-----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, Fe16c8drx320nNVYyH1QA8GM0jA1xFG3r/zHK1BJg94yrWmoxP5BCurTE5OU5HNe mLJWOR2bo3y0ocU2x2vosw== 0000950130-99-003966.txt : 19990713 0000950130-99-003966.hdr.sgml : 19990713 ACCESSION NUMBER: 0000950130-99-003966 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19990712 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: S-4 SEC ACT: SEC FILE NUMBER: 333-82643 FILM NUMBER: 99662417 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 S-4 1 FORM S-4 As filed with the Securities and Exchange Commission on July 12, 1999 Registration No. 333-___ ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __________ FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 __________ ICF KAISER INTERNATIONAL, INC. (Exact name of Registrant as specified in its charter) Delaware 8711 54-1437073 (State or other jurisdiction (Primary Standard (I.R.S. Employer of incorporation or Industrial Classification Identification No.) organization) Code No.) 9300 Lee Highway, Fairfax, Virginia 22031-1207 (703) 934-3600 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) James J. Maiwurm, President and Chief Executive Officer 9300 Lee Highway Fairfax, Virginia 22031-1207 (703) 934-3600 (Name, address, including zip code, & telephone number, including area code, of agent for service) Copy to: Jeffrey J. Margulies, Esq. Squire, Sanders & Dempsey L.L.P. 4900 Key Tower 127 Public Square Cleveland, Ohio 44114-1304 _________________________________________________ Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [_] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [_] CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------ Title of Each Proposed Proposed Class of Maximum Maximum Amount of Securities To Amount To Be Offering Aggregate Registration Be Registered Registered (1) Price Per Unit (1) Offering Price (1)(2) Fee - ------------------------------------------------------------------------------------------------------------------------------ Common Stock, par value $.01 per share - ------------------------------------------------------------------------------------------------------------------------------ 13% Senior Subordinated Notes Due 2003 - ------------------------------------------------------------------------------------------------------------------------------ Total $34,000,000 $34,000,000 $9,452 - ------------------------------------------------------------------------------------------------------------------------------
(1) Not specified as to each class of securities being registered, since the amount of each class of securities to be offered in the exchange offer has not been determined. The maximum aggregate offering price of securities issued under this registration will not exceed $_______ unless additional securities are subsequently registered by an amendment to the registration statement. (2) Estimated solely for purposes of computing the registration fee pursuant to Rule 457(o) under the Securities Act of 1933. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE. ================================================================================ PROSPECTUS AND CONSENT SOLICITATION STATEMENT ICF KAISER INTERNATIONAL, INC. Offer to Exchange $___________ 13% Senior Subordinated Notes due 2003 and _____Shares of Common Stock for all outstanding 12% Senior Subordinated Notes due 2003 following a $_______ Asset Sale Offer Recapitalization Our recapitalization consists of an exchange offer, asset sale offer and consent solicitation, all of which are dependent upon each other.
Exchange Offer Conditions to Exchange Offer . We are offering to exchange $____ of new 13% . At least 95% of the outstanding old notes are Senior Subordinated Notes due 2003 and ____ tendered in the exchange offer. shares of common stock, or __% of our common stock on a fully diluted basis, for all . A majority of the holders of the old notes outstanding 12% Senior Subordinated Notes consent to amend the indenture for the old due 2003 following the purchase of the old notes. notes in the asset sale offer. . We obtain a new revolving credit facility. Asset Sale Offer . In connection with the exchange offer, we . Shareholders approve the issuance of the will offer to purchase for cash at par on a common stock to be issued in the exchange pro rata basis a total of $____ million in offer. old notes. The purchase of the old notes will be funded through the proceeds of the Market for Securities recent sale of our Consulting Group. . Our common stock is listed on the New York Consent Solicitation Stock Exchange under the trading symbol "ICF" and we will apply for the listing of the . we are also soliciting the holders of the old additional common stock to be issued. The new notes for consents to remove most covenants notes will not be listed on any exchange. in the indenture and to deliver an instruction to the Trustee not to interfere Expiration Date with our recapitalization. . The exchange offer, asset sale offer and The New Notes consent solicitation will expire at 5:00 p.m., New York City time, _______, 1999, unless . The new notes will mature on December 31, extended or earlier terminated. 2003. . We will pay interest on the new notes at an annual rate of 13%, payable twice a year beginning on December 31, 1999. . The new notes will be unsecured and will be subordinated to our existing and future senior debt. . We may, at our option, redeem the new notes at par plus accrued interest at any time.
______________________________________________ See "Risk Factors" on page ___ of this prospectus for a discussion of risks to be considered in connection with your investment decision. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these notes or common stock or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. The date of this prospectus is ____________, 1999. WHERE YOU CAN FIND MORE INFORMATION Kaiser files annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission. You may read and copy any reports, statements or other information we file at the Securities and Exchange Commission's public reference room at the following location: Public Reference Room 450 Fifth Street, N.W. Room 1024 Washington, D.C. 20549 Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the operation of the public reference room. Our Securities and Exchange Commission filings are also available to the public from commercial document retrieval services and at the web site maintained by the Securities and Exchange Commission at http://www.sec.gov. In addition, our ------------------ filings can be inspected at the office of the New York Stock Exchange, 20 Broad Street, New York, New York 10005. We have filed a registration statement on Form S-4 with the Securities and Exchange Commission to register the common stock and notes proposed to be issued in the exchange offer described in this prospectus. This prospectus is a part of that registration statement. As permitted by the rules of the Securities and Exchange Commission, this prospectus does not contain all of the information included in the registration statement and the accompanying exhibits and schedules. The registration statement, together with the related exhibits and schedules, is available at the public reference room or through the web site of the Securities and Exchange Commission. You should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized anyone to provide you with information that is different from or in addition to what is contained in this prospectus. Therefore, if anyone does give you information of this sort, you should not rely on it. If you are in a jurisdiction where it is unlawful to offer to exchange or sell or to ask for offers to exchange or buy the securities offered by this prospectus, or if you are a person to whom it is unlawful to direct those activities, then the offer presented in this prospectus does not extend to you. The information contained in this prospectus speaks only as of its date unless the information specifically indicates that another date applies. INCORPORATION BY REFERENCE The Securities and Exchange Commission allows us to "incorporate by reference" information into this prospectus, which means that we can disclose important information to you by referring you to other information we have filed with the Securities and Exchange Commission. The information incorporated by reference is deemed to be part of this prospectus, except for any information superseded by information in this prospectus. This prospectus incorporates by reference the documents set forth below that we have previously filed with the Securities and Exchange Commission. All of the documents listed below as incorporated by reference into this prospectus also are being delivered to you with this prospectus. You should read this prospectus together with the information incorporated by reference. . Annual Report on Form 10-K for the year ended December 31, 1998 . Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 . Current Reports on Form 8-K dated March 10, 1999, April 9, 1999, May 12, 1999 and June 10, 1999 . Proxy Statement dated __________, 1999 relating to the 1999 Annual Meeting of Shareholders Our Annual Report on Form 10-K for the year ended December 31, 1998 also served as our annual report to shareholders for 1998. The following information contained in that Annual Report on Form 10-K is included among the information incorporated by reference into this prospectus: . description of segments, classes of similar products and services, foreign and domestic operations and export sales (note 12 of notes to consolidated financial statements); i . selected financial data (Item 6); . supplementary financial information (Item 8 and note 15 of notes to consolidated financial statements); . management's discussion and analysis of financial condition and results of operations (Item 7); . changes in and disagreements with accountants on accounting and financial disclosures (Item 9); and . quantitative and qualitative information about market risk (Item 7a). We also are incorporating by reference additional documents that we file with the Securities and Exchange Commission between the date of this prospectus and the consummation of the exchange offer described in this prospectus. You can request an additional free copy of any or all of these documents, including exhibits that are specifically incorporated by reference into these documents, by writing or calling the person indicated at the following address or telephone number: Shaun M. Martin, Vice President, Treasurer and Secretary ICF Kaiser International, Inc. 9300 Lee Highway Fairfax, Virginia 22031-1207 (703) 934-3600 If you would like to request documents from us, please do so by ______________, 1999 to receive the documents before the consummation of the exchange offer. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This prospectus contains what we believe are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. They are statements about future performance or results such as statements including the words, "believe," "expect" and "anticipate" when Kaiser discusses its financial condition, results of operations and business. Forward-looking statements involve risks, assumptions and uncertainties. They are not guarantees of future performance. Factors may cause actual results to differ materially from those expressed in these forward-looking statements. These factors include those identified under the caption "Risk Factors" in this prospectus, as well as the factors identified under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in Kaiser's Annual Report on Form 10-K for the year ended December 31, 1998 and in Kaiser's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1999 that are incorporated by reference into and delivered with this prospectus. We believe that the expectations reflected in our forward-looking statements are reasonable. However, we cannot assure you that these expectations will prove to be correct. You should consider the factors we have noted under the captions stated above as you read this prospectus. ii TABLE OF CONTENTS
Page ---- WHERE YOU CAN FIND MORE INFORMATION........................................... ROM - 1 INCORPORATION BY REFERENCE.................................................... ROM - 1 CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS.......................... ROM - 2 SUMMARY....................................................................... 1 The Company................................................................ 1 Strategy................................................................... 2 The Recapitalization....................................................... 3 Rationale for the Recapitalization......................................... 3 The New 13% Senior Subordinated Notes and New Common Stock................. 4 The Exchange Offer......................................................... 5 The Asset Sale Offer....................................................... 5 The Consent Solicitation................................................... 6 Procedures for Participating in the Exchange Offer, Asset Sale Offer and Consent Solicitation....................................................... 6 Risk Factors............................................................... 7 Summary Financial Data..................................................... 8 RISK FACTORS.................................................................. 11 CAPITALIZATION................................................................ 15 RATIO OF EARNINGS TO FIXED CHARGES............................................ 15 UNAUDITED PRO FORMA FINANCIAL STATEMENTS...................................... 16 OVERVIEW AND BACKGROUND OF THE RECAPITALIZATION............................... 17 THE EXCHANGE OFFER............................................................ 17 THE ASSET SALE OFFER.......................................................... 19 THE CONSENT SOLICITATION...................................................... 20 PROCEDURES FOR PARTICIPATING IN THE EXCHANGE OFFER, ASSET SALE OFFER AND CONSENT SOLICITATION..................................................... 22 RECENT DEVELOPMENTS........................................................... 27 BUSINESS...................................................................... 27 MANAGEMENT.................................................................... 32 DESCRIPTION OF NEW REVOLVING LINE OF CREDIT................................... 33 MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS...................... 33 DESCRIPTION OF COMMON STOCK................................................... 34 DESCRIPTION OF NEW NOTES...................................................... 41 EXPERTS....................................................................... 63 LEGAL MATTERS................................................................. 63
iii SUMMARY The following summary highlights selected information from this prospectus and may not contain all of the information that is important to you. This prospectus includes specific terms of the new notes and common stock we are offering to exchange, as well as information regarding our business and detailed financial data. We encourage you to read this prospectus in its entirety. The Company We are a global provider of engineering, construction management, and project and program management services. We also own a 50% interest in Kaiser- Hill Company, LLC, which serves as the integrated management contractor at the U.S. Department of Energy's Rocky Flats Environmental Technology Site. We completed the sale of our EFM Group on April 9, 1999 for net cash proceeds, after a working capital adjustment, of $74 million and on June 30, 1999 we sold 90% of our Consulting Group for $64 million in cash, plus $6.6 million of interest bearing notes. These actions were taken in response to substantial losses incurred primarily in 1998 in connection with fixed price contracts to construct four nitric acid plants. We are now focused on serving clients in five major lines of business: . Transit and Transportation- Our transit and transportation services support the planning, design, engineering, and construction of heavy- and light-rail transit systems, high-speed rail, peoplemovers, bus systems, highways and bridges, and airport improvements. . Alumina/Aluminum- We provide design and construction services for expansion and modernization of some of the world's largest alumina and aluminum facilities in locations from Kentucky to the Middle East and Australia. . Facilities Engineering / Management- We provide engineering services to public-and private-sector clients who need to modernize or maintain facilities, to design and build new capacity for the future, or to improve existing operations and environmental conditions. . Iron and Steel- We support the iron and steel industry by providing traditional services such as engineering, design, and project and construction management for plant expansions, modernizations, and greenfield development. . Microelectronics and Clean Technology- We also provide design/build services for the microelectronics, semiconductor, biotechnology, and telecommunication industries. Our business is global in nature with more than 30 offices worldwide. We own Kaiser-Hill Company, LLC equally with CH2M Hill Companies Ltd. We designate a majority of the members of Kaiser-Hill's Board of Managers. Kaiser- Hill currently serves as the integrated management contractor at the U.S. Department of Energy's ("DOE") Rocky Flats Environmental Technology Site near Denver, Colorado. The scope of Kaiser-Hill's contract with the DOE includes all elements of daily and long-term operation of the site, including stabilizing and safely storing more than 14 tons of plutonium, cleaning up areas contaminated with hazardous and radioactive waste, and restoring much of the 6,000-acre site for future use by the public. Kaiser-Hill's contract with the DOE expires in June 2000. We expect that the DOE will either award Kaiser-Hill an extension of the existing contract or open the extension for competition in the very near future. Although we believe that an extension of the existing contract is more likely than a recompetition, Kaiser-Hill is prepared to aggressively bid in a recompetition. 1 Strategy Our strategy is to grow the revenue base of our remaining operations and improve profitability. We will focus on new business development, cost reductions and stringent project and operating controls to achieve this goal. New Business Development. With the nitric acid projects behind us, the realignment of our capital structure will enable us to focus on expanding our revenue base. We believe our expertise in our core lines of business and worldwide presence and recognition for quality service delivery can be leveraged into significant opportunities in the future. We will seek additional contracts with our existing customers and utilize our expertise from our current projects to win business from new clients. Cost Reductions. Concurrently with the planning for the sales of the EFM and Consulting Groups, we identified approximately $20 million of cost reduction opportunities in our remaining operations. Upon elimination of these costs, we will have aligned our cost structure with our remaining revenue base. By changing the way we operate our business in North America from a regional focus to a line of business focus, we will be able to eliminate a layer of regional overhead including personnel and facilities costs. In addition to reductions in overhead, reductions in technical personnel resulting in higher revenue per employee will improve profitability. As of ___ we have effected approximately ___% of these cost reductions. Stringent Controls. Following the identification of our nitric acid plant related problems we, along with several outside consultants, thoroughly reviewed our policies and procedures in all phases of a contract lifecycle. As a result, we have implemented: . stronger financial and operating controls and project evaluation processes; . frequent senior management reviews of progress and profitability of each contract; and . a new project management reporting system that will allow us to more proactively manage profitable project execution. ____________________ Our principal executive office is located at 9300 Lee Highway, Fairfax, Virginia 22031-1207 and our telephone number is (703) 934-3600. 2 The Recapitalization Overview. The recapitalization will be completed in a series of simultaneous transactions, each of which is dependent upon consummation of the others. These transactions will occur, assuming the conditions of the exchange offer are met, as follows: . we will purchase $__ million principal amount of tendered old notes at par in an asset sale offer; . we will exchange $__ million of new notes and _____ shares of our common stock for the remaining tendered old notes; . holders of a majority of the outstanding old notes will consent to the amendment of the indenture governing the old notes; and . we will enter into a new $___ million credit facility. Asset Sale Offer. In general terms, our indentures require us to use proceeds from asset sales to reduce senior indebtedness or reinvest in our business or make an asset sale offer to purchase at par, first the old notes and second the 12% Senior Notes. As a result of the sale of the Consulting Group we have approximately $___ million of available cash to fund an asset sale offer to holders of our old notes. If the conditions to complete the exchange are not met or the board in its discretion terminates the exchange offer, we may choose to reinvest the $___ million in our business, potentially through one or more acquisitions. Exchange Offer. We are offering new notes and common stock in exchange for all remaining old notes not purchased in the asset sale offer, $___ million after purchasing $___ million in the asset sale offer. Our acceptance of old notes tendered in the exchange offer is conditioned on, among other things, holders of at least 95% of the principal amount of old notes accepting the exchange offer, the receipt of the requisite consent to amend the old notes indenture and our obtaining a new credit facility. In order to participate in the exchange offer, the holder of old notes must tender all of the old notes beneficially owned by the holder. We can extend the exchange offer and accept all old notes tendered for exchange or amend the terms of the exchange offer and any amendment will apply to the old notes tendered pursuant to the exchange offer. Additionally, we reserve the right at any time to terminate the exchange offer and not accept for exchange any old notes tendered for exchange. Tenders of old notes may be withdrawn at any time prior to the expiration date. Consent Solicitation. Simultaneously with the exchange offer we are seeking a consent from the holders of our old notes to remove substantially all restrictive covenants and some events of default from the indenture governing the old notes. We are also requesting holders to deliver an instruction to the Trustee not to interfere with our recapitalization. A holder of old notes does not need to consent to the proposed amendments in order to tender its old notes in the exchange offer. New Credit Facility. We have received a term sheet for a new $__ million credit facility. The closing of the new credit facility is conditioned on the successful completion of the recapitalization. Rationale for the Recapitalization The amount of cash flow currently available from our remaining operations is insufficient to service the interest expense associated with our existing debt obligations. A realignment of our capital structure through the recapitalization will substantially reduce our level of debt and associated interest expense. We believe the recapitalization will enhance our ability to win new business and retain key employees. Currently, we are significantly more leveraged than our competitors. Especially in the recent past, this has sometimes impaired our ability to win new business. Additionally, our current financial position has in the past and could in the future impair our ability to retain key personnel. We believe we will be better able to service our debt remaining after the recapitalization. The completion of the recapitalization is a condition to our securing a new credit facility which is necessary to support short-term liquidity needs and letters of credit. 3 The New 13% Senior Subordinated Notes and New Common Stock Issuer............................. ICF Kaiser International, Inc. Securities Offered................. We are offering $____ principal amount of new notes and an aggregate of ____ shares of common stock. These shares will represent __% of our outstanding common stock and __% of our fully diluted shares outstanding after the recapitalization. For each $1,000 principal amount of old notes, a holder of old notes will receive $____ principal amount of new notes and ___ shares of common stock. Maturity Date...................... The new notes will mature on December 31, 2003. Interest Rate...................... We will pay an annual rate of interest equal to 13%. Interest Payments.................. We will make interest payments semi- annually, beginning on December 31, 1999. Ranking............................ The new notes will be unsecured and will be subordinated in right of payment to all of our existing and future senior debt. The new notes will rank senior in right of payment to any of our future subordinated debt and to the unexchanged old notes. As of ____, 1999, after giving effect to the asset sale offer and the exchange, the aggregate principal amount of our outstanding senior debt would have been approximately $ ___ million. Optional Redemption................ We may redeem the new notes at our option, in whole or in part, at any time and from time to time at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest. Asset Sale Proceeds................ If we do not reinvest cash proceeds from any future sale of assets in our business, we may have to use these proceeds to offer to buy back some of the new notes at their face amount, plus interest. Restrictive Covenants.............. The indenture governing the new notes will limit what we may do. The provisions of the indenture will limit our ability to: . incur more debt; . pay dividends, redeem stock, or make other distributions; . issue stock of subsidiaries; . make some investments; . create liens; . enter into sale/leaseback transactions; . enter into transactions with affiliates; . merge or consolidate; and . transfer or sell assets. These covenants are subject to a number of important exceptions. See "Description of New Notes." Common Stock....................... Our common stock is listed on the New York Stock Exchange under the symbol "ICF" and we will apply for listing of the additional common stock to be issued. 4 The Exchange Offer ------------------ The Exchange Offer................. We are offering to exchange new notes and common stock for all old notes outstanding after the asset sale offer. Minimum Tender Condition........... In order for us to consummate the exchange offer, holders of at least 95% of the outstanding old notes must have validly tendered and not withdrawn their old notes. Conditions of the Exchange Offer... Our acceptance of the exchange offer is subject to the following conditions, among other things: . the minimum tender condition of 95% must be met; . we must obtain the requisite consent; . we must obtain a new credit facility; and . our shareholders must approve the issuance of common stock being offered. At any time we can waive any condition to the exchange offer and accept all old notes tendered for exchange pursuant to the exchange offer. Additionally, we reserve the right at any time to terminate the exchange offer and not accept for exchange any old notes tendered for exchange. See "The Exchange Offer- Conditions of the Exchange Offer." Tax Consequences of the Exchange... The exchange should qualify as a recapitalization under the Internal Revenue Code. If the exchange qualifies as a recapitalization, and the new notes are not "securities" for federal income tax purposes, holders of the old notes who participate in the exchange offer will recognize taxable gain, but not loss, equal to the lower of the fair market value of the new notes or the amount of gain realized in the exchange. Alternatively, if the Internal Revenue Service were to determine that the exchange was not a recapitalization, holders of the old notes who participate in the exchange offer would be required to recognize taxable gain or loss. See "Material United States Federal Income Tax Considerations." The Asset Sale Offer The Asset Sale Offer............... We will be offering to purchase $___ million of the old notes, including $____ accrued but unpaid interest. All old notes tendered for purchase will be purchased on a pro rata basis. The offer to purchase will be made at the same time as the offer to exchange, and the purchase will be consummated immediately prior to consummation of the exchange offer. Conditions to Asset Sale Offer..... We will only consummate the asset sale offer if the exchange offer is consummated, the requisite number of consents are obtained, and the new credit facility is obtained. Tax Consequences of the Asset Sale Offer........................ Holders of old notes repurchased in the asset sale offer will recognize capital gain or loss equal to the difference between that holder's basis in the purchased notes and the amount of cash received. In addition, holders may be required to recognize as ordinary income cash received as payment for accrued interest not previously recognized. See "Material United States Federal Income Tax Consequences." 5 The Consent Solicitation ------------------------ The Consent Solicitation.............. In connection with the exchange offer, we are soliciting consents from the holders of old notes to approve the proposed amendments to the indenture. We are also requesting holders to deliver an instruction to the Trustee not to interfere with our recapitalization. The proposed amendments will not become operative unless the conditions of the exchange offer are met and will become effective immediately preceding the consummation of the exchange offer. Requisite Consents.................... Consents of registered holders of a majority of the outstanding aggregate principal amount of the old notes are required to approve the proposed amendments to the indenture. Proposed Amendments................... The proposed amendments will eliminate substantially all of the restrictive covenants and events of default in the old notes indenture. Additionally, the old notes indenture will be amended to provide that the new notes will be senior to the old notes and that we must make an asset sale offer first to the 12% Senior Notes, second to the new notes, and third to the old notes. If the proposed amendments become effective with respect to the old notes indenture, they will apply to all old notes issued under the old notes indenture, and each holder of old notes not tendered or accepted for exchange pursuant to the exchange offer will be bound by the proposed amendments regardless of whether the holder consented to the proposed amendments. Procedures for Participating in the Exchange Offer, Asset Sale Offer and Consent Solicitation Expiration Date....................... The exchange offer, asset sale offer, and consent solicitation will expire at 5:00 p.m., New York City time, on _______ unless we extend or earlier terminate it. Procedures for Tendering Old Notes and Consents.............................. Unless a tender of old notes is effected pursuant to the procedures for book-entry transfer, each holder who wishes to tender old notes for exchange in the exchange offer or for purchase in the asset sale offer or who wishes to tender consents in the solicitation must: . complete and sign the letter of transmittal and consent form; . have the signature guaranteed if required by the letter of transmittal and consent form; and . deliver the letter of transmittal and consent form, and all other required documents, together with the old notes or a notice of guaranteed delivery, to the exchange/solicitation/paying agent at the address set forth on page ____ of this prospectus prior to 5:00 p.m., New York City time, on the expiration date. Any beneficial owner of the old notes whose old notes are registered in the name of a nominee, such as a broker, dealer, commercial bank or trust company, who wishes to tender old notes in the exchange offer or asset sale offer, should instruct the entity or person to promptly tender old notes on the beneficial owner's behalf. See "Procedures for Participating in the Exchange Offer, Asset Sale Offer and Consent Solicitation." 6 Guaranteed Delivery Procedure........ Holders of old notes who wish to tender their old notes in the exchange offer or in the asset sale offer and . whose old notes are not immediately available; or . who cannot deliver their old notes or any other documents required by the letter of transmittal and consent form to the exchange/solicitation/paying agent prior to the exchange or asset sale offer expiration date or complete the procedure for book-entry transfer on a timely basis, may tender their old notes according to the guaranteed delivery procedures set forth in the letter of transmittal and consent form. See "Procedures for Participating in the Exchange Offer, Asset Sale Offer and Consent Solicitation." Withdrawal Rights and Revocation of Consents............................ Tenders of old notes or consents may be withdrawn at any time prior to the expiration date. A proper withdrawal of the tendered old notes at or prior to the expiration date shall not be deemed a revocation of any related consent. A proper revocation of a consent at or prior to the expiration date shall not be deemed a withdrawal of any related old notes. See "Procedures for Participating in the Exchange Offer, Asset Sale Offer and Consent Solicitation." Exchange/Solicitation/Paying Agent... ___________________. Risk Factors ------------ Before making an investment, you should consider carefully the information included in the "Risk Factors" section, as well as all other information set forth in this prospectus. 7 Summary Financial Data The following statement of operations, basic and diluted (loss) per share data, and balance sheet data, excluding the data for the three months ended and as of March 31, 1999, has been derived from financial statements audited by PricewaterhouseCoopers LLP, independent accountants. The information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and with our consolidated financial statements and related notes, incorporated by reference in this prospectus.
Ten Year Months Three Ended Ended Months February December Ended 28, 31, Year Ended December 31, March 31, 1995 1995 1996 1997 1998 1999(a) ---------- ---------- ---------- ---------- ----------- ---------- (in thousands, except per share data) (unaudited) Statement of Operations Data: Gross Revenue......................... $ 861,518 $ 916,744 $1,248,443 $1,108,116 $1,210,421 $ 225,497 Service revenue (b)................... 459,786 425,896 532,116 426,086 345,462 64,159 Operating Costs (c)................... 436,866 400,534 500,588 398,422 397,696 63,200 Depreciation and amortization......... 9,232 8,357 10,348 9,595 9,048 1,481 Severance and restructuring charges... - - - - 9,407 - Other unusual charges................. - (500) - - 7,672 895 Operating income (loss)............... 13,688 17,505 21,180 18,069 (78,361) (1,417) Income (loss) before income taxes, minority interest, and extraordinary item and cumulative effect of accounting change..................... 1,239 6,303 14,484 2,561 (97,101) (7,001) Net income (loss) before extraordinary item and cumulative effect of accounting change..................... (1,661) 2,252 5,834 (4,987) (93,442) (8,063) Basic and Diluted Earnings (Loss) Per Share: Continuing operations before extraordinary item and cumulative effect of accounting change........... $ (0.18) $ 0.02 $ 0.17 $ (0.22)$ (3.87) $ (0.34) Discontinued operations............... - - - - - .10 Extraordinary item.................... - - - - (0.05) - Cumulative effect of accounting change, net of tax.................... - - - - (0.25) - ---------- ---------- ---------- ---------- ----------- ---------- Total............................ $ (0.18) $ 0.02 $ 0.17 $ (0.22)$ (4.17) $ (0.24) ========== ========== ========== ========== =========== ========== Weighted average common shares outstanding--basic.................. 20,957 21,132 22,035 22,382 24,092 24,068 Weighted average common shares outstanding--diluted................ 20,957 21,606 22,057 22,382 24,092 24,068 Other Data: Minority interest (d)................. $ - $ 1,960 $ 6,043 $ 10,867 $ 7,698 $ 2,082 EBITDA (e)............................. 22,920 23,402 25,485 16,797 (59,932) (1,123) Balance Sheet Data (end of period): Cash and cash equivalents............. $ 28,233 $ 17,019 $ 20,250 $ 20,020 $ 15,267 $ 14,282 Total assets.......................... 281,422 370,179 369,462 399,288 429,053 391,729 Long-term debt (f).................... 126,733 120,112 156,519 141,004 137,488 137,610 Redeemable preferred stock............ 19,617 19,787 - - - - Shareholders' equity (deficit)........ 27,624 28,427 34,892 27,327 (63,118) (67,931)
_______________ (a) Effective January 1, 1999 the results of operations from the EFM and Consulting Groups were treated as discontinued operations and therefore were excluded from operating income. (b) Service revenue is calculated by deducting the costs of subcontracted services and other direct costs from the gross revenue and adding our share of the income or loss of joint ventures and affiliated companies. (c) Includes direct labor and fringe benefits, group overhead and corporate general and administrative expense. (d) Minority interest represents CH2M Hill's fifty-percent ownership of Kaiser-Hill. (e) EBITDA as presented herein includes operating income (loss) plus depreciation and amortization, severance and restructuring charges, and unusual charges and minus minority interest. We believe that EBITDA provides useful information regarding our ability to service our indebtedness, but should not be considered in isolation or as a substitute for operating income or cash flow from operations (in each case as determined in accordance with generally accepted accounting principles), as an indicator of our operating performance or as a measure of our liquidity. (f) Includes unamortized discounts. 8 The following financial information represents the three months ended March 31, 1999 annualized on an actual basis and an adjusted basis. The adjustments give effect to (i) the decrease in our run-rate service revenue based on internal management projections and (ii) the full year effect of our cost reduction plan. The information is based on our unaudited historical financial information for the three months ended March 31, 1999 and should be read in conjunction with the related notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in our quarterly report on Form 10Q for the period ended March 31, 1999 that has been incorporated by reference into this prospectus. This financial data is provided for information purposes only and is not intended to project our results of operations or financial position for any future period or as of any future date.
Annualized Adjusted Run Annualized Rate (a) Adjustments Run Rate ------------ ----------- ---------- Statement of Operations Data: Gross Revenue $ 901,988 $ - $901,988 Service revenue(b) 256,636 (1,116)(c) 255,520 Operating Costs 252,800 (19,888)(d) 232,912 Depreciation and amortization 5,924 - 5,924 Other unusual charges 3,580 3,580 ------------ -------- -------- Operating income (loss) (5,668) 18,772 13,104 Other Data: Minority interest(e) $ 8,328 $ 8,328 EBITDA(f) (4,492) 14,280
(a) Represents the three months ended March 31, 1999 annualized. (b) Service revenue is calculated by deducting the costs of subcontracted services and other direct costs from the gross revenue and adding our share of the income or loss of joint ventures and affiliated companies. (c) To give effect to a decrease in service revenue as compared to run rate based on internal management projections. (d) To give effect to the full year effect of our cost reduction plan as a result of the scheduled separation of approximately 200 employees. (e) Minority interest represents CH2M Hill's fifty-percent ownership of Kaiser-Hill. (f) EBITDA as presented herein includes operating income (loss) plus depreciation and amortization, severance and restructuring charges, and unusual charges and minus minority interest. We believe that EBITDA provides useful information regarding our ability to service our indebtedness, but should not be considered in isolation or as a substitute for operating income or cash flow from operations (in each case as determined in accordance with generally accepted accounting principles), as an indicator of our operating performance or as a measure of our liquidity. The assumed decrease in service revenue and the assumed decrease in costs from the cost reduction plan are not predictions of actual future results. You should not assume that the decrease in service revenue and the decrease in costs necessarily will occur. Accordingly, you should not use or rely on this information as an indication of actual future results. The foregoing projections constitute what we believe are forwarding-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks, assumptions and uncertainties. There can be no assurance that future developments will be in accordance with Kaiser's expectations. See "Cautionary Note Regarding Forward-Looking Statements." RISK FACTORS An investment in the securities described in this prospectus involves a high degree of risk. You should consider carefully the following factors, in addition to the other information contained in this prospectus, before participating in the exchange offer. Specific factors related to our financial performance may adversely affect our ability to pay interest and principal on our debt. Sale of operating groups will reduce cash flow. During the first half of 1999, we sold our EFM and Consulting Groups. Prior to their sale, these groups had generated cash that was used to support Kaiser's operations and debt service. In the recent past, apart from Kaiser's interest in Kaiser-Hill Company, LLC, Kaiser's other operating units have not generated positive cash flow. Reliance on plan to reduce expenses and increase cash flow. Our success will be dependent, to a large extent, on our ability to execute promptly and effectively our plan to reduce operating expenses, increase margins and enhance cash flow from remaining operations. We are dependent on key customers. Our future profitability is dependent, to a significant extent, on Kaiser-Hill's obtaining an extension of its DOE contract or winning a new contract if DOE opens up the contract for recompetition. We have several other key clients, the loss of any of which would have a significant material adverse effect on our ability to return to profitability. The loss of a significant client could impair our ability to compete for new clients and have a significant negative impact on Kaiser's future growth. We intend to continue bidding and entering into fixed price contracts. Our recent history of financial losses is partially attributable to its failure to accurately bid on, and its inability to perform, fixed price contracts, specifically with respect to the nitric acid plant contracts. Despite this performance history, the nature of our business is such that it is necessary for us to continue to enter into fixed price contracts. Although we believe we have put appropriate controls in place such that we can successfully bid and perform fixed price contracts, we give no assurances that all future fixed price contracts will be completed profitably. Quarterly financial results may fluctuate. Our quarterly financial results may be affected by, among other factors, the commencement, completion or termination of major projects, such as the Kaiser-Hill contract and the contract for the construction of the Nova Hut steel mini-mill in the Czech Republic. Accordingly, results for any one quarter are not necessarily indicative of results for any other quarter or for the full year. The remaining operations may not be able to retain or attract the personnel needed for growth and profitability. Our future performance will depend to a significant extent upon the efforts and abilities of key executives and line of business managers. The loss of the services of key managers could have a material adverse effect on us. In addition, because our remaining operations are service-oriented in nature, our ability to deliver these services in a cost- effective and high quality manner depends upon our ability to attract, retain, and properly manage a staff of qualified professionals with the necessary skills. The market for these professionals is quite competitive. The remaining operations may not grow and become profitable in their highly competitive markets. We compete with many other firms ranging from small firms to large multinational firms having substantially greater financial, management and marketing resources. Other competitive factors include quality of services, technical qualifications, reputation, geographic presence, price, and the availability of key professional personnel. In order for us to become profitable, we will have to successfully compete against these firms in order to generate additional backlog of service contracts, including an extension of the current contract or award of a new contract for Kaiser-Hill. We are dependent upon our subsidiaries for our operating income and cash flow. As a holding company, we derive substantially all of our operating income and cash flow from our subsidiaries instead of directly operating in the markets we serve. Consequently, our ability to service our debt, including the new notes, depends on the earnings of our subsidiaries and on our ability to receive funds from these subsidiaries through inter-company payments. The ability of our subsidiaries to make these payments will be subject to, among other things, applicable 9 state laws and contractual restrictions that may be entered into by these subsidiaries. See "Description of New Notes--Certain Covenants--Limitations on Restrictions on Distributions from Subsidiaries." In addition, subsidiaries that are organized or do business in countries other than the United States are subject to the risk of governmental restrictions on repatriation of funds to the United States, and there may be adverse tax consequences to using cash generated by foreign operations to pay our debt in the United States. If our subsidiaries do not generate operating income and cash flow, or if they are unable to distribute their earnings to us, we will not be able to service our debt and we will not be able to continue in business. Our financial performance is significantly tied to Kaiser-Hill, which is subject to uncertainties that may adversely affect its and our operating results. Status of Kaiser-Hill Department of Energy Contract. The contract with DOE under which Kaiser-Hill operates expires in June 2000. Although we believe DOE may extend the term of this contract, it is possible that DOE will instead conduct a competition for the contract. If the contract is opened up for recompetition, Kaiser-Hill is prepared to aggressively bid for the new contract. We do not know if we will receive an extension of the Kaiser-Hill contract or whether we will win the new contract if it is made subject to competition by DOE. If we do not win an extension or a new rebid contract, we will lose a significant portion of our cash flow and value. There are special Federal regulations that affect Kaiser-Hill. Because Kaiser-Hill provides the Federal government with nuclear energy and defense- related services, it and a number of its employees are required to have and maintain security clearances from the Federal government. There can be no assurance that the required security clearances will be obtained and maintained in the future. In addition, Kaiser-Hill is subject to foreign ownership, control and influence regulations imposed by the Federal government and designed to prevent the release of classified information to contractors subject to foreign ownership, influence and control. There can be no assurance that foreign ownership, influence and control concerns will not affect the ability of Kaiser-Hill to secure and maintain its DOE contract. Kaiser-Hill has special environmental concerns. Kaiser-Hill performs 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. Under the DOE contract, Kaiser-Hill is responsible for, and DOE will not pay for costs associated with, liabilities caused by the willful misconduct or lack of good faith of Kaiser-Hill's managerial personnel or the failure to exercise prudent business judgment by Kaiser-Hill's managerial personnel. If Kaiser-Hill were found liable for any of these reasons, the associated costs could be substantial. We face significant contingencies, which may adversely impact our ability to pay interest and principal on our debt. We have certain obligations relating to the operating groups that were sold. We have indemnified the purchasers of the operating groups we sold against breaches of representations and warranties and covenants included in the sale agreements. We also have retained some potential liabilities arising from the pre-closing operations of these operating groups. These retained liabilities relate to potential liabilities arising out of ongoing federal government audits of certain activities of the operating groups prior to their sale. Bath Iron Works Contingency. In March 1998, we entered into a $197 million maximum price contract to construct a ship building facility for Bath Iron Works. In May 1998, we 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 us and our customer. After learning this, we advised the customer that we were not required to perform the contract in accordance with its terms as a result of a mutual mistake between us in negotiating that contract. In October 1998, our customer presented an initial draft of a claim against us requesting payment for estimated damages and entitlements pursuant to the terminated contract. We are currently discussing with the customer its draft claim. No provision for loss from this matter has been included in our financial results to date as management does not believe that it has sufficient information to reasonably estimate the outcome as negotiation activity has not been significant to date. 10 Acquisition Contingency. In March 1998, we acquired ICT Spectrum Constructors, Inc. by issuing common stock in exchange for the stock of ICT Spectrum. We guaranteed that the fair market value of each of the 1.5 million shares of common stock issued in the acquisition will reach $5.36 by March 1, 2001. In the event that the fair market value does not attain the guaranteed level, we are 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 our preference. Under the terms of the agreement, however, the total number of contingently issuable shares of common stock cannot exceed an additional 1.5 million. Given recently quoted prices of our stock, the assumed issuance of an additional 1.5 million shares would not completely extinguish the purchase price contingency and we would be required to pay a cash fill-up to satisfy the contingency. Any future distribution of cash or common stock would be recorded as a charge to our paid-in-capital. Until the earlier of the resolution of the contingent purchase price or March 1, 2001, any additional shares assumed to be issued because of shortfalls in fair market value will be included in our 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 disclosure document, and asserting other claims, in connection with our acquisition of ICT Spectrum. This litigation is in its preliminary stages. There may be Y2K compliance issues associated with the remaining operations. During recent years, there has been significant global awareness raised regarding the potential disruption to business operations worldwide resulting from the inability of current computer software to process properly the change from the year 1999 to 2000. We have reviewed our data processing, operating and other computer-based systems, and we do not currently anticipate any material disruption in our operations as a result of any failure by us to achieve year 2000 compliance, but we cannot give any assurance to that effect. Even if our computer operations are unaffected by the year 2000, our business operations may be interrupted or adversely affected as a result of year 2000 complications experienced by our subcontractors, clients, vendors, or general business interruptions experienced domestically or internationally. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Other Matters - Year 2000 Readiness" in the Annual Report on Form 10-K enclosed with this prospectus. There are significant financial risks associated with the new notes and common stock, which could adversely affect your ability to receive payments of interest and principal on the new notes or adversely affect the value of the new notes or our common stock. The new notes will be subordinated to senior indebtedness. Payments on the new notes are subordinated and subject to the right of prior payment in full of all senior indebtedness, which will include indebtedness outstanding under our senior notes and our new senior secured revolving credit facility, as the credit facility may be amended or replaced. In the event we default under senior indebtedness, we will be unable to make any payment under the new notes unless the senior indebtedness default has been cured or waived. The new notes may be subordinated to other debt. The new notes also will be subordinated to other debt instruments unless those debt instruments specifically state that such debt is subordinated in right of payment to either the new notes or all of our subordinated indebtedness. The new notes will rank senior in right of payment to unexchanged old notes. The new notes will be subordinated to liabilities of our subsidiaries. Since substantially all of our operations are conducted, and substantially all of our assets are owned, by our subsidiaries, the new notes will effectively be subordinated to all existing and future liabilities of our subsidiaries, including the obligations of our subsidiaries in relation to the new revolving credit facility. Any right we may have to participate in any distribution of the assets of any of our subsidiaries upon the subsidiary's liquidation, reorganization, or insolvency, and any right the holders of the new notes may consequently have to participate in the distribution of those assets, will be subject to the claims of the creditors, including trade creditors, of the subsidiary. If we have a valid claim against a subsidiary as a creditor of the subsidiary, we will also be subject to such claims. In addition, in the event that our claims as a creditor of a subsidiary are recognized, these claims would be subordinated to any security interest in the assets of the subsidiary and any indebtedness of the subsidiary senior to that held by us. 11 The repayment of new notes is not secured by our assets. Our obligation to make payments of principal and interest on the new notes is unsecured. As a result, holders of the new notes will not have any ability to use our assets as collateral for the repayment of these obligations. In addition, if we become subject to a bankruptcy or liquidation proceeding, the right of holders of the new notes to be repaid will be limited to the assets available after all of our secured creditors have been satisfied. These remaining assets will then be distributed among the remaining unsecured creditors, including trade creditors, as well as holders of the new notes. As a result, holders of the new notes may not recover their investment in these new notes. Our common stock could be delisted from the New York Stock Exchange. Our common stock is listed on the New York Stock Exchange. In order to continue to be listed on the NYSE, we must meet specific quantitative standards. If one or more of these standards is not met, the NYSE could initiate procedures to delist our common stock. Although we would have an opportunity to appeal any decision by the NYSE to delist its common stock, there can be no assurance that this appeal would be successful. If our common stock were delisted from the NYSE, we would seek to have the common stock listed on another exchange, such as AMEX or one of the regional exchanges, or quoted in the Nasdaq National or SmallCap markets. However, many of these exchanges and markets also have minimum quantitative standards that we may be unable to meet. If our common stock is delisted from the NYSE and we are unable to have our shares included on another exchange or in the over-the-counter market, shareholders may find it more difficult to dispose of the shares or to obtain accurate quotations of the market value of the shares. In addition, the market price of the shares could decline, news coverage about us could decline, and we could find it more difficult to obtain financing in the future. Kaiser does not anticipate that it will pay any dividends on its common stock in the foreseeable future. We have never paid dividends on its common stock and anticipates retaining all earnings for use in the business rather than paying cash dividends in the foreseeable future. Our ability to pay cash dividends on its common stock issued in the exchange offer is substantially restricted under the indentures governing its outstanding debt. The new revolving credit facility also may contain provisions prohibiting us from paying dividends without the consent of the lender. These contractual restrictions will limit our ability to pay dividends in the future. Issuance of shares to former holders of ICT Spectrum stock could cause significant dilution. As noted above, if we are required to issue shares to extinguish the ICT Spectrum purchase price contingency, there will be significant dilution to shareholders. If the recapitalization is completed, holders of old notes not tendered in the exchange offer or asset sale offer will have reduced rights under the indenture and may find it difficult to sell their old notes. The old notes will be amended. Concurrent with the exchange offer, we propose to amend the indenture that governs the old notes by eliminating substantially all of the covenants that restrict our activities and those of our subsidiaries. Although we will continue to remain subject to similar covenants that are included in the indentures governing the new notes and the outstanding $15 million senior notes, holders of the old notes will not have the right to enforce these covenants upon us. The market price of the old notes may decline. If the exchange offer is successful, the amount of old notes outstanding will be substantially reduced. As a result, it may become much more difficult for holders to resell their old notes. In addition, the reduced liquidity of old notes outstanding after the recapitalization could have the effect of reducing the market price at which the old notes may be resold. 12 CAPITALIZATION The following table sets forth our capitalization as of March 31, 1999, pro forma for the sale of the EFM and Consulting Groups and adjusted to give effect to the consummation of the recapitalization as if it had occurred on March 31, 1999. The information set forth below should be read in conjunction with our audited financial statements and unaudited pro forma financial statements, together with the related notes, included and incorporated by reference in this prospectus. As of March 31, 1999 ----------------------- Pro Forma Pro Forma Adjusted ----------- ---------- (Dollars in thousands) Cash and cash equivalents (a) $ 78,721 ======== ====== Long-term debt (including current portion): Credit Facility $ - $ - 12% Senior Notes (b) 15,000 15,000 New 13% Senior Subordinated Notes - Old 12% Senior Subordinated Notes (c) 125,000 -------- ------ Total Debt 140,000 Stockholders' Equity (Deficit) (24,320) -------- ------ Total Capitalization $ 115,680 ======== ====== (a) Includes $22.9 million of restricted cash being used to collateralize letters of credit. (b) Excludes $.4 million of unamortized discount. (c) Excludes $2.1 million in unamortized discount RATIO OF EARNINGS TO FIXED CHARGES The following table sets forth our ratio of earnings to fixed charges for the five years ended December 31, 1998 and the three months ended March 31, 1999. The ratio of earnings to fixed charges has been calculated by dividing fixed charges into the sum of fixed charges and income from continuing operations before income tax expense and before equity in earnings or losses of less than fifty-percent owned companies. Fixed charges consist solely of interest costs.
Year ended -------------------------------------------- Ten months Year ended ended 3 months February 28, December 31, December 31, December 31, December 31, ended March 1995 1995 1996 1997 1998 31, 1999 ----------------------------------------------------------------------------------------- Fixed charges 14,799 13,255 17,334 18,276 20,779 5,852 Earnings from continuing operations 1,239 6,303 14,484 2,561 (97,101) (7,001) ----------------------------------------------------------------------------------------- 16,038 19,558 31,818 20,837 (76,322) (1,149) Fixed charges 14,799 13,255 17,334 18,276 20,779 5,852 Ratio of earnings to fixed charges 1.08 1.48 1.84 1.14 (a) (a)
(a) Earnings for these periods are inadequate to cover fixed charges. The deficiency, calculated as the dollar amount of earning required to attain a ratio of one-to-one, for the year ended December 31, 1998 and the three months ended March 31, 1999 is $97,101 and $7,001, respectively. 13 UNAUDITED PRO FORMA FINANCIAL STATEMENTS The following unaudited pro forma financial statements are derived from our historical financial statements incorporated by reference into this prospectus and certain assumptions deemed appropriate by our management. The unaudited pro forma statement of operations for the year ended December 31, 1998 reflects (i) the sale of our EFM and Consulting Groups and (ii) the completion of the recapitalization described in this prospectus, as if such transactions had occurred on January 1, 1998. The unaudited pro forma balance sheet at March 31, 1999 reflects such transactions as if the transactions in (i) and (ii) had occurred at March 31, 1999. The unaudited pro forma financial statements should be read in conjunction with the related notes, with the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and with our historical financial statements, including the related notes, incorporated by reference into this prospectus. The pro forma adjustments to give effect to the various events described above are based upon currently available information and upon certain assumptions that management believes are reasonable. The pro forma financial statements are provided for information purposes only and should not be construed to be indicative of our results of operations or financial position had the transactions described above been consummated on or as of the dates assumed, and are not intended to project our results of operations or financial position for any future period or as of any future date. Unaudited Pro Forma Consolidated Balance Sheet As of March 31, 1999 (In Thousands)
Pro Forma Adjustments ------------------------------------ Actual March 31, Sale of Sale of 1999 EFM CG ---------------- ----------------- ---------------- Assets Current Assets Cash and cash equivalents $ 14,282 $ - $ 41,539 (4,6) Contract receivables, net 214,312 - (1,948) Prepaid expenses and other current assets 13,831 - (31) Restricted cash - 10,000 (3) 12,900 (6) Notes receivable - - 3,000 Deferred income taxes 34,205 (19,446)(1) (14,759) (4) Net assets of discontinued operations 66,458 (47,242)(2) (19,216) (5) ---------------- ----------------- ---------------- Total Current Assets 343,088 (56,688) 21,485 ---------------- ----------------- ---------------- Fixed Assets Furniture, equipment, and leasehold improvements 17,498 - (131) Less depreciation and amortization (13,184) - 121 ---------------- ----------------- ---------------- 4,314 - (10) ---------------- ----------------- ---------------- Other Assets Goodwill, net 22,967 - (2,205) Investments in and advances to affiliates 7,708 - 1,785 (7) Capitalized software development costs 1,533 - - Notes receivable - 6,550 (4) Other 12,119 - - ---------------- ---------------- ---------------- 44,327 - 6,130 ---------------- ---------------- ---------------- Total Assets $ 391,729 $ (56,688) $ 27,605 ================ ================ ================ Liabilities and Shareholders' (Deficit) Current Liabilities Debt currently payable $ 36,876 $ (36,876) (3)$ - Accounts payable 168,036 (10,844) (3) (8,761) (6) Accrued salaries and benefits 31,231 (2,500) (3) (76) Other accrued expenses 59,162 (11,724) (3) - Deferred revenue 13,037 - - Income taxes payable 2,422 - - Total Current Liabilities ---------------- ---------------- ---------------- 310,764 (61,944) (10,750) Long-term Liabilities Long-term debt 137,610 - - Other 8,704 - - ---------------- ---------------- ---------------- Total Liabilities 457,078 (61,944) (10,750) ---------------- ---------------- ---------------- Commitments and Contingencies Minority Interest 2,582 - - Shareholders' Equity Preferred stock - - - Common stock, par value $.01 per share: Authorized-90,000,000 shares Issued and outstanding- 23,790,995 and 24,257,828 shares 238 - - Additional paid-in capital 75,218 - - Notes receivable collateralized by common stock - - - Accumulated deficit (140,476) 5,256 (1) 38,355 (4,7) Cumulative translation adjustment (2,911) - - ---------------- ---------------- ---------------- Total Shareholders' Equity (Deficit) (67,931) 5,256 38,355 ---------------- ---------------- ---------------- $ 391,729 $ (56,688) $ 27,605 Total Liabilities and Shareholders' Equity ================ ================ ================ Pro Forma Pro Forma before March 31, Recapitalization Recapitalization 1999 ---------------- ---------------- ----------------- Assets Current Assets Cash and cash equivalents $ 55,821 $ - $ - Contract receivables, net 212,364 - - Prepaid expenses and other current assets 13,800 - - Restricted cash 22,900 - - Notes receivable 3,000 - - Deferred income taxes - - - Net assets of discontinued operations - - - ---------------- ---------------- ----------------- Total Current Assets 307,885 - - ---------------- ---------------- ----------------- Fixed Assets Furniture, equipment, and leasehold improvements 17,367 - - Less depreciation and amortization (13,063) - - ----------------- ---------------- ---------------- 4,304 - - ----------------- ---------------- ---------------- Other Assets Goodwill, net 20,762 - - Investments in and advances to affiliates 9,493 - - Capitalized software development costs 1,533 - - Notes receivable 6,550 - - Other 12,119 - - ----------------- ---------------- ---------------- 50,457 - - ----------------- ---------------- ---------------- Total Assets $ 362,646 $ - $ - ================= ================ ================ Liabilities and Shareholders' (Deficit) Current Liabilities Debt currently payable $ 3 $ - $ - Accounts payable 147,797 - - Accrued salaries and benefits 28,655 - - Other accrued expenses 46,162 - - Deferred revenue 13,037 - - Income taxes payable 2,422 - - ----------------- ---------------- ---------------- Total Current Liabilities 238,070 - - Long-term Liabilities Long-term debt 137,610 - - Other 8,704 - - ----------------- ---------------- ---------------- Total Liabilities 384,384 - - ----------------- ---------------- ---------------- Commitments and Contingencies Minority Interest 2,582 - - Shareholders' Equity Preferred stock - - - Common stock, par value $.01 per share: Authorized-90,000,000 shares Issued and outstanding- 23,790,995 and 24,257,828 share 238 - - Additional paid-in capital 75,218 - - Notes receivable collateralized by common stock - - - Accumulated deficit (96,865) - - Cumulative translation adjustment (2,911) - - ----------------- ---------------- --------------- Total Shareholders' Equity (Deficit) (24,320) - - ----------------- ---------------- --------------- Total Liabilities and Shareholders' Equity $ 362,646 $ - $ - ================= ================ ===============
Actual Results Pro Forma Adjustments ----------------------------------- for the year ended Sale of Sale of December 31, 1998 EFM CG ------------------- ------------------ ------------------ Gross Revenue $ 1,210,421 $ (105,306)(2)$ (105,223) Subcontract and direct material costs (794,794) 53,362 (2) 24,769 Provision for contract losses (76,210) - - ------------------- ------------------ ------------------ Service Revenue 339,417 (51,944) (80,454) Operating Expenses Direct labor and fringe benefits 282,562 (26,553)(2) (37,672) Group overhead 92,151 (18,863)(2) (29,281) Corporate general and administrative 22,983 (945)(2) (5,025) Depreciation and amortization 9,048 (1,598)(2) (988) Severance and restructuring 9,407 - - Other unusual charges 7,672 - - ------------------- ------------------ ------------------ Operating Income (Loss) (84,406) (3,985) (7,488) Other Income (Expense) Gain on sale of business - - - Interest income 1,539 - - Interest expense (20,279) 1,282 (8) 711 Equity in net income of unconsolidated subsidiaries 6,045 (600)(2) - ------------------- ------------------ ------------------ Income (Loss) Before Income Taxes, Minority Interest, Discontinued Operations, Extraordinary Item, and Cumulative Effect of Accounting Change (97,101) (3,303) (6,777) Income tax provision (benefit) (11,357) - - ------------------- ------------------ ------------------ Income (Loss) Before Minority Interest, Discontinued Operations, Extraordinary Item, and Cumulative Effect of Accounting Change (85,744) (3,303) (6,777) Minority interest in net income of subsidiaries 7,698 - - ------------------- ------------------ ------------------ Income (Loss) Before Discontinued Operations, Extraordinary Item and Cumulative Effect of Accounting Change $ (93,442) $ (3,303) $ (6,777) Discontinued Operations Gain (Loss) on Sale of discontinued operations (net of tax) - 13,762 (1) 29,524 ------------------- ------------------ ------------------ Income (Loss) Before Extraordinary Item and Cumulative Effect of Accounting Change $ (93,442) $ 10,459 $ 22,747 Basic and Fully Diluted Earnings (Loss) Per Share Income (Loss) Before Discontinued Operations, Extraordinary Item and Cumulative Effect of Accounting Change $ (3.88) $ (0.14) $ (0.28) Discontinued Operations - 0.57 1.23 ------------------- ------------------ ------------------ Income (Loss) Before Extraordinary Item and Cumulative Effect of Accounting Change $ (3.88) $ 0.43 $ 0.95 =================== ================== ================== Weighted average shares for basic and fully diluted earnings (loss) per share 24,092 24,092 24,092 =================== ================= ================== Pro Forma Pro Forma Results before for the year ended Recapitalization Recapitalization December 31, 1998 ------------------ ---------------- ------------------ Gross Revenue $ 999,892 $ - $ - Subcontract and direct material costs (716,663) - - Provision for contract losses (76,210) - - ------------------ ------------------ ------------------ Service Revenue 207,019 - - Operating Expenses Direct labor and fringe benefits 218,337 - - Group overhead 44,007 - - Corporate general and administrative 17,013 - - Depreciation and amortization 6,462 - - Severance and restructuring 9,407 - - Other unusual charges 7,672 - - ------------------ ------------------ ------------------ Operating Income (Loss) (95,879) - - Other Income (Expense) Gain on sale of business - - - Interest income 1,539 - - Interest expense (18,286) - - Equity in net income of unconsolidated subsidiaries 5,445 - - ------------------ ------------------ ------------------ Income (Loss) Before Income Taxes, Minority Interest, Discontinued Operations, Extraordinary Item, and Cumulative Effect of Accounting Change (107,181) - - Income tax provision (benefit) (11,357) - - ------------------ ------------------ ------------------ Income (Loss) Before Minority Interest, Discontinued Operations, Extraordinary Item, and Cumulative Effect of Accounting Change (95,824) - - Minority interest in net income of subsidiaries 7,698 - - ------------------ ------------------ ------------------ Income (Loss) Before Discontinued Operations, Extraordinary Item and Cumulative Effect of Accounting Change $ (103,522) $ - $ - Discontinued Operations Gain (Loss) on Sale of discontinued operations (net of tax) 43,286 - - ------------------ ------------------ ------------------ Income (Loss) Before Extraordinary Item and Cumulative Effect of Accounting Change $ (60,236) $ - $ - Basic and Fully Diluted Earnings (Loss) Per Share Income (Loss) Before Discontinued Operations, Extraordinary Item and Cumulative Effect of Accounting Change $ (4.30) $ - $ - Discontinued Operations 1.80 - - ------------------ ------------------ ------------------ Income (Loss) Before Extraordinary Item and Cumulative Effect of Accounting Change $ (2.50) $ - $ - ================== ================== ================== Weighted average shares for basic and fully diluted earnings (loss) per share 24,092 24,092 24,092 ================== ================== ==================
Actual Results for the three Pro Forma Adjustments ---------------------------------- months ended Sale of Sale of March 31, 1999 EFM CG -------------- -------------- -------------- Gross Revenue $ 225,497 $ - $ - Subcontract and direct material costs (162,858) - - -------------- -------------- -------------- Service Revenue 62,639 - - Operating Expenses Direct labor and fringe benefits 48,459 - - Group overhead 10,937 - - Corporate general and administrative 3,804 - - Depreciation and amortization 1,481 - - Other unusual charges 895 - - Severance and restructuring - - - Discontinued operations - - - -------------- -------------- -------------- Operating Income (Loss) (2,937) - - Other Income (Expense) Gain on sale of business - - - Interest income 268 - - Interest expense (5,852) 211 (8) - Equity in net income of unconsolidated subsidiaries 1,520 - - -------------- -------------- -------------- Income (Loss) From Continuing Operations Before Income Taxes and Minority Interest (7,001) 211 - Income tax provision (benefit) (1,020) 83 - -------------- -------------- -------------- Income (Loss) From Continuing Operations Before Minority Interest (5,981) 128 - Minority interest in net income of subsidiaries 2,082 - - -------------- -------------- -------------- Income (Loss) From Continuing Operations (8,063) 128 - Discontinued Operations Income (Loss) from operations of discontinued operations (net of tax) 2,344 (855) (2) (1,489)(5) Gain (Loss) on Sale of discontinued operations (net of tax) - 15,557 (1) 30,834 (4) -------------- -------------- -------------- Net Income from Continuing Operations before Extraordinary Item (5,719) 14,830 29,345 Extraordinary Item (net of tax) - 698 - -------------- -------------- -------------- Net Income (Loss) $ (5,719) $ 14,132 $ 29,345 ============== ============== ============== Basic and Fully Diluted Earnings (Loss) Per Share Income (Loss) From Continuing Operations $ (0.34) $ 0.01 $ - Discontinued Operations 0.10 0.61 1.22 Extraordinary Item - (0.03) - -------------- -------------- -------------- Income (Loss) Before Extraordinary Item $ (0.24) $ 0.59 $ 1.22 ============== ============== ============== Weighted average shares for basic and fully diluted earnings (loss) per share 24,068 24,068 24,068 ============== ============== ============== Pro Forma Results Pro Forma for the three before months ended Recapitalization Recapitalization March 31, 1999 ---------------- ---------------- -------------- Gross Revenue $ 225,497 $ - $ - Subcontract and direct material costs (162,858) - -------------- -------------- -------------- Service Revenue 62,639 - - Operating Expenses 48,459 - - Direct labor and fringe benefits 10,937 - - Group overhead 3,804 - - Corporate general and administrative 1,481 - - Depreciation and amortization 895 - - Other unusual charges - - - Severance and restructuring - - - -------------- -------------- -------------- Operating Income (Loss) (2,937) - - Other Income (Expense) Gain on sale of business - - - Interest income 268 - - Interest expense (5,641) - - Equity in net income of unconsolidated subsidiaries 1,520 - - -------------- -------------- -------------- Income (Loss) From Continuing Operations Before Income Taxes and Minority Interest (6,790) - - Income tax provision (benefit) (937) - - -------------- -------------- -------------- Income (Loss) From Continuing Operations Before Minority Interest (5,853) - - Minority interest in net income of subsidiaries 2,082 - - -------------- -------------- -------------- Income (Loss) From Continuing Operations (7,935) - - Discontinued Operations Income (Loss) from operations of discontinued operations (net of tax) - - - Gain (Loss) on Sale of discontinued operations (net of tax) 46,391 - - -------------- -------------- -------------- Net Income from Continuing Operations before Extraordinary Item 38,456 - - Extraordinary Item (net of tax) 698 - - -------------- -------------- -------------- Net Income (Loss) $ 37,758 $ - $ - ============== ============== ============== Basic and Fully Diluted Earnings (Loss) Per Share Income (Loss) From Continuing Operations $ (0.33) $ - $ - Discontinued Operations 1.93 - - Extraordinary Item (0.03) - - -------------- -------------- -------------- Income (Loss) Before Extraordinary Item $ 1.57 $ - $ - ============== ============== ============== Weighted average shares for basic and fully diluted earnings (loss) per share 24,068 24,068 24,068 ============== ============== ==============
Notes to the Pro Forma Financial Information: 1) On April 9, 1999, we sold specified assets and certain liabilities of our Environmental and Facilities Management Group (EFM) for $82 million, less $8 million in working capital, for total cash proceeds of $74 million. The gain on the sale of EFM was calculated as follows, as if the transaction had taken place on:
January 1, January 1, March 31, 1998 1999 1999 ---------- ---------- --------- Sale proceeds 74,000 74,000 74,000 Transaction fees (2,056) (2,056) (2,056) -------- -------- -------- Net sales price 71,944 71,944 71,944 Net assets of discontinued operations (29,356) (30,560) (47,242) -------- -------- -------- Gain 42,588 41,384 24,702 Tax provision (a) (28,826) (25,827) (19,446) -------- -------- -------- Gain on sale, net of tax $ 13,762 $ 15,557 $ 5,256 ======== ======== ========
(a) Assumes goodwill expense is not deductible for tax purposes. 2) To record the removal of EFM's net assets and the results of operations for the respective periods from the books and records. 3) The cash proceeds $74 million from the sale of EFM have been recorded as follows: $36,876 to pay off the outstanding balance on the revolving line of credit 10,844 to pay trade accounts payable 2,500 to pay deferred salaries and related costs 11,724 to pay other accrued expenses, primarily related to settlements on the Nitric Acid projects 10,000 to collateralize outstanding letters of credit 2,056 to pay commissions and professional fees associated with ------- $74,000 closing the EFM sale ======= 4) On June 30, 1999, we sold of 90% of our interest in the Consulting Group for $70.55 million plus a $3 million adjustment of working capital in exchange for $64 million in cash, $3 million in a short-term promissory note, and $6.55 million in long-term notes. The gain on the sale of the Consulting Group was calculated as follows, as if the transaction had taken place on:
January 1, January 1, March 31, 1998 1999 1999 ---------- ---------- --------- Sale proceeds $73,550 $73,550 $ 73,550 Transaction fees (800) (800) (800) -------- -------- -------- Net sales price 72,750 72,750 72,750 Net assets of discontinued operations and other asset write-offs (22,337) (20,301) (19,216) -------- -------- -------- Gain 50,413 52,449 53,534 Tax provision (a) (20,889) (21,615) (15,179) -------- -------- -------- Gain on sale, net of tax $ 29,524 $ 30,834 $ 38,355 ======== ======== ========
Assumes goodwill expense is not deductible for tax purposes. 5) To record the removal of the Consulting Group's net assets and results of operations for the respective periods from the books and records. 6) The cash proceeds of $64 million from the sale of the Consulting Group have been recorded as follows: $ 8,761 to pay trade accounts payable 12,900 to collateralize additional outstanding letters of credit 41,539 retained cash 800 to pay commissions and professional fees associated with closing of sale --------- $ 64,000 ========= 7) To reclassify the remaining 10% ownership in the Consulting Group as an equity investment. 8) To reflect the pro forma reduction to interest expense as if the cash proceeds had been used to pay off the revolving debt as of the beginning of the period. OVERVIEW AND BACKGROUND OF THE RECAPITALIZATION Kaiser incurred losses during 1997 and during 1998 suffered losses of $100.5 million, largely as a result of significant cost overruns on fixed price contracts to construct four nitric acid plants. During the second half of 1998, Kaiser's Board of Directors formed a special committee of members of the Board to consider strategic alternatives for Kaiser. The special committee engaged a financial advisor and, with its assistance, evaluated various opportunities available to Kaiser, including the sale of one or more of Kaiser's operating groups. As a result of that process, Kaiser sold its EFM and Consulting Groups during 1999. Because of the cash drain and continuing obligations associated with Kaiser's nitric acid plants and other losses, the sales of the EFM and Consulting Groups were not enough to restore Kaiser to a competitive financial condition. Kaiser has lost the earning power associated with the sold operating groups and continues to have $140 million principal amount of outstanding notes, including $125 million of the old notes. The Board of Directors considered several alternative means of stabilizing Kaiser's financial condition. Among the alternatives considered was the use of the proceeds from the Consulting Group sale in an acquisition of a related business or simply reinvesting the proceeds from the Consulting Group sale into Kaiser's existing business activities. In considering these alternatives, the Board of Directors met several times, reviewed the recommendations of its financial, legal and other professional advisors, as well as the information provided by management, and closely analyzed the information available to it. A majority of the members of the Board of Directors ultimately determined that the recapitalization described in this prospectus represents the strongest opportunity for significantly improving Kaiser's financial position and future business prospects. As described in more detail below, the Board of Directors has approved a recapitalization that consists of an exchange offer, an asset sale offer and consents to substantial amendments to the indenture governing the old notes. If this recapitalization is not consummated, Kaiser may continue to negotiate with the holders of the old notes for a restructuring of the old notes or may invest the proceeds in a related business investment. THE EXCHANGE OFFER Terms of the Exchange Offer Kaiser is offering to exchange $____ million aggregate principal amount of its new notes and ___ shares of its common stock for $______ principal amount of old notes which are outstanding after the asset sale offer and which are properly tendered and not withdrawn at or prior to the expiration date. For each $1,000 of old notes tendered, we will exchange $______ of new notes and ____ shares of common stock. The exchange offer is conditioned upon, among other things, at least 95% of the outstanding principal amount of the old notes being tendered for exchange and not withdrawn. In order to participate in the exchange offer, the holder of old notes must tender all of the old notes beneficially owned by the holder. We can extend the exchange offer and accept all old notes tendered for exchange or amend the terms of the exchange offer and any amendment will apply to the old notes tendered pursuant to the exchange offer. Additionally, we reserve the right at any time to terminate the exchange offer and not accept for exchange any old notes tendered for exchange. Tenders of the old notes may be withdrawn at any time prior to the expiration date. Kaiser shall be deemed to have accepted validly tendered old notes when, as and if Kaiser has given oral or written notice to the exchange/solicitation/paying agent. The exchange/solicitation/paying agent will act as agent for the tendering holders of old notes and for the purposes of receiving the new notes and cash from Kaiser. If any tendered old notes are not accepted for exchange because of an invalid tender, the occurrence of other events set forth in this prospectus or otherwise, certificates for any unaccepted old notes will be returned, without expense, to the tendering holder as promptly as practicable after the exchange expiration date. By agreeing to participate in the exchange and asset sale offers, a holder also agrees to allocate the cash, common stock and new notes received for the old notes in the same manner in which Kaiser will make this 15 allocation. Kaiser will allocate the cash paid pursuant to the asset sale offer to the principal amount of the old notes. Based on this allocation method, $___ million in cash will be allocated to the principal amount of the old notes. Exchange Expiration Date; Extensions; Waiver; Termination; Amendments The exchange expiration date will be ___________ ___, 1999 at 5:00 p.m., New York City time, unless Kaiser, in its sole discretion, extends the exchange offer, in which case the exchange expiration date will be the latest date and time to which the exchange offer is extended. In order to extend the exchange offer, Kaiser will notify the exchange/solicitation/paying agent of any extension by oral or written notice and will make a public announcement. In either case it will do so prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled exchange expiration date. Kaiser reserves the right, in its sole discretion: . to delay accepting any old notes, . to extend the expiration date and accept any old notes previously tendered, subject to withdrawal rights, . to waive any condition to the exchange offer and accept any old notes tendered for exchange, subject to withdrawal rights . to terminate the exchange offer, whether or not any of the conditions set forth below under "Conditions of the Exchange Offer" shall have been satisfied, and . to amend the terms of the exchange offer in any manner by giving oral or written notice of this delay, extension, termination or modification to the exchange/solicitation/paying agent. Any amendment will apply to old notes tendered, subject to withdrawal rights. If the exchange offer is amended in a manner determined by Kaiser to constitute a material change, Kaiser will promptly disclose these amendments by means of a public announcement or a supplement to this prospectus that will be distributed to the registered holders of the old notes. Conditions of the Exchange Offer The exchange offer is subject to the following conditions: . the minimum tender condition of 95% must be met; . holders of a majority of the old notes consent to the proposed amendments to the indenture governing the old notes; . Kaiser has obtained a new credit facility; . Kaiser shareholders have approved the issuance of the shares of common stock being offered as part of the exchange offer; . no legal action or proceeding has been instituted or threatened with respect to the exchange offer or the solicitation, or which, in the sole judgment of Kaiser, may materially adversely affect the business, operations or financial condition of Kaiser; . There has not occurred . any material adverse development in any existing action or proceeding of any nature, 16 . any general suspension of trading in, or limitation on prices for, securities on the New York Stock Exchange, . a declaration of a banking moratorium by United States authorities or any governmental agency in the United States, . the commencement of a war, armed hostilities or other international or national calamity directly or indirectly involving the United States, or . a material adverse change in general economic, political or financial conditions, if the effect of any economic, political or financial conditions on the financial markets of the United States, in the sole judgment of Kaiser, shall make it impracticable to consummate the exchange offer; . There has not occurred any change, or development involving a prospective change, in or affecting the business or financial affairs of Kaiser which, in the sole judgment of Kaiser, would materially impair the contemplated benefits of the exchange offer or the solicitation to Kaiser; . No statute, rule or regulation has been proposed or enacted, or any action has been taken by any governmental authority, which, in the sole judgment of Kaiser, would or might prohibit, restrict or delay consummation of the exchange offer as presently proposed or materially impair the contemplated benefits of the exchange offer or the solicitation to Kaiser; and . There does not exist, in the sole judgment of Kaiser, any other actual or threatened legal impediment to the acquisition of the old notes in the asset sale offer, or the issuance of the new notes or common stock in the exchange offer. At any time, we can waive any condition to the exchange offer and accept all notes tendered for exchange pursuant to the exchange offer. Accounting Treatment The recapitalization transaction will be accounted for as a troubled debt restructuring pursuant to Statement of Financial Accounting Standard No. 15 - Accounting by Debtors and Creditors for Troubled Debt Restructurings. . The face value of the old notes is $125 million. . The carrying amount of the old notes represents the face value of the old notes adjusted for the unamortized original issue discount and the unamortized debt issuance costs of the old notes. . $___million of the old notes have been purchased at face value for $___million in cash and $___million (___ shares) in common stock and will be removed from the accounting records. . The par value of the newly issued shares of common stock will be credited to the common stock account. . The excess of the total fair market value of the shares of common stock to be issued over the par value will be credited to paid in capital, net of any issuance costs. . The remaining carrying value of the old notes of $___million will be exchanged for $___ in new notes and removed from the accounting records. The carrying value of the new notes will represent the total future cash payments specified by their terms, including accrued interest. . No interest expense will be recognized on these notes between the closing date of this recapitalization and December 31, 2003, the maturity date of the new notes. . Future cash payments on the remaining debt will be accounted for as reduction of the carrying amount of the remaining debt. . The difference between the face value of the old notes and all of the above transactions will be recorded as an extraordinary gain on the restructuring of the old notes, net of any other direct costs associated with this transaction. The following table summarizes the accounting for this transaction: Face value of old notes $125,000,000 Less: Unamortized original issue discount Unamortized debt issuance costs ------------ Carrying value of old notes Less: Cash exchanged Fair market value of common stock exchange Carrying value of new notes ------------ Extraordinary gain on note restructuring ============ THE ASSET SALE OFFER Simultaneously with the exchange offer, Kaiser will conduct an asset sale offer pursuant to the terms of the indenture governing the old notes. Kaiser will offer to purchase $____ million aggregate amount of old notes, consisting of $___ principal and $___ interest amounts accrued. Kaiser will make the asset sale offer to all holders of old notes. If the amount of old notes accepting the asset sale offer exceeds $_______, Kaiser will repurchase up 17 to an aggregate principal amount of $___ million, a pro rata portion of all old notes properly tendered and not withdrawn. The cash to be used in the asset sale offer will consist primarily of the proceeds from Kaiser's sale of its Consulting Group. In the event Kaiser were to file for relief under Chapter 11 of the Bankruptcy Code within 90 days, or possibly one year, of making the payments made in the asset sale offer, the payments may be avoidable as a preference and could be subject to recovery by a trustee in bankruptcy, an official creditors' committee, other representatives of creditors of Kaiser, or Kaiser as a debtor in possession. If the payments were successfully challenged as preferences, holders either could be required to return the funds received, together with interest at a rate determined by the court, or could be precluded from receiving any distribution on account of the holders' old or new notes. The asset sale offer will expire at 5:00 p.m., New York City time, on _____________, 1999. Kaiser's asset sale offer is made subject to satisfaction of all of the conditions to the exchange offer being satisfied or waived by Kaiser and Kaiser not having terminated the exchange offer. The asset sale offer will not be consummated unless the exchange offer also is consummated and the requisite consents are received. THE CONSENT SOLICITATION General In connection with the exchange offer, we are soliciting consents from the holders of old notes to approve the proposed amendments to the indenture. We are also requesting holders to deliver an instruction to the trustee not to interfere with our recapitalization. The proposed amendments will not become operative unless the conditions of the exchange offer are met and will become effective immediately preceding the consummation of the exchange offer. Consents of registered holders of a majority of the outstanding aggregate principal amount of the old notes are required to approve the proposed amendments to the indenture. Both our acceptance of the exchange offer and consummation of the asset sale offer is contingent upon our receipt of requisite consents. If the proposed amendments become effective with respect to the old notes indenture, they will apply to all old notes issued under the old notes indenture, and each holder of old notes not tendered or accepted for exchange pursuant to the exchange offer will be bound by the proposed amendments regardless of whether the holder consented to the proposed amendments. Proposed Amendments Kaiser is seeking the consent of holders of the old notes to amend the indenture governing the old notes. In order to approve these proposed amendments, at least a majority of the total principal amount of the old notes must tender their consents. If the requisite number of consents are received, the indenture will be amended by eliminating substantially all of the restrictive covenants governing the old notes. The proposed amendments will eliminate the following covenants and events of default in the old notes' indenture: . Section 5.04 (Limitation on Additional Indebtedness) . Section 5.06 (Limitations on Restricted Payments) . Section 5.07 (Limitations on Restrictions on Distributions from Subsidiaries) . Section 5.08 (Limitations on Transactions with Affiliates) . Section 5.11 (Limitations on Guarantees) . Section 5.12 (SEC Reports) Additionally, the following sections of the indenture will be amended as follows: 18 . a new section will be added to expressly provide that the new notes will rank senior to the old notes, and . Section 5.09 will be amended to provide that to the extent proceeds from future asset sales are used to repurchase any of the old notes or the new notes, they will be applied as follows: . first, to repurchase the new notes at par on a pro rata basis, and . second, to repurchase the old notes at par on a pro rata basis. The proposed amendments will be set forth in a supplemental indenture substantially in the form filed as exhibit ___ to the registration statement of which this prospectus forms a part. The proposed amendments will become effective only if the conditions for the exchange offer are satisfied or waived and if Kaiser has received consents of holders with respect to a majority of the aggregate principal amount of outstanding old notes. A holder of old notes need not consent to the proposed amendments in order to tender its old notes in the exchange offer. Upon effectiveness of the proposed amendments, a consenting holder's right to sell or transfer the old notes will be restricted, and each consenting holder will be required to hold their old notes in certificated form as opposed to holding them in "street name." See "The Solicitation-Restriction on Transfer of Old Notes; Issuance of Certificated Notes." Solicitation Expiration Date; Extensions; Amendments The solicitation will expire at 5:00 p.m. New York City time, ________ __, 1999, unless Kaiser, in its sole discretion, extends the period during which the solicitation is open, in which case the solicitation expiration date will be the latest date and time to which the solicitation is extended. In order to extend the solicitation expiration date, Kaiser will make a public announcement prior to 9:00 a.m., New York time, on the next business day after the previously scheduled solicitation expiration date. Kaiser reserves the right, in its sole discretion, . to delay accepting any consents, . to extend the solicitation, . to terminate the solicitation, and . to amend the terms of the solicitation in any manner by giving oral or written notice of this delay, extension, termination or modification to the exchange agent. If the solicitation is amended in a manner that Kaiser determines to constitute an adverse change to the holders, Kaiser will promptly disclose these amendments by means of a public announcement or a supplement to this prospectus that will be distributed to the registered holders of old notes. Waivers and Acceptance of Consents Kaiser reserves the absolute right to waive any defects or irregularities in the furnishing of the consents. If any consents are not accepted for any reason, the old notes to which the consents relate will be returned without expense to the submitting holder as promptly as practicable after the expiration or termination of the solicitation. Any old notes that are subject to effective consents and that are not repurchased will be reissued in certificated form, if held and submitted in uncertificated form, will have noted a restriction on transfer and will be returned to the submitting holder. 19 Restriction on Transfer of Old Notes; Issuance of Certificated Notes If the consents become effective on the solicitation expiration date, any holder that has furnished a consent will have agreed . not to transfer, sell, assign, encumber or otherwise dispose of the beneficial ownership of the holder's old notes, unless the holder provides evidence satisfactory to Kaiser that the holder's transferee, and, if different, the beneficial owner of the old notes so transferred, has agreed in writing in form and substance satisfactory to Kaiser that the transferred old notes are subject to the terms of the consent, and that the transferee, and, if different, the beneficial owner, has agreed to be bound by the terms of the consent, and . that any old notes subject to consents that are held through DTC will be reissued in certificated form. The restriction on transfer will be noted on the old notes with respect to which consents are received and none of these old notes will be transferred unless the holder delivers to Kaiser an opinion of counsel in form and substance satisfactory to Kaiser in its sole discretion that the transferee has agreed to and is bound by the proposed consents. PROCEDURES FOR PARTICIPATING IN THE EXCHANGE OFFER, ASSET SALE OFFER AND CONSENT SOLICITATION General As previously discussed, each of the exchange offer, the asset sale offer and the consent solicitation are interdependent. However, you must make a separate decision as to each of these transactions. The procedures for participating in each of the transactions are substantially similar, and are described below. As of______ __, 1999, there were __ registered holders of the old notes. Solely for reasons of administration and for no other purpose, Kaiser has fixed the close of business on _______ ___, 1999, as the record date for determining the persons to whom this prospectus and the letter of transmittal and consent form will be mailed initially. Only a holder of the old notes or the holder's legal representative or attorney-in-fact may participate in the exchange offer or deliver a consent. Procedures for Tendering Old Notes in the Exchange Offer and the Asset Sale Offer and the Tendering Consents in the Solicitation The tender of a holder's old notes and its acceptance by Kaiser will constitute a binding agreement between the tendering holder and Kaiser upon the terms and subject to the conditions set forth in this prospectus and in the accompanying letter of transmittal and consent form. Except as described below, a holder who wishes to tender old notes for exchange in the exchange offer or for purchase in the asset sale offer must transmit these old notes, together with a properly completed and duly executed letter of transmittal and consent form, including all other documents required by the letter of transmittal and consent form to the exchange/solicitation/paying agent at the address set forth on page __ of this prospectus prior to 5:00 p.m., New York City time, on the exchange/asset sale offer expiration date. The method of delivery of old notes, letter of transmittal and consent forms and all other required documents is at the election and risk of the holder. If the delivery is by mail, it is recommended that tendering holders use registered mail, properly insured, with return receipt requested. Instead of delivery by mail, it is recommended that the holder use an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure timely delivery. Any financial institution that is a participant in The Depository Trust Company's book-entry transfer facility system may make book-entry delivery of the old notes by causing The Depository Trust Company to transfer these old notes into the exchange/solicitation/paying agent's account in accordance with The Depository Trust Company's procedures for this transfer. In connection with a book-entry transfer, a letter of transmittal and consent form need not be transmitted to the exchange/solicitation/paying agent, provided that the book-entry transfer 20 procedure is completed prior to 5:00 p.m., New York City time, on the exchange/asset sale offer expiration dates for the exchange offer and the asset sale offer. Each signature on a letter of transmittal and consent form or a notice of withdrawal, as the case may be, must be guaranteed except that they do not need to be guaranteed if the old notes surrendered for exchange are tendered: . by a registered holder of the old notes who has not completed either the box entitled "Special Exchange Instructions" or the box entitled "Special Delivery Instructions" in the letter of transmittal and consent form, or . by an eligible institution. In the event that a signature on a letter of transmittal and consent form or a notice of withdrawal, as the case may be, is required to be guaranteed, this guarantee must be by a firm which is a member of a registered national securities exchange or the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or otherwise be an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934. If the letter of transmittal and consent form is signed by a person other than the registered holder of the old notes, the old notes surrendered for exchange must either . be endorsed by the registered holder, with the signature guaranteed by an eligible institution, or . be accompanied by a proxy, in a form determined to be satisfactory by Kaiser, in its sole discretion, duly executed by the registered holder, with the signature guaranteed by an eligible institution. All questions concerning the validity, form, eligibility, including time of receipt, acceptance, and withdrawal of old notes tendered for exchange, will be decided by Kaiser in its sole discretion, which decision shall be final and binding. Kaiser reserves the absolute right to reject any and all old notes not properly tendered and to reject any old notes which might, in the judgment of Kaiser or its counsel, be unlawful for Kaiser to accept. Kaiser also reserves the absolute right to waive any defects or irregularities or conditions of the exchange offer as to particular old notes either before or after the exchange/asset sale offer expiration date, including the right to waive the ineligibility of any holder who seeks to tender old notes in the exchange offer or the asset sale offer, whether or not similar defects or irregularities are waived in the case of other holders of old notes. The interpretation by Kaiser of the terms and conditions of the exchange offer, including the letter of transmittal and its instructions, shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of old notes for exchange or purchase must be cured within a period of time as Kaiser shall determine. Kaiser will use reasonable efforts to give notification of defects or irregularities with respect to tenders of old notes for exchange or purchase but shall not incur any liability for failure to give this notification. Tenders of the old notes will not be deemed to have been made until any irregularities have been cured or waived. If any letter of transmittal and consent form, endorsement, proxy, power of attorney or any other document required by the letter of transmittal and consent form is signed by a trustee, executor, corporation or other person acting in a fiduciary or representative capacity, this person should indicate when signing, and, unless waived by Kaiser, must submit proper evidence satisfactory to Kaiser, in its sole discretion, of this person's authority to act. Any beneficial owner of old notes whose old notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wants to tender old notes in the exchange offer or asset sale offer, should contact the registered holder promptly and instruct the registered holder to tender on the beneficial owner's behalf. If a beneficial owner wishes to tender directly, the beneficial owner must, prior to completing and executing the letter of transmittal and consent form and tendering old notes, make appropriate arrangements to register ownership of the old notes in the beneficial owner's name. Beneficial owners should be aware that the transfer of registered ownership may take considerable time. Guaranteed Delivery Procedures Holders who wish to tender their old notes and 21 . whose old notes are not immediately available or . who cannot deliver their old notes or any other documents required by the letter of transmittal and consent form to the exchange/solicitation/paying agent prior to the exchange/asset sale offer expiration date or complete the procedure for book- entry transfer on a timely basis, may tender their old notes according to the guaranteed delivery procedures described in the letter of transmittal and consent form. Pursuant to these procedures: . the tender must be made by or through an eligible institution and a notice of guaranteed delivery, as defined in the letter of transmittal and consent form, must be signed by the holder, . on or prior to the exchange/asset sale offer expiration date, the exchange/solicitation/paying agent must have received from the holder and the eligible institution a properly completed and duly executed notice of guaranteed delivery by facsimile transmission, mail or hand delivery setting forth the name and address of the holder, the certificate number or numbers of the tendered old notes, and the principal amount of tendered old notes, stating that the tender is being made and guaranteeing that, within three business days after the date of delivery of the notice of guaranteed delivery, the tendered old notes, a duly executed letter of transmittal and consent form and any other required documents will be deposited by the eligible institution with the exchange/solicitation/paying agent, and . the properly completed and executed documents required by the letter of transmittal and the tendered old notes in proper form for transfer, or confirmation of a book-entry transfer of these old notes into the exchange/solicitation/paying agent's account at DTC, must be received by the exchange/solicitation/paying agent within four business days after the exchange/asset sale offer expiration date. Any holder who wishes to tender old notes pursuant to the guaranteed delivery procedures described above must ensure that the exchange/solicitation/paying agent receives the notice of guaranteed delivery and letter of transmittal relating to these old notes prior to 5:00 p.m., New York City time, on the exchange/asset sale offer expiration date. Acceptance of Old Notes for Exchange or Purchase; Delivery of New Notes Upon satisfaction or waiver of all the conditions to the exchange offer, Kaiser will accept any and all old notes that are properly tendered in the exchange offer and/or the asset sale offer prior to 5:00 p.m., New York City time, on the exchange/asset sale offer expiration date. The new notes issued pursuant to the exchange offer will be delivered promptly after acceptance of the old notes. For purposes of the exchange offer, Kaiser shall be deemed to have accepted validly tendered old notes, when, as, and if Kaiser has given oral or written notice to the exchange/solicitation/paying agent. Immediately prior to consummation of the exchange offer, Kaiser will consummate the asset sale offer and purchase for cash at par on a pro rata basis from the holders of old notes who elect to participate an aggregate of $___ million principal amount of old notes. Kaiser will repurchase a pro rata share of each participating holder's old notes. In all cases, issuances of new notes and common stock in exchange for old notes that are accepted for exchange pursuant to the exchange offer and repurchases of old notes will be made only after timely receipt by the exchange/solicitation/paying agent of a properly completed and duly executed letter of transmittal and consent form, the old notes and all other required documents, or confirmation of a book-entry transfer of these old notes into the exchange/solicitation/paying agent's account at DTC. However, Kaiser reserves the absolute right to waive any defects or irregularities in the tender or conditions of the exchange offer. If any tendered old notes are not accepted for any reason, these unaccepted old notes will be returned without expense to the tendering holder as promptly as practicable after the expiration or termination of the exchange offer. 22 Withdrawal Rights Tenders of the old notes may be withdrawn by delivery of a written notice to the exchange/solicitation/paying agent, at its address set forth on page __ of this prospectus, at any time prior to 5:00 p.m., New York City time, on the exchange/asset sale offer expiration date. Any notice of withdrawal must: . specify whether the withdrawal relates to the exchange offer or the asset sale offer, . specify the name of the person having deposited the old notes to be withdrawn, . identify the old notes to be withdrawn, including the certificate number or numbers and principal amount of the old notes, as applicable, . be signed by the holder in the same manner as the original signature on the letter of transmittal and consent form by which the old notes were tendered, including any required signature guarantees, or be accompanied by a proxy in the name of the person withdrawing the tender, in satisfactory form as determined by Kaiser in its sole discretion, duly executed by the registered holder, with the signature guaranteed by an eligible institution together with the other documents required upon transfer by the indenture, and . specify the name in which the old notes are to be re-registered, if different from the depositor, pursuant to these documents of transfer. Any questions as to the validity, form and eligibility, including time of receipt, of these notices will be determined by Kaiser, in its sole discretion. The old notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the exchange offer and/or for repurchase for purposes of the asset sale offer, as the case may be. Any old notes which have been tendered for exchange but which are withdrawn will be returned to the holder without cost to this holder as soon as practicable after withdrawal. Properly withdrawn old notes may be retendered by following one of the procedures described above under "Procedures for Tendering Old Notes" at any time on or prior to the exchange/asset sale offer expiration date. A valid withdrawal of tendered old notes, either to the exchange offer or asset sale offer, will not be deemed to be a revocation of any consent. A valid revocation of a consent will not be deemed a withdrawal of any tender of old notes. Revocation of Consents Kaiser will process all properly completed and executed letters of transmittal and consent forms it receives, unless it receives from a holder a properly completed and duly executed notice of revocation or a changed consent bearing a date later than the date of the prior consent at any time prior to the solicitation expiration date when the proposed consents become effective. Until the solicitation expiration date, any holder may revoke the consent as to an old note or portion of an old note if Kaiser receives notice of revocation. The Exchange/Solicitation/Paying Agent; Assistance ___________________ is the exchange/solicitation/paying agent. All tendered old notes, executed letters of transmittal and consent forms and other related documents should be directed to the exchange/solicitation/paying agent. Questions and requests for assistance and requests for additional copies of the prospectus, the letter of transmittal and other related documents should be addressed to the exchange/solicitation/paying agent as follows: 23 Exchange/Solicitation/Paying Agent By Hand or Overnight Courier: By Registered or Certified Mail: By Facsimile: ( )-------- Confirm by Telephone: ( )-------- Financial Advisor to Kaiser Kaiser has engaged Jefferies & Company, Inc. to provide certain financial advisory services to it in connection with the proposed recapitalization. As part of such services, employees of Jefferies may solicit on Kaiser's behalf holders of old notes to tender their old notes in the exchange offer and the asset sale offer and to deliver their consent to the proposed amendments to the indenture governing the old notes. As consideration for providing these services, Kaiser has agreed to pay Jefferies certain fees, to reimburse its reasonable out-of-pocket expenses and to indemnify it against liabilities, including liabilities they may incur under the Securities Act of 1933 or the Securities Exchange Act of 1934. Fees and Expenses In addition to the fees and expenses payable to Jefferies that are described above, Kaiser will pay all other fees and expenses incurred in connection with the recapitalization, including each of the following: . fees and disbursements of legal counsel and a financial advisor retained by the ad hoc committee of holders of old notes formed to participate with Kaiser representatives in the determination of the terms of the recapitalization, . fees and disbursements of counsel and independent certified public accountants for Kaiser, . SEC registration and NYSE listing fees, and . reasonable and customary fees and out-of-pocket expenses incurred by the exchange/solicitation/paying agent for their services in connection with the recapitalization. Kaiser will pay all transfer taxes, if any, applicable to the exchange of old notes pursuant to the exchange offer. If, however, a transfer tax is imposed for any reason other than the exchange of old notes pursuant to the exchange offer, then the amount of the transfer taxes, whether imposed on the registered holder or any other persons, will be payable by the tendering holder. If satisfactory evidence of payment of these taxes or exemption is not submitted with the letter of transmittal and consent form, the amount of these transfer taxes will be billed directly to the tendering holder. 24 RECENT DEVELOPMENTS During the second half of 1998, Kaiser's Board of Directors formed a special committee of members of the Board to consider strategic alternatives for Kaiser. The committee was formed in response to strains brought about by substantial cost overruns associated with four nitric acid projects performed under fixed price contracts. The special committee engaged a financial advisor and, with its assistance, evaluated various opportunities available to Kaiser, including the sale of one or more of Kaiser's operating groups. On April 9, 1999 Kaiser sold the majority of its active contracts, and transferred personnel related to its EFM Group to The IT Group, Inc. of Monroeville, Pennsylvania for net cash proceeds, after a working capital adjustment of $74 million. Kaiser retained the net working capital assets of the EFM Group, contracts for the provision of non-environmental services to the Federal government, 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. On June 30, 1999 Kaiser sold a 90% interest in its Consulting Group to the group's management and CM Equity Partners, L.P. for $64 million in cash, plus $6.6 million of interest bearing notes. Kaiser retained the 10% balance of the new and independent consulting company, which is called ICF Consulting Group, Inc. At the time of the closing of the Consulting Group transaction, Kaiser did not have any outstanding cash borrowings under its senior secured revolving credit facility, which terminated upon the closing date. On the date of that closing Kaiser used $_____ million of cash to collateralize outstanding letters of credit. Kaiser does not expect to have available a new revolving credit facility until the completion of the transactions described in this prospectus. Until that time Kaiser will cash collateralize any additional letters of credit of the type often required to support contract performance obligations and will utilize other available cash for working capital purposes. BUSINESS Kaiser is a global provider of engineering, construction management, and project and program management services. Kaiser also owns a 50% interest in Kaiser-Hill Company LLC, which serves as the integrated management contractor at the U.S. Department of Energy's Rocky Flats Environmental Technology Site. Overview of Services and Markets Kaiser's activities are focused on serving clients in five major lines of business: transit and transportation; alumina/aluminum; facilities engineering and management, including wastewater treatment; iron and steel; and microelectronics and clean technology. Transit and Transportation - Kaiser's transit and transportation services support the planning, design, engineering, and construction of heavy- and light-rail transit systems, high-speed rail, peoplemovers, bus systems, highways and bridges, and airport improvements. We are developing state-of-the- art transit systems for 20 cities worldwide and designing major highway projects throughout the United States and in selected international markets. Domestic growth is driven by the Federal Transportation Equity Act for the 21st Century. Passed in July 1998, the bill authorized $217 billion of spending during the next six years in transit and highway programs. Significant opportunities also exist internationally as developing countries seek to improve their transit systems. Current projects include transit systems in Seattle, Orlando, Los Angeles, the Philippines, and Turkey; an intercity freight and passenger rail line in Portugal; and multi-million dollar highway and bridge improvements in California, Florida, Massachusetts, and Oklahoma. Alumina/Aluminum - Kaiser provides design and construction services for expansion and modernization of some of the world's largest alumina and aluminum facilities in locations from Kentucky to the Middle East and Australia. Our areas of expertise include bauxite mining and handling; alumina refining; aluminum reduction; and fabrication and rolling. Domestic opportunities involve maintaining and retrofitting existing plants and replacing 25 aging production capacity with newer, more efficient, and environmentally responsible facilities. Outside of the United States, there will be greater focus on building new facilities. Current projects include detailed design engineering, procurement, and construction management for the expansion of a $500 million alumina refinery in Western Australia, and engineering and design services for an aluminum expansion project in the mid-western United States. Facilities Engineering and Management - Kaiser provides engineering services to public- and private-sector clients who need to modernize or maintain facilities; design and build new capacity for the future; or improve existing operations and environmental conditions. Future growth in this area of activity will be based in part on the trend toward outsourcing by both private- and public-sector clients. Kaiser's largest project of this type involves serving, through Kaiser-Hill Company, LLC, as the integrating management contractor at the DOE Rocky Flats site, a former nuclear weapons production facility near Denver, Colorado. In another significant project, Kaiser serves as construction manager for the 12-year, $3.4 billion Boston Harbor cleanup project. Iron and Steel - Kaiser supports the iron and steel industry by providing traditional services such as engineering, design, and project and construction management for plant expansions, modernizations, and greenfield development. Kaiser is the sole U.S. domestic designer and builder of coke ovens and coke oven machinery, and is active in the development of mini-mills as an alternative, cost-effective method of making steel. For example, we are providing turnkey engineering and construction services for the new $262 million thin-slab casting mini-mill project for Nova Hut, a.s. in Ostrava, Czech Republic. Microelectronics and Clean Technology - Kaiser also provides design/build services for the microelectronics, semiconductor, biotechnology, and telecommunication industries. We have constructed or remodeled over seven million square feet of manufacturing, office, and other facilities, including more than 500,000 square feet of cleanrooms, from class 1 to class 10,000. Following a contraction over the past several years, this market is expected to experience growth over the next two years, driven primarily by the automotive industry and advanced technology manufacturers' needs for increased manufacturing capacity and capabilities. A major project is the $219 million semiconductor facility for Motorola in Arizona, currently the largest project of its type in the United States. Kaiser-Hill Company, LLC is equally owned by Kaiser and CH2M Hill Companies Ltd.; Kaiser designates a majority of the members of Kaiser-Hill's Board of Managers. The scope of Kaiser-Hill's contract with the DOE includes all elements of daily and long-term operation of the site, including stabilizing and safely storing more than 14 tons of plutonium, cleaning up areas contaminated with hazardous and radioactive waste, and restoring much of the 6,000-acre site for future use by the public. Kaiser-Hill's contract with the DOE expires in June 2000. We expect that the DOE will either award Kaiser-Hill an extension of the existing contract or open the extension for competition in the very near future. Although we believe that an extension of the existing contract is more likely than a recompetition, Kaiser-Hill is prepared to aggressively bid in a recompetition. General Information about Kaiser Competition and Contract Award Process The market for Kaiser's services is highly competitive. Kaiser competes with many other engineering and construction, program and project management services firms ranging from small firms to large multinational firms having substantially greater financial, management and marketing resources than Kaiser. 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. Kaiser'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 Kaiser'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 26 a government request for proposals that delineates the size and scope of the proposed contract. Proposals are evaluated by the government on the basis of technical merit, including responses to mandatory solicitation provisions, corporate and personnel qualifications, experience, and cost. Kaiser 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, Kaiser, 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. Kaiser maintains a large network of business relationships with other companies and has drawn repeatedly upon these relationships to form winning teams. Contract Structure. Kaiser operates 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, Kaiser'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 Kaiser is paid at a specified fixed hourly rate for direct labor hours worked. Under fixed price contracts, Kaiser 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 Kaiser 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 Kaiser experiences cost overruns that are not recoverable from the client. Customers Kaiser's domestic clients include the 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. The DOE accounted for approximately 54% of Kaiser'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. The DOE percentage will increase for fiscal 1999 since Kaiser has disposed of its EFM and Consulting Groups and continues to consolidate in its financial statements the results of Kaiser-Hill Company, LLC. Kaiser'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 Kaiser's consolidated gross revenue, respectively. Mainly due to the sales of the EFM and Consulting Groups, the Company currently expects this percentage to increase to approximately 35-40% in 1999. For information concerning gross revenue, operating income, and identifiable assets of Kaiser's business by geographic area during 1998, see note 12 to the consolidated financial statements included in Kaiser's 1998 Annual Report on Form 10-K for the year ended December 31, 1998, which is incorporated by reference into and delivered with this prospectus. Backlog Backlog refers to the aggregate amount of gross contract revenue remaining to be earned pursuant to signed contracts extending beyond one year. Kaiser ended 1998 with $3.2 billion in contract backlog. The reduction from $4.1 billion of backlog 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. The backlog of the EFM and Consulting Groups totaled $659 million and $540 million, respectively, at December 31, 1998. Kaiser expects to work off 42% of the $2 billion engineering and construction and Kaiser-Hill backlog during 1999. Kaiser believes that backlog is not a predictor of future gross or service revenue. Most of Kaiser's backlog relates to the Kaiser-Hill Rocky Flats contract. With the dispositions of the EFM and Consulting Groups, which were involved, to a significant extent, in providing services to the Federal government, backlog is less of an indicator of future revenue than was the case prior to those dispositions. 27 Potential Liabilities Involving Clients and Third Parties In performing services for its clients, Kaiser 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. Under Kaiser-Hill's contract with the DOE, Kaiser-Hill is not responsible for, and the DOE pays all costs associated with, any liability, including without limitation, 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 will be reimbursed for the reasonable cost of bonds and insurance allocable to the Rocky Flats contract and for liabilities and expenses incidental to these liabilities, including litigation costs, to third parties not compensated by insurance or otherwise. 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. Insurance Kaiser has a comprehensive risk management and insurance program that provides a structured approach to protecting Kaiser. Included in this program are coverages for: . general, automobile, pollution impairment, and professional liability; . workers' compensation; and . employers and property liability. Kaiser believes that the insurance it maintains, including self-insurance, is in amounts and protects against risks as is customarily maintained by similar businesses operating in comparable markets. At this time, Kaiser expects to continue to be able to obtain 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 Kaiser. Kaiser 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 Kaiser's environmental activities, however, if successful and of sufficient magnitude, could have a material adverse effect on Kaiser. Government Regulation In the past, Kaiser had a number of cost-reimbursement contracts with the U.S. government, the costs of which are subject to audit by the U.S. government. Most of these contracts were held by Kaiser's former EFM and Consulting Groups, but Kaiser has retained many of the liabilities associated with the pre-closing performance of these contracts. As a result of pending audits related to fiscal year 1986 forward, the government has asserted, among other things, that some costs claimed as reimbursable under government contracts either were not allowable or not allocated in accordance with federal procurement regulations. Kaiser is actively working with the government to resolve these issues. Kaiser 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 Kaiser, and others are 28 qualitative in nature, and their potential financial impact, if any, is not quantifiable by the government or Kaiser at this time. This provision will be reviewed periodically as discussions with the government progress. Kaiser 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. Kaiser 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 Kaiser by these agencies. Employees As of June 30, 1999 Kaiser had approximately 3,300 employees, and Kaiser believes that its relations with its employees are good. Of this total, approximately 1,700 persons are employed at Kaiser-Hill's Rocky Flats site in Colorado. Approximately 1,300 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. Kaiser believes that its relations with the union are good. Corporate History and Properties 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 1998 Kaiser acquired the Kaiser Engineers business, which dates from 1914. In the near future, Kaiser plans to announce a name and ticker-symbol change that will reflect the 85-year history of Kaiser Engineers. Kaiser's activities are carried out through operating subsidiaries and more than 30 offices throughout the world. Kaiser's headquarters are located at 9300 Lee Highway, Fairfax, Virginia 22031-1207, and its telephone number is (703) 93-4-3600. Kaiser's operations are organized into North American and International regions. The North American regional headquarters is located in Fairfax, Virginia, and the International regional headquarters is located at Q.V. 1 Building, George's Terrace, Perth WA 6000 Australia, telephone 61-89-366- 5366. Kaiser's operations are conducted in leased facilities or in facilities provided by the Federal government or other clients. Because Kaiser'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. Kaiser believes that adequate space to conduct its operations will be available for the foreseeable future. For information concerning an investment by Kaiser in Fairfax, Virginia land and buildings where Kaiser's headquarters are located, see notes 4 and 9 to the consolidated financial statements included in Kaiser's 1998 Annual Report on Form 10-K for the year ended December 31, 1998, which is incorporated by reference into and delivered with this prospectus. Legal Proceedings In the course of Kaiser's normal business activities, various claims or charges have been asserted and litigation commenced against Kaiser 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 Kaiser in the event of litigation. See "Risk Factors" and note 13 to the consolidated financial statements included in Kaiser's 1998 Annual Report on Form 10-K for the year ended December 31, 1998, which is incorporated by reference into and delivered with this prospectus for a description of certain pending legal proceedings. 29 MANAGEMENT During 1999, Kaiser implemented certain changes in its executive management. These changes were made in light of the changes in Kaiser's business focus that resulted from its sale of the EFM and Consulting Groups, and in order to manage Kaiser's operations during what is expected to be a period of significant changes, including the recapitalization described in this prospectus. The following individuals currently serve as the principal executive officers of the Company: James J. Maiwurm, 50, Chairman of the Board, President and Chief Executive Officer. Mr. Maiwurm has been President and Chief Executive Officer of Kaiser since April 19, 1999. Mr. Maiwurm was elected to, and as Chairman of, the Board of Directors of Kaiser on June 7, 1999. Mr. Maiwurm serves as Managing Member of the board of managing directors of Kaiser-Hill Company, LLC, the joint venture that conducts the performance based integrating management services at the Department of Energy's Rocky Flats Environmental Technology Site near Denver, Colorado. From August 1998 until elected as Kaiser's President and Chief Executive Officer, Mr. Maiwurm was a partner of Squire Sanders & Dempsey L.L.P., Washington, D.C., and prior to August 1998 was a partner of Crowell & Moring LLP, Washington, D.C. Both law firms served as counsel to Kaiser. Mr. Maiwurm is a member of the Board of Trustees of Davis Memorial Goodwill Industries, Washington, D.C., a non-profit entity. Mr. Maiwurm graduated from the College of Wooster (B.A.) and the University of Michigan Law School (J.D.). S. Robert Cochran, 43, Executive Vice President and President, North America. Mr. Cochran has been President, North America for ICF Kaiser International, Inc. since April 1999. Mr. Cochran serves on the board of managing directors of Kaiser-Hill Company, LLC, the joint venture that conducts the performance based integrating management services at the Department of Energy's Rocky Flats Environmental Technology Site near Denver, Colorado. Prior to that, he was Senior Vice President for Business Development for Kaiser's former EFM Group. Before joining Kaiser in 1995, Mr. Cochran was Senior Vice President of Hazwaste Industries, Inc. & Earth Technology Incorporated, focusing primarily on business development in the hazardous and radioactive site cleanup area. He was Senior Vice President and partner with Interface Incorporated; served as Vice President of PEI/IT; was senior project and geotechnical group manager with JRB/SAIC; and for Versar, Inc., worked as a senior project geologist. He received a B.S. in Geology from James Madison University and is a registered professional geologist. Richard A. Leupen, 45, has been Executive Vice President and President, International of Kaiser since April 1999. Prior thereto, he was President of the Engineers & Constructors Group of Kaiser from August 1998. Mr. Leupen has held senior management positions in Kaiser's former Engineers & Constructors Group since 1995. Prior to joining Kaiser, Mr. Leupen worked for Protech Pty. Ltd. Mr. Leupen also serves as Managing Director of KWP Kenwalt Australia Pty. Limited, and as a director of Weda Bay Minerals Ltd. (Calgary), Strand Mining Pte. Ltd. (Singapore) Pty. Limited, Strand Management Pty. Limited as well as serving as a director of a number of Kaiser subsidiaries and affiliates. Mr. Leupen graduated from the University of South Wales in Australia (B.S.). Timothy P. O'Connor, 34, Executive Vice President and Chief Financial Officer. Mr. O'Connor has been Executive Vice President and Chief Financial Officer of ICF Kaiser International, Inc. since 1999. He had been Treasurer of Kaiser since May 1997 and has been employed by Kaiser in various financial positions since 1995. 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.). 30 DESCRIPTION OF NEW REVOLVING LINE OF CREDIT [TO COME] MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS The following discussion is a summary of the material United States federal income tax consequences to a holder of old notes resulting from the exchange and the solicitation. The summary assumes that holders hold the old notes, new notes and common stock as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code"), and that neither the old notes nor the new notes will be considered traded on an "established securities market," as the term is defined in Code Section 1273(b)(3) at the time of the exchange. Further, this summary assumes that the old notes are, and the new notes will be, treated as debt and not equity for United States federal income tax purposes. This discussion does not purport to deal with all aspects of United States federal income taxation that may be relevant to holders who may be subject to special federal income tax laws, such as dealers in securities, financial institutions, life insurance companies, individuals who are not citizens or residents of the United States or corporations, partnerships or other entities that are not organized under the laws of the United States or any political subdivision thereof, or persons that hold the old notes, the new notes or the common stock as part of a hedge, conversion transaction, straddle or other risk reduction transaction. In addition, the following discussion does not consider the effect of any applicable foreign, state or local tax laws. The discussion below is based upon the current provisions of the Code, existing and proposed Treasury Regulations promulgated under the Code, rulings of the Internal Revenue Service and judicial decisions now in effect as of the date hereof. Such authorities may be repealed, revoked or modified, possibly with retroactive effect, so as to result in United States federal income tax consequences different from those discussed below. As discussed below, the exchange should constitute a recapitalization under Section 368(a)(1)(E) of the Code. Kaiser, however, will not seek a ruling from the Internal Revenue Service regarding any of the tax issues discussed herein, including the tax treatment of the exchange as a recapitalization. Moreover, as noted in the discussion, issues material to the federal income tax consequences of some matters are factual in nature, and other issues involve areas of law that are ambiguous or with respect to which legal authority is lacking and as to which Kaiser is able to offer limited guidance. It is possible, for example, that the Internal Revenue Service may challenge the treatment of the exchange as a recapitalization and assert that the exchange is a taxable transaction because the old notes do not constitute "securities" or because of other legal positions. Consequently, there can be no assurance that the Service will not challenge one or more of the tax consequences described herein. This section does not purport to deal with all aspects of United States federal income taxation that might be relevant to a holder's decision to participate in the exchange or solicitation or to the ownership and disposition of the new notes and common stock. Holders are urged to consult their tax advisors concerning the United States federal income tax considerations that may be specific to them as well as any tax consequences arising under the laws of any other taxing jurisdiction. Tax Consequences to the Holders Upon the Exchange Importance of Whether the Old Notes and the New Notes Constitute "Securities." The federal income tax consequences to the holders will depend, in part, on whether the old notes and the new notes constitute "securities" for federal income tax purposes. The term "security" is not defined in the Code or in the Treasury Regulations and has not been clearly defined in court decisions. Although there are a number of factors that may affect the determination of whether a debt instrument is a "security," one of the most important factors is the original term of the instrument, i.e., the length of time between the issuance of the instrument and its maturity. In general, instruments with an original term of more than ten years are likely to be treated as "securities," and instruments with an original term of less than five years are unlikely to be treated as "securities." Kaiser is not rendering federal income tax advice as to whether the old notes or the new notes are, or are not, "securities." ACCORDINGLY, HOLDERS ARE URGED TO CONSULT WITH THEIR TAX ADVISORS AS TO THE PROPER TREATMENT OF THE OLD NOTES AND THE NEW NOTES. 31 Treatment of the Exchange as a Recapitalization Under Code Section 368. The exchange of old notes for new notes and common stock should be treated as a recapitalization under Section 368(a)(1)(E) of the Code if the old notes are considered "securities" for federal income tax purposes. The extent to which a holder will recognize gain or loss on a recapitalization will depend on whether the new notes received in the exchange are likewise considered "securities" for federal income tax purposes. Treatment of the Exchange as a Recapitalization and the New Notes as Securities. If the exchange qualifies as a recapitalization, and if the new notes received in the exchange are "securities," a holder that exchanges old notes for new notes and common stock will not recognize gain or loss upon the exchange. In that event, a holder's tax basis in the old notes surrendered will be allocated between the new notes and common stock received in proportion to their relative fair market values on the date of the exchange. A holder's holding period for the new notes and common stock will include the holding period for the old notes exchanged. Treatment of the Exchange as a Recapitalization and the New Notes as Not Securities. If the exchange qualifies as a recapitalization, but the new notes received in the exchange do not constitute "securities" for federal income tax purposes, a holder that exchanges old notes for new notes and common stock will recognize gain, but not loss, equal to the lesser of: . the fair market value of the new notes received in the exchange or . the amount of gain realized in the exchange, which is the excess, if any, of (a) the sum of the fair market values of the new notes and the shares of common stock received in the exchange over (b) the holder's adjusted tax basis in the old notes. Any recognized gain will generally be treated as capital gain and will be long-term capital gain if the holder held the old notes for more than 12 months. If, however, a holder purchased the old notes at a market discount within the meaning of Code Section 1278, any gain recognized will be treated as ordinary income to the extent of the accrued market discount on the old notes. Any accrued market discount not taken into account as ordinary income will be treated as accrued market discount with respect to the new notes. Following the exchange, a holder's tax basis in the common stock will equal the holder's adjusted tax basis in the old notes exchanged, decreased by the fair market value of the new notes received in the exchange and increased by the amount of gain, if any, recognized in the exchange. A holder's tax basis in the new notes will equal the fair market value of the new notes. A holder's holding period for the common stock will include the holding period for the old notes exchanged therefor. A holder's holding period for the new notes will commence following the day of the exchange. Treatment of the Exchange as a Taxable Exchange. Provided that the old notes constitute "securities" for federal income tax purposes, the exchange should constitute a recapitalization under Code Section 368 resulting in the federal income tax consequences discussed above under "Treatment of the Exchange as a Recapitalization Under Internal Revenue Code Section 368." Kaiser, however, will not seek a ruling from the Internal Revenue Service regarding the treatment of the old notes as "securities", and it is possible that the Internal Revenue Service may challenge this treatment. If this challenge were successful, the exchange would be considered a taxable exchange with the likely result that a holder would recognize gain or loss at the time of the exchange equal to the difference between . the sum of the fair market values of the new notes and the shares of common stock received in the exchange and . the holder's adjusted tax basis in the old notes. Subject to the market discount rules discussed above, any recognized gain or loss would generally be treated as capital gain or loss and would be long-term capital gain or loss if the holder held the old notes for more than 12 months. A holder's tax basis in the new notes and common stock would equal the fair market value of the 32 new notes and common stock, and the holding period for the new notes and common stock would commence following the day of the exchange. Payment of Accrued Interest on the Old Notes. Whether the exchange is treated as a recapitalization under Code Section 368 or as a taxable exchange, a holder, in addition to any gain recognized as a result of the exchange, will recognize ordinary income attributable to any consideration received as payment for accrued interest on the old notes that was not previously included in the holder's income. Holders that have already included the accrued interest in income should not recognize any additional income as a result of the consideration received as payment for the accrued interest on the old notes. Disposition of New Notes or Common Stock. A holder will generally recognize gain or loss upon the sale, exchange, retirement or other disposition of the new notes or common stock equal to the difference between the amount realized on the disposition and the holder's adjusted tax basis in the new notes or common stock, as applicable. Subject to the market discount rules, the gain or loss recognized on a disposition of new notes or common stock generally will be capital gain or loss and would be long-term capital gain or loss if the holder held the new notes or common stock for more than 12 months. Purchase of a Portion of the Old Notes for Cash In connection with the exchange offer, Kaiser will offer to purchase on a pro rata basis from holders of old notes an aggregate of $____ million principal amount of old notes. A holder will recognize gain or loss at the time of any purchase equal to the difference between . the amount of cash received for the principal amount of old notes purchased and . the holder's adjusted tax basis in the old notes purchased. Subject to the market discount rules, this gain or loss will generally be treated as capital gain or loss and will be long-term capital gain or loss if the holder held the old notes for more than 12 months. In addition to any gain or loss recognized, a holder will recognize ordinary income attributable to the cash received as payment for any accrued interest on the old notes repurchased that was not previously included in the holder's income. For federal income tax purposes, it is unclear how the approximate $___ million cash payment to be made by Kaiser should be allocated between the principal amount of the old notes and the accrued interest. Consistent with the form of the transaction to be consummated as part of the solicitation, Kaiser intends to take the position for tax and accounting purposes and for purposes of backup withholding and information reporting, that approximately $______ will be paid to holders as payment for accrued interest on the old notes and approximately $___ million will be paid to repurchase an equivalent principal amount of old notes. By consenting to the solicitation, a holder agrees to allocate the cash received for the principal amount of the old notes and accrued and unpaid interest in the same manner in which Kaiser will make this allocation. It is possible, however, that the Internal Revenue Service may challenge this allocation and require a holder to allocate the cash received first to accrued and unpaid interest on all of the old notes held by the holder, and allocate any remaining cash to the principal amount of the old notes. This will have the effect of causing a cash basis holder to report a greater portion of the accrued interest on its old notes as ordinary income. Solicitation of the Consents of Holders Concurrently with the exchange offer, Kaiser will solicit the consents of the holders to remove certain covenants in the old notes. The removal of these covenants should not constitute a "significant modification" of the old notes. Accordingly, the removal of the covenants should not constitute a taxable exchange under Code Section 1001. 33 Backup Withholding and Information Reporting Under some circumstances, a holder may be subject to backup withholding at a 31% rate on payments received in the solicitation or exchange and with respect to the new notes and common stock issued in the exchange. This withholding generally applies only if the holder . fails to furnish the holder's social security or other taxpayer identification number, . furnishes an incorrect taxpayer identification number, . is notified by the Internal Revenue Service that the holder has failed to report payment of interest and dividends properly and the Internal Revenue Service has notified Kaiser that the holder is subject to backup withholding, or . fails, under some circumstances, to provide a certified statement, signed under penalties of perjury, that the taxpayer identification number provided is the holder's correct number and that the holder is not subject to backup withholding. Any amount withheld from a payment to a holder under the backup withholding rules is allowable as a credit against the holder's federal income tax liability, provided that the required information is furnished to the Internal Revenue Service. Some holders, such as corporations and financial institutions, are not subject to backup withholding. Holders should consult their tax advisors as to their qualification for exemption from backup withholding and the procedure for obtaining this exemption. Kaiser will, to the extent required by Code Section 6049, report annually to the Internal Revenue Service and to each holder of record information with respect to the amount of interest and original issue discount, if any, accruing during the calendar year. Also, because the exchange should be treated as a recapitalization under Internal Revenue Code Section 368, holders will be required to file information regarding the exchange in connection with filing their federal income tax returns for the period in which the exchange occurs. Tax Consequences to Kaiser Upon the Exchange and the Purchase Discharge of Indebtedness. The principal amount of Kaiser's aggregate outstanding indebtedness will be reduced upon the exchange and the purchase. Generally, the cancellation or other discharge of indebtedness triggers ordinary income to a debtor unless payment of the liability would have given rise to a deduction. The amount of the discharge of indebtedness income generally will be equal to the excess of the adjusted issue price, as defined in Treasury Regulation Section 1.1275-1(b), of the indebtedness discharged over the aggregate value of cash and other property, including the new notes and Kaiser common stock, transferred in satisfaction of the indebtedness. However, Kaiser may not realize taxable income from discharge of indebtedness if the discharge of indebtedness occurs while Kaiser is "insolvent", as defined in Code Section 108(d)(3). Instead, to the extent that the amount of the discharge of indebtedness does not exceed the amount by which Kaiser is insolvent, some tax attributes, including net operating losses, otherwise available to Kaiser will be reduced, generally by the amount that would otherwise be included as ordinary income. These attribute reductions will generally have the effect of increasing Kaiser's federal income tax liability in subsequent taxable years. The extent, if any, to which Kaiser is insolvent is determined for this purpose immediately before the discharge of indebtedness. DESCRIPTION OF COMMON STOCK As part of the exchange offer, Kaiser is offering to issue, on a pro rata basis to holders of the old notes, up to ___________ shares of its common stock. As a result of this issuance, holders of the new notes will hold, in the aggregate, approximately _% of the total common stock to be outstanding following the consummation of the exchange offer. 34 Description of Kaiser's Capital Stock Kaiser's Board of Directors has submitted a proposal to its shareholders that some terms and provisions of the Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws that govern the terms, rights and preferences of Kaiser's capital stock be amended. If these proposals are adopted, the rights attributable to holders of Kaiser common stock would be altered. A summary of the substance of those proposals is included under "Summary of Proposed Amendments to Kaiser's Certificate of Incorporation and Bylaws" below. The following summary does not give effect to the adoption of any of these proposals. The authorized capital stock of Kaiser consists of 90,000,000 shares of common stock, par value $0.01 per share, and 2,000,000 shares of preferred stock, par value $0.01 per share. As of ________ __, 1999, the outstanding capital stock of Kaiser consisted of _________ shares of common stock and no shares of preferred stock. Common Stock Each share of common stock has one vote per share on all matters submitted to a vote of shareholders. Kaiser's Amended and Restated Certificate of Incorporation provides that no action may be taken by the holders of shares of common stock by written consent in lieu of holding a meeting of shareholders. Kaiser has never paid cash dividends on its common stock. The Board of Directors anticipates that for the foreseeable future no cash dividends will be paid on its common stock and that Kaiser's earnings will be retained for use in the business. The Board of Directors determines Kaiser's common stock dividend policy based on Kaiser's results of operations, payment of dividends on preferred stock, if any is outstanding, financial condition, capital requirements, and other circumstances. Kaiser's debt agreements currently do not permit dividends to be paid on its common stock. Holders of common stock have no preemptive or other rights to subscribe for additional shares of capital stock. Upon liquidation, dissolution, or winding up of Kaiser, each share of common stock will share equally in assets legally available for distribution to shareholders. The transfer agent and registrar for the common stock is [First Chicago Trust Company of New York], 14 Wall Street, Mail Suite 4680, New York, New York 10005. The shareholder relations telephone number at First Chicago is (201) 324-0498, and the [First Chicago] Web site address is http://www.fctc.com. Since September 14, 1993, the common stock has been traded on the New York Stock Exchange under the symbol "ICF." From December 14, 1989, to September 13, 1993, the common stock was traded on the Nasdaq National Market. The number of holders of record of Kaiser common stock was _________ as of ______________, 1999. On ___________ ___, 1999, the closing price per share of Kaiser common stock on the NYSE was $_______. Included in [Kaiser's Annual Report on Form 10-K for the year ended December 31, 1998, which is incorporated by reference into and delivered with this prospectus,] is information concerning the high and low sales prices of Kaiser common stock during each of the fiscal quarters during 1997 and 1998. The table below sets forth this price information, as reported by NYSE, for each of the quarterly periods ended since December 31, 1998. High Low 1999 ---- --- - ---------------------- First Quarter $ $ Second Quarter $ $ Third Quarter (through ____________ ____, 1999) $ $ Preferred Stock Preferred stock is available for issuance from time to time at the discretion of the Board of Directors of Kaiser and without shareholder approval. No shares are currently outstanding. For each series of preferred stock it establishes, the Board of Directors has authority to prescribe the number of shares in that series and the dividend rate. In addition, the Board of Directors has authority to prescribe the voting rights, conversion privileges, redemption, 35 sinking fund provisions and liquidation rights, if any, and any other rights, preferences and limitations of the particular series. The issuance of preferred stock could decrease the amount of earnings and assets available for distribution to the holders of common stock or adversely affect the rights and powers, including voting rights, of the holders of common stock. Additionally, the issuance of preferred stock could have the effect of delaying, deferring or preventing a change in control of Kaiser without further action by the shareholders. Kaiser's debt and credit agreements currently do not permit dividends to be paid on its preferred stock if any shares of preferred stock were to be issued. Senior Debt Warrants Issued in 1996 A total of 105,000 Senior Debt Warrants (the "1996 Warrants") were issued by Kaiser under a warrant agreement (the "1996 Warrant Agreement") dated as of December 23, 1996, between Kaiser and ____________________, a New York banking corporation, as warrant agent. Each 1996 senior warrant entitles the holder to acquire one share of common stock of Kaiser, upon payment of the exercise price of $2.30, subject to adjustment as described below. All outstanding 1996 Warrants terminate and become void on December 31, 1999. The 1996 Warrants are subject to the terms contained in the 1996 Warrant Agreement; capitalized terms that are not otherwise defined below are used as defined in the 1996 Warrant Agreement. The common stock issuable upon exercise of the 1996 Warrants has been registered with the Securities and Exchange Commission and listed on the New York Stock Exchange. Non-Surviving Combination. If Kaiser proposes to enter into a ------------------------- transaction that would constitute a Non-Surviving Combination if consummated, Kaiser must give written notice to the holders promptly after an agreement is reached with respect to the Non-Surviving Combination but in no event less than 30 days prior to the consummation. As used herein, a "Non-Surviving Combination" means any merger, consolidation, or other business combination by Kaiser with one or more persons other than a wholly owned subsidiary of Kaiser in which Kaiser is not the survivor, or a sale of all or substantially all of the assets of Kaiser to one or more of the other persons, if, in connection with any of the foregoing, consideration other than consideration which includes common stock or securities convertible into, or exercisable or exchangeable for, common stock or rights or options to acquire common stock or other securities is distributed to holders of common stock in exchange for all or substantially all of their equity interest in Kaiser. In a Non-Surviving Combination, the surviving entity will be obligated to distribute or pay to each holder of the 1996 Warrants, upon payment of the purchase price prior to the expiration date, the number of shares of stock or other securities or other property, including any cash, of the survivor that would have been distributable or payable on account of the common stock if the holder's 1996 Warrants had been exercised immediately prior to the Non-Surviving Combination or, if applicable, the record date. Following the consummation of a Non-Surviving Combination, the 1996 Warrants will represent only the right to receive these shares of stock or other property from the survivor upon payment of the purchase price prior to the expiration date. No transaction is presently in progress or under negotiation that would constitute a Non-Surviving Combination. Adjustment. The number of shares of common stock issuable upon the ---------- exercise of each 1996 Warrant and the purchase price are subject to adjustment in some circumstances, including: . a dividend or distribution on Kaiser's common stock in shares of its common stock or a combination, subdivision, reorganization, or reclassification of common stock, . the issuance of shares of common stock for a consideration per share less than the market price per share at the time of issuance, . the issuance of rights, warrants, or options for the purchase of common stock or for the purchase of securities convertible into or exchangeable for common stock where the aggregate amount of consideration, taking into account the consideration received for the issuance of the right, warrant, or option plus any consideration to be received upon the exercise and including, in the case of a right, warrant, or option to purchase a convertible or exchangeable security, any consideration to be received upon the eventual conversion or exchange of the security for common stock per share of common stock 36 received or receivable by Kaiser is less than the market price per share at the time of issuance of the right, warrant, or option, . the issuance of any securities convertible into or exchangeable for common stock where the aggregate amount of consideration taking into account the consideration received for the issuance of the convertible or exchangeable security and the consideration to be received upon the conversion or exchange per share of common stock received or receivable by Kaiser is less than the market price per share of common stock on the date of issuance of the convertible or exchangeable security, and . a dividend or distribution on Kaiser's common stock of cash, evidences of its indebtedness, other securities, or other properties or assets other than any cash dividend which, when aggregated with all other cash dividends paid in the year prior to the declaration of the cash dividend, does not exceed 10% of the market price per share of common stock on the date of this declaration. If the terms of any of Kaiser's outstanding rights, warrants, or options for the purchase of common stock or securities convertible into or exchangeable for common stock change, in each case where the issuance caused an adjustment in the terms of the 1996 Warrants, including by way of expiration of the securities but excluding by way of antidilution provisions triggering an adjustment of the terms upon the occurrence of an event that would cause an adjustment of the terms of the 1996 Warrant, then the purchase price and the number of shares of common stock issuable upon the exercise of each 1996 Warrant shall be readjusted to take account of the change. Notwithstanding the foregoing, no adjustment in the purchase price or the number of shares of common stock issuable upon exercise of 1996 Warrants will be required: . until cumulative adjustments would result in an adjustment of at least one percent in the purchase price, . for the granting, in a transaction which would otherwise trigger an adjustment, of any rights, warrants, or options or the issuance of any common stock to officers, directors, or employees of, or consultants or advisors to, Kaiser where the issuances are registered with the Securities and Exchange Commission on Form S-8 and do not, in the aggregate exceed five percent of the number of shares of common stock outstanding assuming the exercise of the options so granted and all rights, warrants, options, and convertible securities then outstanding, or . the issuance of common stock pursuant to any dividend reinvestment plan where the purchase price of common stock is no less than 95% of the market price on the date of issuance. Shareholder Rights Plan On January 13, 1992, the Board of Directors of Kaiser declared a dividend distribution to shareholders of record at the close of business on January 31, 1992 of one right for each outstanding share of common stock. Each right entitles the registered holder of common stock to purchase from Kaiser a unit consisting of one 1/100th of a share (a "Preferred Stock Unit") of Series 4 Junior Preferred Stock ("Series 4 Preferred Stock"), at a purchase price of $50.00 per Preferred Stock Unit, subject to adjustment. The rights also are subject to antidilution adjustments. The description of the rights is set forth in a rights agreement between Kaiser and the rights agent. The rights agent is First Chicago Trust Company of New York. A distribution date for the rights will occur upon the earlier of: . 10 business days following a "Stock Acquisition Date," which is the public announcement that a person or group of affiliated or associated persons has acquired, or obtained the right to acquire, beneficial ownership of 20% or more of the outstanding shares of common stock or . 10 business days following the commencement of a tender offer or exchange offer that would if consummated result in a person or group becoming an acquiring person. 37 The rights are not exercisable until the distribution date and will expire at the close of business on January 13, 2002, unless earlier redeemed by Kaiser as described below. Until the distribution date: . the rights will be evidenced by the common stock certificates and will be transferred with and only with these certificates and . the surrender for transfer of any certificates for common stock outstanding will also constitute the transfer of the rights associated with the common stock represented by the certificate. In the event that, at any time following the distribution date, a person becomes an acquiring person, then each holder of a right other than the acquiring person will have the right to receive: . upon exercise and payment of the purchase price, common stock or, in some circumstances, cash, property or other securities of Kaiser having a value equal to two times the purchase price of the right or . at the discretion of the Board of Directors, upon exercise and without payment of the purchase price, common stock or, in some circumstances, cash, property or other securities of Kaiser having a value equal to the purchase price of the right. In the event that, at any time following the Stock Acquisition Date: . Kaiser is acquired in a merger or other business combination transaction in which Kaiser is not the surviving corporation, . Kaiser is the surviving corporation in a merger with any person, as defined in the rights agreement, and its common stock is changed into or exchanged for stock or other securities of any other person or cash or any other property, or . 50% or more of Kaiser's assets or earning power is sold or transferred, each holder of a right, except rights held by an acquiring person or which previously have been exercised as set forth above shall have the right to receive, upon exercise, common stock of the acquiring company having a value equal to two times the purchase price of the right. The events set forth in this paragraph and in the immediately preceding paragraph are referred to as the "Triggering Events." As noted above, following the occurrence of any of the events described above, all rights that are, or under some circumstances specified in the rights agreement were, beneficially owned by any acquiring person will be null and void. The purchase price payable, and the number of Preferred Stock Units or other securities or property issuable upon exercise of the rights, are subject to amendment from time to time to prevent dilution: . in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Series 4 Preferred Stock, . if holders of the Series 4 Preferred Stock are granted rights or warrants to subscribe for Series 4 Preferred Stock or convertible securities at less than the current market price of the Series 4 Preferred Stock, or . upon the distribution to holders of the Series 4 Preferred Stock of evidences of indebtedness or assets, excluding regular quarterly cash dividends, or of subscription rights or warrants other than those referred to above. 38 With exceptions, no adjustment in the purchase price will be required until cumulative adjustments amount to at least one percent of the purchase priceFinancial Printing GroupFinancial Printing GroupWith exceptions, no adjustment in the purchase price will be required until cumulative adjustments amount to at least one percent of the purchase price. In addition, to the extent that Kaiser does not have sufficient shares of common stock issuable upon exercise of the rights following the occurrence of a Triggering Event, Kaiser may, under some circumstances, reduce the purchase price. No fractional Preferred Stock Units will be issued and an adjustment in cash will be made. In general, Kaiser may redeem the rights in whole, but not in part, at a price of $0.01 per right payable in cash, common stock or other consideration deemed appropriate by the Board of Directors, at any time until 10 business days following the Stock Acquisition Date. After the redemption period has expired, Kaiser's right of redemption may be reinstated if an acquiring person reduces its beneficial ownership to less than 10% of the outstanding shares of common stock in a transaction or series of transactions not involving Kaiser and there are no other acquiring persons. Immediately upon the action of the Board of Directors ordering redemption of the rights, and without any notice to the holder of these rights prior to the redemption, the rights will terminate and the only right of the holders of rights will be to receive the $0.01 redemption price. Until a right is exercised, the holder will have no rights as a shareholder of Kaiser, including, without limitation, the right to vote or to receive dividends. Other than those provisions relating to the principal economic terms of the rights, except with respect to increasing the purchase price under some circumstances described in the rights agreement, any of the provisions of the rights agreement may be amended by the Board of Directors of Kaiser prior to the distribution date. After the distribution date, the provisions of the rights agreement may be amended by the Board in order to cure any ambiguity, to make changes which do not adversely affect the interests of holders of rights, excluding the interests of any acquiring person, or to shorten or lengthen any time period under the rights agreement. However, no amendment to adjust the time period governing redemption shall be made when the rights are not redeemable. One right will be distributed to shareholders of Kaiser for each share of common stock owned of record by them at the close of business on the record date. Until the distribution date, Kaiser will issue a right with each share of common stock so that all shares of common stock will have attached rights. The rights may be deemed to have anti-takeover effects. The rights generally may cause substantial dilution to a person or group that attempts to acquire Kaiser under circumstances not approved by the Board of Directors of Kaiser. The rights should not interfere with any merger or other business combination approved by the Board of Directors of Kaiser since the Board of Directors may, at its option, at any time prior to the close of business on the earlier of: . the tenth business day following the Stock Acquisition Date or . January 13, 2002, redeem all but not less than all of the then outstanding rights at $0.01 per right. Provisions Affecting Changes of Control and Extraordinary Transactions In addition to the shareholder rights plan, some provisions of Kaiser's Certificate of Incorporation and By-laws and other agreements could have the effect of delaying, deferring, or preventing a change in control of Kaiser or other extraordinary corporate transaction. Kaiser's Amended and Restated Certificate of Incorporation and By-laws provide for classification of the Board of Directors into three classes, as nearly equal in number as possible, with one class of directors being elected each year for three-year terms. Under Delaware law, members of a classified board may be removed only for cause. Thus, at least two years would be required to effect a change of control in the Board of Directors, unless a shareholder had sufficient voting power to amend or repeal the Certificate of Incorporation and By-law provisions relating to classification of the Board of Directors. 39 In addition, the Certificate of Incorporation imposes supermajority voting requirements for some corporate transactions that apply if a majority of the Board of Directors has not served in the positions for at least 12 months. Under those circumstances, the approval of two-thirds of the voting power of Kaiser's capital stock would be required in order for Kaiser to: . merge with or consolidate into any other entity, other than a subsidiary of Kaiser, . sell, lease or assign all or substantially all of the assets or properties of Kaiser, or . amend the voting provisions of the Certificate of Incorporation. Other Certificate of Incorporation provisions of the type referred to above include: . the denial of the right of holders of common stock to take action by written consent in lieu of a shareholders' meeting and . the ability of the Board of Directors to determine the rights and preferences, including voting rights, of Kaiser's authorized but unissued preferred stock, and then to issue this stock. Relevant By-law provisions include those that: . require advance nomination of directors, . require advance notice of business to be conducted at shareholders' meetings, and . provide that shareholders owning at least 50% of the voting power of the capital stock are required to call a special meeting of shareholders. With the exception of the provision that authorizes the Board of Directors to fix the terms of and issue authorized but unissued shares of preferred stock, the approval of the holders of at least two-thirds of the voting power of Kaiser's capital stock is required to amend, alter, or repeal, or to adopt provisions inconsistent with, the Certificate of Incorporation and By-law provisions described above, regardless of whether a majority of the members of the Board of Directors has served in such positions for more than 12 months at the time of the action. Delaware Takeover Statute Section 203 of the Delaware General Corporation Law applies to Delaware corporations with a class of voting stock listed on a national securities exchange, authorized for quotation on an inter-dealer quotation system, or held of record by 2,000 or more persons, and restricts transactions which may be entered into by such a corporation and certain of its shareholders. The Delaware takeover statute provides, in essence, that a stockholder acquiring more than 15% of the outstanding voting shares of a corporation subject to the statute (an "Interested Stockholder"), but less than 85% of the shares, may not engage in certain "Business Combinations" with the corporation for a period of three years subsequent to the date on which the stockholder became an Interested Stockholder, unless: . prior to the date the corporation's board of directors approved either the Business Combination or the transaction in which the stockholder became an Interested Stockholder or . the Business Combination is approved by the corporation's board of directors and authorized by a vote of at least 66 2/3% of the outstanding voting stock of the corporation not owned by the Interested Stockholder. The Delaware takeover statute defines the term "Business Combination" to encompass a wide variety of transactions with or caused by an Interested Stockholder in which the Interested Stockholder receives or could receive a benefit on other than a pro rata basis with other stockholders, including mergers, some asset sales, some issuances of 40 additional shares to the Interested Stockholder, transactions with the corporation which increase the proportionate interest of the Interested Stockholder, or transactions in which the Interested Stockholder receives some other benefits. Summary of Proposed Amendments to Kaiser's Certificate of Incorporation and Bylaws The 1999 Annual Meeting of Shareholders of Kaiser will be held on ___________, ____________ ____, 1999, at 9:00 a.m. At the annual meeting, Kaiser's shareholders will be asked to vote upon, among other things, proposals to: . approve the issuance of shares of Kaiser common stock in connection with the exchange offer; . approve a reverse stock split of Kaiser's common stock; . approve amendments to Kaiser's certificate of incorporation and bylaws to: . eliminate the provisions of the certificate of incorporation and, where applicable, the bylaws that: . require the affirmative vote of holders of 66 2/3% of the outstanding capital stock to approve certain transactions following a change in the majority of directors within 12 months; . provide for staggered, three-year terms for members of the board of directors; . prohibit shareholders from filling vacancies on the board of directors; and . require the affirmative vote of the holders of 66 2/3% of the outstanding capital stock to approve certain amendments to the certificate of incorporation and bylaws; and . provide that shareholders owning at least twenty percent (20%) of the voting power of the outstanding capital stock could require a special meeting of shareholders to be called; . approve an amendment to Kaiser's certificate of incorporation and Bylaws to provide that no new shareholder rights plan, sometimes referred to as a poison pill, shall be adopted without the approval of the shareholders; . approve an amendment to Kaiser's certificate of incorporation to eliminate provisions related to the terms of series of preferred stock that are obsolete and no longer outstanding; and . approve an amendment to Kaiser's stock incentive plan to increase the number of shares of common stock available for issuance under the plan, to permit the transfer of options granted under the incentive plan to immediate family members of plan participants and to provide greater flexibility to Kaiser's board of directors to make future amendments to the plan. If the shareholders approve one or more of the foregoing proposals, the above description of the common stock and shareholder rights plan would be altered accordingly. DESCRIPTION OF NEW NOTES The following is only a summary of the terms of the new notes. You should read the indenture and the exhibits to the indenture for a complete description of the terms of the new notes, copies of which are available upon request from ______________________________. The terms of the new notes include those stated in the indenture and those made part of the indenture by reference to the Trust Indenture Act of 1939 as in effect on the date of the indenture. The definitions of some terms used here are set forth in "Certain Definitions" below. The terms of the new notes may differ in material respects from the terms of the old notes. Holders of old notes should review "Description of the New Notes" carefully. 41 General The new notes being offered will be issued in exchange for the old notes and will be governed under the indenture to be dated as of the date following the exchange expiration date among Kaiser, as issuer, and [_______________], as Trustee. The new notes: . will be general unsecured obligations of Kaiser; . will be subordinated in right of payment to all Senior Indebtedness of Kaiser; . will be limited to an aggregate principal amount of $___ million; . will bear interest at the rate of 13% per annum, payable on June 30 and December 31 of each year, commencing on December 31, 1999, to holders of record at the close of business on the preceding June 15 or December 15, as the case may be; . will mature on December 31, 2003; and . will be issued only in registered form, without coupons, in denominations of $1,000 and integral multiples thereof. Principal of and interest on the new notes will be payable, and the new notes may be presented for registration of transfer or exchange, at the office of the Trustee. The new notes may be presented for registration of transfer and/or exchange at the corporate trust office of the Trustee in _____________, _____________, or at an office or agency maintained by Kaiser in the city of New York, New York. Methods of Making Payments on the New Notes Payments may be paid by check mailed to the registered addresses of the holders of record of the new notes. Holders must surrender their notes to the paying agent to collect principal payments. Kaiser may require payment of a sum sufficient to cover any transfer tax or other governmental charge payable in connection with certain transfers or exchanges of the new notes. Initially, the Trustee will act as the paying agent and the registrar under the indenture. Kaiser or any of its subsidiaries subsequently may act as the paying agent and the registrar and Kaiser may change any paying agent and any registrar without prior notice to the holders of the new notes. Ranking The new notes will be subordinated in right of payment to all existing and future Senior Indebtedness of Kaiser, including all obligations of Kaiser under the New Revolver. The new notes will be senior in right of payment to the old notes and to all indebtedness of Kaiser that by its terms is expressly subordinated in right of payment to the new notes. As of ________ __, 1999, Kaiser would have had approximately $___ million of Senior Indebtedness outstanding. See "Capitalization." Although the indenture contains limitations on the amount of additional indebtedness that Kaiser may incur, under certain circumstances the amount of such indebtedness could be substantial and such indebtedness may be Senior Indebtedness. See "Certain Covenants - Limitations on Additional Indebtedness." Kaiser is a holding company that derives substantially all of its income from its subsidiaries. Kaiser must rely on dividends or other intercompany transfers from its subsidiaries to generate the funds necessary to meet its debt service and other obligations, including payment of principal and interest on the new notes. The ability of its subsidiaries to pay such dividends or other intercompany transfers is subject to the laws of the jurisdictions where the subsidiaries are located. Claims of creditors of its subsidiaries, including trade creditors, secured creditors and creditors holding guarantees of its subsidiaries, and claims of holders of preferred stock of its subsidiaries, generally 42 will have priority as to the assets of its subsidiaries over the equity interests of Kaiser and the holders of indebtedness of Kaiser. See "Capitalization" and "Description of Credit Facility." The term "Senior Indebtedness" is defined under "Certain Definitions." If any Senior Indebtedness is disallowed, avoided or subordinated pursuant to the provisions of Section 548 of the Bankruptcy Code or any applicable state fraudulent conveyance law, such indebtedness nevertheless will constitute Senior Indebtedness for purposes of the indenture. Only indebtedness of Kaiser that is Senior Indebtedness will rank senior to the new notes in accordance with the provisions of the indenture. Kaiser has agreed in the indenture that it will not issue, assume, guarantee, incur or otherwise become liable for, directly or indirectly, any indebtedness that is subordinate or junior in ranking in any respect to Senior Indebtedness unless such indebtedness is expressly subordinated in right of payment to the new notes. Unsecured indebtedness is not deemed to be subordinate or junior to secured indebtedness merely because it is unsecured. Kaiser may not make any payment with respect to the new notes if: . any Senior Indebtedness (other than Non-Recourse Indebtedness) is not paid when due, or . any other default on Senior Indebtedness (other than Non-Recourse Indebtedness) occurs and the maturity of such Senior Indebtedness is accelerated in accordance with its terms, unless, any default has been cured or waived and any acceleration has been rescinded or unless the Senior Indebtedness has been paid in full. During any default on any Senior Indebtedness (other than a payment default or acceleration as described above) which would permit the maturity thereof to be accelerated immediately without further notice or the expiration of any applicable grace periods, Kaiser may not pay the new notes for a period (a "Payment Blockage Period"): . commencing upon the receipt by Kaiser and the Trustee of written notice of such default from or on behalf of the holders of Senior Indebtedness, specifying an election to effect a Payment Blockage Period (a "Payment Notice"); and . ending 179 days thereafter, or earlier if such Payment Blockage Period is terminated (1) by written notice to the Trustee and Kaiser from the person or persons who gave the Payment Notice, (2) by repayment in full of the Senior Indebtedness or (3) because the default giving rise to the Payment Notice is no longer continuing. Unless the holders of Senior Indebtedness have accelerated the maturity of their Senior Indebtedness, Kaiser may resume payments on the new notes after a Payment Blockage Period expires. Not more than one Payment Notice may be given in any consecutive 360-day period, irrespective of the number of defaults on the Senior Indebtedness during the period. No default or event of default which served as the basis for any Payment Blockage Period may be used by the holders of the Senior Indebtedness to commence a subsequent Payment Blockage Period unless the default has been cured or waived for a period of at least 90 consecutive days. In the following circumstances, the holders of Senior Indebtedness are entitled to receive payment in full before the holders of the new notes are entitled to receive any payment: . upon a total or partial liquidation or dissolution of Kaiser; 43 . in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to Kaiser or its property; . following an assignment for the benefit of creditors; or . in any other marshaling of Kaiser's assets and liabilities. If payment of the new notes is accelerated because of an Event of Default, Kaiser or the Trustee shall promptly notify the holders of Senior Indebtedness, [the Agent under the New Revolver] and the Trustee for the holders of any other Senior Indebtedness of the acceleration. If the Trustee provides such notice, the Trustee also will notify Kaiser of the acceleration. By reason of such subordination provisions contained in the indenture, in the event of insolvency, holders of the new notes may recover a smaller percentage of the amount owed to them than other creditors of Kaiser. Optional Redemption of the New Notes Kaiser may choose to redeem the new notes in whole or in part, at any time, at a redemption price equal to 100% of the aggregate principal amount of the new notes, plus accrued and unpaid interest. If less than all of the new notes are to be redeemed at any time, the Trustee will select the new notes to be redeemed from among the outstanding new notes on a pro rata basis, by lot or by any other method permitted in the indenture. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each holder whose new notes are to be redeemed at the registered address of such holder. On and after the redemption date, interest will cease to accrue on the new notes or portions thereof called for redemption. Sinking Fund There will be no mandatory sinking fund for the new notes. Mandatory Offers to Purchase the New Notes The indenture requires Kaiser to offer to purchase a portion of the outstanding old notes under certain other circumstances. See "Certain Covenants- Limitations on Asset Sales." Certain Covenants Limitations on Additional Indebtedness. The indenture provides that Kaiser will not, and will not permit any of is Restricted Subsidiaries to, directly or indirectly, create, incur, assume, guarantee, extend the maturity of or otherwise become liable with respect to any indebtedness (other than Permitted Indebtedness) unless it is able to demonstrate that for the four quarterly periods preceding the incurrence of such debt, its ratio of EBITDA to Interest Expense plus preferred stock dividends (after giving pro forma effect to the issuance of capital stock and the application of any proceeds therefrom) would be at least __ to 1.0. Limitations on Subsidiary Debt and Preferred Stock. The indenture further will provide that Kaiser will not permit any of its Restricted Subsidiaries, directly or indirectly, to create, incur, assume, guarantee, extend the maturity of or otherwise become liable with respect to any indebtedness (which, with respect to any Restricted Subsidiary, includes preferred stock of the Restricted Subsidiary) except for the following: . guarantees by any Restricted Subsidiary of the payment of indebtedness incurred pursuant to the New Revolver and in compliance with the covenant described under "Limitations on Additional Indebtedness" and with the covenant described under "Limitations on Guarantees"; . Indebtedness issued to and held by Kaiser or a wholly owned Restricted Subsidiary (provided, however, that any subsequent issue or transfer of any Capital Stock that results in any such wholly owned Restricted Subsidiary ceasing to be a wholly owned Restricted Subsidiary or any transfer of 44 such Indebtedness (other than to a wholly owned Restricted Subsidiary) shall be deemed, in each case, to constitute the incurrence of such Indebtedness by such Restricted Subsidiary); . Indebtedness to Kaiser or any of its wholly owned Restricted Subsidiaries of Kaiser that are not wholly owned Restricted Subsidiaries that are engaged in Permitted Businesses in an aggregate amount (together with all Designated Investments made in subsidiaries that are not wholly owned Restricted Subsidiaries in compliance with the provisions of [clause (E) of the second paragraph of] the covenant described under "Limitations on Restricted Payments") not to exceed 5% of Consolidated Tangible Assets; and . Non-recourse indebtedness incurred by a Single Purpose Subsidiary. Limitations on Restricted Payments. The indenture provides that Kaiser will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, make any Restricted Payment if, at the time of a potential Restricted Payment, any of the following conditions exist: . a Default or Event of Default shall have occurred and be continuing or shall occur as a consequence thereof; . Kaiser would be unable to incur an additional $1.00 of Senior Indebtedness under the covenant described in the first sentence of the first paragraph under "Limitations on Additional Indebtedness"; or . the amount of such Restricted Payment, when added to the aggregate amount of all Restricted Payments (other than those made pursuant to the exceptions described in the following paragraph) made after the date of the indenture, exceeds the sum of: (a) 50% of Kaiser's Consolidated Net Income accrued during the period since _______ __, 1999 (or, if that aggregate Consolidated Net Income is a deficit, minus 100% of such aggregate deficit); plus (b) $___ million. Notwithstanding the foregoing, the monetary limitations described in the immediately preceding paragraph will not prevent the following: [TO BE REVISED/CONFIRMED IN LIGHT OF TERMS OF INDENTURE NEGOTIATED WITH BONDHOLDERS] . Kaiser or any wholly owned Restricted Subsidiary from making investments in subsidiaries, in an aggregate amount not to exceed $4 million, pursuant to contractual obligations in existence on the date of the indenture or directly related to projects in existence on the date of the indenture; . Kaiser from paying any dividend within 60 days after the date of its declaration if such dividend could have been paid on the date of its declaration without violation of this covenant; . Kaiser from purchasing or redeeming and retiring any shares of capital stock of Kaiser, and paying accrued and unpaid dividends on such shares at the time of such repurchase or redemption, in exchange for, or out of the net proceeds of a substantially concurrent sale (other than to a subsidiary of Kaiser or an employee stock ownership plan) of, shares of Qualified Capital Stock of Kaiser; . Kaiser or any subsidiary from making (1) investments pursuant to the provisions of employee benefit plans of Kaiser or any of its subsidiaries in an aggregate amount not to exceed $500,000 in a fiscal year, or (2) making loans to officers of Kaiser in connection with any relocation of residence, approved by a majority of the independent members of the Board of Directors of Kaiser, provided that the aggregate amount of investments and loans under this clause may not exceed $1 million in any fiscal year; . Kaiser or any wholly owned Restricted Subsidiary from making Designated Investments (1) in subsidiaries that are not wholly owned Restricted Subsidiaries in an aggregate amount (together with Indebtedness incurred by or on behalf of subsidiaries that are not wholly owned Restricted Subsidiaries 45 in compliance with the provisions of the third clause of the covenant described under "Limitations on Subsidiary Debt and Preferred Stock") not to exceed 5% of Consolidated Tangible Assets or (2) in Joint Ventures in an aggregate amount not to exceed 5% of Consolidated Tangible Assets, provided that: (a) the person in whom the investment is made is engaged only in Permitted Businesses; (b) Kaiser, directly or through wholly owned Restricted Subsidiaries of Kaiser, controls, under an operating management agreement or otherwise, the day-to-day management and operation of such Person or otherwise has the right to exercise significant influence over the management and operation of such Person in all material respects (including without limitation the right to control or veto any material act or decision); and (c) after giving effect to such Investment, the aggregate amount of indebtedness and investments made by Kaiser and its subsidiaries in such person does not exceed $5 million; or . Kaiser or any wholly owned Restricted Subsidiary from making Designated Investments in subsidiaries that are not wholly owned Restricted Subsidiaries or in Joint Ventures; provided that such Designated Investments are made solely from (1) the net proceeds of a substantially concurrent sale (other than to a subsidiary of Kaiser or an employee stock ownership plan) of shares of Qualified Capital Stock of Kaiser, (2) 50% of Kaiser's Consolidated Net Income accrued during the period since August 31, 1993 or (3) the aggregate amount of net reductions in investments (not to exceed the aggregate amount of such Designated Investments) made by Kaiser or any Subsidiary subsequent to the date of the indenture. Limitations on Restrictions on Distributions from Subsidiaries. The indenture provides that Kaiser will not, and will not permit any of its Restricted Subsidiaries to, create or otherwise cause or suffer to exist or become effective any consensual Payment Restriction with respect to any of its Restricted Subsidiaries, except for the following: . Payment Restrictions covering not more than $1 million in the aggregate of retained earnings of Kaiser Servicios Ambientales, S.A. de C.V.; . any Payment Restriction contained in Existing Indebtedness or existing contracts to which Kaiser or any of its Restricted Subsidiaries are parties; . any Payment Restriction under any agreement evidencing any Acquired Indebtedness that was permitted to be incurred pursuant to the indenture, provided that the Payment Restriction only applies to assets that were subject to such restrictions and encumbrances prior to the acquisition of such assets by Kaiser or its Restricted Subsidiaries; and . any Payment Restriction arising in connection with Refinancing Indebtedness; provided that any Payment Restrictions that arise under the Refinancing Indebtedness are not, taken as a whole, more restricted than those under the agreement creating or evidencing the Indebtedness being refunded or refinanced. Limitations on Transactions with Affiliates. The indenture will provide that Kaiser will not, and will not permit any of its Restricted Subsidiaries to, make any loan, advance, guarantee or capital contribution to or for the benefit of, or sell, lease, transfer or otherwise dispose of any of its properties or assets to or for the benefit of, or make any Investment in, or purchase or lease any property or assets from, or enter into or amend any contract, agreement or understanding with or for the benefit of, any Affiliate of Kaiser or any of its subsidiaries (each an "Affiliate Transaction"), except for the following: . Affiliate Transactions in the ordinary course of business and consistent with past practice that are fair to Kaiser or Restricted Subsidiary, as the case may be, and are on terms at least as favorable as would have been obtainable at such time from an unaffiliated party; . unless the Board of Directors of Kaiser or the Restricted Subsidiary, as the case may be, pursuant to a Board Resolution reasonably and in good faith determines that such Affiliate Transaction is fair to 46 Kaiser or the Restricted Subsidiary, as the case may be, and is on terms at least as favorable as would have been obtainable at such time from an unaffiliated party; . for any Affiliate Transaction or series of Affiliate Transactions involving or having a value of more than $1 million, unless a majority of the members of the Board of Directors of Kaiser who are not affiliated with any other party to the Affiliate Transaction reasonably and in good faith shall have determined that the Affiliate Transaction or series of Affiliate Transactions is fair to Kaiser or the Restricted Subsidiary, as the case may be, and is on terms at least as favorable as would have been obtainable at such time from an unaffiliated party; and . for any Affiliate Transaction or series of Affiliate Transactions involving or having a value of more than $5 million, unless Kaiser or the Restricted Subsidiary, as the case may be, has received an opinion from an Independent Financial Advisor to the effect that the financial terms of the Affiliate Transaction are fair to Kaiser or the Restricted Subsidiary, as the case may be, from a financial point of view. The limitations described in the foregoing paragraph do not apply to: . transactions exclusively between or among Kaiser and any of its wholly owned Restricted Subsidiaries or exclusively between or among any of Kaiser's wholly owned Restricted Subsidiaries, provided that such transactions are not otherwise prohibited by the indenture; . arms-length transactions between Kaiser or any of its wholly owned Restricted Subsidiaries and the other owners of any subsidiary or Joint Venture [described in the last sentence of the definition of Affiliate]; and . reasonable compensation, indemnification and other benefits paid or made available to officers, directors and employees of Kaiser or any Subsidiary for services rendered in such Person's capacity as an officer, director or employee. Limitations on Asset Sales. The indenture will provide that Kaiser will not, and will not permit any of its Restricted Subsidiaries to, consummate any Asset Sale unless: . Kaiser or its Restricted Subsidiaries receive consideration at the time of the Asset Sale at least equal to the fair market value of the assets or Capital Stock included in the Asset Sale; . the aggregate fair market value of the consideration from the Asset Sale (other than consideration in the form of assumption of Indebtedness of Kaiser or one or more of its Restricted Subsidiaries from which Kaiser or the Restricted Subsidiaries, as the case may be, are released) that is not in the form of cash or Cash Equivalents shall not, when aggregated with the fair market value of all other non-cash or non-Cash Equivalent consideration received by Kaiser and its Restricted Subsidiaries from all previous Asset Sales since the date of the indenture that have not yet been converted into cash or Cash Equivalents, exceed 5% of Consolidated Tangible Assets of Kaiser at the time of the Asset Sale; and . if the aggregate fair market value of the assets or Capital Stock to be sold in the Asset Sale exceeds $3 million, the Asset Sale has been approved by Kaiser's Board of Directors. Within six months after consummation of any Asset Sale, Kaiser shall, or shall cause the applicable Restricted Subsidiary to: . reinvest the cash and Cash Equivalent portion of the Net Proceeds of the Asset Sale in a manner that would constitute a Related Business Investment; . apply the cash and Cash Equivalent portion of the Net Proceeds of the Asset Sale to repay outstanding Senior Indebtedness of Kaiser or any Restricted Subsidiary, provided, however, that any such 47 repayment of Indebtedness under any revolving credit facility or similar agreement shall result in a permanent reduction in the lending commitment relating thereto in an amount equal to the principal amount so repaid; or . apply the cash and Cash Equivalent portion of the Net Proceeds of the Asset Sale that is neither reinvested nor applied to the repayment of Senior Indebtedness to the purchase of new notes tendered to Kaiser at a purchase price equal to 100% of the principal thereof, plus accrued interest thereon to the date of purchase, pursuant to an offer to purchase made by Kaiser as set forth below (an "Asset Sale Offer"); provided, however, that Kaiser may defer the Asset Sale Offer until the amount subject thereto would be at least $5 million. Notwithstanding the foregoing provisions: . to the extent that any or all of the net proceeds of any Foreign Asset Sale are prohibited or delayed by applicable local law from being repatriated to the United States, the portion of such Net Proceeds so affected will not be required to applied in the manner set forth in this covenant but may be retained by the applicable Foreign Subsidiary so long, but only so long, as the applicable local law will not permit repatriation to the United States (Kaiser hereby agreeing to cause the applicable Foreign Subsidiary promptly to take all actions required by the applicable local law to permit such repatriation) and, once such repatriation of any of such affected net proceeds is permitted under the applicable local law, such repatriation will be immediately effected and such repatriated net proceeds will be applied in the manner set forth in this covenant; and . to the extent that the Board of Directors has determined in good faith that repatriation of any or all of the net proceeds of any Foreign Asset Sale would have a material adverse tax consequence, the net proceeds so affected may be retained by the applicable Foreign Subsidiary for so long as such material adverse tax event would continue. Each Asset Sale Offer must: . be mailed to the record holders of the new notes as shown on the register of holders of new notes, with a copy to the Trustee; . specify the purchase date (which must be between 30 days and 60 days from the date such notice is mailed and not later than 240 days after the date of the Asset Sale giving rise to such Asset Sale Offer); and . otherwise comply with the procedures set forth in the indenture. Upon receiving notice of an Asset Sale offer, holders of new notes may elect to tender their new notes in whole or in part in integral multiples of $1,000 in exchange for cash. To the extent holders properly tender notes in an amount exceeding the amount of Net Proceeds used to make the Asset Sale Offer, new notes of tendering holders will be repurchased on a pro rata basis (based on amounts tendered). Kaiser will comply with the requirements of Section 14(e) under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of new notes pursuant to any Asset Sale Offer. Restrictions on Sale of Stock of subsidiaries. The indenture will provide that Kaiser may not sell or otherwise dispose of any of the Capital Stock of any Restricted Subsidiary of Kaiser unless: . Kaiser either retains ownership of more than 50% of the common stock of such Restricted Subsidiary or sells all of the Capital Stock of such Restricted Subsidiary and the net proceeds from any such sale or disposition are treated in a manner consistent with the treatment of Asset Sale proceeds; or 48 . Kaiser elects to treat the amount of its remaining investment in any such Restricted Subsidiary that has become a Joint Venture as a result of such sale or disposition as an Investment in such Joint Venture subject to the provisions described under "Limitations on Restricted Payments." Limitations on Mergers and Certain Other Transactions. The indenture provides that Kaiser will not, (1) in a single transaction or a series of related transactions, consolidate or merge with or into, or sell, lease, convey or otherwise dispose of all or substantially all of its assets, or assign any of its obligations under the new notes or the indenture, to any Person, or (2) adopt a Plan of Liquidation unless, in either case: . the Person formed by or surviving such consolidation or merger (if other than Kaiser) or to which such sale, lease, conveyance or other disposition or assignment shall be made (or, in the case of a Plan of Liquidation, one Person to which assets are transferred) (collectively, the "Successor"), is a domestic corporation and the Successor assumes by supplemental indenture in a form satisfactory to the Trustee all of the obligations of Kaiser under the new notes and the indenture; . immediately prior to and immediately after and giving effect to such transaction and the assumption of the obligations as set forth in the preceding clause above and the incurrence of any Indebtedness to be incurred in connection therewith, no Default or Event of Default shall have occurred and be continuing; and . immediately after and giving effect to such transaction and the assumption of the obligations as set forth in the first clause above and the incurrence of any Indebtedness to be incurred in connection therewith, and the use of any net proceeds therefrom on a pro forma basis, (1) the Consolidated Tangible Net Worth of Kaiser or the Successor, as the case may be, would be at least equal to the Consolidated Tangible Net Worth of Kaiser immediately prior to such transaction and (2) Kaiser or the Successor, as the case may be, could incur at least $1.00 of additional Senior Indebtedness under the covenant described under "Limitations on Additional Indebtedness." In addition, the indenture provides that Kaiser will not permit any Single Purpose Subsidiary that has outstanding Indebtedness to consolidate or merge with any other Person other than a Person the activities of which are limited to ownership of a portion of the same project in which the merging Single Purpose Subsidiary owns an interest. The foregoing provisions of the indenture will not prohibit a transaction the sole purpose of which (as determined in good faith by the Board of Directors and evidenced by a Board Resolution) is to change the state of incorporation of Kaiser or a Single Purpose Subsidiary, as the case may be, and such transaction does not have as one of its purposes the evasion of the limitations described above. Limitations on Guarantees. The indenture will provide that Kaiser will not permit any of its Restricted Subsidiaries to guarantee any Indebtedness (other than guarantees of indebtedness under the New Revolver permitted under the provisions of the covenant described under "Limitations on Subsidiary Debt and Preferred Stock" by subsidiaries of Kaiser who have delivered similar guarantees prior to the date of the indenture) unless Kaiser causes each such Subsidiary to execute and deliver to the Trustee, prior to or concurrently with the issuance of such guarantee, a supplemental indenture, in form satisfactory to the Trustee, pursuant to which such Subsidiary unconditionally guarantees the payment of principal of and interest on the new notes. Any such guarantee shall be subordinated in right of payment to the guarantee by such Subsidiary pursuant to the New Revolver. Events of Default An "Event of Default" is defined in the indenture to include any of the following: . failure by Kaiser to pay interest on any of the new notes when it becomes due and payable and the continuance of any such failure for 30 days, whether or not such payment is prohibited by the provisions described under "Ranking"; 49 . failure by Kaiser to pay the principal of the new notes when it becomes due and payable, whether at stated maturity, upon redemption, upon acceleration or otherwise (including failure to make payment pursuant to an Asset Sale Offer), whether or not such payment is prohibited by the provisions described under "Ranking"; . failure by Kaiser to comply with any covenant in the indenture and continuance of such failure for 60 days after notice of such failure has been given to Kaiser by the Trustee or by the holders of at least 25% of the aggregate principal amount of the new notes then outstanding; . failure by Kaiser or any of its subsidiaries to make any payment when due or during any applicable grace period, and the continuation of such failure for seven days, in respect of any indebtedness of Kaiser or any of its subsidiaries, other than Non-Recourse Indebtedness of a Single Purpose Subsidiary, that has an aggregate outstanding principal amount of $2 million or more; . a default under any indebtedness, other than Non-Recourse Indebtedness of a Single Purpose Subsidiary, if (1) such default results in the holder or holders of the indebtedness causing the indebtedness to become due prior to its stated maturity and (2) the principal amount of the indebtedness, together with the principal amount of any other indebtedness the maturity of which has been so accelerated, aggregates $2 million or more at any one time outstanding; . a court or courts of competent jurisdiction have entered one or more final judgments or orders against Kaiser or any of its subsidiaries for payment of amounts which exceed $2 million in the aggregate and such judgment or judgments have not been satisfied, stayed, annulled or rescinded within 60 days of being entered; and . certain events of bankruptcy, insolvency or reorganization involving Kaiser or any of its subsidiaries. If an Event of Default (other than an Event of Default resulting from bankruptcy, insolvency or reorganization involving Kaiser) shall have occurred and be continuing under the indenture, the Trustee by written notice to Kaiser, or the holders of at least 25% in aggregate principal amount of the new notes then outstanding by written notice to Kaiser and the Trustee, may declare all amounts owing under the new notes to be due and payable immediately. Upon declaration of acceleration, the aggregate principal of and interest on the outstanding Notes shall immediately become due and payable. If an Event of Default results from bankruptcy, insolvency or reorganization involving Kaiser, all outstanding Notes shall become due and payable without any further action or notice. In certain cases, the holders of a majority in aggregate principal amount of the new notes then outstanding may waive an existing Default or Event of Default and its consequences, except a default in the payment of principal of, and interest on the new notes. The holders of new notes may not directly enforce the provisions of the indenture or the new notes except as provided in the indenture. Subject to certain limitations, holders of a majority in principal amount of the new notes then outstanding may direct the Trustee in its exercise of any trust or power; provided however, that such direction does not conflict with the terms of the indenture. The Trustee may withhold from the holders of new notes notice of any continuing Default or Event of Default (except any Default or Event of Default in payment of, or interest on the new notes) if the Trustee determines that withholding such notice is in the holders' interest. Kaiser is required to deliver to the Trustee annually a statement regarding compliance with the indenture and, upon any Officer of Kaiser becoming aware of any Default or Event of Default, a statement specifying such Default or Event of Default and what action Kaiser is taking or proposes to take with respect thereto. Discharge of Indenture The indenture will permit Kaiser to terminate all of its obligations under the indenture, other than the obligation to pay the principal of and interest on the new notes, and certain other obligations at any time by taking the following actions: 50 . depositing in trust with the Trustee, under an irrevocable trust agreement, money or U.S. government obligations in an amount sufficient to pay principal of and interest on the new notes to their maturity or redemption, as the case may be, and . complying with certain other conditions, including delivery to the Trustee of an opinion of counsel or a ruling received from the Internal Revenue Service to the effect that holders of new notes will not recognize income, gain or loss for federal income tax purposes as a result of Kaiser's exercise of such right and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case otherwise. Transfer and Exchange A holder of new notes will be able to register the transfer of or exchange of his notes only in accordance with the provisions of the indenture. The Trustee may require a holder, among other things, to furnish appropriate endorsements and transfer documents, and to pay any taxes and fees required by law or permitted by the indenture. Without the prior consent of Kaiser, the Trustee is not required: . to register the transfer or exchange of any new note selected for redemption; . to register the transfer or exchange of any new note for a period of 15 days before a selection of new notes to be redeemed; or . to register the transfer or exchange of a new note between a record date and the next succeeding interest payment date. The holder of a new note will be treated as the owner of a new note for all purposes. Amendment, Supplement and Waiver Subject to certain exceptions, the indenture or the new notes may be amended or supplemented with the consent (which may include consents obtained in connection with a tender offer or exchange offer for Notes) of the holders of at least a majority in principal amount of the new notes then outstanding, and any existing Default under, or compliance with any provision of, the indenture may be waived (other than any continuing Default or Event of Default in the payment of the principal of, or interest on the new notes or that resulted from the failure to comply with the covenant described under "Change of Control") with the consent (which may include consents obtained in connection with a tender offer or exchange offer for Notes) of the holders of a majority in principal amount of the new notes then outstanding. Without the consent of any holder, Kaiser and the Trustee may amend or supplement the indenture or the new notes to cure any ambiguity, defect or inconsistency, to provide for uncertificated new notes in addition to or in place of certificated new notes, to provide for the assumption of Kaiser's obligations to holders in the case of a merger or acquisition, or to make any change that does not adversely affect the rights of any holder. Kaiser may not, without the consent of each affected holder of new notes: . extend the maturity of any new note; . affect the terms of any scheduled payment of interest on or principal of the new notes (including without limitation any redemption provisions); . make any change in the subordination provisions of the indenture that adversely affects the rights of any holder; or . reduce the percentage of holders necessary to consent to an amendment, supplement or waiver to the indenture. 51 The right of any holder of new notes to participate in any consent required or sought pursuant to any provision of the indenture (and the obligation of Kaiser to obtain any such consent otherwise required from such holder) may be subject to the requirement that such holder shall have been the holder of record of any new notes with respect to which such consent is required or sought as of a date identified by the Trustee in a notice furnished to holders in accordance with the terms of the indenture. Concerning the Trustee The indenture contains certain limitations on the rights of the Trustee, should it become a creditor of Kaiser, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest (as defined in the indenture), it must eliminate such conflict or resign. The holders of a majority in principal amount of the then outstanding new notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The indenture provides that, in case an Event of Default occurs and is not cured, the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent person in similar circumstances in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the indenture at the request of any holder of new notes, unless such holder shall have offered to the Trustee security and indemnity satisfactory to the Trustee. Certain Definitions Set forth below is a summary of certain of the defined terms used in the indenture. Reference is made to the indenture for the full definition of all such terms included within the indenture. "Acquired Indebtedness" means: (i) with respect to any Person that becomes a direct or indirect Subsidiary of Kaiser after the date of the indenture, Indebtedness of such Person and its subsidiaries existing at the time such Person becomes a Subsidiary of Kaiser that was not incurred in connection with, or in contemplation of, such Person becoming a Subsidiary of Kaiser; and (ii) with respect to Kaiser or any of its subsidiaries, any Indebtedness assumed by Kaiser or any of its subsidiaries in connection with the acquisition of an asset from another Person that was not incurred by such other Person in connection with, or in contemplation of, such acquisition. "Affiliate" of any person means any Person (i) which directly or indirectly controls or is controlled by, or is under direct or indirect common control with, the referent Person, (ii) which beneficially owns or holds 10% or more of any class of the Voting Stock of the referent Person or (iii) of which 10% or more of the Voting Stock (or, in the case of a Person which is not a corporation, 10% or more of the equity interest) is beneficially owned or held by the referent Person. For purposes of this definition, control of a Person shall mean the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise. Notwithstanding the foregoing, the term "Affiliate" shall not include, with respect to Kaiser or any wholly owned Restricted Subsidiary of Kaiser, (a) any wholly owned Subsidiary of Kaiser or (b) any Subsidiary of Kaiser that is not a wholly owned Subsidiary or any Joint Venture, provided that such Subsidiary or Joint Venture is not under the control of, and does not have any Capital Stock (other than directors' qualifying shares) or Indebtedness owned or held by, any Affiliate of Kaiser. "Asset Sale" for any Person means the sale, lease, transfer or other disposition or series of sales, leases, transfers or other dispositions (including without limitation by merger or consolidation, and whether by operation of law or otherwise) of any of that Person's assets (including without limitation the sale or other disposition of Capital Stock of any Subsidiary of such Person, whether by such Person or by such Subsidiary); whether owned on the date of the indenture or subsequently acquired, excluding, however: (i) any sale, lease, transfer or other disposition between Kaiser and any of its wholly owned Restricted Subsidiaries; (ii) any transfer of assets of Kaiser or any of its Restricted Subsidiaries that constitutes and is treated as a Designated Investment; (iii) any transfer of assets of Kaiser or any of its Restricted Subsidiaries that constitutes a Change of Control and that is governed by and effected in accordance with the covenants described under "Limitations on Mergers and Certain Other Transactions" and "Change in Control"; and (iv) any sale, lease, transfer or other disposition, or series of sales, leases, transfers or 52 other dispositions, of assets having a purchase price or transaction value, as the case may be, of $1 million or less, provided that no Default or Event of Default exists at the time of such sale. "Capital Stock" of any Person means any and all shares, rights to purchase, warrants or options (whether or not currently exercisable), participations or other equivalents of or interests in (however designated) the equity (including without limitation common stock, preferred stock and partnership and joint venture interests) of such Person. "Cash Equivalents" means: (i) obligations issued or unconditionally guaranteed by the United States of America or any agency thereof or obligations issued by any agency or instrumentality thereof and backed by the full faith and credit of the United States of America; (ii) commercial paper rated the highest grade by Moody's Investors Service, Inc. and Standard & Poor's Corporation and maturing not more than one year from the date of creation thereof; and (iii) readily marketable direct obligations issued by any state of the United States of America or any political subdivision thereof having one of the two highest rating categories obtainable from either Moody's Investors Service, Inc. or Standard & Poor's Corporation. "Consolidated Depreciation Expense" of any Person for any period means the depreciation expense of such Person and its Restricted Subsidiaries for any period (to the extent included in the computation of Consolidated Net Income of such Person), determined on a consolidated basis in accordance with GAAP. "Consolidated Fixed Charge Coverage Ratio" of any Person means, with respect to any determination date, the ratio of (i) EBITDA for such Person's prior four full fiscal quarters for which financial results have been reported immediately preceding the determination date to (ii) the aggregate Fixed Charges of such Person for such four fiscal quarters; provided, however, that if any calculation of Kaiser's Consolidated Fixed Charge Coverage Ratio requires the use of any quarter beginning prior to the date of the indenture, such calculation shall be made on a pro forma basis, giving effect to the issuance of the new notes and the use of the net proceeds therefrom as if the same had occurred at the beginning of the four-quarter period used to make such calculation; and provided, further, that if any such calculation requires the use of any quarter prior to the date that any Asset Sale was consummated, or that any Indebtedness was incurred, or that any acquisition was effected, by Kaiser or any of its Restricted Subsidiaries, such calculation shall be made on a pro forma basis, giving effect to each such Asset Sale, incurrence of Indebtedness or acquisition, as the case may be, and the use of any proceeds therefrom, as if the same had occurred at the beginning of the four-quarter period used to make such calculation. "Consolidated Net Income" of any Person for any period means the net income (or loss) of such Person and its Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded from such net income (to the extent otherwise included therein), without duplication: (i) the net income (or loss) of any Person (other than a Restricted Subsidiary of the referent Person) in which any Person other than the referent Person has an ownership interest, except to the extent that any such income has actually been received by the referent Person or any of its wholly owned Restricted Subsidiaries in the form of cash dividends or similar cash distributions during such period; (ii) except to the extent includable in the consolidated net income of the referent Person pursuant to the foregoing clause (i), the net income (or loss) of any Person that accrued prior to the date that (a) such Person becomes a Restricted Subsidiary of the referent Person or is merged into or consolidated with the referent Person or any of its Restricted Subsidiaries or (b) the assets of such Person are acquired by the referent Person or any of its Restricted Subsidiaries; (iii) the net income (or loss) of any Restricted Subsidiary of the referent Person to the extent that the declaration or payment of dividends or similar distributions by such Restricted Subsidiary of that income is not permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary during such period (provided that the amount of loss excluded pursuant to this clause (iii) shall not exceed that amount of net income excluded pursuant to this clause (iii)); (iv) any gain (but not loss, except pursuant to clause (vi) below), together with any related provisions for taxes on any such gain, realized during such period by the referent Person or any of its Restricted Subsidiaries upon (a) the acquisition of any securities, or the extinguishment of any Indebtedness, of the referent Person or any of its Restricted Subsidiaries or (b) any Asset Sale by the referent Person or any of its Restricted Subsidiaries; (v) any extraordinary gain (but not extraordinary loss, except pursuant to clause (vi) below), together with any related provision for taxes on any such extraordinary gain, realized by the referent Person or any of its Restricted Subsidiaries during such period; and (vi) in the case of a 53 successor to such Person by consolidation, merger or transfer of its assets, any earnings of the successor prior to such merger, consolidation or transfer of assets. "Consolidated Net Tangible Assets" of any Person as of any date means the Consolidated Tangible Assets of such Person and its Restricted Subsidiaries less the total current liabilities of such Person and its Restricted Subsidiaries, on a consolidated basis as of such date. "Consolidated Tangible Assets" of any Person as of any date means the total assets of such Person and its Restricted Subsidiaries (excluding any assets that would be classified as "intangible assets" under GAAP) on a consolidated basis at such date, determined in accordance with GAAP, less all write-ups subsequent to August 31, 1993 in the book value of any asset owned by such Person or any of its Restricted Subsidiaries. "Consolidated Tangible Net Worth" of any Person as of any date means the stockholders' equity (including any preferred stock that is classified as equity under GAAP, other than Disqualified Stock) of such Person and its Restricted Subsidiaries (excluding any equity adjustment for foreign currency translation for any period subsequent to August 31, 1993 and any assets that would be classified as "intangible assets" under GAAP) on a consolidated basis at such date, as determined in accordance with GAAP, less all write-ups subsequent to August 31, 1993 in the book value of any asset owned by such Person or any of its Restricted Subsidiaries. "Continuing Director" of Kaiser as of any date means a member of the Board of Directors of Kaiser who (i) was a member of the Board of Directors of Kaiser on the date of the indenture or (ii) was nominated for election or elected to the Board of Directors of Kaiser with the affirmative vote of at least a majority of the directors who were Continuing Directors at the time of such nomination or election. "Default" means any event, act or condition that is, or after notice or the passage of time or both would be, an Event of Default. "Designated Investments" means Investments made after the date of the indenture in (i) any Subsidiary of Kaiser that is not a wholly owned Restricted Subsidiary or (ii) any Joint Venture, provided that such Subsidiary or Joint Venture is engaged in one or more Permitted Businesses. "Disqualified Stock" means any Capital Stock that, by its terms, by the terms of any agreement related thereto or by the terms of any security into which it is convertible, puttable or exchangeable, is, or upon the happening of any event or the passage of time would be, required to be redeemed or repurchased by the issuer thereof or any of its subsidiaries, whether or not at the option of the holder thereof, or matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, in whole or in part, on or prior to the final maturity date of the new notes. "EBITDA" means, with respect to any Person for any period, without duplication, the sum of the amounts for such period of (i) Consolidated Net Income, (ii) Consolidated Income Tax Expense, (iii) Consolidated Amortization Expense (but only to the extent not included in Fixed Charges), (iv) Consolidated Depreciation Expense, (v) Fixed Charges and (vi) all other non-cash items reducing the Consolidated Net Income of such Persons and its Restricted Subsidiaries, in each case determined on a consolidated basis in accordance with GAAP (provided, however, that the amounts set forth in clauses (ii) through (vi) shall be included only to the extent such amounts reduce Consolidated Net Income), less the aggregate amount of all non-cash items, determined on a consolidated basis, to the extent such items increase Consolidated Net Income. "Exchange Act" means the Securities Exchange Act of 1934. "Existing Indebtedness" means all of the Indebtedness of Kaiser and its Restricted Subsidiaries that is outstanding on the date of the indenture. "Fixed Charges" means, with respect to any Person for any period, the aggregate amount of (i) interest, whether expensed or capitalized, paid, accrued or scheduled to be paid or accrued during such period (except to the extent accrued in a prior period) in respect of all Indebtedness of such Person and its Restricted Subsidiaries (including (a) original issue discount on any Indebtedness and (b) the interest portion of all deferred payment 54 obligations, calculated in accordance with the effective interest method, in each case to the extent attributable to such period) and (ii) dividend requirements on preferred stock of such Person and its subsidiaries (whether in cash or otherwise), but not including dividends payable solely in shares of Qualified Capital Stock paid, accrued or scheduled to be paid or accrued during such period (except to the extent accrued in a prior period), and excluding items eliminated in consolidation. For purposes of this definition, (1) interest on a Capitalized Lease Obligation shall be deemed to accrue at the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP, (2) interest on Indebtedness that is determined on a fluctuating basis shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest of such Indebtedness in effect on the last day of the period with respect to which Fixed Charges are being calculated, (3) interest on Indebtedness that may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate or other rates, shall be deemed to have been based upon the rate actually chosen, or, if none, then based upon such optional rate chosen as such Person may designate and (4) Fixed Charges shall be increased or reduced by the net cost (including without limitation amortization of discount) or benefit associated with Hedging Obligations attributable to such period. For purposes of clause (ii) above, dividend requirements (other than dividends payable solely in shares of Qualified Capital Stock) shall be increased to an amount representing the pretax earnings that would be required to cover such dividend requirements; accordingly, the increased amount shall be equal to a fraction, the numerator of which is such dividend requirements and the denominator of which is 1 minus the applicable actual combined Federal, state, local and foreign income tax rate of such Person and its subsidiaries (expressed as a decimal), on a consolidated basis, for the fiscal year immediately preceding the date of the transaction giving rise to the need to calculate Fixed Charges. "Foreign Asset Sale" means any Asset Sale in respect of the Capital Stock or assets of a Foreign Subsidiary. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board, as in effect from time to time. "Hedging Obligations" of any Person means the obligations of such Person pursuant to any interest rate swap agreement; foreign currency exchange agreement, interest rate collar agreement, option or futures contract or other similar agreement or arrangement relating to interest rates or foreign exchange rates. "Indebtedness" of any Person at any date means, without duplication: (i) all liabilities, contingent or otherwise, of such Person or borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof); (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (iii) all obligations of such Person in respect of letters of credit or other similar instruments (or reimbursement obligations with respect thereto), other than standby letters of credit issued for the benefit of, or surety or performance bonds issued by, such Person in the ordinary course of business to the extent such letters of credit are not drawn upon; (iv) all obligations of such Person with respect to Hedging Obligations; (v) all obligations of such Person to pay the deferred and unpaid purchase price of property or services, except trade payables and accrued expenses incurred by such Person in the ordinary course of business in connection with obtaining goods, materials or services, which payable is not overdue according to industry practice or the original terms of sale unless such payable is being contested in good faith; (vi) the maximum fixed repurchase price of all Disqualified Stock of such Person; (vii) all Capitalized Lease Obligations of such Person; (viii) all Indebtedness of others secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person, other than a pledge by a Single Purpose Subsidiary of the Capital Stock of an Unrestricted Subsidiary or Joint Venture of such Single Purpose Subsidiary to secure Indebtedness of such Unrestricted Subsidiary or Joint Venture incurred to finance a project constituting one or more Permitted Businesses; (ix) all Indebtedness of others guaranteed by, or otherwise the Liability of, such Person to the extent of such guarantee or Liability; and (x) all Attributable Indebtedness. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above, the maximum liability of such Person for any such contingent obligations at such date and, in the case of clause (viii), the fair market value of any asset subject to a Lien securing the Indebtedness of others on the date that the Lien attaches. For purposes of the first sentence hereof, the "maximum fixed repurchase price" of any Disqualified Stock that does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Stock as if such Disqualified Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to the indenture, and if such price is 55 based upon, or measured by, the fair market value of such Disqualified Stock (or any equity security for which it may be exchanged or converted), such fair market value shall be determined in good faith by the Board of Directors of such Person, which determination shall be evidenced by a Board Resolution. "Investments" of any Person means (i) all investments by such Person in any other Person in the form of loans, advances or capital contributions or similar credit extensions constituting Indebtedness of such Person, and any guarantee of Indebtedness of any other Person, (ii) all purchase (or other acquisitions for consideration) by such Person of Indebtedness, Capital Stock or other securities of any other Person and (iii) all other items that would be classified as investments (including without limitation purchases of assets outside the ordinary course of business) on a balance sheet of such Person prepared in accordance with GAAP; provided, however, that advances to non-executive employees and extensions of trade credit and advances to customers and suppliers and other contractual and trade relationships, requiring repayment within reasonable commercial periods, to the extent made in the ordinary course of business consistent with past practice and in accordance with normal industry practice, shall not be deemed to constitute Investments. "Joint Venture" means (i) a corporation of which less than a majority of the aggregate voting power of all classes of the Common Equity is owned by Kaiser or its Restricted Subsidiaries and (ii) any entity other than a corporation in which Kaiser and its Restricted Subsidiaries own less than a majority of the Common Equity of such entity. "Junior Subordinated Indebtedness" of Kaiser at any date means Indebtedness of Kaiser which by its terms, or by the terms of any agreement or instrument pursuant to which such Indebtedness is issued, (i) is expressly subordinated in right of payment to the new notes and (ii) provides that no payment of principal of such Indebtedness by way of sinking fund, mandatory redemption, defeasance or otherwise is required to be made by Kaiser (including without limitation at the option of the holder thereof) at any time prior to the maturity of the new notes. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or other similar encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including without limitation any conditional sale or other title retention agreement, and any lease in the nature thereof, any option or other agreement to sell, and any filing of, or agreement to give, any financing statement under the Uniform Commercial Code (or equivalent statutes) or any jurisdiction). "Net Proceeds" with respect to any Asset Sale by any Person means the aggregate net proceeds received by such Person from such Asset Sale (including without limitation the amount of cash applied to repay Indebtedness secured by any asset involved in such Asset Sale or otherwise received as consideration for the assumption or incurrence of liabilities incurred in connection with or in anticipation of such Asset Sale) after (i) provision for all income or other taxes measured by or resulting from such Asset Sale or the transfer of the proceeds of such Asset Sale to such Person and (ii) payment of all brokerage commissions and the underwriting and other fees and expenses related to such Asset Sale, whether such proceeds are in cash or property (valued at the fair market value thereof at the time of receipt as determined in good faith by the Board of Directors of such Person, which determination shall be evidenced by a Board Resolution). "New Revolver" means _______________________________________, as such agreement has been and may be amended, restated, supplemented or otherwise modified from time to time, and includes any successor bank credit agreement. "Non-Recourse Indebtedness" of a Single Purpose Subsidiary means Indebtedness for which (i) the sole legal recourse for collection of principal and interest on such Indebtedness is against (a) the specific property identified in the instruments evidencing or securing such Indebtedness and such property was acquired with the proceeds of such Indebtedness or such Indebtedness was incurred within 90 days of the acquisition of such property or (b) the Capital Stock of such Single Purpose Subsidiary, provided that such Single Purpose Subsidiary has no assets other than the specific property acquired with the proceeds of such Indebtedness plus a reasonable amount of working capital, (ii) no assets of such Single Purpose Subsidiary, other than the assets identified in clause (i)(a) of this definition, may be realized upon in collection of principal or interest on such Indebtedness and (iii) neither Kaiser nor any Restricted Subsidiary of Kaiser, other than the Single Purpose Subsidiary, is directly or indirectly 56 liable to make any payment thereon, has made any guarantee of payment or performance of such Indebtedness or has pledged or granted any lien or encumbrances on any assets as collateral or security with respect thereto, other than the Capital Stock of the referent Single Purpose Subsidiary. "Payment Restriction," with respect to a Subsidiary of any Person, means any encumbrance, restriction or limitation, whether by operation of the terms of its charter or by reason of any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation, on the ability of (i) such Subsidiary to (a) pay dividends or make other distributions on its Capital Stock or make payments on any obligation, liability or Indebtedness owed to such Person or any other Subsidiary of such Person, (b) make loans or advances to such Person or any other Subsidiary of such Person or (c) transfer any of its properties or assets to such Person or any other Subsidiary of such Person or (ii) such Person or any other Subsidiary of such Person to receive or retain any such (a) dividends, distributions or payments, (b) loans or advances or (c) transfer of properties or assets. "Permitted Businesses" means the businesses of providing consulting, engineering or construction services to public and private sector clients in the environment, energy, infrastructure and industry markets. "Permitted Investments" means: (i) direct obligations of the United States of America or any agency thereof, or obligations guaranteed by the United States of America or any agency thereof, in each case maturing within 180 days of the date of acquisition thereof; (ii) certificates of deposit or Eurodollar deposits, due within 180 days of the date of acquisition thereof, with a commercial bank which is organized under the laws of the United States of America or any state thereof having capital funds of at least $500 million or more; and (iii) commercial paper given the highest rating by two established national credit rating agencies and maturing not more than 180 days from the date of acquisition thereof. "Plan of Liquidation," with respect to any Person, means a plan that provides for, contemplates or the effectuation of which is preceded or accompanied by (whether or not substantially contemporaneously, in phases or otherwise): (i) the sale, lease, conveyance or other disposition of all or substantially all of the assets of such Person otherwise than as an entirety or substantially as an entirety; and (ii) the distribution of all or substantially all of the proceeds of such sale, lease, conveyance or other disposition and all or substantially all of the remaining assets of such Person to holders of Capital Stock of such Person. "Qualified Capital Stock" means Capital Stock that is not Disqualified Stock. "Refinancing Indebtedness" means Indebtedness of Kaiser or a Restricted Subsidiary of Kaiser issued in exchange for, or the proceeds from the issuance and sale or disbursement of which are used substantially concurrently to repay, redeem, refund, refinance, discharge or otherwise retire for value, in whole or in part (collectively, "repay"), or constituting an amendment, modification or supplement to or a deferral or renewal of (collectively, an "amendment"), any Indebtedness of Kaiser or any of its Restricted Subsidiaries existing immediately after the original issuance of the new notes or incurred pursuant to the provisions of the covenant described under "Limitations on Additional Indebtedness" in a principal amount not in excess of the principal amount of the Indebtedness so refinanced; provided that: (i) the Refinancing Indebtedness is the obligation of the same Person, and is subordinated to the new notes, if at all, to the same extent, as the Indebtedness being repaid; (ii) the Refinancing Indebtedness is scheduled to mature either (a) no earlier than the Indebtedness being repaid or (b) after the maturity date of the new notes; and (iii) the portion, if any, of the Refinancing Indebtedness that is scheduled to mature on or prior to the maturity date of the new notes has a Weighted Average Life to Maturity at the time such Refinancing Indebtedness is incurred that is equal to or greater than the Weighted Average Life to Maturity of the portion of the Indebtedness being repaid that is scheduled to mature on or prior to the maturity date of the new notes. "Related Business Investment" means any Investment directly by Kaiser or one or more of its wholly owned Restricted Subsidiaries in any business that is closely related to or complements the business of Kaiser and its subsidiaries as such business exists on the date thereof. "Restricted Debt Payment" means any purchase, redemption, defeasance (including without limitation in substance or legal defeasance) or other acquisition or retirement for value, directly or indirectly, by Kaiser or a Subsidiary of Kaiser, prior to the scheduled maturity or prior to any scheduled repayment of principal or sinking 57 fund payment, as the case may be, in respect of Indebtedness of Kaiser that is subordinate in right of payment to the new notes other than a Restricted Debt Payment made with the proceeds of a substantially concurrent sale (other than to a Subsidiary of Kaiser or an employee stock ownership plan) of Kaiser's Qualified Capital Stock, provided that all Indebtedness so purchased, redeemed, defeased or otherwise acquired or retired for value promptly is surrendered for cancellation to the Trustee for such Indebtedness. "Restricted Investment," with respect to any Person, means any Investment by such Person in any of its Affiliates or in any Person other than a wholly owned Restricted Subsidiary other than (i) a Permitted Investment or (ii) an Investment made with the proceeds of a substantially concurrent sale (other than to a Subsidiary of Kaiser or an employee stock ownership plan) of Kaiser's Qualified Capital Stock. "Restricted Payment" means with respect to any Person: (i) the declaration of any dividend (other than a dividend declared by a wholly owned Restricted Subsidiary to holders of its Common Equity) or the making of any other payment or distribution of cash, securities or other property or assets in respect of such Person's Capital Stock, except that a dividend payable solely in Qualified Capital Stock of such Person shall not constitute a Restricted Payment (for purposes of this clause (i), the declaration of any such dividend, or the making of any other such distribution, by any Restricted Subsidiary shall only constitute a Restricted Payment to the extent of the amounts paid or payable to Persons other than Kaiser or a wholly owned Restricted Subsidiary); (ii) any payment on account of the purchase, redemption, retirement or other acquisition for value of such Person's Capital Stock or any other payment or distribution made in respect thereof, either directly or indirectly (other than a payment solely in Qualified Capital Stock); (iii) any Restricted Investment; or (iv) any Restricted Debt Payment. "Restricted Subsidiary" means each of the subsidiaries of Kaiser which, as of the determination date, is not an Unrestricted Subsidiary of Kaiser. "Senior Indebtedness" means all Indebtedness of Kaiser other than Indebtedness that is specifically designated, by the terms of the instrument creating or evidencing the same, as not being senior in right of payment to the new notes. "Single Purpose Subsidiary" of any Person means a Subsidiary of such Person which has no subsidiaries other than Unrestricted Subsidiaries and the activities of which are limited to (i) ownership of all or a portion of the interests in a single project constituting one or more Permitted Businesses, either directly or through the ownership of the Capital Stock of another Person, and (ii) the development, engineering, design, project management, construction or operation of such project. "Unrestricted Subsidiary" means: [American Venture Holdings, Inc., a Delaware corporation; American Venture Investments Incorporated, a Delaware corporation; Excell Development Construction, Inc., a Delaware corporation; International Systems, Inc., a Colorado corporation; ICF Environment, a French corporation; ICF Kaiser Holdings Unlimited, Inc., a Delaware corporation; ICF Leasing Corporation, Inc., a Delaware corporation; Cygna Energy Services, a California corporation; and Cygna Energy Services Michigan, Inc., a Michigan corporation], and each of the other subsidiaries of Kaiser so designated by a resolution adopted by the Board of Directors of Kaiser and whose creditors have no direct or indirect recourse (including without limitation recourse with respect to the payment of principal of or interest on Indebtedness of such Subsidiary) to Kaiser or a Restricted Subsidiary other than a Lien on the Capital Stock of such Unrestricted Subsidiary; provided, however, that (a) no Subsidiary may be an Unrestricted Subsidiary if it owns any Capital Stock of a Restricted Subsidiary and (b) the Board of Directors of Kaiser will be prohibited after the date of the indenture from designating as an Unrestricted Subsidiary any Subsidiary existing on the date of the indenture. The Board of Directors of Kaiser may designate an Unrestricted Subsidiary to be a Restricted Subsidiary, provided that (i) any such designation shall be deemed to be an incurrence by Kaiser and its Restricted Subsidiaries of the Indebtedness (if any) of such designated Subsidiary for purposes of the Limitations on Additional Indebtedness covenant in the indenture as of the date of such designation and (ii) immediately after giving effect to such designation and the incurrence of any such additional Indebtedness, Kaiser and its Restricted Subsidiaries could incur $1.00 of additional Senior Indebtedness pursuant to the Consolidated Fixed Charge Coverage Ratio set forth in the Limitations on Additional Indebtedness covenant described above. Any such designation or redesignation by the Board of Directors shall be evidenced to the Trustee by the filing with the Trustee of a certified copy of the Resolution of Kaiser's Board of Directors giving effect to such designation or redesignation and an officer's 58 certificate certifying that such designation or redesignation complied with the foregoing conditions and setting forth the underlying calculations of such certificate and upon which certificate the Trustee shall conclusively rely without any investigation whatsoever. "Voting Stock," with respect to any Person, means securities of any class of Capital Stock of such Person entitling the holders thereof (whether at all times or only so long as no senior class of stock has voting power by reason of any contingency) to vote in the election of members of the board of directors of such Person. "Weighted Average Life to Maturity," when applied to any Indebtedness at any date, means the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payment of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment by (ii) the then outstanding principal amount of such Indebtedness. "Wholly Owned Restricted Subsidiary" of Kaiser means a Restricted Subsidiary of Kaiser, of which 100% of the Common Equity (except for directors' qualifying shares or certain minority interests owned by other Persons solely due to local law requirements that there be more than one stockholder, but which interest is not in excess of what is required for such purpose) is owned directly by Kaiser or through one or more wholly owned Restricted Subsidiaries of Kaiser. Satisfaction and Discharge of Indebtedness The indenture will be discharged and canceled upon payment of all the principal of, and interest on, the new notes, redemption of all the new notes or deposit with the Trustee of funds or obligations issued or guaranteed by the United States sufficient for such payment or redemption. The Trustee The Trustee is [____________________]. The indenture provides that, except during the continuance of an Event of Default, the Trustee will perform only those duties as are specifically set forth in the indenture. During the existence of an Event of Default, the Trustee will exercise those rights and powers vested in it under the indenture and will use the same degree of care and skill in its exercise as a prudent person would exercise under the circumstances in the conduct of such person's own affairs. The holders of a majority in outstanding amount of the new notes will have the right, during the continuance of an Event of Default, to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee. Subject to these provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the indenture at the request of any of the holders of new notes, unless they shall offer to the Trustee security or indemnity satisfactory to it. The indenture and provisions of the Trust Indenture Act of 1939, as amended, incorporated by reference into the indenture, contain limitations on the rights of the Trustee, should it become a creditor of Kaiser, to obtain payment of claims in certain cases, or to realize on property received in respect of any of these claims as security or otherwise. The Trustee will be permitted to engage in other transactions with Kaiser, provided, however, if it acquires any conflicting interest within the meaning of the Trust Indenture Act of 1939, as amended, it must eliminate this conflict or resign. Book-Entry, Delivery and Form The new notes will initially be issued in the form of one global new note. The global new note will be deposited on the date of the consummation of the exchange offer with the Trustee as custodian for The Depository Trust Company and registered in the name of Cede & Co., as nominee of the DTC. The DTC is a limited-purpose trust company that was created to hold securities for its participating organizations and to facilitate the clearance and settlement of transactions in securities between participants through 59 electronic book-entry changes in accounts of its participants. The DTC's participants include securities brokers and dealers, banks and trust companies, clearing corporations and certain other organizations. Access to the DTC's system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly. Persons who are not participants may beneficially own securities held by or on behalf of the DTC only through the DTC's participants or indirect participants. Kaiser expects that pursuant to procedures established by the DTC: . upon deposit of the global new note, the DTC will credit the accounts of participants exchanging old notes for new notes with portions of the principal amount of the global new note and . ownership of the notes evidenced by the global new note will be shown on, and the transfer of ownership will be effected only through, records maintained by the DTC, with respect to the interests of the DTC's participants and the DTC's indirect participants. Holders of new notes are advised that the laws of some states require that certain persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer notes evidenced by the global new note will be limited to such extent. So long as the holder of the global new note is the registered owner of any new notes, the global new note holder will be considered the sole holder under the indenture of any notes evidenced by the global new note. Beneficial owners of new notes evidenced by the global new note will not be considered the owners or holders under the indenture for any purpose, including with respect to the giving of any directions, instructions or approvals to the Trustee. Neither Kaiser nor the Trustee will have any responsibility or liability for any aspect of the records of the depository or for maintaining, supervising or reviewing any records of the depository relating to the new notes. Payments in respect of the principal of and interest, if any, on any new notes registered in the name of the global new note holder on the applicable record date will be payable by the Trustee to or at the direction of the global new note holder in its capacity as the registered holder under the indenture. Under the terms of the indenture, Kaiser and the Trustee may treat the persons in whose names new notes, including the global new note, are registered as the owners for the purpose of receiving these payments. Consequently, neither Kaiser nor the Trustee has or will have any responsibility or liability for the payment of these amounts to beneficial owners of new notes. Kaiser believes, however, that it is currently the policy of the DTC to immediately credit the accounts of the relevant participants with these payments, in amounts proportionate to their respective holdings of beneficial interests in the relevant security as shown on the records of the DTC. Payments by the DTC's participants and the DTC's indirect participants to the beneficial owners of new notes will be governed by standing instructions and customary practice and will be the responsibility of the DTC's participants or the DTC's indirect participants. Certificated Notes. Any beneficial owner of new notes evidenced by the global new note may obtain notes in the form of registered certificated new notes. If Kaiser notifies the Trustee in writing that the DTC is no longer willing or able to act as a depository and Kaiser is unable to locate a qualified successor within 90 days then, upon surrender by the global new note holder of its global new note, new notes in this form will be issued to each person that the global new note holder and the DTC identify as being the beneficial owner of the related new notes. Neither Kaiser nor the Trustee will be liable for any delay by the global new note holder or the DTC in identifying the beneficial owners of notes and Kaiser and the Trustee may conclusively rely on, and will be protected in relying on, instructions from the global new note holder or the DTC for all purposes. Same-Day Settlement and Payment. The indenture will require that payments for the notes represented by the global new note, including principal, interest and liquidated damages, if any, be made by wire transfer of immediately available funds to the accounts specified by the global new note holder. With respect to certificated new notes, Kaiser will make all payments of principal, interest and liquidated damages, if any, by wire transfer of immediately available funds to the accounts specified by the holders or, if no account is specified, by mailing a check to each holder's registered address. Secondary trading in long-term notes and debentures of corporate issuers is generally settled in clearing-house or next-day funds. In contrast, the notes represented by the global new note are expected to trade in the DTC's same-day funds settlement system, and any permitted secondary market trading 60 activity in these notes will, therefore, be required by the DTC to be settled in immediately available funds. Kaiser expects that secondary trading in the certificated new notes will also be settled in immediately available funds. EXPERTS The consolidated financial statements incorporated in this prospectus by reference to the Annual Report on Form 10-K for the year ended December 31, 1998, have been incorporated by reference in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of that firm as experts in accounting and auditing. LEGAL MATTERS Squire, Sanders & Dempsey L.L.P. will pass upon the validity of the common stock and debt securities to be issued in the exchange offer. 61 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. Indemnification of directors and officers. Under the Delaware General Corporation Law (the "Delaware Law"), a corporation may indemnify any person who was or is a party or is threatened to be made a party to an action by reason of the person's past or present service as a director, officer, employee, or agent of the corporation or of the person's past or present service, at the corporation's request, as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise. Under the Delaware Law, a corporation may indemnify such persons against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement that are actually and reasonably incurred by that person in connection with such action. The Delaware Law provides, however, that such person must have acted in good faith and in a manner that such person reasonably believed to be in (or not opposed to) the corporation's best interests. In respect of any criminal action or proceeding, an indemnifiable person must have no reasonable cause to believe such conduct to be unlawful. In addition, the Delaware Law permits no indemnification in any action by or in the right of the corporation where such person has been adjudged liable to the corporation, unless, and only to the extent that, a court determines that such person fairly and reasonably is entitled to indemnity for such costs the court deems proper in spite of liability adjudication. The sections of the Company's Restated Certificate of Incorporation and Amended and Restated Bylaws relating to indemnification of directors and officers provide for mandatory indemnification of directors and officers on generally the same terms as permitted by the Delaware Law. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits EXHIBIT NO. DESCRIPTION OF EXHIBIT - ----------- ---------------------- 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, 1 993) 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) 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) 4(a)(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) 4(a)(2) Second Supplemental Indenture dated September 1, 1995 (Incorporated by reference to Exhibit No. 4(a)(2) to Registration Statement on Form S-1 Registration No. 33-64655 filed with the Commission on November 30, 1995) II-1 4(a)(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(a)(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) 4(a)(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) 4(a)(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) 4(a)(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) 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(d) 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) 4(d)(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) 4(d)(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(e) 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(f) 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) II-2 4(g) 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) *5 Opinion of Squire, Sanders & Dempsey L.L.P. regarding securities being registered 10(a) Loan and Security Agreement dated as of December 18, 1998, with Madeleine L.L.C. as agent (Incorporated by reference to Exhibit No. 10(a) to Annual Report on Form 10-K (Registrant No. 1-12248) filed with the Commission on April 15, 1999) 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) 10(b)(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) 10(b)(2) Amendment No. 2 dated December 15, 1995 (Incorporated by reference to Exhibit No. 10(b)(2) to Transition Report on Form 10-K (Registrant No. 1-12248) for the transition period from March 1, 1995 to December 31, 1995 filed with the Commission on March 29, 1996) 10(b)(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) 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) 10(d)(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) 10(d)(2) Amendment No. 2 dated December 15, 1995 (Incorporated by reference to Exhibit No. 10(d)(2) to Transition Report on Form 10-K (Registrant No. 1-12248) for the transition period from March 1, 1995 to December 31, 1995 filed with the Commission on March 29, 1996) 10(d)(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) II-3 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(j) WAS FILED IN PAPER ON MAY 23, 1995, ON FORM SE PURSUANT TO A CONTINUING HARDSHIP EXEMPTION and is incorporated herein by reference thereto) 10(j)(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) 10(j)(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) 10(j)(3) Modifications 47 to 81 to Contract #DE-AC3495RF00825 (Modifications 72 and 78 not received) (Incorporated by reference to Exhibit No. 10(j)(3) to Annual Report on Form 10-K (Registrant No. 1-12248) filed with the Commission on April 15, 1999) 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) II-4 10(k)(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) 10(k)(2) Amendment No. 2 dated December 15, 1995 (Incorporated by reference to Exhibit No. 10(p)(2) to Transition Report on Form 10-K (Registrant No. 1-12248) for the transition period from March 1, 1995 to December 31, 1995 filed with the Commission on March 29, 1996) 10(k)(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) 10(aa)(1) Agreement dated as of November 6, 1998, terminating Mr. Edwards' employment agreement (Incorporated by reference to Exhibit No. 10(aa)(1) to Annual Report on Form 10-K (Registrant No. 1-12248) filed with the Commission on April 15, 1999) 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) 10(dd)(1) Agreement dated as of August 7, 1998, terminating Dr. Tipermas' employment agreement (Incorporated by reference to Exhibit No. 10(dd)(1) to Annual Report on Form 10-K (Registrant No. 1-12248) filed with the Commission on April 15, 1999) 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) 10(ff) Employment Agreement with Thomas P. Grumbly, Executive Vice President of the Registrant, effective as of April 7, 1997 (Incorporated by reference to Exhibit No. 10(ff) II-5 to Annual Report on Form 10-K (Registrant No. 1-12248) filed with the Commission on April 15, 1999) 10(ff)(1) Letter dated March 15,1999, amending Mr. Grumbly's employment agreement (Incorporated by reference to Exhibit No. 10(ff)(1) to Annual Report on Form 10-K (Registrant No. 1-12248) filed with the Commission on April 15, 1999) 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) 10(ii)(1) Agreement and Mutual Release dated August 17, 1998, terminating Mr. Watson's employment agreement (Incorporated by reference to Exhibit No. 10(ii)(1) to Annual Report on Form 10-K (Registrant No. 1-12248) filed with the Commission on April 15, 1999) 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) 10(kk)(1) Agreement dated March 8, 1999, terminating Mr. Gaffney's employment agreement (Incorporated by reference to Exhibit No. 10(kk)(1) to Annual Report on Form 10-K (Registrant No. 1-12248) filed with the Commission on April 15, 1999) 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 (Incorporated by reference to Exhibit No. 10(mm) to Annual Report on Form 10-K (Registrant No. 1- 12248) filed with the Commission on April 15, 1999) 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) II-6 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) 10(oo)(1) Terms of Promotion for Mr. Price effective as of November 4, 1998 (Incorporated by reference to Exhibit No. 10(oo)(1) to Annual Report on Form 10-K (Registrant No. 1-12248) filed with the Commission on April 15, 1999) 10(oo)(2) Agreement dated April 27, 1999, terminating Mr. Price's employment agreement 10(pp) Employment Agreement with James J. Maiwurm, President and Chief Executive Officer of the Registrant, effective as of June 1, 1999 10(qq) Employment Agreement with S. Robert Cochran, Executive Vice President and President, North America of the Registrant, effective as of June 1, 1999 10(rr) Employment Agreement with Timothy P. O'Connor, Executive Vice President and Chief Financial Officer of the Registrant, effective as of June 1, 1999 *12 Statement regarding computation of ratio of earnings to fixed charges 21 Consolidated subsidiaries of the Registrant as of July 9, 1999 *23(a) Consent of Squire, Sanders & Dempsey L.L.P. (included in opinion filed as Exhibit 5) 23(b) Consent of PricewaterhouseCoopers LLP 24 Power of Attorney (included as part of the signature page to this Form S-4 Registration Statement) *25 Statement of Eligibility and Qualification on Form T-1 of Trustee *99 Form of Letter of Transmittal and Consent Form and related documents ____________ * To be filed by amendment. ITEM 22. UNDERTAKINGS (1) Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (2) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to Section 23(a) or Section 15(d) of the II-7 Securities Exchange Act of 1934 (the "Exchange Act") (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (4) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. (5) The undersigned registrant hereby undertakes: (a) To file, during any period in which offers and sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high and of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in "Calculation of Registration Fee" table in the effective registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that paragraphs (a)(i) and (a)(ii) do not apply if the registration statement is on Form S-3, Form S-8 or Form F-3, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to Section 13 of 15(d) of the Exchange Act that are incorporated by reference in the registration statement. (b) That for the purposes of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. II-8 SIGNATURES Pursuant to the requirements of the 1933 Act, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Fairfax, Virginia on July 9, 1999. ICF KAISER INTERNATIONAL, INC. By: /s/ James J. Maiwurm -------------------- Name: J. J. Maiwurm Title: Chairman, President and Chief Executive Officer - ------------------------------------------------------------------------------- POWER OF ATTORNEY Each of the undersigned hereby appoints James J. Maiwurm, Timothy P. O'Connor and Shaun M. Martin, and each of them severally, his or her true and lawful attorneys-in-fact to execute (in the name of and on behalf of and as attorneys for the undersigned) this Registration Statement on Form S-4 and any and all pre- and post-effective amendments to this Registration Statement on Form S-4 (including all amendments filed pursuant to Rule 462(b)), and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting each of such attorneys-in- fact full power and authority to do and perform each and every act requisite and necessary to be done as fully and to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that such attorneys- in-fact, or each of them, may lawfully do or cause to be done by virtue hereof. - ------------------------------------------------------------------------------- Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-4 has been signed below by the following persons in the capacities and on the dates indicated. (1) Principal executive officer Date: July 8, 1999 By /s/ James J. Maiwurm ------------------------------ James J. Maiwurm Chairman, President and Chief Executive Officer (2) Principal financial and accounting officer Date: July 8, 1999 By /s/ Timothy P. O'Connor ------------------------------ Timothy P. O'Connor Executive Vice President and Chief Financial Officer (3) The Board of Directors Date: July 8, 1999 By /s/ Tony Coelho ------------------------------ Tony Coelho Director S-1 Date: July 8, 1999 By /s/ Jarrod M. Cohen --------------------------------- Jarrod M. Cohen Director Date: July 8, 1999 By /s/ James O. Edwards --------------------------------- James O. Edwards Director Date: , 1999 By _______________________________ Thomas C. Jorling Director Date: July 8, 1999 By /s/ James J. Maiwurm --------------------------------- James J. Maiwurm Director Date: , 1999 By _______________________________ Hazel R. O'Leary Director Date: July 8, 1999 By /s/ Keith M. Price --------------------------------- Keith M. Price Director Date: July 8, 1999 By /s/ James T. Rhodes --------------------------------- James T. Rhodes Director Date: July 8, 1999 By /s/ Michael Tennenbaum --------------------------------- Michael E. Tennenbaum Director S-2 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION OF EXHIBIT - ---------- ---------------------- 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) 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) 4(a)(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) 4(a)(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) 4(a)(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(a)(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) 4(a)(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) 4(a)(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) 4(a)(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) 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(d) 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) 4(d)(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) 4(d)(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(e) 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(f) 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(g) 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) *5 Opinion of Squire, Sanders & Dempsey L.L.P. regarding securities being registered 10(a) Loan and Security Agreement dated as of December 18, 1998, with Madeleine L.L.C. as agent (Incorporated by reference to Exhibit No. 10(a) to Annual Report on Form 10-K (Registrant No. 1-12248) filed with the Commission on April 15, 1999) 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) 10(b)(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) 10(b)(2) Amendment No. 2 dated December 15, 1995 (Incorporated by reference to Exhibit No. 10(b)(2) to Transition Report on Form 10-K (Registrant No. 1-12248) for the transition period from March 1, 1995 to December 31, 1995 filed with the Commission on March 29, 1996) 10(b)(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) 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) 10(d)(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) 10(d)(2) Amendment No. 2 dated December 15, 1995 (Incorporated by reference to Exhibit No. 10(d)(2) to Transition Report on Form 10-K (Registrant No. 1-12248) for the transition period from March 1, 1995 to December 31, 1995 filed with the Commission on March 29, 1996) 10(d)(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(j) WAS FILED IN PAPER ON MAY 23, 1995, ON FORM SE PURSUANT TO A CONTINUING HARDSHIP EXEMPTION and is incorporated herein by reference thereto) 10(j)(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) 10(j)(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) 10(j)(3) Modifications 47 to 81 to Contract #DE-AC3495RF00825 (Modifications 72 and 78 not received) (Incorporated by reference to Exhibit No. 10(j)(3) to Annual Report on Form 10-K (Registrant No. 1-12248) filed with the Commission on April 15, 1999) 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) 10(k)(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) 10(k)(2) Amendment No. 2 dated December 15, 1995 (Incorporated by reference to Exhibit No. 10(p)(2) to Transition Report on Form 10-K (Registrant No. 1-12248) for the transition period from March 1, 1995 to December 31, 1995 filed with the Commission on March 29, 1996) 10(k)(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) 10(aa)(1) Agreement dated as of November 6, 1998, terminating Mr. Edwards' employment agreement (Incorporated by reference to Exhibit No. 10(aa)(1) to Annual Report on Form 10-K (Registrant No. 1-12248) filed with the Commission on April 15, 1999) 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) 10(dd)(1) Agreement dated as of August 7, 1998, terminating Dr. Tipermas' employment agreement (Incorporated by reference to Exhibit No. 10(dd)(1) to Annual Report on Form 10-K (Registrant No. 1-12248) filed with the Commission on April 15, 1999) 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) 10(ff) Employment Agreement with Thomas P. Grumbly, Executive Vice President of the Registrant, effective as of April 7, 1997 (Incorporated by reference to Exhibit No. 10(ff) to Annual Report on Form 10-K (Registrant No. 1-12248) filed with the Commission on April 15, 1999) 10(ff)(1) Letter dated March 15,1999, amending Mr. Grumbly's employment agreement (Incorporated by reference to Exhibit No. 10(ff)(1) to Annual Report on Form 10-K (Registrant No. 1-12248) filed with the Commission on April 15, 1999) 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, 199 7) 10(ii)(1) Agreement and Mutual Release dated August 17, 1998, terminating Mr. Watson's employment agreement (Incorporated by reference to Exhibit No. 10(ii)(1) to Annual Report on Form 10-K (Registrant No. 1- 12248) filed with the Commission on April 15, 1999) 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) 10(kk)(1) Agreement dated March 8, 1999, terminating Mr. Gaffney's employment agreement (Incorporated by reference to Exhibit No. 10(kk)(1) to Annual Report on Form 10-K (Registrant No. 1-12248) filed with the Commission on April 15, 1999) 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 (Incorporated by reference to Exhibit No. 10(mm) to Annual Report on Form 10-K (Registrant No. 1-12248) filed with the Commission on April 15, 1999) 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) 10(oo)(1) Terms of Promotion for Mr. Price effective as of November 4, 1998 (Incorporated by reference to Exhibit No. 10(oo)(1) to Annual Report on Form 10-K (Registrant No. 1-12248) filed with the Commission on April 15, 1999) 10(oo)(2) Agreement dated April 27, 1999, terminating Mr. Price's employment agreement 10(pp) Employment Agreement with James J. Maiwurm, President and Chief Executive Officer of the Registrant, effective as of June 1, 1999 10(qq) Employment Agreement with S. Robert Cochran, Executive Vice President and President, North America of the Registrant, effective as of June 1, 1999 10(rr) Employment Agreement with Timothy P. O'Connor, Executive Vice President and Chief Financial Officer of the Registrant, effective as of June 1, 1999 *12 Statement regarding computation of ratio of earnings to fixed charges 21 Consolidated subsidiaries of the Registrant as of July 9, 1999 *23(a) Consent of Squire, Sanders & Dempsey L.L.P. (included in opinion filed as Exhibit 5) 23(b) Consent of PricewaterhouseCoopers LLP 24 Power of Attorney (included as part of the signature page to this Form S-4 Registration Statement) *25 Statement of Eligibility and Qualification on Form T-1 of Trustee *99 Form of Letter of Transmittal and Consent Form and related documents _____________ * To be filed by amendment. EX-10.OO2 2 AGREEMENT TERMINATING MR PRICE'S EMPLOYMENT AGRMT EXHIBIT 10(00)(2) AGREEMENT AGREEMENT (this "Agreement"), dated as of April 27, 1999, by and between Keith M. Price, a resident of the State of Idaho ("Price") and his wife Georganne Price ("Spouse") on the one hand, and ICF Kaiser International, Inc., a Delaware corporation (the "Company") on the other hand. 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, Price presently serves as a member of the Board of Directors and President 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, Price and ICF Kaiser International, Inc. are parties to an Employment Agreement dated August 5, 1998, including any attachments thereto and any other agreements referred to therein or entered into pursuant thereto (collectively, the "Executive Agreement"); and WHEREAS, Price and ICF wish consensually to terminate the Executive Agreement and sever the employment relationship between Price 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 -------------- April 30, 1999 (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. Price 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, Price 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, provided -------- that Price shall be deemed to have resigned as President and Chief Executive Officer of ICF Kaiser International, Inc. as of April 17, 1999. Price's employment by ICF shall be deemed to have terminated as of the close of business on the Effective Date. Price shall not be deemed to have resigned from the ICF Kaiser International, Inc. Board of Directors. Following the Effective Date 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 Price 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 Price 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 Price and Spouse of the Release attached hereto, the following payments shall be made to Price and by wire transfer or direct deposit as directed by Price, except that Price 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 Price's elections): $ 677,450 within ten (10) business days after the Effective Date. 6. Consultation. During the period from the Effective Date until ------------ September 30, 2000, Price 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 Price and ICF. Such consultations shall include, without limitation, Price's service as Chair of the Company's Strategic Planning Committee. The activities of such Committee are outlined on Exhibit D attached hereto. Price's service as Chair of the Strategic Planning Committee shall include his active promotion of the interests of the Company as set forth in Exhibit D. Price shall be compensated monthly for services provided pursuant to this Section 6 at the rate of $200 per hour with a $10,000 per month minimum. In the event of Price's death or disability prior to September 30, 2000, and provided that he actively consults with the Company as contemplated by this Section 6 prior to such death or disability, the minimum payments contemplated by the preceding sentence shall continue to be made to Price (or Price's estate) through September 30, 2000. ICF shall reimburse Price for reasonable expenses incurred in connection with his consultation with ICF, subject to normal ICF reimbursement procedures. 7. Health and Insurance Benefits. Until April 30, 1999, Price and his ----------------------------- dependents shall receive the same health, welfare and life insurance benefits that would have been made -3- available to them had Price continued as an employee, and Price's family health benefits shall continue thereafter until April 30, 1999. After April 30, 1999, Price 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 Price's 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 April 30, 1999. 8. Options. ICF and Price acknowledge and agree that (a) Price 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 09/03/98 150,000 75,000 75,000 1 year 08/04/99 09/03/01 $1.39 11/04/98 50,000 0 50,000 1 year 11/04/99 11/04/01 $1.24
Notwithstanding the terms of the grant of the options granted on September 3, 1998, and November 4, 1998, 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 Price or, in the event of his death, his estate. 9. Payment of Certain Expenses. --------------------------- (a) In connection with Price's move from the Washington, DC area to Boise, Idaho, the Company will reimburse Price for the following costs and expenses, provided in each case that such costs are reasonable and -------- documentation is provided: -4- 1) the cost of moving Price's family and household goods from the Washington, DC area to Boise, Idaho; 2) costs related to termination of leases of home and furniture in Washington, DC area; and 3) travel expense for Price and his wife to return to Boise, Idaho from the Washington, DC area. (b) The expenses set forth in subsection (a) above shall, to the extent appropriate, be "grossed up." For this purpose, "grossed-up" means in case of a reimbursed expense that is taxable to Price and/or Spouse and is not deductible for Federal income tax purposes, that Price and/or Spouse will be paid an amount which, after Federal income taxes on such amount, will equal the amount of the non-deductible reimbursable expense. 10. Non Compete/Non Solicitation. ----------------------------- (a) Except as provided in paragraph (d) below, Price agrees that for a period commending as of the Effective Date and running through September 30, 2000 (the "Non-Competition Period"), Price 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 conduct of, planning for, or management of, or own any stock or any other equity investment in or debt of, any business which is directly in competition with any business conducted by the Company. For the purpose of this Agreement, a business shall be considered to be directly in competition 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 Company or provided by the Company during Prices' employment by the Company; (y) any services in the ordinary course -5- during the Non-Competition Period which evolves from or results from enhancements to the services provided by the Company as of the Effective Date hereof or during the Non-Competition Period; or (z) any future service 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 Company during the Non-Competition Period. (b) Non-Solicitation of Employees. During the Non-Competition Period, ----------------------------- Price 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 the Company to solicit, any officer, director, executive or employee of the Company or its affiliates to leave his or her employment. (c) Reasonableness. Price acknowledges the (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 related to the length of the Employment Period and the Company's agreement to provide severance benefits and pay for consultation as set forth in Sections 5 and 6; 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. (c) Investments. Nothing in the Agreement shall be deemed to prohibit ----------- Price 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 of other public market, or (ii) are approved by the Company. -6- 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, 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 Price 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, Price 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 Price 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 Price 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 ---------------------------------------------------------- -7- (a) Price 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 Price 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; (y) which has been disclosed to Price 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 Price. (b) Price shall have no ownership interest in any records, files, information, documents, or the like that belong to ICF which Price 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, Price 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, Price shall have returned to ICF all ICF property (other than the Toshiba Tecra 510 CDT laptop computer Serial No.02744 381-3 (ICF ID No. 1874) and associated software referred to in Section 13(c)below) that Price has in his possession. Nothing in this Agreement shall limit Price's right to remove personal effects from his office within five business days after the Effective Date. (c) Price shall be entitled to use the ICF-owned laptop computer and associated software to support his consultation with the Company. Until the end of his -8- consulting services with the Company, ICF will allow Price 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: (a) Each of ICF and Price 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 Price, as the case may be); and (b) Except for the press release attached as Exhibit A, neither the Company, nor any director or executive officer of the Company other than Price, James Maiwurm and Tony Coelho shall make any public statement or statement to the press concerning Price 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. -9- 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 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. Price and Spouse, on the one hand, and the Company, on ------------- the other hand, each agrees and acknowledges that the consideration received by it or them 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 them herein and in such General Releases 19. Expenses. ICF shall reimburse Price for all fees and expenses of -------- Price's counsel incident to the negotiation of this Agreement, up to a maximum of $1,000. 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. -10- 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 each and every paragraph of this Agreement and that they understand their respective rights and obligations. Price and Spouse declare that they have completely read this Agreement, fully understand 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 Price and Spouse, on the one hand, and the Company, on the other -11- hand, 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 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 -12- 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. IN WITNESS WHEREOF, Keith M. Price and Georganne Price, on the one hand, and ICF Kaiser International, Inc., on the other hand, have executed this Agreement. ICF Kaiser International, Inc. KEITH M. PRICE GEORGANNE PRICE By: __________________________ ______________________ _____________________ Dated: April 27, 1999 Dated: April 27, 1999 Dated: April 27, 1999 -13- EXHIBIT A PRESS RELEASE EXHIBIT B GENERAL RELEASE Each of KEITH M. PRICE and his wife, GEORGANNE PRICE, on behalf of themselves and their heirs, successors, agents, executors, administrators, attorneys and assigns, in consideration of the terms of the Agreement effective as of April 30, 1999 by and between ICF Kaiser International, Inc. ("ICF") and the two of us (the "Agreement") and the execution of a General Release ("Release") by ICF, with effect as of April 30, 1999, 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 either or us 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 neither of us 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. Each of us further agrees 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), each of us agree not to disclose the terms or provisions of this Release, or the fact of its existence, to any person or entity. Each of us understands and agrees 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. Each of us acknowledges that we have been advised to consult with an attorney prior to executing this Release. Each of us further acknowledge that we have been given a period of at least twenty-one (21) days within which to consider and execute this Release, unless we voluntarily choose to execute this Release before the end of the said twenty-one (21) day period. Once executed, we understand that we 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- Each of us acknowledges that each has read this Release, that we understand it, and that each is executing it freely and voluntarily. Each of us further understands 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. Each of us further acknowledges and agrees that, in the event either of us exercise our 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: April 27, 1999 ______________________ Keith M. Price ______________________ Georganne Price SUBSCRIBED AND SWORN to before me this ____ day of April 27, 1999. ______________________ Notary My commission expires: -3- ELECTION TO EXECUTE PRIOR TO EXPIRATION OF TWENTY-ONE DAY CONSIDERATION PERIOD I, Keith M. Price, 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: April 27, 1999 __________________________ Keith M. Price I, Georganne Price, 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: April 27, 1999 __________________________ Georganne Price -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 April 30, 1999 by and between Keith M. Price ("Price") and Georganne Price ("Spouse"), on the one hand, and ICF, on the other hand, (the "Agreement") and the execution of a General Release ("Release") by Price and Spouse, with effect as of April 30, 1999, hereby releases and forever discharges Price and Spouse and their 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 them, 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 Price and Spouse from any of their - ------- 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 Price or Spouse 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 Price or Spouse 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 Price and Spouse. This Release is executed in connection with, and is subject to the terms of, the Agreement. ICF KAISER INTERNATIONAL, INC. Date: April 27, 1999 By:________________________________ Its Duly Authorized Representative SUBSCRIBED AND SWORN to before me this ______ day of April 1999. _______________________ Notary My commission expires: -2- EXHIBIT D STRATEGIC PLANNING COMMITTEE ---------------------------- Overview - -------- Under the direction of Keith Price, the Strategic Planning Committee will: 1. Provide an evaluation of the remaining E&C lines of business. 2. Make recommendations as to what lines of business the Company should focus on or de-emphasize, as the case may be. 3. Recommend targeted line of business opportunities not presently being pursued, or not being pursued with sufficient vigor, that are consistent with the Company's current operational structure and financial position. 4. Suggest potential customer-specific targeted business development opportunities in which Keith Price will play a lead role. 5. Develop performance guidelines by which to measure the Company's performance and progress toward meeting industry standards. Evaluation of Current Lines of Business - --------------------------------------- The Committee will evaluate the Company's current lines of business, including an analysis of the following factors: 1. Recent (1997, 1998, 1/st/ Quarter 1999) profitability 2. Current performance 3. Strength of backlog and "pipeline" 4. Working capital requirements 5. Current market perception of Company - including historical strengths 6. Strengths/weaknesses of existing personnel 7. Overview of domestic and international customer/market growth prospects 8. Recommendation for enhanced performance and growth Prioritization of Existing Business Opportunities - ------------------------------------------------- Based on the evaluation of the Company's existing lines of business as described above, the Committee will formulate recommendations for areas of emphasis and de-emphasis among the Company's current lines of business. The analysis will include suggestions for domestic/international business mix, government private business mix, engineering versus construction management, and areas in which the Company should strive to become a leading turnkey services provider. This evaluation should include recommended action plans for each existing line of business. Targeted Lines of Business Development - -------------------------------------- The Committee will identify business activities consistent with the Company's strengths and financial position that are not presently being pursued, or not being pursued with sufficient vigor. This analysis will focus on new lines of business opportunities that take advantage of the Company's current strengths with little or no investment. The Committee will identify potential domestic and international strategic alliances that could expand business opportunities with little or not cash investment. Targeted Customer-Specific Development Opportunities - ---------------------------------------------------- Mr. Price has a wealth of contacts in the E&C business, and with the assistance of other Committee members, Mr. Price will formulate plans as to how the Company may take advantage of those contacts. This will include specific action plans for each potential targeted customer, including identification of individuals within the Company who should assist Mr. Price in follow-up activities. -2- Performance Guidelines - ---------------------- The Committee will recommend yardsticks by which the Company should measure its performance and progress toward achieving industry standards. For example, the Committee may formulate recommendations as to overhead/indirect expense levels, business development expenditures, target margin pricing guidelines, etc. -3- EX-10.PP 3 EMPLOYMENT AGREEMENT - JAMES J. MAIWURM EXHIBIT 10(pp) EMPLOYMENT AGREEMENT -------------------- THIS AGREEMENT is made as of the 1st day of June, 1999, by and between ICF Kaiser International, Inc., a Delaware corporation (the "Corporation"), and James J. Maiwurm, a resident of the Commonwealth of Virginia (the "Executive"). WHEREAS, the Executive commenced employment on April 19, 1999 as President and Chief Executive Officer of ICF Kaiser International, Inc.; and WHEREAS, the Executive and the Corporation wish to formalize the terms of the employment relationship; NOW, THEREFORE, in consideration of the premises and the mutual agreements made herein, and intending to be legally bound hereby, the Corporation and the Executive agree as follows: 1. Employment; Duties. ------------------- (a) Employment and Employment Period. The Corporation shall employ -------------------------------- the Executive to serve as President and Chief Executive Officer of ICF Kaiser International, Inc., as set forth below, for a continuous period of 2 years commencing June 1, 1999 (the "Employment Period"). The Employment Period may be extended by mutual agreement of the parties. (b) Offices, Duties and Responsibilities. Executive has been elected ------------------------------------ President and Chief Executive Officer of ICF Kaiser International, Inc. The Executive shall report to the Board of Directors of the Corporation (the "Board"). The Executive will have full authority over all operations of the Corporation. The Executive's offices shall be located at the Corporation's headquarters building in Fairfax, Virginia. (c) Devotion to Interests of the Corporation. Except as expressly ---------------------------------------- authorized by the Board, or the Compensation and Human Resources Committee of the Board (the "Compensation Committee"), until the effective date of notice of termination of the Executive's employment by either the Executive or the Corporation, the Executive will not, without the prior written consent of the Company, directly or indirectly engage in any other business activities or pursuits, except activities in connection with (i) any professional, charitable or civic activities (other than as an officer or board member), (ii) personal investments, and (iii) serving as an executor, trustee or in another similar fiduciary capacity for a non-commercial entity; provided, however, that any such activities do not materially interfere with the performance of his responsibilities and obligations pursuant to this Agreement. The Executive shall use his best efforts to promote the interests and welfare of the Corporation. 2. Compensation and Fringe Benefits. -------------------------------- (a) Base Compensation. The Corporation shall pay the Executive a base ----------------- salary at the rate of $375,000 per year through June 1, 2000, in installments in accordance with the Corporation's regular practice for compensating executive personnel. The amount of the Executive's base compensation shall be subject to adjustment as recommended by the Compensation Committee. (b) Annual Incentive Bonus. The Executive is entitled to an annual ---------------------- incentive bonus in an amount not to exceed $387,500 (representing a bonus opportunity equal to 50% of the Executive's initial annual base salary that is contingent on satisfaction of operational objectives and a special bonus opportunity of $200,000 that is contingent on satisfaction of recapitalization objectives) payable at the time and contingent upon the extent to which the Corporation achieves specified objectives set forth at Attachment A. In subsequent years, Executive shall be entitled to a bonus opportunity as set by the Compensation Committee in its discretion. (c) Retention Bonus. The Executive shall be entitled to a retention --------------- bonus in the amount of $90,000, payable promptly following execution of this Agreement. The Executive will be entitled to a second retention bonus in the amount of $90,000, payable on May 1, 2000, provided that the Executive is employed with the Corporation on May 1, 2000. (d) Fringe Benefits. The Executive shall also be entitled to such --------------- fringe benefits as are generally made available by the Corporation to executive personnel. Such benefits shall include participation in the Corporation's defined contribution retirement plan, 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 Corporation's business and affairs and will be paid by the Corporation in a manner consistent with past practice and as amended by any subsequent changes of corporate policy. 3. Trade Secrets. The Executive shall not use or disclose any of the ------------- Corporation's trade secrets or other confidential information. The term "trade secrets or other confidential information" includes, by way of example, matters of a technical nature, such as scientific, trade and engineering secrets, "know- how", formulae, secret processes or machines, inventions, computer programs (including documentation of such programs) and research projects, and matters of a business nature, such as proprietary information about costs, profits, markets, sales, lists of customers, plans for future development, and other information of a similar nature that is designated as confidential or generally maintained as confidential or proprietary by the Corporation. After termination of Executive's employment, 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 the Corporation's policies or is disclosed to the Executive by a third party who is entitled to receive and disclose such information. 4. Return of Documents and Property. Upon the effective date of -------------------------------- notice of the Executive's or the Corporation's election to terminate Executive's employment, or at any time 2 upon the request of the Corporation, the Executive (or his heirs or personal representatives) shall deliver to the Corporation (a) all documents and materials containing trade secrets or other confidential information relating to the Corporation's business and affairs, and (b) all documents, materials and other property belonging to the Corporation, which in either case are in the possession or under the control of the Executive (or his heirs or personal representatives). 5. Discoveries and Works. All discoveries and works made or conceived by --------------------- the Executive during his employment by the Corporation, jointly or with others, that relate to the Corporation's activities shall be owned by the Corporation. The term "discoveries and works" includes, by way of example, inventions, computer programs (including documentation of such programs), technical improvements, processes, drawings and works of authorship. The Executive shall (a) promptly notify, make full disclosure to, and execute and deliver any documents requested by, the Corporation to evidence or better assure title to such discoveries and works in the Corporation, (b) assist the Corporation in obtaining or maintaining for itself at its own expense United States and foreign patents, copyrights, trade secret protection or other protection of any and all such discoveries and works, and (c) promptly execute, whether during his employment by the Corporation or thereafter, all applications or other endorsements necessary or appropriate to maintain patents and other rights for the Corporation and to protect its title thereto. Any discoveries and works which, within six months after the termination of the Executive's employment by the Corporation, are made, disclosed, reduced to a tangible or written form or description, or are reduced to practice by the Executive and which pertain to the business carried on or products or services being sold or developed by the Corporation at the time of such termination shall, as between the Executive and the Corporation, be presumed to have been made during the Executive's employment by the Corporation. Set forth on Schedule 5 attached hereto is a list of inventions, patented or unpatented, including a brief description thereof, which are owned by the Executive, which the Executive conceived or made prior to his employment by the Corporation and which are excluded from this Agreement. 6. Termination. ----------- (a) Upon 30 days' prior written notice the Corporation may terminate the Executive's employment, with or without "cause," as defined in Section 6(f) below. Upon 30 days' prior written notice the Executive may terminate his employment, with or without "good reason," as defined in Section 6(e) below. Upon any termination of the Executive's employment for any reason, the Corporation shall: (i) pay to the Executive any unpaid salary through the date of termination; (ii) pay to the Executive any unpaid bonus payments earned through the date of termination under the terms of applicable bonus arrangements; and 3 (iii) provide to or for the benefit of the Executive the benefits, if any, otherwise expressly provided under this Section 6, Section 7 or Section 8, as applicable. Any payments under this Section 6, Section 7 or Section 8 that are to be made in connection with the termination of Executive's employment will be paid in cash (with deduction of such amount as may be required to be withheld under applicable law and regulations) within ten business days of Executive's termination of employment. All other compensation and employment benefit arrangements provided for in this Agreement shall cease upon such termination of employment except to the extent required by law or otherwise expressly provided by such arrangement. The Executive hereby agrees that he shall not under any circumstances be entitled to benefits under the Corporation's Senior Executive Officer's Severance Plan as in effect on the date hereof notwithstanding anything to the contrary herein or under the terms of such plan, and hereby releases any claims for benefits under such plan. (b) In the event the Corporation terminates the Executive's employment without "cause" or the Executive terminates his employment for "good reason," then, in addition to the benefits provided for under Sections 6(a)(i) and 6(a)(ii) and subject to the provisions of Section 8, the Corporation shall pay to the Executive a severance payment equal to two times the Executive's annual base salary. In addition, all unvested stock options and any other equity-based compensation arrangements will vest in full on the effective date of such termination and all vested stock options shall be exercisable for the shorter of one (1) year from the date of such termination and until they expire in accordance with their original maximum term. (c) In the event the Corporation terminates the Executive's employment for "cause," then, in addition to the benefits provided for under Sections 6(a)(i) and 6(a)(ii), all unvested stock options and any other equity- based compensation arrangements shall be terminated and all vested stock options shall be exercisable for the shorter of thirty (30) days from the date of such termination and until they expire in accordance with their original maximum term. (d) In the event the Executive terminates his employment without "good reason," then, in addition to the benefits provided for under Sections 6(a)(i) and 6(a)(ii), all unvested stock options and any other equity-based compensation arrangements shall be terminated and all vested stock options shall be exercisable for the shorter of one (1) year from the date of such termination and until they expire in accordance with their original maximum term. (e) For purposes of this Agreement, the Executive shall be considered to have "good reason" to terminate his employment if without his express written consent (i) the responsibilities of the Executive are substantially reduced or altered (except in connection with the termination of his employment voluntarily by the Executive, by the Corporation for "cause," or under the circumstances described in Section 8 hereof), (ii) Executive's annual base salary is reduced, or (iii) the Executive's offices are relocated anywhere other than within a fifty (50) mile radius of his office in Fairfax, Virginia. 4 (f) For purposes of this Agreement, the Corporation shall have "cause" to terminate the Executive's employment hereunder upon (i) the continued, willful and deliberate failure of the Executive to perform his duties, in a manner substantially consistent with the manner prescribed by the Board (other than any such failure resulting from his incapacity due to physical or mental illness), (ii) the engaging by the Executive in misconduct materially and demonstrably injurious to the Corporation, (iii) the conviction of the Executive of commission of a felony, whether or not such felony was committed in connection with the Corporation's business, or (iv) the circumstances described in Section 8 hereof, in which case the provisions of Section 8 shall govern the rights and obligations of the parties. 7. Change in Control. ----------------- (a) All unvested stock options or any other equity-based compensation arrangements theretofore granted to Executive shall vest in full on the date of a "Change in Control" (as defined in Section 7(d) below). (b) In the event that the Corporation terminates the Executive's employment with the Corporation without "cause" within twelve months after a "Change in Control" (as defined in Section 7(d) below), or if the Executive terminates his employment with the Corporation for "good reason" within twelve months after a "Change in Control" (as defined in Section 7(d) below), then, in addition to the benefits provided for under Sections 6(a)(i) and 6(a)(ii), the Corporation shall pay to the Executive a severance payment equal to two times the Executive's annual base salary. In addition, all vested stock options shall be exercisable for the shorter of one (1) year from the date of such termination and until they expire in accordance with their original maximum term. (c) If the Executive terminates his employment with the Corporation without "good reason" within twelve months after a Change in Control, then, in addition to the benefits provided for under Sections 6(a)(i) and 6(a)(ii), the Corporation shall pay to the Executive a severance payment equal to one times the Executive's annual base salary. In addition, all vested stock options shall be exercisable for the shorter of one (1) year from the date of such termination and until they expire in accordance with their original maximum term. (d) For purposes of this Agreement, "Change in Control" shall mean an occurrence of any of the following events: (i) an acquisition (other than directly from the Corporation) of any voting securities of the Corporation (the "Voting Securities") by any "person or group" (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934) other than an employee benefit plan of the Corporation, immediately after which such person or group has "Beneficial Ownership" (within the meaning of Rule 13d- 3 under the Exchange Act) of more than thirty-five percent (35%) of the combined voting power of the Corporation's then outstanding Voting Securities; 5 (ii) approval by the stockholders of (1) a merger, consolidation or reorganization involving the Corporation, unless the company resulting from such merger, consolidation or reorganization (the "Surviving Corporation") shall adopt or assume this Agreement and either (A) the stockholders of the Corporation immediately before such merger, consolidation or reorganization own, directly or indirectly immediately following such merger, consolidation or reorganization, at least fifty percent (50%) of the combined voting power of the Surviving Corporation in substantially the same proportion as their ownership immediately before such merger, consolidation or reorganization, or (B) at least a majority of the members of the Board of Directors of the Surviving Corporation were directors of the Corporation immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization, (2) a complete liquidation or dissolution of the Corporation, or (3) a sale or transfer of all or substantially all of the assets of the Corporation or of assets that during the current or either of the prior two fiscal years accounted for more than 50% of the Company's revenues or income (in each case, other than to a wholly-owned Subsidiary), provided, however, that -------- ------- the disposition of assets in connection with the sale of the Environment and Facilities Management (EFM) Group or the Consulting Group shall not be included in determining whether there has been a Change in Control; (iii) if for any reason a majority of the Board is not comprised of "Continuing Directors," where a "Continuing Director" of the Corporation as of any date means a member of the Board who (1) was a member of the Board on April 19, 1999 or (2) was nominated for election or elected to the Board with the affirmative vote of at least two-thirds of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that no -------- ------- individual initially elected or nominated as a director of the Corporation as a result of an actual or threatened election contest with respect to directors or any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board shall be deemed to be a Continuing Director; or (iv) such other events as the Board or a duly authorized committee of the Board from time to time may specify. (e) In the event that, as a result of payments to or for the benefit of Executive under this Agreement or otherwise in connection with a Change in Control, any state, local or federal taxing authority imposes any taxes on the Executive that would not be imposed but for 6 the occurrence of a Change in Control, including any excise tax under Section 4999 of the Internal Revenue Code and any successor or comparable provision, then, in addition to the benefits provided for under Sections 6(a)(i) and 6(a)(ii) and under Sections 7(a), 7(b) and 7(c) the Corporation (including any successor to the Corporation) shall pay to the Executive at the time any such tax becomes payable an amount equal to the amount of any such tax imposed on the Executive (the amount of any such payment, the "Parachute Tax Reimbursement"). In addition, the Corporation (including any successor to the Corporation) shall "gross up" such Parachute Tax Reimbursement by paying to the Executive at the time any such tax becomes payable an additional amount equal to the aggregate amount of any additional taxes (whether income taxes, excise taxes, special taxes, employment taxes or otherwise) that are payable by the Executive as a result of the Parachute Tax Reimbursement being payable to the Executive and/or as a result of the additional amounts payable to the Executive pursuant to this sentence, such that after payment of such additional taxes the Executive shall have been paid on an after-tax basis an amount equal to the Parachute Tax Reimbursement. 8. Disability; Death. ----------------- (a) If, prior to the expiration or termination of the Employment Period, the Executive shall be unable to perform his duties by reason of disability or impairment of health for at least six consecutive calendar months, the Corporation shall have the right to terminate the Executive's employment on account of disability by giving written notice to the Executive to that effect, but only if at the time such notice is given such disability or impairment is still continuing. In the event of a dispute as to whether the Executive is disabled within the meaning of this Section 8(a), either party may from time to time request a medical examination of the Executive by a doctor appointed by the Chief of Staff of a hospital selected by mutual agreement of the parties, or as the parties may otherwise agree, and the written medical opinion of such doctor shall be conclusive and binding upon the parties as to whether the Executive has become disabled and the date when such disability arose. The cost of any such medical examinations shall be borne by the Corporation. If the Corporation terminates the Executive's employment on account of disability, then, in addition to the benefits provided for under Sections 6(a)(i) and 6(a)(ii), all unvested stock options and any other equity-based compensation arrangements shall be terminated and all vested stock options shall be exercisable for the shorter of one (1) year from the date of such termination and until they expire in accordance with their original maximum term. (b) If, prior to the expiration or termination of the Employment Period, the Executive shall die, then, in addition to the benefits provided for under Sections 6(a)(i) and 6(a)(ii), the Employment Period shall terminate without further notice. In such an event, all unvested stock options and any other equity-based compensation arrangements shall be terminated and all vested stock options shall be exercisable for the shorter of one (1) year from the date of Executive's death and until they expire in accordance with their original maximum term. (c) Nothing contained in this Section 8 shall impair or otherwise affect any rights and interests of the Executive under any insurance arrangements, death benefit plan or 7 other compensation plan or arrangement of the Corporation which may be adopted by the Board. 9. Non-Competition/Non-Solicitation. -------------------------------- (a) Non-Competition. The Executive agrees that for a period ---------------- commencing on the Effective Date and ending (i) on the date of termination of the Executive's employment (x) by the Corporation for reasons that do not constitute "cause" as defined in Section 6, above, or (y) by the Executive for "good reason" as defined in Section 6(b), above, or (ii) one year following termination of the Executive's employment (x) by the Corporation for "cause" or (y) by the Executive for reasons that do not constitute "good reason", provided -------- that the Corporation is not in material breach of this Agreement (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 comparable capacity, in the 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 Corporation. For the purpose of this Agreement, a business shall be considered to be competitive with the business of the Corporation only if such business is engaged in providing services similar to (i) any service currently provided by the Corporation or provided by the Corporation during the Employment Period, other than services provided solely by the Corporation's Consulting Group; (ii) any service which in the ordinary course of business during the Non-Competition Period evolves from or results from enhancements to the services provided by the Corporation as of the Effective Date or during the Non-Competition; or (iii) any future service of the Corporation as to which the Executive materially and substantially participated in the design or enhancement. (b) Non-Solicitation of Employees. During the Non-Competition Period, ------------------------------ the Executive will not (for the Executive's own benefit or for the benefit of any person or entity other than the Corporation) solicit, or assist any person or entity other than the Corporation to solicit, any officer, director, executive or employee of the Corporation or its affiliates to leave his or her employment. (c) Reasonableness. The Executive acknowledges that (i) the markets --------------- served by the Corporation 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 related to the length of the Employment Period and the Corporation's agreement to provide severance benefits as set forth in Sections 6 or 7, above, that, under certain circumstances, will provide additional compensation to Executive upon the termination of the Executive's employment; and (iii) the above covenants are 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 Corporation. (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 8 entity which is competitive with the Corporation, 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 Corporation. 10. Waiver. The waiver of the breach of any term or provision of this ------ Agreement shall not operate as or be construed to be a waiver of any other or subsequent breach of this Agreement. Failure by the Executive or the Corporation to insist upon strict compliance with any provision of this Agreement or to assert any right the Executive or the Corporation may have hereunder, including, without limitation, the right of the Executive to terminate employment for "good reason," shall not be deemed to be a waiver of such provision or right or of any other provision or rights under this Agreement. 11. Enforcement. The Executive agrees that the Corporation's remedies at ------------ law for any breach or threat of breach by him of Sections 3, 4, 5, or 9 hereof will be inadequate, and that the Corporation shall be entitled to an injunction or injunctions to prevent breaches of Sections 3, 4, 5, or 9 hereof and to enforce specifically the terms and provisions thereof, in addition to any other remedy to which the Corporation may be entitled at law or equity. If the Corporation sues to enforce Sections 3, 4, 5, or 9 hereof and fails to prevail in such proceeding, the court shall award to the Executive his reasonable fees for his attorneys, the reasonable expenses of his witnesses, and any other reasonable expenses incurred in connection with the proceeding to the extent that the court determines that the Executive has prevailed in such proceeding. 12. Arbitration. Any dispute or claim other than those referred to in ----------- Section 11, arising out of or relating to this Agreement or otherwise relating to the employment relationship between the Executive and the Corporation, shall be submitted to Arbitration, in Fairfax County, Virginia, before a single arbitrator, in accordance with the rules of the American Arbitration Association as the exclusive remedy for such claim or dispute. The Executive and the Corporation agree that such arbitration will be confidential and no details, descriptions, settlements or other facts concerning such arbitration shall be disclosed or released to any third party without the specific written consent of the other party, unless required by law or court order or in connection with enforcement of any decision in such arbitration. Any damages awarded in such arbitration shall be limited to the contract measure of damages, and shall not include punitive damages. In any proceeding, whether commenced by the Executive or by the Corporation, the arbitrator shall award to the Executive his reasonable fees for his attorneys, the reasonable expenses of his witnesses, and any other reasonable expenses incurred in connection with the arbitration to the extent that the arbitrator determines that the Executive has prevailed in such proceeding. 13. Full Settlement. The Corporation's obligation to make any payments --------------- provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Corporation may have against the Executive or others. In no event shall the Executive be obligated to seek 9 other employment or take other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment. 14. 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. 15. Counterparts. This Agreement may be executed in any number of ------------ counterparts, and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute one and the same instrument. 16. Assignment. The Executive's rights and obligations under this ----------- Agreement shall not be assignable by the Executive. The Corporation's rights and obligations under this Agreement shall not be assignable by the Corporation except as incident to the transfer, by merger or otherwise, of all or substantially all of the business of the Corporation in a transaction in which the successor entity remains obligated under, or by operation of law or otherwise assumes, the Corporation's obligations under this Agreement. In the event of any such assignment by the Corporation, all rights of the Corporation hereunder shall inure to the benefit of the assignee. 17. 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 sent by registered or certified U.S. mail, UPS or FedEx, properly addressed in a sealed envelope, with delivery charges prepaid. Unless otherwise changed by notice, notice shall be properly addressed to Executive if addressed to: James J. Maiwurm 9419 Brian Jac Lane Great Falls, VA 22066 and properly addressed to the Corporation if addressed to: ICF Kaiser International, Inc. 9300 Lee Highway Fairfax, Virginia 22031-1207 Attn: General Counsel 18. Miscellaneous. This Agreement constitutes the entire agreement, and -------------- terminates and supersedes all prior agreements, of the parties hereto relating to the subject matter hereof, and there are no written or oral terms or representations made by either party other than those contained herein, except that nothing contained in this Agreement shall invalidate or supersede 10 the terms of any previously or subsequently granted stock options or other equity-based compensation arrangements (including without limitation the provisions thereof relating to post-termination exercisability) to the extent that such stock options or arrangements provide more favorable terms to the Executive. The validity, interpretation, performance and enforcement of this Agreement shall be governed by the laws of the Commonwealth of Virginia. The headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the day and year first above written. ______________________________________________ James J. Maiwurm, Executive ICF KAISER INTERNATIONAL, INC. By____________________________________________ Hazel R. O'Leary Chair, Compensation and Human Resources Committee, Board of Directors 11 SCHEDULE 5 ---------- Inventions Owned by the Executive NONE 12 ATTACHMENT A ------------ Title: Chief Executive Officer Overview: . This Attachment A describes the annual incentive bonus plan in which the named executive will participate from 6/1/99 through 5/31/00. . The executive's performance will be assessed against the following objectives as described in this Attachment A: - Cost Savings - EBITDA Improvement - Completion of Recapitalization COST SAVINGS - ------------ Goal: $19 million in total Company cost savings achieved between 3/31/99 and 11/30/99 Measurement: Reduction in the annualized run rate of the Company's costs, exclusive of the costs associated with the discontinued operations of the EFM and Consulting Groups, as set forth in the financial statements of the Company as filed with the Securities and Exchange Commission and prepared in accordance with GAAP on a consistent basis, as compared to the annualized run rate of such costs for the quarter ended March 31, 1999. Cost savings will be measured on three Measurement Dates as indicated below, and will be based on costs for the month ending on each of the three Measurement Dates. For purposes of measuring cost reductions, costs will be categorized as either direct (those incurred directly and solely for the benefit of a project) or indirect (those incurred for the general operations of the Company). Direct Costs: To reflect the fact that direct costs may increase as the business begins to prosper, direct cost reductions will be measured as follows: Changes in direct subcontract and materials will be excluded from measurement. Changes in direct labor and fringe benefits will be measured based on the change in the relationship of such costs to service revenue. 13 Example of Direct Cost Savings Calculation: Annualized Rate Thru March 31, 1999 at Measurement Date -------------------- -------------------- Service revenue $27,877 $111,000 Direct labor and fringe 17,837 66,600 Direct labor and fringe costs as a % of service revenue 64% 60% Improvement in gross margins 4% Actual annual labor and fringe $ 66,600 -------- Savings credit $ 2,664 ======== Indirect Costs: The measurement of indirect cost savings will be calculated from costs for the month ending on the Measurement Date, excluding any costs incurred prior to the Measurement Dates set forth below that were incurred to effect future cost reductions, such as severance, lease buyouts, litigation defense costs and settlements, employee retention incentives, and any other nonrecurring costs incurred outside the ordinary course of business for a non-troubled company (collectively, "Restructuring Costs"). Total annualized indirect costs as of the March 31, 1999 financial statements was $68,468 (none of which were Restructuring Costs). Example of Indirect Cost Savings Calculation: Indirect cost benchmark - March 31, 1999 $68,468 Total indirect costs incurred during measurement period $ 5,000 Less: Restructuring Costs (500) ------- Adjusted indirect costs incurred during measurement period $ 4,500 ------- Annualized $54,000 ------- Savings from indirect costs $14,468 ======= Thus, under the foregoing two examples, "Cost Savings" (in thousands) for the month would equal $17,102, which is the sum of $2,664 (annualized direct cost savings) and $14,468 (annualized indirect cost savings). Following each Measurement Date the executive shall submit to the Compensation and Human Resources Committee (the "Compensation Committee") a report showing the computation of 14 Operating Cost savings in accordance with this Attachment A and the amount of bonus, if any, due with respect to the period ending on the Measurement Date. Target Cost Savings Bonus: $93,750 Performance Measurement and Payout: . Performance is measured on the three Measurement Dates shown below: . At each Measurement Date, the actual bonus earned will be calculated by multiplying (i) the target bonus amount, by (ii) the percentage (but not more than 100%) that actual cost savings achieved for the month ending on the Measurement Date bears to total target cost savings (i.e., $19 million), by (iii) the appropriate timing incentive for the Measurement Date as specified in the table below. This amount will be reduced by the amount of any cost savings bonus earned at an earlier Measurement Date. Measurement Date Timing Incentive ---------------- ---------------- 7/31/99 100% 9/30/99 95% 11/30/99 85% . Incentive earned will be paid within 10 days after review of the computation of cost savings as of each Measurement Date by the Compensation Committee. EBITDA IMPROVEMENT - ------------------ Goal: Annual run rate of $6 million of EBITDA (excluding Kaiser-Hill) Target Incentive: $93,750 Performance Measurement and Payout: . Performance will be measured by comparing the Company's actual EBITDA annual run rate for the five months ending May 31, 2000 (excluding Kaiser-Hill), as reported in the Company's financial statements, to the EBITDA target of $6 million (excluding Kaiser-Hill). . A minimum of 50% of the goal must be achieved to qualify for payment. If less than 50% of the goal is achieved, no EBITDA improvement incentive will be paid. 15 . The target incentive will be multiplied by the actual percentage (but not more than 100%) of EBITDA achieved as follows: Percentage Earned = Actual EBITDA ------------- $6 million . Up to 100% of target incentive can be earned. . Following May 31, 2000, the executive shall submit to the Compensation Committee a report showing the computation of the amount of bonus, if any, due hereunder. Incentive earned will be paid within 10 days after review of the computation by the Compensation Committee. RECAPITALIZATION - ---------------- Goal: Four performance objective targets to be accomplished by 12/31/99 based upon planning, management, negotiating, obtaining acceptance of and implementing a recapitalization plan approved by the Board of Directors: Noteholder Acceptance of Plan Shareholder Acceptance of Plan Close New Credit Facility Close Recapitalization Plan Target Incentive: Noteholder Acceptance of Plan $60,000 Shareholder Acceptance of Plan $40,000 Close New Credit Facility $40,000 Close Recapitalization Plan $60,000 Performance Measurement and Payout: . Once a performance objective target is met, payout will occur within 30 days. A performance objective target must be met by 12/31/99 to qualify for payment. 16 EX-10.QQ 4 EMPLOYMENT AGREEMENT - S. ROBERT COCHRAN EXHIBIT 10(qq) EMPLOYMENT AGREEMENT -------------------- THIS AGREEMENT is made as of the 1st day of June, 1999, by and between ICF Kaiser International, Inc., a Delaware corporation (the "Corporation"), and S. Robert Cochran, Jr., a resident of the Commonwealth of Virginia (the "Executive"). WHEREAS, the Executive is currently an employee of the Corporation; and WHEREAS, the Corporation and the Executive wish to revise and document the terms of the employment relationship; NOW, THEREFORE, in consideration of the premises and the mutual agreements made herein, and intending to be legally bound hereby, the Corporation and the Executive agree as follows: 1. Employment; Duties. ------------------ (a) Employment and Employment Period. The Corporation shall employ the Executive to serve as President, North America and Executive Vice President of ICF Kaiser International, Inc., as set forth below, for a continuous period of 2 years commencing June 1, 1999 (the "Employment Period"). The Employment Period may be extended by mutual agreement of the parties. (b) Offices and Duties. The Executive shall serve as ------------------ President, North America and Executive Vice President of ICF Kaiser International, Inc. The Executive shall report to the President and Chief Executive Officer of the Corporation and shall be a member of all senior management groups of the Corporation. The Executive's offices shall be located at the Corporation's offices in Richmond, Virginia or Fairfax, Virginia, as mutually agreed upon by the parties. (c) Devotion to Interests of the Corporation. Except as ---------------------------------------- expressly authorized by the Corporation's Board of Directors (the "Board") or the Compensation and Human Resources Committee of the Board (the "Compensation Committee"), until the effective date of notice of termination of the Executive's employment by either the Executive or the Corporation, the Executive will not, without the prior written consent of the Company, directly or indirectly engage in any other business activities or pursuits, except activities in connection with (i) any professional, charitable or civic activities (other than as an officer or board member), (ii) personal investments, and (iii) serving as an executor, trustee or in another similar fiduciary capacity for a non-commercial entity; provided, however, that any such activities do not materially interfere with the performance of his responsibilities and obligations pursuant to this Agreement. The Executive shall use his best efforts to promote the interests and welfare of the Corporation. 2. Compensation and Fringe Benefits. --------------------------------- (a) Base Compensation. The Corporation shall pay the Executive a base ----------------- salary at the rate of $260,000 per year through June 1, 2000, in installments in accordance with the Corporation's regular practice for compensating executive personnel. The amount of the Executive's base compensation shall be subject to adjustment as recommended by the Compensation Committee. (b) Annual Incentive Bonus. The Executive is entitled to an annual ---------------------- incentive bonus in an amount not to exceed $130,000 (representing a bonus opportunity equal to 50% of the Executive's initial annual base salary that is contingent on satisfaction of operational objectives) payable at the time and contingent upon the extent to which the Corporation achieves specified objectives set forth at Attachment A. In subsequent years, Executive shall be entitled to a bonus opportunity as set by the Compensation Committee in its discretion. (c) Retention Bonus. The Executive shall be entitled to a retention --------------- bonus in the amount of $50,000, payable promptly following execution of this Agreement. The Executive will be entitled to a second retention bonus in the amount of $25,000, payable on May 1, 2000, provided that the Executive is employed with the Corporation on May 1, 2000. (d) Fringe Benefits. The Executive shall also be entitled to such --------------- fringe benefits as are generally made available by the Corporation to executive personnel. Such benefits shall include participation in the Corporation's defined contribution retirement plan, 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 Corporation's business and affairs and will be paid by the Corporation in a manner consistent with past practice and as amended by any subsequent changes of corporate policy. 3. Trade Secrets. The Executive shall not use or disclose any of the ------------- Corporation's trade secrets or other confidential information. The term "trade secrets or other confidential information" includes, by way of example, matters of a technical nature, such as scientific, trade and engineering secrets, "know-how", formulae, secret processes or machines, inventions, computer programs (including documentation of such programs) and research projects, and matters of a business nature, such as proprietary information about costs, profits, markets, sales, lists of customers, plans for future development, and other information of a similar nature that is designated as confidential or generally maintained as confidential or proprietary by the Corporation. After termination of the Executive's employment, 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 the Corporation's policies or is disclosed to the Executive by a third party who is entitled to receive and disclose such information. 4. Return of Documents and Property. Upon the effective date of notice -------------------------------- of the Executive's or the Corporation's election to terminate the Executive's employment, or at any time upon the request of the Corporation, the Executive (or his heirs or personal representatives) shall deliver to the Corporation (a) all documents and materials containing trade secrets or other 2 confidential information relating to the Corporation's business and affairs, and (b) all documents, materials and other property belonging to the Corporation, which in either case are in the possession or under the control of the Executive (or his heirs or personal representatives). 5. Discoveries and Works. All discoveries and works made or conceived --------------------- by the Executive during his employment by the Corporation, jointly or with others, that relate to the Corporation's activities shall be owned by the Corporation. The term "discoveries and works" includes, by way of example, inventions, computer programs (including documentation of such programs), technical improvements, processes, drawings and works of authorship. The Executive shall (a) promptly notify, make full disclosure to, and execute and deliver any documents requested by, the Corporation to evidence or better assure title to such discoveries and works in the Corporation, (b) assist the Corporation in obtaining or maintaining for itself at its own expense United States and foreign patents, copyrights, trade secret protection or other protection of any and all such discoveries and works, and (c) promptly execute, whether during his employment by the Corporation or thereafter, all applications or other endorsements necessary or appropriate to maintain patents and other rights for the Corporation and to protect its title thereto. Any discoveries and works which, within six months after the termination of the Executive's employment by the Corporation, are made, disclosed, reduced to a tangible or written form or description, or are reduced to practice by the Executive and which pertain to the business carried on or products or services being sold or developed by the Corporation at the time of such termination shall, as between the Executive and the Corporation, be presumed to have been made during the Executive's employment by the Corporation. Set forth on Schedule 5 attached hereto is a list of inventions, patented or unpatented, including a brief description thereof, which are owned by the Executive, which the Executive conceived or made prior to his employment by the Corporation and which are excluded from this Agreement. 6. Termination. ----------- (a) Upon 30 days' prior written notice the Corporation may terminate the Executive's employment, with or without "cause," as defined in Section 6(f) below. Upon 30 days' prior written notice the Executive may terminate his employment, with or without "good reason," as defined in Section 6(e) below. Upon any termination of the Executive's employment for any reason, the Corporation shall: (i) pay to the Executive any unpaid salary through the date of termination; (ii) pay to the Executive any unpaid bonus payments earned through the date of termination under the terms of applicable bonus arrangements; and (iii) provide to or for the benefit of the Executive the benefits, if any, otherwise expressly provided under this Section 6, Section 7 or Section 8, as applicable. 3 Any payments under this Section 6, Section 7 or Section 8 that are to be made in connection with the termination of Executive's employment will be paid in cash (with deduction of such amount as may be required to be withheld under applicable law and regulations) within ten business days of Executive's termination of employment. All other compensation and employment benefit arrangements provided for in this Agreement shall cease upon such termination of employment except to the extent required by law or otherwise expressly provided by such arrangement. The Executive hereby agrees that he shall not under any circumstances be entitled to benefits under the Corporation's Senior Executive Officer's Severance Plan as in effect on the date hereof notwithstanding anything to the contrary herein or under the terms of such plan, and hereby releases any claims for benefits under such plan. (b) In the event the Corporation terminates the Executive's employment without "cause" or the Executive terminates his employment for "good reason," then, in addition to the benefits provided for under Sections 6(a)(i) and 6(a)(ii) and subject to the provisions of Section 8, the Corporation shall pay to the Executive a severance payment equal to two times the Executive's annual base salary. In addition, all unvested stock options and any other equity-based compensation arrangements will vest in full on the effective date of such termination and all vested stock options shall be exercisable for the shorter of one (1) year from the date of such termination and until they expire in accordance with their original maximum term. (c) In the event the Corporation terminates the Executive's employment for "cause," then, in addition to the benefits provided for under Sections 6(a)(i) and 6(a)(ii), all unvested stock options and any other equity- based compensation arrangements shall be terminated and all vested stock options shall be exercisable for the shorter of thirty (30) days from the date of such termination and until they expire in accordance with their original maximum term. (d) In the event the Executive terminates his employment without "good reason," then, in addition to the benefits provided for under Sections 6(a)(i) and 6(a)(ii), all unvested stock options and any other equity-based compensation arrangements shall be terminated and all vested stock options shall be exercisable for the shorter of one (1) year from the date of such termination and until they expire in accordance with their original maximum term. (e) For purposes of this Agreement, the Executive shall be considered to have "good reason" to terminate his employment if without his express written consent (i) the responsibilities of the Executive are substantially reduced (except in connection with the termination of his employment voluntarily by the Executive, by the Corporation for "cause," or under the circumstances described in Section 8 hereof), (ii) Executive's annual base salary is reduced, or (iii) the Executive's offices are relocated anywhere other than within a fifty (50) mile radius of Richmond or Fairfax, Virginia. (f) For purposes of this Agreement, the Corporation shall have "cause" to terminate the Executive's employment hereunder upon (i) the continued, willful and deliberate failure of the Executive to perform his duties, in a manner substantially consistent with the 4 manner prescribed by the Board or the Chief Executive Officer of the Corporation (other than any such failure resulting from his incapacity due to physical or mental illness), (ii) the engaging by the Executive in misconduct materially and demonstrably injurious to the Corporation, (iii) the conviction of the Executive of commission of a felony, whether or not such felony was committed in connection with the Corporation's business, or (iv) the circumstances described in Section 8 hereof, in which case the provisions of Section 8 shall govern the rights and obligations of the parties. 7. Change in Control. ----------------- (a) All unvested stock options or any other equity-based compensation arrangements theretofore granted to Executive shall vest in full on the date of a "Change in Control" (as defined in Section 7(d) below). (b) In the event that the Corporation terminates the Executive's employment with the Corporation without "cause" within twelve months after a "Change in Control" (as defined in Section 7(d) below), or if the Executive terminates his employment with the Corporation for "good reason" within twelve months after a "Change in Control" (as defined in Section 7(d) below), then, in addition to the benefits provided for under Sections 6(a)(i) and 6(a)(ii), the Corporation shall pay to the Executive a severance payment equal to two times the Executive's annual base salary. In addition, all vested stock options shall be exercisable for the shorter of one (1) year from the date of such termination and until they expire in accordance with their original maximum term. (c) If the Executive terminates his employment with the Corporation without "good reason" within twelve months after a Change in Control, then, in addition to the benefits provided for under Sections 6(a)(i) and 6(a)(ii), all vested stock options shall be exercisable for the shorter of one (1) year from the date of such termination and until they expire in accordance with their original maximum term. (d) For purposes of this Agreement, "Change in Control" shall mean an occurrence of any of the following events: (i) an acquisition (other than directly from the Corporation) of any voting securities of the Corporation (the "Voting Securities") by any "person or group" (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934) other than an employee benefit plan of the Corporation, immediately after which such person or group has "Beneficial Ownership" (within the meaning of Rule 13d- 3 under the Exchange Act) of more than thirty-five percent (35%) of the combined voting power of the Corporation's then outstanding Voting Securities; (ii) approval by the stockholders of (1) a merger, consolidation or reorganization involving the Corporation, unless the company resulting from such merger, consolidation or reorganization (the 5 "Surviving Corporation") shall adopt or assume this Agreement and either (A) the stockholders of the Corporation immediately before such merger, consolidation or reorganization own, directly or indirectly immediately following such merger, consolidation or reorganization, at least fifty percent (50%) of the combined voting power of the Surviving Corporation in substantially the same proportion as their ownership immediately before such merger, consolidation or reorganization, or (B) at least a majority of the members of the Board of Directors of the Surviving Corporation were directors of the Corporation immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization, (2) a complete liquidation or dissolution of the Corporation, or (3) a sale or transfer of all or substantially all of the assets of the Corporation or of assets that during the current or either of the prior two fiscal years accounted for more than 50% of the Company's revenues or income (in each case, other than to a wholly- owned Subsidiary), provided, however,that the disposition -------- ------- of assets in connection with the sale of the Environment and Facilities Management (EFM) Group or the Consulting Group shall not be included in determining whether there has been a Change in Control; (iii) if for any reason a majority of the Board is not comprised of "Continuing Directors," where a "Continuing Director" of the Corporation as of any date means a member of the Board who (1) was a member of the Board on April 19, 1999 or (2) was nominated for election or elected to the Board with the affirmative vote of at least two-thirds of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that no -------- ------- individual initially elected or nominated as a director of the Corporation as a result of an actual or threatened election contest with respect to directors or any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board shall be deemed to be a Continuing Director; or (iv) such other events as the Board or a duly authorized committee of the Board from time to time may specify. (e) In the event that, as a result of payments to or for the benefit of Executive under this Agreement or otherwise in connection with a Change in Control, any state, local or federal taxing authority imposes any taxes on the Executive that would not be imposed but for the occurrence of a Change in Control, including any excise tax under Section 4999 of the Internal Revenue Code and any successor or comparable provision, then, in addition to the benefits provided for under Sections 6(a)(i) and 6(a)(ii) and under Sections 7(a), 7(b) and 7(c), 6 the Corporation (including any successor to the Corporation) shall pay to the Executive at the time any such tax becomes payable an amount equal to the amount of any such tax imposed on the Executive (the amount of any such payment, the "Parachute Tax Reimbursement"). In addition, the Corporation (including any successor to the Corporation) shall "gross up" such Parachute Tax Reimbursement by paying to the Executive at the time any such tax becomes payable an additional amount equal to the aggregate amount of any additional taxes (whether income taxes, excise taxes, special taxes, employment taxes or otherwise) that are payable by the Executive as a result of the Parachute Tax Reimbursement being payable to the Executive and/or as a result of the additional amounts payable to the Executive pursuant to this sentence, such that after payment of such additional taxes the Executive shall have been paid on an after-tax basis an amount equal to the Parachute Tax Reimbursement. 8. Disability; Death. ----------------- (a) If, prior to the expiration or termination of the Employment Period, the Executive shall be unable to perform his duties by reason of disability or impairment of health for at least six consecutive calendar months, the Corporation shall have the right to terminate the Executive's employment on account of disability by giving written notice to the Executive to that effect, but only if at the time such notice is given such disability or impairment is still continuing. In the event of a dispute as to whether the Executive is disabled within the meaning of this Section 8(a), either party may from time to time request a medical examination of the Executive by a doctor appointed by the Chief of Staff of a hospital selected by mutual agreement of the parties, or as the parties may otherwise agree, and the written medical opinion of such doctor shall be conclusive and binding upon the parties as to whether the Executive has become disabled and the date when such disability arose. The cost of any such medical examinations shall be borne by the Corporation. If the Corporation terminates the Executive's employment on account of disability, then, in addition to the benefits provided for under Sections 6(a)(i) and 6(a)(ii), all unvested stock options and any other equity-based compensation arrangements shall be terminated and all vested stock options shall be exercisable for the shorter of one (1) year from the date of such termination and until they expire in accordance with their original maximum term. (b) If, prior to the expiration or termination of the Employment Period, the Executive shall die, then, in addition to the benefits provided for under Sections 6(a)(i) and 6(a)(ii), the Employment Period shall terminate without further notice. In such an event, all unvested stock options and any other equity-based compensation arrangements shall be terminated and all vested stock options shall be exercisable for the shorter of one (1) year from the date of Executive's death and until they expire in accordance with their original maximum term. (c) Nothing contained in this Section 8 shall impair or otherwise affect any rights and interests of the Executive under any insurance arrangements, death benefit plan or other compensation plan or arrangement of the Corporation which may be adopted by the Board. 7 9. Non-Competition/Non-Solicitation. -------------------------------- (a) Non-Competition. The Executive agrees that for a period --------------- commencing on the Effective Date and ending (i) on the date of termination of the Executive's employment (x) by the Corporation for reasons that do not constitute "cause" as defined in Section 6, above, or (y) by the Executive for "good reason" as defined in Section 6(b), above, or (ii) one year following termination of the Executive's employment (x) by the Corporation for "cause" or (y) by the Executive for reasons that do not constitute "good reason", provided -------- that the Corporation is not in material breach of this Agreement (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 comparable capacity, in the 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 Corporation. For the purpose of this Agreement, a business shall be considered to be competitive with the business of the Corporation only if such business is engaged in providing services similar to (i) any service currently provided by the Corporation or provided by the Corporation during the Employment Period other than services provided solely by the Corporation's Consulting Group; (ii) any service which in the ordinary course of business during the Non-Competition Period evolves from or results from enhancements to the services provided by the Corporation as of the Effective Date or during the Non-Competition; or (iii) any future service of the Corporation as to which the Executive materially and substantially participated in the design or enhancement. (b) Non-Solicitation of Employees. During the Non-Competition Period, ----------------------------- the Executive will not (for the Executive's own benefit or for the benefit of any person or entity other than the Corporation) solicit, or assist any person or entity other than the Corporation to solicit, any officer, director, executive or employee of the Corporation or its affiliates to leave his or her employment. (c) Reasonableness. The Executive acknowledges that (i) the markets -------------- served by the Corporation 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 related to the length of the Employment Period and the Corporation's agreement to provide severance benefits as set forth in Sections 6 or 7, above, that, under certain circumstances, will provide additional compensation to Executive upon the termination of the Executive's employment; and (iii) the above covenants are 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 Corporation. (d) Investments. Nothing in this Agreement shall be deemed to ----------- prohibit Executive from owning equity or debt investments in any corporation, partnership or other entity which is competitive with the Corporation, provided -------- that such investments (i) are passive investments and constitute five percent (5%) or less of the outstanding equity 8 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 Corporation. 10. Waiver. The waiver of the breach of any term or provision of this ------ Agreement shall not operate as or be construed to be a waiver of any other or subsequent breach of this Agreement. Failure by the Executive or the Corporation to insist upon strict compliance with any provision of this Agreement or to assert any right the Executive or the Corporation may have hereunder, including, without limitation, the right of the Executive to terminate employment for "good reason," shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. 11. Enforcement. The Executive agrees that the Corporation's remedies at ----------- law for any breach or threat of breach by him of Sections 3, 4, 5, or 9 hereof will be inadequate, and that the Corporation shall be entitled to an injunction or injunctions to prevent breaches of Sections 3, 4, 5, or 9 hereof and to enforce specifically the terms and provisions thereof, in addition to any other remedy to which the Corporation may be entitled at law or equity. If the Corporation sues to enforce Sections 3, 4, 5, or 9 hereof and fails to prevail in such proceeding, the court shall award to the Executive his reasonable fees for his attorneys, the reasonable expenses of his witnesses, and any other reasonable expenses incurred in connection with the proceeding to the extent that the court determines that the Executive has prevailed in such proceeding. 12. Arbitration. Any dispute or claim other than those referred to in ----------- Section 11 , arising out of or relating to this Agreement or otherwise relating to the employment relationship between the Executive and the Corporation, shall be submitted to Arbitration, in Fairfax County, Virginia, before a single arbitrator, in accordance with the rules of the American Arbitration Association as the exclusive remedy for such claim or dispute. The Executive and the Corporation agree that such arbitration will be confidential and no details, descriptions, settlements or other facts concerning such arbitration shall be disclosed or released to any third party without the specific written consent of the other party, unless required by law or court order or in connection with enforcement of any decision in such arbitration. Any damages awarded in such arbitration shall be limited to the contract measure of damages, and shall not include punitive damages. In any proceeding, whether commenced by the Executive or by the Corporation, the arbitrator shall award to the Executive his reasonable fees for his attorneys, the reasonable expenses of his witnesses, and any other reasonable expenses incurred in connection with the arbitration to the extent that the arbitrator determines that the Executive has prevailed in such proceeding. 13. Full Settlement. The Corporation's obligation to make any payments --------------- provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Corporation may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment. 9 14. 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. 15. Counterparts. This Agreement may be executed in any number of ------------ counterparts, and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute one and the same instrument. 16. Assignment. The Executive's rights and obligations under this ---------- Agreement shall not be assignable by the Executive. The Corporation's rights and obligations under this Agreement shall not be assignable by the Corporation except as incident to the transfer, by merger or otherwise, of all or substantially all of the business of the Corporation in a transaction in which the successor entity remains obligated under, or by operation of law or otherwise assumes, the Corporation's obligations under this Agreement. In the event of any such assignment by the Corporation, all rights of the Corporation hereunder shall inure to the benefit of the assignee. 17. 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 sent by registered or certified U.S. mail, UPS or FedEx, properly addressed in a sealed envelope, with delivery charges prepaid. Unless otherwise changed by notice, notice shall be properly addressed to Executive if addressed to: S. Robert Cochran, Jr. 5400 McAlpine Circle Apt. 1117 Glen Allen, VA 23060 and properly addressed to the Corporation if addressed to: ICF Kaiser International, Inc. 9300 Lee Highway Fairfax, Virginia 22031-1207 Attn: General Counsel 18. Miscellaneous. This Agreement constitutes the entire agreement, and ------------- terminates and supersedes all prior agreements, of the parties hereto relating to the subject matter hereof, and there are no written or oral terms or representations made by either party other than those contained herein, except that nothing contained in this Agreement shall invalidate or supersede the terms of any previously or subsequently granted stock options or other equity-based compensation arrangements (including without limitation the provisions thereof relating to post- 10 termination exercisability) to the extent that such stock options or arrangements provide more favorable terms to the Executive. The validity, interpretation, performance and enforcement of this Agreement shall be governed by the laws of the Commonwealth of Virginia. The headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the day and year first above written. ___________________________________________________ S. Robert Cochran, Jr., Executive ICF KAISER INTERNATIONAL, INC. By_________________________________________________ Hazel R. O'Leary Chair, Compensation and Human Resources Committee, Board of Directors 11 SCHEDULE 5 ---------- Inventions Owned by the Executive NONE 12 ATTACHMENT A ------------ Title: President, North America and Executive Vice President Overview: . This Attachment A describes the annual incentive bonus plan in which the named executive will participate from 6/1/99 through 5/31/00. . The executive's performance will be assessed against the following objectives as described in this Attachment A: - Cost Savings - EBITDA Improvement COST SAVINGS - ------------ Goal: $19 million in total Company cost savings, including $16 million in North America operations cost savings, achieved between 3/31/99 and 11/30/99 Measurement: Reduction in the annualized run rate of the Company's costs, exclusive of the costs associated with the discontinued operations of the EFM and Consulting Groups, as set forth in the financial statements of the Company as filed with the Securities and Exchange Commission and prepared in accordance with GAAP on a consistent basis, as compared to the annualized run rate of such costs for the quarter ended March 31, 1999. Cost savings will be measured on three Measurement Dates as indicated below, and will be based on costs for the month ending on each of the three Measurement Dates. For purposes of measuring cost reductions, costs will be categorized as either direct (those incurred directly and solely for the benefit of a project) or indirect (those incurred for the general operations of the Company). Direct Costs: To reflect the fact that direct costs may increase as the business begins to prosper, direct cost reductions will be measured as follows: Changes in direct subcontract and materials will be excluded from measurement. Changes in direct labor and fringe benefits will be measured based on the change in the relationship of such costs to service revenue. 13 Example of Direct Cost Savings Calculation: Annualized Rate Thru March 31, 1999 at Measurement Date ------------------- ------------------- Service revenue $27,877 $111,000 Direct labor and fringe 17,837 66,600 Direct labor and fringe costs as a % of service revenue 64% 60% Improvement in gross margins 4% Actual annual labor and fringe $ 66,600 -------- Savings credit $ 2,664 ======== Indirect Costs: The measurement of indirect cost savings will be calculated from costs for the month ending on the Measurement Date, excluding any costs incurred prior to the Measurement Dates set forth below that were incurred to effect future cost reductions, such as severance, lease buyouts, litigation defense costs and settlements, employee retention incentives, and any other nonrecurring costs incurred outside the ordinary course of business for a non-troubled company (collectively, "Restructuring Costs"). Total annualized indirect costs as of the March 31, 1999 financial statements was $68,468 (none of which were Restructuring Costs). Example of Indirect Cost Savings Calculation: Indirect cost benchmark - March 31, 1999 $68,468 Total indirect costs incurred during measurement period $5,000 Less: Restructuring Costs (500) ------ Adjusted indirect costs incurred during measurement period $4,500 ====== Annualized $54,000 ------- Savings from indirect costs $14,468 ======= Thus, under the foregoing two examples, "Cost Savings" (in thousands) for the month would equal $17,102, which is the sum of $2,664 (annualized direct cost savings) and $14,468 (annualized indirect cost savings). Following each Measurement Date the executive shall submit to the Compensation and Human Resources Committee (the "Compensation Committee") a report showing the computation of 14 Operating Cost savings in accordance with this Attachment A and the amount of bonus, if any, due with respect to the period ending on the Measurement Date. Target Cost Savings Bonus: Total Company: $13,000 North America Operations: $52,000 Performance Measurement and Payout: . Performance is measured on the three Measurement Dates shown below: . At each Measurement Date, the actual bonus earned will be calculated by multiplying (i) the target bonus amounts for total Company and North America operations, by (ii) the percentage (but not more than 100%) that actual cost savings achieved for the month ending on the Measurement Date bears to total target cost savings (i.e., $19 million and $16 million, respectively), by (iii) the appropriate timing incentive for the Measurement Date as specified in the table below. This amount will be reduced by the amount of any cost savings bonus earned at an earlier Measurement Date. Measurement Date Timing Incentive 7/31/99 100% 9/30/99 95% 11/30/99 85% . Incentive earned will be paid within 10 days after review of the computation of cost savings as of each Measurement Date by the Compensation Committee. Ebitda Improvement Goal: Annual run rate of $6 million of EBITDA (excluding Kaiser-Hill) Target Incentive: $65,000 Performance Measurement and Payout: . Performance will be measured by comparing the Company's actual EBITDA annual run rate for the five months ending May 31, 2000 (excluding Kaiser-Hill), as reported in the Company's financial statements, to the EBITDA target of $6 million (excluding Kaiser-Hill). . A minimum of 50% of the goal must be achieved to qualify for payment. If less than 50% of the goal is achieved, no EBITDA improvement incentive will be paid. 15 . The target incentive will be multiplied by the actual percentage (but not more than 100%) of EBITDA achieved as follows: Percentage Earned = Actual EBITDA ------------- $6 million . Up to 100% of target incentive can be earned. . Following May 31, 2000, the executive shall submit to the Compensation Committee a report showing the computation of the amount of bonus, if any, due hereunder. Incentive earned will be paid within 10 days after review of the computation by the Compensation Committee. 16 EX-10.RR 5 EMPLOYMENT AGREEMENT - TIMOTHY P. O'CONNOR EXHIBIT 10(rr) EMPLOYMENT AGREEMENT -------------------- THIS AGREEMENT is made as of the 1st day of June, 1999, by and between ICF Kaiser International, Inc., a Delaware corporation (the "Corporation"), and Timothy P. O'Connor, a resident of the Commonwealth of Virginia (the "Executive"). WHEREAS, the Executive is currently an employee of the Corporation; and WHEREAS, the Corporation and the Executive wish to revise and document the terms of the employment relationship; NOW, THEREFORE, in consideration of the premises and the mutual agreements made herein, and intending to be legally bound hereby, the Corporation and the Executive agree as follows: 1. Employment; Duties. ------------------ (a) Employment and Employment Period. The Corporation shall employ -------------------------------- the Executive to serve as Chief Financial Officer and Executive Vice President of ICF Kaiser International, Inc., as set forth below, for a continuous period until December 31, 2000 (the "Employment Period"). The Employment Period may be extended by mutual agreement of the parties. (b) Offices and Duties. Executive shall serve as Chief Financial ------------------ Officer and Executive Vice President of ICF Kaiser International, Inc. The Executive shall report to the President and Chief Executive Officer of the Corporation and shall be a member of all senior management groups of the Corporation. The Executive's offices shall be located at the Corporation's headquarters building in Fairfax, Virginia. (c) Devotion to Interests of the Corporation. Except as expressly ---------------------------------------- authorized by the Corporation's Board of Directors (the "Board") or the Compensation and Human Resources Committee of the Board (the "Compensation Committee"), until the effective date of notice of termination of the Executive's employment by either the Executive or the Corporation, the Executive will not, without the prior written consent of the Company, directly or indirectly engage in any other business activities or pursuits, except activities in connection with (i) any professional, charitable or civic activities (other than as an officer or board member), (ii) personal investments, and (iii) serving as an executor, trustee or in another similar fiduciary capacity for a non-commercial entity; provided, however, that any such activities do not materially interfere with the performance of his responsibilities and obligations pursuant to this Agreement. The Executive shall use his best efforts to promote the interests and welfare of the Corporation. 2. Compensation and Fringe Benefits. --------------------------------- (a) Base Compensation. The Corporation shall pay the Executive a base ----------------- salary at the rate of $260,000 per year through June 1, 2000, in installments in accordance with the Corporation's regular practice for compensating executive personnel. The amount of the Executive's base compensation shall be subject to adjustment as recommended by the Compensation Committee. (b) Annual Incentive Bonus. The Executive is entitled to an annual ---------------------- incentive bonus in an amount not to exceed $330,000 (representing a bonus opportunity equal to 50% of the Executive's initial annual base salary that is contingent on satisfaction of operational objectives and a special bonus opportunity of $200,000 that is contingent on satisfaction of recapitalization objectives) payable at the time and contingent upon the extent to which the Corporation achieves specified objectives set forth at Attachment A. In subsequent years, Executive shall be entitled to a bonus opportunity as set by the Compensation Committee in its discretion. (c) Retention Bonus. The Executive shall be entitled to a retention --------------- bonus in the amount of $75,000, payable promptly following execution of this Agreement. The Executive will be entitled to a second retention bonus in the amount of $55,000, payable on May 1, 2000, provided that the Executive is employed with the Corporation on May 1, 2000. (d) Fringe Benefits. The Executive shall also be entitled to such --------------- fringe benefits as are generally made available by the Corporation to executive personnel. Such benefits shall include participation in the Corporation's defined contribution retirement plan, 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 Corporation's business and affairs and will be paid by the Corporation in a manner consistent with past practice and as amended by any subsequent changes of corporate policy. 3. Trade Secrets. The Executive shall not use or disclose any of the ------------- Corporation's trade secrets or other confidential information. The term "trade secrets or other confidential information" includes, by way of example, matters of a technical nature, such as scientific, trade and engineering secrets, "know- how", formulae, secret processes or machines, inventions, computer programs (including documentation of such programs) and research projects, and matters of a business nature, such as proprietary information about costs, profits, markets, sales, lists of customers, plans for future development, and other information of a similar nature that is designated as confidential or generally maintained as confidential or proprietary by the Corporation. After termination of the Executive's employment, 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 the Corporation's policies or is disclosed to the Executive by a third party who is entitled to receive and disclose such information. 2 4. Return of Documents and Property. Upon the effective date of notice of -------------------------------- the Executive's or the Corporation's election to terminate the Executive's employment, or at any time upon the request of the Corporation, the Executive (or his heirs or personal representatives) shall deliver to the Corporation (a) all documents and materials containing trade secrets or other confidential information relating to the Corporation's business and affairs, and (b) all documents, materials and other property belonging to the Corporation, which in either case are in the possession or under the control of the Executive (or his heirs or personal representatives). 5. Discoveries and Works. All discoveries and works made or conceived by --------------------- the Executive during his employment by the Corporation, jointly or with others, that relate to the Corporation's activities shall be owned by the Corporation. The term "discoveries and works" includes, by way of example, inventions, computer programs (including documentation of such programs), technical improvements, processes, drawings and works of authorship. The Executive shall (a) promptly notify, make full disclosure to, and execute and deliver any documents requested by, the Corporation to evidence or better assure title to such discoveries and works in the Corporation, (b) assist the Corporation in obtaining or maintaining for itself at its own expense United States and foreign patents, copyrights, trade secret protection or other protection of any and all such discoveries and works, and (c) promptly execute, whether during his employment by the Corporation or thereafter, all applications or other endorsements necessary or appropriate to maintain patents and other rights for the Corporation and to protect its title thereto. Any discoveries and works which, within six months after the termination of the Executive's employment by the Corporation, are made, disclosed, reduced to a tangible or written form or description, or are reduced to practice by the Executive and which pertain to the business carried on or products or services being sold or developed by the Corporation at the time of such termination shall, as between the Executive and the Corporation, be presumed to have been made during the Executive's employment by the Corporation. Set forth on Schedule 5 attached hereto is a list of inventions, patented or unpatented, including a brief description thereof, which are owned by the Executive, which the Executive conceived or made prior to his employment by the Corporation and which are excluded from this Agreement. 6. Termination. ----------- (a) Upon 30 days' prior written notice the Corporation may terminate the Executive's employment, with or without "cause," as defined in Section 6(f) below. Upon 30 days' prior written notice the Executive may terminate his employment, with or without "good reason," as defined in Section 6(e) below. Upon any termination of the Executive's employment for any reason, the Corporation shall: (i) pay to the Executive any unpaid salary through the date of termination; (ii) pay to the Executive any unpaid bonus payments earned through the date of termination under the terms of applicable bonus arrangements; and 3 (iii) provide to or for the benefit of the Executive the benefits, if any, otherwise expressly provided under this Section 6, Section 7 or Section 8, as applicable. Any payments under this Section 6, Section 7 or Section 8 that are to be made in connection with the termination of Executive's employment will be paid in cash (with deduction of such amount as may be required to be withheld under applicable law and regulations) within ten business days of Executive's termination of employment. All other compensation and employment benefit arrangements provided for in this Agreement shall cease upon such termination of employment except to the extent required by law or otherwise expressly provided by such arrangement. The Executive hereby agrees that he shall not under any circumstances be entitled to benefits under the Corporation's Senior Executive Officer's Severance Plan as in effect on the date hereof notwithstanding anything to the contrary herein or under the terms of such plan, and hereby releases any claims for benefits under such plan. (b) In the event the Corporation terminates the Executive's employment without "cause" or the Executive terminates his employment for "good reason," then, in addition to the benefits provided for under Sections 6(a)(i) and 6(a)(ii) and subject to the provisions of Section 8, the Corporation shall pay to the Executive a severance payment equal to two times the Executive's annual base salary. In addition, all unvested stock options and any other equity-based compensation arrangements will vest in full on the effective date of such termination and all vested stock options shall be exercisable for the shorter of one (1) year from the date of such termination and until they expire in accordance with their original maximum term. (c) In the event the Corporation terminates the Executive's employment for "cause," then, in addition to the benefits provided for under Sections 6(a)(i) and 6(a)(ii), all unvested stock options and any other equity- based compensation arrangements shall be terminated and all vested stock options shall be exercisable for the shorter of thirty (30) days from the date of such termination and until they expire in accordance with their original maximum term. (d) In the event the Executive terminates his employment without "good reason," then, in addition to the benefits provided for under Sections 6(a)(i) and 6(a)(ii), all unvested stock options and any other equity-based compensation arrangements shall be terminated and all vested stock options shall be exercisable for the shorter of one (1) year from the date of such termination and until they expire in accordance with their original maximum term. (e) For purposes of this Agreement, the Executive shall be considered to have "good reason" to terminate his employment if without his express written consent (i) the responsibilities of the Executive are substantially reduced or altered (except in connection with the termination of his employment voluntarily by the Executive, by the Corporation for "cause," or under the circumstances described in Section 8 hereof), (ii) Executive's annual base salary is reduced, or (iii) the Executive's offices are relocated anywhere other than within a fifty (50) mile radius of his office in Fairfax, Virginia. 4 (f) For purposes of this Agreement, the Corporation shall have "cause" to terminate the Executive's employment hereunder upon (i) the continued, willful and deliberate failure of the Executive to perform his duties, in a manner substantially consistent with the manner prescribed by the Board or the Chief Executive Officer of the Corporation (other than any such failure resulting from his incapacity due to physical or mental illness), (ii) the engaging by the Executive in misconduct materially and demonstrably injurious to the Corporation, (iii) the conviction of the Executive of commission of a felony, whether or not such felony was committed in connection with the Corporation's business, or (iv) the circumstances described in Section 8 hereof, in which case the provisions of Section 8 shall govern the rights and obligations of the parties. 7. Change in Control. ----------------- (a) All unvested stock options or any other equity-based compensation arrangements theretofore granted to Executive shall vest in full on the date of a "Change in Control" (as defined in Section 7(d) below). (b) In the event that the Corporation terminates the Executive's employment with the Corporation without "cause" within twelve months after a "Change in Control" (as defined in Section 7(d) below), or if the Executive terminates his employment with the Corporation for "good reason" within twelve months after a "Change in Control" (as defined in Section 7(d) below), then, in addition to the benefits provided for under Sections 6(a)(i) and 6(a)(ii), the Corporation shall pay to the Executive a severance payment equal to two times the Executive's annual base salary. In addition, all vested stock options shall be exercisable for the shorter of one (1) year from the date of such termination and until they expire in accordance with their original maximum term. (c) If the Executive terminates his employment with the Corporation without "good reason" within twelve months after a Change in Control, then, in addition to the benefits provided for under Sections 6(a)(i) and 6(a)(ii), all vested stock options shall be exercisable for the shorter of one (1) year from the date of such termination and until they expire in accordance with their original maximum term. (d) For purposes of this Agreement, "Change in Control" shall mean an occurrence of any of the following events: (i) an acquisition (other than directly from the Corporation) of any voting securities of the Corporation (the "Voting Securities") by any "person or group" (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934) other than an employee benefit plan of the Corporation, immediately after which such person or group has "Beneficial Ownership" (within the meaning of Rule 13d-3 under the Exchange Act) of more than thirty-five percent (35%) of the combined voting power of the Corporation's then outstanding Voting Securities; 5 (ii) approval by the stockholders of (1) a merger, consolidation or reorganization involving the Corporation, unless the company resulting from such merger, consolidation or reorganization (the "Surviving Corporation") shall adopt or assume this Agreement and either (A) the stockholders of the Corporation immediately before such merger, consolidation or reorganization own, directly or indirectly immediately following such merger, consolidation or reorganization, at least fifty percent (50%) of the combined voting power of the Surviving Corporation in substantially the same proportion as their ownership immediately before such merger, consolidation or reorganization, or (B) at least a majority of the members of the Board of Directors of the Surviving Corporation were directors of the Corporation immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization, (2) a complete liquidation or dissolution of the Corporation, or (3) a sale or transfer of all or substantially all of the assets of the Corporation or of assets that during the current or either of the prior two fiscal years accounted for more than 50% of the Company's revenues or income (in each case, other than to a wholly-owned Subsidiary), provided, -------- however, that the disposition of assets in connection with ------- the sale of the Environment and Facilities Management (EFM) Group or the Consulting Group shall not be included in determining whether there has been a Change in Control; (iii) if for any reason a majority of the Board is not comprised of "Continuing Directors," where a "Continuing Director" of the Corporation as of any date means a member of the Board who (1) was a member of the Board on April 19, 1999 or (2) was nominated for election or elected to the Board with the affirmative vote of at least two-thirds of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that no -------- ------- individual initially elected or nominated as a director of the Corporation as a result of an actual or threatened election contest with respect to directors or any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board shall be deemed to be a Continuing Director; or (iv) such other events as the Board or a duly authorized committee of the Board from time to time may specify. (e) In the event that, as a result of payments to or for the benefit of Executive under this Agreement or otherwise in connection with a Change in Control, any state, local or federal taxing authority imposes any taxes on the Executive that would not be imposed but for 6 the occurrence of a Change in Control, including any excise tax under Section 4999 of the Internal Revenue Code and any successor or comparable provision, then, in addition to the benefits provided for under Sections 6(a)(i) and 6(a)(ii) and under Sections 7(a), 7(b) and 7(c), the Corporation (including any successor to the Corporation) shall pay to the Executive at the time any such tax becomes payable an amount equal to the amount of any such tax imposed on the Executive (the amount of any such payment, the "Parachute Tax Reimbursement"). In addition, the Corporation (including any successor to the Corporation) shall "gross up" such Parachute Tax Reimbursement by paying to the Executive at the time any such tax becomes payable an additional amount equal to the aggregate amount of any additional taxes (whether income taxes, excise taxes, special taxes, employment taxes or otherwise) that are payable by the Executive as a result of the Parachute Tax Reimbursement being payable to the Executive and/or as a result of the additional amounts payable to the Executive pursuant to this sentence, such that after payment of such additional taxes the Executive shall have been paid on an after-tax basis an amount equal to the Parachute Tax Reimbursement. 8. Disability; Death. ----------------- (a) If, prior to the expiration or termination of the Employment Period, the Executive shall be unable to perform his duties by reason of disability or impairment of health for at least six consecutive calendar months, the Corporation shall have the right to terminate the Executive's employment on account of disability by giving written notice to the Executive to that effect, but only if at the time such notice is given such disability or impairment is still continuing. In the event of a dispute as to whether the Executive is disabled within the meaning of this Section 8(a), either party may from time to time request a medical examination of the Executive by a doctor appointed by the Chief of Staff of a hospital selected by mutual agreement of the parties, or as the parties may otherwise agree, and the written medical opinion of such doctor shall be conclusive and binding upon the parties as to whether the Executive has become disabled and the date when such disability arose. The cost of any such medical examinations shall be borne by the Corporation. If the Corporation terminates the Executive's employment on account of disability, then, in addition to the benefits provided for under Sections 6(a)(i) and 6(a)(ii), all unvested stock options and any other equity-based compensation arrangements shall be terminated and all vested stock options shall be exercisable for the shorter of one (1) year from the date of such termination and until they expire in accordance with their original maximum term. (b) If, prior to the expiration or termination of the Employment Period, the Executive shall die, then, in addition to the benefits provided for under Sections 6(a)(i) and 6(a)(ii), the Employment Period shall terminate without further notice. In such an event, all unvested stock options and any other equity-based compensation arrangements shall be terminated and all vested stock options shall be exercisable for the shorter of one (1) year from the date of Executive's death and until they expire in accordance with their original maximum term. 7 (c) Nothing contained in this Section 8 shall impair or otherwise affect any rights and interests of the Executive under any insurance arrangements, death benefit plan or other compensation plan or arrangement of the Corporation which may be adopted by the Board. 9. Non-Competition/Non-Solicitation. -------------------------------- (a) Non-Competition. The Executive agrees that for a period ---------------- commencing on the Effective Date and ending (i) on the date of termination of the Executive's employment (x) by the Corporation for reasons that do not constitute "cause" as defined in Section 6, above, or (y) by the Executive for "good reason" as defined in Section 6(b), above, or (ii) one year following termination of the Executive's employment (x) by the Corporation for "cause" or (y) by the Executive for reasons that do not constitute "good reason", provided -------- that the Corporation is not in material breach of this Agreement (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 comparable capacity, in the 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 Corporation. Notwithstanding the foregoing, this provision shall not prohibit the Executive from providing advice to one or more competitive business(es) as a consultant, provided, however, that such -------- ------- consulting services do not entail Executive advising one or more competitive business(es) on substantially a full-time basis. For the purpose of this Agreement, a business shall be considered to be competitive with the business of the Corporation only if such business is engaged in providing services similar to (i) any service currently provided by the Corporation or provided by the Corporation during the Employment Period other than services provided solely by the Corporation's Consulting Group; (ii) any service which in the ordinary course of business during the Non-Competition Period evolves from or results from enhancements to the services provided by the Corporation as of the Effective Date or during the Non-Competition; or (iii) any future service of the Corporation as to which the Executive materially and substantially participated in the design or enhancement. (b) Non-Solicitation of Employees. During the Non-Competition Period, ------------------------------ the Executive will not (for the Executive's own benefit or for the benefit of any person or entity other than the Corporation) solicit, or assist any person or entity other than the Corporation to solicit, any officer, director, executive or employee of the Corporation or its affiliates to leave his or her employment. (c) Reasonableness. The Executive acknowledges that (i) the markets --------------- served by the Corporation 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 related to the length of the Employment Period and the Corporation's agreement to provide severance benefits as set forth in Sections 6 or 7, above, that, under certain circumstances, will provide additional compensation to Executive upon the termination of the Executive's employment; and (iii) the above covenants 8 are 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 Corporation. (d) Investments. Nothing in this Agreement shall be deemed to ------------ prohibit Executive from owning equity or debt investments in any corporation, partnership or other entity which is competitive with the Corporation, 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 Corporation. 10. Waiver. The waiver of the breach of any term or provision of this ------ Agreement shall not operate as or be construed to be a waiver of any other or subsequent breach of this Agreement. Failure by the Executive or the Corporation to insist upon strict compliance with any provision of this Agreement or to assert any right the Executive or the Corporation may have hereunder, including, without limitation, the right of the Executive to terminate employment for "good reason," shall not be deemed to be a waiver of such provision or right or of any other provision or rights under this Agreement. 11. Enforcement. The Executive agrees that the Corporation's remedies at ----------- law for any breach or threat of breach by him of Sections 3, 4, 5, or 9 hereof will be inadequate, and that the Corporation shall be entitled to an injunction or injunctions to prevent breaches of Sections 3, 4, 5, or 9 hereof and to enforce specifically the terms and provisions thereof, in addition to any other remedy to which the Corporation may be entitled at law or equity. If the Corporation sues to enforce Sections 3, 4, 5, or 9 hereof and fails to prevail in such proceeding, the court shall award to the Executive his reasonable fees for his attorneys, the reasonable expenses of his witnesses, and any other reasonable expenses incurred in connection with the proceeding to the extent that the court determines that the Executive has prevailed in such proceeding. 12. Arbitration. Any dispute or claim other than those referred to in ----------- Section 11, arising out of or relating to this Agreement or otherwise relating to the employment relationship between the Executive and the Corporation, shall be submitted to Arbitration, in Fairfax County, Virginia, before a single arbitrator, in accordance with the rules of the American Arbitration Association as the exclusive remedy for such claim or dispute. The Executive and the Corporation agree that such arbitration will be confidential and no details, descriptions, settlements or other facts concerning such arbitration shall be disclosed or released to any third party without the specific written consent of the other party, unless required by law or court order or in connection with enforcement of any decision in such arbitration. Any damages awarded in such arbitration shall be limited to the contract measure of damages, and shall not include punitive damages. In any proceeding, whether commenced by the Executive or by the Corporation, the arbitrator shall award to the Executive his reasonable fees for his attorneys, the reasonable expenses of his witnesses, and any other reasonable expenses incurred in connection with the arbitration to the extent that the arbitrator determines that the Executive has prevailed in such proceeding. 9 13. Full Settlement. The Corporation's obligation to make any payments --------------- provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Corporation may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment. 14. 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. 15. Counterparts. This Agreement may be executed in any number of ------------ counterparts, and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute one and the same instrument. 16. Assignment. The Executive's rights and obligations under this ---------- Agreement shall not be assignable by the Executive. The Corporation's rights and obligations under this Agreement shall not be assignable by the Corporation except as incident to the transfer, by merger or otherwise, of all or substantially all of the business of the Corporation in a transaction in which the successor entity remains obligated under, or by operation of law or otherwise assumes, the Corporation's obligations under this Agreement. In the event of any such assignment by the Corporation, all rights of the Corporation hereunder shall inure to the benefit of the assignee. 17. 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 sent by registered or certified U.S. mail, UPS or FedEx, properly addressed in a sealed envelope, with delivery charges prepaid. Unless otherwise changed by notice, notice shall be properly addressed to Executive if addressed to: Timothy P. O'Connor 3202 K Arrowhead Circle Fairfax, VA 22031 and properly addressed to the Corporation if addressed to: ICF Kaiser International, Inc. 9300 Lee Highway Fairfax, Virginia 22031-1207 Attn: General Counsel 10 18. Miscellaneous. This Agreement constitutes the entire agreement, and ------------- terminates and supersedes all prior agreements, of the parties hereto relating to the subject matter hereof, and there are no written or oral terms or representations made by either party other than those contained herein, except that nothing contained in this Agreement shall invalidate or supersede the terms of any previously or subsequently granted stock options or other equity-based compensation arrangements (including without limitation the provisions thereof relating to post-termination exercisability) to the extent that such stock options or arrangements provide more favorable terms to the Executive. The validity, interpretation, performance and enforcement of this Agreement shall be governed by the laws of the Commonwealth of Virginia. The headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the day and year first above written. ______________________________________________ Timothy P. O'Connor, Executive ICF KAISER INTERNATIONAL, INC. By____________________________________________ Hazel R. O'Leary Chair, Compensation and Human Resources Committee, Board of Directors 11 SCHEDULE 5 ---------- Inventions Owned by the Executive NONE 12 ATTACHMENT A ------------ Title: Chief Financial Officer Overview: . This Attachment A describes the annual incentive bonus plan in which the named executive will participate from 6/1/99 through 5/31/00. . The executive's performance will be assessed against the following objectives as described in this Attachment A: - Cost Savings - EBITDA Improvement - Completion of Recapitalization COST SAVINGS - ------------ Goal: $19 million in total Company cost savings achieved between 3/31/99 and 11/30/99 Measurement: Reduction in the annualized run rate of the Company's costs, exclusive of the costs associated with the discontinued operations of the EFM and Consulting Groups, as set forth in the financial statements of the Company as filed with the Securities and Exchange Commission and prepared in accordance with GAAP on a consistent basis, as compared to the annualized run rate of such costs for the quarter ended March 31, 1999. Cost savings will be measured on three Measurement Dates as indicated below, and will be based on costs for the month ending on each of the three Measurement Dates. For purposes of measuring cost reductions, costs will be categorized as either direct (those incurred directly and solely for the benefit of a project) or indirect (those incurred for the general operations of the Company). Direct Costs: To reflect the fact that direct costs may increase as the business begins to prosper, direct cost reductions will be measured as follows: Changes in direct subcontract and materials will be excluded from measurement. Changes in direct labor and fringe benefits will be measured based on the change in the relationship of such costs to service revenue. 13 Example of Direct Cost Savings Calculation:
Annualized Rate Thru March 31, 1999 at Measurement Date ------------------- ------------------- Service revenue 27,877 $111,000 Direct labor and fringe 17,837 66,600 Direct labor and fringe costs as a % of service revenue 64% 60% Improvement in gross margins 4% Actual annual labor and fringe $ 66,600 -------- Savings credit $ 2,664 ========
Indirect Costs: The measurement of indirect cost savings will be calculated from costs for the month ending on the Measurement Date, excluding any costs incurred prior to the Measurement Dates set forth below that were incurred to effect future cost reductions, such as severance, lease buyouts, litigation defense costs and settlements, employee retention incentives, and any other nonrecurring costs incurred outside the ordinary course of business for a non-troubled company (collectively, "Restructuring Costs"). Total annualized indirect costs as of the March 31, 1999 financial statements was $68,468 (none of which were Restructuring Costs). Example of Indirect Cost Savings Calculation: Indirect cost benchmark - March 31, 1999 $68,468 Total indirect costs incurred during measurement period $ 5,000 Less: Restructuring Costs (500) ------- Adjusted indirect costs incurred during measurement period $ 4,500 ------- Annualized $54,000 ------- Savings from indirect costs $14,468 =======
Thus, under the foregoing two examples, "Cost Savings" (in thousands) for the month would equal $17,102, which is the sum of $2,664 (annualized direct cost savings) and $14,468 (annualized indirect cost savings). Following each Measurement Date the executive shall submit to the Compensation and Human Resources Committee (the "Compensation Committee") a report showing the computation of 14 Operating Cost savings in accordance with this Attachment A and the amount of bonus, if any, due with respect to the period ending on the Measurement Date. Target Cost Savings Bonus: $65,000 Performance Measurement and Payout: . Performance is measured on the three Measurement Dates shown below: . At each Measurement Date, the actual bonus earned will be calculated by multiplying (i) the target bonus amount, by (ii) the percentage (but not more than 100%) that actual cost savings achieved for the month ending on the Measurement Date bears to total target cost savings (i.e., $19 million), by (iii) the appropriate timing incentive for the Measurement Date as specified in the table below. This amount will be reduced by the amount of any cost savings bonus earned at an earlier Measurement Date.
Measurement Date Timing Incentive ---------------- ---------------- 7/31/99 100% 9/30/99 95% 11/30/99 85%
. Incentive earned will be paid within 10 days after review of the computation of cost savings as of each Measurement Date by the Compensation Committee. EBITDA IMPROVEMENT - ------------------ Goal: Annual run rate of $6 million of EBITDA (excluding Kaiser-Hill) Target Incentive: $65,000 Performance Measurement and Payout: . Performance will be measured by comparing the Company's actual EBITDA annual run rate for the five months ending May 31, 2000 (excluding Kaiser-Hill), as reported in the Company's financial statements, to the EBITDA target of $6 million (excluding Kaiser-Hill). . A minimum of 50% of the goal must be achieved to qualify for payment. If less than 50% of the goal is achieved, no EBITDA improvement incentive will be paid. 15 . The target incentive will be multiplied by the actual percentage (but not more than 100%) of EBITDA achieved as follows: Percentage Earned = Actual EBITDA ------------- $6 million . Up to 100% of target incentive can be earned. . Following May 31, 2000, the executive shall submit to the Compensation Committee a report showing the computation of the amount of bonus, if any, due hereunder. Incentive earned will be paid within 10 days after review of the computation by the Compensation Committee. RECAPITALIZATION - ---------------- Goal: Four performance objective targets to be accomplished by 12/31/99 based upon planning, management, negotiating, obtaining acceptance of and implementing a recapitalization plan approved by the Board of Directors: Noteholder Acceptance of Plan Shareholder Acceptance of Plan Close New Credit Facility Close Recapitalization Plan Target Incentive: Noteholder Acceptance of Plan $60,000 Shareholder Acceptance of Plan $40,000 Close New Credit Facility $40,000 Close Recapitalization Plan $60,000 Performance Measurement and Payout: . Once a performance objective target is met, payout will occur within 30 days. . A performance objective target must be met by 12/31/99 to qualify for payment. 16 EX-21 6 CONSOLIDATED SUBSIDIARIES EXHIBIT 21 ICF KAISER INTERNATIONAL, INC. 9300 Lee Highway, Fairfax, Virginia 22031 (703) 934-3600 ICF Kaiser International, Inc.?s consolidated subsidiaries are listed below. Consolidated subsidiaries which are less than wholly owned are indicated by the ownership percentage figure in parentheses following the name of the consolidated subsidiary.
JURISDICTION CONSOLIDATED SUBSIDIARY OF FORMATION - -------------------------------------------------------------------------------------------------------------------- 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 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 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 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
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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 Idaho Programs, 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 R G.P. No. 1, Inc. Delaware I. Monument Select Insurance Company Vermont I. Phase Linear Systems Incorporated Delaware I. Tudor Engineering Company Delaware
Page 2 of 2 EX-23.2 7 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23(b) CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in this Registration Statement on Form S-4 of ICF Kaiser International, Inc. and its subsidiaries of our report dated April 15, 1999 relating to the consolidated financial statements and financial statement schedule appearing in ICF Kaiser International, Inc. and subsidiaries' Annual Report on Form 10-K for the year ended December 31, 1998. We also consent to the references to us under the headings "Experts" and "Selected Financial Data" in such Registration Statement. McLean, Virginia July 9, 1999 -----END PRIVACY-ENHANCED MESSAGE-----