individually or in the aggregate, would not cause and could not reasonably be expected to cause a Material Adverse Change. 6.14 Employee Benefits. (a) Deliver to Administrative Agent (i) promptly, and in any event within ten (10) Business Days after Borrower or any of its Subsidiaries knows that an ERISA Event has occurred that reasonably could be expected to result in a Material Adverse Change, a written statement of the chief financial officer of Borrower describing such ERISA Event and any action that is being taking with respect thereto by Borrower, any such Subsidiary or ERISA Affiliate, and any action taken or threatened by the IRS, Department of Labor, or PBGC, (ii) promptly, and in any event within three (3) Business Days after the filing thereof with the IRS, a copy of each funding waiver request filed with respect to any Benefit Plan and all communications received by Borrower, any of its Subsidiaries or, to the knowledge of Borrower, any ERISA Affiliate with respect to such request, and (iii) promptly, and in any event within three (3) Business Days after receipt by Borrower, any of its Subsidiaries or, to the knowledge of Borrower, any ERISA Affiliate, of the PBGC's intention to terminate a Benefit Plan or to have a trustee appointed to administer a Benefit Plan, copies of each such notice. 43 (b) Cause to be delivered to Administrative Agent, upon Administrative Agent's request, each of the following: (i) a copy of each Plan (and if applicable, related trust agreements or other funding instruments) and all amendments thereto; (ii) the most recent determination letter issued by the IRS with respect to each Benefit Plan; (iii) for the most recent plan year, the annual reports on Form 5500 Series required to be filed with any governmental agency for any Benefit Plan; (iv) all actuarial reports prepared for the most recent plan year for each Benefit Plan; (v) a listing of all Multiemployer Plans, with the aggregate amount of the most recent annual contributions required to be made by Borrower or any ERISA Affiliate to each such Multiemployer Plan; (vi) any information that has been provided to Borrower or any ERISA Affiliate regarding withdrawal liability under any Multiemployer Plan; and (vii) the aggregate amount of the most recent annual payments made to former employees of Borrower or its Subsidiaries under any Retiree Health Plan. 6.15 Leases. Pay when due all rents and other amounts payable under any leases to which any Company is a party or by which any Company's properties and assets are bound, unless such payments are the subject of a Permitted Protest. To the extent that any Company fails timely to make payment of such rents and other amounts payable when due under its leases, Administrative Agent shall be entitled, in its discretion, to reserve an amount equal to such unpaid amounts against the Borrowing Base. 6.16 Joinder. Cause the Subsidiaries of the Borrower that are not Subsidiary Guarantors to be joined to this Agreement and each other Loan Document to which the Subsidiary Guarantors are parties as and when required pursuant to Section 18.7. 6.17 Real Property Collateral. Immediately notify Administrative Agent in writing each time any Company obtains any Real Property and, if so requested by Administrative Agent, (i) execute a mortgage with respect to such Real Property in favor of Administrative Agent for the benefit of Lender Group (a "Mortgage"), (ii) cause a phase-I environmental report and a real estate survey to be completed with respect to such Real Property and copies thereof to be delivered to Administrative Agent; the environmental consultants and surveyors retained for such reports or surveys, the scope of the reports or surveys, and the results thereof shall be acceptable to Administrative Agent in its sole discretion, (iii) obtain title policy insurance for such Real Property naming Administrative Agent as beneficiary for the benefit of Lender Group, from an insurer acceptable to Administrative Agent, and in form and substance acceptable to Administrative Agent, subject only to such exceptions as shall be approved by Administrative Agent, (iv) deliver an opinion of counsel to Administrative Agent with respect to the Mortgage, title insurance policy, applicable zoning laws and such other matters as Administrative Agent may request, and (v) and execute and deliver such other documents and take such other actions as Administrative Agent may request. 6.18 Assignment of Claims Act. On the Closing Date, with respect to any Accounts existing on the Closing Date, and within ten (10) Business Days after any Company creates or otherwise generates an Account, the Account Debtor of which is (1) the United States, or any department, agency or instrumentality thereof, or (2) a state or city Governmental Authority, except to the extent such Account is not deemed an ineligible Account by reason of clause (ii)(A) or (ii)(C) of paragraph (e) of the definition of "Eligible Accounts" set forth in Section 1.1, deliver to Administrative Agent executed notices ("Assignment of Claims Act Notices") (i) complying with the requirements of (A) FAR 32.805(c), codified at 48 C.F.R. ss. 32.805(c), promulgated under the Assignment of Claims Act (or any successor provision), or (B) if applicable, the statutory or regulatory counterpart to FAR 32.805(c) of such State, (ii) substantially in the form of Exhibit 6.18 (adjusted as necessary to comply with (A) the Assignment of Claims Act or (B) if applicable, the statutory counterpart of the Assignment of Claims Act of such State), (iii) naming Administrative Agent as assignee, and (iv) addressed to each such Account Debtor, together 44 with a cover memorandum identifying each Person that must receive a copy of such Assignment of Claims Act Notices in order to effect a proper assignment of such Account to Collateral Agent. 6.19 Year 2000 Compliance. Complete (i) the reprogramming required to address the Year 2000 problem (i.e., the inability of certain computer applications to recognize correctly and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999) and to permit the proper functioning, in and following the year 2000, of (a) the Companies' and their Subsidiaries' computer systems and (b) equipment containing embedded microchips (including the exercise of reasonable commercial efforts with respect to systems and equipment supplied by others or with which the Companies' or their Subsidiaries' systems interface) and (ii) the testing of all such systems and equipment, as so reprogrammed, by October 30, 1999. 7. NEGATIVE COVENANTS. Each of the Companies hereby jointly and severally covenants and agrees that, so long as any credit hereunder shall be available and until full and final payment of the Obligations, none of the Companies will not do any of the following: 7.1 Indebtedness. Create, incur, assume, permit, guarantee, or otherwise become or remain, directly or indirectly, liable with respect to any Indebtedness, or permit any Subsidiary to do so, except: (a) Indebtedness evidenced by this Agreement, together with Indebtedness to issuers of letters of credit that are the subject of L/C Guarantees; (b) Indebtedness set forth in the latest consolidated financial statements of the Consolidated Group submitted to Administrative Agent on or prior to the Closing Date; (c) Indebtedness secured by Permitted Liens; (d) Indebtedness owing by one Company to another Company; (e) Indebtedness owing by a Company to a member of the Consolidated Group that is not a Company, provided that such Indebtedness, when added to the loans, advances, capital contributions or transfers of property permitted by clause (i) of the proviso to clause (b) in Section 7.13, shall not in the aggregate exceed $500,000, and provided further, that both immediately before and after giving effect to any payment on such Indebtedness permitted by this clause (e), Availability is not less than $2,000,000; (f) Indebtedness owing by a Company to a member of the Consolidated Group organized under the laws of a jurisdiction outside of the United States that is not a Company, provided that such Company has received from such Person cash in an amount equal to the principal amount of such Indebtedness within the immediately preceding 90 days, and provided further, that both immediately before and after giving effect to any payment on such Indebtedness permitted by this clause (f), Availability is not less than $2,000,000; (g) Non-Recourse Indebtedness; 45 (h) Indebtedness evidenced by, and reimbursement obligations with respect to, surety bonds or performance bonds (other than bid bonds) issued by or for the benefit of a Company or a Subsidiary of a Company in the ordinary course of business; (i) reimbursement obligations with respect to bid bonds issued by or for the benefit of a member of the Consolidated Group in the ordinary course of business; (j) Indebtedness owing by a member of the Consolidated Group that is not a Company in an aggregate principal amount not exceeding $1,000,000 at any time outstanding; and (k) refinancings, renewals, or extensions of Indebtedness permitted under clause (b), (c), (d), (e), (g), (h), (i) or (j) of this Section 7.1 (and continuance or renewal of any Permitted Liens associated therewith) so long as in the case of clauses (b) and (c): (i) the terms and conditions of such refinancings, renewals, or extensions do not materially impair the prospects of repayment of the Obligations by Borrower, (ii) the net cash proceeds of such refinancings, renewals, or extensions do not result in an increase in the aggregate principal amount of the Indebtedness so refinanced, renewed, or extended, (iii) such refinancings, renewals, refundings, or extensions do not result in a shortening of the average weighted maturity of the Indebtedness so refinanced, renewed, or extended, and (iv) to the extent that Indebtedness that is refinanced was subordinated in right of payment to the Obligations, then the subordination terms and conditions of the refinancing Indebtedness must be at least as favorable to Lender Group as those applicable to the refinanced Indebtedness. 7.2 Liens. Create, incur, assume, or permit to exist, directly or indirectly, any Lien on or with respect to any of its property or assets, of any kind, whether now owned or hereafter acquired, or any income or profits therefrom, or permit any Subsidiary to do so, except for Permitted Liens (including Liens that are replacements of Permitted Liens to the extent that the original Indebtedness is refinanced under Section 7.1(k) and so long as the replacement Liens only encumber those assets or property that secured the original Indebtedness). 7.3 Restrictions on Fundamental Changes. Enter into any merger, consolidation, reorganization, or recapitalization, or reclassify its capital stock, or liquidate, wind up, or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, assign, lease, transfer, or otherwise dispose of, in one transaction or a series of transactions, all or any substantial part of its property or assets, provided, however, that this Section 7.3 shall not prohibit (i) the merger of a Subsidiary Guarantor into Borrower or another Subsidiary Guarantor, (ii) the consolidation of two or more Subsidiary Guarantors, and (iii) the transfer of assets from one Company to another Company. 7.4 Disposal of Assets. Sell, lease, assign, transfer, or otherwise dispose of any of its properties or assets, other than (i) a sale, lease, assignment, transfer or other disposition to another Company and (ii) sales or dispositions of obsolete Equipment, consistent with past practices, having an aggregate value not greater than $250,000, provided that 100% of the Net Proceeds of all sales permitted by the foregoing clause (ii) shall be remitted directly to Collateral Agent for the benefit of Lender Group to repay the outstanding Advances and any other outstanding Obligations. 7.5 Change of Name. Change a Company's name, FEIN, or identity, or add any new fictitious name without thirty (30) days' prior written notice to the Administrative Agent or change a Company's corporate structure (within the meaning of Section 9-402(7) of the Code). 7.6 Guarantee. Guarantee or otherwise become in any way liable with respect to the financial obligations of any third Person, or permit any Subsidiary to do so, except (a) by endorsement of 46 instruments or items of payment for deposit to the account of a Company or which are transmitted or turned over to Collateral Agent and (b) guarantees of Indebtedness or other obligations otherwise permitted hereunder (including, without limitation, guaranty of the obligations of the Borrower under the Indentures and Notes). 7.7 Nature of Business. Make any change in the principal nature of the Companies' businesses as conducted on the Closing Date. 7.8 Prepayments and Amendments. (a) Except in connection with a refinancing permitted by Section 7.1(k), prepay, redeem, retire, defease, purchase, or otherwise acquire any Indebtedness owing to any third Person, other than the Obligations in accordance with this Agreement; (b) Directly or indirectly, amend, modify, alter, increase, or change any of the terms or conditions of (i) any agreement, instrument, document, indenture, or other writing evidencing or concerning Indebtedness (other than the Indentures and the Notes) permitted under Sections 7.1(b), (c), (d), (e) or (g) or (ii) any Material Contract, if such amendment, modification, alteration, increase or change could reasonably be expected to cause a Material Adverse Change; and (c) Agree to any amendment or make any other change to (or make any payment consistent with any amendment or other change to), or waive any of its rights under, any Indenture or refinance any Indebtedness evidenced by the Indentures without obtaining the prior written consent of the Required Lenders to such amendment, modification, payment, waiver, change or refinancing, except for (i) an amendment or supplement that adds a Subsidiary Guarantor as an additional guarantor thereunder and (ii) an amendment or supplement that cures any ambiguity, inconsistency or defect in any Indenture, provided that any such amendment or supplement is not adverse to the interests of the Agents and the Lender Group. 7.9 Change of Control. Cause, permit, or suffer, directly or indirectly, any Change of Control. 7.10 Intentionally Omitted. 7.11 Distributions. Make any distribution or declare or pay any dividends (in cash or other property, other than capital stock) on, or purchase, acquire, redeem, or retire any of Borrower's or any Company's capital stock, of any class, whether now or hereafter outstanding; provided, however, that this Section 7.11 shall not prohibit dividends or other distributions or payments (i) by a Subsidiary Guarantor to Borrower or by one Subsidiary Guarantor to another Subsidiary Guarantor or (ii) required by the terms of employee benefit programs of Borrower and its Subsidiaries. 7.12 Accounting Methods. Modify or change its method of accounting or enter into, modify, or terminate any agreement currently existing, or at any time hereafter entered into with any third party accounting firm or service bureau for the preparation or storage of the Companies' accounting records without said accounting firm or service bureau agreeing to provide the Agents information regarding the Collateral or the Companies' financial condition. Each Company waives the right to assert a confidential relationship, if any, it may have with any accounting firm or service bureau in connection with any information requested by the Agents pursuant to or in accordance with this Agreement, and agrees that the Agents may contact directly any such accounting firm or service bureau in order to obtain such information. 47 7.13 Investments. Directly or indirectly make, acquire, or incur any liabilities (including contingent obligations) for or in connection with (a) the acquisition of the securities (whether debt or equity) of, or other interests in, a Person, other than another Company existing on the Closing Date, (b) loans, advances, capital contributions, or transfers of property to a Person other than another Company, provided that, (i) the Companies may make loans, advances, capital contributions or other transfers of property to their Affiliates (including Persons that will become Affiliates as a result of such loan, advance, capital contribution or other transfer) that are not Companies hereunder in an aggregate amount during the term of this Agreement, when added to the Indebtedness permitted to be incurred pursuant to clause (e) of Section 7.1, of not more than $500,000 if (A) both immediately before and after giving effect to such transactions, Availability is not less than $2,000,000 and (B) no such investment shall result in an acquisition of all or substantially all of the assets or stock or equity of any such Person and (ii) any Company may make loans, advances, capital contributions or other transfers of property to a member of the Consolidated Group organized under the laws of a jurisdiction outside of the United States that is not a Company so long as (A) such Company has received from such Person an amount in cash equal to such loan, advance, capital contribution or other transfer within the immediately preceding 90 days and (B) both immediately before and after giving effect to such transaction Availability is not less than $2,000,000, and (iii) such investments are made in joint ventures and similar project vehicles consistent with past practice, or (c) the acquisition of all or substantially all of the properties or assets of a Person other than another Company. Nothing in this Section 7.13 shall prohibit the Companies from (1) fulfilling their obligations under the agreements referred to on Schedule 7.13 or (2) receiving equity in another Person in consideration of bid and proposal or similar costs incurred, or in-kind services provided, for the benefit of such Person in the ordinary course of business. 7.14 Transactions with Affiliates. Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of a Company other than another Company except for transactions that are in the ordinary course of such Company's business, upon fair and reasonable terms, that are fully disclosed to Administrative Agent, and that are no less favorable to the Companies than would be obtained in an arm's length transaction with a non-Affiliate. 7.15 Suspension. Suspend or go out of a substantial portion of its business. 7.16 Compensation. Increase the annual fee or per-meeting fees paid to directors during any year by more than 15% over the prior year; or pay or accrue total cash compensation, during any year, to officers and senior management employees in an aggregate amount in excess of 115% of that paid or accrued in the prior year. 7.17 Use of Proceeds. Use the proceeds of the Advances made hereunder for any purpose other than (i) on the Closing Date, (y) to repay in full the outstanding principal, accrued interest, and accrued fees and expenses owing to Existing Lender, and (z) to pay transactional costs and expenses incurred in connection with this Agreement, and (ii) thereafter, consistent with the terms and conditions hereof, for its lawful and permitted corporate purposes. 7.18 Change in Location of Chief Executive Office; Equipment with Bailees. Relocate its chief executive office to a new location without providing thirty (30) days prior written notification thereof to the Administrative Agent and so long as, at the time of such written notification, such Company provides any financing statements or fixture filings necessary to perfect and continue perfected the Administrative Agent's security interests (for the benefit of the Lender Group) and, if so requested, also provides to the Administrative Agent a Collateral Access Agreement with respect to such new location. The Equipment shall not at any time now or hereafter be stored with a bailee, warehouseman, or similar party without the Administrative Agent's prior written consent. 48 7.19 No Prohibited Transactions Under ERISA. Directly or indirectly: (a) engage, or permit any Subsidiary of Borrower to engage, in any prohibited transaction which is reasonably likely to result in a civil penalty or excise tax described in Sections 406 of ERISA or 4975 of the IRC for which a statutory or class exemption is not available or a private exemption has not been previously obtained from the Department of Labor; (b) permit to exist with respect to any Benefit Plan any accumulated funding deficiency (as defined in Sections 302 of ERISA and 412 of the IRC), whether or not waived; (c) fail, or permit any Subsidiary of Borrower to fail, to pay timely required contributions or annual installments due with respect to any waived funding deficiency to any Benefit Plan; (d) terminate, or permit any Subsidiary of Borrower to terminate, any Benefit Plan where such event would result in any liability of Borrower, any of its Subsidiaries or any ERISA Affiliate under Title IV of ERISA; (e) fail, or permit any Subsidiary of Borrower to fail, to make any required contribution or payment to any Multiemployer Plan; (f) fail, or permit any Subsidiary of Borrower to fail, to pay to any Benefit Plan any required installment or any other payment required under Section 412 of the IRC on or before the due date for such installment or other payment; (g) amend, or permit any Subsidiary of Borrower to amend, a Benefit Plan resulting in an increase in current liability for the plan year such that either of Borrower, any Subsidiary of Borrower or any ERISA Affiliate is required to provide security to such Benefit Plan under Section 401(a)(29) of the IRC; or (h) withdraw, or permit any Subsidiary of Borrower to withdraw, from any Multiemployer Plan where such withdrawal is reasonably likely to result in any liability of any such entity under Title IV of ERISA; which, individually or in the aggregate, results in or reasonably would be expected to result in a claim against or liability of Borrower, any of its Subsidiaries or any ERISA Affiliate in excess of $500,000. 7.20 Financial Covenants. Permit the Consolidated Group to fail to maintain: (a) EBITDA. EBITDA at the end of each fiscal quarter ending on a date set forth below, measured on a rolling four fiscal quarter basis, of not less than the amount set forth opposite each such date: Date Amount 12/31/98 $16,400,000 3/31/99 $11,100,000 6/30/99 $ 9,900,000 9/30/99 $13,300,000 12/31/99 $21,100,000 3/31/00 $24,900,000 6/30/00 $28,100,000 49 9/30/00 $30,200,000 12/31/00 $31,500,000 50 (b) Total Debt to EBITDA. A ratio of Total Debt at the end of each fiscal quarter ending on a date set forth below divided by EBITDA at the end of each such fiscal quarter, measured on a rolling four fiscal quarter basis, of less than the ratio set forth opposite each such date: Date Ratio 12/31/98 12.2 to 1.0 3/31/99 18.0 to 1.0 6/30/99 20.2 to 1.0 9/30/99 15.0 to 1.0 12/31/99 9.5 to 1.0 3/31/00 8.0 to 1.0 6/30/00 7.1 to 1.0 9/30/00 6.6 to 1.0 12/31/00 6.3 to 1.0 (c) Tangible Net Worth. Tangible Net Worth on each date listed below of not less than the amount set forth below opposite each such date: Date Amount 12/31/98 ($127,800,000) 3/31/99 ($131,200,000) 6/30/99 ($133,200,000) 9/30/99 ($133,400,000) 12/31/99 ($132,800,000) 3/31/00 ($132,400,000) 6/30/00 ($130,100,000) 9/30/00 ($127,600,000) 12/31/00 ($124,900,000) (d) Minimum Revenues. Net revenues from operations of the Consolidated Group for each month set forth below of not less than the amount set forth below opposite each such month: Month Amount Dec-98 $24,000,000 51 Jan-99 $29,100,000 Feb-99 $28,500,000 Mar-99 $27,500,000 Apr-99 $30,300,000 May-99 $29,700,000 Jun-99 $29,500,000 Jul-99 $32,600,000 Aug-99 $31,900,000 Sep-99 $31,700,000 Oct-99 $31,700,000 Nov-99 $31,600,000 Dec-99 $30,900,000 Jan-00 $31,100,000 Feb-00 $30,400,000 Mar-00 $29,500,000 Apr-00 $32,500,000 May-00 $31,700,000 Jun-00 $31,500,000 Jul-00 $34,900,000 Aug-00 $34,100,000 Sep-00 $33,900,000 Oct-00 $33,900,000 Nov-00 $33,800,000 Dec-00 $33,100,000 7.21 Capital Expenditures. Permit the Consolidated Group to make capital expenditures in any fiscal year in excess of (i) $1,200,000 for any individual transaction, or (ii) $4,000,000 in the aggregate. 8. EVENTS OF DEFAULT. Any one or more of the following events shall constitute an event of default (each, an "Event of Default") under this Agreement: 8.1 If Borrower or any Company fails to pay when due and payable or when declared due and payable, any portion of the Obligations (whether of principal, interest (including any interest which, but for the provisions of the Bankruptcy Code, would have accrued on such amounts), fees and charges due Lender Group, reimbursement of Lender Group Expenses, or other amounts constituting Obligations); 8.2 (a) If any Company fails to perform, keep, or observe any term, provision, condition, covenant, or agreement contained in Sections 6.2 (Collateral Reporting), 6.3 (Financial Statements, Reports, Certificates), 6.4 (Other Reports), 6.5 (Tax Returns), 6.7 (Title to Equipment), 6.12 (Location of Equipment), 6.13 (Compliance with Laws), 6.14 (Employee Benefits), or 6.15 (Leases) of this Agreement and such failure continues for a period of 5 Business Days or a period of 3 Business Days in the case of clause (a) of Section 6.2; (b) if any Company fails or neglects to perform, keep, or observe any term, provision, condition, covenant, or agreement contained in Sections 6.1 (Accounting System) or 6.8 (Maintenance of Equipment) of this Agreement and such failure continues for a period of 15 days; or (c) if any Company fails or neglects to perform, keep, or observe any other term, provision, condition, covenant, or agreement contained in this Agreement, or in any of the other Loan Documents (giving effect to any grace periods, cure periods, or required notices, if any, expressly provided for in this Agreement or such other Loan Documents); in each case, other than any such term, provision, condition, covenant, 52 or agreement that is the subject of another provision of this Section 8, in which event such other provision of this Section 8 shall govern; provided that, during any period of time that any such failure or neglect of a Company referred to in this Section 8 exists, even if such failure or neglect is not yet an Event of Default by virtue of the existence of a grace or cure period or the pre- condition of the giving of a notice, Lender Group shall not be required during such period to make Advances to Borrower or assist the Borrower in obtaining Letters of Credit for the account of Borrower; 8.3 If there is a Material Adverse Change; 8.4 If any material portion of any Company's properties or assets is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any third Person; 8.5 If an Insolvency Proceeding is commenced by any Company; 8.6 If an Insolvency Proceeding is commenced against any Company and any of the following events occur: (a) such Company consents to the institution of the Insolvency Proceeding against it; (b) the petition commencing the Insolvency Proceeding is not timely controverted; (c) the petition commencing the Insolvency Proceeding is not dismissed within sixty (60) calendar days of the date of the filing thereof; provided, however, that, during the pendency of such period, Lender Group shall be relieved of its obligation to extend credit hereunder; (d) an interim trustee is appointed to take possession of all or a substantial portion of the properties or assets of, or to operate all or any substantial portion of the business of, such Company; or (e) an order for relief shall have been issued or entered therein; 8.7 If any Company is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs; 8.8 If a notice of Lien (other than a Permitted Lien), levy, or assessment is filed of record with respect to any Company's properties or assets by the United States Government, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, or if any taxes or debts owing at any time hereafter to any one or more of such entities becomes a Lien (other than a Permitted Lien), whether choate or otherwise, upon any Company's properties or assets and the same is not paid on the payment date thereof; 8.9 If a judgment or other claim becomes a Lien or encumbrance upon any material portion of any Company's properties or assets; 8.10 If there is a default under any Indenture, any Notes or in any Material Contract to which any Company is a party with one or more third Persons and such default (a) occurs at the final maturity of the obligations thereunder, or (b) results in a right by such third Person(s), irrespective of whether exercised, to accelerate the maturity of any Company's obligations thereunder; 8.11 If any Company makes any payment on account of Indebtedness that has been contractually subordinated in right of payment to the payment of the Obligations, except to the extent such payment is permitted by the terms of the subordination provisions applicable to such Indebtedness; 53 8.12 If any material misstatement, misrepresentation or omission exists now or hereafter in any warranty, representation, statement, or report made to Lender Group by any Company or any officer, employee, agent, or director of a Company, or if any such warranty or representation is withdrawn; or 8.13 If the obligation of any Subsidiary Guarantor under its guaranty made pursuant to Section 18 or other third Person under any Loan Document is limited or terminated by operation of law or by such Subsidiary Guarantor or other third Person, or any such Subsidiary Guarantor or other third Person becomes the subject of an Insolvency Proceeding. 9. LENDER GROUP'S RIGHTS AND REMEDIES. 9.1 Rights and Remedies. Upon the occurrence, and during the continuation, of an Event of Default Administrative Agent may, pursuant to Sections 17.4 and 17.5, without notice of its election and without demand, do or cause Collateral Agent to do any one or more of the following, all of which are authorized by the Companies: (a) Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable; (b) Cease advancing money or extending credit to or for the benefit of Borrower under this Agreement, under any of the Loan Documents, or under any other agreement between Borrower and Lender Group; (c) Terminate this Agreement and any of the other Loan Documents as to any future liability or obligation of Lender Group, but without affecting Lender Group's rights and security interests in the Personal Property Collateral or the Real Property Collateral and without affecting the Obligations; (d) Settle or adjust disputes and claims directly with Account Debtors for amounts and upon terms which Administrative Agent considers advisable, and in such cases, Collateral Agent will credit Borrower's Loan Account with only the net amounts received by Collateral Agent in payment of such disputed Accounts after deducting all Lender Group Expenses incurred or expended in connection therewith; (e) Intentionally Omitted; (f) Without notice to or demand upon any Company, make such payments and do such acts as Administrative Agent considers necessary or reasonable to protect the security interests in the Collateral of Administrative Agent (for the benefit of Lender Group). The Companies agree to assemble the Personal Property Collateral if Administrative Agent so requires, and to make the Personal Property Collateral available to Administrative Agent as Administrative Agent may designate. The Companies authorize the Agents to enter the premises where the Personal Property Collateral is located, to take and maintain possession of the Personal Property Collateral, or any part of it, and to pay, purchase, contest, or compromise any encumbrance, charge, or Lien that in the Agents' determination appears to conflict with the security interests of the Administrative Agent and to pay all expenses incurred in connection therewith. With respect to any of the Companies' owned or leased premises, the Companies hereby grant the Agents a license to enter into possession of such premises and to occupy the same, without charge, for up to one hundred twenty (120) days in order to exercise any of Lender Group's rights or remedies provided herein, at law, in equity, or otherwise; 54 (g) Without notice to the Companies (such notice being expressly waived), and without constituting a retention of any collateral in satisfaction of an obligation (within the meaning of Section 9-505 of the Code), set off and apply to the Obligations any and all (i) balances and deposits of the Companies held by Lender Group (including any amounts received in the Lockbox Accounts), or (ii) Indebtedness at any time owing to or for the credit or the account of the Companies held by Lender Group; (h) Hold, as cash collateral, any and all balances and deposits of the Companies held by Lender Group, and any amounts received in the Lockbox Accounts, to secure the full and final repayment of all of the Obligations; (i) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Personal Property Collateral. Subject to the provisions of applicable law, Collateral Agent is hereby granted a license or other right to use, without charge for the benefit of Lender Group, the Companies' labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, servicemarks, and advertising matter, or any property of a similar nature, as it pertains to the Personal Property Collateral, in completing production of, advertising for sale, and selling any Personal Property Collateral and the Companies' rights under all licenses and all franchise agreements shall inure to Lender Group 's benefit; (j) Subject to the provisions of applicable law, sell the Personal Property Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including the Companies' premises) as the Agents determine is commercially reasonable. It is not necessary that the Personal Property Collateral be present at any such sale; (k) Administrative Agent shall give notice of the disposition of the Personal Property Collateral as follows: (1) Administrative Agent shall give Borrower (as agent for the Companies) and each holder of a security interest in the Personal Property Collateral who has filed with the Agents a written request for notice, a notice in writing of the time and place of public sale, or, if the sale is a private sale or some other disposition other than a public sale is to be made of the Personal Property Collateral, then the time on or after which the private sale or other disposition is to be made; (2) the notice shall be personally delivered or mailed, postage prepaid, to Borrower as provided in Section 12, at least five (5) days before the date fixed for the sale, or at least five (5) days before the date on or after which the private sale or other disposition is to be made; no notice needs to be given prior to the disposition of any portion of the Personal Property Collateral that is perishable or threatens to decline speedily in value or that is of a type customarily sold on a recognized market. Notice to Persons other than Borrower claiming an interest in the Personal Property Collateral shall be sent to such addresses as they have furnished to the Agents; (3) if the sale is to be a public sale, the Administrative Agent also shall give notice of the time and place by publishing a notice one time at least five (5) days before the date of the sale in a newspaper of general circulation in the county in which the sale is to be held; (l) the Administrative Agent may credit bid and purchase at any public sale; and 55 (m) any deficiency that exists after disposition of the Personal Property Collateral as provided above will be paid immediately by Borrower. Any excess will be returned, without interest and subject to the rights of third Persons, by the Administrative Agent to Borrower. 9.2 Assignment of Claims Act Notices. At such time as an Event of Default has occurred and is continuing or Administrative Agent deems itself insecure, the Agents may file with the applicable Account Debtor and with any other required Persons any Assignment of Claims Act Notice delivered to Administrative Agent in accordance with this Agreement. 9.3 Remedies Cumulative. Lender Group's rights and remedies under this Agreement, the Loan Documents, and all other agreements shall be cumulative. Lender Group shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Lender Group of one right or remedy shall be deemed an election, and no waiver by Lender Group of any Event of Default shall be deemed a continuing waiver. No delay by Lender Group shall constitute a waiver, election, or acquiescence by it. 10. TAXES AND EXPENSES. If any Company fails to pay any monies (whether taxes, assessments, insurance premiums, or, in the case of leased properties or assets, rents or other amounts payable under such leases) due to third Persons, or fails to make any deposits or furnish any required proof of payment or deposit, all as required under the terms of this Agreement, then, to the extent that Administrative Agent determines that such failure by such Company could result in a Material Adverse Change, in its discretion and without prior notice to any Company, Administrative Agent may do, or may cause Collateral Agent, to do any or all of the following: (a) make payment of the same or any part thereof; (b) set up such reserves in Borrower's Loan Account as Administrative Agent deems necessary to protect Lender Group from the exposure created by such failure; or (c) obtain and maintain insurance policies of the type described in Section 6.10, and take any action with respect to such policies as Administrative Agent deems prudent. Any such amounts paid or caused to be paid by Administrative Agent shall constitute Lender Group Expenses. Any such payments shall not constitute an agreement by Lender Group to make similar payments in the future or a waiver by Lender Group of any Event of Default under this Agreement. Administrative Agent need not inquire as to, or contest the validity of, any such expense, tax, or Lien and the receipt of the usual official notice for the payment thereof shall be conclusive evidence that the same was validly due and owing. 11. WAIVERS; INDEMNIFICATION. 11.1 Demand; Protest; etc. Each Company waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees at any time held by Lender Group on which such Company may in any way be liable. 11.2 Lender Group's Liability for Collateral. So long as Lender Group complies with its obligations, if any, under Section 9-207 of the Code, Lender Group shall not in any way or manner be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage thereto occurring or arising in any manner or fashion from any cause; (c) any diminution in the value thereof; or (d) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other Person. All risk of loss, damage, or destruction of the Collateral shall be borne by the Companies. 11.3 Indemnification. Borrower shall pay, indemnify, defend, and hold each Agent-Related Person, each Lender, each Participant, and each of their respective officers, directors, employees, 56 counsel, agents, and attorneys-in-fact (each, an "Indemnified Person") harmless (to the fullest extent permitted by law) from and against any and all claims, demands, suits, actions, investigations, proceedings, and damages, and all reasonable attorneys fees and disbursements and other costs and expenses actually incurred in connection therewith (as and when they are incurred and irrespective of whether suit is brought), at any time asserted against, imposed upon, or incurred by any of them in connection with or as a result of or related to the execution, delivery, enforcement, performance, and administration of this Agreement and any other Loan Documents or the transactions contemplated herein, and with respect to any investigation, litigation, or proceeding related to this Agreement, any other Loan Document, or the use of the proceeds of the credit provided hereunder (irrespective of whether any Indemnified Person is a party thereto), or any act, omission, event or circumstance in any manner related thereto (all the foregoing, collectively, the "Indemnified Liabilities"). Borrower shall have no obligation to any Indemnified Person under this Section 11.3 with respect to any Indemnified Liability that a court of competent jurisdiction finally determines to have resulted from the gross negligence or willful misconduct of such Indemnified Person. This provision shall survive the termination of this Agreement and the repayment of the Obligations. 12. NOTICES. Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other Loan Document shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by registered or certified mail (postage prepaid, return receipt requested), overnight courier, or telefacsimile to Borrower, the other Companies or the Agents, as the case may be, at its address set forth below: If to Borrower or ICF KAISER INTERNATIONAL, INC. the other Companies: 9300 Lee Highway Fairfax, Virginia 22031-1207 Attn.: Mr. Timothy P. O'Connor Chief Financial Officer Fax No.: (703) 934-3528 with copies to: (i) ICF KAISER INTERNATIONAL, INC. 9300 Lee Highway Fairfax, Virginia 22031-1207 Attn.: General Counsel Fax No.: (703) 934-3029; and (ii) SQUIRE, SANDERS & DEMPSEY L.L.P. 1201 Pennsylvania Ave., N.W. Washington, D.C. 20044-0407 Attn.: James J. Maiwurm, Esq. Fax No.: (202) 626-6780 57 If to Administrative Agent: MADELEINE L.L.C. 450 Park Avenue New York, New York 10022 28th Floor Attn.: Mr. Kevin P. Genda Fax No.: (212) 755-3009 with copies to: SCHULTE ROTH & ZABEL LLP 900 Third Avenue New York, New York 10022 Attn.: Frederic L. Ragucci, Esq. Fax No.: (212) 593-5955 If to Collateral Agent: At such address as the Collateral Agent has provided to Borrower and Lenders in writing. The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other parties. All notices or demands sent in accordance with this Section 12, other than notices by Administrative Agent in connection with Sections 9-504 or 9-505 of the Code, shall be deemed received on the earlier of the date of actual receipt or three (3) days after the deposit thereof in the mail. The Companies acknowledge and agree that notices sent by Administrative Agent in connection with Sections 9-504 or 9-505 of the Code shall be deemed sent when deposited in the mail or personally delivered, or, where permitted by law, transmitted by telefacsimile or other similar method set forth above. 13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK OR, AT THE SOLE OPTION OF ADMINISTRATIVE AGENT, IN ANY OTHER COURT IN WHICH ADMINISTRATIVE AGENT SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF THE COMPANIES AND LENDER GROUP WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13. THE COMPANIES AND LENDER GROUP HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH OF THE COMPANIES AND LENDER GROUP REPRESENTS THAT IT HAS REVIEWED THIS WAIVER 58 AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 14. DESTRUCTION OF DOCUMENTS. All documents, schedules, invoices, agings, or other papers delivered to any Agent may be destroyed or otherwise disposed of by such Agent four (4) months after they are delivered to or received by such Agent, unless Borrower requests, in writing, the return of said documents, schedules, or other papers and makes arrangements, at Borrower's expense, for their return. 15. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS. 15.1 Assignments and Participations. (a) Any Lender may, with the written consent of Administrative Agent (and, in the case of an assignment to any financial institution that is organized outside of the United States or that maintains its chief executive office outside of the United States, the Borrower), assign and delegate to one or more financial institutions (each an "Assignee") all, or any ratable part, of the Obligations, the Commitments, and the other rights and obligations of such Lender hereunder and under the other Loan Documents, in a minimum amount of $5,000,000; provided, however, that the parties hereto may continue to deal solely and directly with such Lender in connection with the interest so assigned to an Assignee until (i) written notice of such assignment, together with payment instructions, addresses, and related information with respect to the Assignee, shall have been given to Borrower and Administrative Agent by such Lender and the Assignee; (ii) such Lender and its Assignee shall have delivered to Borrower and Administrative Agent (A) a fully executed Assignment and Acceptance ("Assignment and Acceptance") in the form of Exhibit 15.1 and (B) such form or forms as Borrower has requested and as may be required under the United States Foreign Ownership, Control and Influence laws and regulations as to which any Company may be subject; and (iii) the assignor Lender or Assignee has paid to Administrative Agent for Administrative Agent's sole and separate account a processing fee in the amount of $2,500. Anything contained herein to the contrary notwithstanding, the consent of Administrative Agent shall not be required (and payment of any fees shall not be required) if such assignment is in connection with any merger, consolidation, sale, transfer, or other disposition of all or any substantial portion of the business or loan portfolio of such Lender. (b) From and after the date that Administrative Agent notifies the assignor Lender that it has received a fully executed Assignment and Acceptance and payment of the above-referenced processing fee, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, shall have the rights and obligations of a Lender under the Loan Documents, and (ii) the assignor Lender shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement and the other Loan Documents, such Lender shall cease to be a party hereto and thereto), and such assignment shall effect a novation between Borrower, the Companies and the Assignee. (c) By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the Assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (1) other than as provided in such Assignment and Acceptance, such 59 assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties, or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency, or value of this Agreement or any other Loan Document furnished pursuant hereto; (2) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Companies or the performance or observance by the Companies of any of their obligations under this Agreement or any other Loan Document furnished pursuant hereto; (3) such Assignee confirms that it has received a copy of this Agreement, together with such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (4) such Assignee will, independently and without reliance upon Agents, such assigning Lender, or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (5) such Assignee appoints and authorizes each Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to such Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (6) such Assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender. (d) Immediately upon each Assignee's making its processing fee payment under the Assignment and Acceptance, this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the resulting adjustment of the Commitments of the Assignor and Assignee arising therefrom. The Commitment allocated to each Assignee shall reduce such Commitment of the assigning Lender pro tanto. (e) Any Lender may at any time, with the written consent of Administrative Agent, which consent shall not be unreasonably withheld, sell to one or more Persons (a "Participant") participating interests in the Obligations owing to such Lender, such Lender's Commitment, and the other rights and interests of that Lender (the "Originating Lender") hereunder and under the other Loan Documents (provided that no written consent of Administrative Agent shall be required in connection with any sale of such participating interests by a Lender to an Affiliate of such Lender); provided, however, that (i) the Originating Lender's obligations under this Agreement shall remain unchanged, (ii) the Originating Lender shall remain solely responsible for the performance of such obligations, (iii) the Companies and each Agent shall continue to deal solely and directly with the Originating Lender in connection with the Originating Lender's rights and obligations under this Agreement and the other Loan Documents, (iv) no Originating Lender shall transfer or grant any participating interest under which the Participant has the sole and exclusive right to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document, except to the extent such amendment to, or consent or waiver with respect to this Agreement or of any other Loan Document would (A) extend the final maturity date of the Obligations hereunder in which such participant is participating; (B) reduce the interest rate applicable to the Obligations hereunder in which such Participant is participating; (C) release all or a material portion of the Collateral (except to the extent expressly provided herein or in any of the Loan Documents) supporting the Obligations hereunder in which such Participant is participating; (D) postpone the payment of, or reduce the amount of, the interest or fees hereunder in which such Participant is participating; (E) change the amount or due dates of scheduled principal repayments or prepayments or premiums in respect of the Obligations hereunder in which such Participant is participating; or (F) subordinate the Liens of Administrative Agent for the benefit of the Lender Group to the Liens of any other creditor of any Company; and (v) all amounts payable by Borrower hereunder shall be determined as if such Originating Lender had not sold such participation; except that, if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the 60 right of set-off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement; provided, however, that no Participant may exercise any such right of set-off without the notice to and consent of Administrative Agent. The rights of any Participant shall only be derivative through the Originating Lender with whom such Participant participates and no Participant shall have any direct rights as to the other Lenders, each Agent, Borrower, the Subsidiary Guarantors, the Collections, the Collateral, or otherwise in respect of the Advances or the Letters of Credit. No Participant shall have the right to participate directly in the making of decisions by Lenders among themselves. The provisions of this Section 15.1(e) are solely for the benefit of Lender Group, and no Company shall have any rights as a third party beneficiary of any of such provisions. (f) In connection with any such assignment or participation or proposed assignment or participation, subject to Section 17.16(d), a Lender may disclose to a third party all documents and information which it now or hereafter may have relating to the Companies' business. (g) Notwithstanding any other provision in this Agreement, any Lender may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement in favor of any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury Regulation 31 C.F.R. (S)203.14, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law. (h) Madeleine, in its capacity as a Lender, and an Assignee have executed and delivered an Assignment and Acceptance as of the Closing Date and the rights and duties of Madeleine as a Lender and of any other Assignee of Madeleine as a Lender are subject to such Assignment and Acceptance. 15.2 Successors. This Agreement shall bind and inure to the benefit of the respective successors and assigns of each of the parties hereto; provided, however, that no Company may assign this Agreement or any rights or duties hereunder without Lenders' prior written consent and any prohibited assignment shall be absolutely void. No consent to assignment by Lenders shall release any Company from the Obligations. A Lender may assign this Agreement and its rights and duties hereunder pursuant to Section 15.1 and, except as expressly required pursuant to Section 15.1, no consent or approval by any Company is required in connection with any such assignment. 16. AMENDMENTS; WAIVERS. 16.1 Amendments and Waivers. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent with respect to any departure by any Company therefrom, shall be effective unless the same shall be in writing and signed by Administrative Agent and Required Lenders (or by Administrative Agent at the written request of Required Lenders), Borrower and the Subsidiary Guarantors, and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such waiver, amendment, or consent shall, unless in writing and signed by all Lenders, Borrower and the Subsidiary Guarantors, and acknowledged by each Agent, do any of the following: (a) increase or extend the Commitment of any Lender; (b) postpone or delay any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees, or other amounts due to Lenders (or any of them) hereunder or under any other Loan Document; 61 (c) reduce the principal of, or the rate of interest specified herein on, any Advance, or any fees or other amounts payable hereunder or under any other Loan Document; (d) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Advances, which is required for Lenders or any of them to take any action hereunder; (e) increase the advance rate with respect to Advances (except for the restoration of an advance rate after the prior reduction thereof), or change Section 2.1(b); (f) amend this Section 16.1 or any provision of this Agreement providing for consent or other action by all Lenders; (g) release Collateral other than as permitted by Section 17.11; (h) change the definition of "Required Lenders" or "Pro Rata Share"; (i) release Borrower or any Subsidiary Guarantor from any Obligation for the payment of money; (j) amend any of the provisions of Article 17 or Section 2.1(k); or (k) subordinate the Liens of Administrative Agent for the benefit of the Lender Group to the Liens of any other creditor of any Company. and, provided further, that no amendment, waiver or consent shall, unless in writing and signed by an Agent, affect the rights or duties of such Agent under this Agreement or any other Loan Document; and, provided further, that the limitation contained in clause (e) above shall not be deemed to limit the ability of Administrative Agent to make Advances or Agent Advances, or the Collateral Agent to make Advances or Agent Loans, as applicable, in accordance with the provisions of Sections 2.1(d), (e), (f), (g), (h), or (k). The foregoing notwithstanding, any amendment, modification, waiver, consent, termination, or release of or with respect to any provision of this Agreement or any other Loan Document that relates only to the relationship of Lender Group among themselves, and that does not affect the rights or obligations of the Companies, shall not require consent by or the agreement of the Companies. 16.2 No Waivers; Cumulative Remedies. No failure by any Agent or any Lender to exercise any right, remedy, or option under this Agreement, any other Loan Document, or any present or future supplement hereto or thereto, or in any other agreement between or among Borrower and any Agent and/or any Lender, or delay by any Agent or any Lender in exercising the same, will operate as a waiver thereof. No waiver by any Agent or any Lender will be effective unless it is in writing, and then only to the extent specifically stated. No waiver by any Agent or Lenders on any occasion shall affect or diminish each Agent's and each Lender's rights thereafter to require strict performance by any Company of any provision of this Agreement. Each Agent's and each Lender's rights under this Agreement and the other Loan Documents will be cumulative and not exclusive of any other right or remedy which any Agent or any Lender may have. 17. AGENT; LENDER GROUP. 17.1 Appointment and Authorization of Agent. Each Lender hereby designates and appoints Madeleine as its Administrative Agent under this Agreement and the other Loan Documents and 62 authorizes Madeleine to select the Collateral Agent after consultation with Borrower. Each Lender hereby irrevocably authorizes each such Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Each Agent agrees to act as such on the express conditions contained in this Article 17. The provisions of this Article 17 are solely for the benefit of each Agent and Lenders, and the Companies shall not have any rights as a third party beneficiary of any of the provisions contained herein; provided, however, that the provisions of Sections 17.10, 17.11, and 17.16(d) also shall be for the benefit of the Companies. Any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document notwithstanding, none of the Agents shall have any duties or responsibilities, except those expressly set forth herein, nor shall any Agent have or be deemed to have any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations, or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against any Agent. Except as expressly otherwise provided in this Agreement, each Agent shall have and may use its sole discretion with respect to exercising or refraining from exercising any discretionary rights or taking or refraining from taking any actions which such Agent is expressly entitled to take or assert under or pursuant to this Agreement and the other Loan Documents, including making the determinations contemplated by Section 2.1(b). Without limiting the generality of the foregoing, or of any other provision of the Loan Documents that provides rights or powers to each Agent, Lenders agree that Administrative Agent shall have the right to exercise the following powers and to delegate the exercise of any such powers to any other Agent as long as this Agreement remains in effect: (a) maintain, in accordance with its customary business practices, ledgers and records reflecting the status of the Advances, the Letters of Credit, the Collateral, the Collections, and related matters; (b) execute and/or file any and all financing or similar statements or notices, amendments, renewals, supplements, documents, instruments, proofs of claim for Lenders, notices and other written agreements with respect to the Loan Documents; (c) make Advances for itself or on behalf of Lenders as provided in the Loan Documents; (d) receive, apply, and distribute the Collections as provided in the Loan Documents; (e) open and maintain such bank accounts and lock boxes as Administrative Agent deems necessary and appropriate in accordance with the Loan Documents for the foregoing purposes with respect to the Collateral and the Collections; (f) perform, exercise, and enforce any and all other rights and remedies of Lender Group with respect to Borrower, the Advances, the Letters of Credit, the Collateral, the Collections, or otherwise related to any of same as provided in the Loan Documents; and (g) incur and pay such Lender Group Expenses as Administrative Agent may deem necessary or appropriate for the performance and fulfillment of its functions and powers pursuant to the Loan Documents. 17.2 Delegation of Duties. Except as otherwise provided in this Section 17.2, any Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees, or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. No Agent shall be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects as long as such selection was made in compliance with this Section 17.2 and without gross negligence or willful misconduct. The foregoing notwithstanding, no Agent shall make any material delegation of duties to subagents or non-employee delegees without the prior written consent of Required Lenders (it being understood that routine delegation of such administrative matters as filing financing statements, or conducting appraisals or audits, is not viewed as a material delegation that requires prior Required Lender approval). 17.3 Liability of Agent-Related Persons-. None of Agent-Related Persons shall (i) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own 63 gross negligence or willful misconduct), or, (ii) be responsible in any manner to any of Lenders for any recital, statement, representation or warranty made by any Company, or any Subsidiary or Affiliate of any Company, or any officer or director thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement, or other document referred to or provided for in, or received by any Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of Borrower or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books, or records of any Company, or of any Company's Subsidiaries or Affiliates. 17.4 Reliance by Agent. Each Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex, or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent, or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to Borrower or counsel to any Lender), independent accountants, and other experts selected by such Agent. Each Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of Required Lenders or all Lenders, as applicable, and until such instructions are received, such Agent shall act, or refrain from acting, as it deems advisable so long as it is not grossly negligent or guilty of willful misconduct. If any Agent so requests, it shall first be indemnified to its reasonable satisfaction by Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Each Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of Required Lenders or all Lenders, as applicable, and such request and any action taken or failure to act pursuant thereto shall be binding upon all of Lenders. 17.5 Notice of Default or Event of Default. No Agent shall be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, except with respect to defaults in the payment of principal, interest, fees, and expenses required to be paid to such Agent for the account of such Agent or Lenders, except in the case of the Administrative Agent with respect to actual knowledge of the existence of an Overadvance, and except with respect to Defaults and Events of Default of which Administrative Agent has actual knowledge, unless Administrative Agent shall have received written notice from a Lender or Borrower referring to this Agreement, describing such Default or Event of Default, and stating that such notice is a "notice of default." Administrative Agent promptly will notify Lenders of its receipt of any such notice or of any Event of Default of which Administrative Agent has, or is deemed to have, actual knowledge. If any Lender obtains actual knowledge of any Event of Default, such Lender promptly shall notify the other Lenders and Administrative Agent of such Event of Default. Each Lender shall be solely responsible for giving any notices to its Participants, if any. Subject to Section 17.4, Administrative Agent shall take such action with respect to such Default or Event of Default as may be requested by Required Lenders; provided, however, that: (a) At all times, Administrative Agent may propose and, with the consent of Required Lenders (which shall not be unreasonably withheld and which shall be deemed to have been given by a Lender unless such Lender has notified Administrative Agent to the contrary in writing within three (3) days of notification of such proposed actions by Administrative Agent) exercise or cause Collateral Agent to exercise, any remedies on behalf of Lender Group; and 64 (b) At all times, once Administrative Agent and Required Lenders or all Lenders, as the case may be, have approved the exercise of a particular remedy or pursuit of a course of action, Administrative Agent may, but shall not be obligated to, make all administrative decisions in connection therewith or take or cause Collateral Agent to take all other actions reasonably incidental thereto (for example, if Required Lenders approve the foreclosure of certain Collateral, Administrative Agent shall not be required to seek consent for the administrative aspects of conducting such sale or handling of such Collateral). 17.6 Credit Decision. Each Lender acknowledges that none of Agent- Related Persons has made any representation or warranty to it, and that no act by any Agent hereinafter taken, including any review of the affairs of the Companies and their respective Subsidiaries or Affiliates, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Lender. Each Lender represents to each Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition, and creditworthiness of Borrower and any other Person (other than Lender Group) party to a Loan Document, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to Borrower. Each Lender also represents that it will, independently and without reliance upon any Agent- Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals, and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition, and creditworthiness of Borrower, and any other Person (other than Lender Group) party to a Loan Document. Except for notices, reports, and other documents expressly herein required to be furnished to Lenders by such Agent, no Agent shall have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial and other condition, or creditworthiness of Borrower, and any other Person party to a Loan Document that may come into the possession of any of Agent-Related Persons. 17.7 Costs and Expenses; Indemnification. Any Agent may incur and pay Lender Group Expenses to the extent such Agent deems reasonably necessary or appropriate for the performance and fulfillment of its functions, powers, and obligations pursuant to the Loan Documents, including, without limiting the generality of the foregoing, but subject to any requirements of the Loan Documents that it obtain any applicable consents or engage in any required consultation, court costs, reasonable attorneys fees and expenses, costs of collection by outside collection agencies and auctioneer fees and costs of security guards or insurance premiums paid to maintain the Collateral, whether or not Borrower is obligated to reimburse any Agent or Lenders for such expenses pursuant to the Loan Agreement or otherwise. Administrative Agent is authorized and directed to direct Collateral Agent to deduct and retain sufficient amounts from Collections to reimburse any Agent for such out-of-pocket costs and expenses prior to the distribution of any amounts to Lenders. In the event any Agent is not reimbursed for such costs and expenses from Collections, each Lender hereby agrees that it is and shall be obligated to pay to or reimburse such Agent for the amount of such Lender's Pro Rata Share thereof. Whether or not the transactions contemplated hereby are consummated, Lenders shall indemnify upon demand Agent-Related Persons (to the extent not reimbursed by or on behalf of Borrower and without limiting the obligation of Borrower to do so), according to their Pro Rata Shares, from and against any and all Indemnified Liabilities; provided, however, that no Lender shall be liable for the payment to Agent-Related Persons of any portion of such Indemnified Liabilities resulting solely from such Person's gross negligence, bad faith, or willful misconduct. Without limitation of the foregoing, each Lender shall reimburse each Agent upon demand for its ratable share of any costs or out-of-pocket expenses 65 (including attorney fees and expenses) incurred by such Agent in connection with the preparation, execution, delivery, administration, modification, amendment, or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein, to the extent that such Agent is not reimbursed for such expenses by or on behalf of Borrower. The undertaking in this Section 17.7 shall survive the payment of all Obligations hereunder and the resignation or replacement of such Agent. 17.8 Agents in Individual Capacity. Each Agent and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests, in and generally engage in any kind of banking, lending, trust, financial advisory, underwriting, or other business with any Company and any Company's Subsidiaries and Affiliates and any other Person party to any Loan Documents as though such Agent were not an Agent hereunder without notice to or consent of Lenders. Lenders acknowledge that, pursuant to such activities, any Agent and its Affiliates may receive information regarding Borrower, the other Companies and their Affiliates and any other Company or Person party to any Loan Documents that is subject to confidentiality obligations in favor of Borrower or such other Person and that prohibit the disclosure of such information to Lenders, and Lenders acknowledge that, in such circumstances (and in the absence of a waiver of such confidentiality obligations, which waiver such Agent will use its reasonable best efforts to obtain), such Agent shall be under no obligation to provide such information to them. With respect to Agent Advances, Madeleine shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not Administrative Agent, and the terms "Lender" and "Lenders" include Madeleine in its individual capacity. With respect to Agent Loans, Collateral Agent, in its individual capacity and not in its capacity as Collateral Agent, shall, if it is a Lender hereunder, have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not Collateral Agent, and the terms "Lender" and "Lenders" shall, in such case, include Collateral Agent in its individual capacity. 17.9 Successor Administrative Agent. Administrative Agent may resign as Administrative Agent following notice of such resignation ("Notice") to the Lenders and Borrower, and effective upon the appointment of and acceptance of such appointment by, a successor Administrative Agent. If Administrative Agent resigns under this Agreement, Required Lenders shall appoint any Lender as successor Administrative Agent for Lenders. If no successor Administrative Agent is appointed within thirty (30) days of such retiring Administrative Agent's Notice, the resigning Administrative Agent may appoint a successor Administrative Agent, after consulting with Lenders and Borrower. In any such event, upon the acceptance of its appointment as successor Administrative Agent hereunder, such successor Administrative Agent shall succeed to all the rights, powers and duties of the retiring Administrative Agent and the term "Administrative Agent" shall mean such successor Administrative Agent and the retiring Administrative Agent's appointment, powers, and duties as Administrative Agent shall be terminated. After any retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Section 17 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. 17.10 Withholding Tax. (a) If any Lender is a "foreign corporation, partnership or trust" within the meaning of the IRC and such Lender claims exemption from, or a reduction of, U.S. withholding tax under Sections 1441 or 1442 of the IRC, such Lender agrees with and in favor of Agent and Borrower, to deliver to Agent and Borrower: 66 (i) if such Lender claims an exemption from, or a reduction of, withholding tax under a United States tax treaty, properly completed IRS Forms 1001 and W-8 before the payment of any interest in the first calendar year and before the payment of any interest in each third succeeding calendar year during which interest may be paid under this Agreement; (ii) if such Lender claims that interest paid under this Agreement is exempt from United States withholding tax because it is effectively connected with a United States trade or business of such Lender, two properly completed and executed copies of IRS Form 4224 before the payment of any interest is due in the first taxable year of such Lender and in each succeeding taxable year of such Lender during which interest may be paid under this Agreement, and IRS Form W-9; and (iii) such other form or forms as may be required under the IRC or other laws of the United States as a condition to exemption from, or reduction of, United States withholding tax. Such Lender agrees to promptly notify Administrative Agent and Collateral Agent and Borrower of any change in circumstances which would modify or render invalid any claimed exemption or reduction. (b) If any Lender claims exemption from, or reduction of, withholding tax under a United States tax treaty by providing IRS Form 1001 and such Lender sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of Borrower, such Lender agrees to notify Administrative Agent and Collateral Agent and Borrower of the percentage amount in which it is no longer the beneficial owner of Obligations of Borrower to such Lender. To the extent of such percentage amount, Administrative Agent and Collateral Agent and Borrower will treat such Lender's IRS Form 1001 as no longer valid. (c) If any Lender claiming exemption from United States withholding tax by filing IRS Form 4224 with Agent sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of Borrower to such Lender, such Lender agrees to undertake sole responsibility for complying with the withholding tax requirements imposed by Sections 1441 and 1442 of the IRC. (d) If any Lender is entitled to a reduction in the applicable withholding tax, Collateral Agent may withhold from any interest payment to such Lender an amount equivalent to the applicable withholding tax after taking into account such reduction. If the forms or other documentation required by subsection (a) of this Section 17.10 are not delivered to Agents, then Collateral Agent may withhold from any interest payment to such Lender not providing such forms or other documentation an amount equivalent to the applicable withholding tax. (e) If the IRS or any other Governmental Authority of the United States or other jurisdiction asserts a claim that Administrative Agent, Collateral Agent or Borrower did not properly withhold tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered, was not properly executed, or because such Lender failed to notify Administrative Agent, Collateral Agent and Borrower of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason) such Lender shall indemnify Administrative Agent, Collateral Agent and Borrower fully for all amounts paid, directly or indirectly, by Administrative Agent, Collateral Agent or Borrower as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to Administrative Agent, Collateral Agent or Borrower under this Section 17.10, together with all costs and expenses (including attorneys fees and expenses). The obligation of Lenders under this subsection shall survive the payment of all Obligations and the resignation of Administrative Agent or Collateral Agent. 67 17.11 Collateral Matters. (a) Lenders hereby irrevocably authorize Administrative Agent to release any Lien on any Collateral (i) upon the termination of the Commitments and payment and satisfaction in full by or on behalf of Borrower of all Obligations; and upon such termination and payment Administrative Agent shall deliver to Borrower (on behalf of all the Companies), at Borrower's sole cost and expense, all UCC termination statements and any other documents necessary to terminate the Loan Documents and release the Liens with respect to the Collateral; (ii) constituting property being sold or disposed of if a release is required or desirable in connection therewith and if Borrower certifies to Administrative Agent that the sale or disposition is permitted under Section 7.4 of this Agreement or the other Loan Documents (and Administrative Agent may rely conclusively on any such certificate, without further inquiry); (iii) constituting property in which no Company owned an interest at the time the Lien was granted or at any time thereafter; or (iv) constituting property leased to any Company under a lease that has expired or been terminated in a transaction permitted under this Agreement. Except as provided above, Administrative Agent will not release any Lien on any Collateral without the prior written authorization of (y) if the release is of all or any material portion of the Collateral, of all Lenders or (z) otherwise, of the Required Lenders. Upon request by Administrative Agent or Borrower at any time, Lenders will confirm in writing Administrative Agent's authority to release any such Liens on particular types or items of Collateral pursuant to this Section 17.11; provided, however, that (i) the Agents shall not be required to execute any document necessary to evidence such release on terms that, in either Agent's opinion, would expose such Agent to liability or create any obligation or entail any consequence other than the release of such Lien without recourse, representation, or warranty, and (ii) such release shall not in any manner discharge, affect or impair the Obligations or any Liens (other than those expressly being released), upon (or obligations of any Company in respect of) all interests retained by any Company, including, the proceeds of any sale, all of which shall continue to constitute part of the Collateral. (b) No Agent shall have any obligation whatsoever to any Lender to assure that the Collateral exists or is owned by a Company, is cared for, protected, or insured or has been encumbered, or that the Liens of Administrative Agent (for the benefit of Lender Group) have been properly or sufficiently or lawfully created, perfected, protected, or enforced or are entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure, or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to the Agents pursuant to any of the Loan Documents, it being understood and agreed that in respect of the Collateral, or any act, omission or event related thereto, subject to the terms and conditions contained herein, the Agents may act in any manner they may deem appropriate, absent gross negligence or willful misconduct, in their sole discretion given the Agents' own interest in the Collateral in their capacity as Lenders and that the Agents shall have no other duty or liability whatsoever to any Lender as to any of the foregoing, except as otherwise provided herein. 17.12 Restrictions on Actions by Lenders; Sharing of Payments. (a) Each of Lenders agrees that it shall not, without the express consent of Administrative Agent, and that it shall, to the extent it is lawfully entitled to do so, upon the request of Administrative Agent, set off against the Obligations any amounts owing by such Lender to any Company or any accounts of any Company now or hereafter maintained with such Lender. Each of Lenders further agrees that it shall not, unless specifically requested to do so by Administrative Agent, take or cause to be taken any action, including the commencement of any legal or equitable proceedings, to foreclose any Lien on, or otherwise enforce any security interest in, any of the Collateral the purpose 68 of which is, or could be, to give such Lender any preference or priority against the other Lenders with respect to the Collateral. (b) Subject to Section 17.8, if, at any time or times, any Lender shall receive (i) by payment, foreclosure, setoff, or otherwise, any proceeds of Collateral or any payments with respect to the Obligations of Borrower to such Lender arising under, or relating to, this Agreement or the other Loan Documents, except for any such proceeds or payments received by such Lender from Collateral Agent pursuant to the terms of this Agreement, or (ii) payments from Collateral Agent in excess of such Lender's Pro Rata Share of all such distributions by Collateral Agent, such Lender shall promptly (1) turn the same over to Collateral Agent, in kind, and with such endorsements as may be required to negotiate the same to Collateral Agent, or in same day funds, as applicable, for the account of all of Lenders and for application to the Obligations in accordance with the applicable provisions of this Agreement, or (2) purchase, without recourse or warranty, an undivided interest and participation in the Obligations owed to the other Lenders so that such excess payment received shall be applied ratably as among Lenders in accordance with their Pro Rata Shares; provided, however, that if all or part of such excess payment received by the purchasing party is thereafter recovered from it, those purchases of participations shall be rescinded in whole or in part, as applicable, and the applicable portion of the purchase price paid therefor shall be returned to such purchasing party, but without interest except to the extent that such purchasing party is required to pay interest in connection with the recovery of the excess payment. 17.13 Agency for Perfection. Each Agent and each Lender hereby appoints each other Lender as agent for the purpose of perfecting the Liens of Lender Group in assets which, in accordance with Article 9 of the Code, can be perfected only by possession. Should any Lender obtain possession of any such Collateral, such Lender shall notify Administrative Agent thereof, and, promptly upon Administrative Agent's request therefor, shall deliver such Collateral to Administrative Agent or in accordance with Administrative Agent's instructions. 17.14 Payments by Collateral Agent to Lenders. All payments to be made by Collateral Agent to Lenders shall be made by bank wire transfer or internal transfer of immediately available funds pursuant to the instructions set forth on Schedule C-1, or pursuant to such other wire transfer instructions as each party may designate for itself by written notice to Collateral Agent. Concurrently with each such payment, Collateral Agent shall identify whether such payment (or any portion thereof) represents principal, premium or interest on revolving advances or otherwise. 17.15 Concerning the Collateral and Related Loan Documents. Each member of Lender Group authorizes and directs Administrative Agent to enter into, or to cause Collateral Agent to enter into, this Agreement and the other Loan Documents relating to the Collateral, for the ratable benefit of Lender Group. Each member of Lender Group agrees that any action taken by Administrative Agent, Collateral Agent, Required Lenders, or all Lenders, as applicable, in accordance with the terms of this Agreement or the other Loan Documents relating to the Collateral and the exercise by Administrative Agent, Collateral Agent, Required Lenders, or all Lenders, as applicable, of their respective powers set forth therein or herein, together with such other powers that are reasonably incidental thereto, shall be binding upon all of Lenders. 17.16 Field Audits and Examination Reports; Confidentiality; Disclaimers by Lenders; Other Reports and Information. By signing this Agreement, each Lender: (a) is deemed to have requested that Collateral Agent furnish such Lender, promptly after it becomes available, a copy of each field audit or examination report (each a "Report" and 69 collectively, "Reports") prepared by or at the request of Administrative Agent or Collateral Agent, and Collateral Agent shall so furnish each Lender with such Reports; (b) expressly agrees and acknowledges that neither Collateral Agent nor Administrative Agent (i) makes any representation or warranty as to the accuracy of any Report, and (ii) shall not be liable for any information contained in any Report; (c) expressly agrees and acknowledges that the Reports are not comprehensive audits or examinations, that Collateral Agent or other party performing any audit or examination will inspect only specific information regarding the Companies and will rely significantly upon the Companies' Books, as well as on representations of the Companies' personnel; (d) agrees to keep all Reports and other material information obtained by it pursuant to the requirements of this Agreement in accordance with its reasonable customary procedures for handling confidential information; it being understood and agreed by the Companies that in any event such Lender may make disclosures (i) reasonably required by any bona fide potential or actual Assignee, transferee, or Participant in connection with any contemplated or actual assignment or transfer by such Lender of an interest herein or any participation interest in such Lender's rights hereunder, provided that such potential or actual Assignee, transferee or Participant agrees to comply with this Section 17.16(d) as if it were a Lender hereunder, (ii) of information that has become public by disclosures made by Persons other than such Lender, its Affiliates, assignees, transferees, or participants, or (iii) as required or requested by any court, governmental or administrative agency, pursuant to any subpoena or other legal process, or by any law, statute, regulation, or court order; provided, however, that, unless prohibited by applicable law, statute, regulation, or court order, such Lender shall notify Borrower of any request by any court, governmental or administrative agency, or pursuant to any subpoena or other legal process for disclosure of any such non-public material information concurrent with, or where practicable, prior to the disclosure thereof; and (e) without limiting the generality of any other indemnification provision contained in this Agreement, agrees: (i) to hold any Agent or Lender preparing a Report harmless from any action the indemnifying Lender may take or conclusion the indemnifying Lender may reach or draw from any Report in connection with any loans or other credit accommodations that the indemnifying Lender has made or may make to Borrower, or the indemnifying Lender's participation in, or the indemnifying Lender's purchase of, a loan or loans to Borrower; and (ii) to pay and protect, and indemnify, defend, and hold any Agent or Lender preparing a Report harmless from and against, the claims, actions, proceedings, damages, costs, expenses and other amounts (including, attorney costs) incurred by such Agent or Lender preparing a Report as the direct or indirect result of any third parties who might obtain all or part of any Report through the indemnifying Lender. In addition to the foregoing: (x) any Lender may from time to time request of any Agent in writing that such Agent provide to such Lender a copy of any report or document provided by Borrower or other Company to such Agent, and, upon receipt of such request, such Agent shall provide a copy of same to such Lender promptly upon receipt thereof; (y) to the extent that such Agent is entitled, under any provision of the Loan Documents, to request additional reports or information from Borrower, any Lender may, from time to time, reasonably request any Agent to exercise such right as specified in such Lender's notice to such Agent, whereupon such Agent promptly shall request of Borrower the additional reports or information specified by such Lender, and, upon receipt thereof, such Agent promptly shall provide a copy of same to such Lender; and (z) any time that Collateral Agent renders to Borrower a statement regarding the Loan Account, Collateral Agent shall send a copy of such statement to each Lender. 70 17.17 Several Obligations; No Liability. Notwithstanding that certain of the Loan Documents now or hereafter may have been or will be executed only by or in favor of Administrative Agent in its capacity as such, and not by or in favor of Lenders, any and all obligations on the part of the Agents to make any Advances shall constitute the several (and not joint) obligations of the respective Lenders on a ratable basis, according to their respective Commitments, to make an amount of such Advances not to exceed, in principal amount, at any one time outstanding, the amount of their respective Commitments. Nothing contained herein shall confer upon any Lender any interest in, or subject any Lender to any liability for, or in respect of, the business, assets, profits, losses, or liabilities of any other Lender. Each Lender shall be solely responsible for notifying its Participants of any matters relating to the Loan Documents to the extent any such notice may be required, and no Lender shall have any obligation, duty, or liability to any Participant of any other Lender. Except as provided in Section 17.7, no member of Lender Group shall have any liability for the acts of any other member of Lender Group. No Lender shall be responsible to Borrower or any other Person for any failure by any other Lender to fulfill its obligations to make Advances, nor to advance for it or on its behalf in connection with its Commitment, nor to take any other action on its behalf hereunder or in connection with the financing contemplated herein. 18. GUARANTY 18.1. Guaranty. Each Subsidiary Guarantor, jointly and severally, hereby (i) irrevocably, absolutely and unconditionally guarantees the prompt payment, as and when due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), of all the Obligations, including, without limitation, all amounts now or hereafter owing in respect of the Loan Documents, whether for principal, interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to Borrower whether or not a claim for post-filing interest is allowed in such proceeding), fees, expenses, indemnifications or otherwise, and (ii) agrees to pay any and all expenses (including reasonable counsel fees and expenses) incurred by Lender Group in enforcing its rights under this Section 18. 18.2. Obligations Unconditional. (i) Each Subsidiary Guarantor, jointly and severally, hereby guarantees that the Obligations will be paid strictly in accordance with the terms of the Loan Documents, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of Lender Group with respect thereto. Each Subsidiary Guarantor agrees that its guarantee constitutes a guaranty of payment when due and not of collection, and waives any right to require that any resort be had by Lender Group to any Collateral. The obligations of each Subsidiary Guarantor under this Section 18 are independent of the obligations of Borrower under this Agreement and the other Loan Documents and a separate action or actions may be brought and prosecuted against any or all of the Subsidiary Guarantors to enforce this Section 18 and the guaranty made pursuant hereto irrespective of whether any action is brought against Borrower or whether Borrower is joined in any such action. The liability of the Subsidiary Guarantors hereunder shall be absolute and unconditional, irrespective of: (i) any lack of validity or enforceability of any Loan Document or any agreement or instrument relating thereto; (ii) any extension or change in the time, manner or place of payment of, or in any other term in respect of, all or any of the Obligations (including, without limitation, any extension for longer than the original period), or any other amendment or waiver of or consent to any departure from any provision of any Loan Document (including the creation or existence of any Obligations in excess of the amounts permitted by any lending formulas contained in this Agreement); (iii) any exchange or release of, or non-perfection of any Lien on, any Collateral, or any release or amendment or waiver of or consent to any departure from any other guaranty, for all or any of the Obligations; (iv) the existence of 71 any claim, set-off, defense or other right that any Subsidiary Guarantor may have against any Person, including the Agents or the Lenders; or (v) any other circumstance which might otherwise constitute a defense available to, or a discharge of, Borrower or any other Subsidiary Guarantor in respect of the Obligations. (ii) The guaranty granted pursuant to this Section 18 (i) is a continuing guaranty and shall remain in full force and effect until such date on which all of the Obligations and all other expenses to be paid by Borrower pursuant hereto shall have been satisfied in full after the Commitments shall have been terminated, (ii) shall continue to be effective or shall be reinstated, as the case may be, if at any time any payment of any of the Obligations is rescinded or must otherwise be returned by Lender Group upon the insolvency, bankruptcy or reorganization of Borrower or any Company or otherwise, all as though such payment had not been made, and (iii) shall be binding upon each Subsidiary Guarantor and each of their respective successors and assigns. 18.3. Waivers. (a) Each Subsidiary Guarantor hereby waives, to the extent permitted by applicable law, (i) promptness and diligence, (ii) notice of acceptance and notice of the incurrence of any Obligation, (iii) notice of any action taken by Lender Group or Borrower or other Subsidiary Guarantor or any other agreement or instrument relating thereto, (iv) all other notices, demands and protests, and all other formalities of every kind in connection with the enforcement of the Obligations or of the obligations of the Subsidiary Guarantors hereunder, the omission of or delay in which, but for the provisions of this Section 18.3, might constitute grounds for relieving such Subsidiary Guarantor of its obligations hereunder, (v) any right to compel or direct the Agents or the Lenders to seek payment or recovery of any amounts owed under this Section 18 from any one particular fund or source, (vi) any requirement that the Agents or the Lenders protect, secure, perfect or insure any Lien or any property subject thereto or exhaust any right or take any action against any Person or any Collateral, and (vii) any other defenses available to Borrower or the Subsidiary Guarantors. All such waivers by the Subsidiary Guarantors shall be effective only to the extent permitted by applicable law. (b) To the fullest extent permitted by applicable law, each Company expressly waives any suretyship defenses under New York law or other applicable law to the enforcement of the Loan Agreement, or to the enforcement of any other Loan Document, or to any rights of the Lender Group or Agents on behalf thereof created or granted hereby or thereby, or to the recovery by the Lender Group or Agents for the benefit of the Lender Group against any Company or any other Person liable therefor of any deficiency after a judicial or nonjudicial foreclosure or sale of any collateral, whether real or personal, from time to time securing any of the Obligations, even though such a foreclosure or sale may impair the subrogation rights of one or more of the Companies and may preclude one or more of the Companies from obtaining reimbursement or contribution from other Companies. (c) Each Company hereby agrees to keep each other Company fully apprised at all times as to the status of its business, affairs, finances, and financial condition, and its ability to perform its Obligations under the Loan Documents, and in particular as to any adverse developments with respect thereto. Each Company hereby agrees to undertake to keep itself apprised at all times as to the status of the business, affairs, finances, and financial condition of each other Company, and of the ability of each other Company to perform its Obligations under the Loan Documents, and in particular as to any adverse developments with respect to any thereof. Each Company hereby agrees, in light of the foregoing mutual covenants to inform each other, and to keep themselves and each other informed as to such matters, that neither the Lender Group nor Agents shall have a duty to inform any Company of any 72 information pertaining to the business, affairs, finances, or financial condition of any other Company, or pertaining to the ability of any other Company to perform its Obligations under the Loan Documents, even if such information is adverse, and even if such information might influence the decision of one or more of the Companies to continue to be jointly and severally liable for, or to provide Collateral for, Obligations of one or more of the other Companies. To the fullest extent permitted by applicable law, each Company hereby expressly waives any duty of the Lender Group or Agents to inform any Company of any such information. 18.4. Subrogation. Until such time as the Obligations have been satisfied in full and all Commitments have been terminated, each Subsidiary Guarantor hereby irrevocably agrees, that it will not exercise any and all rights which it has or may have at any time or from time to time (whether arising directly or indirectly by operation of law or contract) to assert any claim against Borrower or any other Subsidiary Guarantor on account of any payments made under this Agreement, including, without limitation, all existing and future rights of subrogation, reimbursement, exoneration, contribution and/or indemnity. If any amount shall be paid to a Subsidiary Guarantor on account of the enforcement of such rights at any time when all of such Obligations and all other Obligations shall not have been paid in full, such amount shall be held in trust for the benefit of the Agents or the Lenders, shall be segregated from the other funds of such Subsidiary Guarantor and shall forthwith be paid over to the Collateral Agent to be applied in whole or in part against the Obligations, whether matured or unmatured, in accordance with the terms of this Agreement. 18.5. No Waiver; Remedies. No failure of Lender Group to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedy provided by law. 18.6. Stay of Acceleration. If acceleration of the time for payment of any amount payable by Borrower in respect of the Obligations is stayed upon the insolvency, bankruptcy or reorganization of Borrower, all such amounts otherwise subject to acceleration under the terms of this Agreement shall nonetheless be payable by the Subsidiary Guarantors, or any one of them, forthwith on demand by Administrative Agent. 18.7 Joinder of Additional Subsidiary Guarantors. Borrower shall cause each of its Subsidiaries that are not Subsidiary Guarantors on the Closing Date, other than (1) Subsidiaries described in Schedule 5.3, (2) Subsidiaries organized under the laws of any jurisdiction outside of the United States of America, (3) Subsidiaries that do not conduct any business and do not own any assets with a fair market value in excess of $5,000,000 in the aggregate for all such Subsidiaries or $1,000,000 for any such individual Subsidiary or (4) ICF Kaiser Engineers Eastern Europe, Inc. and ICF Kaiser Technology Holdings, Inc., as long as either such Subsidiary listed in this clause (4) owns no assets, other than equity interests in another Person, and conducts no business, to execute and deliver to the Administrative Agent, promptly and in any event within five (5) days after such Subsidiary or Subsidiaries commence business or obtain ownership of assets in excess of the Dollar amounts specified in the foregoing clause (3), (A) a Joinder Agreement substantially in the form attached hereto as Exhibit 18.7, (B) Annex I to a Pledge Agreement, appropriately completed, providing that all of the capital stock of such Subsidiary shall be pledged to Lender Group as collateral security for the Obligations and deliver to the Administrative Agent the certificates representing such capital stock, together with instruments of assignment and transfer in such form as the Administrative Agent may request, and (C) such other agreements, instruments, approvals, UCC-1 financing statements or other documents or instruments requested by the Administrative Agent which provide that such Subsidiary shall become bound by the guaranty set forth in this Section 18 and all of the terms, covenants and agreements contained in the Loan Documents applicable to Subsidiary 73 Guarantors and that the assets of such Subsidiary shall become Collateral for the Obligations and, in connection with such deliveries, cause to be delivered to the Administrative Agent, in form and substance satisfactory to the Administrative Agent, a favorable written opinion of counsel satisfactory to the Administrative Agent as to such matters as the Administrative Agent may reasonably request. Upon satisfaction of the conditions set forth in this Section 18.7, such Subsidiary shall become a Subsidiary Guarantor and a Company hereunder and under the other Loan Documents to the same extent as if such Subsidiary had been a party hereto and thereto on the Closing Date. 19. GENERAL PROVISIONS. 19.1 Effectiveness. This Agreement shall be binding and deemed effective when executed by Borrower, each of the Subsidiary Guarantors, each Agent, and each of the Lenders. 19.2 Successors and Assigns. This Agreement shall inure to the benefit of, and be binding upon, the parties hereto and their successors and permitted assigns to the extent set forth in Section 15. 19.3 Section Headings. Headings and numbers have been set forth herein for convenience only. Unless the contrary is compelled by the context, everything contained in each section applies equally to this entire Agreement. 19.4 Interpretation. Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against Lender Group or the Companies, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by all parties and shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of all parties hereto. 19.5 Severability of Provisions. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision. 19.6 Amendments in Writing. This Agreement can only be amended by a writing in accordance with Section 16. 19.7 Counterparts; Telefacsimile Execution. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. Delivery of an executed counterpart of this Agreement by telefacsimile shall be equally as effective as delivery of an original executed counterpart of this Agreement. Any party delivering an executed counterpart of this Agreement by telefacsimile also shall deliver an original executed counterpart of this Agreement but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement. 19.8 Revival and Reinstatement of Obligations. If the incurrence or payment of the Obligations by Borrower or any Subsidiary Guarantor of the Obligations or the transfer by either or both of such parties to Lender Group of any property of either or both of such parties should for any reason subsequently be declared to be void or voidable under any state or federal law relating to creditors' rights, including provisions of the Bankruptcy Code relating to fraudulent conveyances, preferences, and other voidable or recoverable payments of money or transfers of property (collectively, a "Voidable Transfer"), and if Lender Group is required to repay or restore, in whole or in part, any such Voidable Transfer, or 74 elects to do so upon the reasonable advice of its counsel, then, as to any such Voidable Transfer, or the amount thereof that Lender Group is required or elects to repay or restore, and as to all reasonable costs, expenses, and attorneys fees of Lender Group related thereto, the liability of Borrower or such guarantor automatically shall be revived, reinstated, and restored and shall exist as though such Voidable Transfer had never been made. 19.9 Integration. This Agreement, together with the other Loan Documents, reflects the entire understanding of the parties with respect to the transactions contemplated hereby and shall not be contradicted or qualified by any other agreement, oral or written, before the date hereof. 75 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the date set forth above. Borrower: ICF KAISER INTERNATIONAL, INC., a Delaware corporation By /s/ Timothy P. O'Connor Name: Timothy P. O'Connor Title: Senior Vice President Administrative Agent and Lender: MADELEINE L.L.C. a New York limited liability company By /s/ Kevin Genda Name: Kevin Genda Title: Subsidiary Guarantors: 1 CLEMENT INTERNATIONAL CORPORATION, a Delaware corporation By /s/ Timothy P. O'Connor Name: Timothy P. O'Connor Title: Treasurer 2 CYGNA CONSULTING ENGINEERS & PROJECT MANAGEMENT INC., a California Corporation By /s/ Timothy P. O'Connor Name: Timothy P. O'Connor Title: Treasurer 3 CYGNA GROUP, INC., A DELAWARE CORPORATION By /s/ Timothy P. O'Connor Name: Timothy P. O'Connor Title: Treasurer 76 4 EDA, INCORPORATED, a Maryland corporation By /s/ Timothy P. O'Connor Name: Timothy P. O'Connor Title: Treasurer 5 EXCELL DEVELOPMENT CONSTRUCTION, INC., a Delaware corporation By /s/ Timothy P. O'Connor Name: Timothy P. O'Connor Title: Treasurer 6 GLOBAL TRADE & INVESTMENT, INC., a Delaware corporation By /s/ TImothy P. O'Connor Name: Timothy P. O'Connor Title: Treasurer 7 HENRY J. KAISER COMPANY, a Nevada corporation By /s/ Timothy P. O'Connor Name: Timothy P. O'Connor Title: Treasurer 8 ICF INCORPORATED, a Delaware Corporation By /s/ Timothy P. O'Connor Name: Timothy P. O'Connor Title: Treasurer 9 ICF INFORMATION TECHNOLOGY, INC., a Delaware Corporation By /s/ Timothy p. O'Connor Name: Timothy P. O'Connor TItle: Treasurer 77 10 ICF KAISER ADVANCED TECHNOLOGY, INC., an Idaho corporation By /s/ Timothy P. O'Connor Name: Timothy P. O'Connor TItle: Treasurer 11 ICF KAISER ENGINEERS, INC., an Ohio corporation By /s/ Timothy P. O'Connor Name: Timothy P. O'Connor Title: Treasurer 12 ICF KAISER ENGINEERS (CALIFORNIA) CORPORATION, a Delaware corporation By /s/ Timothy P. O'Connor Name: Timothy P. O'Connor Title: Treasurer 13 ICF KAISER ENGINEERS CORPORATION, a New York Corporation By /s/ Timothy P. O'Connor Name: Timothy P. O'Connor Title: Treasurer 14 ICF KAISER ENGINEERS GROUP, INC., a Delaware corporation By /s/ Timothy P. O'Connor Name: Timothy P. O'Connor Title: Treasurer 15 ICF KAISER ENGINEERS MASSACHUSETTS, INC., a Delaware Corporation By /s/ Timothy P. O'Connor Name: Timothy P. O'Connor TItle: Treasurer 78 16 ICF KAISER ENGINEERS PACIFIC, INC., a Nevada corporation By /s/ Timothy P. O'Connor Name: Timothy P. O'Connor Title: Treasurer 17 ICF KAISER EUROPE, INC., a Delaware corporation By /s/ Timothy P. O'Connor Name: Timothy P. O'Connor Title: Treasurer 18 ICF KAISER/GEORGIA WILSON, INC., a Delaware corporation By /s/ Timothy P. O'Connor Name: Timothy P. O'Connor Title: Treasurer 19 ICF KAISER GOVERNMENT PROGRAMS, INC., a Delaware corporation By /s/ Timothy P. O'Connor Name: Timothy P. O'Connor Title: Treasurer 20 ICF KAISER HANFORD COMPANY, a Delaware Corporation By /s/ Timothy P. O'Connor Name: Timothy P. O'Connor Title: Treasurer 21 ICF KAISER HOLDINGS UNLIMITED, INC., a Delaware Corporation By /s/ Timothy P. O'Connor Name: Timothy P. O'Connor TItle: Treasurer 79 22 ICF KAISER NETHERLANDS, B.V., a Netherlands company By its Managing Directors: ICF Kaiser Holdings Unlimited, Inc., a Delaware corporation Represented by: /s/ Timothy P. O'Connor Timothy P. O'Connor Treasurer ICF Kaiser Engineers Eastern Europe, Inc., a Delaware corporation Represented by: /s/ Timothy P. O'Connor Timothy P. O'Connor Treasurer 23 ICF KAISER OVERSEAS ENGINEERING, INC., a DELAWARE corporation By /s/ Timothy P. O'Connor Name: Timothy P. O'Connor Title: Treasurer 24 ICF KAISER REMEDIATION COMPANY, a Delaware Corporation By /s/ Timothy P. O'Connor Name: Timothy P. O'Connor Title: Treasurer 25 ICF LEASING CORPORATION, INC., a Delaware corporation By /s/ Timothy P. O'Connor Name: Timothy P. O'Connor Title: Treasurer 26 ICF RESOURCES INCORPORATED, a Delaware Corporation By /s/ Timothy P. O'Connor Name: Timothy P. O'Connor Title: Treasurer 80 27 KAISER ENGINEERS AND CONSTRUCTORS, INC., a Nevada Corporation By /s/ Timothy P. O'Connor Name: Timothy P. O'Connor Title: Treasurer 28 KAISER ENGINEERS INTERNATIONAL, INC., a Nevada Corporation By /s/ Timothy P. O'Connor Name: Timothy P. O'Connor Title: Treasurer 29 KE LIVERMORE, INC., a Delaware Corporation By /s/ Timothy P. O'Connor Name: Timothy P. O'Connor Title: Treasurer 30 KE SERVICES CORPORATION, a Delaware Corporation By /s/ Timothy P. O'Connor Name: Timothy P. O'Connor Title: Treasurer 31 SYSTEMS APPLICATIONS INTERNATIONAL, INC., a Delaware corporation By /s/ Timothy P. O'Connor Name: Timothy P. O'Connor Title: Treasurer 32 TUDOR ENGINEERING COMPANY, a Delaware corporation By /s/ Timothy P. O'Connor Name: Timothy P. O'Connor Title: Treasurer 81 EX-10.AA 3 AGREEMENT KAISER/EDWARDS Exhibit 10(aa) AGREEMENT AGREEMENT (this "Agreement"), dated as of November 6, 1998, by and between James O. Edwards, a resident of the State of Maryland ("Edwards"), and ICF Kaiser International, Inc., a Delaware corporation (the "Company"). As used in this Agreement, unless the context indicates otherwise, the term "ICF" shall be deemed to refer to ICF Kaiser International, Inc. and each and every one of its affiliated entities. WITNESSETH WHEREAS, Edwards presently serves as a member of the Board of Directors and Chairman and Chief Executive Officer of ICF Kaiser International, Inc. and as a director and officer of certain subsidiaries and affiliates of ICF Kaiser International, Inc.; and WHEREAS, Edwards and ICF Kaiser International, Inc. are parties to an Employment Agreement dated May 19, 1997, including any attachments thereto and any other agreements referred to therein or entered into pursuant thereto (collectively, the "Executive Agreement"); and WHEREAS, Edwards and ICF wish consensually to terminate the Executive Agreement and sever the employment relationship between Edwards and ICF. NOW, THEREFORE, in consideration of the premises and the mutual covenants and promises hereinafter provided and of the actions taken pursuant thereto, the parties agree as follows: 1. Effective Date. This Agreement shall be executed and become effective ---------------- November 6, 1998 (the "Effective Date"). 2. Termination of Executive Agreement. As of the Effective Date, the Executive ---------------------------------- Agreement shall be deemed terminated and shall have no further force or effect. Edwards and ICF agree that there are no existing defaults by either party under the Executive Agreement and that, as of the Effective Date, each party had fully performed all of its obligations to the other party under the Executive Agreement. 3. Resignation and Termination of Existing Employment Relationship. As of the --------------------------------------------------------------- Effective Date, Edwards shall be deemed to have resigned from all corporate offices of ICF, and from all offices and directorships of ICF's subsidiaries, joint ventures, and affiliated companies, organizations and entities except as expressly provided in Section 6(b). Edwards' employment by ICF shall be deemed to have terminated as of the close of business on the Effective Date. Edwards shall not be deemed to have resigned from the ICF Kaiser International, Inc. Board of Directors. Following November 1, 1998 he shall be compensated for service as such director on the same basis as other non-employee directors. 4. Records and Bank Accounts. As soon as practicable after the Effective Date, ------------------------- ICF shall take such steps as may be necessary to (a) reflect in the corporate records of ICF, its subsidiaries, joint ventures, and affiliated companies, organizations and entities that Edwards has resigned as an officer of the Company and as an officer and director of ICF's subsidiaries, joint ventures, and affiliated companies, organizations and entities; and (b) remove Edwards as an authorized signatory on all corporate bank accounts. 5. Payment for Cancellation of the Employment Agreement and Release. In ---------------------------------------------------------------- consideration of the cancellation of the Executive Agreement and the execution by Edwards of -2- the Release attached hereto, the following payments shall be made to Edwards and by wire transfer or direct deposit as directed by Edwards, except that Edwards hereby requests voluntary withholding of Federal and state wage-type withholding in respect of such amount (calculated as though such amount were wages and in accordance with Edwards' elections): (a) $150,000 within five (5) business days after the Effective Date; and (b) $233,333.33 on or before each of January 15, February 15 and March 15, 1999. Within five (5) business days after the Effective Date, the Company will arrange to have issued to Edwards either a payment bond or one or more standby letters of credit with terms acceptable to Edwards that will assure the payments due to be made to Edwards pursuant to clause (b) above. 6. Consultation. --------------- (a) During the period from the Effective Date until January 31, 1999, Edwards will consult with ICF as and when requested by the Company's Chief Executive Officer or the Board of Directors, such consultations to be at times reasonably convenient to both Edwards and ICF. Edwards shall be compensated biweekly for services provided pursuant to this Section 6(a) at the rate of $425,000 annually through January 31, 1999. ICF shall reimburse Edwards for reasonable expenses incurred in connection with his consultation with ICF, subject to normal ICF reimbursement procedures. (b) Edwards agrees to remain as Chairman of the Board of Managers of Kaiser-Hill Company, LLC until December 31, 1998. Unless requested to remain in that position, he shall be deemed to have resigned from such position as of December 31, 1998. -3- 7. Health and Insurance Benefits. Until January 31, 1999, Edwards and his ----------------------------- dependents shall receive the same health, welfare and life insurance benefits that would have been made available to them had Edwards continued as an employee, and Edwards' family health benefits shall continue thereafter until April 30, 1999. After April 30, 1999, Edwards may elect to continue his family health benefits provided through ICF to the extent permitted by Federal COBRA laws in effect on the Effective Date. For purposes of COBRA compliance, the date on which Edwards' health benefits terminate shall be April 30, 1999. Except as specifically provided in this Section 7, all health, welfare and insurance benefits shall terminate on January 31, 1999. 8. Options. ICF and Edwards acknowledge and agree that (a) Edwards holds and ------- shall continue to hold the following options to purchase shares of ICF common stock granted pursuant to ICF's Stock Incentive Plan and (b) such options have the expiration dates set forth below:
Fully Total Vested Unvested Vesting Vested Expiration Grant Date Options Options Options Schedule Date Date Price 9/1/94 150,000 150,000 0 4 years 5/15/98 11/15/99 $2.51 1/24/97 40,000 10,000 30,000 4 years 1/24/01 1/24/02 $2.23
Notwithstanding the terms of the grant of the options granted on January 24, 1997, such options shall be fully vested as of the Effective Date. Prior to the expiration dates referred to above, the options referred to in this Section 8 shall be exercisable by Edwards or, in the event of his death, his estate. 9. Restricted Stock. ICF and Edwards acknowledge that Edwards holds 20,000 ---------------- shares of Restricted Stock granted to him pursuant to the ICF Stock Incentive Plan on March 4, -4- 1997, of which 6,667 shares are presently vested, and the balance of 13,333 shares shall vest, subject to a restriction on sale prior to March 4, 2000. Consistent with the terms of the Executive Agreement, and pursuant to the ICF Stock Incentive Plan, Edwards is hereby awarded 200,000 shares of Common Stock which shall be issued, and fully vested, on the first anniversary of the Effective Date or, if earlier, the occurrence of a sale of the stock, or merger or consolidation, of the Company to or with another entity, sale of all or substantially all of the Company's assets, or other event, in each case resulting in a change of control of the Company which is reported on a Form 8-K (any such sale or transaction, a "Control Transaction"). Certificates for the shares of Restricted Stock referred to in the immediately preceding sentence shall be delivered to Edwards (or, in the event of his death, his estate) on the appropriate date referred to in the immediately preceding sentence. 10. Loans. ----- (a) ICF and Edwards acknowledge that the Company has made loans to Edwards of the aggregate principal amounts of $922,740.00 on which there had accrued $451,480.20 of interest as of June 30, 1998 (aggregating $1,374,220.20 of principal and interest as of June 30, 1998), and that such loans (the "Loans") are evidenced by the documents attached as Exhibit A (the "Loan Documents"). The Loans are due and payable on December 31, 1999. In the event that the Company has not sold the Loans to a third party on or before January 31, 1999, if Edwards does not pay the Loans in full on or before December 31, 1999, the Company shall cancel the 130,665 shares of the Company's common stock pledged as collateral for the Loans pursuant to the Loan Documents (the "Pledged Shares"). The difference between the Market Value (as defined in the Loan Documents) of the Pledged Shares and the outstanding principal of, and unpaid interest on, the Loans as of the date of cancellation of the Pledged -5- Shares shall (i) if positive, be paid to Edwards promptly and (ii) if negative, to the extent permitted by applicable law, be reported to Edwards and the Internal Revenue Service as capital gain on the disposition of the Pledged Shares. (b) In the event that a Control Transaction closes prior to December 31, 1999, (i) if shares of the Company's common stock remain outstanding after such closing, the Company shall make arrangements such that the acquiring, surviving or successor entity in the Control Transaction, as the case may be (the "Successor Entity"), shall acquire the Loans and observe the provisions of Section 10(a) following the closing of the Control Transaction, and (ii) if shares of the Company's common stock will not remain outstanding after such closing, (x) the Company shall give Edwards not less than ten (10) business days' advance notice of such closing, (y) Edwards shall have the right to require the Company to cancel the Pledged Shares in satisfaction of the Loans prior to such closing, and (z) if Edwards exercises such right, the Company shall report the transaction as contemplated by Section 10(a). (c) If Edwards presents to the Company a party willing to purchase the Loans for the Market Value (as defined in the Loan Documents) of the Pledged Shares on or before January 31, 1999, the Company shall sell the Loans to that party at that price if paid in cash. 11. Indemnification and Notice Concerning Nonrenewal of Directors and Officers -------------------------------------------------------------------------- Insurance Coverage. - ------------------ (a) ICF acknowledges that its Certificate of Incorporation and By-Laws and the charters and by-laws of certain of its direct and indirect subsidiaries and pension trusts include provisions designed to provide to former officers, directors and trustees indemnification in respect of threatened and commenced actions, suits and proceedings in which an individual is a party or is threatened to be made a party by reason of the fact that he is or was an officer, -6- director or trustee of ICF or such subsidiaries or trusts. ICF shall, and shall cause such subsidiaries and trusts to, continue to provide indemnification to Edwards under such provisions to the maximum extent permitted by applicable law. (b) So long as ICF maintains directors and officers liability insurance coverage, or liability insurance for the trustees of its pension trusts, Edwards shall be covered by such insurance, with respect to his tenure with ICF, on the same terms as other existing and former officers, directors and trustees. If, for any reason, ICF shall not continue to have such insurance coverage in effect on terms substantially comparable to those presently in effect, ICF shall provide Edwards with written notice of the cancellation or nonrenewal of such coverage not less than 20 days prior to the effectiveness of such cancellation or nonrenewal. 12. Employment References. Nothing in this Agreement shall prevent either --------------------- party from stating the fact that Edwards was employed by ICF, the address of his work location, the dates of his employment, his job titles and job duties, his rate of pay, or that he resigned from his position as an officer of ICF on or about the Effective Date. 13. Proprietary Information and Business and Personal Property ---------------------------------------------------------- (a) Edwards will not directly or indirectly disclose any confidential records, information, documents, data, formulae, specifications or other trade secrets owned by ICF to any person, or use any such information, except (i) as appropriate in connection with the activities contemplated by Section 6 or (ii) pursuant to court order or as a result of a valid order, subpoena or discovery request (and in the case of such disclosure Edwards will provide ICF with written notice of the same sufficiently in advance of the required disclosure date to allow ICF to lodge appropriate objections to such disclosure). The immediately preceding sentence shall not apply to information: (x) disclosure of which is required by law or by process lawfully issued; -7- (y) which has been disclosed to Edwards or to a third party by a person not under a duty of confidentiality with respect to that information; or (z) which later enters the public domain through no fault or breach of duty by Edwards. (b) Edwards shall have no ownership interest in any records, files, information, documents, or the like that belong to ICF which Edwards has used, prepared or come into contact with during his employment by ICF, and, except as appropriate in connection with the activities contemplated by Section 6, Edwards shall not remove written copies thereof from the premises of ICF or any of its affiliates without ICF's written consent. Within ten business days after the Effective Date, Edwards shall have returned to ICF all ICF property (other than the cellular telephone, laptop computer, calculator and facsimile machine referred to in Section 13(c)) that Edwards has in his possession. Nothing in this Agreement shall limit Edwards's right to remove personal effects from his office within five business days after the Effective Date. (c) Edwards shall be entitled to the ICF-owned facsimile machine, laptop computer, calculator and cellular telephone currently in Edwards's possession, provided that, except as contemplated by Section 6, Edwards --------- shall be responsible for the cost of cellular telephone service on such cellular telephone following the conclusion of his service as a consultant hereunder. Until July 31, 1999 or until Edwards obtains new employment, whichever occurs first, ICF will allow Edwards to have access to his voice mailbox on the ICF telephone system and to his ICF e-mail address. 14. No Disparaging Statements. Except as required by applicable law or legal ------------------------- process: -8- (a) Each of ICF and Edwards covenant and agree that following the Effective Date neither of them nor their or its officers, directors, affiliates, agents and/or employees shall make disparaging statements concerning the others (for this purpose, a disparaging statement shall refer to a statement or statements that, individually or in the aggregate, have a materially detrimental effect on the business affairs of ICF or Edwards, as the case may be); and (b) Except for the press release attached as Exhibit D, neither the Company, nor any director or executive officer of the Company other than Edwards and Tony Coelho shall make any public statement or statement to the press concerning Edwards or his tenure with the Company. 15. Confidentiality of Agreement. Except as required by applicable law or ---------------------------- legal process or as necessary to fulfill the terms of this Agreement or the General Releases incorporated herein, or in connection with a party's family, business, or tax affairs (in which case disclosure shall be on a confidential basis to the extent practicable), the parties shall not disclose the terms or provisions of this Agreement or such General Releases, or the fact of their existence, to any person or entity. 16. No Admissions. Nothing contained in this Agreement or the General Releases ------------- incorporated herein shall be considered an admission by either party of any wrongdoing under any Federal, state or local statute, public policy, tort law, contract law, common law or otherwise. 17. No Third Party Claims. Each party represents and warrants that no other --------------------- person or entity has, or to the best knowledge of such party claims, any interest in any potential claims, demands, causes of action, obligations, damages or suits released pursuant to this Agreement; that it or he is the owner of all other claims, demands, causes of action, obligations, damages or -9- suits so released; that it or he has full and complete authority to execute this Agreement; and that it or he has not sold, assigned, transferred, conveyed or otherwise disposed of any claim, demand, cause of action, obligation or liability subject to this Agreement and the General Releases contemplated hereby. 18. Full Releases. Each party agrees and acknowledges that the consideration ------------- received by it or him for this Agreement and the General Releases incorporated herein, and for the execution hereof and thereof, shall constitute full payment, satisfaction, discharge, compromise and release of and from all matters for which the other party has mutually released it or him herein and in such General Releases 19. Expenses. ICF shall reimburse Edwards for all fees and expenses of -------- Edwards's counsel incident to the negotiation of this Agreement, up to a maximum of $10,000. The amount of such reimbursement shall be considered a payment in cancellation of rights under the Executive Agreement. Except as provided in the first sentence of this Section 19, each party shall pay its own costs incident to the negotiation, preparation, performance, execution, and enforcement of this Agreement, and all fees and expenses of its or his counsel, accountants, and other consultants, advisors and representatives for all activities of such persons undertaken in connection with this Agreement. 20. No Third Party Beneficiaries. Except as expressly stated herein, the ----------------------------- parties do not intend to make any person or entity who is not a party to this Agreement a beneficiary hereof, and this Agreement should not be construed as being made for the benefit of any person or entity not expressly provided for herein. 21. Advice of Counsel. The parties acknowledge that they have been advised by ------------------ competent legal counsel in connection with the execution of this Agreement, that they have read -10- each and every paragraph of this Agreement and that they understand their respective rights and obligations. Edwards declares that he has completely read this Agreement, fully understands its terms and contents, and freely, voluntarily and without coercion enters into this Agreement. 22. Entire Agreement. This Agreement constitutes the entire agreement of the ----------------- parties with respect to the subject matter hereof, and all prior negotiations and representations are merged herein or replaced hereby. 23. Severability. If any provision of this Agreement is held illegal, invalid ------------- or unenforceable, such illegality, invalidity, or unenforceability shall not affect any other provision hereof. Any such provision and the remainder of this Agreement shall, in such circumstances, be deemed modified to the extent necessary to render enforceable the remaining provisions hereof. 24. Governing Law. This Agreement shall be construed and enforced in ------------- accordance with the law of the Commonwealth of Virginia. 25. Releases and Effectiveness. This Agreement and General Releases in the -------------------------- forms attached hereto as Exhibits B and C, which are incorporated herein by reference, have been executed by or on behalf of Edwards and ICF on the dates shown opposite their respective signatures below, and this Agreement and such General Releases are effective as of the Effective Date. 26. Disputes. In the event that any dispute arises between the parties hereto -------- pertaining to the subject matter of this Agreement and the parties are unable to resolve such dispute within a reasonable time through negotiations, the parties shall attempt to resolve such dispute pursuant to a mutually agreed upon alternate dispute resolution mechanism. Such resolution of the dispute shall be initiated by written notice given by one party to the other. If within 10 days after submission of such notice the parties have not agreed upon an alternate -11- dispute resolution mechanism, the dispute shall be submitted to arbitration in Fairfax County, Virginia. In the event the parties are unable to agree on an alternate dispute resolution mechanism and the dispute is to be resolved pursuant to arbitration, each party shall appoint an arbitrator within 20 days after the original notice of the dispute, and the two arbitrators so chosen shall promptly appoint a third arbitrator. If either party fails to name an arbitrator as aforesaid, such arbitrator shall be designated by the American Arbitration Association. If any arbitrator becomes disabled, resigns or is otherwise unable to discharge the arbitrator's duties, the arbitrator's successor shall be appointed in the same manner as such arbitrator was appointed. The parties shall not be permitted to conduct discovery in connection with the arbitration, and, subject only to the availability of the arbitrators, the arbitration hearing shall be held within 30 days after appointment of the third arbitrator. Except as aforesaid, the arbitration shall be conducted under the applicable rules of the American Arbitration Association. Any determination of the arbitrators shall be binding and conclusive upon the parties hereto. Application may be made by either party to any court having jurisdiction thereof for judicial confirmation of any determination by the arbitrators and/or for an order of enforcement of any such decision. 27. Counterparts. This Agreement may be executed in counterparts, all of which ------------ shall be considered one and the same agreement, and shall become effective on the Effective Date. -12- IN WITNESS WHEREOF, James O. Edwards and ICF Kaiser International, Inc. have executed this Agreement. ICF KAISER INTERNATIONAL, INC. JAMES O. EDWARDS By: ---------------------------------- --------------------------- Its Duly Authorized Representative James O. Edwards Dated: November 6, 1998 Dated: November 6, 1998 -13- EXHIBIT A LOAN DOCUMENTS EXHIBIT B GENERAL RELEASE I, JAMES O. EDWARDS, on behalf of myself and my heirs, successors, agents, executors, administrators, attorneys and assigns, in consideration of the terms of the Agreement effective as of November 6, 1998 by and between ICF Kaiser International, Inc. ("ICF") and myself (the "Agreement") and the execution of a General Release ("Release") by ICF, with effect as of November 6, 1998, hereby release and forever discharge ICF and any and all of its present, former and future affiliated entities, subsidiaries, departments, officers, directors, employees, representatives, agents, attorneys, successors and assigns, from any and all claims and causes of action (whether known or unknown) which I have against them, in law or equity, relating to or arising under: Federal, Virginia, or other state or local law; any employment contract or related agreements; any employment statute or regulation; any employment discrimination law, including but not limited to Title VII of the Civil Rights Act of 1964, as amended, and the Age Discrimination in Employment Act of 1967, as amended; the Employee Retirement Income Security Act of 1974, as amended; any other Federal, state, or local civil rights, pension or labor law; contract law; tort law; and common law, including but not limited to wrongful discharge or misrepresentation or infliction of emotional distress; provided, however, that I do not hereby -------- ------- release ICF from any of its obligations under the Agreement and/or under the terms of an employee benefit plan, program or arrangement (other than any such plan, program or arrangement providing for the payment of severance benefits). For purposes of this Release, ICF shall be deemed to include each and every one of its affiliated entities described in the Agreement. I further agree not to sue or otherwise institute or cause to be instituted or in any way voluntarily participate in the prosecution of any complaints or charges against any persons or entities released herein in any Federal, state, District of Columbia or other court, administrative agency or other forum concerning any claims released herein. Except as required by law or as necessary to fulfill the terms of the Agreement or this Release, or as necessary in connection with personal business or tax affairs (in which case disclosure shall be on a confidential basis to the extent practicable), I agree not to disclose the terms or provisions of this Release, or the fact of its existence, to any person or entity. I understand and agree that nothing contained in this Release is to be considered an admission by ICF of any wrongdoing under any Federal, state, or local statute, public policy, tort law, contract law, or common law. I acknowledge that I have been advised to consult with an attorney prior to executing this Release. I further acknowledge that I have been given a period of at least twenty-one (21) days within which to consider and execute this Release, unless I voluntarily choose to execute this Release before the end of the said twenty-one (21) day period. Once executed, I understand that I have seven (7) days following the execution of this Release to revoke it, and that this Release is not effective or enforceable until after said seven (7) day period. -2- I acknowledge that I have read this Release, that I understand it, and that I am executing it freely and voluntarily. I further understand that once this Release becomes effective (after the seven (7) day revocation period), it can only be altered, revoked or rescinded with the express written permission of ICF. I further acknowledge and agree that, in the event I exercise my revocation rights within the specified seven-day period, all rights and obligations under this Release and the Agreement will become null and void. This Release is executed in connection with, and is subject to terms of, the Agreement. Date: November 6, 1998 ---------------------- James O. Edwards Subscribed and sworn to before me this ____ day of November, 1998. ---------------------- Notary My commission expires: -3- ELECTION TO EXECUTE PRIOR TO EXPIRATION OF TWENTY-ONE DAY CONSIDERATION PERIOD I, James O. Edwards, understand that I have at least twenty-one (21) days within which to consider and execute the above General Release. However, after consulting counsel, I have freely and voluntarily elected to execute the General Release before the twenty-one (21) day period has expired. Date: November 6, 1998 ---------------------- James O. Edwards -4- EXHIBIT C GENERAL RELEASE ICF Kaiser International, Inc. ("ICF"), on behalf of ICF and all of its current, former or future affiliated entities, subsidiaries, departments, officers, directors, employees, representatives, agents, attorneys, successors and assigns, in consideration of the terms of the Agreement effective as of November 6, 1998 by and between James O. Edwards ("Edwards") and ICF (the "Agreement") and the execution of a General Release ("Release") by Edwards, with effect as of November 6, 1998, hereby releases and forever discharges Edwards and his heirs, successors, agents, executors, administrators, attorneys and assigns, from any and all claims and causes of action (whether known or unknown) which ICF has against him, in law or equity, relating to or arising under: Federal, Virginia or other state or local law; any employment contract; any employment statute or regulation, contract law, tort law; and common law, including but not limited to actions for fraud and breach of contract; provided, -------- however, that ICF does not hereby release Edwards from any of his obligations - ------- under the Agreement. ICF will not sue or otherwise institute or cause to be instituted or in any way voluntarily participate in the prosecution of any complaints or charges against Edwards or the other persons released herein in any Federal, state, District of Columbia, or other court, administrative agency or other forum concerning any claims released herein. Except as required by law or as necessary to fulfill the terms of the Agreement or this Release, or as necessary in connection with ICF's business, legal or tax affairs (in which case disclosure shall be on a confidential basis to the extent practicable), ICF agrees not to disclose the terms or provisions of this Release, or the fact of its existence, to any person or entity (including employees of ICF). ICF understands and agrees that nothing contained in this Release is to be considered an admission by Edwards of any wrongdoing under any Federal, state, or local statute, public policy, tort law, contract law, or common law. ICF acknowledges that this Release can be altered, revoked or rescinded only with the express written permission of Edwards. This Release is executed in connection with, and is subject to the terms of, the Agreement. ICF KAISER INTERNATIONAL, INC. Date: November 6, 1998 By: ---------------------------------- Its Duly Authorized Representative Subscribed and sworn to before me this ______ day of November, 1998. ---------------------- Notary My commission expires: -2- EXHIBIT D PRESS RELEASE EX-10.DD 4 AGREEMENT KAISER/TIPERMAS Exhibit 10(dd) AGREEMENT AGREEMENT (this "Agreement"), dated as of August 7, 1998, by and between Marc Tipermas, a resident of the State of Maryland ("Tipermas"), and ICF Kaiser International, Inc., a Delaware corporation. As used in this Agreement, unless the context indicates otherwise, the term "ICF" shall be deemed to refer to ICF Kaiser International, Inc. and each and every one of its affiliated entities. WITNESSETH WHEREAS, Tipermas presently serves as a member of the Board of Directors and President and Chief Operating Officer of ICF Kaiser International, Inc. and as a director and officer of certain subsidiaries and affiliates of ICF Kaiser International, Inc.; and WHEREAS, Tipermas and ICF Kaiser International, Inc. are parties to an Employment Agreement dated May 19, 1997, including any attachments thereto and any other agreements referred to therein or entered into pursuant thereto (collectively, the "Executive Agreement"); and WHEREAS, Tipermas and ICF wish consensually to terminate the Exec Agreement and sever the employment relationship between Tipermas and ICF. NOW, THEREFORE, in consideration of the premises and the mutual covenants and promises hereinafter provided and of the actions taken pursuant thereto, the parties agree as follows: 1. Effective Date. This Agreement shall be executed and become effective ---------------- August 7, 1998 (the "Effective Date"). 2. Termination of Executive Agreements. As of the Effective Date, the ----------------------------------- Executive Agreement shall be deemed terminated and shall have no further force or effect. Tipermas and ICF agree that there are no existing defaults by either party under the Executive Agreement and that, as of the Effective Date, each party had fully performed all of its obligations to the other party under the Executive Agreement. 3. Resignation and Termination of Existing Employment Relationship. As of --------------------------------------------------------------- the Effective Date, Tipermas shall be deemed to have resigned from all corporate offices and the Board of Directors of ICF, and from all offices and directorships of ICF's subsidiaries, joint ventures, and affiliated companies, organizations, and entities. Subject only to the provisions of Section 6, Tipermas's employment by ICF shall be deemed to have terminated as of the close of business on the Effective Date. 4. Records and Bank Accounts. As soon as practicable after the Effective --------------------------- Date, ICF shall take such steps as may be necessary to (a) reflect in the corporate records of ICF, its subsidiaries, joint ventures, and affiliated companies, organizations, and entities that Tipermas has resigned as an officer and director of ICF and as an officer and director of ICF's subsidiaries, joint ventures, and affiliated companies, organizations, and entities; and (b) remove Tipermas as an authorized signatory on all corporate bank accounts. -2- 5. Payment for Cancellation of the Employment Agreement and Release. In ---------------------------------------------------------------- consideration of the cancellation of the Executive Agreement and the execution by Tipermas of the Release attached hereto, Tipermas shall be paid $732,500, within seven business days of the Effective Date and by wire transfer or direct deposit as directed by Tipermas, except that Tipermas hereby requests voluntary withholding of Federal and state wage-type withholding in respect of such amount (calculated as though such amount were wages and in accordance with Tipermas's elections). 6. Consultation. During the period from the Effective Date until January ------------- 31, 1999, Tipermas (or his estate in the event of his death) will receive compensation at an annual rate of $375,000.00, which compensation shall be paid to Tipermas in accordance with ICF's normal payroll practices, subject to Federal and state wage-type deductions in accordance with Tipermas's elections. During such period, Tipermas will consult with ICF on an as needed basis, such consultations to be at times reasonably convenient to both Tipermas and ICF. ICF shall reimburse Tipermas for reasonable expenses incurred with connection with his consultation with ICF, subject to normal ICF reimbursement procedures. 7. Health and Insurance Benefits. Until January 31, 1999, Tipermas and his ----------------------------- dependents shall receive the same health, welfare and life insurance benefits that would have been made available to them had Tipermas continued as an employee. Tipermas may elect to continue his family health benefits provided through ICF to the extent permitted by Federal COBRA laws in effect on the Effective Date. For purposes of COBRA compliance, the date on which Tipermas's health benefits terminate shall be January 31, 1999. Except as specifically -3- provided in this Section 7, all health, welfare and insurance benefits shall terminate on January 31, 1999. 8. Options. ICF and Tipermas acknowledge and agree that (a) Tipermas holds -------- and shall continue to hold the following options to purchase shares of ICF common stock granted pursuant to ICF's Stock Incentive Plan and (b) such options have the expiration dates set forth below:
Fully Total Vested Unvested Vesting Vested Expiration Grant Date Options Options Options Schedule Date Date Price 4/4/94 114,940 114,940 0 4 years 4/4/98 11/1/99 $3.48 4/4/94 10,060 10,060 0 4 years 4/4/98 11/1/99 $3.48 1/24/97 26,400 6,600 19,800 4 years 1/24/01 1/24/02 $2.23
Notwithstanding the terms of the grant of the options granted on January 24, 1997, such options shall be fully vested as of the Effective Date. All of the options referred to in this Section 8 shall expire on November 1, 1999. Prior to that date such options shall be exercisable by Tipermas or, in the event of his death, his estate. 9. Restricted Stock. ICF and Tipermas acknowledge that Tipermas holds ----------------- 9,900 shares of Restricted Stock granted to him pursuant to the ICF Stock Incentive Plan on March 4, 1997, of which 3,300 shares are presently vested, subject to a restriction on sale prior to March 4, 2000. The balance of 6,600 shares of such Restricted Stock shall be forfeited. Consistent with the terms of the Executive Agreement, and pursuant to the ICF Stock Incentive Plan, Tipermas is hereby awarded 150,000 shares of Common Stock which shall be issued, and fully vested, on the -4- first anniversary of the Effective Date or, if earlier, the occurrence of any sale of the Company or all or substantially all of the Company's assets, or other event resulting in a change of control of the Company which is reported on a Form 8-K. Certificates for the shares of Restricted Stock referred to in the immediately preceding sentence, shall be delivered to Tipermas (or, in the event of his death, his estate) on the appropriate date referred to in the immediately preceding sentence. 10. Indemnification and Notice Concerning Nonrenewal of Directors and ----------------------------------------------------------------- Officers Insurance Coverage. - ---------------------------- (a) ICF acknowledges that its Certificate of Incorporation and By-Laws and the charters and by-laws of certain of its direct and indirect subsidiaries include provisions designed to provide to former officers and directors indemnification in respect of threatened and commenced actions, suits and proceedings in which an individual is a party or is threatened to be made a party by reason of the fact that he is or was an officer or director of ICF or such subsidiaries. ICF shall, and shall cause such subsidiaries to, continue to provide indemnification to Tipermas under such provisions to the maximum extent permitted by applicable law. (b) So long as ICF maintains directors and liability insurance coverage, Tipermas shall be covered by such insurance, with respect to his tenure with ICF, on the same terms as other existing and former officers and directors. If, for any reason, ICF shall not continue to have in effect directors and officers liability insurance coverage, on terms substantially comparable to those presently in effect, ICF shall provide Tipermas with written notice of the cancellation or -5- nonrenewal of such coverage not less than 20 days prior to the effectiveness of such cancellation or nonrenewal. 11. Employment References. Nothing in this Agreement shall prevent either ---------------------- party from stating the fact that Tipermas was employed by ICF, the address of his work location, the dates of his employment, his job titles and job duties, his rate of pay, or that he resigned from his position as an officer of ICF on or about the Effective Date. 12. Proprietary Information and Business and Personal Property ---------------------------------------------------------- (a) Tipermas will not directly or indirectly disclose any confidential records, information, documents, data, formulae, specifications or other trade secrets owned by ICF or its affiliates to any person, or use any such information, except (a) as appropriate in connection with the consulting activities contemplated by Section 6 or (b) pursuant to court order or as a result of a valid order, subpoena or discovery request (and in the case of such disclosure Tipermas will provide ICF with written notice of the same sufficiently in advance of the required disclosure date to allow ICF to lodge appropriate objections to such disclosure). The immediately preceding sentence shall not apply to information: (a) disclosure of which is required by law or by process lawfully issued; (ii) which has been disclosed to Tipermas or to a third party by a person not under a duty of confidentiality with respect to that information; or (iii) which later enters the public domain through no fault or breach of duty by Tipermas. (b) Tipermas shall have no ownership interest in any records, files, information, documents, or the like that belong to ICF or its affiliates which Tipermas has used, prepared or -6- come into contact with during his employment by ICF, and, except as appropriate in connection with the consulting activities contemplated by Section 6, Tipermas shall not remove written copies thereof from the premises of ICF or any of its affiliates without ICF's written consent. Within five business days after the Effective Date, Tipermas shall have returned to ICF all ICF property (other than the cellular telephone and facsimile machine referred to in Section 12(c)) that Tipermas has in his possession. Nothing in this Agreement shall limit Tipermas's right to remove personal effects from his office within five business days after the Effective Date. (c) Tipermas shall be entitled to the ICF-owned facsimile machine and cellular telephone currently in Tipermas's possession, provided that, except as --------- contemplated by Section 6, Tipermas shall be responsible for the cost of cellular telephone service on such cellular telephone following the Effective Date. Until December 31, 1998 or until Tipermas obtains new employment, whichever occurs first, ICF will allow Tipermas to have access, from off ICF premises, to his voice mailbox on the ICF telephone system and to Tipermas's ICF e-mail address. 13. No Disparaging Statements. Each of ICF and Tipermas covenant and agree ------------------------- that following the Effective Date neither shall make disparaging statements concerning the other, or its officers, directors, affiliates, agents and/or employees. For this purpose, a disparaging statement shall refer to a statement or statements that, individually or in the aggregate, have a materially detrimental effect on the business affairs of ICF or Tipermas, as the case may be. -7- 14. Confidentiality of Agreement. Except as required by law or as ---------------------------- necessary to fulfill the terms of this Agreement or the General Releases incorporated herein, or in connection with a party's family, business, or tax affairs (in which case disclosure shall be on a confidential basis to the extent practicable), the parties shall not disclose the terms or provisions of this Agreement or such General Releases, or the fact of their existence, to any person or entity. 15. No Admissions. Nothing contained in this Agreement or the General ------------- Releases incorporated herein shall be considered an admission by either party of any wrongdoing under any Federal, state or local statute, public policy, tort law, contract law, common law or otherwise. 16. No Third Party Claims. Each party represents and warrants that no ---------------------- other person or entity has, or to the best knowledge of such party claims, any interest in any potential claims, demands, causes of action, obligations, damages or suits released pursuant to this Agreement; that it or he is the owner of all other claims, demands, causes of action, obligations, damages or suits so released; that it or he has full and complete authority to execute this Agreement; and that it or he has not sold, assigned, transferred, conveyed or otherwise disposed of any claim, demand, cause of action, obligation or liability subject to this Agreement and the General Releases contemplated hereby. 17. Full Releases. Each party agrees and acknowledges that the ------------- consideration received by it or him for this Agreement and the General Releases incorporated herein, and for the execution hereof and thereof, shall constitute full payment, satisfaction, discharge, -8- compromise and release of and from all matters for which the other party has mutually released it or him herein and in such General Releases. 18. Expenses. ICF shall reimburse Tipermas for all fees and expenses of -------- Tipermas's counsel incident to the negotiation of this Agreement, up to a maximum of $10,000. The amount of such reimbursement shall be considered a payment and cancellation of rights under the Executive Agreement. Except as provided in the first sentence of this Section 18, each party shall pay its own costs incident to the negotiation, preparation, performance, execution, and enforcement of this Agreement, and all fees and expenses of its or his counsel, accountants, and other consultants, advisors and representatives for all activities of such persons undertaken in connection with this Agreement. 19. No Third Party Beneficiaries. Except as expressly stated herein, the ----------------------------- parties do not intend to make any person or entity who is not a party to this Agreement a beneficiary hereof, and this Agreement should not be construed as being made for the benefit of any person or entity not expressly provided for herein. 20. Advice of Counsel. The parties acknowledge that they have been ------------------ advised by competent legal counsel in connection with the execution of this Agreement, that they have read each and every paragraph of this Agreement and that they understand their respective rights and obligations. Tipermas declares that he has completely read this Agreement, fully understands its terms and contents, and freely, voluntarily and without coercion enters into this Agreement. -9- 21. Entire Agreement. This Agreement constitutes the entire agreement of ----------------- the parties with respect to the subject matter hereof, and all prior negotiations and representations are merged herein or replaced hereby. 22. Severability. If any provision of this Agreement is held illegal, ------------- invalid or unenforceable, such illegality, invalidity, or unenforceability shall not affect any other provision hereof. Any such provision and the remainder of this Agreement shall, in such circumstances, be deemed modified to the extent necessary to render enforceable the remaining provisions hereof. 23. Governing Law. This Agreement shall be construed and enforced in -------------- accordance with the law of the Commonwealth of Virginia. 24. Releases and Effectiveness. This Agreement and General Releases in -------------------------- the forms attached hereto as Exhibits A and B, which are incorporated' herein by reference, have been executed by or on behalf of Tipermas and ICF on the dates shown opposite their respective signatures below, and this Agreement and such General Releases are effective as of the Effective Date. 25. Disputes. In the event that any dispute arises between the parties -------- hereto pertaining to the subject matter of this Agreement and the parties are unable to resolve such dispute within a reasonable time through negotiations, the parties shall attempt to resolve such dispute pursuant to a mutually agreed upon alternate dispute resolution mechanism. Such resolution of the dispute shall be initiated by written notice given by one party to the other. If -10- within 10 days after submission of such notice the parties have not agreed upon an alternate dispute resolution mechanism, the dispute shall be submitted to arbitration in Fairfax County, Virginia. In the event the parties are unable to agree on an alternate dispute resolution mechanism and the dispute is to be resolved pursuant to arbitration, each party shall appoint an arbitrator within 20 days after the original notice of the dispute, and the two arbitrators so chosen shall promptly appoint a third arbitrator. If either party fails to name an arbitrator as aforesaid, such arbitrator shall be designated by the American Arbitration Association. If any arbitrator becomes disabled, resigns or is otherwise unable to discharge the arbitrator's duties, the arbitrator's successor shall be appointed in the same manner as such arbitrator was appointed. The parties shall not be permitted to conduct discovery in connection with the arbitration, and, subject only to the availability of the arbitrators, the arbitration hearing shall be held within 30 days after appointment of the third arbitrator. Except as aforesaid, the arbitration shall be conducted under the applicable rules of the American Arbitration Association. Any determination of the arbitrators shall be binding and conclusive upon the parties hereto. Application may be made by either party to any court having jurisdiction thereof for judicial confirmation of any determination by the arbitrators and/or for an order of enforcement of any such decision. 26. Counterparts. This Agreement may be executed in counterparts, all of ------------ which shall be considered one and the same agreement, and shall become effective on the Effective Date. -11- IN WITNESS WHEREOF, Marc Tipermas and ICF Kaiser International, Inc. have executed this Agreement. ICF KAISER INTERNATIONAL, INC. MARC TIPERMAS, Ph.D. By: ------------------------------------ --------------------------- Its Duly Authorized Representative Marc Tipermas, Ph.D. Dated: August 7, 1998 Dated: August 7, 1998 -12- EXHIBIT A GENERAL RELEASE I, MARC TIPERMAS, on behalf of myself and my heirs, successors, agents, executors, administrators, attorneys and assigns, in consideration of the terms of the Agreement effective as of August 7, 1998 by and between ICF Kaiser International, Inc. ("ICF") and myself (the "Agreement") and the execution of a General Release ("Release") by ICF, with effect as of August 7, 1998, hereby release and forever discharge ICF and any and all of its present, former and future affiliated entities, subsidiaries, departments, officers, directors, employees, representatives, agents, attorneys, successors and assigns, from any and all claims and causes of action (whether known or unknown) which I have against them, in law or equity, relating to or arising under: Federal, Virginia, or other state or local law; any employment contract or related agreements; any employment statute or regulation; any employment discrimination law, including but not limited to Title VII of the Civil Rights Act of 1964, as amended, and the Age Discrimination in Employment Act of 1967, as amended; the Employee Retirement Income Security Act of 1974, as amended; any other Federal, state, or local civil rights, pension or labor law; contract law; tort law; and common law, including but not limited to wrongful discharge or misrepresentation or infliction of emotional distress; provided however that I do not hereby release ----------------- ICF from any of its obligations under the Agreement and/or under the terms of an employee benefit plan, program or arrangement (other than any such plan, program or arrangement providing for the payment of severance benefits). For purposes of this Release, ICF shall be deemed to include each and every one of its affiliated entities described in the Agreement. -13- I further agree not to sue or otherwise institute or cause to be instituted or in any way voluntarily participate in the prosecution of any complaints or charges against any persons or entities released herein in any Federal, state, or other court, administrative agency or other forum concerning any claims released herein. Except as required by law or as necessary to fulfill the terms of the Agreement or this Release, or as necessary in connection with personal business or tax affairs (in which case disclosure shall be on a confidential basis to the extent practicable), I agree not to disclose the terms or provisions of this Release, or the fact of its existence, to any person or entity. I understand and agree that nothing contained in this Release is to be considered an admission by ICF of any wrongdoing under any Federal, state, or local statute, public policy, tort law, contract law, or common law. I acknowledge that I have been advised to consult with an attorney prior to executing this Release. I further acknowledge that I have been given a period of at least twenty-one (21) days within which to consider and execute this Release, unless I voluntarily choose to execute this Release before the end of the said twenty-one (21) day period. Once executed, I understand that I have seven (7) days following the execution of this Release to revoke it, and that this Release is not effective or enforceable until after said seven (7) day period. -14- I acknowledge that I have read this Release, that I understand it, and that I am executing it freely and voluntarily. I further understand that once this Release becomes effective (after the seven (7) day revocation period), it can only be altered, revoked or rescinded with the express written permission of ICF. I further acknowledge and agree that, in the event I exercise my revocation rights within the specified seven-day period, all rights and obligations under this Release and the Agreement will become null and void. This Release is executed in connection with, and is subject to terms o Agreement. Date: August 7, 1998 ---------------------- Marc Tipermas Subscribed and sworn to before me this 7 day of August, 1998. ---------------------- Notary My commission expires: November 30, 2000 ----------------- -15- ELECTION TO EXECUTE PRIOR TO EXPIRATION OF TWENTY-ONE DAY CONSIDERATION PERIOD I, Marc Tipermas, understand that I have at least twenty-one (21) days within which to consider and execute the above General Release. However, after consulting counsel, have freely and voluntarily elected to execute the General Release before the twenty-one (21) day period has expired. I Date: August 7, 1998 ---------------------- Marc Tipermas -16- EXHIBIT A GENERAL RELEASE ICF Kaiser International, Inc. ("ICF"), on behalf of ICF and all of its current, former or future affiliated entities, subsidiaries, departments, officers, directors, employees, representatives, agents, attorneys, successors and assigns, in consideration of the terms of the Agreement effective as of August 7, 1998 by and between Marc Tipermas ("Tipermas") and ICF (the "Agreement") and the execution of a General Release ("Release") by Tipermas, with effect as of August 7, 1998, hereby releases and forever discharges Tipermas and his heirs, successors, agents, executors, administrators, attorneys and assigns, from any and all claims and causes of action (whether known or unknown) which ICF has against him, in law or equity, relating to or arising under: Federal, Virginia or other state or local law; any employment contract, any employment statute or regulation, contract law, tort law; and common law, including but not limited to actions for fraud and breach of contract; provided, -------- however, that ICF does not hereby release Tipermas from any of his obligations - ------- under the Agreement. ICF will not sue or otherwise institute or cause to be instituted or in any way voluntarily participate in the prosecution of any complaints or charges against Tipermas or the other person released herein in any Federal, state, or other court, administrative agency or other forum concerning any claims released herein. Except as required by law or as necessary to fulfill the terms of the Agreement or this Release, or as necessary in connection with ICF's business or tax affairs (in which case -17- disclosure shall be on a confidential basis to the extent practicable), ICF agrees not to disclose the terms or provisions of this Release, or the fact of its existence, to any person or entity (including employees of the Company). ICF understands and agrees that nothing contained in this Release is to be considered an admission by Tipermas of any wrongdoing under any Federal, state, or local statute, public policy, tort law, contract law, or common law. ICF acknowledges that this Release can only be altered, revoked or rescinded with the express written permission of Tipermas. This Release is executed in connection with, and is subject to the terms of, the Agreement. ICF KAISER INTERNATIONAL, INC. Date: August 7, 1998 By: -------------------------------- Its Duly Authorized Representative Subscribed and sworn to before me this 7th day of August, 1998. -------------------------------- Notary My commission expires: November 30, 2000 -18- EX-10.FF 5 AGREEMENT KAISER/GRUMBLY Exhibit 10(ff) EMPLOYMENT AGREEMENT -------------------- THIS AGREEMENT is made as of the 7th day of April, 1997 by and between ICF Kaiser International, Inc., a Delaware corporation (the "Company"), on the one hand, and Thomas P. Grumbly, a resident of Virginia (the "Executive"), on the other hand. WHEREAS, ICF Kaiser desires to retain the services of Executive as President, Federal Programs Group and Executive Vice President, ICF Kaiser International, Inc., and Executive desires to serve in that capacity, on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual agreements made herein, and intending to be legally bound hereby, the Company, on the one hand, and Executive, on the other hand, agree as follows: 1. Employment Period: Duties. -------------------------- (a) Employment and Employment Period. The Company shall employ the --------------------------------- Executive to serve as President, Federal Programs Group ("FPG") and Executive Vice President, ICF Kaiser International, Inc. for a period of three years commencing April 28, 1997 (the "Employment Period"). This agreement may be extended by mutual agreement of the parties with terms to be agreed upon. The Company agrees to begin discussions with Executive of an such extension at least six months prior to the end of the Employment Period. (b) Duties and Responsibilities. The Executive shall have full line ---------------------------- responsibility and authority for the FPG of the Company. The Executive will be a member of all senior management groups. The Executive will report to the Chief Operating Officer of ICF Kaiser International, Inc. or in the absence thereof to the Chief Executive Officer of ICF kaiser International, Inc. The Executive's office will be located in the Company's headquarters office in Fairfax, Virginia. In addition to the line responsibility for FPG, the Executive will have the following responsibilities: i. Chairman of a Federal Programs coordination group, which will coordinate program and policy issues related to our federal work. The group will include the President of the Consulting Group, and the key legal, financial, and compliance staff with responsibilities for federal work. Through this vehicle, the Executive will promote synergies and assure coordination with the Company's federal consulting work. ii. Company-wide line-of-business responsibility in the energy and environmental area. This is another coordinating, rather than line, role: it will make the Executive the focus, spokesman, and major strategic contributor to the Company's environmental and energy strategies. iii. Company-wide lead, working with the Executive Vice President for Corporate Development, for privatization -- which must be a major component of the Company's strategy not only in FPG but also for domestic state/local programs and international programs. The Executive is expected to chair a Task Force to position the Company in all regards for major privatization initiatives. 2. Compensation and Fringe Benefits. --------------------------------- (a) Base Compensation. The Company shall pay the Executive a base ------------------ salary a the rate of $250,000 per year from April 28, 1997 through March 31, 1998; $260,000 per year from April 1, 1998 through March 31, 1999; and $270,000 per year from April 1, 1999 through March 31, 2000, all in accordance with the Company's regular practice for compensating senior management personnel. The Executive's base compensation will be reviewed annually thereafter. (b) Bonus Compensation. For Calendar Year 197, the Executive will be ------------------- paid a $25,000 signing bonus, which will be payable upon signing this Agreement. In addition, the Executive will be guaranteed a bonus of $50,000 for Calendar Year 1997, which will be payable upon signing this Agreement. A pro-rata share of this $50,000 bonus (based on the portion of the year employed) is to be returned to the Company if the Executive terminates voluntarily or for "cause," as defined in Section 4 below, before December 31, 1997. Please be advised that these bonuses are paid independent of salary and are not used in retirement plan calculations. For Calendar Year 1997, the Executive will participate in the Annual Incentive Compensation Plan (IC) for Senior Executives as described in Attachment A, and in the Company's Long-Term Incentive Compensation Plan. Any bonus above the minimum is dependent upon the Company's achievement of its profit target and the Executive's personal achievement of performance criteria associated with his position. No bonus above the $50,000 will be paid unless the Executive earns more than $50,000 under these plans (taking into account pro-rata reductions in the amount earned for being employed by the Company only part of the year). However, if less than $50,000 is earned, no refund will be required, except as previously discussed in this paragraph. For future years (Calendar Year 1998 and beyond), any bonus will be determined by the Compensation Committee of the Board of Directors. Bonus awards may be comprised of cash, stock options, and/or restricted stock. By corporate policy, bonuses are payable only to eligible staff employed by the Company on the date of distribution, which under current policy will be on or about March 15 of the following calendar year. (c) Fringe Benefits. The Executive shall be entitled to such fringe ---------------- benefits as are generally made available by the Company to senior management personnel. Such benefits shall include participation in the Company's defined contribution retirement plan, Section 401(k) Plan, and health, term life and disability insurance programs. The Executive also will be reimbursed for reasonable expenses incurred in connection with travel and entertainment related to the Company's business and affairs which will be paid by the Company in a manner, consistent with past practice and as amended by any subsequent changes of Company Policy. 3. Stock Options. -------------- As soon as practicable after commencement of the Employment Period, the Company will grant to the Executive non-qualified stock options under the Company's Stock Incentive Plan to purchase 100,000 shares of the Company's common stock, par value $0.01 per share ("Common Stock"), at a purchase price equal to the average of the closing prices of the Common Stock on the New York Exchange on each of the 20 days ending the day immediately preceding the grant date. Such options will be represented by a Stock Option Agreement in the form customarily used by the Company for such agreements, containing the following provisions: (i) Option Term. The options will expire at five years from date ------------ of grant. All unexercised vested options shall expire 90 days after the Executive ceases being employed by the Company for any reason. All unvested options shall expire on the date Executive's employment ends. (ii) Vesting. Twenty-five percent (25%) of the options vest on each -------- of the first four anniversaries of the grant date. (iii) Exercise. Subject to applicable securities laws and --------- regulations, all vested options are exercisable at any time prior to expiration of their exercise period. 4. Termination. ------------ (a) In the event the Company elects to terminate this Agreement without "cause" or the Executive elects to terminate this Agreement for "good reason", the Company shall pay to the Executive, in addition to any amounts paid or payable under other provisions of this agreement, a severance payment equal to 12 times the average monthly base salary paid to the Executive for the 12- month period immediately preceding the termination. The Company shall also continue to pay, for 12 months, its share (plus any additionally costs due to COBRA) of medial and dental insurance, if any, in which the Executive participated prior to termination; however, the Executive will continue to pay his share as well. The Executive understands that the amounts paid by the Company may be taxable income to the Executive. For purposes of this provision, "cause" is defined as: (i) the continued, willful and deliberate failure of the Executive to perform the Executive's duties in a manner substantially consistent with the manner prescribed by the Board of Directors, the Chief Executive Officer, or Chief Operating Officer of ICF Kaiser International, Inc. consistent with law and professional ethics (other than any such failure resulting from the Executive's incapacity due to physical or mental illness); (ii) the engaging by the Executive in misconduct materially, directly and demonstrably injurious to FPG or its parent companies and/or affiliates; or (iii) the conviction of the Executive of commission of a felony, whether or not such felony was committed in connection with the Company's business. In no event shall the failure to achieve profit or other financial goals or alleged incompetence on the Executive's part be deemed to constitute "cause" so long as such failure or incompetence does not result from the Executive's failure to perform duties in good faith. "Good Reason" is defined as (i) without the Executive's express written consent, the offices, duties, responsibilities, compensation, or benefits of the Executive are substantially reduced (except in connection with the termination of employment voluntarily by the Executive, by the Company for "cause, " or in the case of disability or death); (ii) without the Executive's express written consent, the Company's principal executive offices shall have been relocated outside the Washington, DC metropolitan area, or the Executive shall be based anywhere other than the Washington, DC metropolitan area or other office location designated in the Executive's employment agreement (except for required travel on the Company's business); (iii) a majority of the Board of Directors of the Company is not comprised of "Continuing Directors," where a "Continuing Director" of the Company as of any date means a member of the Board of Directors of the Company who (x) was a member of the Board of Directors of the Company on the effective date of this Agreement or (y) was nominated for election or elected to the Board of Directors of the Company with the affirmative vote of at least a majority of the directors who were Continuing Directors at the time of such nomination or election; or (iv) during the first two years of the Employment Period, James O. Edwards ceases to be an Executive Officer of the Company, except by death or disability. (b) After the end of the Employment Period, if no other agreement with the Company has been made, the Executive shall be a participant in the Senior Executive Officers' Severance Plan. 5. Non-Competition. ---------------- (a) Except as provide in paragraph (d) below, the Executive agrees that for a period commencing as of the date of employment of the Executive by the Company and running through the earlier of (i) the end of the Employment Period if the Executive remains employed by the Company for the entire Employment Period or (ii) one year following termination of the Executive's employment by the Company for any reason, whether by action of the Executive or the Company (the "Non-Competition Period"), the Executive will not, except as otherwise provided herein, engage or participate, directly or indirectly, as principal, agent, employee, employer, consultant, stockholder, partner or in any other individual capacity whatsoever, in the planning for, conduct of, or management of, or own any stock or any other equity investment in or debt of, any business which is competitive with any business conducted by the Company. The Non-Competition Period will cease if the Company fails to make any severance payment required in Section 4 above. For the purpose of this Agreement, a business shall be considered to be competitive with the business of the Company only if such business is engaged in providing services (i) similar to (x) any service currently provided by the FPG of the Company or provided by the FPG of the Company during the Employment Period; (y) any service which evolves from or results from enhancements in the ordinary course during the Non-Competition Period to the services provided by the FPG of the Company as of the date thereof or during the Employment Period; or (z) any future service of the FPG of the Company as to which the Executive materially and substantially participated in the design or enhancement, and (ii) to customers and clients of the type served by the FPG of the Company during the Non-Competition Period. (b) Non-Solicitation of Employees. During the Non-Competition Period, ----------------------------- the Executive will not (for his own benefit or for the benefit of any person or entity other than the Company) solicit, or assist any person or entity other than the Company to solicit, any officer, director, executive or employee of the Company to leave his or her employment. (c) Reasonableness. The Executive acknowledges the (i) the markets -------------- served by the FPG of the Company are national and international and are not dependent on the geographic location of executive personnel or the businesses by which they are employed, (ii) the length of the Non-Competition Period is linked to the term of the Employment Period and the severance benefit provided for in Section 4; and (iii) the above covenants are manifestly reasonable on their face, and the parties expressly agree that such restrictions have been designed to be reasonable and no greater than is required for the protection of the Company. (d) Investments. Nothing in this Agreement shall be deemed to ----------- prohibit the Executive from owning equity or debt investments in any corporation, partnership or other entity which is competitive with the Company, provided that such investments (i) are passive investments and constitute five - -------- percent (5%) or less of the outstanding equity securities of such an entity the equity securities of which are traded on a national securities exchange or other public market, or (ii) are approved by the Company. 6. Enforcement. ----------- Executive agrees that the Company's remedies at law for any breach or threat of breach by the Executive of the provisions of Section 5 of this Agreement or Sections 2, 3, or 4 of Attachment B hereof will be inadequate, and that the Company shall be entitled to an injunction or injunctions to prevent breaches of the provisions of Section 5 of this Agreement or Sections 2, 3, or 4 of Attachment B hereof and to enforce specifically the terms and provisions thereof, in addition to any other remedy to which the Company may be entitled at law or equity. 7. 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: Thomas P. Grumbly 302 Buxton Road Falls Church, VA 22046 and properly addressed to the Company is addressed to: ICF Kaiser International, Inc. 9300 Lee Highway Fairfax, Virginia 22301-1207 Attn: James O. Edwards with a copy to: Paul Weeks II Senior Vice President, Secretary and General Counsel ICF Kaiser International, Inc. 9300 Lee Highway Fairfax, Virginia 22301-1207 8. Each Party Bears Own Costs. --------------------------- In the event either of the parties to this Agreement commences any action or proceeding arising out of, or relating in any way to, this Agreement, each party shall bear his or its own costs, expenses, and attorney's fees. 9. Other Provisions. ----------------- All paragraph headings used herein are for convenience only and shall not otherwise affect the interpretation of this Agreement. This Agreement, including the attachments referred to herein, is the sole and final agreement among the parties hereto with respect to the matters discussed herein, and shall supersede any and all prior agreements or understandings regarding same. No changes shall be made to the terms hereof except by the mutual written agreement of the parties hereto. This Agreement shall be interpreted and enforced in all respects (including as to damages) in accordance with the laws of the Commonwealth of Virginia, excluding the conflicts of laws rules thereof. 10. Attachments Incorporated by Reference. -------------------------------------- (a) Attachment A- ICF Kaiser International Inc.'s Annual Incentive Compensation (IC) Plan for Senior Executives. (b) Attachment B - ICF Kaiser International, Inc.'s Standard Terms and Conditions of Employment for Executive Personnel. IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the day and year first written. Executive ICF Kaiser International, Inc. /s/ Thomas P. Grumbly /s/ James O. Edwards - --------------------- -------------------- Thomas P. Grumbly James O. Edwards Chairman and Chief Executive Officer Attachment A ANNUAL INCENTIVE COMPENSATION (IC) PLAN FOR SENIOR EXECUTIVES ------------------------------------------------------------- I. Eligibility ----------- Edwards, his four direct reports (COO, Tipermas, Goldman, CFO), and the three group presidents (FPG President, Kesavan, Watson). All participants in this plan will also be participants in the Long-Term Incentive (LTI) Plan. II. Payment ------- Bonuses earned under the "Corporate Pool" (defined below) will be paid in cash. Bonuses paid under the "Group Pool" will be paid in cash and the restricted stock that vests over 3 years, as indicated below. III. Calculation of Pools -------------------- Edwards and the four direct reports are paid solely from the "Corporate Pool". The three group presidents are paid from the "Corporate Pool" and from their "Group Pool, " as shown below. Discretionary bonuses outside of this plan may be granted to any of these individuals for meritorious performance. IV. Determination of Corporate Pool ------------------------------- The size of the Corporate Pool is determined solely by the earnings-per-share performance of ICF Kaiser International, as follows: $80,000 for each $01. EPS over $.10 EPS (linear, no cap). The corporate pool at $.29 EPS would equal approximately $1.5 million. For example: 1997 EPS Corporate Bonus Pool -------- -------------------- $.10 $ 0 $.16 $ 480,000 $.22 $ 960,000 $.29 $ 1,520,000 The final accounting for EPS may be adjusted by the Compensation Committee, after discussion with the CEO, for any one-time voluntary capital transaction, either positive or negative. (Note: The EPS numbers must be net of the bonus in this plan and the restricted stock issued under the LTI Plan. This means, for example, that, to yield an EPS of $.29, we would have to earn approximately $.37/share before the stretch target payments of $1.5 million in bonus in this plan and the 600,000 shares of restricted stock [at an assumed $2.50 per share] to be paid under the LTI Plan.) V. Determination of the Group Pool ------------------------------- E&C (Watson): $30,000 plus 6,000 shares of restricted stock for each million of Net Contribution (less Nova and all bonuses) over $22 million (linear, no cap), plus $20,000 plus 4,000 shares of restricted stock for each million of CY1997 Net Contribution over $6 million from the Nova Hut Project. (linear, no cap) Consulting (Kesavan): $15,000 plus 3,000 shares of restricted stock for each million of Net Contribution (after all bonuses) over $10 million (linear, no cap) Federal Programs: $15,000 plus 3,000 shares of restricted stock for each million of Net Contribution (after all bonuses) over $10 million (linear, no cap) (Note: Sums earned under this section are billed to the groups.) VI. 1997 Division of Corporate Pool ------------------------------- Edwards 30% COO 20% Tipermas 17% Goldman 9% CFO 9% Watson 5% FPG President 5% Kesavan 5% (Note: Corporate Pool is a Corporate [BBU] cost) VII. Partial-Year Issues ------------------- 1. No determinations made until financial statements finalized (March 1998). 2. No bonuses for voluntary departures before 12/31/97. 3 No partial bonuses for anybody in place less than 6 months. 4. Pro-rata bonuses for anybody in place over 6 months, but no bonuses for voluntary departures before 12/31/97. 5. Unused percentages will e returned to net income, not allocated to remaining participants, except that for the period there is no COO, if any, in 1997, Tipermas will earn 20% of the pool. Attachment B ICF Kaiser International, Inc. Standard Terms and Conditions of Employment for Executive Personnel Attachment B to the Employment Agreement (the "Base Agreement") as of April 7, 1997 between ICF Kaiser International, Inc. (the "Company") and Tom Grumbly (the "Executive"). This Attachment B and Agreements incorporated into or referred to in the Base Agreement and the Base Agreement are collectively referred to as this "Agreement". 1. Devotion to Interests of the Company Except as expressly authorized ------------------------------------ by the Chief Executive Officer or the Board of Directors of ICF Kaiser International, Inc., until the effective date of notice of termination of this Agreement by either the Executive or the Company, with or without cause, the Executive shall render his business services solely in the performance of his duties under this Agreement. The Executive shall use his best efforts to promote the interests and welfare of the Company and its subsidiaries and affiliates. 2. Trade Secrets. The Executive shall not use or disclose to third ------------- parties any of the Company'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. 3. Return of Documents and Property. Upon the effective date of notice -------------------------------- of the Executive's or the Company's election to terminate this Agreement, or at any time upon the request of the Company, the Executive (or his heirs or personal representatives) shall deliver to the Company (a) all documents and materials containing trade secrets or other confidential information relating to the Company's business and affairs, and (b) all documents, materials and other property belonging to the Company, which in either case are in the possession or under the control of the Executive (or his heirs or personal representatives). 4. Discoveries and Work. All discoveries and works made or conceived by -------------------- the Executive during his employment by the Company, jointly or with others, that relate to the Company's activities shall be owned by the Company. The term "discoveries and works" includes, by the 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 executive and deliver any documents requested by, the Company to evidence or better assure title to such discoveries and works in the Company, (b) assist the Company 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 Company or thereafter, all applications or other endorsements necessary or appropriate to maintain patents and other rights for the Company and to protect its title thereto. Any discoveries and works which, within six months after the termination of the Executive's employment by the Company, are made, disclosed, reduced to a tangible or written form or description, or are reduced to practice by the Executive and which pertain to the business carried on or products or services being sold or developed by the Company at the time of such termination shall, as between the Executive and the Company, be presumed to have been made during the Executive's employment by the Company. Set forth on Schedule I attached hereto is a list of discoveries and works, whether or not registered or patented, including a brief description thereof, which are owned by the Executive, which the Executive conceived or made prior to this employment by the Company and its affiliates and which are excluded from this Agreement. 5. 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. 6. Assignment. The Executive's rights and obligations under this ---------- Agreement shall not be assignable by the Executive. The Company's rights and obligations under this Agreement shall not be assignable by the Company except as incident to the transfer, by merger or otherwise, of all or substantially all of the business of the Company. In the event of any such assignment by the Company, all rights of the Company under this Agreement shall inure the benefit of the assignee. SCHEDULE I ---------- Discoveries and Works Owned by the Executive NONE EX-10.FF.1 6 AGREEMENT KAISER/GRUMBLY APRIL 7, 1997 Exhibit 10(ff)(1) [ICF KAISER LETTERHEAD APPEARS HERE] March 15, 1999 Mr. Thomas P. Grumbly Executive Vice President and President, Environment and Facilities Management Group ICF Kaiser International, Inc. 9300 Lee Highway Fairfax, VA 22031-1207 Re: Employment Agreement -------------------- Dear Tom: I refer to your Employment Agreement dated April 7, 1997. The purpose of this letter is to confirm the arrangements approved by the Human Resources & Compensation Committee of the Board of Directors in light of the planned sale of the ICF Kaiser International, Inc. Environment and Facilities Management Group to The IT Group, Inc. (the "EFM Transaction"). To the extent the provisions of this letter are inconsistent with your Employment Agreement, the terms of this letter shall govern. 1. Your base compensation shall increase to $270,000 per year effective February 1, 1999. 2. You agree to cooperate with ICF Kaiser and The IT Group, Inc. in connection with the EFM Transaction, and to remain as an employee of ICF Kaiser for a period of 30 days after closing of the EFM Transaction. This letter agreement assumes that the EFM Transaction will close on or before June 1, 1999. If the closing does not take place on or before that date, we will agree on mutually satisfactory arrangements concerning any continuation of your services to ICF Kaiser. 3. Consistent with the terms of your Employment Agreement, ICF Kaiser will continue to pay, for a period of 12 months following the termination of your employment with ICF Kaiser, ICF Kaiser's share (plus any additional costs due to COBRA) of medical and dental insurance, if any, in which you are currently participating. You will continue to pay your share as well. You understand that amounts paid by ICF Kaiser may constitute taxable income to you. Mr. Thomas P. Grumbly March 15, 1999 Page 2 4. As promptly as practicable after your execution of this letter, you will be paid the sum of $50,000 (less applicable withholding amounts). 5. On the earlier of April 28, 1999, and the closing of the EFM Transaction, you will be paid $270,000 plus an amount equal to 9% per annum on such amount from February 1, 1999, to the date of payment. 6. To the extent your options to purchase ICF Kaiser common stock are not vested on the date you cease being employed by ICF Kaiser, such options will vest on such date and shall remain exercisable for a period of 90 days after you cease being employed by ICF Kaiser. 7. The payments provided to you pursuant to this letter agreement are in lieu of all amounts due to you upon termination of your employment under your Employment Agreement, including, without limitation, the provisions of Section 4 of your Employment Agreement. 8. Effective on the date you cease being employed by ICF Kaiser, the Company waives the provisions of Section 5 of your Employment Agreement relating to noncompetition. If you agree that the foregoing accurately reflects the arrangements that have been agreed to, please sign where indicated below. Very Truly yours, ICF KAISER INTERNATIONAL, INC. By: /s/ Keith M. Price -------------------------------------- Keith M. Price President and Chief Executive Officer AGREED: /s/ Thomas P. Grumbly - ------------------------- Thomas P. Grumbly EX-10.II.1 7 AGREEMENT-GENERAL RELEASE KAISER/WATSON Exhibit 10(ii)(1) [ICF KAISER LETTERHEAD APPEARS HERE] AGREEMENT AND MUTUAL GENERAL RELEASE I, David Watson, understand and, of my own free will, enter into this Agreement and General Release ("Agreement") with ICF Kaiser International, Inc. and its subsidiaries (the "Company")and, in consideration of a supplemental separation payment ("Separation Benefit")described herein, agree as follows: I. As referred to in this Agreement, the Company includes its parents, subsidiaries, affiliates and divisions, their respective successors and assigns, and all of their past and present directors, officers, representatives, shareholders agents, employees and their respective heirs and personal representatives or any of them. II. I hereby acknowledge that I resign my position as Executive Vice President and President, Engineers and Constructors effective Friday, August 7, 1998 at 12 midnight. Effective on that date and at that time I will no longer hold myself out as an officer of the Company nor will I bind it in any way. My full-time employment with the Company terminates at midnight on October 7, 1998. Effective October 8, 1998, I will be a part-time employee, paid at a rate of $145.00 per hour for any hours that either Keith Price or Richard Leupen approves. I agree to be on call and available to the Company through my last day of full-time employment. III. I acknowledge that Company officers explained the Company's standard severance policy for which I am eligible. In recognition of my position as President, Engineers and Constructors, the Company will give me an increased severance payment, as described in Paragraph IV below, if, and only if, I sign this Agreement and comply with its terms. I understand that the Company will not be required to provide the additional separation benefit until after this Agreement becomes effective. IV. The separation benefit that I will consist of the following items: A) Severance: I will receive 52 weeks severance, effective from my last --------- -------- day of full-time employment, at my current salary, less deductions required by law, and paid in a lump sum on or about October 1, 1998, but no later than October 16, 1998. B) Restricted Stock: The 45,600 shares of restricted stock that were ---------------- granted to me (6,600 shares on March 20, 1997 and 39,000 shares on March 9, 1998) will fully vest effective on my last day of my employment. I understand that I will be given the certificates for these 45,600 shares on the last day of my full-time employment provided that I have satisfied all tax withholding obligations related to these shares. C) Legal Fees: I will be reimbursed for all legal expenses I incur in connection with my termination settlement and this Agreement up to a maximum of $2,500. D) Use of Club Memberships: The Company will enable me to use its ----------------------- Corporate Membership at Avenel and retain my status as designated representative through December 31, 1999. I will be responsible for all remaining initiation fees and ongoing membership dues. The club may be used by any ICF Kaiser International employee through December 31, 1999. Effective January 1, 2000 Avenel will convert ICF Kaiser's Executive Business Membership to a Patron Membership classification in my name. E) Total Separation Benefit: The supplemental separation benefit ------------------------ consisting of A), B), C), and D) as described above is in excess of the Company's severance policy which provides for a number of weeks' pay based on tenure and my Employment Agreement dated December 1, 1996 that I would otherwise be eligible to receive. F) Final Payment: I will be issued a severance payment as stated in A) ------------- above, less deductions required by law, on a date appropriate with this Agreement's Revocation Period. The severance payment is taxed at the federal government supplement tax rate (currently 28 percent). 1 G) References: I hereby authorize Keith M. Price and Marcy A. Romm to ---------- provide my only employment references. In providing this authorization, I hereby release the Company from any and all claims that may arise out of the Company's response to a request for employment reference information. V. Confidentiality Agreement: I understand that I continue to be bound by ------------------------- the Confidentiality Agreement that I signed upon employment. VI. Non-Disparagement: Each of the Company and I covenant and agree that ----------------- following the date of this Agreement neither shall make disparaging statements concerning the other, or its officers, directors, affiliates, agents and/or employees. For this purpose a disparaging statement shall be a statement or statements that, individually or in the aggregate, have a materially detrimental effect on the business affairs of the Company or me, as the case may be. VII. Confidentiality of Agreement: Except as required by law or as necessary ---------------------------- to fulfill the terms of this Agreement or the General Releases incorporated herein, or in connection with a party's family, business, or tax affairs (in which case disclosure shall be on a confidential basis to the extent practicable), neither the Company nor I shall disclose the terms or provisions of this Agreement, or the fact of its existence, to any person or entity. VIII. Non-Competition: I agree that for a period of one year from the date of --------------- this Agreement I will not engage or participate, directly or indirectly, as principal, agent, employee, employer, consultant, stockholder, partner or in any other individual capacity whatsoever, in the planning, conduct, or management of, or own any stock or any other equity investment in or debt of, any business which is competitive with any business conducted by the Company. IX. Non-Solicitation of Employees: I agree that for a period of one year ----------------------------- from the date of this Agreement, I will not, for my own benefit or for the benefit of any person or entity, actively solicit any officer, director, executive, or employee to leave the Company's employment. X. Legal Compliance: ----------------- A. I understand that this Agreement does not constitute an admission by the Company of any: (a) violation of any statute, law or regulation; (b) breach of contract, actual or implied; or (c) commission of any tort. B. The terms and provisions of the Agreement shall be governed by and interpreted in accordance with the laws of the Commonwealth of Virginia and of the United States of America, without giving effect -------- to the doctrine of conflict of laws. I realize there are many laws and regulations prohibiting employment discrimination or otherwise regulating employment or claims related to employment pursuant to which I may have rights or claims. These include Title VII of the Civil Rights Act of 1964, as amended; the Age of Discrimination in Employment Act of 1967, as amended (the "ADEA"); the Americans with Disabilities Act of 1990; the National Labor Relations Act, as amended; the Employee Retirement Income Security Act of 1974, as amended; the Civil Rights Act of 1991; the Workers Adjustment and Retraining Notification Act of 1988; 42 U.S.C. (S) 1981 and federal, state and local human rights, fair employment and other laws. I also understand there are other statutes and laws of contract and tort otherwise relating to my employment. I intend to and do hereby waive and release any rights I may have under these and other laws. C. In exchange for my receipt of the separation benefit, on behalf of myself, my heirs and personal representatives, I hereby release and discharge the Company from any and all charges, claims and actions arising out of my employment or the termination of my employment with the Company. I will immediately withdraw with prejudice any such charges, claims and actions that I have brought before signing this Agreement, and I will not bring any such charges, claims and 2 actions against the Company in the future, except a charge, claim or action based upon rights or claims that may arise under the ADEA after the date that I sign this Agreement. D. In consideration of my agreements set forth herein, the Company hereby releases and discharges me from any and all charges, claims and actions arising out of my employment or the termination of my employment with the Company, other than charges, claims and actions arising under this Agreement. The Company has not brought, and will not bring, any such charges, claims and actions in the future, except a charge, claim or action based upon its rights or claims that may arise under this Agreement. E. 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. XI. Agreement Review Period: I was given a copy of this Agreement on August ----------------------- 7, 1998. I have had an opportunity to consult an attorney before signing it and was given a period of at least twenty-one (21) days, or until August 28, 1998, to consider this Agreement. I acknowledge that in signing this Agreement, I have relied only on the promises written in this Agreement and not on any other promise made by the Company. --- XII. Agreement Revocation Period: I have seven (7) days to revoke this --------------------------- Agreement after I sign it. The Agreement does not become effective or enforceable until: (i) the Company has received a copy signed by me; and (ii) the seven (7) day revocation period has ended. Severance payment will be made on the Company's scheduled payday that follows the date of this Agreement. XIII. Agreement Modification or Change: This Agreement may not be modified or -------------------------------- changed orally. Any modifications and changes must be made by the signature of Marcy A. Romm, Senior Vice President and Director of Human Resources. I have read this Agreement and General Release and I understand all of its terms. I enter into and sign this Agreement knowingly and voluntarily, with full knowledge of what it means. /s/ David Watson Date: August 17, 1998 ---------------------- ----------------- David Watson ICF KAISER INTERNATIONAL, INC. By: /s/ Marcy A. Romm Date: August 17, 1998 ----------------------------------- ----------------- Marcy A. Romm Senior Vice President and Director of Human Resources ICF Kaiser International, Inc. EX-10.KK.1 8 AGREEMENT KAISER/GAFFNEY Exhibit 10(KK)(1) AGREEMENT AGREEMENT (this "Agreement") dated as of March 8, 1999, by and between Michael Gaffney, a resident of the State of Virginia ("Gaffney"), and ICF Kaiser International, Inc. a Delaware corporation (the "Company"). As used in this Agreement, unless the context indicates otherwise, the term "the Company" shall be deemed to refer to ICF Kaiser International, Inc. and each and every one of its affiliated entities. WITNESSETH WHEREAS, Gaffney presently serves as Executive Vice President of the Company; and WHEREAS, Gaffney and the Company wish consensually to sever the employment relationship between Gaffney and the Company. NOW, THEREFORE, in consideration of the premises and the mutual covenants and promises hereinafter provided and of the actions taken pursuant thereto, the parties agree as follows: 1. Effective Date. This Agreement shall be executed and become effective -------------- March 17, 1999, (the Effective Date"). 2. Resignation and Termination of Existing Employment Relationship. As --------------------------------------------------------------- of the Effective Date, Gaffney shall be deemed to have resigned from all corporate offices of the Company, and from all offices and directorships of the Company's subsidiaries, joint ventures, and affiliated companies, organizations and entities including, without limitation, plan committees for employee benefit plans trusts. During the period from the Effective Date until the close of business fifteen days after the Effective Date, Gaffney shall assist the Company as requested by the Company's Chief Executive Officer, Chief Financial Officer, Group Presidents, or any member of the Board of Directors. Gaffeny's full-time employment by the Company shall be deemed to have terminated as of the close of business 1 on March 17, 1999. Thereafter, and if requested by the Company, Gaffney shall serve as a variable part-time employee at a rate of $121.19 per hour. 3. Records. As soon as practicable after the Effective Date, the Company ------- shall take such steps as may be necessary to reflect in the corporate records of the Company, its subsidiaries, joint ventures, and affiliated companies, organizations and entities that Gaffney has resigned as an officer of the Company and as an officer and director of the Company's subsidiaries, joint ventures, and affiliated companies, organizations and entities. 4. Payment: The following amounts, less required Federal and state ------- withholding and other deductions and without interest, shall be paid to Gaffney by wire transfer as directed by Gaffney. (a) $150,000 on or before April 4, 1999, (b) $50,000 on or before May 4, 1999, and (c) $50,000 on or before June 4, 1999. 5. Health Benefits. Gaffney and his dependents shall continue to be --------------- covered under the Company's provided health insurance April 30, 1999. Gaffney may elect to continue his family health benefits provided through the Company to the extent permitted by Federal COBRA laws in effect as of the date of this Agreement. For purposes of COBRA compliance, the date on which Gaffney's health benefits terminate shall be April 30, 1999. Except as specifically provided in this Section 5, all health benefits shall terminate on April 30, 1999. 6. Indemnification and Notice Concerning Nonrenewal of Directors, -------------------------------------------------------------- Officers and Fiduciaries Insurance Coverage: - ------------------------------------------- (a) The Company acknowledges that its Certificate of Incorporation and By-Laws and the charters and by-laws of certain of its direct and indirect subsidiaries and employee 2 benefit plans and related trusts include provisions designed to provide to former officers, directors and fiduciaries indemnification in respect of threatened and commenced actions, suits and proceedings in which an individual is a party or is threatened to be made a party by reason of the fact that he is or was an officer, director or fiduciary of the Company or such subsidiaries or trusts. The Company shall, and shall cause such subsidiaries and trusts to continue to provide indemnification to Gaffney under such provisions to the maximum extent permitted by applicable law. (b) So long as the Company maintains directors and officers liability insurance coverage, or liability insurance for the fiduciaries of its employee benefits plans and related trusts, Gaffney shall be covered by such insurance, with respect to his tenure with the Company, on the same terms as other existing and former officers, directors and fiduciaries. If, for any reason, the Company shall not continue to have such insurance coverage in effect on terms substantially comparable to those presently in effect, the Company shall purchase substantially comparable insurance coverage for acts arising before the termination of the previously existing insurance (also knows as "tail" or "run- off" insurance). 7. Employment Reference. Nothing in this Agreement shall prevent either -------------------- party from stating the fact that Gaffney was employed by the Company, the address of his work location, the dates of his employment, his job titles and job duties, his rate of pay, or that he resigned from his position as an officer of the Company on or about March 17, 1999. The Company may respond to employment inquiries in accordance with the Company Kaiser Employee Handbook. 8. Proprietary Information and Business and Personal Property. ---------------------------------------------------------- 3 (a) Gaffney will not directly or indirectly disclose any confidential records, information, documents, data formulae, specifications or other trade secrets owned by the Company to any person, or use any such information, except (i) as appropriate in connection with the activities contemplated by Section 2 or (ii) pursuant to court order or as a result of a valid order, subpoena or discovery request (and in the case of such disclosure Gaffney will provide the Company with written notice of the same sufficiently in advance of the required disclosure date to allow the Company to lodge appropriate objections to such disclosure). The immediately preceding sentence shall not apply to information: (x) disclosure of which is required by law or by process lawfully issued; (y) which has been disclosed to Gaffney or to a third party by a person not under a duty of confidentiality with respect to that information; or (z) which later enters the public domain through no fault or breach of duty by Gaffney. (b) Gaffney shall have no ownership interest in any records, files, information, documents, or the like that belong to the Company which Gaffney has used, prepared or come into contact with during his employment by the Company, and, except as appropriate in connection with the activities contemplated by Section 2, Gaffney shall not remove written copies thereof from the premises of the Company or any of its affiliates without the Company's written consent. Within five (5) business days after the Effective Date, Gaffney shall have returned to the Company all of the Company property Gaffney has in his possession. Nothing in this Agreement shall limit Gaffney's right to remove personal effects from his office within five business days after the Effective Date. (c) Until May 31, 1999 Gaffney shall remain on the Company-sponsored cellular telephone program provided that Gaffney be responsible for the cost of -------- cellular telephone service as of the Effective Date. Until May 31, 1999 or until Gaffney obtains new 4 employment, whichever occurs first, the Company will allow Gaffney to have access to his voice mailbox on the Company telephone system and to his the Company e-mail address. 9. No Disparaging Statements. Except as required by applicable law or ------------------------- legal process; each of the Company and Gaffney covenant and agree that following the Effective Ate neither of them nor their of its officers, directors, affiliates, agents and/or employees shall make disparaging statements concerning the others (for this purpose, a disparaging statement shall refer to a statement or statements that, individually or in the aggregate, have a materially detrimental effect on the business affairs of the Company or Gaffney, as the case may be). 10. Confidentiality of Agreement. Except as required by applicable law or ---------------------------- legal process or as necessary to fulfill the terms of this Agreement or the General Releases incorporated herein, or in connection with a party's family, business, or tax affairs (in which case disclosure shall be on a confidential basis to the extent practicable), the parties shall not disclose the terms or provisions of this Agreement or such General Releases, or the fact of their existence, to any person or entity. 11. No Admission. Nothing contained in this Agreement or the General ------------ Releases incorporated herein shall be considered an admission by either party of any wrongdoing under any Federal, state or local statute, public policy, tort law, contract law, common law or otherwise. 12. No Third Party Claims. Each party represents and warrants that no --------------------- other person or entity has, or to the best knowledge of such party claims, any interest in any potential claims, demands causes of action, obligations, damages or suits released pursuant to this Agreement; that it or he is the owner of all other claims, demands, causes of action, obligations, damages or suits so released; that it or he has full and complete authority to execute this Agreement; and that it or 5 he has not sold, assigned, transferred, conveyed or otherwise disposed of any claim, demand, cause of action, obligation or liability subject to this Agreement and the General Releases contemplated hereby. 12. Full Releases. Each party agrees and acknowledges that the ------------- consideration received by it or him for this Agreement and the General Release provided below, and for the execution hereof and thereof, shall constitute full payment, satisfaction, discharge, compromise and release of and from all matters for which the other party has mutually released it or him herein and in such General Releases. 13. No Third Party Beneficiaries. Except as expressly stated herein, the ---------------------------- parties do not intend to make any person or entity who is not a party to this Agreement a beneficiary hereof, and this Agreement should not be construed as being made for the benefit of any person or entity not expressly provided for herein. 14. Non-Competition. --------------- (a) Gaffney agrees that for a six (6) month period commencing as of the Effective Date, Gaffney will not, except as otherwise provided herein, engage or participate, directly or indirectly, as principal, agent, employee, employer, consultant, stockholder, partner or in any other individual capacity whatsoever, in the planning, conduct, or management of, or own any stock or any other equity investment in or debt of, any business which is competitive with any business conducted by the Company. For the purpose of this Agreement, a business shall be considered to be competitive with the business of the Company only if such business is engaged in providing engineering and construction services (i) similar to (x) any service currently provided by the Company during the Non-Competition Period; or (y) any future service of the Company as to 6 which Gaffney materially and substantially participated in the design or enhancement, and (ii) to customers and clients of the type served by the Company during the Non-Competition Period. (b) Solicitation of Employees. During the Non-Competition Period, ------------------------- Gaffney will not (for his own benefit or for the benefit of any person or entity other than the Company) solicit, or assist any person or entity other than the Company to solicit, any officer, director, executive or employee of the Company to leave his or her employment. (c) Reasonableness. Gaffney acknowledges that (i) the markets served -------------- by the Company are national and international and are not dependent on the geographic location of executive personnel or the businesses by which they are employed, (ii) the length of the Non-Competition Period is linked to the term of the severance benefit provided for above; and (iii) the above covenants are manifestly reasonable on their face, and the parties expressly agree that such restrictions have been designed to be reasonable on their face, and the parties agree that such restrictions have been designed to be reasonable and no greater than is required for the protection of the Company. 16. Advice of Counsel. The parties acknowledge that they have been ----------------- advised, or have knowingly waived such advice, by competent legal counsel in connection with the execution of this Agreement, that they have read each and every paragraph of this Agreement and that they understand their respective rights and obligations. Gaffney declares that he has completely read this Agreement, fully understands its terms and contents, and freely, voluntarily and without coercion enters into this Agreement. 17. Entire Agreement. This Agreement constitutes the entire Agreement of ---------------- the parties with respect to the subject matter hereof, and all prior negotiations and representations are merged herein or replace hereby. 7 18. Severability. If any provision of this Agreement is held illegal, ------------ invalid or unenforceable, such illegality, invalidity, or unenforceability shall not affect any other provision hereof. Any such provision and the remainder of this Agreement shall, in such circumstances, be deemed modified to the extent necessary to render enforceable the remaining provisions hereof. 19. Governing Law. This Agreement shall be construed and enforced in ------------- accordance with the law of the Commonwealth of Virginia. 20. Releases and Effectiveness. This Agreement and General Releases in -------------------------- the forms attached hereto as Exhibits A and B, which are incorporated herein by reference, have been executed by or on behalf of Gaffney and the Company on the dates shown opposite their respective signatures below, and this Agreement and such General Releases are effective as of the Effective Date. 21. Disputes. In the event that nay dispute arises between the parties -------- hereto pertaining to the subject matter this Agreement and the parties are unable to resolve such dispute within a reasonable time through negotiations, the parties shall attempt to resolve such dispute pursuant to a mutually agreed upon alternate dispute resolution mechanism. Such resolution of the dispute shall be initiated by written notice given by one party to the other. If within 10 days after submission of such notice the parties have not agreed upon an alternate dispute resolution mechanism, the dispute shall be submitted to arbitration in Fairfax County, Virginia. In the event the parties are unable to agree on an alternate dispute resolution mechanism and the dispute is to be resolved pursuant to arbitration, each party shall appoint an arbitrator within 20 days after the original notice of the dispute, the two arbitrators so chosen shall promptly appoint a third arbitrator. If either party fails to name an arbitrator as aforesaid, such arbitrator shall be designated by the American Arbitration Association. If any arbitrator 8 becomes disabled, resigns or is otherwise unable to discharge the arbitrator's duties, the arbitrator's successor shall be appointed in the same manner as such arbitrator was appointed. The parties shall not be permitted to conduct discovery in connection with the arbitration, and, subject to only to the availability of the arbitrators, the arbitration hearing shall be held within 30 days after appointment of the third arbitrator. Except as aforesaid, the arbitration shall be conducted under the applicable rules of the American Arbitration Association. Any determination of the arbitrators shall be binding and conclusive upon the parties hereto. Application may be made by either party to any court having jurisdiction thereof for judicial confirmation of any determination by the arbitrators and/or for an order of enforcement of any such decision. 22. Counterparts. This Agreement may be executed in counterparts, all of ------------ which shall be considered one and the same agreement, and shall become effective on the Effective Date. IN WITNESS WHEREOF, Gaffney and the Company have executed this Agreement. ICF KAISER INTERNATIONAL, INC. MICHAEL GAFFNEY By: /s/ R A Levy /s/ Michael Gaffney ---------------------------------- ------------------------ Its Duly Authorized Representative Michael Gaffney Dated: March 8, 1999 Dated: March 8, 1999 -------- ------- EXHIBIT A - --------- GENERAL RELEASE --------------- The ICF Kaiser International, Inc. ("the Company"), on behalf of the Company and all of its current, former or future affiliated entities, subsidiaries, departments, officers, directors, employees, 9 representatives, agents, attorneys, successors and assigns, in consideration of the terms of the Agreement dated March 8, 1999 between Michael Gaffney ------- ("Gaffney") and the Company (the "Agreement"), and the execution of the General Release ("Release") by Gaffney, hereby releases and forever discharges Gaffney and his heirs, successors, agents, executors, administrators, attorneys and assigns, from any and all claims and causes of action (whether known or unknown) which the Company has against him in law or equity, under Federal, state, District of Columbia or other local law, and any claims relating to or arising under any employment contract, any employment statue or regulation, including but not limited to actions for fraud and breach of contract; provided, however, -------- that the Company does not hereby release Gaffney from his obligation under the Agreement. The Company will not sue or otherwise institute or cause to be instituted or in any way voluntarily participate in the prosecution of any complaints or charges against any persons or entities released herein in any federal, state, District of Columbia or other court, administrative agency or other forum concerning any claims released herein. Except as required by law or as necessary to fulfill the terms of the Agreement or this Release, or as necessary in connection with the Company business or tax affairs (in which case disclosure shall be on a confidential basis to the extent practicable), the Company agrees not to disclose the terms or provisions of this Release, or the fact of its existence, to any person or entity. The Company understands and agrees that nothing contained in this Release is to be considered an admission by Gaffney of any wrongdoing under any federal, state or local statute, public policy, tort law, contract law, or common law. The Company acknowledges that this Release can only be altered, revoked or rescinded with the express written permission of Gaffney. This Release is executed in connection with, and is subject to the terms of, the Agreement. ICF KAISER International, Inc. Date: March 9, 1999 By: /s/ R A Levy ------- ------------------------ Subscribed and sworn to before me this 9th day of March 1999. --- ----- /s/ Sandra D. Little ____________________________ Notary My Commission expires: November 30, 2000 ------------------------- 10 EXHIBIT B - --------- GENERAL RELEASE --------------- I, Michael Gaffney, on behalf of myself and my heirs, successors, agents, executors, administrators, attorneys and assigns, in consideration of the terms of the Agreement dated March 8, 1999, between ICF Kaiser International, Inc. ------- ("the Company"), and myself (the "Agreement"), and the execution of the General Release ("Release") by the Company, hereby affiliated entities, subsidiaries, departments, officers, directors, employees, representatives, agents, attorneys, successors and assigns, from any and all claims and causes of action (whether known or unknown) which I have against them in law or equity, under Federal, state, District of Columbia or other local law, and any claims relating to or arising under any employment contract, any employment statute or regulation, or any employment discrimination law, including but not limited to Title VII of the Civil Rights Act of 1964, as amended; the Age Discrimination in Employment Act of 1967, as amended; the Employment Retirement Income Security Act of 1974; any other federal, state, or local civil rights, pension or labor law; contract law; tort law; or infliction of emotional distress, provided, however, that I do not --------- hereby release the Company from its obligations under the Agreement. I further agree not to sue or otherwise institute or cause to be instituted or in any way voluntarily participate in the prosecution of any complaints or charges against any persons or entities released herein in any federal, state, District of Columbia or other court, administrative agency or other forum concerning any claims released herein. Except as required by law or as necessary to fulfill the terms of the Agreement or this Release, or as necessary in connection with personal business or tax affairs (in which case disclosure shall be on a confidential basis to the extent practicable), I agree not to disclose the terms or provisions of this Release, or the fact of its existence, to any person or entity. I understand and agree that nothing contained in this Release is to be considered an admission by the Company of any wrongdoing under any federal, state or local statute, public policy, tort law, contract law, or common law. I acknowledge that I have been advised in writing to consult with an attorney prior to executing this Release. I further acknowledge that I have been given a period of at least twenty-one (21) days within which to consider and execute this Release, unless I voluntarily choose to execute this Release before the end of the twenty-one (21) day period. Once executed, I understand that I have seven (7) days following the execution of this Release to revoke it, and that this Release is not effective or enforceable until after this seven-day period. 11 I acknowledge that I have read this Release, that I understand it, and that I am executing it freely and voluntarily. I further understand that once this Release becomes effective (after the seven day revocation period), it can only be altered, revoked or rescinded with the express written permission of the Company. This Release is executed in connection with, and is subject to terms of, the Agreement. Date: March 9, 1999 /s/ Michael Gaffney ------- --------------------------- Michael Gaffney Subscribed and sworn to before me this 8th day of March 1999. --- ----- /s/ Anupo Susi ---------------------------- Notary My Commission expires: 30 June 2002 -------------------- ELECTION TO EXECUTE PRIOR TO EXPIRATION -OF TWENTY-ONE DAY CONSIDERATION PERIOD- ---------------------------------------- I, Michael Gaffney, understand that I have at least twenty-one (21) days within which to consider and execute the above General Release. However, after consulting counsel, I have freely and voluntarily elected to execute the General Release before the twenty-one (21) day period has expired. /s/ Michael Gaffney ------------------------------- Michael Gaffney 12 EX-10.OO.1 9 TERMS OF PROMOTION FOR KEITH PRICE Exhibit 10(oo)(1) Exhibit 10(oo)(1) - ----------------- Terms of Promotion for Keith Price ---------------------------------- In light of Mr. Prices' change of status, the Company has agreed that the term of his employment with the Company will be extended for a period of two years commencing August 5, 1998, rather than the one-year period stated in Mr. Price's Employment Agreement. In consideration of Mr. Price's agreement to take on the additional responsibilities of Chief Executive Officer, the Company has agreed, subject to approval of the Board's Compensation and Human Resources Committee, that the Company will grant to Mr. Price non-qualified stock options under the Company's Stock Incentive Plan to purchase an additional 50,000 shares of the Company's common stock at a purchase price equal to the average of the closing prices of the Company's common stock on the New York Stock Exchange on each of the twenty days ending on November 3, 1998 ($1.24). The terms of these additional options will be as follows: (a) Option Term. The options will expire three years from the November 4, 1998 ----------- date of grant. (b) Vesting. Fifty percent of the options will vest on May 4, 1999, and fifty ------- percent will vest on November 4, 1999, provided that Mr. Price continues to -------- serve as the Company's Chief Executive Officer on such dates. In addition, the options will vest on the date (i) of a change of control reportable by the Company on SEC Form 8-K or (ii) the Company closes a sale of all or substantially all of its assets. (c) Exercise. Subject to applicable securities laws and regulations, all -------- vested options are exercisable at any time after they vest and prior to the expiration of their exercise. EX-21 10 EXHIBIT 21 Exhibit 21 ICF KAISER INTERNATIONAL, INC. 9300 Lee Highway, Fairfax, Virginia 22031 (703) 934-3600 ICF Kaiser International, Inc.'s consolidated subsidiaries at April 12, 1999, 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.
JURISDICTION CONSOLIDATED SUBSIDIARY OF FORMATION - ---------------------------------------------------------------------------------------------- I. Clement International Corporation Delaware I. Cygna Group, Inc. Delaware II. Liability Risk Management, Inc. California I. EDA, Incorporated Maryland I. HBG Hawaii, Inc. Delaware I. HBG International, Inc. Delaware I. ICF Consulting Group, Inc. Delaware I. ICF Incorporated Delaware II. ICF/EKO (63.0%) Russia I. ICF Information Technology, Inc. Delaware II. Phase Linear Systems Incorporated Delaware I. ICF Kaiser Development Corporation, Inc. Delaware II. Global Trade & Investment, Inc. Delaware I. ICF Kaiser Engineers Group, Inc. Delaware II. Henry J. Kaiser Company Nevada II. ICF Kaiser Engineers, Inc. Ohio III. Henry J. Kaiser Company (Canada) Ltd. Canada III. ICF Kaiser EFM Holdings, Inc. Delaware III. ICF Kaiser Engineers & Builders, Inc. Delaware III. ICF Kaiser Engineers (California) Corporation Delaware III. ICF Kaiser Engineers Corporation New York III. ICF Kaiser Engineers of Michigan, Inc. Michigan III. ICF Kaiser International Planning & Design, Inc. (33 1/3%) Pennsylvania III. ICF Kaiser Overseas Engineering, Inc. Delaware III. Kaiser Engineers Limited United Kingdom IV. Kaiser Engineers Technical Services Limited (80%) Cyprus III. Kaiser Engineers and Constructors, Inc. Nevada IV. ICF Kaiser Engenharia e Participacoes Ltda. (99.9%) Brazil V. ICF Kaiser Construcoes e Engenharia Ltda (99.989%) Brazil IV. ICF Pty. Ltd. (50%) Australia IV. Kaiser Engineers Limited (0.02%) U.K. IV. Kaiser Engenharia S.A. (50%) Portugal V. ICF Kaiser Construcoes e Engenharia Ltda (0.01%) Brazil IV. Kaiser Engineers (NZ) Ltd (1%) New Zealand IV. Kaiser Engineers Pty. Ltd. (50%) Australia V. KWA Kenwalt (50%) Australia V. ICF Kaiser Aluterv KFT Hungary
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V. ICF Kaiser Engineers Asia Pacific Pty Ltd Australia V. ICF Kaiser Engineers (Hong Kong) Ltd Hong Kong V. ICF Kaiser Engineers (Singapore) Pte Ltd Singapore V. Kaiser Engineers (NZ) Limited (99%) New Zealand III. Kaiser Engineers International, Inc. Nevada IV. ICF Pty. Ltd. (50%) Australia IV. ICF Kaiser Engenharia e Participacoes Ltda.(0.1%) Brazil IV. ICF Kaiser Panama S.A. Panama IV. Kaiser Engenharia S.A. (50%) Portugal IV. Kaiser Engineers Pty. Ltd. (50%) Australia III. Kaiser Engineers Limited (99.98%) U.K. IV. Kaiser Engineers Technical Services Limited (80%) Cyprus IV. Kaiser Engineers (UK) Limited (50%) U.K. III. Kaiser Engineers (UK) Limited (50%) U.K. IV. Kaiser Engineers Technical Services Limited (20%) Cyprus III. KE Services Corporation Delaware III. Kaiser Engenharia e Constructoes Limitada Brazil II. International Waste Energy Systems, Inc. Delaware II. KE Livermore, Inc. Delaware I. ICF Kaiser Engineers Massachusetts, Inc. Delaware I. ICF Kaiser Engineers Pacific, Inc. Nevada I. ICF Kaiser Europe, Inc. Delaware I. ICF Kaiser / Georgia Wilson, Inc. Delaware I. ICF Kaiser Government Programs, Inc. Delaware II. Kaiser-Hill Company, LLC (50%) Colorado III. Kaiser-Hill Funding Company, L.L.C. (98%) Delaware II. Kaiser-Hill Funding Company, L.L.C. (1%) Delaware I. ICF Kaiser Hanford Company Delaware I. ICF Kaiser Holdings Unlimited, Inc. Delaware II. American Venture Investments Incorporated Delaware III. American Venture Holdings, Inc. Delaware II. Cygna Consulting Engineers and Project Management, Inc. California II. Excell Development Construction, Inc. Delaware II. ICF Kaiser DPI Holding Co., Inc. Delaware II. ICF Kaiser Engineers Eastern Europe, Inc. Delaware III. ICF Kaiser Netherlands B.V. (10%) Netherlands II. ICF Kaiser Hunters Branch Leasing, Inc. Delaware II. ICF Kaiser Netherlands B.V. (90%) Netherlands II. ICF Leasing Corporation, Inc. Delaware I. ICF Kaiser Servicios Ambientales, S.A. de C.V. (66 2/3%) Mexico I. ICF Kaiser Technology Holdings, Inc. Delaware II. ICF Kaiser Advanced Technology, Inc. Idaho III. ICF Kaiser Advanced Technology of New Mexico, Inc. New Mexico I. ICF Resources Incorporated Delaware II. ICF R G.P. No. 1, Inc. Delaware
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II. Public/Private Policy Analysis, Inc. Delaware I. Monument Select Insurance Company Vermont I. Systems Applications International, Inc. Delaware I. The K.S. Crump Group, Inc. Delaware I. Tudor Engineering Company Delaware
Page 3 0f 3 EX-23 11 EXHIBIT 23 Exhibit No. 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of ICF Kaiser International, Inc. (the Company) on Forms S-8 [Registration Nos. 33-42677 (Non-Employee Directors Stock Option Plan), 33-42678 (Stock Incentive Plan), 33-51460 (Section 401(k) Plan), 33-60663 (Retirement Plan), 33-60661 and 33-65351 (Employee Stock Ownership Plan), 33-60665 (Consultants, Agents and Part-Time Employees Stock Plan) and 33-51812 (Employee Stock Purchase Plan)] and on Form S-3 [Registration No. 33-51677 (600,000 Warrants)], and [Registration No. 333-16937 (1,135,795 shares)] of our report dated April 15, 1999, on our audits of the consolidated financial statements and financial statement schedule of ICF Kaiser International, Inc. and Subsidiaries as of December 31, 1998 and 1997, and for each of the three years in the period ended December 31, 1998, which report is included in the Company's Report on Form 10-K. PricewaterhouseCoopers LLP McLean, Virginia April 15, 1999 EX-27 12 EXHIBIT 27
5 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 15,267,000 0 294,928,000 10,850,000 0 346,859,000 43,996,000 57,441,000 429,053,000 344,570,000 137,488,000 0 0 242,000 63,360,000 429,053,000 0 1,216,466 0 1,077,356 141,261 76,210,000 20,279,000 (97,101,000) (11,357,000) (85,744,000) 0 (1,090,000) (6,000,000) (100,532,000) (4.17) (4.17) Excludes current portion of bonds, mortgages, and similar debt. Represents gross revenue which includes costs of certain services subcontract3d to third parties and other reimbursable direct project costs, such as materials procured by the company on behalf of its customers. Gross revenue also includes equity income in affiliates for purpose of this schedule.
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